Agribusiness & food industry in India

Foreign investment in India's agri-business and food processing industry

India's retail industry was revolutionised by government reforms last September which allowed foreign firms for the first time to own a controlling stake in retail operations. Previously they had been confined to the wholesale market. The decision was contentious and remains a hotly contested issue today in both political and economic spheres.

Foreign investors and pro-reform Indian companies, however, hailed the move as a groundbreaking development that would stimulate foreign investment in the industry and usher in new levels of international expertise in areas ranging from back-end infrastructure and supply chain management to retail operations and customer segmentation. These developments should enhance the efficiency and competitiveness of India's retail sector with wide ranging benefits for consumers and the economy.

India's agricultural sector

Agriculture is one of India's largest sectors accounting for about 14 per cent of the economy and employing more than 60 per cent of the country's workforce, directly and indirectly. It is a significant driver of socio-economic development. However, its contributions have declined over recent years due to sluggish growth and the changing face of Indian society. The government has implemented numerous stimulus schemes for the sector with minimal effect. Budgets at the Department of Agriculture and Cooperatives have also waned over the past few years, a trend likely to signal further lacklustre performance for the industry.

Inefficiency and dispersion within the farming sector are seen as key factors hampering the industry's development. Most farms are unorganised small-scale holdings owned by families or small companies and cooperatives. The most recent Agricultural Census 2010-11 found smallholdings – defined as farms with less than 2 hectares of land – accounted for 85 per cent of total farms in the country, while only constituting 44 per cent of cultivated land.

Such wide dispersion seriously weakens the productivity and bargaining power of smaller farmers. Even when they yield bumper harvests, smaller farms fall victim to oversupply and are forced to sell crops at lower prices. A lack of infrastructure and storage facilities only amplifies these problems, leaving them at the mercy of middlemen, brokers and larger companies with silos. A recent in a western state revealed that 28 per cent of paddy output was sold at cost and 45 per cent sold with a 5-10 per cent margin. The highest margin recorded was just 15 per cent.