3 S Sivakumar Agribusiness Investments in India ICRIER 30 Apr 2007

8/6/2019 3 S Sivakumar Agribusiness Investments in India ICRIER 30 Apr 2007

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AgribusinessInvestmentsinIndia

SSivakumar,ITCLimited

SeminaronUS-IndiaAgriculturalKnowledgeInitiative

ICRIER,NewDelhi,30th

April2007


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WhatstheBigDeal?

TheAgribusinessSectoroffersgreatscope

tocreateTripleBottomLine*

*Economic,SocialandEnvironmental


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PresentationSequence

1. TrendsinIndianAgriculture/Agribusiness

2. PolicyGoalsofIndianAgriculture

3. OpportunitiesinAgribusinessInvestments

4. ChallengesinValueCapture


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1.TrendsinIndianAgriculture/Agribusiness

IllustratedthroughFoodEconomyDynamics(SimilarlogicexistsforFibre &Energytoo)


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CompositionofDietisdiversifyingacross

consumergroups

120.810.64.8100.03.81.9Meat,Egg,Fish

30.7117.289.730.620.515.7Milk

148.418.26.4162.54.21.6Fruits

39.390.865.249.753.936.0Vegetables

87.713.77.376.94.62.6Edible Oil

-6.216.617.7-9.26.97.6Pulses

-20.4154.6194.3-10.0132.4147.1Cereal

%

Change

1999-

2000

1983%

Change

1999-

2000

1983

Upper Income Group (30%)Lower Income Group (30%)Annual PerCapita FoodConsumption(Kg)

Source: Kumar & Mruthyunjaya (2002) using NSSO Data


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inducedby

Sustained economic growth andrisingpercapitaincomes

Supportingaffordability

Demandingquality&safety

Urbanisation andglobalisation

Seekingvariety&convenience


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Production System Responded well

1.71.81.4Redmeat

4.03.02.6Fish

44.435.932.5High-value

3.22.21.6Poultry

17.615.412.9Dairy

17.913.514.0Horticulture

6.78.56.6Oilseeds

26.831.833.0Foodgrains

TE2002/03E1992/93E1982/83Share of VOP

Source:Birthal etal2006usingCSOdata


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despiteapredominantlysmallfarmerbase

81.0

12.26.8

0.7

2.74

6.97

010

20

30

40

50

60

70

80

90

Small Medium Large

0

1

2

3

4

5

6

7

8

% households land holding (ha)


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with the base continuously expanding

2.3 1.82 1.55 1.41 1.37Ave Size

Source: Gulati (IFPRI) using data from Agricultural Census Division, India

0%

20%

40%

60%

80%

100%

1970-71 1980-81 1990-91 1995-96 2000-01

Area of Holdings

Less than 2 hectares 2-4 hectares 4 and above hectares

0%

20%

40%

60%

80%

100%

1970-71 1980-81 1990-91 1995-96 2000-01

Number of holdings


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ButAgri GDPgrewslowerthantheAggregate

6.0

3.4

6.7

5.5

7.6

9.0

3.2

1.3

4.7

2.1 2.3

4.1

0.0

1.0

2.0

3.04.0

5.0

6.0

7.08.0

9.0

10.0

Seventh

Plan

(1985-90)

Annual

Plan

(1990-92)

Eighth

Plan

(1992-97)

Nine Plan

(1997-

2002)

Tenth Plan

(2002-

2007)

Eleventh

Plan*

(2007-

2012)

Ann

ualAverage(%)GrowthRate(atconstantprices)

Overall Agriculture & Allied

PreparedbyDrGulati usingvariousGoI documents


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Resultinginsignificantlylowerpercapita

incomeforfarmersVsrestofIndians

00.5

11.5

22.5

33.5

4

4.5

Farmers Rest ofIndians


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Onadifferentnote,

Technologyiscatalysing cross-industryblur!

Traditionallyindependentindustriesareconverging

such as Farm Inputs, Food Production, Nutrition,

Pharmaceuticals, Food Processing, Packaging &

LogisticsIndustries

Ontheotherhand,farmsarebecomingfactories

withGPSaidedprecisionfarming,and

biotechnologyinducedspecialtraits


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High soil erosion, leading to reduction in fertility and

productivityofland

Alarmingdegradationof forests&commons, aggravatingtopsoillossesandsurfacerun-off

Groundwaterrechargedecliningdangerously

While,intensivefarmingincreased

stressonnaturalresources

Moisture StressDeforestation


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AsIndiaintegrateswithglobalmarkets


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2.

PolicyGoalsofIndianAgriculture


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PolicyGoalsforIndianAgriculture

Demand SideFood&NutritionSecurity

MeetingthechangingFoodHabits

Supply SideGlobalCompetitivenessEcologicalSustainability

The Means and The EndsEffectivelinkagesofproductionsystemswith

processingandconsumption

EmploymentGeneration&PovertyAlleviation


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ReformAgenda

GlobalTradeIntegration

Importsmanagedthroughtariffs

APMCAct DirectMarketing,ContractFarming,PrivateMarkets

Taxation

UniformacrossStates&Moderate FoodLaws

MoveawayfromRecipetoRestriction&Labelling

RiskManagement

Futures&Options,WeatherInsurance

Credit

WarehouseReceiptNegotiability,SHG/mFI


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3.

OpportunitiesinAgribusinessInvestments

(buttheContextfirst)


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FoodEconomyinIndia:ThePast

TheContext:Shortages

SolutionsDeployed:

Focus>FoodGrains

Production&Productivity>GovernmentResearch&Extension (Efforts primarily oriented towards yield

improvements)Procurement>Food Corporationof India (Minimum

SupportPriceSchemeeventuallymadeGovernmentthebuyeroffirstchoiceinRice&Wheat)

Storage, Handling & Processing > Combination oftraditional & modern infrastructure (Focus onsafekeeping, wastage reduction and basicconversion)


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And,theImplications

Supply-DrivenValueChain

Production (Farmers grow multiple varieties to suit

varyingagro-climaticzones)

Storage & Handling (Grain loses its source identity

afteraggregationinFCI/byVillagetraders)

Exchange process along the chain (Disconnectbetweenthewayfarmersells,processoraddsvalue

and the consumer buys viz. physical properties,

chemical properties and rheological / organoleptic

propertiesrespectively)

The Result : Suited that context, but created Lemons

Problem forthenewvaluechainparadigm


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FoodEconomyinIndia:TheFuture

TheContext:ConsumerCentricMarketEconomy

TheNeed:

Multiplesegmentsofconsumers(preferdifferentiated

productstosuittheirtastes)

Information about consumer preferences (to flow

seamlesslyalongthechainfortheproductionsystemtorespond)

Infrastructure (equipped with traceability systems to

preserveidentityofthesource)

Demand-driven production, processing & marketing

systems


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TheFoodValueChain

Primary Production Processing Retail

ClimateSoil / Water

Ag Inputs

MillingCuring

Preserving

GradingPackaging

Merchandising

Market Functions

ExchangeBuyingSelling

PhysicalStorage

TransportationProcessing

Facilitating

FinancingInformationRisk bearing


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TheWayitOperatesinIndiatoday


ClimateSoil / Water

Ag Inputs

MillingCuring

Preserving

GradingPackaging

Merchandising

Market Functions


PhysicalStorage


Facilitating



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TheChangeRequired


ClimateSoil / Water

Ag Inputs

MillingCuring

Preserving

GradingPackaging

Merchandising

Market Functions


PhysicalStorage


Facilitating



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RoutesforValueCreation

1. InnovationattheConsumerendoftheChain:

Product & Purchase experience improvementsthrough processing, packaging & retail formatinnovations > delivering variety, quality, foodsafety, shopping convenience, better shelf life,readytoeatetc

Demandgrowth,pricepremiums

2. Efficiencyalongthewholechain:

Lowerindustrycoststructuresthroughintegration,coordination, disintermediation, infrastructureinvestmentsetc

Pricingflexibility,traceability


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4.

ChallengesinValueCapture


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Challenges

Majorityofthefarmersaresmall&resource-poor

they need to be inducted in to the new structure

responsibly

Physicalinfrastructure&newmarketinstitutionsarestill

evolvingThisneedstobeappropriatelyfactoredin

Understanding of most of theagri business players isinsufficient

Governmenthasasignificantroletoplay


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Butitsdoable!


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Illustrationthrough

ITCHorti investmentsLeveragingtheITCGroupwideStrengths


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ITCHorti inMarket:

ChoupalFreshRetailinIndia


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ITCHorti inMarket:

ChoupalFreshExports


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ITCHorti inMarket:

BrandedProcessedFoods


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ITCHorti inMarket:

ProcessedFoodExportsinPrivateLabels


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ITCHorti attheBackend

SupportedbyGMED(setupbyACDI/VOCAwithUSAIDs assistance)


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ITCHorti attheBackend:

CropCalendaringforFarmersintheCluster


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AreaSpecificImprovedVarietal Selection

ITC H i h B k d


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SupportthroughEquipment

ITC H ti t th B k d


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QualityImprovementthroughNurseries

ITC H ti t th B k d


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HappyFarmerwithBetterQualityProduce

Name: Bhupal Reddy (ITC Lead Farmer near Hyderabad); Land: 2 acre

Farming experience: 20 years

Tomato Yields: Increased from 10-15 ton/acre to 25-30 tons/acre

Saved 40 percent on fertilizer and pesticide costs

Saved 10 % on commissions, etc. paid to mandi traders through direct selling to ITC


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ThankYou

Documents

3 S Sivakumar Agribusiness Investments in India ICRIER 30 Apr 2007