If Indian agriculture has to be globally competitive, it needs investment in infrastructure that can promote efficiency by reducing transaction costs and market risks. It has been estimated that loss of primary produce before reaching the market due to lack of proper handling, cleaning, sorting, grading and packaging facilities at the village level is about 30-40% for agri produces such as grains, fruits and vegetables indicates the FICCI-KPMG ‘Enhancing Competitiveness of Indian Food Chain’ report launched today in Hyderabad.
According to the report, despite agriculture playing a key role in India’s economy, it has been suffering from major roadblocks which have hindered its growth. Problems have existed at each stage of the value chain. The unreasonably long supply chain results in a steep increase in the total cost owing to procurement, transit and other taxes and service charges levied at various layers. Due to such inefficiencies in the supply chain, it has been estimated that the price received by the farmers is only in the range of 25-60% of what the consumer pays. Strengthening supply chain can benefit the consumers and producers by 20-25%.
“Indian food value chain is on the verge of a great transformation ? from one characterised by high wastage, low processing and low global contribution to one that is more streamlined, more integrated and more significant in the global trade. Continuous financial and regulatory support from government, increasing participation of private and public corporates, and increasing exposure of foreign players is likely to spur investments in developing the infrastructure across the value chain right from farm inputs to the consumers.” said Rajat Wahi, Partner, Head – Retail, KPMG in India.
The report highlights that the food sector in India is poised for rapid growth and structural transformation. The opportunities in the food processing industry are significant, which is expected to reach a size of INR 4000 billion by FY15 contributing around 6.5% to the GDP. The improved technologies introduced in Indian agriculture have brought overwhelming results in production levels. This has given rise to the requirements of a highly effective grading and sorting mechanisms among farmers such as terminal markets- a Public-private partnership model that links the production centre to the consumption centre. However, only around 7% of the total quantity of goods/products sold by farmers in India is graded before sale. In addition, the growing list of positive factors also includes government subsidised food parks. The FICCI-KPMG report says eighty% of India’s 115 million farms are situated on plots of less than 2 hectares. A little over 1% of all farms are larger than 10 hectares and these constitute 15% of the cultivated land. Increasing organised retail penetration and government’s proposed mega food parks are encouraging processors for business expansions, which would help with the betterment of produce handling, price realisation and waste reduction.
The vast Indian agri business market has also triggered a surge in private equity (PE) placements and Mergers and Acquisitions (M&A) in the past few years. Over 2008-2012, private equity (PE) investments in agri business have grown to 3.8% in 2012 from 0.2% in 2008. During the same period, venture capital (VC) investments in agri businesses grew from 0.2% to 1.6% of total investments. Agri-logistics is the other area that has been attracting a lot of attention from investors with over USD 60 mn invested just in 2012.
In spite of the huge supply advantages, India’s share in the global food trade is still around 1.5%. The report suggests that the advancement of any industry depends upon availability of skilled human resource and the agriculture industry is in dire need of highly skilled and trained manpower across different levels to handle various operations. The Indian food processing industry requires about 5.3 lakh persons in the unorganised sector and about 1 lakh in the organised sector to handle various food resources from the farm to consumers.
However notwithstanding the inadequacies, a number of innovative measures have been undertaken by the public and private sectors to address such challenges and improve the state of India’s agrarian market. Such initiatives have helped transform the landscape of rural India in some parts of the country.