Agro Business: Following the Trail of Agriculture

The Transformation

Agriculture which was considered mainly the farm production for subsistence now has become agribusiness with strengthening of forward and backward linkages. Farm production, processing, and trade are getting increasingly coupled. With structural transformation of the economy, the share of agricultural production in the economy is going down, and that of processing, distribution and trade is increasing which indicates the high growth in value addition in agriculture.

The agribusiness sector encompasses four distinct sub-sectors, viz. agricultural inputs; agricultural production; agro-processing; and agro-services. All these add value or utility to the goods. 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 fiber, including supply of inputs and services for these activities. The word 'supply chain' is being increasingly talked of and discussed in current agro-business perspective. Supply chain is a coordinated system of organizations, people, activities, information, and resources involved in moving a product or service in physical or virtual form from supplier to the customer.

An Indian Perspective

Being an agrarian economy the country took the first step of promoting agriculture by incorporating the sector as a major area of development in all most all the five year plans, ever since their launch in 1951. The purpose of such plans over the years was to free the farmers from the clutches of the intermediaries. Further innovations in agriculture started with the deregulations in 1980s. Growth in investment in private research and development was particularly rapid in the seed and plant biotechnology sector, especially with New Seed Policy 1988 under which the industry was opened for private players. Imports of vegetables, flowers and fruit seeds were allowed under Open General License, huge cut in import duty on seed equipment and income tax rebate on R&D expenditure are some of the major incentives given in the liberalized seed laws. The policy was formulated to provide Indian farmers with access to the best available seeds and planting materials from domestic as well as foreign markets and the sector grew by more than 10 times between the mid 1990s and 2009. There has been massive increase in new varieties in major cereal crops viz., maize, wheat and rice. Introduction of GM varieties crops was a breakthrough in seed business. Similarly, entry of various new chemicals in pesticide market resulted in doubling registration of pesticides in twenty years after adoption of economic reforms. Growth in innovations also occurred in the farm machinery and value addition. All these innovations resulted in growth of agricultural productivity and incomes, exports of agro output, and generic pesticides.

Emphasis on Privatization Appeared to be Boon

A second major factor for making agriculture more business oriented was the economic liberalization that permitted opening up of various sectors for private sector, relaxing various limitations put on private sector in form of limits on licensing, imports, diversification, capacity enhancement which allowed large Indian corporations, business houses, and foreign firms to invest in agriculture and agribusiness.

Provisions of Special Economic Zones and Agro-Export Zones started with EXIM policy 2001 which helped making agriculture more export oriented by providing infrastructure, fiscal benefits, training, duty free imports of capital goods, facilitating export procedures etc. As the result, agricultural exports increased by about 20 times from 1990-91 to 2011-12.

Since long marketing of agricultural produce has been under the purview of state government through Agricultural Produce Marketing Committees (APMCs) which permitted selling and buying of agricultural produce to be done only at regulated markets. This system helped farmers, but looking to the needs of globalization the reforms in agricultural marketing were done through APMC model Act in the year 2003 which made a revolutionary change in agricultural marketing. It permitted establishment of private markets/yards/direct purchase centre, consumers/farmers market for direct sale; promotion of Public and Private Partnership (PPP) in the management and development of agricultural markets; separate constitution for special markets for commodities like onion, fruit, vegetables and flowers; promotion for alternative marketing systems like direct marketing, contract farming etc. This all helped in lessening the number of intermediaries in the marketing channel and linking of private players with farmers for mutual benefits.

The steep growth

The commercialization of agriculture into agribusiness is primarily supported by fast growing domestic market with changes in tastes and preferences. Due to high marginal propensity to consume, the large share of income is spent on consumption in food items. Large numbers of young people, increasing incomes and urbanization, more number of females working are some of the major factors responsible for increasing demand in favor of branded and packaged food products, organic & health foods and easy cooking solutions. This has also led to growth in both organized food retail as well as better services related to food service.

For production, processing and expansion of business in agro services including marketing, warehousing, communication the banking and financial institutions played a big role. The agro-finance which was earlier dominated by cooperative banks and regional rural banks is now dominated by public and private commercial banks. With lot of expansion in agricultural credit, demand for more agro business managers has increased in priority sector lending.

Tremendous improvement in Information technology helped making farmers more aware and approachable, improved efficiency in supply chain and created business for providers. Rural areas were untapped therefore business firms entered in rural areas with full swing and lot is being done in providing information for better crop production by service providers.

Infrastructure development by government in form of water availability, roads, power, telecom etc increased the efficiency of micro level investments by farmers.

Conclusion

A shift from 'agriculture' to 'agribusinesses' is an essential pathway to revitalize Indian agriculture. While the share of pure agriculture in GDP may decline, the share of agribusiness will not and is bound to go up with the demand for value addition continuously increasing.