SOUTH INDIA JOURNAL OF SOCIAL SCIENCES

ISSN: 0972 – 8945

MICRO, SMALL AND MEDIUM AGRI-BUSINESS IN KERALA: BUSINESS
OPPORTUNITIES AND CHALLENGES

Syam Krishnan R, Research Scholar, School of Management Studies, Gandhigram Rural Institute –
DTBU, Gandhigram – 624302, Dindigul District, Tamil Nadu - 624302.
Rathakrishnan L, Professor and Dean School of Management Studies,Gandhigram Rural Institute -
DTBU, Gandhigram – 624302 and the Corresponding Author, : lrathakr@gmail.com;

Abstract
The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last few decades. This sector has often been hailed as
the engine of economic growth for countries as it plays a crucial role in providing large-scale
employment opportunities at a lower cost of capital. Presently, the MSME sector contributes 29
percent o India’s GDP and employs more than 11 Crore people. As per the MSME Annual Report
2020-21, Kerala has the 14th largest number of MSMEs in India - around 23.79 lakh units of which,
23.58 are micro-enterprises, generating employment for approximately 44.64 lakh people.
Agribusiness related MSMEs are having a major role in generating employment. This area is also
helping the uplifting rural and backward communities through industrialization, resulting in a more
equitable distribution of national income and wealth. These also act as ancillary units supporting
large industries and have a huge potential in reducing poverty, boost exports and contributing to
overall socio-economic development. This paper examines the performance of Agri-based MSMEs
and to analyse the major challenges faced by them in Kerala. . Census methodology was adopted in
this study. Primary data was collected from all 300 MSMEs through the Telephonic interview
method. The study found that a large number of Agri- based MSMEs are located in Ernakulam and
Kozhikode districts . Majority of them are operating in marketing and sales sectors. Educated young
entrepreneurs and women are dominating in this Agri-business MSME sector . The challenges faced
by the Agri-business MSMEs and policy suggestions are given at the end of the paper.

Keywords: MSME, Agri-business, Opportunities and Challenges.

Introduction
In recent decades, agriculture and allied sectors are emerging as potential fields of entrepreneurship
as the disruptions caused by COVID-19 have hit employment opportunities hugely. Even though in
other fields many people are worried about the loss of jobs and decline in profit, in this field of agri-
business sector the pandemic has opened a vast field of opportunities. Especially in the Agri-input
sector, food processing sector, and agriculture commodity marketing sectors. Many new generations
of entrepreneurs are entering this field with lots of hope and enthusiasm.

Now, agriculture is moving towards agri-business, the food processing sector with ready–to–eat and
ready-to-cook segments are accruing momentum across the country. Now Kerala also has many
successful Agri-business start-ups. They are getting lots of financial as well as infrastructural support
from central and state governments. Policies and programmes related to this Agri-business start-up
sector will be one of the thrust areas in the post Covid 2019 phase. A lot of entrepreneurship
opportunities exist in this sector

In early days the number of Agri-business units were very less. But after the pandemic lockdown
period, lots of educated young farmers and techies come out with various types of small scale agri-
business models. They have developed various types of business ventures in the fields of the Agri-
input sector, agriculture processing and value addition sectors (Tapioca processing units/Jack fruit
processing Units) agriculture product retail sectors (Farm fresh products apps/Packed Farm fresh
outlets) and in agriculture mechanisation and labour supply sector (mobile farm mechanisation
units/Farm labour supply apps).

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Very recently Kerala Agricultural University established KAU RAFTAAR Agri-Business Incubation
(KAU- RABI) Centre, to take forward the vision and objectives of RKVY RAFTAAR (Rashtriya
Krishi Vikas Yojana - Remunerative Approaches for Agriculture and Allied Sector Rejuvenation)
with the help of State and Central Government. This would be done by transforming the technical
know-how in agriculture into commercially viable enterprises and facilitating entrepreneurship. All
these business ventures have been positioned, based on the market demand.

But even in this situation, this sector is facing a lot of challenges from different areas. Among all the
sectors, Agri-business MSMEs were badly hit following the lockdown as industries remained closed
for more than six months. The current economic situation is not conducive to small industries as
there is restricted liquidity in the system, though the government pumped in stimulus to keep the
sector alive. Although the Government has introduced several economic measures in terms of
financing, certain gaps remain prevent the sector from functioning well.

Statement of the Problem

The Micro, Small and Medium Enterprises (MSME) sector is a fast emerging field that provides a
major income-generating and employment providing sector in Kerala with relatively lower
investment. Kerala is one of the main centres of Agri-based MSMEs in the country. As per the
MSME survey & Quick Results of the 4th Census, 5.62 % of all India's share of Agriculture based
MSME enterprise is in Kerala. This leads the State economy by increasing exports through quality
production techniques and products. The government provides various schemes under the MSMEs
sector, targeting various social groups like SC, ST, Women, Youth, and the Physically Handicapped.
In Kerala, Government and banks are providing a lot of facilities for Agriculture based MSME
Sector. This paper mainly discusses the prospect of Agri-based MSMEs in Kerala, district-wise
allocation, involvement of various segments of the society in the formation of Agri-based MSMEs
and analyse the overall turnover of business generated by these MSMEs in the last financial year.
Micro, small and medium enterprises (MSMEs) play a crucial role in promoting equitable
development and in nurturing innovation on a small scale. The sector has huge potential in
addressing structural problems such as unemployment and regional and intersecting oral imbalances.
As an agrarian country, India is giving great preference to Agri-business MSMEs throughout the
country. Given their comparatively low capital costs and their forward-backwards linkages with
other sectors, MSMEs play a crucial role in building a diversified Agri-business sector also. Agri-
business is concerned with the manufacturing and distribution of farm supplies, agricultural
production like planting crops, rearing of animals, storage of farm products and distribution and sale
of agricultural products. Agri-business simply deals with agricultural activities and is centred on the
business of agricultural production. Agri-business plays the role of sustaining food production and
improving agricultural practices across the world to ensure an abundant food supply.

Objectives of the Study

1. To examine the performance of Agri-based Micro, Small and Medium Enterprises (MSMEs) in
Kerala;
2. To analyse the major opportunities and challenges faced by Agri-based MSMEs in Kerala; and
3. To suggest suitable policy measures to overcome the challenges faced by MSME Agri-business
sector

Materials and Methods

To analyse the above stated objectives, a census methodology was adopted in the study. As such all
300 Agri-based MSMEs were selected for the study in Kerala. Primary data collected and used for
study purposes. The study administrated a structured interview schedule and conducted a structured
telephonic interview. Simple statistical tools have been used to analyse and interpret the data.
Descriptive research methodology was used in the study.

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Results and Discussions
Table 1: Classification of Agri-business Enterprises Selected
Sl.No Classification Number of Units %

1 Micro 220 73.33

2 Small 70 23.33

3 Medium 10 3.33

TOTAL 300 100.00

Table 1 shows classification of the Agri-business Enterprises selected for this study. It is found that a
large number of agriculture-based enterprises are micro enterprises (73.33%), Followed by small
enterprises (23.33 %) and medium enterprises (3.33%).

After fourteen years since the MSME Development Act came into existence in 2006, a revision in
MSME definition was announced in the Atmnirbhar Bharat package on 13th May, 2020. As per this
announcement, the definition of Micro manufacturing and services units was increased to Rs. 1 Crore
of investment and Rs. 5 Crore of turnover. The limit of small unit was increased to Rs. 10 Crore of
investment and Rs 50 Crore of turnover. Similarly, the limit of medium unit was increased to Rs. 20
Crore of investment and Rs. 100 Crore of turnover. The Government of India on 01.06.2020 decided
for further upward revision of the MSME Definition. For medium Enterprises, now it will be Rs. 50
Crore of investment and Rs. 250 Crore of turnover
Table 2: Agri-business Based MSMEs in Kerala - District Wise Distribution
Sl.No Districts Number of Units %
1 Thiruvananthapuram 27 9.00
2 Kollam 16 5.33
3 Alappuzha 17 5.66
4 Pathanamthitta 10 3.33
5 Kottayam 24 8.00
6 Idukki 8 2.66
7 Eranakulam 38 12.66
8 Thrissur 28 9.33
9 Palakkad 28 9.33
10 Malappuram 14 4.67
11 Kozhikode 34 11.33
12 Wayanad 16 5.33
13 Kannur 26 8.66
14 Kasargod 14 4.67
TOTAL 300 100.00
Table 2 shows Agri-business based MSMEs in Kerala. It is found that a large number of agriculture-
based MSMEs are present in Ernakulum district (12.66%), Followed by Kozhikode district
(11.33%). Palakkad district (9.33%), Trissur district (9.33) and Thiruvananthapuram district (9%) .
The attributing reasons for domination in these districts are due to advanced infrastructure facilities
and logistics facilities .In Idukki district and Pathanamthitta district we can found lesser number of
Agri-based MSMEs.
Table 3: Agri-business Based MSMEs in Kerala – Sector Wise Distribution
Processing Marketi
and Value ng and
Production addition Sales Support
Input sector Sector sector Sector Sector
Sl. No Districts MSMEs MSMEs MSMEs MSMEs MSMEs TOTAL
1 Thiruvananthapuram 5 4 7 10 1 27

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2 Kollam 2 2 10 2 0 16
3 Alappuzha 2 5 5 4 1 17
4 Pathanamthitta 2 2 3 3 0 10
5 Kottayam 2 10 5 5 2 24
6 Idukki 1 2 3 2 0 8
7 Eranakulam 6 10 9 11 2 38
8 Thrissur 4 6 8 9 1 28
9 Palakkad 5 7 8 7 1 28
10 Malappuram 5 2 4 3 0 14
11 Kozhikode 8 10 5 10 1 34
12 Wayanad 3 4 4 5 0 16
13 Kannur 4 10 3 8 1 26
14 Kasargod 2 4 3 5 0 14
TOTAL 51 78 77 84 10 300
% 17.00 26.00 25.67 28 03.33 100
Maximum number of the Agri-business MSMEs are based in the marketing and sales sector (28 %.),
followed by production sector MSMEs (26 %.) and processing and value addition sector MSMEs
(25.67 %). However, a least number of sectors were found in the category of support sector.
The various sectors of the Agri-business industry are the agriculture input sector, production sector,
processing and value addition sector, marketing and sales sector and support sector.
Agriculture Input Sector
Inputs required for agricultural production include seeds, agrochemicals such as fertilizers,
herbicides and pesticides, feeds for livestock, drugs for livestock, irrigation systems, machineries
such as tractors and tractor-coupled implements like planters and harvesters. The input sectors of the
Agri-business industry are made up of firms that engage in the production and distribution of
agricultural inputs listed in the preceding sentence. This sector has improved the quantity and quality
of agricultural products or outputs in recent years. This sector of Agri-business has also encouraged
innovation through the manufacturing of machines that make the production process faster. The
sector of Agri-business is also involved in the manufacturing of fertilizers for specific plants and
chemicals to fight pests and ensure plants grow in a conducive environment. The input sector of agri-
business is very important because it determines the nature of agricultural products and outputs and
therefore influences other sectors of Agri-business.

The Production Sector

The production sector is the oldest Agri-business sector on earth. This sector is most common
anywhere in the world. This sector of Agri-business deals with the cultivation of crops and the
rearing of animals for consumption or to serve as raw materials to produce secondary products. The
production sector of Agri-business is the sector that invests the inputs that the input sector of Agri-
business makes available. This sector is responsible for the production of crops for food and cash
crops to feed other industries like cotton for the textile industry. The production sector utilizes the
inputs made available by the input sector of Agri-business for agricultural production. This sector
ensures that seeds are planted so that crops can be harvested, that fertilizers are used on plants so that
plants can grow healthier, and also to prevent pests from destroying crops. Animals are raised in
good conditions, livestock eats quality meals and is vaccinated if necessary and machines are used to
ensure speedy production of agricultural goods.
Processing and Value addition Sector
Farm products are not usually consumed by humans in the state in which they are harvested. They
are first processed into forms which they can easily be consumed by human beings or used for other
purposes. The processing sector of Agri-business is concerned with refining agricultural products
made available by the production sector of Agri-business that can easily be consumed by the final
consumers. It is this sector of Agri-business that packages and brands agricultural products.
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Companies that package and process agricultural products into finished goods to be bought by final
consumers belong to the processing sector of Agri-business.
Marketing and Sales Sector
This sector of Agri-business is concerned with the buying and selling of both agricultural inputs and
outputs. This means that this sector of Agri-business does not only make agricultural products
available to those that need them but also sells agricultural inputs like seeds and fertilizers to those in
the production sector of Agri-business, who need them for production. The marketing sector of Agri-
business consists of wholesalers and retail companies that trade agricultural inputs and outputs.
The Support Sector
The support sector of Agri-business is a very important sector of Agri-business because it helps other
sectors of Agri-business perform their functions effectively. The support sector of Agri-business
supports all other sectors of Agri-business through human capital development and training, funding,
and sensitization of individuals in the Agri-business industry. The support sector consists of
organizations and firms that provide education and training for Agri-business workers, loans, aid and
other financial assistance to Agri-business firms and moral support to companies in the Agri-business
industry.
Table 4: Agri-business Based MSMEs with Udyog Aadhaar Number
Total Number of Units with Udyog
Sl.No Districts Units Aadhaar Number %
1 Thiruvananthapuram 27 15 05
2 Kollam 16 8 03
3 Alappuzha 17 5 02
4 Pathanamthitta 10 3 01
5 Kottayam 24 10 03
6 Idukki 8 3 01
7 Eranakulam 38 25 08
8 Thrissur 28 15 05
9 Palakkad 28 18 06
10 Malappuram 14 7 02
11 Kozhikode 34 22 07
12 Wayanad 16 3 01
13 Kannur 26 11 04
14 Kasargod 14 5 02
TOTAL 300 150 50
Table 4 shows Agri-business based MSMEs with Udyog Aadhaar numbers. It is observed from the
table that only 50% of these Agri-business based MSMEs are holding their own Udyog Aadhaar
numbers. This is a clear indication that remaining 50% of the Agri-business based MSMEs are in
unorganised in nature.

Udhyog Aadhaar
Udyog Aadhaar is a twelve digit unique identification number provided by the Ministry of MSMEs
for the small and medium enterprises to register themselves as MSMEs. It is also known as Aadhaar
for Business. Unlike other business entities, a sole proprietor business owner does not have an
official recognition of his business. Udyog Aadhaar is highly advisable for Sole Proprietors who dont
have an official govt recognition. Udyog aadhaar helps a sole proprietor get a unique identity and
official registration with the Government of India that validates the existence of his business. Other
types of business entities usually have a official recognition and they can register for Udyog Aadhaar
and avail the other benefits offered by MSMEs. There are a numerous benefits of registering and
getting a Udyog Aadhaar for business like protection against delay in payment, fast resolution of

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disputes, collateral free loans from bank, exclusive consideration for participating in international
trade fair, waiver of stamp duty and registration fees, several exemption under direct tax laws etc.
Table 5: District Wise Employment Generated By Agri-business MSMEs
Number of Employment Average employment
Sl.No Districts Units generated (Nos.) generated
1 Thiruvananthapuram 27 621 23
2 Kollam 16 560 35
3 Alappuzha 17 585 34
4 Pathanamthitta 10 300 30
5 Kottayam 24 350 15
6 Idukki 8 210 26
7 Eranakulam 38 925 24
8 Thrissur 28 810 29
9 Palakkad 28 948 34
10 Malappuram 14 534 38
11 Kozhikode 34 670 20
12 Wayanad 16 285 18
13 Kannur 26 595 23
14 Kasargod 14 369 26
TOTAL 300 7762 26
Table 4 shows the district wise employment generated by Agri-business MSMEs. It is visible that a
maximum number of employment opportunities was generated from Palakkad district (948
numbers), followed by Ernakulum district (925 numbers) and Trissur district (810 numbers). In
absolute numbers, Malappuram and Kollam districts had generated more employment per unit of
Agri-business MSMEs than any other districts in Kerala. On average, these two districts had
generated 38 and 35 respectively per unit of Agri-business MSMEs. On average, the Agri- business
MSMEs in Kerala has generated 26 employment
Table 6: Agri-business MSMEs Started by Various Segments of Society
Sl.No Agriculture MSMEs Started by Various Segments of Society MSME units %
1 SC and ST groups 53 17.67
2 Educated Young Entrepreneurs 85 28.33
3 Women Entrepreneurs 74 24.67
4 Overseas Return Entrepreneurs 20 6.66
5 Others 68 22.67
TOTAL 300 -
Table 6 indicates the detailed list of interest groups from various segments of the society, who started
Agri-business MSMEs in Kerala. Due to the impact of the Covid 2019 pandemic situations and other
economic crises, lots of youngsters and technocrats were searching for new opportunities in
entrepreneurship, especially in Agriprenurship. From Table 5, it is clearly understood that a majority
of these Agri-business MSMEs are started by the Educated Young Entrepreneurs (28.33%), followed
by Women Entrepreneurs (24.67%). Nonetheless, a significant improvement was found from SC and
ST community also on initiating Agri-business MSMEs (17.76%)

Table 7: Various Types of Challenges Faced By Agri-business MSMEs

Number of Agri- Business MSME %
Sl.No Types of Challenges units Responded for Each Challenges
1 Financial Challenges 210 13.13
2 Market Access Challenges 140 8.75
3 Regulatory Issues 134 8.38

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4 Infrastructure Challenges 155 9.69
5 Low Productivity 130 8.13
6 Lack of Innovation 168 10.5
7 Technical Changes 195 12.18
8 Competition 180 11.25
9 Skills 128 8
10 Lack of Professionalism 160 10
TOTAL 1600

Challenges faced by Agri-business MSMEs

Agri-business MSMEs face varieties of challenges and obstacles in the local and global market.
Weak internal control and monitoring systems, poor management culture, ineffective regulations and
policies, corruption, unskilled workers, security risks, and weak infrastructure are just some of the
barriers encountered by Agri-business MSMEs. Although these obstacles can be extremely disabling
for MSME operations, they tend to be localized to specific geographies or crop value chains. The
most significant barriers common across all types of Agri- business based MSMEs are lack of access
to financing and markets.
1) Financial challenges
Limited accesses to financial services are the main struggles of MSMEs in the Agri-business value
chain in the developing countries . Many reasons can be discussed in this regard some of them are
related to the financial institution and some others to the MSMEs. The financial institution is less
attracted to this sector. For example, banks do not invest in agriculture despite the fact that this sector
contributes largely to GDP. “This limits investment in agriculture by both farmers and agro-
enterprises. It also demonstrates that the barrier to lending is not due to a lack of liquidity in the
banking sectors, but rather a lack of willingness to expand lending to agriculture” (World Bank,
2015).
In the Indian economy, access to finance has always been an issue for smaller firms and businesses.
This is a major hindrance for this Agri-business MSMEs too. However, the most disturbing fact
about it is that only 16% of these Agri-business MSMEs get access to timely finance, resulting in
small and medium firms being forced to rely on their own resources.
2) Market access challenges
The access to the market is crucial in creating sustainable Agri-business MSMEs. Specifically to
high-value or global markets. However, for upstream Agri-business MSMEs, the biggest problem is
gaining access to the markets, first, because of the production level which cannot meet the demand of
high-value markets. Second, the perishability of agricultural products created difficulty of certain
farmers to increase the production amount. Third, the majority of farmers sell their products in the
picking season, which creates a surplus in the market and products sale with very low margins.To
step into the domestic markets and global markets in particular, it is necessary to reconstruct and
modernize the infrastructure of MSMEs and provision of necessary transportation means. Also, cold
storage and warehouses are valuable assets that can support MSMEs to access to the markets. Then it
is crucial to pay detailed attention to the information shared among value chain participants, and
education of producers about the market. Studies show that the majority of Agri-business MSMEs
has no direct access to the domestic market and they are unfamiliar with pricing; therefore, the profit
margins are usually very small.
3) Regulatory issues
Several regulatory issues have been identified over time, including problems like agriculture
commodity laws, tax compliance and changes to labour laws which have ended up costing this Agri-
business MSME sector dearly. As a result, it has become very difficult for these MSMEs to comply
with these regulations and register for tax compliance, which has resulted in many operating on low
capital or even shutting shops.

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4) Infrastructure
One of the main issues faced by Agri-business MSMEs is the lack of proper and quality
infrastructure. In India, the infrastructure sector is extremely important because we are often referred
to as the ‘world’s back-office because so many works in this sector are carried out overseas.
5) Low productivity
Agri-business based MSMEs are not necessarily very productive, but they perform certain tasks that
emit more value than they produce. Retailers sell consumer goods to end-users at relatively lower
prices. These MSMEs may be very productive only when it comes to being cost-efficient and are
capable of creating high volume at low costs. But given that their production is on a small scale with
low margins, low productivity can put them in a disadvantageous position, especially when
compared with larger firms.
6) Lack of innovation
Agri-business MSMEs are not very innovative, and the majority of the products that they produce
are based on outdated technologies. There is a severe lack of entrepreneurs in this sector, which has
prevented it from adopting new technologies and tools. The likelihood of innovation significantly
influences other sectors like e-commerce and call centres. As a result, these MSMEs have had to
struggle with outdated technology as well as low levels of productivity, especially when compared
with larger firms.
7) Technical changes
There has been no dearth of technical changes over time, and most industries have undergone some
form of change to remain competitive. As a result, Agri-business based MSMEs have had to deal
with some very important changes which have affected their growth potential. At first, there was a
change in the ownership right of land, which has made the sector more prone to mismanagement and,
with it, a fall in productivity.
8) Competition
Due to various factors, such as the rise of e-commerce and the advent of globalization, bigger firms
have forced MSMEs out of their markets. However, this is not new because MSMEs were facing
competition from year one, but they could fight it off successfully compared to professional firms.
Agri-business MSMEs continue to face competition in many areas, including agricultural machinery,
garments, and tourism.
9) Skills
When it comes to skills, Agri-business MSMEs are far behind their counterparts in other countries
because they depend heavily on the help of informal workers, who are not paid well and lack
technical skills, which further affects productivity. As a result, smaller firms are forced to take up
jobs that require low levels of skill and expertise, which further affects their growth prospects in the
long term.
10) Lack of professionalism
A majority of Agri-business MSMEs lack professionalism despite being vital for larger industries’
growth. As a result, they are highly prone to corruption and abuse of power, which has a huge impact
on the productivity of their business.

Suggestions for Growth & Success of Agri- business MSMEs.

The following suggestions are considered good for growth and success of Agri- business MSME
Sector
1). Actions to be taken by Central and State Governments
 Governments have to take proactive steps for ensuring availability of finance, lands, latest
technologies and infrastructures at cheaper rates for this Agri- Business MSMEs.
 Quick approvals and online system in all departments to expedite and avoid functional
delay and corruption
 Introduce an effective grievance cell
 Speedy action on revival of sick units
 Release of subsidies in time.
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2). Actions to be taken by Banks and Funding agencies

 Have sympathetic attitude towards Agri-Business MSME Clients as they are small, simple,
and have no backing, or influence.
 Educate them in Technology, taxation, insurance of free system on taxes, return Filing etc.
 Start MSME specialized branches to be exclusively for MSME Clients for better
concentration on this sector.
3). Actions to be taken by Agri- Business MSMEs
 Be honest, efficient, faithful, follow Govt., rules, taxes and be technologically up to date, use
of minimum facilities and achieve high productivity with up to date. Knowledge venture
exports, capture not only local, national even global market for growth, success & prosperity
of Agri- Business MSMEs

Conclusion
In recent years, the Government of Kerala has taken special efforts for encouraging Agripreneurs and
Agri-business ventures. Based on this motto state had established more Agri-business MSMEs in
various districts. Fortunately, these initiatives encourage lots of young educated farmers and women
self-help groups toward new Agri-business ventures. Eventually, these opportunities helped them to
earn more profit and maintain a good status of life in the agriculture sector. According to the
Government, these Agri-business MSMEs should develop their capacity in adopting innovative
ideas, advanced technologies, modern marketing strategies, and professional management skills.
There are collateral-free loans offered by banks and subsidies offered by the various departments of
the state for the upliftment of these MSMEs. It would be more successful and beneficial if these
Agri-business MSMEs have technically qualified people with more business skills and experience on
their board of directors and management for grabbing new opportunities and overcoming the newly
raised challenges.

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