India Agribusiness Sector 2023 Outlook

India Agribusiness Sector

India occupies a prominent position in the global agribusiness industry. Moreover, in FY2022, the Indian agribusiness sector recorded new record high in the production volume of key products such as rice, sugarcane, fruits, vegetables, inland fishing, marine fishing, and poultry meat (FY2021). However, the sector faces two challenges: low levels of productivity and inflationary pressures on food products. The Indian agribusiness sector showed a solid resilience in an adverse context marked by the negative effects of COVID-19 pandemic in FY2021. Moreover, in FY2022, the industry registered new record highs in key products: rice production stood as 130.3mn tonnes (+6.6% y/y); sugarcane output reached a volume of 431.8mn tonnes (+8.2% y/y); vegetables posted a production volume of 204.8mn tonnes (+2.2% y/y); fruit output recorded a volume of 107.2mn tonnes (4.6% y/y); inland fish production grew to 12.1mn tonnes (+7.8% y/y) and marine fish production rose to 4.1mn tonnes (+18.7% y/y). Poultry meat production increased to 4.5mn tonnes (+3% y/y) in FY2021. Furthermore, India kept its position as one of the largest producers of key products in the 2021/2022 crop year: it is the largest producer of centrifugal sugar, the second largest supplier of rice, the third largest provider of wheat and the seventh largest producer of maize and coffee production during the 2021/2022 crop year. In terms of export volume, India ranked first in rice, second in centrifugal sugar, fifth in coffee and eight in wheat and maize. The good performance of the Indian agribusiness industry allowed the sector to face the enormous demand of the domestic market and to maintain its position as a key global food provider for foreign markets. This performance is based on sheer numbers: the industry relies on a large workforce to achieve positive results. However, there is a strong presence of marginal and small farmers with limited access to credit and technology, therefore, the sector presents relatively low levels of productivity. The government is determined to design policies whose main objective is to improve the productivity levels of Indian farmers as there is a great potential for growth. A second challenge for the Indian agribusiness sector is the global acceleration of inflation since FY2022. This had led to higher production costs and higher food prices, both domestically and internationally. The government-imposed export bans of wheat and rice to control the rising trend of food prices.

Sector Overview

The agribusiness sector plays an important role in India’s economy, accounting for 16.8% of GDP in FY2022 and 8.5% of total exports in 2021. Moreover, the sector employs approximately 40% of the country’s total workforce. India managed to occupy leading positions in the global production of rice, wheat, maize, centrifugal sugar, coffee, banana, poultry meat and shrimp. It is worth noting that the agribusiness industry in India presents low levels of productivity which are compensated by the high levels of productions brought by the relatively high number of farmers. The advantage of sheer numbers allowed the industry to present chronic trade surpluses in its three main segments (crop, livestock and fisheries). Finally, the relatively high size of the domestic market will continue to be the main growth driver for India.

 

Entry Modes

Entry into the sector depends on the specific activity in mind. Foreign entrants are allowed 100% ownership under the automatic route if the activity falls under the selected agricultural activities set by the government. Automatic route means that the foreign investor or the Indian company do not need approval from the Central Bank or India or the Indian government to undertake the investment. Activities under the automatic route include animal husbandry, fish farming, aquaculture, horticulture, floriculture, apiculture, and tea production, amongst others. According to data from EMIS DealWatch, a total of three deals in the Indian agribusiness sector were executed. Three additional deals took place in the first three quarters of FY2023. The largest deal was the initial public offering made by the food company Adani Wilmar in January 2022, raising USD 478.95mn.

Segment Opportunities

Rice is one of the key crops in India as it represented 41.3% of foodgrain production in FY2022, reporting a new record high of 130.3mn tonnes. The good performance of rice production was based on a solid domestic demand, complemented by exports. Sugarcane production also reached a new record high in FY2022 (431.8mn tones), representing 81.4% of non-foodgrain production. The main growth driver for sugarcane production was the higher output volume of centrifugal sugar in FY2022 (India was the largest producer of centrifugal sugar in the 2021/2022 crop year, according to data from the USDA). Fruits and vegetables also posted a new record high in production with a volume of 312.1mn tonnes, representing 91.2% of horticulture production. Finally, poultry meat also registered a new record high output in FY2021 (4.5mn tonnes), pushed up by a solid domestic demand.

Government Policy

The relatively low levels of productivity and international competitiveness of the Indian agribusiness industry is one of the main concerns of the national government. The Union Budget 2021-2022 and 2022- 2023 set objectives to improve the performance of the industry (an industry with great potential which currently relies on sheer numbers). To achieve this goal, the Indian government is promoting a transition towards sustainable practices, and it is also granting financial assistance to farmers.

Sector Snapshot

In FY2022, the GVA of the crop, livestock, forestry and fisheries in India reported a value of INR 39.8tn and an annual growth of 3%. In terms of volume, the output of crops reached 1.2bn tonnes in FY2022, while fisheries production reported a volume of 16.2mn tonnes. In FY2021, meat reported a production volume of 8.8mn tonnes. Crop production volume grew by 3.3% y/y in FY2022, while crop planted area dropped by 2.5% y/y. Foodgrain production volume reported an annual expansion of 2.3% in FY2022, reaching a new record high of 315.7mn tonnes (foodgrain planted area declined by 2.3% y/y). The good performance of foodgrains was mainly explained by higher rice production (+6.6% y/y; 130.3mn tonnes). This growth more than compensated for the 2.4% y/y contraction in wheat production (106.8mn tonnes). Non foodgrains registered an annual expansion of 6.1% in FY2022, reaching 530.3mn tonnes. Sugarcane was the main growth driver for non-foodgrains as the production of the former grew by 8.2% y/y in FY2022 (431.8mn tonnes). Horticulture production increased by 2.3% y/y in FY2022 (342.3mn tonnes). Vegetables was the main growth driver for horticulture as the output of the former registered an annual expansion of 2.2% (204.8mn tonnes).

Crops were the major contributor to Indian exports of agricultural products, with a share of 67.6% and recording exports of USD 22.7bn in 2021. Crop exports reported an annual increase of 26.8% as a result of higher cereal exports which rose by 42.4% y/y (up to USD 8.6bn). It is worth noting that cereals represented 54.4% of crop total exports in 2021. Crops were also the main import segment in the agribusiness industry, with a participation of 97.2% and a value of USD 8bn in 2021. Similarly, to exports, crop imports registered a two-digit annual growth rate, up by 14.5% y/y. Fruits and nuts were the main imported crop product with a participation of 45.5% and an annual increase of 14.5% y/y (USD 3.7bn).

In FY2021, meat production increased by 2.3% y/y. Poultry meat was the main product with a share of 50.8% and an annual expansion of 3% (4.5mn tonnes). The domestic market is the main growth driver for domestic poultry meat production. Buffalo meat was the second main product with a participation of 18%, posting an annual decrease of 0.2%. Goat meat and sheep meat posted annual growth rates of 2.8% (1.2mn tones) and 14.8% (0.9mn tonnes), respectively, in FY2021. Similarly, to poultry meat, the domestic market was the main growth driver for goat meat and sheep meat. Concerning external trade, the export value of livestock products reached a value of USD 4.2bn, posting an annual growth of 17.8%. Buffalo meat represented 72.2% of livestock products in 2021, with an annual increase of 7.4%.

In FY2022, fisheries production in India expanded by 10.3% y/y. The main subsegment was inland fish production with a participation of 74.6% and an annual increase of 7.8%. Marine fish production represented the remaining 25.4% of fish production in FY2022, posting an annual expansion of 18.7%. The exports of the fisheries segment reached a value of USD 6.7bn in 2021, with an annual growth rate of 30.8%. Crustaceans represented 78% of fisheries exports in 2021.

Road Ahead

The agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing, and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to the concerted effort of scientists to get early maturing varieties of pulses and the increase in minimum support price.

In the next five years, the central government will aim US$ 9 billion in investments in the fisheries sector under PM Matsya Sampada Yojana. The government is targeting to raise fish production to 220 lakh tonnes by 2024-25. Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP), and Good Hygienic Practices (GHP) by the food processing industry will offer several benefits.

Through the Ministry of Food Processing Industries (MoFPI), the Government of India is taking all necessary steps to boost investments in the food processing industry in India. Government of India has continued the umbrella PMKSY scheme with an allocation of Rs. 4,600 crore (US$ 559.4 million) till March 2026.