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Management of Agro-Industrial

Projects
Agro Industry - Definition,
Introduction, Types, & Uniqueness
Definition

An agro-industry is an enterprise that


processes agricultural raw material,
including ground and tree crops as well
as livestock.
Introduction

Agro Industry, is the Industry based on


the processing of Agricultural Raw
Materials.
Introduction

Examples of Agro Processing:


Cleaning, Grading of Fruits, Vegetables
Polishing of Rice,

Canning of Vegetables,

Processing of Fruits & Vegetables for Pulps,


Jams, Squashes.
Introduction

The ability to preserve the food has


enabled the producer to make its
product available to the consumers
sitting in the other corner of the world,
even out of the season.
Introduction

With a strong back up from the


technological innovations, the
advantages of processed food have
become more reachable & affordable to
the consumers around the globe.
Introduction

In some instances, the processing is


required to prepare a primary product for
dietary consumption as food.
In others, agro-industry offers a means
of adding value to a raw material through
manufacture, like cotton, wood & rubber.
Factors for Growth

Agricultural Processing is of growing


importance in the economies of
developing countries.
With rising incomes & growing
urbanization in developing countries, the
demand for processed foods is
increasing rapidly.
Factors for Growth - Demographic
Various factors resulting in Importance:
Growing Urbanization
Growth in Income
Growth of Nuclear Families
Growth in Dual Income families
Growth in Working Women
Younger Indian Population (Av. Age 25 yrs.)
Changing Lifestyles
Changing Attitudes
Changing Tastes
Shift to Westernized habits of food
Health Consciousness.
Factors for Growth - Health

Consumers worldwide are getting more


and more health conscious, & are
turning towards healthy food.
There has been a considerable shift,
from high fat food to low fat and high
protein vegetables and fruits, which is
possible with processed foods.
Factors for Growth - Health

With growing food related health scares,


like mad cow disease, bird flu, etc. there
has been compulsive push out of the
fresh meat eating habits.
People are either shifting to processed
meat or processed fruits and vegetables.
It is not only more nutritious but also
more safe & healthy.
India in Figures

Some reasons for growth of processing sector

Population : 1.16 bnWorlds second largest

Average age : 25.3 yrs ..Young & energetic

Labour force : 532.00 mn..Worlds second largest

GDP (PPP) : $ 3.60 tnWorlds fourth largest

GDP average growth : > 7% since 1997


Source: World Fact Book (2008)

Indias GDP growth will average 7.2 over next 5 years even as risks 12

to the global economy continue to remain high - Economist, June 09


Its Boom time for Developing Countries..

Changing Share of Global GDP (%)

Region 1980 2008


Europe 29.7 21.4
US 22.5 19.4
Developing Asia 7 22.8
Source: Harvard Business Review (July-Aug 2009)

Share of developing countries in world exports increased


from 27.8% in 1988 to 45.2% in 2007 (Source: WTO).

This trend is set to continue to grow.

13
Scope and Potential - Market Size

India is a largely untapped domestic


market of over one billion consumers of
whom 300 million consume processed
and packaged foods.
While an additional 200 million are
expected to shift to processed food
consumption by 2010.
Scope and Potential - Production

India has a vast potential of growing


agricultural produce, processing and
exporting it.
Second Largest Country with Arable land
after USA.
The country has 1/10th of the world's
arable land at around 160 million
hectares, which is higher than China.
Scope and Potential - Production

The country produces over 700 million


tonnes of agricultural, horticultural and dairy
produce annually, thus making it one of the
world's largest food producers.
This includes food grains, oilseeds, fruits,
vegetables, sugarcane, milk, eggs, meat,
fish, tea, coffee, fiber crops, floricultural
produce, forest produce and so on.
Scope and Potential - Production

India currently produces about 50 million


tonnes of fruit (about 10% of the world's
production) and
About 90 million tonnes of vegetables
(14% of the world's production).
Scope and Potential - Exports

Despite being the worlds third largest


food producer and the largest producer
of fruits and vegetables ---
Indias share in exports is miniscule.
Only about 1.5%
It is because of inappropriate product
quality and insufficient infrastructure to
produce that quality.
Scope and Potential - Exports

Though India is one of the largest


producer of food, very little is processed.
The major markets for processed food
includes EU and USA.
The quality specifications in these
countries is very high, if we can match it,
we will have a huge potential to export in
these countries.
Scope and Potential - Exports

At present, India's share of global trade


in the value added processed food
sector is less than .03%.
Which is very small considering that
globally the sector is estimated at a
whopping US $ 3.2 trillion.
See the potential??
Scope and Potential - Exports

This clearly defines the scope for export


led growth for the Indian food processing
sector.
India, with its easy availability of raw
materials and low cost of production is
strategically poised to capitalize on this
market.
Scope and Potential Rise in FDI

Seeing the potential, Foreign Investment


in this sector is growing.
According to official data, the Indian food
processing sector has received about
$15 billion of foreign direct investment
(FDI) in the last five years.
Scope and Potential Low Processing

According to a recent report, domestic


meat production is estimated at one lakh
million tonne,
While fish production is projected at 72.5
lakh tonne.
But, if the processing levels of these are
taken into consideration, they have been
stagnant between 2-4 per cent.
Scope and Potential Low Processing

Similarly only 2-3% of Fruits & vegetables are


processed. More processing is required.
Indian mangoes managed to get access to the
US market in the year 2007 after the then US
President; George Bush had announced the
opening of the US market.
A dose of gamma radiation which helps in
resolving the phytosanitary risks mainly the
fruit fly, facilitated the import.
Kay Bee Exports has had more than 70%
market share in USA this year.
Food Processing Industry in India

This industry ranks fifth in the country and


employs 16 lakh workers,
comprising 19% of the countrys industrial
labour force.
It accounts for 14% of total industrial output
with 5.5% of the GDP.
Its turnover is estimated at Rs.1,44,000 crore,
of which
Rs.1,11,200 crore is in the unorganised sector.
Scope and Potential - Big

There is opportunity for growth.


The processed food sector, which
presently is a muscular dwarf has
capacity & capability to do for rural India
what IT & Computers have done for the
urban India.
Scope and Potential - Future

It is expected that in future,


bulk investments and
modern food processing technologies

are going to turn the fortune for Indian


food processing industry.
Govt. Support

After the Green Revolution and White


Revolution, a Food Processing
Revolution is the need of the hour for
India to solve major problems of
unemployment, rural poverty and
deprivation --

Finance Minister Pranab Mukherjee -- on


25th June 2009
Govt. Initiative in Promoting
Processing Sector
To promote the sector, the Indian
government had taken several steps
such as
de-licensing of the sector,
several duty and tax relief,

financial assistance for infrastructure,

building and setting up of food processing


units.
Sectors that will grow
The sub-sectors of Agro Processing Industry that will grow in
future & become the driving force behind the Indian food
processing industry are--
soft-drink bottling, milk processing,
confectionery, tomato paste,
fishing, fast-food,
aquaculture, ready-to-eat breakfast
grain-milling and grain- cereals,
based products, Soya-based products,
meat and poultry high protein foods,
processing, additives, flavours etc
alcoholic beverages, mineral water
Definition

An agro-industry is an enterprise that


processes agricultural raw material,
including ground and tree crops as well
as livestock.
Food Processing Share in
Manufacturing
Structure of the Indian Food
Processing Industry
Food Processing Units in
Organised Sector (numbers)

Source: Ministry of Food Processing Industries, Annual Report 2003-04


Degree of Processing

The degree of processing can vary


tremendously, ranging from the cleaning
and grading of apples, to the milling of
rice, to the cooking, mixing and chemical
alteration that create a textured
vegetable food.
The agro-industries can be roughly
categorized according to the degree the
raw material is transformed.
Purpose of Processing

The purposes of transforming/


processing raw food & fiber are to create
an edible or usable form,
to increase storability,

to create a more easily transportable form,


and
to enhance palatability or nutritional value.
Higher Inputs required for Higher
Degree of Processing
Higher the degree of transformation/
processing, higher the requirement of
following inputs:
capital investment,
technological complexity and

managerial requirements.
Unique Characteristics

Agro-Industrial Projects are Unique


because of their three characteristics:
Seasonality
Perishability

Variability

Each one of them deserves some


discussion.
Seasonality

Because raw material for agro-industries


is biological, its supply is seasonal,
available at the end of the crop or
livestock reproduction cycle.
Although raw material supply is usually
available only during one or two brief
periods during the year, the demand for
the finished product is relatively constant
throughout the year.
Seasonality

Unlike the non agro-industrial


manufacturer, the food processing
factory must contend with a supply and
demand imbalance and problems of
inventory management, production
scheduling, and coordination among
the production, processing and
marketing segments of the farm to
consumer chain.
Seasonality- Exception

Not all agro-industries share these


characteristics equally; for example,
timber, unlike tomatoes, does not have a
marked, seasonal production pattern,
nor is it very perishable.
Perishability
Unlike the raw material used in Non Agro-
Industries, biological raw materials are
perishable and often quite fragile.
For this reason, agro-industrial products
require greater speed and care in handling
and storage.
Proper care can also protect the nutritional
quality of food products by reducing the
damage or deterioration of the raw material.
Perishability- Post Harvest
Management and Cold Storage
Deployment of post-harvest
management techniques is the only way
to ensure that farmers get a
remunerative price for their produce.
There is a need for private investment in
cold storage chains for reducing the
amount of agri-products that is wasted
owing to lack of adequate storage and
processing facilities.
Perishability: Sale at cheap rates

Ref: Business Line (The Hindu): Feb 6, 2008:


Woman selling tomatoes cheaply due to lack of Cold Storage Facilities
Perishability: Sale at cheap rates
Going cheap: A woman stacking tomatoes at
Kharupetia weekly market in Darrang district of
Assam, 85 km from Guwahati on Monday.
Growers are selling tomatoes very cheaply at
Rs 2 a kg due to lack of cold storage facilities.
The tomatoes are brought to Guwahati city,
where they are sold at a price ranging
between Rs 9 and 10 a kg.

Ref: Business Line (The Hindu): Feb 6, 2008:


Woman selling tomatoes cheaply due to lack of Cold Storage Facilities
Perishability: Sale at cheap rates

Ref: Business Line (The Hindu): Jan 03 2008:


Bags of onions arrive at a wholesale market in Kolkata
Perishability: Sale at cheap rates

Huge arrivals: A worker taking a nap


amid bags of onions at a wholesale
market in Kolkata on Wednesday.
Huge arrivals from Nashik have brought
down prices sharply.
Currently, onion prices are ranging
between Rs 170 and Rs 180 per 40 kg.

Ref: Business Line (The Hindu): Jan 03 2008:


Bags of onions arrive at a wholesale market in Kolkata
Variability
The final distinctive characteristic of agro-
industries is the variability in the quantity and
quality of raw materials.
Quantity is uncertain because of weather
changes or damage to crops or livestock from
disease/pest.
Quality varies because standardization of raw
materials remains elusive, even though there
have been advances in animal and plant
genetics.
Variability

This is in sharp contrast to the extensive


specifications for standard materials
used in other manufacturing industries.
These variations exert additional
pressure on an agro-industrial plants
production scheduling and quality control
operations.
Other Characteristics

In addition two other characteristics


should also be emphasized, although
they are not unique to agro-industries.
The raw material in agro-industries, is
usually the major cost component.
Thus, procurement operations
fundamentally shape the economics of
the enterprises.
Other Characteristics

Many agro-industrial products are also


necessities, and governmental interest
and involvement in agro-industrial
activities consequently will often be high,
thereby making social, economic, and
political considerations particularly
relevant to project analysis.
Other Characteristics -Export Duty

While the duty on the export of primary


material was low, that on value-added
products example : such as potato
flakes went up.
As we move up the value chain, the duty
escalates.
Govt. Support

Food Processing Industry has been


declared a Priority sector.
No industrial license is required for food
and agro-processing industries except
for alcoholic beverages and a few items
reserved for small scale sector.
Import of food processing machinery
allowed freely with low levels of Duties.
Govt. Support

Automatic approval to Foreign Direct


Investment upto 100% equity for all food
& beverages except for alcoholic
beverages and items reserved for small-
scale sector.
Foreign equity ownership of upto 24%
allowed in six categories of items
reserved for small-scale sector.
Govt. Support

Liberal corporate tax policy is applicable


for export and domestic earnings.
For new agro processing industries set
up to package and preserve fruits and
vegetables, the Centre has permitted
under the Income Tax Act
a deduction of 100 % of profit for 5 years &
25 % of profit in the next 5 years
Govt. Support

Fruits & vegetables products, dairy


machineries are completely exempt from
Central Excise Duty.
Central Excise Duty on preparation of
meat, poultry and fish, pectin, pasta and
yeast is also completely exempt.
Govt. Support

After the Green Revolution and White


Revolution, a food processing revolution
is the need of the hour for India to solve
major problems of unemployment, rural
poverty and deprivation --

Finance Minister Pranab Mukherjee -- on


25th June 2009
Management of Agro-Industrial
ProjectsSummary.
Today we covered:
Agro Industry
Introduction,
Definition,
Types, &
Uniqueness
Management of Agro-Industrial
Projects

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