Fund Raising for Agricultural Support Activity Know More!
Any developing economy like India, especially being the second largest populous country, has to face challenges like food security and health, followed by fulltime employment to its people, leading to improvement in per capita income. The distribution system and efficient use of agricultural produce is a crucial factor for ensuring food security. While the entire exercise is focussed on delivering required food, it may not be out of context if we say, the nutritional aspect has entirely taken a back seat. Essentially, the programmes and policies aimed at grain production, giving food security by way of carbohydrate, but nutritional security by way of fruit and vegetables has been given a go bye. True to its nature as an agrarian economy, India has a major stake in agribusiness sector which has achieved remarkable success in the last three and a half decades. While there is great focus on the production of food grains, followed by production of fruits and vegetables, much needs to be done to protect the post harvest produce from spoilage from fungi, bacteria and pests as also from biochemical processes. The only answer for preventing the agri produce is processing. The processing of food not only saves the produce but also adds value to it.
The total food production in India is expected to double in the next 10 years, with estimated domestic market to reach $258 billion. The food processing industry forms an important segment of Indian economy in terms of contribution to GDP, employment and investment. This industry contributes as much as 9-10 percent to GDP.
The spoilage of food viz, grains, pulses, oil seeds, fruits and vegetable happens at two levels: in the field due to diseases and pests; and, during storage. The farmer, trader and consumer are all experience losses due to spoilage. The spoilage in case of fruits and vegetables can be estimated anywhere between 25-40 percent on an average.
The food processing industry is divided into two sectors: organised sector, having large business houses engaged in processing of food grains, fruits and vegetables, meeting domestic as well as export demands; and unorganised small scale sector, engaged in manufacturing pickles, condiments, papads etc.
For the processing industry, the Government of India expects a 25 percent growth of the total produce by 2025. However, this calls for higher investments, more planned and professional approach and entry of more and more entrepreneurs. There is a great need to make available all the key factors of production viz, land, labour (management) and capital. While efforts are on for providing suitable land for starting processing units, with the special impetus on food parks, but strengthening of labour and manpower/management and equipping them with suitable training, calls for greater attention. As regards to capital, although there is a robust financial sector comprising banks and term lending institutions, much needs to be done to link up entrepreneurs and financial institutions. It is a common phenomenon to hear that entrepreneurs are not getting timely funding and the required amount of funding. The factors that are responsible for the gaps are:
Entrepreneurial Education and Encouragement to Start-up Units;
Training in Technical and Management Areas;
Proper Counselling and Consulting Services;
Hassle-free Land Allotment;
Availability of Funding, Seed Money and Subsidy Easily;
Hand Holding and Encouragement for Exports;
Greater Impetus and Encouragement for Contract Farming for Raw Material Supply.
The different sub-sectors of food processing are dairy processing, grains and pulses, frozen food and thermo processing, cryo technology, fruits and vegetables, fisheries, meat and poultry, packaged or convenience food, spices and condiments.
The different stages of preparation for funding agri-support activities are:
Conceptualisation: A clear thought of what industry we are entering into, SWOT analysis, investment size, a look at economies of scales, availability of infrastructure at the identified location, convenience of forward and backward linkages, State’s policy of encouragement, availability of subsidy, seed money, study on demand and supply both in domestic and international market, availability of easy trained labour and industrial environment, legal aspects like Land Reforms Act etc.
Preparation of Detailed Project Plan/Report: This can be best left to project consultants who are specialised in the area. However, promoters should actively participate to make the report accurate and complete. This gives a clear picture of the project, all estimates/quotations, cash flow, projected balance sheet, if it is company, assumptions, repayment plans etc.
Constitution: Depending on the size of business and professional need, it can vary from proprietorship, partnership to companies or LLP.
Statutory Compliance: List out and obtain different licences needed. Obtain all commercial licenses like VAT, ST, IT, local municipal etc. If there is export and import component in the project, obtain IE Code from Director General of Foreign Trade.
Financial Institutions: The fund required for starting and running the project can be obtained from the term lending institutions like state finance corporation or commercial banks. For smaller units, RRBs can also support for the financial needs.
A good home work, well educated entrepreneur, availability of down payment or margin, availability of required collateral security and professionally prepared detailed project report are key factors for the success in getting funding. It is advisable to keep support of project consultant from conceptualisation stage till sanctioning of loan and commencement of business to avoid difficulties.
Apart from term lending institutions and banks, one can look at venture capital, crowd funding, initial public issue by way of shares, debentures, etc.
Loan Syndication: There are professionals who would undertake turnkey assignment, from preparation of DPR till syndication of loans from banks or other sources. Here, it is important to note that the consultant is only a facilitator but entrepreneur should be able to pitch with all requirements for the success of funding activity.
Extend Commercial Borrowing: If the industry has a large export component, it can look into the possibility of getting funds through foreign currency loans from abroad. The funds in this route are available at a very low cost.
Rating: If your industry can obtain rating from rating agencies, it will help in getting funds at lower rate.
Process for Funding: The entrepreneur has to approach the lender with DPR and submit the application. The lender processes the application and issues a sanction letter and also complete the valuation and legal scrutiny of the collateral security offered. This is followed by execution of documentation. The funds are released in stages as per development. The margin or down payment should also come proportionately.
Execution: The entrepreneur on availability of funds has to start with civil work, place orders for machinery based on lead time for delivery, plan for timely supply of raw material, have a special eye on imported material, restrictions on importing, to arrange for power connection and to establish effluent treatment plant and ensure completion and commissioning of project on time. Delay means cost overrun.
Subsidy and Seed Money: State Governments, Central Government and NHBs are offering subsidy upto 50 percent, which is generally back ended. There is also Central Government support by way of seed money to fund the margin upto 25 percent at low rate of interest.
Reporting: The entrepreneur has to keep reporting the lender or bank about the progress in prescribed formats (PIPR). This will help releasing funds as per progress. Finally, if a company registered with ROC, commencement of business also has to be reported.
For units engaged in exports, they have to register with APEDA for export incentives and report all export transaction on monthly basis. Similarly, reporting of exports to DGFT also should be ensured.