Agrarian Society in Pursuit of Prosperity

Even though the agriculture and food industry is one of the largest industries in India, it is still in the process of attaining its true potential. The agrarian society, whose large population (nearly 58%) is dependent for their livelihood on agriculture and its allied sectors, is woefully struggling to support its key players, particularly the small farmers, agricultural labourers, food processing workforce etc., who are not getting their fair  share of the current growth and are becoming poorer.

● India, ranks second in terms of global food production. It is the world’s second largest producer of rice, wheat, sugarcane, cotton, groundnuts and fruits & vegetables; similarly in pulses, India contributed nearly 25% of the world’s total pulses during the 2010-2019. 

● The total exports of agriculture and allied products stood at US $41.25 billion in FY 2021, which can still be increased manifold. India currently exports to nearly 100 countries across the world.

● Ironically, no one recognizes India as the world’s leading producer and supplier, despite having a huge workforce, large industry base producing and manufacturing multi-diversified products.  

●With value addition, the Indian food industry can contribute immensely to the world food trade and can improve its contribution to the economy, which is negligible at present.  

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India, ranks second in terms of global food production. It is the world’s second largest producer of rice, wheat, sugarcane, cotton, groundnuts and fruits & vegetables; similarly in pulses, India contributed nearly 25% of the world’s total pulses during the 2010-2019. Various predictions of many experts about the growth of the agriculture sector in India are bolstered by the fact that the agriculture sector did not even allow itself to be affected by the pandemic during the last two years. When every industry was struggling to survive the difficult challenges posed by the lockdown, the agriculture sector in India contributed immensely to the economy and helped the government’s food security programmes.

Agriculture and its Allied Sectors, such as Food Processing, Horticulture, Animal Husbandry, Fisheries, Dairy Farming, Agri Marketing, etc., are the third largest contributors to India’s GDP after the service sector and industry sector. The share of the agriculture sector increased to 20.19% in 2020-21 from 17.8% in 2019-20 (as per the Ministry of Statistics). Even though the agriculture and food industry is one of the largest industries in India, it is still in the process of attaining its true potential. The agrarian economy, whose large population (nearly 58%) is dependent for their livelihood on agriculture and its allied sectors, is woefully struggling to support its key players, particularly the small farmers, agricultural labourers, food processing workforce etc., who are not getting their fair  share of the current growth and are becoming poorer.

The perils of Indian agrarian society 

Ironically, no one recognizes India as the world’s leading producer and supplier, despite having a huge workforce, large industry base producing and manufacturing diversified products.  Despite being a leading producer and exporter of food related raw material as well as processed food products, the Indian agriculture sector continues to face many tough challenges like lack of public investment, quality control, storage facilities, proper supply chains, value addition to farm products, reducing losses by curtailing waste during processing process, etc. Moreover, the crop productivity per hectare in India is still low as compared to other advanced countries.

Food inflation and fluctuating prices despite surplus production of many agricultural commodities are not only putting additional burden on consumers but also not helping farmers to recover the amount spent on their crops. Striking a balance between mass food production and protecting the agricultural environment seems to be a difficult task in India. The excessive and unrestricted use of chemical fertilizers in the greed of mass production is poisoning the ground water table and making the land barren.  The desire for large scale production of cash crops is also depleting the groundwater table, which will have a severe impact on the production of other crops in the future.

Farmers also need to diversify their crops into non-edible grains to realize higher value of their produce, which can be processed by private players to quality products with high nutritional value to attract a young population. The absence of a robust post-harvest loss management mechanism is preventing farmers from harnessing the true potential and making it difficult to fulfil the vision of the Prime Minister of doubling farmers’ income.

Food Processing Industry

Back in the early ’90s, due to the fundamental changes that took place in the process of opening up the economy, India moved towards a ‘non-agricultural economy’, resulting in a decline in agricultural growth and an increase in non-farm contribution. Since 2004, the policies of successive governments favoured the ‘non-farm’ sectors forcing the agricultural workforce, farmers and labourers, to look for other avenues of employment. Subsequently, the total exports of agriculture and allied products stood at US $41.25 billion in FY 2021, which can still be increased manifold. India currently exports to nearly 100 countries across the world.

As India was moving towards a ‘non-farm economy’,  businesses also began to focus their attention more on other industries related to agriculture. The food processing industry benefited the most from this tilt and gradually became an important industry to meet the food changing habits triggered due to the fast-paced lifestyle of the urban working population. The food processing industry, though dependent on agricultural raw products for its growth, has expanded its canvas with the help of financial incentives announced by the government from time to time in manufacturing from value-added food, fodder, fibre, fuel to livestock and to aqua cultural sources.

The Indian food processing industry is said to be at a nascent stage, only 10% agri raw produce are processed in India. Yet it ranks fifth in terms of production, consumption, exports and expected growth, depends mainly on ever-growing domestic consumption, as well as consumer preferences for value-added products for its growth.  Progress in the agriculture sector and food processing industry with the help of technological advancement, can be one of the net foreign exchange earners.

Agriculture and food processing industries are complementary to each other and both the industries will benefit from consistent coordination between them. The congruent coordination will help in increasing the export of agri and F&B products and in consolidation of the agri & food economy in India and its contribution to country’s GDP. Indian agriculture and its allied industries can be benefitted by the fact that the global trade of food is growing at a rapid pace and reliance of countries on each other for sustaining adequate food supply.

According to industry data, there are about 40,000 registered food-processing units in India, employing over two million people. The main contribution, nearly 80% of the food processing industry comes from the unorganized sector and bringing these players into the organized set up is the biggest challenge.

There are a large number of food processing MSME units in the unorganized sector, which can play an important role in the food processing industry. MSME units can strengthen the industry by adopting latest processing technologies, storage of perishable F&B products and adopt or create small e-commerce hubs to increase their consumer base. The emerging online food ordering business has tremendous scope for F&B products to increase the reach of processed food to middle class families across the country.

Factors dwarfing the growth of Indian food processing industry

Outdated processing technology coupled with poor supply chain infrastructure are major impediments to the growth of the food processing industry. Lack of skilled F&B specialized workforce, inefficiency and inadequate capacity of supply chains, innovation and food-fusion with authentic flavours as per consumer preferences, high wastage in perishable food produce are some of the other challenges for the industry. The F&B industry is to be blamed itself due to the lack of funding for innovation and acquiring the latest processing technologies to meet these challenges. Moreover, the preference of ‘fresh food products’ over ‘processed food’ in the domestic market has dampened the spirit of the food processing industry to experiment and invest in new technologies.

The Government of India has taken several steps to strengthen the agriculture and food processing industry. The government has allowed 100% FDI in the food processing industry through the permitted route of trade and e-commerce on food products produced and manufactured in India. Yet according to DPIIT, the food processing industry succeeded in attracting FDI equity inflows of around US$ 10.43 billion during April 2000 to June 2021. The year 2020-21 was even worse when FDI inflows declined by 54% as compared to the previous year. It is incomprehensible why an industry, which is currently expanding at a CAGR of 11%, has so far failed to attract substantial FDI as compared to other sectors. Viz. Computer Hardware and Software Sector Infrastructure and Services Sector, respectively, which performed extremely well and attracted foreign investors positively. Through joint ventures and partnerships with foreign companies, not only will there be an increase in FDI in various sectors of the industry but it will also bring in the latest processing technologies and resources to help the industry, by minimizing waste, & increase its production capacity.

Further, India’s strategic location in the Indian Ocean has many economic advantages. It has the geographical advantage of connecting West Asia, Africa and Europe with the West Coast and Southeast and East Asia from the Eastern Coast and can export directly to the top export destinations. However, India has been facing tough competition while accessing export markets in view of the lack of new technologies for hygienic food processing, preservation for long shelf-life of food, good and attractive packaging to maintain the quality of food and keeping safe to eat, etc.

However, to some extent, the Indian agriculture and food processing industry has not been able to expand its business overseas, as Indian exporters are reluctant in taking some bold steps that would benefit the industry. Exporters are not very keen to come out of their comfort zones while exporting F&B products. Despite technological advancements that have brought countries closer to each other, Indian exporters are still doing what they have been doing for years. For exports, Indian exporters still depend mostly on people of Indian origin and/or immigrant Indians. Today, the need is to expand their consumer-base by targeting the native population, besides Indian diaspora, in the country or region to which they intend to export their products. Secondly, Indian exporters also seem to refrain from exporting to new markets. Perhaps such a strategy may be commercially and financially viable for them, but they have not been able to explore new markets and grow their consumer base. Due to lack of demand for Indian F&B products among the local population, foreign importers are not keen to import Indian processed food products.

Free Trade Agreements, besides some disadvantages for emerging markets, provide opportunities to promote products, to access new markets, support economic growth & business climate, technical expertise and FDI to boost trade between the signing countries. However, it is not an easy task for a developing country like India to seize opportunities and take advantage of FTAs for export of cost effective quality food products.  India has signed FTAs for market access and economic cooperation with more than 50 countries, but this doesn’t mean that the countries will automatically become a good trading partner and the import-export trade between both the countries will shoot up.  India and the US have not entered into FTA, yet the US is one of the largest importers of Indian products. The Indian diaspora makes the US as the favourite export destination for Indian exporters.

Post-pandemic global markets are also facing unprecedented situations such as huge disruptions in shipping consignments mainly because of lockdowns and shortage of containers, invisible fear of virus spread, restrictions imposed on export-import trade by countries, which are still in place in many countries, etc. aggravated the trade environment. The current war between Russia and Ukraine has also hurt the confidence of global markets.