Financing Agriculture Increasing Interest in Agribusiness and Start-ups

Agriculture has emerged as one of the largest contributors to the Gross Domestic Product (GDP). During Q1 FY2016, agriculture and allied sectors grew 1.9 percent year-on-year and contributed 14.2 percent of Gross Value Added (GVA).

Market Size

Public Private Participation (PPP) in India has resulted in facilitating growth in the agriculture sector. We can also witness a significant growth in food processing and food exports. Information technology is also making its way into this realm. The Indian consumer is evolving and deriving the benefits of a variety of foods and other agricultural produce. Increase in consumption of dairy products, poultry and wine have also motivated domestic players to produce them within the country instead of importing, which was the trend till date. The agriculture sector is geared up to meet the growing demands of the consumer.

As per the 4th Advance Estimates, food grain production is estimated at 252.68 million tonnes (MT) for 2014-15. Production of pulses is estimated at 17.20 million tonnes. With an annual output of 138 MT, India is the largest producer of milk. It also has the largest bovine population. India is the largest importer of pulses at 19.0 MT and 3.4 MT, respectively. India, the second-largest producer of sugar, accounts for 14 percent of the global output. It is the sixth-largest exporter of sugar, accounting for 2.76 percent of the global exports.

India’s wine industry is experiencing a major transition. In 2015, the country’s wine production hit a record 17 million litres, with export sales rising 40 percent year-on-year to reach $4.4 million in the first 7 months.

Spice exports from India are expected to reach $3 billion by 2016–17 due to creative marketing strategies, innovative packaging, strength in quality and strong distribution networks. The spices market in India is valued at INR 40,000 crore ($6.16 billion) annually, of which the branded segment accounts for 15 percent.

Investments

In a recent CII event, agriculture and food-tech focused venture, capital firm Omnivore Partners emphasised that Venture capital funding in agri start-up firms is an emerging trend and marks the future of India. Unlike the technology and the ecommerce sectors, the challenges in funding agri start-ups are many. However, increased faith in the profitable turnaround will ensure sustainability of investments. Small Farmers’ Agribusiness Consortium (SFAC) also promotes investments in agribusiness projects with the participation of nationalised banks, SBI and subsidiaries/IDBI. Rabo Equity Advisors offers a wide range of services including strategic advisory, operations, fund management, structuring, M&A, capital markets, etc. According to its website, Rabo also has a global food & agribusiness knowledge provider known as the Food & Agribusiness Research and Advisory (FAR) to keep them updated with market trends and research. Similarly, SAIF Partners, a leading private equity firm also provides growth capital to modern agriculture.

According to the Department of Industrial Policy and Promotion (DIPP), the Indian agricultural services and agricultural machinery sectors have cumulatively attracted FDI equity inflow of about $2,182 million from April 2000 to June 2015.

Some major investments and developments in agriculture in recent past are:

Mahindra & Mahindra (M&M), India’s leading tractor and utility vehicle manufacturer, announced its entry into pulses retailing under the brand ‘NuPro’. Going forward, the company plans to foray into e-retailing and sale of dairy products;

Fertiliser cooperative IFFCO launched a joint venture with Japanese firm Mitsubishi Corp for manufacturing agrochemicals in India;

Acumen, a not-for-profit global venture fund, has invested INR 11 crore ($1.7 million) in Sahayog Dairy, an integrated entity in the segment, based at Harda district in Madhya Pradesh;

Rabo Equity Advisors, the private equity arm of Netherlands-based Rabo Group, raised $100 million for the first close of its second fund – India Agri Business Fund II. The fund plans to invest $15–17 million in 10–12 companies;

Oman India Joint Investment Fund (OIJIF), a joint venture (JV) between the State Bank of India (SBI) and State General Reserve Fund (SGRF), invested INR 95 crore ($14.62 million) in GSP Crop Science, a Gujarat-based agrochemicals company;

The world’s seventh-largest agrochemicals firm, Israel-based ADAMA Agrochemicals plans to invest at least $50 million in India over the next three years;

Belgium-based Univeg has collaborated with Mahindra & Mahindra to develop a fresh fruit supply chain;

Companies from the US, Canada, Australia, Israel, The Netherlands and other European countries have shown strong interest to transfer the best practices, linkages between scientific institutes, agriculture storage, cold chain management, market access, and productivity enhancement such as the introduction of new technology in seed and plant biotech;

Canada-based International Food Security Research Fund has major investments in food security research in several Indian universities. These strengthen food processing and sustainable agricultural techniques.

Government Initiatives

The Department of Agriculture and Cooperation under the Ministry of Agriculture has signed MoUs/Agreements with 52 countries, including the US. In addition, the Department of Agriculture Research & Education (DARE) and the Department of Animal Husbandry, Dairying & Fisheries (DAHD&F) under the Ministry of Agriculture have signed MoUs/Agreements with other countries, taking the number of partnerships with other countries to 63.

Given the importance of the agriculture sector, the government of India, in its Budget 2015–16, planned several steps for the sustainable development of agriculture. The government has already taken steps to address two major factors (soil and water) critical to improve agriculture production. Steps have been taken to improve soil fertility on a sustainable basis through the soil health card scheme and to support the organic farming scheme ‘Paramparagat Krishi Vikas Yojana’. Other steps include improved access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’; enhanced water efficiency through ‘Per Drop More Crop’; continued support to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the creation of a unified national agriculture market to boost the incomes of farmers. The government of India recognises the importance of micro irrigation, watershed development and ‘Pradhan Mantri Krishi Sinchai Yojana’ and has allocated a sum of INR 5,300 crore ($815 million) for it.

The government of India adopted several initiatives and programmes to ensure continuous growth. It allocated INR 25,000 crore ($3.9 billion) for the Rural Infrastructure Development Fund (RIFD), INR 1,500 crore ($231 million) for the long-term rural credit fund, INR 45,000 crore ($6.93 billion) for the short-term cooperative rural credit finance fund and INR 25,000 crore ($3.85 billion) for the short-term Regional Rural Bank (RRB) refinance fund. It also marked an ambitious target of INR 8.5 lakh crore ($130.9 billion) of agriculture credit during 2015-16.

Some of the recent major government initiatives in the sector:

India and Lithuania have agreed to intensify agricultural cooperation, especially in sectors such as food and dairy processing;

Gujarat government has planned to connect 26 Agricultural Produce Market Committees (APMCs) via electronic market platform, under the National Agriculture Market (NAM) initiative;

The state government of Telangana plans to spend INR 81,000 crore ($12.1 billion) over the next three years to complete ongoing irrigation projects and also undertake two new projects for lifting water from the Godavari and Krishna rivers;

The National Dairy Development Board (NDDB) announced 42 dairy projects with a financial outlay of INR 221 crore ($34.02 million) to boost milk output and increase per animal production of milk;

The government planned to invest INR 50,000 crore ($7.7 billion) to revive four fertiliser plants and set up two plants to produce farm nutrients;

The Ministry of Food Processing Industries took some new initiatives to develop the food processing sector that would enhance the income of farmers and export of agro and processed foods, among others;

The government of Telangana allocated INR 4,250 crore ($654 million) for the first phase of the farm loan waiver scheme. The scheme is expected to benefit 3.6 million farmers who took loans of INR 100,000 ($1,539) or below before March 31, 2014.

Conclusion

The agriculture sector will continue to grow and attract investments. The lucrative policies coupled with better fiscal incentives and the participation from private players will ensure sustainable growth in this sector. The changing behaviour of consumers will encourage agriculturists to enhance their produce and also explore other varieties, thereby improving their profit margins.

The writer is Founder, W&G wines, a start-up based in Himachal Pradesh specialising in fruit wine production, and may be contacted at wgwines6550@gmail.com


References:

The Economic Survey 2014–15, www.ibef.org, Rabo Equity, SFAC, Omnivore Partners, Saif Partners, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry 2014–15, Union Budget 2015–16, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports