Business

Agro industries: the lure of value addition

Agro industries help strengthen the farm sector and stabilise rural incomes

AGRO Industries are considered an extended arm of agriculture but in India they have not received as much attention as agriculture. While agriculture contributes about 25 per cent of India's GDP the value added by the processing industry is only 8 per cent of total food production. For example, only two per cent of horticulture products are estimated to be processed and more than 30 per cent of production is wasted due to lack of storage and processing facilities.

The agro Industry is broadly categorised in two-three types: (i) Village Industries owned and run by rural households with very little capital Investment and a high level of manual labour, (ii) Small scale industry characterised by medium investment and semi-automation, and (iii) Large scale industry involving large investment and a high level of automation. Pickles, papad, basket making fall in the first group and edible oil and rice mills in the small Industry segment. Sugar, jute and cotton mills are in the large scale sector. The three segments have come up mainly based on their ability to bring in capital and capacity to market products.

The development of agro-based industries started during pre-independence days. Cotton mills, sugar mills, jute mills were promoted in the corporate sector. During post-Independence days with a view to providing more employment and using local resources small scale and village industries were encouraged. The objective, while not questionable, created unnecessary confusion in the minds of the entrepreneurs. However, in the recent past concessions, preferences and reservation for village and small industries have been reduced considerably, if not eliminated.

However, the private sector is yet to realise the full potential of agro industries. The global market is enormous for sugar, coffee, tea and processed foods such as sauce, jelly and honey. The market for processed meat, spices and fruits is equally large. Only with mass production aided by modern technology and intensive marketing can the domestic market as well as the export market be exploited to the fullest extent.

If only one would spend a few hours in the food section of the Wal-Mart departmental store in a U.S. city, one would understand the depth and width of the market for processed foods. Most of the foods on the shelves are imported from Latin American and European countries. The position is the same in Singapore, London or New York.

Huge domestic market

Even before exploring the opportunities abroad, one has to look within the country. The size of the Indian food market is Rs. 350,000 crores. An average Indian spends around 53 per cent of his/her income on food. The domestic market for processed foods is not only huge but is growing fast in tandem with the economy.

It is not that the Government and private enterprise have done nothing notable in this regard. The contribution of the organised sector and the village industries sector under the aegis of the Khadi and Village Industries Corporation cannot be underestimated. Besides these, a substantial quantity produced by the tiny and medium sectors goes unnoticed. If more incomes are to be generated in the rural areas to improve the lot of farmers, it is imperative to accelerate the pace of growth of the agricultural sector and the agro industry segment. Unfortunately the large corporates in the private sector are reluctant to enter the field in a big way. The position is somewhat similar to the status prevailed in the early 1950s in setting up five-star hotels in the metros. Even in New Delhi, it was the Government that opened the first five star hotel and not a private enterprise. In the current dispensation of economic policies it is simply out of the question for the public sector to give a lead in the promotion of agro-based industries. ITC, HLL, Nestle entered the Indian market a long time ago and made a deep penetration in the market, particularly in the rural areas.

Indian companies have to learn a few lessons from them. In order to capture the higher end of the local market and get a fair share of the export market, what is required is large scale investment and adoption of the latest technologies supported by intensive marketing efforts. Perhaps, a foreign tie-up may be beneficial. Even in traditional products such as coffee, tea and spices, processed and packaged items, preferably with a brand name, have worldwide demand besides a growing domestic market. The increasing environmental concerns will give further stimulus to agro based industries. Jute and cotton bags, once replaced by plastic bags, have made a comeback. It is the right time to engage in mass production of low cost jute/cotton bags to replace plastic bags.

Processed foods

Agro industries help in processing agricultural products such as field crops, tree crops, livestock and fisheries and converting them to edible and other usable forms. They produce both edible and non-edible things. However, edible products otherwise known as processed foods form a predominant segment. The levels of processing and manufacturing can be classified into three groups, namely manual, mechanical and chemical or a combination thereof. In choosing the process, the main considerations are the nature of the raw material, technology of processing, and packing.

The volume of production depends not only on the capital investments and machine capacity but also on the ability to market them in the domestic market and abroad. The processing level of an agro industry may be at the primary, secondary or tertiary stage. In the case of hides and skins, India exports largely semi-processed items whereas in coffee/tea, the exports are mostly in secondary stage by way of fully processed bulk shipments without branding/packing. Exports at the tertiary stage mean branding and packaging the product that are ready for use by the consumer.

The raw material and commodities produced and marketed in India are of a wide range such as paddy, wheat, rice, maize, sugarcane, potato, cotton, fruits, vegetables, flowers, spices, fish, poultry, tea, coffee, medicinal plant and honey. All these commodities are processed in one form or the other and consumed in huge quantities within the country and also exported.

The domestic market for these items is growing at a fast pace. There is an equally attractive export market for them.

While the development of the domestic market is the total responsibility of the industry, the export market can grow only if the Government pronounces supportive policy measures and also activates promotion boards and councils such as APEDA, MPEDA, Tea Board, Coffee Board, Cashew Export Promotion Council, Coir Board, Leather Promotion Council, Silk Board and Spices Board. Besides these organisations, MMTC, the Trade Development Authority and the Indian Institute of Foreign Trade should play a more active role. No doubt the exporter is the key person and has to play a vital role in building the business.

In view of the fact that the development of agro industries can help stabilise and make agriculture more lucrative and create employment both at the production and marketing stages, commercial banks will have to meet their financial requirements without hassles.

For Indian women, cooking is a way of life and also a matter of pride. The attitude may be slightly different in the case of urban women, particularly employed women. It is therefore important for the food processing industries to create a distinctly discernible value addition in all the processed food products to convince the majority of womenfolk. Dairy product is another area where there is enormous potential. No doubt the country has made tremendous strides in the last 20 years in production and processing of milk and milk products. But the fact remains that only 15 per cent of all the milk produced is processed.

In a land where large numbers suffer from diabetic or cardiac ailments availability of fat free milk, fat free curd and sugar free food is poor. A simple product like soya milk is not produced in adequate quantity. Likewise, fish and shrimp, which have good export potential, lack cold storage and modern processing facilities. While fish production is around six million tonnes a year the frozen storage capacity spread over 500 units is only one lakh tonnes. Yet another area is herbal medicine. The world over it is increasingly realised that herbal drugs do not have side effects. India has a good number of tried and tested herbal products in use and what is required is rigorous quality control, proper packaging and a brand name. But to capture a foreign market certain approvals have to be obtained from the foreign governments.

Multiple benefits

The focus on value addition in the agri sector is vital for comprehensive development of the rural economy. Since the food processing industry creates jobs, demand for agri raw materials, leads to diversification and commercialisation of agriculture, enhancing the incomes of farmers and creating surpluses for export of agro foods. The broad-based development of the food processing industry will improve both the social and physical infrastructure of rural India.

A study by McKinsey reiterates the importance of the food sector in India. It indicates that food in India has an economic multiplier of 2-2.5. That is for every rupee of revenue from food, the economy at large gets Rs. 2-2.50.

The difficulties experienced by the food processing industry have to be addressed by the industry, the promotion boards and the Government with better co-ordination.

Quality raw material has to be produced in sufficient quantity and properly packed to facilitate further processing. This calls for educating the farmers in production and harvesting techniques as also in packing. Some of the critical areas that require immediate attention are strengthening of the infrastructure like cold storage, improving the production process in the agriculture sector, relaxing or removing stringent laws and regulations, and ensuring reliable power supply.

S. Arunajatesan & S. Balaji

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