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http://blogs.ft.com/…/#ixzz2QiqTM6du Apr 16, 2013 9:22am by Avantika Chilkoti Thinking of investing in India? There is one sector you may have overlooked: agriculture. With its growing population, rising income levels and growing middle class, India has attracted the usual investment suspects of retail, aviation and FMCGs . But although it may not be glamorous and it may be politically complicated, India’s agricultural sector is set to expand fast. A new report by McKinsey and the Confederation of Indian Industry has said that, while India’s GDP will more than triple between 2012 and 2030, food consumption will increase 4 per cent a year. That would take the value of India’s food sector from Rs11,000bn in 2010 to Rs22,500bn ($414bn) in 2030. While this might seem a huge challenge for a country struggling to feed its people, McKinsey see this demand as a winning investment opportunity. “The Indian farmers have invested in high value crops to match demand,” Barnik Chitran Maitra, a partner at McKinsey who co-authored the report, tells beyondbrics. “There has been a 12 per cent shift in consumer spending towards high value foods matched by production, volume and value growth. We have seen that whenever an opportunity presents itself Indian farmers rise to the challenge and meet it. “In the next five or ten years, this sector could be a driver of the India story, which is a story of inclusive growth,” Maitra says. “For a private investor, from within India or outside, there is an opportunity to invest in various parts of the value chain processes such as infrastructure or processing or at the farmgate or in large scale cold chains.” The authors also emphasise the importance of industry-farmer partnerships and public-private partnerships, allowing farmers to organise themselves into larger collectives with bargaining power and shared services, as well as setting up two quangos to oversee technological developments and soil issues. Another suggestion to improve the sector is to give food greater branding. Maitra says: “With a brand, a customer knows what he is consuming – its quality and freshness and safety dimensions. Two years ago, we did a survey asking consumers if they would prefer branded foods and 80 per cent said ‘yes’.” He gives the example of North America where farmers, producers and marketers have come together and branded bananas, realising how important that is to push sales. Globally, 60 per cent of bananas are now sold under a brand name. In some areas this is already happening. In Maharashtra, the Maharashtra State Grape Growers Association has branded grapes produced in the state for export. Overall, the numbers in Indian agriculture are hard to ignore. The expected rise in consumption would lead to growth in the value of agricultural output from Rs12,690bn ($233bn) in 2011 to Rs29,280bn ($540bn) in 2030, and growth in the processing industry from Rs1,100bn ($20bn) to Rs5,650bn ($104bn). The report suggests opening up the market to private sector companies: This would ensure global expertise and the latest technologies in all parts of the agriculture and food value chain. In particular, global food and agriculture companies could bring their experience in enabling emerging country agriculture transformations, provide their expertise in processing, branding and exports, and bring the requisite long-term private capital into the food and agriculture sector needed to achieve India’s potential. Take the example of Reliance Retail, which has distributed “banana kits” to farmers in Maharashtra including the newest fertilisers, pesticides and organic manures (click chart to enlarge). Govind Hariharan, executive director of the India, China, America Institute, tells beyondbrics that investment is the first step for the Indian food industry, before the report’s other suggestions can be implemented. “The appropriate infrastructure is really critical and that’s where the foreign investments will show up and have the greatest returns”, he said. “We have so much wastage in food products and all of those have to be removed before it becomes a really viable investment proposition. [The report] is jumping two steps ahead without having a platform to jump from.” The real opportunity will arise when the Indian market is integrated with its eastern neighbours. If the proposed highway from India to China is built through Myanmar, and if India’s ports are linked to southeast Asian countries, supply chain infrastructure within India will be needed to ensure the new routes translate into new trade. The McKinsey report may be bullish but Hariharan points out that agriculture in India is far from a simple investment: “Generally the politics involved with agriculture mean it isn’t the easiest thing to get into, for foreign companies in particular.” In a pre-election year, it won’t be easy to open the agricultural sector to foreign investment. But if productivity, accessibility and quality are to improve, it’s a crucial step. Continue reading →