Value Addition And Processingof Agriproducts: Opportunities and Challenges BY: Surabhi MishraDepartment of Biochemical Engineering and Food Technology, H.B.T.I., Kanpur
SUMMARY Present scenario of agriculture in India Post harvest losses & the global picture Value- added agriculture Strategies for “value addition” Agri-business Subsectors of agri-business Emerging areas of agri-business Policy initiatives and taxation policies Supporting institutions Indian corporates in agri-business An example of corporate-farming: Harrisons Malayalam Ltd Present scenario problems Key strategies at national level Conclusions
• Food production in the country is adequate but it is not accessible to all.• Inadequate income earned by about 25% population• High post harvest losses on farm and in the supply chain linking farmers to markets (estimated annual loss of Rs. 44,000 crore)• Inadequate livelihood opportunities in the production catchments and rural sector
• High level of food wastage due to shortage of storage spaces• Mismatch between agri-exports and agri- imports• Huge quantities of under-utilized crop residues and processing by-products leading to loss of income and environmental sustainability• Low levels of agro-processing and value addition
• Indian wastes more fruits & vegetables than are consumed in UK• Cumulative waste is about $ 6.7 billion which is equivalent to 40% of the total horticulture produce• Poor infrastructure and logistics support• Rough and unorganized handling• India has 70% more arable land but produces 30% less than China
• India ranks first in the world in cereal and milk production and second in fruits & vegetables and in five producers of groundnut, rice, wheat, tea, coffee, sugar, spices & oil seeds.• Even with an industry size of US $ 70 billion,we process less than 2%.• The industry has about 1.6 mn direct employees and accounts for about 13% of the country’s exports and 6%of the industry investment.
Loss (%) at National Level in different operations/channelsS.N CROP TOTAL LOSS TOTAL LOSS IN OVERALL IN FARM STORAGE (%) LOSS (%) OPERATIONS (%)1 Cashew 0.9 0.2 1.12 Sugarcane 7.8 0.9 8.73 Turmeric 6.7 0.7 7.34 Egg 4.9 1.7 6.65 Marine fish 1.8 1.0 2.86 Meat 1.4 0.9 2.37 Milk 0.7 0.1 0.8
•High income countries add US$ 180 worth of value to onetonne of agricultural produce•98% of agricultural produce in high income countriesundergoes industrial processing•About 30% only is processed in developing countries•Average value added per tonne in developing countries isonly US$ 40 If we realize with honesty we will have to accept that Post harvest processing and value addition is about 1.5 percent in India as against 30% post harvest processing in some countries
Production To Consumption Chain Of Agro- processing ActivitiesProduction to consumption chain of agro-processing activities
• Primary/ secondary processing of main produce• By-products utilization• Supply/cold chain management• Custom hiring services• Product quality and safety• Marketing
What is – Value-Added Agriculture? Adding Value – Process of changing or transforming a product from its original state to a more valuable state Desired by By processing it into a customers –Add value to wheat product (flour) (bread bakers)
• Expanding the level of processing in the food grains, fruits & vegetables and dairy sectors on priority,• Raising the level of processing from primary/ secondary to secondary/ tertiary for all commodities,• Modernizing the food processing sectors using the efficient equipment and processes for cost competitiveness and better quality products,• Ensuring adequate training of workers, supervisors and managers in food processing industries to ensure efficient operations and product quality,• Providing skills and knowledge to farmers for ensuring quality of produce through adoption of GAP, and• Promoting seamless value chain including post harvest management and value addition in production catchments to obviate the quantitative and qualitative losses.
Adding value to products can be accomplished in a number of different ways, but generally falls into one of two main types: Creating Value Innovation Industrial Innovation Capturing Value Coordination
CREATING VALUE Occurs with actual or perceived value to a customer for a superior product or service Innovative new products Enhance a product’s characteristics Enhance services Create brand names Develop unique customer experiences
CAPTURING VALUE Changing the distribution of value in the food/fiber production chain. Meant to ‘capture’ more of the consumer dollar through: Direct Marketing Vertical Integration Producer Alliances Cooperative Efforts
Direct Marketing Selling products directly to the consumer Selling beef animals ‘on the hoof’ Selling homemade soaps & lotions to the general public Think – eBay! http://images.google.com/imgres?imgurl=http://www.insidefurniture.com/insidef urniture/images/marketing_cartoon_1.jpg&imgrefurl=http://www.insidefurniture. com/insidefurniture/blogservation/index.html&h=224&w=309&sz=24&hl=en&start =16&tbnid=KN8RhgvhDYw8NM:&tbnh=85&tbnw=117&prev=/images%3Fq%3Ddire ct%2Bmarketing%2Bcartoon%26gbv%3D2%26svnum%3D10%26hl%3Den%26clien t%3Dfirefox-a%26channel%3Ds%26rls%3Dorg.mozilla:en-US:official%26sa%3DG
Vertical Integration – One producer or business owns the product from beginning to end. This producer or business doesn’t sell the product until the consumer purchases it: Tyson Chicken -
Producer Alliances Individuals / companies from the same level of the food chain consolidate in order to produce and market a superior product
Cooperative Efforts Individuals or companies pool their products in order to increase bargaining power.
6 Key Strategies for AddingValue Form value Location value Time value Ownership/Possession value Information value
ADDING VALUE: FORM• Converting raw materials into finished or semi- finished products -Increases the usability of the product -Processing and packaging• Maintaining product quality -Cleaning, grading, sorting, cooling
Adding Value: LOCATION Provide product at a desired place Providing assortment Examples –Door-to-Door delivery –Mail order –Convenience stores –Truck stop fast food –Internet sites
Adding Value: TIME Providing product at a desired time Market windows--using seasonality Storage, scheduling, transportation, processing
Adding Value: OWNERSHIP orPOSSESSION Cost and risk holder Examples –Insurance, hedging, options –U-pick farms Credit agreements –Equipment rentals, –Loans, letters-of-credit contract harvesting or land clearing Lease agreements –Shipping insurance –Rent-to-Own –Visa/MasterCard and other credit cards –Futures markets
Adding Value: INFORMATION To inform & educate To persuade Done through marketing functions–Advertising, promotion, packaging, and labeling Examples –Weekly ads –Labels and brands –Geographic identity –Packaging –Third party certification –Point-of-purchase materials
WHAT IS AGRI-BUSINESS? John H. Davis (1955) “Agribusiness is emerging as a specialized branch of knowledge in the field of management sciences. In this context, agribusiness can be defined as science and practice of activities, with backward and forward linkages, related to production, processing, marketing, trade, and distribution of raw and processed food, feed and fibre, including supply of inputs and services for these activities”
Agribusiness Concept revolves around activities ofcommercialization of agriculture, which refers to marketorientation of agricultural production and marketingprocess. Transition from subsistence to commercialagriculture. The agribusiness system is made ofthousands of businesses ranging from the smallproducers to large corporations It is the managementthat drives and directs the firms , farms and foodcompanies that come together in the whole agribusinesssystem. Each of these businesses have managersresponsible for assuring successful completion of thefunctions, tasks and activities.
The agribusiness system includes many facets: Not only production (e.g., farmers, hatchery managers), also Organizations which provide inputs (e.g., fry, chemicals, feed) Processes the output (e.g., processing plants) Manufacturers (e.g., shrimp microwavable products) Transporters/Sellers/Brokers (e.g., retail grocery stores, seafood wholesalers, etc.)
The Agribusiness System Processing- Input Sector Production Manufactoring Sector Sector Agribusiness SystemNote: the success of each part depends upon the properfunctioning of the other two!
The Input Subsector Provides farmers with all things needed for production: feed, fry, credit, equipment, fuel, chemicals Example- Raasi Seeds, National Agro Industries (seeds cum fertilizer drills, Advanta India (seeds) Relatively few input businesses compared to production or processing
The Production Subsector• Corporate farms• New technologies have resulted in increased specialization of production genetically altered animals specific pathogen-free stocks• Example- Monsanto (new seeds), Mc. Cain India (frozen potato foods), Pepsi Foods India, ITC.
The Processing-Manufacturing Subsector Includes all business that turn raw materials into finished (or partially-finished) products Also includes packaging, distribution, and sales, places and forms desired by consumers Marketing bill represents 70% of total amount spent by consumers on food!!! Firms in this sector are very large (again, gathering economies of scale); very responsive to consumer tastes/ preferences Examples: ADM (grain processing), Zapata-Haynie (fish meal), Tyson Foods (feeds), ABT industries (export and import), Heinz India
Enabling Environment for Agribusiness in India Agribusiness in India Based on the vision document for the Ministry of Food Processing Industries (2005- 2015), the industry targets are as follows: Industry should aim to increase processing of perishables 20%. Increase value addition from the present level of 20% to 34%. Share in global trade up from 1.6% to 3%. The national policy aims to increase the level of food processing to 25 % by 2025
Emerging Sectors in Agribusiness IT in agriculture and rural development Post Harvest management and value addition Horticulture and food products marketing NGOs in agriculture and rural development Agriculture Extension Services Consulting and other knowledge based activities Biotechnology research and commercialization Corporate farming and farm management Agriculture supply chain management Rural and agri-foods retailing
KEY OPPORTUNITIES AREA Land Preparation Seed Sowing Nutritional Application Crop Protection Irrigation Harvesting Storage Transportation Farmer Market Equipment ServicesAgri-business Warehousesopportunities Post Harvest Treatment Biological Services Seeds & Seed treatments Fertilizers, micronutrients, pesticides Irrigation Systems Trading Infrastructure Packaging Marketing Transportation
POLICY INTIATIVES Use of foreign brand names is now freely permitted. After the enactment of the proposed Food Safety and Standards Bill, 2005 in India, the food processing sector would be governed by only one law and one regulator, instead of 13 different laws
TAXATION POLICIES A 100 percent tax deduction on profits for five years and 25 percent for the next five years especially to the upcoming agro-processing industries. The government has proposed a comprehensive goods and services tax (GST) by 2010. This will serve to integrate the economy and make India a single common market. Industry players are of the opinion that the GST will provide a relief to the food and beverages sector against the multiple taxes imposed at various levels today.
Duty-free import of goods for development, operation, and maintenance of SEZ units 100-percent income tax exemption on exports from SEZ units for the first 5 years, 50-percent exemption for years 6-10, and a 50-percent exemption of reinvested export profits for years 11-15 External commercial borrowing by SEZ units up to $500 million/year, without restriction, through recognized banking channels Exemption from central Government sales and service taxes Exemption from State sales taxes and other State levies
SUPPORTING INSTITUTIONS APEDA- Agricultural And Processed Food Products Export Development Authority Small Farmers Agri-business Consortium -ENTERPRENUERIAL TRAINING INSTITUTE • Agri-Clinics And Agri-business Centers • IIE, Guwahati • NISIET, Hyderabad • NIESBUD, New Delhi
AN EXAMPLE OF AGRIBUSINESS-CONTRACT FARMING A contract to purchase a specified quantity of produce at a pre-agreed price Fixed price Market linked price Quality of produce specified in contract or benchmarked to certain agreed standards Penalty for default usually specified in the contract but rarely enforced Relationship generally built on Trust
Harrisons Malayalam Ltd. HML’s predecessors Malayalam Plantations Limited and Harrisons & Crosfield Limited sterling companies incorporated in England – history of 150 years. In 1979, these companies incorporated as Indian Companies under the names Malayalam Plantations (India) Limited and Harrisons & Crosfield (India) Limited. In 1984, the two companies merged to form Harrisons Malayalam Limited. HML became part of the RPG Group in the year 1989. RPG Group - one of India’s largest industrial conglomerates, with over 20 companies in its fold, spread over 6 business sectors with an annual turnover over USD 3.25 Billion Winner of the maximum number of awards at “The Golden Leaf India awards” (TGLIA) for quality teas
Vital Statistics Largest plantation company based in South India. Single Largest Private Sector Employer in Kerala. HML has 25000 hectares of land under its fold 6000 hectares - in Tea, 8000 hectares - in Rubber Single largest producer of Natural Rubber in the Country, Second largest producer of Tea in South India. Largest Corporate grower of Pineapple Presence and other horticulture crops – banana, passion fruit, cocoa, coconut, arecanut and spices Largest exporter of Tea in South India – Some Important customers : Twinings – UK, Saralee – Netherlands, Elink Schurmann – Rotterdam, May Co – Russia, Baeshan – Saudi Arabia , A F Jones – Sri Lanka
THE HML WAY: Caring for People and environment An equal Opportunity employer with 7700 men and 8800 women workforce Winner of FICCI awards thrice for corporate initiatives in family welfare as a result of its Comprehensive Labour Welfare Scheme Aimed at improving the quality of life of the employees and their dependents. Pioneer in corporate social responsibility in Kerala with initiatives such as “ Rakshita ” a centre for development of children and adults with multiple disabilities Providing free medical aid for underprivileged in Rural Kerala. The only company in this sector to bag the Kerala State Pollution control award for its factory on more than one occasion emphasizing the responsibility and initiative taken by the company in preserving the natural resources for future generation.
PRESENT SCENARIO PROBLEMS Increasing nutritional requirements and decreasing available land Shortage of food grains Declining rate of food production and increasing population Decreasing crop productivity One of the Largest producers of fruits, vegetables, meat, milk, eggs, fish but low cost producers, low farmer incomes, poor exports, lack of storage India’s current share in world trade of processed foods is only 1.6%
KEY STRATEGIES AT NATIONAL LEVEL• Develop national comparative advantage• Development appropriate policy network• Development appropriate marketing and management skills network• Establish comprehensive rural financial market• Create market driven agricultural technologies• Develop alternate investment to expand rural well- being• Enhance sustainable use of resources
CONCLUSIONS Indian Agribusiness is at an interesting crossroads facing huge growth opportunities. It must gear up for and facilitate agriculture revolution through farmer- corporate partnership. Focus on market orientation is must. Reduce loss through bringing all operations on single platform. Need for wealth creation for farmers & investors, infrastructure development ,critical commitment and discipline could provide Global leadership. Transformation from seller-buyer relation to strategic partnership between corporate and farmer for a win-win outcome. Exposing traditional Indian agriculture to modern technologies, creating large scale processed food manufacturing and food chain facilities and consequently generate employment and export earnings.