Agriculture Industry IBD

Agriculture in India

Overview

Justification: Importance of Agriculture

Definition and brief history of Agriculture

Present position of Indian Agriculture in the World

Analysis using “Porter’s Competitive Advantage framework for Nations”Brief Case : Mango Value Chain

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Summary , Q&A

Overview

Importance of agriculture(1/3)

SURVIVAL ( physical, mental- short term , long term) – First S in 6 S framework

To those who are hungry, God is bread- Gandhi 1946

“Everything else can wait, but not agriculture”- Nehru 1947

UNICEF 2006: India has the largest no of malnourished children in the world (57m/146m)- an index of widespread poverty and deprivation

15 % GDP, 60% people

An Indian tragedy of extensive poverty and deprivation persisting under the conditions of impressive progress in the industrial and services sectors will continue so long as we refuse to place FACES before FIGURES.- M.S. Swaminathan, Chairman, National Commission on Farmers, 2006

As per ESCAP Studies, Persistent poverty and widening inequality is the result of decades of neglect of agriculture, despite it being the mainstay of the poor.

Food Security , Nutrition Security: Art. 21 of Constitution of India

Importance (2/3)Driver of Economic Growth

Agriculture(Cereals &

Pulses)

Industry(Food

Processing)

Services (Retail)

Consumer

Every Job created in Agriculture creates another 1.5 Jobs in the Economy

Every dollar of value generated in agriculture results in another $1.75 value addition to the Economy. (Virginia University Study , 2008)

Every 1 % reduction in unemployment increases GDP by 3 % (Okun’s Law)

GDP of Indian Agriculture needs to grow at a rate of 4 % to achieve an overall GDP growth rate of 9 %

Importance (3/3)Driver of Growth With Equity

Agriculture 58

Services 57

Industry 14

Industry 29

Services28

Agri 14

2.04

2.07

0.24

Share of Workforce

GDP per capita

Share in GDP

Assumption: Total Workforce: 100 persons, Total GDP: Rs.100






Summary , Q&A

Definition

Defining Agriculture

All forms of activities connected with growing, harvesting, and primary processing of all types of crops, with the breeding, raising and caring for animals, and with the tending , gardens and nurseries . ( Joint ILO/WHO Committee on Occupational Health, 1962.)

Main Economic Activities:

Crop Cultivation

Forestry

Fishing

Livestock rearing

Horticulture

Timeline of Indian Agriculture (1/3) – pre independence

Why History: We are product of History; Indian Agricultural problems have roots in the history

Ancient India: Indus Valley Civilization- Urban Civilization- Agri was the mainstay of the Economy- Large Granaries.

Vedic Civilization- Based in Agriculture & Livestock

Medieval Period: Indian Spices- Attraction for International Trade & imperialist interests. British rule: Robert Clive – Fought for land and land revenue, Land as a tradable commodity, contract farming method, beginning of systematic study of agriculture.

Timeline of Indian Agriculture (2/3) – post independence

Post-Independence- phases : Agriculture-Agribusiness-Agro Industry; Land Reforms, Critical analysis of Green Revolution

Timeline of Indian Agriculture (3/3) – Present context

Structure

Traditional Farming

Contract Farming

Corporate Farming

Technology

Subsistence Farming

Conventional Farming

Organic Farming / Biodynamic Farming

Present position






Summary , Q&A

Present Position of Agriculture

Data regarding production , export & import of main agri produces

India’s position in global agriculture

Data as to land holding pattern

Profit position of Indian Agriculture

Key crop varieties in India

Leading food grain-producing states in India

Agricultural products in India

India in Global Economy

Yield of selected crops in India, China, Asia-Pacific and World, 2004-06 (Kg/ha)

Source: FAO/RAP, 2007

Hunger alarming in parts of Asia: 2010 Global Hunger Index (GHI)

Source: von Braun, 2011

Innovative Capacity- Compared

Land Holding Pattern of Traditional Farmers

Corporate Farmers in IndiaNo

Company Area (acres)

Description

1. IEEFL, Pune (Subsidiary of Ion Exchange India Ltd)

1700 1. Lands bought at a rate of Rs.25000 per acre

2. Certified Organic Production of Fruits

2. Jamnagar Farms Pvt Ltd ( a Subsidiary of Reliance – Mukesh )

7500 The largest Mango Orchard in Asia

3. Anil Dhirubhai Group 3500 Fruits & Vegetables

4 Field Fresh ( Bharti+ Rothschild)

4300 Multi product Farm

5 Sathuj Agriculture Pvt Ltd, New Delhi

5000 Vegetables & Fruits

6 Nijjer Agro, Amritsar 4000 Vegetables & Fruits

7 Vimal Dairy, Ahmedabad 1200 Dairy Production

8 SYP Agro, Ahmedabad 2300 Onions & other Spices for Export Market

9 Agri Gold , Hyderabad 1800 Fruits for Export Market

Few Indian Corporate Farmers Outside IndiaNo

Company Country Area (ha) Purpose

1. Karuturi Agro Products

Ethiopia 300000 Palm, Cereals & Pulses

2. Ruchi Soya Industries

Ethiopia 152649 Soyabean

3. KS Oils Indonesia 130965 Palm plantation

4. Sterling Group Argentina 19000 Peanuts & Olive

5. Olam International Uruguay 63000 Dairy, Palm, Peanuts

6. Varun International Madagaskar 232000 Rice, Corn, Pulses

7. Shree Renuka Sugars Brazil 133000 Sugarcane

8. Chadha Agro Ethiopia 100000 Sugarcane

9. Vedanta Harvests Ethiopia 50000 Tea & Spice

10 Neha International Zambia 13000 Maize, oilseeds

11 Adani Group Argentina 23000 Edible Oil & Pulses

Profit Position of Agriculture Two Ends of the Spectrum of Farmers in India

A Marginal Farmer in India

Land Cultivated: 0.75 Hectares

Investment: Rs.12,200

Total Returns Expected: Rs.20,800

Labour Input: 5-6 months of work by farmer, his adult son & daughter-in-law

Net Profit: Rs.8600 or Rs.1720 per month

Amount each of the members would have earned had they worked as daily wage for 30 days: Rs.1800 (Rs.60 per day)

Source: Times of India, New Delhi, April 4, 2008.

A Corporate Farmer - Karututi Global (Rs in Lakhs)

Total Income: 63872.65

Total Expenditure: 46226.38

PBT: 15635.24

PAT: 15497.45

No.1 Global Cut Flowers Producer and Trader

Source: www.karuturi.com- annual report 2011.

http://www.karuturi.com-/

Overview






Summary , Q&A

Porter’s Competitive advantage Framework for Nations

FACTOR CONDITIONS

DEMAND CONDITIONS

RELATED & SUPPORTING INDUSTRIES

CONTEXT FOR FIRM STRATEGY & RIVALRY

GOVT.

Factors Influencing the demand

Increasing population around the World

Increase in wages and Urbanization

Diversification in the Consumption pattern

Health Consciousness among Consumers: Organic food

A.D.2000

A.D.1000

A.D.1

1000B.C.

2000B.C.

3000B.C.

4000B.C.

5000B.C.

6000B.C.

7000B.C.

1+ million years

8

7

6

5

2

1

4

3

OldStoneAge New Stone Age

BronzeAge

IronAge

MiddleAges

ModernAge

Black Death—The Plague

9

10

11

12

A.D.3000

A.D.4000

A.D.5000

18001900

1950

1975

2000

2100

Future

Billions

Source: Population Reference Bureau; and United Nations, World Population Projections to 2100 (1998).

World Population Growth Through History

Continents

America

Africa

Asia

Europe

0 1000 2000 3000 4000 5000 6000

942

1051

4216

740

1068

1444

4780

746

1216

2300

5284

725

Projected population 2050 Projected Population 2025 Population 2011

Source: Population reference bureau

Population Estimates of various Continents

Millions

Indian Population projection and age structure

Demographic Indicators 2000 2005 2010 2015 2020 2025

Total Population(millions) 1010 1089 1159 1229 1305 1380

Age Distribution (percent)

0-14 years 35.7 33.3 29.9 26.7 25.0 24.5

15-64 years 59.8 62.0 65.0 67.7 68.7 68.3

65+ years 4.5 4.8 5.1 5.6 6.3 7.2

Median Age 23 24 25 27 29 30

Source: Indian Demographic scenario-2025, P.N. Mari Bhat, Population Research Centre, Institute of Economic growth, Delhi, June 2001.

Opportunities of India’s urbanization to 2030

5 times – the number by GDP will have multiplied by 2030

590 million people will live in cities, nearly twice the population of the United States today

270 million people net increase in working-age population

70 percent of net new employment will be generated in cities

91 million urban households will be middle class, up from 22 million today

68 cities will have population of 1 million plus, up from 42 today; Europe has 35 today

$ 1.2 trillion capital investment is necessary to meet projected demand in India’s cities

Source: Mckinsey Global Institute

Source: The Rise of India’s Consumer Market (May 2007), McKinsey Global Institute

Per capita Food Consumption projection (kgs)

Per capita food demand for cereals

by crop and region,1997 and 2020

of food items in India at GDP of 7

%. (Unit: Kg)

Source: Surabhi Mittal, Structural Shift in demand for food, August 2006

Source: IMPACT projections, June 2001

Diversification in the Consumption Pattern

Consistent GDP growth of 5% to 6% upto 2050

Increased consumption of Value-added Processed Food, RTE foods, and shopping etc.

Changing perception of alcoholic beverages in India from ‘taboo’ to ‘socially acceptable

Source: Xavier Cirera & Edoardo Masset, Income Distribution Trend and Future Food Demand

Market Potential for Organic Products

Source: www.iccoa .org

AGRICULTURAL POLICIES

Policy of food self-sufficiency in staple foods – rice and wheat

In the 1960s and 70s, widespread adoption of high yielding rice and wheat varieties occurred

Policies initially focused on expanding cultivated area, land reform, community development, and restructuring rural credit institutions

Trade was strictly regulated through both quota restrictions and high tariff rates

Together, these initiatives led to dramatic leaps in agricultural production and made India self-sufficient in food grain production at the national level


Production gains from Green Revolution technologies continued through the mid-1980s and then slowed

Input budgets began to strain govt. budgets

Unlike reforms in other emerging economies , the series of reforms instituted since 1991 in India left its agriculture sector relatively untouched, except for the removal of export controls

2 major impacts of 1991 reforms Increased per capita incomes and strengthened domestic demand Reduced industrial protection and improved agriculture’s terms of trade


However, growth of the sector has actually slowed since the mid-1990s

Apparently contradictory trends lies

with India’s agricultural policies and

their performance

India’s main policy goals are To attain food sufficiency To ensure remunerative prices to farmers To maintain stable prices for consumers

POLICY INSTRUMENTS

Minimum Support Prices

•The Commission for Agricultural Costs and Prices recommends MSP for key commodities•MSP benefits have been capitalized into the value of land and fixed assets•Higher production costs and pressures to raise MSPs every year

Food Subsidies

• FCI purchases food grains from farmers at MSPs

• Sells at subsidized prices through PDS

• Food subsidy prices have almost trebled in the past decade

POLICY INSTRUMENTS

• Complex regulatory framework• Food-processing industries were limited by

regulation to small-scale capacities• State linked firms have been favored in

transportation, marketing and distribution of agri-food commodities

Regulated Markets

• Subsidizes fertilizer, power, fuel, irrigation

• Input subsidies have doubled in the past decade to about $8 Billion

Input Subsidies

• Import liberalization for agri-food trade remains slow

• In 2001, replaced quantitative restrictions on imports of all agricultural products with import tariffs

• A wide gap between applied and bound tariff rates

Agricultural Trade Policy

POLICY OUTCOMES AND CHALLENGES

The combination of administratively determined output prices and consumer subsidies has undermined the role of market forces in India’s agri-food sector

Private sector’s participation in the efficient operation of agri-food markets is discouraged

Measures have led to higher domestic food prices

Food subsidies were instituted to minimize the impact of higher food prices on consumers

Input subsidies have contributed to the excessive use of inputs and resulted in a number of agro-environmental problems, such as soil salinity and ground water depletion

The growing cost of input and food subsidies has also contributed to fiscal deficits

POLICY OUTCOMES AND CHALLENGES

Expenditures on subsidies also could have been invested in research, education and infrastructure to improve productivity and competitiveness of the sector

Production of staples was favored

Vertical coordination in the value chain as well as the development of the horticultural industry were hindered

Most agriculture related responsibilities are under state jurisdiction

Existing policies have benefited special interests which oppose significant reforms

RECENT POLICY DEVELOPMENTS

National Agricultural Policy was introduced with an aim to attain annual growth of 4% in agri sector during 2000-20

However, little concrete action has been taken at the central and state level to implement the proposed policy measures

The agri-food sector’s growing subsidy bill and declining investment have been acknowledged but were not addressed

Taken some steps to make agri markets more responsive are Revising the APMC Act to allow contract farming; Removing the reservations for small scale firms on food

processing industries; Removing restrictions on futures trading on many

commodities; Allowing up to 100% foreign ownership in many

agribusiness sectors, except in some forms of retailing and primary production

PROSPECTS

In general, Indian economy has been opening and growing steadily

But, slow growth in the agricultural sector remains a cause for concern

Fundamental reforms are needed to realize the full potential of the sector

More open trade policies and forward-looking domestic policies are to be adopted

The following areas will be critical to the prospects for India’s agri-food sector: Water scarcity and valuation; Reforms in commodity price policy; Public and private investment in rural infrastructure and

logistical services for agri-food value chain; The level of government involvement and potential

crowding out of private initiatives in the marketing and trade of agri-food products

Factor Conditions

Rivalry & Support Industries

Firm Structure, Strategy and Rivalry

Related and Support Industries

Poor Structure and Strategy

No competitive Spirit

Seeds Supplier

Bank Loans

Technology Provider

Fertilizer Company

Processing Companies

53

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PESTEL ANALYSIS

POLITICAL

Often related directly to the Central Govt.

Rashtriya Krishi Vikas Yojana

MGNREGA

Revamp of Accelerated Irrigation Benefit Program

“India lives in its villages” - Mahatma Gandhi

ECONOMIC [1/2]

“Agriculture not only gives riches to a nation, but the only riches she can call her own” - Samuel Johnson

Micro Finance• Introduced by NABARD• Total 547 banks – 47 Commercial banks, 158 RRBs, 342

cooperative banks are involved in the operation of Self Help Group (SHG)- Bank Linkage Program

• Enabled nearly 32.9 million people in the country to access micro finance

facilities • Institutions must provide a wide range of financial

services including savings and insurance• Role of private sector is crucial

ECONOMIC [2/2]

“The first farmer was the first man, and all historic nobility rests on possession and use of land” - Ralph Waldo Emerson

Inflation Increased material input costs increases the sector’s cost of

production Shifting of production costs to consumers is limited by competitive

imports, thus reducing farmers’ rate of return The low current income from farming motivates farmers to

seek higher support prices and to extend price support policies to more commodities, which in turn results in further higher prices and higher rates of inflation

The high input prices lead farmers to recourse to more non-institutional credit, which ultimately leads farmers into a debt trap

Paying higher prices for imports, even as domestic farmers are given a minimum price barely enough to recover costs, is certainly not justified and hence, the govt. has to focus on the supply side

SOCIAL

“The divine chemistry works in the subsoil” - Nathaniel Hawthorne Harassment by moneylenders Inability to repay debts following crop loss Literacy rate has increased Migration to urban areas Hygienic conditions improved, but not on par with

developed nations Suicides - 1 in every 10,000 farmers commits a suicide Measures taken by the govt. have not yielded desired

results

TECHNOLOGICAL

Agricultural Mechanization

• Replacement of traditional and inefficient machine implements by improved ones

• Outsourcing the Training• 4 Farm Machinery Training

and Testing Institutes• 17 State Agro Industries

Corp.s• Demo of newly developed

agricultural/horticultural equipments

Agricultural Commodities Exchanges

• NCDEX and MCX were introduced in 2003

• Introduced future trading in Agri Commodities

ENVIRONMENTAL [1/2]

Dependency on Monsoon

• Only 40% of farm land is irrigated

• Between June 1 and July 15, rains have been 43 per cent below normal in the crucial Northwest region, the nation's 'Grain Bowl‘

• The cumulative seasonal rainfall between 1st June and 15th July is 27 per cent below normal levels, which has adversely affected the Khariff sowing

Global Warming

• Horticultural crops are more susceptible to changing conditions than arable crops

• Field vegetables will be particularly effected by temperature changes

• Water deficits will directly affect fruit and vegetable production

• Poultry and pigs could be exposed to higher incidences of heat stress influencing productivity

• Increase in disease transmission by faster growth rates of pathogens in the environment

ENVIRONMENTAL [2/2]

LEGAL [1/2]

Irrigation• The policy of entrusting the

maintenance of small irrigation works to the Panchayat Raj organizations has been accepted by many states

• A draft model bill for introducing a legislation to regulate and control the development of ground-water to Prevent over-exploitation and deterioration in water quality

Crop Protection• The Destructive Insects

and Pest Act, 1914, provided for means against the entry of diseases from other countries into India

• A chain of plant quarantine and fumigation stations has been established in all important airports and seaports and land frontiers

LEGAL [2/2]

Fertilizers• The fertilizers (Control) Order,

1957, under Clause 111 of the Essential Commodities Act, 1955 envisaged the statutory control of the prices of three major fertilizers

• The Fertilizers Movement Control Order, 1973, in May 1973 under Clause IV of the Essential Commodities Act, 1955, ensures the equitable distribution of fertilizers in various states and stops the unauthorized inter-state movement of fertilizers

Soil and Water Conservation

• Most of the states have enacted legislation, empowering their governments to take up early anti-soil erosion measures

• Other Acts which have an indirect bearing on the subject of soil and water conservation dealing with the preservation and protection of forests

Brief Case






Summary , Q&A

Mango supply chain in TN

Indian mangoes account for 40% of world mango production although they are mainly meant for the domestic market

Less than 5% of the produced mangoes are processed

Mango pulp is the main export product both in terms of volume and value (Babitha, 2009).

Mango pulp accounts for about 20% of the processed fruits and vegetables exported from India (MFPI)

Key locations

Chittoor District of Andhra Pradesh and Krishnagiri District of Tamil Nadu, both in South India, are the main sourcing centers of Indian mango pulp (Mehta and George, 2003)

Krishnagiri is the largest mango producing district in Tamil Nadu, about 6000 metric tons of the varieties Totapuri and Alphonso are used for pulp production (Raj, 2008)

The main weaknesses include : Lack of marketing, Low innovatively produce Few processing varieties, Under capacity performance of the processing plants (on average

of 50 days per year) Poor infrastructural works such as storage and cool chain facilities Repeated power cuts during the period of processing

The major threats for the Indian mango pulp sub- sector include : The availability of other sources that supply mango pulp of good

quality Low volume of mangoes available for large pulp processing

factories due to high fragmentation of mango growers Increased need for high volumes and standardization in the

international market

Weaknesses & Threats

Mango production in TN

According to Raj (2008), there are 385 fruit processing units in Tamil Nadu out of which 80% are small industries with an average capacity of 5,5 tons per day and the remaining units are medium scale with an average capacity of 80 tons per day

Tamil Nadu accounted for 4 to 5,6 % of the total Indian mango production in recent years (National Horticulture Board)

The main varieties of mango grown in Tamil Nadu comprise Totapuri, Sendhuri/Sentharu, Peter and Neeham

Totapuri accounts for approximately 80% of the total production while the others are mainly grown for the regional market with respectively 5%, 5% and 10% of total production

Table 2.1: Major export partners of Tamil Nadu for fresh mangoes and mango pulp.

Source: Domestic & export market intelligence cell

Fresh mangoes Mango pulp

1 Bangladesh (58%) Saudi Arabia (32%)

2 United Arabian Emirates (18%) United Arabian Emirates (18%)

3 Saudi Arabia (6%) Netherlands (8%)

4 Kuwait (3%) Kuwait (7%)

5 UK (2%) UK (4%)

6 Belgium (2%) Germany (2%)

7 USA (2%) Sudan (2%)

8 Bahrain (1%) Canada (2%)

9 Spain (1%)

10 Oman (1%)

Producers

Pre-harvest

contractor

Commission Agent

Customer

RetailerExporter

Processors

Supply chain of mango pulp in India

Importer

Wholesaler

Retailer

Customers

Europe

Value (Rs/kg) fresh mango and mango

pulp

Proportion at the final price

in India %

Proportion at the final price in Europe in %

Farmer price 3 11.3 2.32

PHC selling price 5.25 8.4 1.74

Wholesaler selling price 6.73 5.56 1.14

Processor selling price 9.25 9.5 1.19

Exporter price 26.54 65.14 13.4

Importers selling price Europe 129 79,42

Regulations

The mango pulp imported in the EU territory must comply with general conditions and specific provisions designed to prevent risks to public health and protect consumers' interests

EU declares that the minimum content of mango as ingredient of the concentrated pulp fruit ingredient shall not be less than 30% m/m [mass/mass]

Quality

After processing the mango pulp it is filled into cans, jars or bags of different materials. Depending on the production process the subsequent storage period ranges from 12 to 18 months.

For a mango pulp to be exported from India to the European market, it is a must to be HACCP certified

HACCP is a systematic approach to identify, evaluate and control steps in food processing that are vital to food safety (Trienekens & Zuurbier, 2007)

However, HACCP has not been followed in the pulp industry in India by the majority of small exporters

They generally agree that market access will undoubtedly be increased by HACCP, but they have several difficulties to adopt it (Mehta & George 2003).

Overview






Summary , Q&A

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