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Agri Economy - An Industry Overview

Agricultural Industry Overview

Agriculture is the primary source of livelihood for about 58% of India’s population. It contributes 17% of India’s GDP. Indian food and grocery market is the world’s sixth largest, with retail contributing 70 per cent of the sales.

India is seeing a significant move towards urbanisation. With rise in aspirations, there is a steady migration of young people from rural areas to urban areas. This affects the population engaged in agriculture and also the people dependent on it. In addition, with changing lifestyles and more participation of women in the labour force, food patterns are changing. Increased population and shift from basic food to focus on nutrition is slowly changing the consumption pattern.

The industry can be looked through based on the various components;

Pre-Production and Production

  • Fertiliser
  • Seeds
  • Water - Pumps, Drip Irrigation, Pumps
  • Tractors, Tillers
  • Labour
  • Crop Insurance
  • Finance
  • Labour availability

Post-Production

  • Transportation
  • Warehouses
  • Marketing ~ APMC, Intermediaries, Distribution Channel

Indian Agri Related Policy Landscape

Government has multiple initiatives for the agricultural sector considering the strategic nature and also the number of people associated with it. Some of the key initiatives are:

Policy Measures for Producers

Input subsidies

Soil Health Card Scheme: Create a soil health database to prevent overuse or improper use of fertilizers

Financial support

  • Credit availability (farm loans, Kisan Credit Cards). Currently, there are 6.92cr Kisan Credit Cards in active use.
  • Pradhan Mantri Krishi Sinchai Yojana (PMKSY): To increase irrigation and cultivable land
  • Pradhan Mantri Jan Dhan Yojana: Though not directly, but provides access to formal banking channels to the unbanked section, a large proportion of whom happens to be farmers.

Price support - MSP

The primary objective of these policies is to retain self-sufficiency in primary commodities, support farmers’ income, and build grain stock for public distribution

Risk management policies

Pradhan Mantri Fasal Bima Yojana (PMFBY)

Land policies

Land Acquisition Bill

Certification

Paramparagat Krishi Vikas Yojana: Certification for organic farming

Policy Measures for Consumers

Consumer subsidy

Through public distribution system

Safety-net programs

School Feeding Programs

Cash based programs

MNREGA

Trade Policy

Import & Export Policies

  • Import Tariffs
  • Import/Export restrictions and bans
  • Quotas
  • Minimum Import Prices

Agri Production


India is the leading producer of milk, pulses, and spices and the second-largest producer of rice, wheat, cotton, sugarcane, farmed fish, sheep and goat meat, fruits, vegetables and tea.

Agri Marketing

Contrary to popular understanding, the 1991 liberalisation completely bypassed the agricultural sector. Agriculture continues to remain one of the most regulated sectors in India. Agri-marketing is one of the weakest links in the system.

Started in 2016, eNAM (electronic National Agricultural Market) covers 585 markets, 16 States and 2 Union Territories have been integrated. Inter mandi, inter-state trade had not picked up.

APMCs (Agricultural Produce Marketing Committee) have a stranglehold over the entire process of buying farm produce from the farmers. The margins tend to be very high, even to the extent of 60-70%. Farmers were forced by law to sell only through the APMCs. In most states, if they sold their produce outside the APMCs, they would still need to pay the APMC fees.

Government has recently bought in three ordinances to tackle the agri marketing and contract farming aspect of the sector.

‘The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020’ aims to decouple agricultural trade from APMCs. Farmers can now sell their produce to anyone without going through an APMC.

‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020’ has laid the ground for contract farming. Transparent price assurances, embedded in written contracts between farmers and ‘sponsors’ would guarantee protection. A commodity trader, wholesaler or even a food processing company can now enter into a mutually rewarding arrangement, with farmers.

The third ordinance is an amendment to the Essential Commodities Act. Through this Ordinance, the government has taken out agricultural commodities like cereals, pulses, oilseeds, oils, onions and potatoes out of the essential commodities list. The amendment to the EC Act will allow clamping of stock limits on agricultural commodities only under “very exceptional circumstances” like natural calamities and famines.

This is likely to unshackle the agri trade and reduce prices for the end consumer but also improve farmer’s incomes by reducing margins from the middleman. For example, the current tax / commission rate in APMCs in Punjab stands at 8.5 per cent.

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Global Agriculture

Food and agribusiness form a $5 trillion global industry that is only getting bigger. As per McKinsey, if current trends continue, by 2050, caloric demand will increase by 70% and crop demand for human consumption and animal feed will increase by at least 100%.


Source: McKinsey report

The following observations are based on data available from Euromonitor in 2018:

The world is shifting toward higher protein consumption -

  • Quinoa production up 265%
  • Fish catch up 45.8%
  • Meat and Poultry production up 23.9%

Water intensity increases –

  • Agriculture accounts for 70.7% of global water withdrawal – the highest of all sectors
  • Renewable water resources cu m per capita down 11.2%, but water withdrawal in agriculture up 1 percentage point at a time when other sectors recorded a decrease

Farming land shrinking –

  • Agricultural land down 1.3%
  • More pressure on agricultural land expected as urban population continues to grow

Greater drive for productivity –

  • Global fertiliser consumption up 11.8%
  • Crop yield in developed countries growing despite shrinking land due to innovative technologies
  • Farming consolidation for scale and more expensive technology is on the rise
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It is a wonderful write up that you have put up here for the entire Agri sector from the global as well as Indian perspective.
What would be really interesting to know is if we see a radical shift in the consumption habits of people out of fear of new diseases spreading through certain types of foods as compared to others. Will this lead to a shift in farming from Inorganic to Organic?
Also now a days lot of people have started moving onto vegan lifestyles and right now the market of Vegan products is quite small but with growing consumption the demand is bound to grow . We see Jain food available in almost all restaurants in Metro cities now and in the same way we may have vegan food available in all restaurants in future. What I am coming to is that the consumption habits are changing and usually the pre production and production is driven on the basis of consumption.

So it would be really interesting to know your thoughts on Organic farming and Vegan food products as a theme and how it will impact the overall agro based sector and if we have any players that are already exploring this space.

I don’t have any in depth knowledge about these things. These are just my thoughts based on what I see on a daily basis. Please ignore it if you feel anything is out of context here.

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It is a good thread with a lot of insights in to Agri industry…Appreciate Mr basumallick to initiate a discussion…
Today the biggest challenge facing the world is the " Climate Change/ Global warming"… And the World is going all out to figure out the sources of the Green house Gases such as CO2, CH4 and N20…Carbon dioxide, Methane and Nitrous oxide respectively…
That is why the whole World is taking action on Carbon foot print , minimising usage of fossil fuels such as Coal/ petrol/ diesel and encouraging use of Green /Renewable energy such as Solar / Wind/ Ocean waves / Hydro- electric…usage of Electric vehicle is being encouraged…

The next step which is being seriously looked into is the amount of CO2, CH4, N2O gas emissions associated with different foods and dietary patterns that we human beings consume

In a recent study conducted in Europe, it was found out that there is sharp contrast between climate impacts of plant and animal foods:
For example, it was found that1 kilogram of beef produces 14 times the emissions of whole, protein-rich plant foods like lentils, beans and chickpeas and all plant food.
The entire Europe, USA , Brazil , China the staple diet is Meat…non- vegetarian. It has also been found out that meat as a staple diet in all the 3 meals has led to CV disease…apart from the risk of Virus originating from animal kingdom…

Therefore these countries are taking a target of reducing meat consumption and phase out gradually-… That is why I foresee a gradual shift towards a plant based diet…
A link is attached below on studies conducted on climate impact of various food items:

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Monsoon and reservoir levels are important determinants of Indian agriculture activity.
This year monsoon started well but some regions have faced deficient rainfall during July month. Cumulative rainfall till July end looks good.


(source:IMD https://mausam.imd.gov.in/imd_latest/contents/rainfall_statistics.php more details are available if someone is interested)

Central water commission monitors the live storage capacity of 123 reservoirs of the country. As per latest data reservoir levels across various regions ( Except North) is much above compared to same period of last year.(141% of live storage capacity of corresponding period of last year and 103% of storage of last ten years.)

Fertilizers sales for the period 1-13th of July is 3.53 mn t compared to 6.85 mn t during whole of July last year.

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Southwest mansoon(september 2020):


Southwest mansoon ends with rainfall of 109% of its long period average(LPA)
Two consecutive years with above average rainfall in last 60 years.
5 met sub divisions got deficient rainfall including west UP and HP.

Water reservoir levels update(01/10/2020):


Live storage of 123 reservoirs monitored is 148.2 BCM which is 87% of total storage capacity.( last year it was 151.9BCM). As a whole its better than average of last ten years but less than last year corresponding period.
Overall it should augur well for Rabi season and ongoing agri reforms may further boost agriculture activity.

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Points to add here:
1> 25% drop in gas prices in india to also help fertiliser prices and sales.
2> Kharif plantation areas have increased by 5% YoY to 112 mn hectares.

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NG is mostly used in urea and Urea prices are fixed. The lowering of NG prices will help govt to reduce the subsidy amount. It may not translate to any increase in volume

regards

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Monsoon update:


(red: deficient, yellow: large deficient)

Southwest monsoon seasonal rainfall (June -Sept) for the country as a whole has been normal(99% of India’s long period average of 96-104%). Third consecutive year of normal monsoon which will help the agri economy.
SW monsoon rainfall over the monsoon core zone, which consists of most of the rainfed agriculture regions in the country, is above normal(106% of LPA).
Out of 36 meteorological subdivisions:
20 subdivisions received normal seasonal rainfall.
10 subdivisions received excess rainfall.
6 subdivisions received deficient rainfall(Northeast area, J&K and ladakh, West UP, Lakshadweep)

During July the country received slightly below normal rainfall( 94% of LPA) which was further reduced to 76% during August month. During September the country as a whole received excess rainfall (135% of LPA).
Winter monsoon( Northeast) from October to December is expected to be normal.

Water reservoirs level:


CWC monitors live storage status of 130 reservoirs ( which constitutes 66.7% of total country storage capacity).
At the end of September, live storage available in these 130 reservoirs is 138.32BCM(billion cubic meters) which is 80% of total live storage capacity of these reservoirs.
During last year corresponding period live storage available was 150.18BCM.
Last ten year average live storage was 132.96BCM.
Present live storage is 92% of last year’s corresponding period and 104% of last ten year average.

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