Lack of investments in the agriculture ecosystem is a major reason for slower growth in the sector employing a huge chunk of working population in the country, but it also means a large opportunity for private equity investors to plough in capital. Be it storage capacity, bottlenecks in the supply chain of food and grains and so on, the vast agriculture sector provides a largely untapped market for investments.
This was the sentiment echoed by entrepreneurs, policy makers and investors at the 4th edition of VCCircle Agri & Food Summit 2012 held on October 16 at New Delhi.
The power-packed full-day summit kick started with a keynote address by Siraj Hussain, additional secretary, Ministry of Agriculture, who shared his insights on the rapidly evolving agri & food sector in India.
He pointed out that though agriculture is an important part of our economy, the government has not been able to achieve the desired growth target. In the 11th five year plan, the agriculture sector grew by 3.3 per cent as against the target of 4 per cent.
Hussain said, “Agriculture does not excite corporates. At the same time, there are a lot of structural issues in the growth of this sector and we have a lot of small farmers and the number of these small farmers increasing because of overpopulation. Almost 83 per cent of the land holdings are smaller than desired.”
But on an optimistic note, he added that the agricultural sector will grow above four per cent in the 12th five year plan.
Talking about some of the areas which requires investment, he counted storage capacity and marketing infrastructure (especially in eastern India).
The brighter side
One of the biggest areas for potential investment comes from shortage of warehouses. Last year, in order to address this problem in the short run, Food Corporation of India (FCI) announced a new scheme of guaranteed hiring of private godowns along with preservation and maintenance of food grains for a period of one year.
“12.9 million tonne of storage capacity has been sanctioned and 3 million tonne of storage capacity has been completed. End of this year, another 5-million-tonne storage capacity will be available. Thus, by the year end we will have another 8 million tonne of storage capacity,” said Hussain.
Recently, there have also been investments into the back end to support warehousing, though it needs to be scaled up.
Amith Agarwal, executive director of Jaipur-based Star Agri Warehousing and Collateral Management, which got funding to the tune of Rs 150 crore from IDFC PE this year, said, “We plan to reach 2.5 lakh farmers by 2015. We will use this investment to expand warehouses and educate the farmers.”
While some panelists were sceptical about how investments can bring out the potential of the farming community unless marketing becomes streamlined, others noted how some states have allowed contract farming even as there are still many issues need to be sorted before it becomes big.
Sandeep Sabharwal , CEO of Sohan Lal Commodity Management Pvt. Ltd, stressed, “We need more investments not just in warehousing but also ancillary services like agriculture financing, supply chain management and technology.” The Delhi-based agri-commodity logistics and procurement firm has raised around $10 million through two rounds of funding by Nexus Venture Partners and Mayfield.
Others like representatives of consumer brands such as Bagrry’s and Cocoberry, who also shared their views of the recent move to allow FDI in multi-brand retail said they are looking forward to modern retail, which they think will change their business strategy in a positive way.
Defining the difference between investor perspective towards back end and consumer brand, Deepak Shahdadpuri - MD, Beacon India Private Equity said, “While the back-end believes in volumes and margins are lower, its vice-versa for consumer brands.”
Take a look at the event snapshots by clicking here.
(Edited by Prem Udayabhanu)