Agriculture is the primary source of livelihood for about 58 per cent of India’s population. Gross Value Added by agriculture, forestry and fishing is estimated at Rs 18.53 trillion (US$ 271.00 billion) in FY18.
The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry.
India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India has diverse agro-climatic conditions and has a large and diverse raw material base suitable for food processing companies. Its strategic geographic location (proximity of India to markets in Europe and Far East, South East and West Asia) provides a lot of inherent advantages to the country.
The Indian food and grocery market is the world’s sixth largest, with retail contributing 70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.
It contributes around 8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of India’s exports and six per cent of total industrial investment.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 9.08 billion between April 2000 and March 2019.
Some major investments and developments in agriculture are as follows:
> Investments worth Rs 8,500 crore (US$ 1.19 billion) have been announced in India for ethanol production.
> In early 2019, India will start exporting sugar to China.
> The first mega food park in Rajasthan was inaugurated in March 2018.
> Agrifood start-ups in India received funding of US$ 1.66 billion between 2013-17 in 558 deals.
> In 2017, agriculture sector in India witnessed 18 M&A deals worth US$ 251 million.
Some of the recent major government initiatives in the sector are as follows:
> Prime Minister of India, launched the Pradhan Mantri Kisan Samman Nidhi Yojana (PM-Kisan) and transferred Rs 2,021 crore (US$ 284.48 million) to the bank accounts of more than 10 million beneficiaries on February 24, 2019.
> The Government of India has come out with the Transport and Marketing Assistance(TMA) scheme to provide financial assistance for transport and marketing of agriculture products in order to boost agriculture exports.
> The Agriculture Export Policy, 2018 was approved by Government of India in December 2018. The new policy aims to increase India’s agricultural exports to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime.
> In September 2018, the Government of India announced Rs 15,053 crore (US$ 2.25 billion) procurement policy named ‘Pradhan Mantri Annadata Aay SanraksHan Abhiyan‘ (PM-AASHA), under which states can decide the compensation scheme and can also partner with private agencies to ensure fair prices for farmers in the country.
> In September 2018, the Cabinet Committee on Economic Affairs (CCEA) approved a Rs 5,500 crore (US$ 820.41 million) assistance package for the sugar industry in India.
> The Government of India is going to provide Rs 2,000 crore (US$ 306.29 million) for computerization of Primary Agricultural Credit Society (PACS) to ensure cooperatives are benefitted through digital technology.
> With an aim to boost innovation and entrepreneurship in agriculture, the Government of India is introducing a new AGRI-UDAANprogram to mentor start-ups and to enable them to connect with potential investors.
> The Government of India has launched the Pradhan Mantri Krishi Sinchai Yojana(PMKSY) with an investment of Rs 50,000 crore (US$ 7.7 billion) aimed at development of irrigation sources for providing a permanent solution from drought.
> The Government of India plans to triple the capacity of food processing sectorin India from the current 10 per cent of agriculture produce and has also committed Rs 6,000 crore (US$ 936.38 billion) as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA).
> The Government of India has allowed 100 per cent FDI in marketing of food products and in food product e-commerce under the automatic route.
Achievements in the Sector
> Sugar production in India has reached 27.35 million tonnes (MT) in 2018-19 sugar season, as of March 15 2019, according to the Indian Sugar Mills Association (ISMA).
> The Electronic National Agriculture Market (eNAM) was launched in April 2016 to create a unified national market for agricultural commodities by networking existing APMCs. Up to May 2018, 9.87 million farmers, 109,725 traders were registered on the e-NAM platform. 585 mandis in India have been linked while 415 additional mandis will be linked in 2018-19 and 2019-20.
> Agriculture storage capacity in India increased at 4 per cent CAGR between 2014-17 to reach 131.8 million metric tonnes.
> Coffee exports reached record 395,000 tonnes in 2017-18.
> Between 2014-18, 10,000 clusters were approved under the Paramparagat Krishi Vikas Yojana (PKVY).
> Between 2014-15 and 2017-18 (up to December 2017), capacity of 2.3 million metric tonnes was added in godowns while steel silos with a capacity of 625,000 were also created during the same period.
> Around 100 million Soil Health Cards (SHCs) have been distributed in the country during 2015-17 and a soil health mobile app has been launched to help Indian farmers.
Indian Agriculture : Challenges
In a land where roughly 70% of the population resides in rural areas and half of the nation’s population farms for a living, the importance of India’s agricultural sector cannot be overstated. Despite these massive numbers, the country’s agricultural output has been unable to keep pace with growing demands and global competition.
According to the World Bank, “India’s rice yields are one-third of China’s and about half of those in Vietnam and Indonesia. With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities.
”There are multiple reasons for this productivity gap, but one significant one is glaring inefficiencies in India’s agricultural supply chains. Logistics play a critical role in any economic sector, but when goods are perishable the supply chain becomes that much more important.
Much of the blame for these inefficiencies has been placed on the government. The NY Times reports that critics accuse policymakers of focusing on “more glamorous, urban industries like information technology, financial services and construction” [emphasis added] at the expense of the rural economy.
Another factor is the overal lack of consolidation that has occurred in the agricultural sector, with the majority of production still operating at the single farmer level.
Supply Chain Basics
Supply Chain Management (SCM) can be defined as management of the supply chain as an integrated process of acquisition and management of flow of supply of from point of origin to point of consumption and delivering further value added output to the next level point of consumption (like from supplier to manufacturer to wholesaler to retailer and to final consumer) by balancing supply and demand with optimal management of resources with the objective of establishing relationships for maximising value for mutual benefits on economically, socially and environmentally sustainable basis. (As defined by the Author in his Article “Value Insights into Supply Chain” Published in Aug’2010 issue of MMR – IIMM)
In this definition the focus is on acquisition, management of flow, value addition, integration, balancing supply and demand, optimal management of resources, relationships, maximizing value for mutual benefits and economical, social and environmental sustainability.
In a supply chain the materials shall flow from point of origin to point of consumption in a series of chains – one being a supplier of input to the next level consumer, he in turn after value addition supply to next downstream consumer – and the chain continues till the ultimate consumer. Associated with material flow, there are information, finance, value and risk also flow. Thus supply chain management is a management of flow of supply.
Agriculture Supply Chain : Definition
Agribusiness, supply chain management (SCM) implies managing the relationships between the businesses responsible for the efficient production and supply of products from the farm level to the consumers to meet consumers’ requirements reliably in terms of quantity, quality and price. In practice, this often includes the management of both horizontal and vertical alliances and the relationships and processes between firms. A Model Agriculture Supply Chain is depicted below.
Supply chain is a process of flow – there is supply of input which is processed / converted to add value and delivered as output. The flow may be goods or services; information flow; the flow of financial resources, value flow with value addition at each stage or activity and also flow of risk. A supply chain is a network of activities from supply side to demand fulfillment via various channels till the end customers; it is not an isolated process; it is an integrated system – interlinking various activities interwoven with value chain.
Supply Chain Integration :
Traditionally various supply functions have been managed in isolation, often working at cross purposes. However in Supply Chain Management these functions are integrated. There are varying degrees of integration within the company between various activities, processes and functions as well as integration of activities which span the boundaries of organisation. Thus Supply Chain Integration refers to both Internal and External Integration.
Value Chain in Agriculture
A Value Chain in Agriculture describes the Range of Activities and a set of Actors that bring Agricultural Product from Production in the field to Final Consumption, wherein at each Stage Value is Added to the Product.
Typical Model of Value Chain in Agriculture from Pre-Production stage to Consumer is shown below
Food Loss and Waste (FLW) In India
According to the FAO estimates nearly 40% of the food produced in India is lost or wasted. Food Corporation of India, report a share of losses ranging from 10 to 15 percent of the total production. As per the Ministry of Food Processing Industries (MFPI) estimate, Losses of 23 million tons of grains, 12 million tons of fruits and 21 million tons of vegetables for a total approximate value of about 4.4 billion USD while total value of food loss and waste generated is supposedly 10.6 billion USD.
In the Report of National Academy of Agricultural Sciences, Six Critical Stages for Reducing the Food Loss and Waste (FLW) In India are identified. They are On-Farm Practices; Storage, Packaging & Cold Chain; Transportation; Processing; Retail; Consumer.
Supply Chain Constraints Faced by India’s Food Processing Sector
The food processing industry is the fifth-largest industry domestically in terms of production, consumption, export and expected growth in the country. It contributes to around 14 % of manufacturing Gross Domestic Product (GDP) and 13 % of India’s total food exports. However the Industry is facing following Major Challenges.
> Long & Fragmented supply chain
> Inadequate cold storage and warehousing facilities
> Logistics & Connectivity Issues
> In-formalization & Unorganized Operations
> Marginal landholdings
> Underdeveloped Processed Food Market & Fragmented Market
The above supply chain challenges may in other words be described with 5Vs – Value (Customer Value / Satisfaction, Value Addition to Business, Costs); Volume (Business Volume (Finance), Product / Transaction Volumes, Asset Volumes (Warehousing / Stores)); Velocity (Speed of Delivery, Response time, agility); Variety (Product Variety, Transaction Variety, Customer Variety, Preferential Variety, Varying Capacity); Veracity (Authenticity, Traceability, Transaction Evidence)
As per Doubling Farm Income Committee report Area, Volume & Value Pyramid is shown for Agriculture in India.
> An inter-ministerial panel formed by the Centre on doubling farmers’ income by 2022 will submit its final report next month, its Chairman Ashok Dalwai.
> The Dalwai Committee, set up in April 2016, has already written 14 volumes identifying ways to double farmers’ 2015-16 income level, in real terms, in seven years.
> The committee has observed that an increase in the Minimum Support Price (MSP) could be one of the instruments for enhancing farmers’ income. However, increasing the MSP may not always have a positive outcome from the macroeconomic point of view.
> “A more straightforward, and potentially more beneficial, means of raising farm incomes could be reforming the marketing system of agricultural produce, while also developing new institutions and reviving existing ones to facilitate linking of the farmer to the markets,” it added
> The panel said the average income of an agricultural household during July 2012 to June 2013 was as low as Rs.6,426, as against its average monthly consumption expenditure of Rs.6,223. As many as 22.50% of the farmers live below the official poverty line.
Indian farmers incur Rs 92,651 crore per year in post-harvest losses, the primary causes of which are poor storage and transportation facilities. Ironically, according to the high-level Dalwai committee report , an investment of Rs 89,375 crore—a figure marginally lower than the annual post-harvest losses—is all it takes to improve the state of storage and transportation facilities for food crops.
If these were prevented, over 5 crore people could be fed, for a year, at the rate of Rs 50 per day.
Since a market is the primary medium for farmers to exchange their produce for money, lack of logistics connectivity to ensure that their harvest reaches markets in time results in lowering of the farmers’ ability to monetise their produce. This becomes even more critical in case of perishable fruits and vegetables.
Dalwai Committee Recommendations
> Demand Driven Agricultural Logistics System
> Developing Hub and Spoke System
> Marketing Intelligence System
> Agricultural Value System(AVS)
> Farmer-centric National Agricultural Marketing System
> Promoting Sustainable Agriculture
> Effective Input Management
> Enhancing Production through Productivity
> Farm Linked Activities
> Agricultural Risk Assessment and Management
> Empowering Farmers
> Research & Development and ICT
> Structural and Governance Reforms in Agriculture
Supply chain constraints once removed can help the industry to reach new heights.
This is a Synopsis of the Presentation made on 20th Aug’ 2019 to Students of Green Field Agriculture, Vijayawada
Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST Consultant, Practitioner, Corporate Trainer & Author Can be reached @ firstname.lastname@example.org