When it rains it pours: Indian support package will attract food company investments
The Government of India recently created a financial package for the agriculture sector to reduce the impact of Covid19. The package includes loans and credit, an agri-infrastructure fund, support to the fisheries and animal husbandry sector and Micro Food Enterprises, and even to herbal cultivation and beekeeping.
Government investment will attract investment from private sector
The financial package along with recent agriculture market reforms passed by the government will help in attracting investment from food companies – both domestic and multinational. Private sector investment is expected in creating better post-harvest storage infrastructure for onion, vegetables and fruits.
Huge consumer demand for packaged and safe food in the bigger cities may lead to a major transition in the supply chain for perishables commodities as online grocery companies will try to outrace each other to gain market share. According to Forrester Research, India’s online grocery market will clock sales of around 2,65 billion Euro a jump of 76% compared to last year. If that becomes the new normal then investments will happen in all parts of the supply chain to reduce intermediaries. Online grocery companies, funded and backed by technology visionaries will be in search for latest technologies for which they will also be agreeing to pay a price.
Even in the fisheries sector the investment by government in creating better infrastructure will encourage private companies to invest in fish processing and packaging sector. The example of the growth of the poultry sector in India and the presence of around a dozen Dutch companies in the sector presents a shining example as how rapidly things can change in India.
In India when it rains it pours.
Working Capital Loan and Farmer’s Credit Card
On May 15, India’s finance minister announced a package of 47 billion Euros for the agriculture, fishery, animal husbandry and related sectors. Out of this package around 27 billion Euro was allocated for providing loans and credit to 55 million smallholder farmers. Other than the announcement of the Central Government, a few states in India took steps to provide cash to farmers.
For example, the state government of Madhya Pradesh supported farmers with overdue insurance payments for failure of their crops. In Maharashtra around 1 million farmers who did not receive payment due to the lockdown were marked as defaulters by banks. The Maharashtra government assured the Indian banking regulator and the banks that the state will stand as a guarantor for those farmers and the banks should start disbursing loans to those farmers.
Agri-Infrastructure Fund
A few days before the news of the financial package, the Finance Minister had announced changes in the agriculture marketing laws (read more in our last article). To support the required changes in the ecosystem, the financial package allocates 12 billion Euro to agriculture infrastructure at the farm-gate. The funds will finance Primary Agricultural Cooperative Societies (PACS), Farmer Producer Organizations, agriculture entrepreneurs and start-ups, among others, for the development of affordable and financially viable farm-gate aggregation points and post-harvest management infrastructure. This is a welcome development, as post-harvest losses (especially for fresh produce) in India are generally high.
Fisheries Sector
India’s export of aquaculture produce in 2017-18 was around 6,2 billion Euro, out of which frozen shrimp export comprised around 4,3 billion Euro. During the lockdown, the export to US, Europe and Gulf region came to a complete halt. It was estimated that the fisheries sector was incurring a daily loss of around 28 million Euro. In the financial package announced, 2,4 billion Euro is allocated to address the critical gaps in fisheries value chain. 1,3 billion Euro is for activities in marine, inland fisheries and aquaculture, and the balance 1 billion Euro is for infrastructure development which included markets, cold chain, fishing harbors, etc. According to the Finance Minister these funds will provide employment to an additional 5.5 million people and raise fish production by 7 million metric tons over the next five years.
Formalisation of Micro Food Enterprises
1,2 billion Euro is allocated for formalisation of Micro Food Enterprises (MFE) to help producer organizations, self-help groups and cooperatives working to develop specialized food clusters. Strengthening this segment is expected to lead to reduction in wastage, creation of off-farm job opportunities and aid in achieving the overarching Government objective of doubling farmers’ income. The Government aims to improve health and safety standards, integrate with retail markets better and improve income for MFEs. The scheme is estimated to benefit 200,000 organisations.
Close to 60 million Euro is allocated for extending the Operation Greens [1] from Tomato, Onion and Potato (TOP) to all perishable fruits and vegetables. The lockdown resulted in severe supply chain disruptions leading to distressed sales and a price reduction of perishable fruits and vegetables. Operation Greens will be extended to all fruits and vegetables offering (i) 50 percent subsidy on transportation from surplus to deficient markets and (ii) 50 percent subsidy on storage, including cold storages on a pilot basis for six months which will be later be expanded and extended.
[1] In the Union budget speech of 2018-19, a new scheme “Operation Greens” was announced to enhance income earning capacity Tomato, Onion and Potato growing farmers. 6 million Euro was provided to reduce
Animal Husbandry
India has the potential to become an important exporter of dairy products, but infrastructure for producing dairy products is not up to mark. There are many dairy producing states in India who are focusing on value addition, and have a potential for private investments. 1,7 billion Euro is allocated for an Animal Husbandry Infrastructure Development Fund to support private investment in dairy processing, value addition and cattle feed infrastructure, with added incentives for establishing plants for export of niche products.
Safe chicken and eggs will be a priority of consumers. The Indian government is allocating 1,5 billion Euro to achieve 100 percent vaccinations in cattle, buffalo, sheep, goat and pig populations against foot and mouth diseases.
Other minor allocations are provided below:
- 478 million Euro for promotion of herbal cultivation in one million hectares in the next two years.
- 60 million Euro for beekeeping initiatives such as infrastructure development related to integrated beekeeping development centers; collection, marketing and storage centers, post-harvest and value addition facilities, etc.
Conclusion
Although the number of Covid19-cases in India keeps increasing, the country is gradually coming out of the lockdown. The recent agricultural marketing reforms, combined with this financial support package and expectation of a normal monsoon are expected to have a positive impact on the growth of Indian agriculture sector. However it will be few months before we can ascertain the impact of financial package on the sector.
[1] In the Union budget speech of 2018-19, a new scheme “Operation Greens” was announced to enhance income earning capacity Tomato, Onion and Potato growing farmers. 6 million Euro was provided to reduce post-harvest losses by creation of farm gate infrastructure, development of suitable agro-logistics and creation of storage capacities linking consumption centers.