Investment opportunities abound in the Indian agriculture sector, not least in its inefficient supply chain, writes Deepak Nighoskar, a strategy consultant with Avizare Solutions.
The Indian food market is huge and bulging, which is not surprising as there are over 1.2 billion bellies to fill. Private food consumption is slated to top US $500 billion over the next five years.
But the sector feeding this appetite is growing well below its potential. Long-term agriculture growth has stagnated at around 3 percent and even this growth has been highly uneven. There are bottlenecks and inefficiencies that are pulling the sector down. And these are providing entry points for investment.
Dwindling farm sizes, stagnant productivity and inadequate innovation has led to a farm sector that is underperforming the rest of the economy by a wide margin. To put the sector in global perspective, India ranks among the top producing nations of major agricultural commodities.
The supply chain, taking farm produce to consumers, is too long and too inefficient. Too many people live off this long supply chain, with produce values inflating at each step as the margin for the corresponding player gets added. And this is without a proportionate change in the quality. Local agents have a poor infrastructure for the primary processing of food produce.
Besides, there is also the physical loss of produce. The most credible numbers of post-harvest wastage come from the government agencies. Between 5 percent and 18 percent of wastage happens depending on crop and the loss is felt across the value chain.
These losses come down to poor methods of transport, for the most part. For example, there are only about 6,000 reefer trucks that cater to food and agriculture produce and all other perishable products; cold storage capacity barely touches 30 million tonnes, which is only 40 percent of required capacity.
Conservative investors can look for opportunities across the value chain, identifying mismatches in demand and supply, and filling the gaps based on return expectations. But a much bigger opportunity lies in intervening at the farm level and in disrupting and recreating the supply chain feeding into this value chain.
Opportunities for intervention are in the following areas:
- Raising productivity at the farm level (smart farming with the aid of technology).
- Innovating to crunch the supply chain, taking out intermediaries.
- Fixing a supply chain that is broken and a mix of modern and antiquated business processes.
- Creating the missing infrastructure such as cold storage.
The Government aims at lifting long-term agriculture sector growth by a percentage point to 4 percent. Even without accounting for any improved efficiencies down the value chain, this will require the growth rates of the upstream and downstream businesses to increase by at least a third.
There has already been a quiet revolution in certain crops and regions on the back of technology, such as with quality seeds, hybrid crops, micro irrigation, protected cultivation and precision farming. But the trend can, and must, accentuate further, but with higher private participation and better government regulation.
The supply chain is ripe – ready to be plucked and disrupted.
Deepak Nighoskar is a strategy consultant with Avizare Solutions and helps companies to make better business decisions by leveraging facts, information and advanced analytics.