[Kurukshetra August Summary] Agribusiness and Rural Industries – Explained, pointwise

Introduction

India has 15 agro-climatic zones and varied types of soil conditions that are capable of growing a variety of crops. India is one of the top producers of milk, spices, pulses, tea, cashew, jute, rice, wheat, oilseeds, fruits and vegetables, sugarcane and cotton. With this vast agricultural backbone and increasing demand caused by increase in population and their purchasing power, there is a huge scope of agribusiness in India, especially in rural areas. 

What is Agribusiness?

Post the Second World War, the green revolution led to the technological revolution in the agricultural sector. As a result, the agrarian units went through significant growth and specialization, which was significantly impacted by the economic growth and urban expansion. 

The technological intervention redefined the meaning of agriculture, which called for the integration of agriculture and the market. It brought agriculture and market together and made them interdependent on one another. In 1957 two Harvard Economists, Davis and Goldberg, introduced the term ‘agribusiness’ in their book ‘A concept of agribusiness’. 

Agribusiness is a process which includes manufacturing, distribution, storage, processing, marketing, and transportation  of agri-products. It can defined as integration of farm products and services with the market goods and service institutions. It encompasses all economic activities related to agriculture and its allied sectors. It can be grouped into 3 aggregates: (a) Farm Supply; (b) Farm Production; (c) Processing distribution.

Components of Agribusiness

The sectors of agribusiness have been categorized into input sector, production sector, processing and value addition, marketing and sales, and the support sector.

Input Sector: It deals with the provision of inputs to make agricultural production safe, secure, and profitable. In agriculture, the inputs are either biological or chemical or inorganic compounds used in the production of agricultural and allied products. The range of inputs includes bio-control agents to animal or poultry feed.

Production Sector: It mainly deals with the production of crops, rearing the animals for consumption, or serving as raw materials to produce secondary products. In the production sector, the inputs available in input sectors get invested in producing safe, secure, and profitable output. The farm owners and farm employees for commercial farming are the key stakeholders belonging to this sector of agribusiness.

Processing and Value Addition: It deals with refining and transforming the agricultural products available in the production sector with suitable technology to add value to the product. It facilitates easy consumption of the end consumer. Companies that pack and process agricultural products into finished goods to be bought by final consumers belong to the processing sector of agribusiness.

Marketing and Sales: This sector of agribusiness does not only make agricultural products available to those that need them but also sells agricultural inputs like seeds and fertilizers to those in the production sector of agribusiness. The marketing sector of agribusiness consists of wholesalers and retail companies that trade agricultural inputs and outputs.

Support Sector: It provides support to all other sectors in form of human capital development, knowledge development, training, providing financial support, and sensitisation of individuals in the agribusiness industry. The support sector consists of organizations that provide the technical know-how for advanced farming, provide education and training for agribusiness workers, provide loans, insurance and other financial assistance etc.

What is the significance of Agribusiness for India?

First, it plays a significant role in the development of the Indian economy as it contributes about one-fifth of gross domestic product (GDP), employs a large number of people, and ensures their livelihood. Agriculture and allied sector contributed around 20.2% of gross value addition to the total economy in the year 2020-2021. The International Labor Organization, in the year 2020 reported that employment in agriculture was 41.49% of total employment in India. 

Second, a robust agribusiness leads to the increase in the efficiency and productivity of the farm sector. Increase in the productivity of the farm sector leads to the increase in productivity and incomes in other industries as well.

Third, it can play a major role in sustaining food production and improving agricultural practices across the world to ensure an abundance of food supply. This way, the agribusiness process contributes to attaining the second sustainable development of reducing hunger in the world.

Fourth, a robust agribusiness sector also helps in enhancing FDI inflows into India e.g., the amount of FDI inflows in India between April 2014 to June 2021 for setting up food processing industries went up to US$ 4.64 billion.

What are the challenges faced in doing Agribusiness?

The World Bank Report on Enabling the Business of Agriculture, 2019 pointed out several aspects of the business of agriculture worldwide.

First, it is found that, worldwide, most of the farmers are small and about 84% of all farms have less than two hectares of land for growing crops and livestock. This limits their capacity to benefit from economies of scale and pushes them towards unviability. The situation is no different in India.

Second, many farmers lack the access to good quality seeds and fertilizer for farming. 

Third, Water, which is a basic requirement for farming, gets affected through regulations and the report pointed out how the insufficiency of water affects the decision of farming and the choice of crops. 

Fourth, the report also pointed out that one of the key obstacles the farmers of the developing countries face is the lack of collateral for credit to invest in production. 

Fifth, the trading of agricultural products gives impetus to the agribusiness sector. However, in many countries, it is found that barriers to trade prevent individual farmers and the agribusiness sector from increasing their sales.

What steps have been taken towards Agribusiness?

Integrated Scheme for Agricultural Marketing (ISAM): It aims to promote the creation and integration of the agricultural value chain, utilize the information technology and data, catalyze private investment towards agribusiness projects, and enhance research, training, and development in the area. It has 5 sub-schemes: (a) Agricultural Marketing Infrastructure (AMI); (b) Marketing Research and Information Network (MRIN); (c) Strengthening of Agmark Grading Facilities (SAGF); (d) Agribusiness Development (ABD) through Venture Capital Assistance (VCA) and Project Development Facility (PDF); (e) Choudhary Charan Singh National Institute of Agriculture Marketing (NIAM).

Agri-Clinics and Agri-Business Centers Scheme (ACABC): It provides expert advice and services to farmers on recent agricultural practices, market trends, financial assistance, technology dissemination, clinical facility for animals, and others. The aim is to enhance efficiency and productivity, which would result in an increase in the income of the farmers.

Budget 2022-23: It has laid a plan to promote agri-tech start-ups focusing on diverse aspects of agriculture. In this initiative, the NABARD shall support establishing start-ups and rural enterprises.

Agreements: The Government of India and the Asian Development Bank (ADB) signed a US$ 100 million loan to promote agribusiness networks to boost farm incomes and reduce food losses in the state of Maharashtra.

In February 2022 a Memorandum of Understanding was signed between India and Singapore, which is expected to give a boost to the agribusiness area. 

What lies ahead?

First, the focus should be on supporting start-ups in agriculture and allied sectors through NABARD that will boost developmental projects and investment in rural areas.

Second, it is also vital to improve the marketing links between the village entrepreneurs and the larger business firms located in the towns/cities. Such strategic alliances or partnerships can contribute to the sustainability of small villages and tiny enterprises in rural areas.

Third, other important considerations that need to be focused on include human resource development, financial/credit facilities, research and development etc. It will help in making the activities self-sustaining in the changing competitive environment.

Conclusion

Emphasizing on agribusiness has become an inevitable strategy for the government to boost rural industry, rural entrepreneurship, and employment through innovative interventions like the promotion of rural enterprise and start-ups in the agricultural sector.

Syllabus: GS III, Storage, transport and marketing of agricultural produce and issues and related constraints.

Source: Kurukshetra August 2022