Agro- Based Processing Industries in Rural Development in India

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1 Agro- Based Processing Industries in Rural Development in India Vijay R. Bhosale* Abstract: This article examines the priority given to agro industries in India in the context of their role in rural and small farmer development. The features and constraints of agro industry are examined to assess their real and potential contribution and challenges faced. Institutional and organizational models that have been tried or proposed in India are evaluated from the point of view of performance and contribution to rural and small farmer development. The article then draws policy and managerial implications. KEYWORDS: Agro-based Industries, Rural Development, Employment, Income. *Vijay R. Bhosale Assistant Professor Mobile No: id: Shri Sai Institute of Management Aurangabad, Maharashtra (India) Page 234

2 2016 Introduction: As a rapidly growing third world Country, India has been taking careful steps and measured steps in its diverse development efforts over the years, the small scale industrial sectors has been accorded adequate importance and constitutes an importance and crucial segment of the industry sector. The contribution of Small scale Industrial sector to employment is next only to agriculture. After independence, several entrepreneurship development programs have been started to develop the skill, knowledge, and competence among the entrepreneur. In spite of various entrepreneurship development programmes launched by the Govt. and non-government agencies, the entrepreneurs are encountering a number of problems for establishing economically viable small-scale agroprocessing units like lack of physical facilities like, communication, transport and storage, lack of quality control measures, selection of products, non-availability of right type of raw material, lack of managerial competence, poor linkage with marketing bodies, lack of trained workers, low scale of production, improper communication with other developmental agencies. Long and complicated procedures to avail institutional help, lack of Govt. support and incentives, lack of sufficient finance and working capital and problems in procuring finance as well as loan from different agencies. In the process of reaping advantages of establishing agro-based industries for achieving increasing employment and livelihood opportunities in rural areas it would be necessary to adopt a comprehensive long term approach towards the development of various food processing activities. Such planning exercise should be aimed firstly to examine the overall situation and pattern of existing industrial enterprises and then attempt should made to identify most niche based product groups of enterprises which possess certain location specific advantages in its sustainable development. This would not only provide a strong base and alternative option for creation of additional employment opportunities and avenues of income for rural households owning very small size of cultivated land and landless laborers within the rural areas itself but it would help in reduction in the rate of rural-urban migration of population.agro- based processing industries in rural development in India, where agriculture accounts for over 35 percent of the national income and about two thirds of the working population. We also need to bear in mind that over three-fourths of Indian population live in rural areas. Agro-based industries have great priority in the rural areas since they could be instrumental in fostering strong linkages between the agricultural and industrial sectors and it enhancing the employment potential. The establishment of naturally beneficial linkages between industry and agriculture is one of the central themes of the development process. Agro-based industries play an important role in strengthening industrial and agricultural linkages. Agrobased industries are these, which are involved in supplying the farm with agricultural inputs besides handling the products of the farm. Agro-based industries are those industries which have either direct or indirect links with agriculture. Agro-based industries must faster the spirit of interdependence between agriculture and industry. Such industries must use the raw materials provided by agriculture and their output must have a market among the rural population. Surplus rural manpower must be absorbed by these industries. Agro-based industries are these processing industries Page 235

3 which use large quantities of agricultural raw materials such as rice milling, wheat flower processing, textiles, sugar, tea, jute, coffee, paper, rubber production etc. These agrobased industries provide an excellent nexus in promoting integrated development of agricultural and industry and in transforming a stagnant rural economy into a dynamic economy. Taking into consideration the importance of agro-based industries in the rural economy, a number of researcher have worked on the various aspects of agro-based industries such as impact on income of farmers, wages of agricultural labours and agrobased industrial workers, employment, cropping pattern etc. The present paper is also one of such attempts. Characteristics of the agro industrial sector in India. Data from the annual survey of industries1 show that 46% of all factories in India are agro industrial (Table 1), and they contribute 22% of the manufacturing value added and nearly 43% of manufacturing industry employment (India Ministry of Planning, 1996). Table 1 indicates that 37% of the agro industrial firms produce food and 63% produce nonfood products. Table 2 shows that 44% of the food related factories are in milling (mainly grain), another 13% are in edible oil, 10% are in sugar, and 33% in other foods such as higher value foods with higher income elasticity s of demand. The other foods category accounts for 49% of total net value added and 43% of employment in agro industry, while only 7% of value-added and 20% of employment comes from grain milling Table 3 shows that only 18% of total industrial fixed capital is in agro industry; compared to agro industry s 43% share in industrial employment. Thus, agro industry continues to be relatively labor-intensive and capital-saving. The labor share of value added is 48% in agro industry versus 35% in other industries. Agro industry, on average, generates employment for 14 persons per investment of Rs.100, 000 versus three per Rs.100, 000 for other industries. Moreover, these figures do not include added employment generated in agriculture and input supply through backward linkages. Finally, agro industry requires less fixed capital and more working capital compared to other industries. On average, agro industry annually generates 51% value-added over fixed capital, as compared to only 39% in other industries. India launched significant economic liberalization reforms in What effect have reforms had on agro industry? Available data give a preliminary idea of agro industry s response. Table 4 shows perform and a post reform GDP growth by subsector before and after liberalization in constant prices. The growth rate in food agro industry was over 10% in both periods, and in nonfood agro industry growth rates doubled from 3.7% to 7.7%. For the agro industrial sector as a whole there was an increase in the growth rate from 5.2% to 8.3%, indicating a positive impact of the reforms. Interestingly, other industries actually show a deceleration from 12% to 7.2%. Employment growth differs over agro industrial subsectors. Table 5 provides data for 1984 to 1990 and 1990 to 1996, showing employment is growing fastest in dairy, fish canning and preservation, edible oils, chocolate, and cashew processing. In aggregate terms, with some exceptions, a positive trend is evident for food agro industry employment in the recent period just before and during early implementation of the economic reforms. Again, this does not include employment generated in the agriculture/fishery/cattle-raising sectors through backward demand linkages, which Page 236

4 2016 typically adds significantly to total employment creation in the food chain. Agro industry models in practice or proposed in India. The challenges arising from the above constraints to the agro industrial sector and the need for its continued growth to contribute to rural and small farmer development call for innovative models of agro industry organization in India. Several models have been tried and need to be evaluated to provide lessons for India and elsewhere in the developing world. Whatever the nature of the model, there are a few key success factors: (1) creation of incentives for farmers to produce the required quantity and quality of raw materials, and supply the produce as stipulated in the contract (rather than sell elsewhere); (2) provision of required farm inputs and technology and clarification of who bears what costs and risks; (3) access to high quality processing technology; (4) attention to changing consumer demand through effective market intelligence; (5) attraction of investment capital; and (6) attention to issues of ownership, organization, management, and quality con. Methodology The study was conducted in the state of Haryana (India). A list of small-scale agroprocessing entrepreneurs was prepared for each of four districts in consultation with officials of department of industry of the concerned districts. A total number of 120 entrepreneurs constituted the sample for the study. For measurement the intensity of factors affecting the sustainability of the units, the responses of all the entrepreneurs against each of the 55 factors were measured on a 4 point continuum rating scale ranging from very much relevant somewhat relevant, and least relevant and scores were given 4,3,2,1 respectively. A total choice score for each factor was worked out after knowing the responses of all the entrepreneurs based on their degree of relevance, then the total choice scores so obtained for each factors was converted into weighted mean score. At last, rank orders were given for each factors based on their weighted mean scores. The seriousness of the problems encountered by entrepreneurs was measured on a three-point continuum rating scale ranging from very serious, serious and not so serious and a weight age of 3,2,1 were assigned, respectively. Based on the responses obtained from entrepreneurs a total choice score for each problem was worked out and this total score was converted into weighted mean score. Finally, 'Z' score was worked out to assess degree of seriousness of these problems and rank orders were given based on the 'Z' values. A problem was considered very serious with 'Z' score values of more than 1, serious with 'Z' score values 1 to -1 and not so serious with 'Z' score values less than -1. A schedule was developed consisting of 19 important areas of training. The responses of all the respondents for each training areas was rated on a five point continuum scale. Results and and financial factors perceived by entrepreneurs for economically viable Agro-processing units the marketing and financial factors along with their mean scores and the rank orders of all these parameters in descending pattern are illustrated in Table 1. An analysis of data presented in the Table 1 highlights that several important marketing and financial factors perceived by entrepreneurs in descending order were easy availability finance (3.3), identification and use of mega markets (3.28), attractive packaging of Page 237

5 products (3.27), quality products to compete the market (3.25), efficient marketing and selection of products on market demand (3.23), and good contacts with marketing personnel (3.20). Easy availability of finance has been ranked at the top position. Credit should be affordable, adequate, and in time. However, SIDBI (Small Industries Development Bank of India) has given guidelines for easy procedural way of providing the credit facilities to entrepreneurs. Identification of mega market coupled with attractive packaging of products also largely affected the sustainability of entrepreneurial units, because attractive packaging helps in raising the price sale value of the finished products. Knowledge about mega market is equally important because consumption of products is directly correlated with production of that product. Hence, Govt. and non govt. institutes should provide the marketing assistance and information regarding the mega market where the entrepreneurs can sale their products. Further quality of products has its own place in development of entrepreneurship programs. Latest technology along with required inputs should be provided to export oriented units to improve the quality because quality products can complete the market. Table 1 further reveals that there were some other important marketing and financial factors perceived by entrepreneurs were easy access to export information (3.17), proper advertising and publicity of product (3.15), good demand of product (3.08), availability of finance in time (3.06). These findings indicated that entrepreneurs should be exposed to import information from time to time through some magazine, or bulletin, so that they can plan their target of production for export purposes. Effective communication with marketing bodies, reasonable rates of interest on institutional finance, availability of self finance, better finishing of products, remunerative price of product were some other marketing and financials factors perceived by entrepreneurs that help in establishing the agro-based units more economic viable. Objectives: To study the impact of agro-based industries on income of farmers, wages of agricultural labours and workers employed in the agrobased industries. To assess the impact of agro-based industries on cropping pattern and employment. To study the effects of the agro-based industry on rural development. Structure and Growth: A bulk of agro-processing units, out of a total of units were alone concentrated in un-organized sector with using low productive technology and know-how in their production processes. Share of agro-based industries in total industries was 26 per cent in the state. Among them, grain milling and animal feeds, sugar and other food groups of units were the dominant product group of agro-based industries accounting for over 17 per cent share In total existing industrial sector in the state. ¾ Share of agro-industrial sector in total employment was 23 percent. In output and gross value added its share accounted 21 percent and 9 percent respectively. Per unit invested capital and output in agro-processing industries was Rs.861 lakh and Rs lakh respectively as against Rs 779 lakh and Rs 1549 lakh at Rs.1211 lakh in non-agro- processing industries respectively. Page 238

6 2016 During 2000 to 2007, the Capital investment in this sector has increased over 94 percent and the growth of output increased 104 percent while employment grown at 21 percent. Contribution of agro-industries in capital investment, value of output, gross value added, net value added and employment in total industrial sectors has been remarkably increasing while the same has been narrowing down for nonagroindustries during the recent past. Over 68 percent of sample units were registered under Small Scale Industries Act. In terms of the legal ownership of Industries, 79 percent of them were operating under a signal ownership. Easy access to the availability of basic raw material and access to marketing facilities were the major factors for expansion of units at present location of 78 percent and 73 percent entrepreneurs respectively. Agro-processing industries were headed mainly by the young person s largely possessing rural background. 32 percent entrepreneurs had below primary education while 44 percent entrepreneurs had secondary education. 69 entrepreneurs moved from other economic activities to join present unit and 30 percent entrepreneurs were either un-employed or students. Nearly 63 percent of them were earning less than Rs 1 lakh per annual before joining / staring the present unit. Selection of Agro-Based Industries In order to determine the impact of different agro-based industries on Kavathe-Mahankal Taluka of Sangli District. Four agrobased industries were selected out of seven agrobased industries in Kavathe-Mahankal Taluka for the study. These shown on following table. Impact on Employment The establishment of agro-based industries may be expected to result in the creation of in the farm sector and tertiary sector direct and indirect employment opportunities. The indirect employment creates in the farm sector would mainly be in the form of additional employment generated followed by the changes in the cropping pattern. It has been observed that the tertiary sector developed in the Kavathe Mahankal and that the growth of this sector can be attributed only to the location of the agro based industries. Impact on wages The development of agro-based industries in rural areas substantially increased the wage rates for different agricultural operations. The increases were more pronounced in the case of women and child labourers than in that of men. Obviously the wage differentions were reduced among casual labourer s men, women and children to a large extent. But wage differentials cropped up in a new direction in rural areas i.e. agricultural workers and workers employed in agrobased industries. In brief, the wage rates of all the agricultural workers increased irrespective of the nature of the agro-based industries in rural area. Conclusions and implications Agro industry has been given significant priority in economic development in India. Mahatma Gandhi s emphasis on developing village-based agro industry in the movement for independence marked the beginning. Is the priority given to agro industry justified today? The study finds that the agro industrial sector in India contributes a large share of overall employment in industry as well as value addition and income Page 239

7 generation. Its continued role in promoting References development, and reducing poverty, will Boer, K., and A. Pandey India s depend on its capacity to contribute to small Sleeping Giant: Food. The McKinsey Quarterly, No.1. CEPAL/GTZ/FAO. farm income and rural employment, Agroindustria y Pequen a particularly among the landless poor. Agricultura: Vı nculos, Potencialidades y Managerially, one of the major challenges Oportunidades Comerciales, Naciones lies in organizing sustained production and Unidas, Santiago de Chile. procurement from large numbers of small CII McKinsey & Co Modernising farmers. A partnering approach appears to be the Indian Food Chain, Food & most promising in overcoming multiple Agriculture Integrated Development constraints. It can be implemented either Action Plan (FAIDA). New Delhi: CII and McKinsey & Co through building cooperative organizations, Gaikwad, V. R Application of or by building confidence and trust through a Science and Technology for Integrated mutually beneficial business relationship Agricultural and Rural Development: A involving private enterprise and farmers. In both cases, and with other successful Farm-Industry Linkage Approach. In U. K. Srivastava and S. Vathsala, eds., models, the government must play a Agro-Processing: Strategies for facilitating role through enabling policies, Acceleration and Exports (pp ). United Kingdom: Oxford & IBH regulations, financing options, and research Publishing Co. Pvt. Ltd. and development. There is a need for new Gandhi, V. P., and G. Mani indigenous models to emerge for the Agro-Processing for Development and organization of agro industry. Government models alone do not show a good record of Exports: The Importance and Pattern of Value Addition from Food Processing. performance. The AMUL cooperative model Indian Journal of Agricultural is one promising model that brings benefits Economics, 50(3) Glover, D., and K. Kusterer Small to small farmers and gives them ownership Farmers, Big Business: Contract of the enterprise. However it needs to Farming and Rural Development. New overcome political, legal, and managerial York: St. Martin s Press. limitations. The PepsiCo model that involves Goyal, S. K Policies towards cogent backward integration by a private Development of Agro-industries in company to the farmers from a strong India. In G. S. Bhalla, ed., Economic product market offers another alternative. Liberalization and Indian Agriculture, Chapter VII (pp ). New Delhi: However, it requires long-term commitment Institute for Studies in Industrial and financial strength with limited scope for Development. affecting large numbers of rural poor. It is Gulati, A., A. Sharma, K Sharma, D. critical that alternative agro industrial Shipra, and V. Chhabra Export models are encouraged to emerge and Competitiveness of Selected Agricultural receive strong government backing, Commodities. New Delhi: National especially those models that contribute Council of applied Economic Research. India, Central Statistical Organization. positively to rural employment, poverty National Accounts Statistics 1995, alleviation. Ministry of Planning and Programmed Implementation. New Delhi: Government of India. ******* Page 240