What is an Agro-based industry?
Agro-based industries are industries that use plant and animal-based agricultural output as their raw material. Also, they add value to agricultural output by processing and producing marketable and usable products. Some examples of agro-based industries in India include Textile, Sugar, Vegetable Oil, Tea, Coffee and Leather goods industries.
Importance of Agro-based industries in India
All branches of agro-based industry are important because:
(i) help in increasing industrial production.
(ii) provide employment to landless agricultural labor and tribal population from rural and backward areas.
(iii) ensure the development and stability of rural economy through diversification and reduced dependence on agriculture.
(iv) ensure the alleviation of poverty by providing steady sources of income and livelihood.
(v) earn much required foreign exchange for the country.
(vi) improve the standard of living in rural areas.
(vii) help in reducing the extreme inequalities in the distribution of income and wealth.
(viii) are easy to establish.
(ix) support balanced growth between agriculture and industry, and
(x) help in avoiding wastage of perishable agricultural products.
Scenario and Scope of Agro-based industries in India
The scope of agro-based industries in India is pretty high because of the fact that the country is predominantly dependent on agriculture. According to the statistical data for the year 2020, the agriculture sector in India contributes about 18% to India’s GDP. Also, approximately 42% of the Indian population is employed in the agricultural sector alone. The share of the population employed in the agriculture sector has been declining year after year because of various reasons. However, it still remains the largest sector employing the majority of the population.
Agro-based industry is regarded as the sunrise sector of the Indian economy because of its huge potential for growth, likely socio economic impact, specifically on employment and income generation and for the ability to generally keep itself recession proof. Also, approximately 70% of the population is dependent on agriculture and agro-based industries. According to the economic survey 2014-15, conducted by the Central Statistical Office, agro-based industries consistently grew in India during the period 2009-10 to 2013-14. Some estimates also suggest that in developed economies, approximately 14% of the total workforce engages in the agro-processing sector directly or indirectly, whereas in India, only about 3% of the workforce finds employment in this sector. The data highlighted above reveals the underdeveloped state and the vast potential of growth in this sector.
Types of Agro-based industries in India
Agro-based industries in India can be broadly classified into the following types:
- Agro-produce processing units – These units are not involved in manufacturing and mainly deal with the preservation of perishable products and utilization of by-products for other uses. Rice and Dal processing mills are perfect examples of these kinds of units.
- Agro-produce manufacturing units – These units engage in the manufacturing of new products where the finished goods are entirely different from the raw materials used. Sugar factories, solvent extraction units and textile mills are some of the examples of these kinds of units.
- Agro-inputs manufacturing units – These units are engaged in the manufacturing of products, either for the mechanization of agriculture or for increasing agricultural productivity. Some examples of these units include agricultural implements, seed, fertilizer and pesticide manufacturing units.
- Agro Service Centres – Agro service centres are workshops and service centres, which are engaged in the repairing and servicing of pump sets, diesel engines, tractors and other types of farm equipment.
Overview of Major Agro-based Industries in India
In the section above, we broadly classified agro-based industries into agro-produce processing units, agro-produce manufacturing units, agro-inputs manufacturing units and agro service centres, based on the nature of work performed by them. In this section, we will learn about some of the major agro-based industries in India.
The textile industry is concerned with the design, production, distribution or marketing of yarn, fabrics, or ready made clothing. It consists of units manufacturing cotton textiles, woollen textiles, silk textiles, synthetic fibers and jute textiles. The industry plays an important role in India’s economy because it is the biggest employer in the country after agriculture. Also, it provides direct and indirect employment to around 10.5 crore people. India is also the second-largest manufacturer and exporter of textiles and clothing in the world, with a share of 5% of the total global trade. It contributed 12% to India’s total exports in 2018-19. The US and the European Union are the two largest markets for Indian textile exporters, followed by various Asian countries and the Middle East. The largest textile companies in India include Arvind Ltd, Vardhman Textiles Ltd, Welspun India Ltd, Raymond Ltd and Trident Ltd among others.
The size of India’s textile and apparel market was USD 108.5 billion in 2015 and is expected to reach USD 226 billion by 2023, growing at a CAGR of 8.7% between 2009 and 2023. The GOI has introduced various policy initiatives and programmes for the development of the textile industry, some of which include (i) Scheme for integrated textile parks, (ii) National Handicraft Development Program (NHDP), (iii) North Eastern Region Textile Promotion Scheme (NERTPS) and (iv) Comprehensive Handicrafts Cluster Development Scheme (CHCDS).
The sugar industry is responsible for the supply of sugar, which is considered as an integral part of the human diet. India fell back to second place in sugar production during 2019-20, narrowly losing the top spot to Brazil. India produced 28.9 million metric tonnes of sugar, which is roughly 17% of the world’s total sugar production of 166.18 million metric tonnes. Today, the sugar industry’s annual output is worth approximately INR 80,000 crores. Sugar production is expected to rise by 17% in 2020-21 and the domestic consumption is forecast to hit a new record of 28.5 million tonnes. The leading sugar manufacturing companies in India and the world include Eid Parry (India) Ltd, Shree Renuka Sugars Ltd, Balrampur Chini Mills Ltd, Triveni Engineering and Industries Ltd and Dhampur Sugar Mills Ltd among others.
The GOI has undertaken several initiatives to improve the financial health of the sugar industry, some of which include (i) de-regulation of the sugar sector, (ii) Ethanol Blended Petrol Program (EBP), (iii) Scheme for extending financial assistance to sugar undertakings (SEFASU-2014), (iv) soft loans to sugar mills to facilitate clearance of cane price arrears, (v) Minimum indicative Export Quotas (MIEQ), (vi) production subsidy and (vii) imposition of stock holding limits on sugar mills.
Vegetable Oil Industry
The Indian vegetable oil industry accounts for about 5% of the world’s vegetable oil production. India is the largest consumer of edible oils in the world. The estimated domestic demand for vegetable oil is over 23 million tonnes, which is predominantly met by imports. Also, India is currently the biggest importer of edible oils in the world with an import of 15 million tonnes annually, which is about 14% of the world’s total vegetable oil imports. The industry occupies a distinct position in the Indian economy because it provides job opportunities to millions of people, achieves an average domestic turnover of USD 10 billion per annum and earns a foreign exchange of USD 90 million per annum. The leading brands of edible oils in India include Fortune by Adani Group, Saffola by Marico, Sundrop by Agro Tech Foods, Dhara by Mother Dairy and Dalda by Bunge Limited among others.
Vegetable oil processing will remain one of the largest industrial segments in India because of an exponential increase in domestic demands and exports. In order to increase the production of edible oil in the country and to reduce the dependence on imports, the GOI has proposed/introduced several measures, some of which include (i) tax concessions for companies engaged in oilseeds farming, (ii) promoting oil palm cultivation under National Mission on OIlseeds and Oil Palm (NMOOP) and (iii) preparing ‘zero edible oil import’ plans.
Tea is the second most consumed liquid in the world after water. Between 2014-18, the global tea production increased at a CAGR of 2.97%. As of 2019, India was the second-largest tea producer in the world with a total production of 1,339.70 million kgs. Also, India is one of the world’s largest consumers of tea, with about three-fourths of the total production consumed locally. The tea industry holds a special place in the Indian economy because it employs a total workforce of over 2 million people. The industry also earns much needed foreign exchange for the country with exports of USD 830.90 million in FY 2019 and USD 826.47 million in FY 2020. The leading tea manufacturers & exporters in India include Tata Global Beverages, Goodricke Group, Dhunseri Petrochem & Tea Limited, Jay Shree Tea and Assam Company India Limited among others.
The growth of the Indian tea industry has always been remarkable. Based on the current level of production, the global tea production is expected to increase at a CAGR of 2.65% between 2019-25. In case of India, the tea production and consumption is expected to increase at a CAGR of 2.88% and 2.25% respectively between 2019-25. Also, the revenue earnings of the tea industry are also expected to grow at a CAGR of 6.23% between 2019-25. In light of the above, the Indian Tea Association has requested the GOI to handle the rising costs, stagnated prices, take over the PF contribution of workers for a period of 3 years and introduce other measures in order to provide relief to the Indian tea industry.
India has always been a tea-loving country, however, over the last two decades, we have witnessed an unprecedented rise in the number of coffee lovers because of a number of reasons such as (i) increase in disposable incomes (coffee is considered more expensive than tea), (ii) global exposure, (iii) digital media penetrations and (iv) lifestyle changes among others. The increase in coffee consumption ignited a cafe culture in India and saw major brands like Cafe Coffee Day, Costa Coffee and Starbucks setting up numerous outlets across the country.
India is the sixth-largest producer and the fifth-largest exporter of coffee in the world. The coffee production stood at 2,99,300 million tonnes during 2019-20, which was 3.14% of the total global coffee production. India exports 70% of its domestic coffee production, with an export of USD 738.90 million during 2019-20. The top 5 importers of Indian coffee during 2018-19 were Italy (21.63%), Germany (9%), Russian Federation (6.3%), Belgium (5.24%) and Turkey (4.17%). The coffee industry occupies an important position in the Indian economy because it provides direct and indirect employment to over a million people and earns a foreign exchange to the tune of about 4,000 crores. Some of the best coffee brands in India include Blue Tokai, Davidoff, Starbucks, Nescafe and Cafe Coffee Day among others.
There is a huge potential for the coffee industry because of a rise in the domestic consumption of coffee. Rural India is today evolving in every aspect. If brands are able to penetrate and create a connection with rural India, then the coffee industry stands to witness an exponential growth in the overall domestic consumption of coffee.
Leather Goods Industry
Leather is one of the most widely traded commodities globally. The demand for leather is driven by the fashion, furniture, interior design and automotive industries. The Indian Leather industry accounts for around 12.93% of the world’s leather production of hides/skins. Also, the total exports of leather and leather products from India stood at USD 5.07 billion in 2019-20. The major markets for Indian exports included USA (17.22%), Germany (11.98%), UK (10.43%), Italy (6.33%) and France (5.94%). The industry occupies an important position in the Indian economy because it provides employment to 4.42 million people. Also, it is among the top ten foreign exchange earners for the country. The top leather exporters in India include Tata International Ltd, Florind Shoes Ltd, Mirza Tanners Ltd, Hindustan Lever Ltd and Indian Leather Footwear Industry among others.
The global leather industry is in the process of shifting its manufacturing base from developed to developing nations. This provides increased opportunities for employment and flow of foreign direct investment in India. The GOI has also identified the industry as one of the 12 focus sectors because of its growth potential. It has undertaken several initiatives for aiding the growth of the Indian leather goods industry. Some of these measures include:
(i) provide placement linked skill development training to unemployed youth.
(ii) providing assistance for the establishment of two new branches of Footwear Design and Development Institute (FDDI) at Banur (Punjab) and Ankleshwar (Gujrat) to augment institutional infrastructure.
(iii) providing approval for setting up Mega Leather Cluster (MLC) at Nellore, Andhra Pradesh, and
(iv) allowing duty free imports of hides and skins from anywhere in the world.
Problems Faced by Agro-based Industries in India
Like with any other industry in India, Agro-based industries also face some constraints, which seem to be-devil their development. Some of these constraints and problems include:
- Small Landholdings – Small landholdings make it difficult for farmers to achieve economies of scale because of which farmers are forced to rely on subsistence farming.
- Seasonal nature – This means that the farmers have a very small window to reap the benefits of their hard labor. In recent times, climate change has affected weather patterns because of which there has been an adverse effect on agricultural production.
- Perishable nature of products – Agricultural products are perishable in nature because of which they require huge infrastructure in the form of cold storage, excellent road connectivity. India suffers on both accounts, forward and backward linkages.
- Variability – Agro-based industries involve variability in the quantity and quality of raw materials. Quantity of raw materials suffer because of fluctuations in weather and soil conditions. The quality suffers because of lack of standardization. These factors, exert additional pressure on agro-based industries in terms of operations related to production, scheduling and quality control.
- Limited Knowledge – The absence of information, lack of awareness and limited knowledge about opportunities, technology and production systems is also a major hurdle.
- Competition – India is increasingly facing competition from other countries in the region such as Bangladesh, which offer similar advantages in terms of low labor costs and soil fertility.
The good news is that the Government of India has taken serious note of these constraints. It has introduced several policy measures in order to ensure the growth and development of Agro-based industries in India.
These are all the detailed information regarding agro-based industries in India. For further updates regarding agriculture, tractors, farm implements and others, stay connected with TractorJunction.
How do I start an Agro-based industry/Agribusiness in India
Today, agribusiness in India is at the crossroads of a major revolution because of the overall modernisation of agri-chain, equipment and infrastructure, rise in production, increased inflow of investments and increase in exports, are all expected to take place in the next decade. These factors make agriculture a lucrative business option.
Before venturing into Agribusiness, you need to be clear about your business objectives, business plan and available resources. Here’s a step-by-step guide to help you through the process:
(A) Market Research
Conduct a thorough research of the specific market that you are planning to enter. It will help you decide, at the entry level itself, whether you should go ahead or not. Always look out for relevant and credible sources of information because they help in gaining valuable insights. You must have clear answers to the following questions:
- What is the present and future potential of the market?
- Problems faced by consumers and other competitors?
- Major bottlenecks?
- How do you see yourself in the market?
- How difficult or easy are the legal requirements?
- Will your business be local, regional, national or global?
Once you have all the answers in place, analyse the prospects and look for your window of opportunity.
(B). Creation of a Business Plan
A business plan is one of the most integral parts of a business because it connects the different aspects of a business. Simply put, it is a formal document that explains the business goals and the plan to achieve them. A good business plan should cover all aspects of a business relating to finance, marketing and operations. Some of the questions that a business plan should answer include:
- What is your USP (Unique Selling Point)?
- What is your Strategy (Financial, Marketing and Operational)?
- How do you plan to manage your business?
- Initial cost required to start the business and the regular costs and expenses involved?
- How will you arrange for the funds?
- What are the targeted markets and competitor analysis?
- S.W.O.T analysis (Strengths, Weaknesses, Opportunities and Threats).
- A 1000-day financial projection of expenses and expected revenue.
(C). Arrange Funds
If you are looking for funds, there are various options available like bank loans, crowd-funding, incubators or accelerators, microfinance, etc. Choose the best option depending on the business model and your requirement of funds.
(D). Understand the Laws and Regulations
Various central and state laws and regulations exist in India for different business sectors. It is very important that you completely understand because of the impact that they might have on your business. Some of the important regulations include:
- Indian Contract Act, 1872
- Factories Act, 1948
- Minimum Wages Act, 1948
- The Companies Act, 1956
- Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
- Consumer Protection Act, 1986
- Taxation laws covering corporate tax, GST and indirect taxes such as excise, customs, sales and wealth tax.
(E). Register your business and acquire licenses
There are several types of company registrations such as Sole Proprietorship, Partnership, Limited Liability Company, Private Limited and Public Limited.
The major steps in the registration of a company include:
(i) acquiring a ‘Digital Signature Certificate (DSC).
(ii) acquiring ‘Director Identification Number (DIN).
(iii) filling an ‘e-form’ or ‘new user registration’, and
(iv) incorporating the company.
There are many legal firms and individuals to help you through the process. Also, you can do it yourself by visiting the Registrar of Companies.
In addition to registration, you will also need to acquire all the relevant licenses to start. The licenses will depend on the segment you get into. You can hire the services of specialised firms or obtain the relevant licenses by yourself by visiting government portals.
(F). Final Arrangements
Proceed to make all the final arrangements like buying/leasing of land/office space, office stationery and machinery (if required).
The decision to plan and strategize to get into Agribusiness in India is a huge and promising step. What is really important though is the execution of these plans.