Ground Reality Key Drivers – To Be An Agri Super Power: Going For Growth

Ground Reality Key Drivers – to be an agri super power Challenges Opportunities Strategy Suggestions Going For Growth

Ground reality – a study in contrast • The largest grower of fruits – 15% of world output –Low share of global Exports at 0.5%

• The second largest grower of vegetables – 11 % of world output –Low share of global exports at 1.7% –Cold storage facility available for only 10% of produce

• Lowest cost producer of fruits & vegetables –Low farmer income – farmer suicide •

Second highest producer of milk – Organized dairy accounts for only 13% of milk produced – Only 70,000 Ton cold storage capacity for 90 million Tones produced – Poor yield per cow

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Second largest cattle population – 5500 registered & 25770 unregistered slaughter house with no chilling, freezing & cold storage facility as hot meat market prevails

Going For Growth

Source: Task force Report on Development of cold chain in India – GOI/CII

Ground reality (cont….) • Fifth largest producer of eggs – Poultry meat sold as hot in retail market

• Sixth largest producer of fish – 20 – 30% damage and no cold storage facility in WB, AP, Goa

• Low processing – 2.20 % in fruits – 35 % in milk – 6 % in poultry

• Value addition – 20% • India’s current share in world trade of processed foods – 1.60 % • Poor lab to land transfer of technology and adoption of new varieties. example of pineapple

Going For Growth

Source: Task force Report on Development of cold chain in India – GOI/CII APEDA data

Ground reality (cont….) •

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Market surplus of fruits & vegetables – 88% – Farmer sells immediately due to perishability & absence of proper infrastructure to keep it for longer period Post Harvest wastage of fruits & vegetables – 25 to 35% valued at over Rs 45,000 crore – Losses as above in India is more than consumption of same in UK Market surplus of food grains– 60% – Farmer keeps some for own consumption, seed purpose and to give to labour as wages – Loss in above equal to annual food grain production in Australia Cost of wastage 6 times amount spent on food subsidy Farm gate price 25% of domestic consumer retail price against 50% in developed countries Story of Fyffee PLc - in Banana Handling and Processing on the ships before final destination of selling.

Source: Task force Report on Development of cold chain in India – GOI/CII Going For Growth

Key Drivers – To be a Global Agri Super Power 2

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3

Strong Demand

5 Going For Growth

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Role of Key Drivers

Going For Growth

Is India Ready to be a Global Power ? tural Inherent Na advantage

Literate workforce Weak & e ineffectiv hain Supply c

Going For Growth

Challenges And Strategy For Future …. Food processing Challenges

Opportunities

• Utilisation of scarce resources – MORE CROP PER DROP, power etc • Varying taste preference within the country • Increasing International Competition • Non tariff barriers • Integrated Food law to remove multiplicity of food laws & regulatory agencies

Indian domestic market Diversifying into new markets and product segments Post harvest loss management itself to provide funds for investment

Strategy Enhancing the sales of Value added products Creating Economies of Scale

Lab to Land & Farm to Fork linkages Introducing innovative products Going For Growth

Challenges • Low level of value addition – Bottle necks in cold storage including during transit – Seasonality – capacity utilization issues e.g. Himachal apples 2006-07 prod was half of 2005-06 – Non Efficient storage/warehousing, processing & marketing techniques – Non adoption of efficient technology

• Infrastructure and others – – – – – –

Shortage of power High electricity tariff Low area under Irrigation High capital cost -Inadequate institutional finance at low rates High insurance premium in risk coverage Farm connectivity by road yet to take off

Going For Growth

Challenges (cont….) • Quality and consistency at grass root levels – – – –

Inputs delivery not in time Innumerable varieties Poor procurement and logistics Lack of cheap and timely credit

• Weak and ineffective supply chain – – – –

Non professional management Low revenue rentals Non Efficient and competitive retailing High wastage

Absence of a Successful Business Model. Going For Growth

Agri supply chain – a comparison with Developed countries India Farmer

Consolidator

Commission agent

Trader

Wholesaler

Retailer

Consumer

High wastage and low margins Consumer Retailer Developed countries Wholesaler Farmer

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High investments – Low wastage better margins

Challenges - Hurdles towards Value addition • Wide disparity between peak & lean period arrivals usually ranging from 100 – 150% • Long revenue cycle as products to be purchased in bulk during peak season • Control of markets by few traders and agents who command large storage capacity • Discouragement of farmer – lower returns act as disincentive – Crashing of prices during peak season

• Larger intermediaries exerts negative pressure on farmer margin, and deteriorates quality due to multiple handling Going For Growth

Bottle-necks in Cold storage & Processing industry • Higher Tax duties including on packaging material • Lower capacity utilisation – Role of cold storage etc – current utilisation 48% of capacity – 5100 units with 216 lakh MT capacity

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Non adoptive of cost effective technology High working capital requirement High cost of finance Infrastructural constraints Dependence on intermediaries – inadequate farmer – processor linkages

Source: Task force Report on Development of cold chain in India – GOI/CII Going For Growth

India …….. A land of opportunities • 52% cultivable land as against 11% world wide • Unsurpassed Natural Advantages – All the 15 major climates of the world – 46 out of the 60 soil types – 17% animal, 12% plant and 10% fish genetic resource of the world • Food processing sector ranks fifth in terms of contribution to GDP • Indian urban food market estimated at 350,000 crore • Estimated investment in Food processing sector during 11th plan – 1 lakh crore

Going For Growth

Source: FICCI/KPMG study and Task force Report on Development of cold chain in India – GOI/CII

Road to Evergreen revolution ……. • Horticulture crops – Fruits vegetables and flowers cover 7% of cropped area of the country • India ranks First in production of mango (65% of world) Bananas (11% of world) and papayas • India ranks Second in production of Lime and lemon • Exports quantity increased 4 times & value 10 times in last 15 years • Move to invest in 10 mega food parks in the country • Indian food processing industry averaging a growth of 10%

Going For Growth

Source: Task force Report on Development of cold chain in India – GOI/CII Mc Kinsey reports

Can India be a sourcing hub for food products ? • Good governance – – – – – –

Strong , Stable and reform oriented government WTO signatory Strong economy comparatively resilient to the current economic crisis Focus on improving the Road connectivity Vision to solve the power situation – Nuclear energy Improving relationship with neighboring countries and a more important role in the WORLD ORDER

• Focus on agri & rural sector – – – –

Has a Strong agriculture base Increased out lay for rural spend Rural economy to be give the next big push to GDP Annual rural income to increase from 2.8% to 3.6% over next 2 years

Going For Growth

Source: FICCI – KPMG study

Indian growth story ……. • Strong Corporate leadership – Indian is already ……. • • • • •

IT Hub of the world Auto and auto ancillary hub to the world Telecom hub Acquiring global companies India managers at the Helm of many Fortune 500 companies

India is preparing to take off ……. Going For Growth

Impetus by Govt • Included in the list of Priority sector lending by banks since 1999 • Most of processed food Exempted from purview of licensing under the industries (Development & regulation) Act, 1951, except items reserved for small scale sector & alcoholic beverages • Excise duty for processed fruits & vegetables, food mixes etc. – NIL • Excise duty on reefer vans reduced from 16 to 8% • Reduction in customs duty on food processing machinery • Tax breaks • Move towards GST

Going For Growth

Towards being the 5th largest consumer market by 2025 – Large young earning population

• 50% of population under 25 years of age • Ready to experiment and try out new products

– Increase in number of upper middle class & middle class by 159 % & 63 % respectively • Urban population projected at 40% by 2020 • Middle class of 200 – 250 million spread across the country to increase to 580 million by 2025

– Dual income households

• Higher disposable incomes • Ready to try out value added products

Going For Growth

Source: Mc Kinsey Report May 2007: The Rise of India’s consumer market

Suggestions …. • Reduction of wastage /spoilage to be tackled on a war footing – Accelerated establishment of cold chain networks – Irradiation facilities and pest free warehouses – Encourage SSI units and corporate to set up food processing units

• Improvement of productivity – both land and manpower – Example the case of Rubber where India has the highest land productivity in the world – Change in cultivation practices such as irrigation for paddy rather than method of flooding the fields

• Price stability – Make farming remunerative to attract talent and retain farmer interest

Going For Growth

Suggestions ……

Role for corporate

• Incentives to Corporate to enter core farming – land ceiling restrictions • Increase Mechanization to tackle low availability of labour and to remain a low cost producer • Liberalized credit norms for agricultural – production , marketing and infrastructure development • Changes in market regulatory framework to allow corporate to establish market yards – At present 7521 regulated markets which lack critical infrastructure

• Review of legal instruments to facilitate entry in marketing activities • Tax holidays and incentives • Excise exemptions for CAPEX items.

Going For Growth

The Requirement: Striking a Balance

Size

Solutions

Partnerships

Speed

Cost Flexibility

Going For Growth

Conclusion • Food sector – the highest multiplier effect of any industry – 2.4 • Tripling the size of the industry would generate – Direct employment – 28 lakh and Indirect employment – 74 lakh

• Thrust in agriculture to be provide the next push to GDP and prosperity • Enhanced export earnings to compensate for any slow down in IT related exports

India - Sone ke chidiya Going For Growth