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IGIDR-IFPRI -Promote Small and Medium Enterprises Nilabja Ghosh, IEG


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Indira Gandhi Institute for Development Studies(IGIDR), and the International Food Policy Research Institute (IFPRI) on
‘Harnessing Opportunities to Improve Agri-Food Systems’ on July 24-25 , 2014 in New Delhi.
The two day conference aims to discuss the agricultural priority of the government and develop a road map to realise these priorities for improved agri food systems.

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IGIDR-IFPRI -Promote Small and Medium Enterprises Nilabja Ghosh, IEG

  1. 1. Beyond farming: Entrepreneurship, Enterprise and Industry Paper presented to the workshop on “Harnessing Opportunities to Improve Agri-Food Systems” held on 24-25 July, 2014 at the NASC Complex, Pusa, New Delhi Nilabja Ghosh Institute of Economic Growth Delhi University Enclave, Delhi 110007 India Ph : 2766-7424
  2. 2. Acknowledgement  For primary data based study team work involving AERCs of: Ludhiana (Punjab); Jorhat (Assam); Sardar Patel University (Rajasthan); Shimla (HP); Delhi (Uttarakhand, Haryana); Bhagalpur (Bihar & Jharkhand); Allahabad (UP); Vishakhapatnam (AP)  Rajeshwor and Roopal of FASAL support in Consolidation and analysis
  3. 3. The transition of Agriculture: Subsistence to Market  Farming may be viewed as enterprise and recognized for the risk taking by farmers of food and export items for sale. After all production!  Food production is not just crop cultivation   < =>   Agro-processing as a link in the supply chain  End products-Food, chemical, pharma, beverage, craft, fuel etc.; Use of different parts and components- grain, husk, extracts, organs etc. Serial and sequential processing, Alternative processing, co-production or sundry varied with tradeoffs Consumer Agriculture ManufacturingFarm
  5. 5. Gains from value addition to agricultural products  Appeal, taste, packaging, convenience, variety  Employment generation, also in ancillaries (infa, machines, packaging, labeling, research)  Higher farm incomes  Quality gain, improved farm technology  Reduction of product wastage food value loss leading to saving of resources (water, land, others)  Gender empowerment- women joining workforce  Exports, informed purchase, health  Full use of agro-products and by-products
  6. 6. Agro-Processing
  7. 7. PADDY Raw rice, Powder rice, Par boiled, Broken rice, etc. OTHER PROCESSING CONSUMER SNACKS Grain milling Millingservices
  11. 11. LIVE ANIMAL STOCKS Carried over SLAUGHTER Basic Processing CONSUMER Food Processing Other (leather, industrial products lard etc.)
  12. 12. RAW WHOLE MILK Pasteurized Milk OTHER PROCESSING (milk fat, pharma, etc.) Basic Processing Creamskimmed/ whole milk flavored milk, yogurt, paneer, khoa, ice cream, baby food SMP, WMP, Casein Butter, butter oil, ghee Derived products (bakery, etc.) Exports CONSUMER
  13. 13. Entrepreneurship  Economic activity with risk-return tradeoff  Major instrument for employment generation and poverty alleviation in RD policies  Flagship prgrm- Integrated Rural Development Programme (IRDP) -poor achievement of product development and human capital formation  National Agricultural Technology Project (NATP), agricultural extension mechanism- addresses the dual issues of the farm technology/drudgery reduction and diversification  Addresses women entrepreneurship also  Flexible and more compatible with family workload
  14. 14. Three studies Objectives  To study the opportunities for processing activities related to Agriculture Three levels-Overview and main results  Entrepreneurship of farm women- using primary data  Small enterprises in the unregistered sector using NSSO data  Registered factories in organized sector using ASI data
  15. 15. Entrepreneurship of Farm Women  Coordinated study- based on Primary survey conducted between 2004 and 2005 (MOA sponsored)  Enterprises that draw on inputs from surrounding agriculture and nature  Surveys in Nine states (by AERCs) in districts selected on the basis of availability of enterprises- trained (NATP and other creditable sources) and non-trained.  Mostly NATP (extension) promoted, training important (KVK, KVIC SAU-Home Sc etc.) but all surveyed are not trained
  16. 16. Activity types  Primary production (PP)  Food processing (FP)  New and eco-friendly products (NEC)  Crafts (CRF)
  17. 17. Women in agriculture  Agrarian development in India overlooked the importance of gainful participation of women.  Tedious and exhaustive farm operation- little relation with human development.  Mostly as family labour (no direct income, recognition) or as farm labour (low paid, poor bargaining power in labour market).  Bias and social norms against work participation, regional and class dimension  ‘Women in Agriculture’ series of pgms sponsored by national and international agencies
  18. 18. Details of Samples in various Regions State Districts Activities Punjab Gurdaspur Amritsar Dairy (PP), Bee-keeping (PP), Papad-Badi (FP), Pickles (FP) Assam Jorhat Golaghat Live-stock (PP), Bee-keeping (PP), Fruit and Vegetable processing (FP) Rajasthan Udaipur Chittorgarh Vermi-composting (NEC), Improved animal feed (NEC), Fruit- vegetable, preservation (FP), Nursery raising (PP), Papad making (FP). Haryana Hissar Dairy (PP), Vermin-composting (NEC), Pickle making (FP) Himachal Kangra, Bilaspur Dairy (PP), Bee-keeping (PP), Vermi- culture (NEC), Potato production using Bio-pestiside (NEC), Diversified Farming (PP), Fisheries (PP). Uttarakhand Udham Singh Nagar Beekeeping (PP), Dairy (PP), Poultry (PP), Papad making (FP), Mushroom (PP), Quilt making (CRF) Uttar Pradesh Sultanpur Agarbatti (CRF), Blanket making (CRF), Spice processing (FP), Dalia making (FP), Milk processing (FP), Basket making (CRF) Andhra Pradesh East Godavari, Srikakulam, Visakhapatnam Coir products (CRF), Jute handicrafts (CRF), Leaf plates (CRF) Bihar Banka, Bhagalpur, Munger Preservation of Fruits vegetables (FP), Preparation of Jamjelly (FP), Preparation of Potato chips, Badi and Papad (FP), Preparation of pickles, and Murabba (FP)
  19. 19. Different Aspects of Agro Enterprises reported by Farm Women Enterprise Product Nature Of product Raw Material Male cooperation Land Dairy Milk Meat Egg, Dung Perishable Fodder Feed straw Moderate OL, CL - Moderate use Bee keeping Honey Wax Colony Fragile (Stored) Sugar Medicines Sheets Moderate CL-Low use Fishery Fish Perishable Seeds, Dung, Chemicals Moderate CL-high use Craft/utilities Basket, quilt,plates fragile Forest and farm wastes, others Moderate CL-high use Food products Papad Badi, Pickles, Jams, Squash etc. Fragile Can be Preserved Salt Spices Oil Pulses Fruits Vegetables Preservatives Moderate Low use but work space needed Agro/Live-stock inputs Animal feed, Vermi-compost Bio-pestiside Perishable Vermin Dung Flour Moderate OL-High use CL-High use Crop Diversi- fication Fruits & Veg. Nur- Sery Perishable (veg) Seedlings, Fertilizers, Farmyard manure High OL-High use Note: Land includes space within and without premises. OL-operated land; CL-common land. *additional inputs (new) provided by promoting agency.
  20. 20. Results  Micro scale of Operation (Rs 40K avg) Low income- Rs 18000 for year (supplementary), per capita monthly earning avg only- Rs 300 (5 member), less than poverty line, income to paid resources ratio- 3.8, Labour return-Rs 200 per 8hours day.  PP most lucrative followed by FP.  Bee-keeping - high return/Cost ratio but small scale of operation, Vermin-composting low profitability demand low, Papad-Badi in Punjab highly profitable labour shortage, Dairy cooperatives better performing in Punjab and Haryana  Performance-Associated with the economic conditions of the states, but found Viable  Employment generation 132 days (comparable with NREGA) highest for crafts and the least for the group NEC  Satisfaction- contribution to household income –Avg 16%, nearly 50% in UP sample, self-esteem, empowerment  Negotiation, participation and exposure, human capital formation, leadership skills  Freedom from drudgery  Beneficiaries -middle level background rather than the poorest –many possess comfort items, transport, Salaried members in households, mostly from landed households
  21. 21. Features Cost advantages from ecology o Bee-keeping in pristine environment (no vehicular pollution) in Himachal oFishery topological advantage (reservoirs) in Himachal , FV (fertile climate) BHR, Vermin from Common lands Organization generally individual, proprietary and mostly home based –few cases of common work space Techniques-manual/ simple machines, household implements for F&V processing. FP and CRF use electricity Family labour, own finance, few cases of borrowing from traders, SHG Cheap sourcing from own farm, neighbours, commons (vermin, dung), forests
  22. 22. Problems  Marketing greatest constraint reported  Not all product sold (esp NEC little demand)- used for home/farm use  Sold mostly through traders, Direct sales in village haats, Kissan melas (DWACRA), cooperatives in HRY, PJB (branded), ASSM (weak), national company (branded honey) in HP  Training not always useful as in FP  Male support crucial for marketing or input purchase
  23. 23. New features  Group operation (distinct from partnership) in Rajasthan, Bihar and Andhra Pradesh –- cost economy  Common workshops-share rents, machines (purchased or provided by supporting agencies or traders). Individual raw materials collective bargaining.  Not reported in most regions including Punjab and Haryana. • Branding • Cooperative with brand in PJB HRY -Dairy • Contract with company for national market-branded Honey in HP, Coir Board • Revival with new technology and training  Brinjal in HP using biopesticides and cross-bred cows with improved feed in HP • Gender  Female labour intensive, FP women have traditional expertise, Women supervision, easier access to credit, Male cooperation but help in outdoor work and negotiation (familiar stereotype)
  24. 24. Potentials  Farming can be integrated with and supplemented by enterprises of basic level processing services  Post harvest operations manual or with simple machines, cleaning/sanitizing, threshing, feeding animals/fertilizing soil separating, cutting- primary processing –preservation, making butter etc., craft work with by products and wastes.  Farming of new crops with new inputs/methods as special enterprises- need advert, awareness, support  Certified training primarily hygienic practices, customer preferences, nutrition of human and animals, efficient methods- basic managerial practices  Specialized marketing support needed- State, corporate responsibility, cooperatives
  25. 25. Small Enterprises (Only Food Processing NIC 15)  Data-NSSO 62nd round (2005-06) and 67th round (2010-11) secondary  Unregistered units in unorganized sector  Undertakings engaged in production meant for sale fully or partly  Operated by hhds singly or jointly  Excluding those registered under Factories Act or run by govt/ PSU  Include hhld and non hhd entrpr with and without hiring labour
  26. 26. The decline of the small units  Unorganized sector dominance strong in number of units (only 1%in Orgnzd) but poor (less than 5%) in value of output, 79% employment; 19% value of material  Between 2000-01 to 2010-11, number of units declined by 25%, employment by 30%  Shift to urban location (small increase in number, workers), huge fall in rural  Workers per unit 2.3 to 2.14- fall in both Rural and Urban
  27. 27. Missing opportunity  Integrate/tie with agriculture, trading and larger industries, malls/retailers and export markets  Understand their difficulties of viability  power supply, management deficiencies, capital, inconsistency with global norms/customer preferences, dependence on State support, Land issues, Environment  Delineate core competencies  Traders generally link with both farmers and business  Contentious relation with traders-  Ideally synergy with agriculture and large industries- need to improve professional relations  Traders play useful role, take risk, bring information esp price and market opportunities  Generally same traders as for agro-products
  28. 28. Factory sector (using agro-inputs)  Manufacturing activity  Employing 10 or more workers with power and 20 or more workers with or without power  ASI data- unit level identified by ASICC/NPCMS codes of agro-inputs, all NIC  Output mostly food but others like pharma, tobacco, fuel, dominant grain milling, starch feed etc.  Quantity data quality raised questions, deflated value by WSP to derive quantity processed
  29. 29. Sun rise sector  Between 20001-10-11 number of units rose by 4.4 Empt by 2.7% value of production and raw materials by over 30%.  Increasing worker on contract (16%-24%)gender ratio (16%)no change  Contracts with farmers, technology finance monitoing, quality standards and rejection  farmers offload rejected in APMC markets  larger national companies (as Pepsi), also regional processors (Potato, Tomato, Amla) cases of NGO intermediation  Depends on state policies  Challenges- price discovery, adjudication possible linkage with SSU
  30. 30. Organized and Unorganized sectors in Food processing in India Enterprises (No) Enterprises (No) Value added (Lakh) Value added (Lakh) Organized Unorganized Organized Unorganized 2000-01 21649 3011300 1644731 466752 2005-06 23734 2602807 2345568 1540575 2010-11 30253 2241195 5521147 2205400 Sources: National Sample Survey Office (various) and Annual Survey of Industries (various)
  31. 31. 100 150 200 250 300 350 400 2000-01 2001-02 2002-03 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Total Factories Production nominal Employment Production Real Growth (Index) of organised sector in Food processing in decade 2000s. Source: ASI data Food processing sector in the Unorganized sector in 2000s. Source: NSSO data
  32. 32. Share of the Organised and Unorganised Sectors in total Quantity processed in 2005-06
  33. 33. What is Agro-processing  Complexity of definition and specification of activities  Some activities are basic, essential for consumption  Milling of paddy, wheat, slaughtering animals, pasteurizing milk, crushing of Oilseeds, sugarcane • Done in Domestic kitchen, Commercial in informal sector or as services  Some output feed in as inputs in other enterprises  Multiple products from same input, Gnut as nut, to oil, other snacks (chikkis), Oil to refined oils, to other food  Value added sophisticated technology for varied food- paddy to rice- idli mix, milk- cheese to pizza  Some activities cleaning and packaging (for marketing) like spices, rice
  34. 34. Agro-processing as manufacturing: Wide variety  Agro processing: Alteration by heat, pressure, and/or freezing temperatures.  Processed products : Can be food, Beverages, non-food (chemicals, paints, varnishes, inks, bricks, porcelain, energy, furniture, broom, brushes, craft)  Byproducts and or constituents: Different uses – paddy- rice/rice products/husk/fuel-feed/craft/other purposes, wheat- atta/ flour/ suji/ bakery items/ noodles, husk for fuel, gluten, daliya, bran, Sugarcane-sugar/gur/ethanol, cogen, oilseeds- oil/feed/ manure, FV-presvtion/juice/puree/sauce/ jams/wine/medicines/compost, Milk-dairy products/other food products/whey/casein/fat, Animal-milk/meat/egg/ leather/other articles/medicinal inputs, fertilizer
  35. 35. Milling as service industry  Milling and processing may be integrated in manufacturing activity or given as services by commercial providers  Farm retention, PDS and other distribution  Government procurement of paddy/wheat from farmer- custom milled as service (nor mfg) and distributed as rice/atta  Procurement from millers (rice)allows more processing as mnfg (market rate?)
  36. 36. Estimates  Extent of processing is a measure of linkage between agriculture and industry  Complexities- few reliable estimates explaining methodology  Literature quotes that estimates of food processing vary among countries 70% Brazil, 30% Thailand, 78% Philippines, 30% China and 80% Malaysia, (KPMG-MoFPI-FICCI, 2007) whereas in India it lies low at about 1.3% (D’ Essence Consulting, 2009).  Data sources, methods, specification not elaborated
  37. 37. Need for estimates in India  Estimates cited (probably insights and insider information from industries) for FV as 2.2%, Milk as 35% and meat 21% (KPMG- MOFPI-FICCI, 2007)  APEDA quotes estimates at 1.7% for FV, 37% for dairy and 21% for meat.  Our estimates using ASI unit level data (% of net production corrected for SFW) : 1.79% for fruits; 2.52% for vegetables, 10.85% in milk, and 1.29% for milled rice, 2.16% for milled wheat and 15.4% for milled coarse cereals. (average of org sector, 2003-04 to 2010-11)  Largest value share of use of agro-inputs for grain mill, Oil, Sugar and dairy products, also fish feed, bakery, beverage, small share of chemical, bio electricity, furniture, crafts, paints etc.  Our estimates based on FAO data 2009-10 (% of net availability) are 0.2% for fruits, 49.5% for milk (whole) and 0.26% for milled cereals.  Estimates of milling services not counted
  38. 38. Concluding suggestions  Immense scope of developing enterprise and integrating agriculture with industry  Processing can start from farmer level  Need for useful relevant training, standards, mostly sanitary  Marketing- tie ups, support  New forms of organization (collectives) more exposure  Halt the decline of smaller units: Core competency  Advantage of cooperation with bigger industries- Prevent competition with LSU  Awareness of standards, technology and demands-policy support  Harness synergy with farm enterprises and larger industries  Processing service (milling etc) potential  Government procurements come in the way  Policy support to bring in investment in Larger industries (Fiscal and other macro policy )  Diffuse benefits through the supply chain (Farms, entrepreneurs, Traders, SSU, LSU, Consumers)  Monitoring and statistics  Improve statistical protocols-Attention to emerging and detailed consumption behaviour, processing amenable for public use and evaluation, consistency among databases
  39. 39. Features Cost advantages from ecology o Bee-keeping in pristine environment (no vehicular pollution) ,Himachal- oFishery topological advantage (reservoirs), FV in fertile areas, Vermin from Common lands Organization generally individual, proprietary and mostly home based – few in common work space Techniques-Mostly manual involving simple machines household implements for F&V processing (mixer, grinder and refrigerator). FP and CRF are two categories that are found to be users of electricity Family labour, own finance, few cases of borrowing from traders, SHG Cheap sourcing from own farm, neighbours, commons (vermin, dung), forests
  40. 40. Share (%) of Organized and unorganized sectors in food processing activities (05-06) Sector Enterprises Employment Value of outputs Materials Organized 0.90 21.09 96.85 80.51 Unorganized 99.10 78.91 3.15 19.49 Total 100.00 100.00 100.00 100.00 Note and Sources: Based on ASI and NSSO data for 2005-06
  41. 41. India's organized food processing sector in 2000s Year Total Factories Value of Production Materials Consumed Income Employment (In number) (Rs'000 Crore) (Rs'000 Crore) (Rs'000 Crore) Lakh number 2000-01 21649 135.52 107.54 10.52 13.33 2001-02 22395 130.35 103.76 9.74 13.07 2002-03 22490 157.00 129.23 8.25 13.08 2004-05 23471 175.41 144.48 12.45 13.43 2005-06 23734 201.28 162.59 18.10 13.92 2006-07 23951 246.02 194.97 28.56 14.76 2007-08 24616 296.66 243.21 26.79 15.05 2008-09 25788 354.69 292.62 30.30 15.64 2009-10 25915 385.47 317.50 33.21 16.06 2010-11 30253 507.58 422.75 41.79 16.62 Average growth% 4.42 30.51 32.57 33.02 2.74 Source: Annual Survey of Industries (various)