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Agro-based industry In India growing exports by over 14%

In the world market, India is ranked among the 15 largest exporters of agro based products in the world. The exports have increased at a CAGR of 14.71% until 2017. The total contribution of agro-based industries to the exports of the country was 12.26% in 2017.

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Definition / Scope

An agro based Industry not only considers the raw materials provided by the agriculture but those that provide necessary equipment and inputs for the modern agronomic practices. Agriculture and Industry are an essential part of the agro based industries as the joint relationship of the input provided to agriculture, production of raw materials and then further processing of those agricultural resources to create diverse range of outputs help to derive this industry. As agro-based industries are both input and output of the agriculture they can be further segregated into two categories which are: [1]

  1. Processing Industries (agro-based industries)- It is further classified into various sectors within the industry which are food processing, textiles and textile products, paper and paper products and leather and leather goods.
  2. Input Supply Industries (agro-industries) - It includes the agro-chemicals, seed industries and farm equipment providers. This industry is slightly variant from the agro-based industry however, it supports and enhances the function of the agricultural crops to generate better quality agro-products which is why it falls under the scope of agro based industry.

Market Overview

On a Global viewpoint, India is the major producer of spices, pulses, tea, milk, cashew and jute. The second major producer for wheat, rice, fruits, vegetables, sugarcane, cotton and oil seeds and fourth major producer of agro-chemicals. The total livestock population present in India is around 512 million. India also holds the position of the second biggest agricultural land occupying area of about 157.35 million hectares and it also has the 10th most fertile land properties with 161 million tonnes. In our world there are only about 20 agro-climatic regions among which 15 lie in India alone. The land which is segregated for agricultural purpose is diverse in terms of soil as India has 46 out of 60 types of soil found in the world. As of 2017, the contribution of the agro- industries to GDP of India was recorded at 4.9%. Similarly, many foreign countries prefer India to import agro products made in India.[2]

In the world market, India is ranked among the 15 largest exporters of agro based products in the world. The exports have increased at a CAGR of 14.71% until 2017. The total contribution of agro-based industries to the exports of the country was 12.26% in 2017.[2]

  • Textile Industry

The textile is one of the aged old sector in India where the overall exports recorded in 2017 stood up at $39.2 billion with the contribution of 2% to the GDP of India. At present this industry employs more than 45 million people.[3]

  • Food Manufacturing & Processing Industry

The food manufacture and processing industry accounts 32% of the total country's food market. This industry in India is high-growth and high-profit sector due to its immense potential for value addition. Indian Food processing industry is the 6th largest in the world accounting 70% of the total food retail sales in the globe. It contributes 13% to the total Indian exports at $38.9 billion and 8.8% to the GDP of the country as per 2017.[4]

  • Leather Goods Industry

Leather goods Industry of India is one of the top ten foreign exchange earners as its total contribution to exports is huge. However its contribution to the GDP is less than 1%. At present this industry employs about 2.5 million people. As Indian Leather goods industry is second largest producer of leather goods in the world and accounts 12.93% of total leather goods production in the world.[1]

  • Tobacco Goods Industry

India is the second largest producer and third largest exporter of tobacco in the world, benefits significantly from the tobacco market in terms of revenue and employment. As tobacco is the major cash crop of India, it is availiable in abundant amount. The tobacco related products sold in the market are Bidi, gutka,khaini, zarda and cigerrettes. Bidi is popular in the domestic market whereas cigarette is popular in the foreign market.[5] It contributes about less than 1% to GDP of the country and employs about 36 million people at present.[1]

  • Paper Products Industry

India is ranked at the 15th position in paper manufacturing nations in the world. As of 2017, the paper production capacity is 12.7 million tonnes. The share of India in paper and paper product supply in the world accounts up to 2.6%. There are over 750 paper mills of which 50 have only the power to produce 50,000 TPA or more. At present the industry is utilizing 89% of the total capacity of production. 0.5 million tonnes of paper are exported every year. The industry can be categorized into paper & paper board & Newspapers..[6] The contribution of paper industry to GDP is less than 1 % and currently it employs about 2 million people.[1]


Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet

Top Market Opportunities

Recently, the online segment of the grocery and food delivery has exponentially increased in India at a rate of 150% year on year and about $300 million worth food merchandise was sold in 2016 alone. There are also number of online retailers such as Foodpanda, Zomato, Tiny owl among others are in the rise. Thus, this is the perfect opportunity for the companies within the industry to deliver their products to consumers through these channels as they are being embraced highly by people in India.[4]

The opportunity of the entire agro-based industry to grow is tremendous because all the raw materials needed to produce end goods are available within the country at low cost and at present only 2% of the agricultural production is being processed within the country due to which the industry market value is not up to the mark. Thus, new companies looking to enter the business can thrive by tapping onto the underutilized production.[1]

The paper industry can leverage new kinds of manufacturing technologies to grow. The raw materials are present however various types of technologies that include capacity enhancement, machinery upgrade and acquisitions will help the industry to prosper. These paper processing machines will help the companies to lower their operating costs and produce premium quality paper which can be sold at higher prices.[6]

Market Drivers

Consumer spending in India has risen tremendously as the first quarter of 2017 was recorded with a value of $ 286.86 billion in consumption which is expected to reach US$ 3.6 trillion by 2020. Due to the rise in the consumption and purchasing power of the consumers, more people within India has helped to generate a robust demand for agro based industries. Both the rural and urban population have been identified with levitated disposable incomes which has supported the demand. In international market, the demand for agro-based products of India has been surging in the Middle East. Also, the demand for processed food is increasing due to urbanization, young population and the increasing culture of nuclear families. The lifestyle of people is also changing and they have been focusing on improving health which is increasing the consumption of nutritional foods within the country.[2]

Since last 5 years, the textile industry has been receiving constant investment opportunities especially FDI worth $2.97 billion till 2018. In 2017 alone the sector was witnessed with investments accounting $4.19 billion and the Cabinet Committee of Economic affairs and Government of India has recently mandated a project called 'Scheme of Capacity Building in Textile sector' with a capital of $202.9 million until 2019 which is expected to bring new companies and individuals to explore their talent in the field of textiles.[3]

The average working capital required in the agro-based industry is very low due to which there are less chances for companies to fail. The average working capital is highest in food processing sector with an amount around $1.7 million and least is required tobacco and paper industry ranging around $200 thousand only. There are increasing number of international and national players entering into the agro-based business as profits are high and the operating cost is low.[1]

The consumption of tobacco related products is very high in India which will continue to drive the growth of this market. These products are also exported to the foreign countries. As of 2017, the total exports stood at $924.23 million and major markets which are demanding tobacco products from India are Nepal, Egypt, Nigeria and Belgium.[5]

The paper requirement in India is anticipated to rise by 53% in upcoming 6 years especially due to rise in the number of students going to school. Other causes include growing consumerism, modern retailing and growing use of documentation will keep the demand stable. Similarly, e-commerce has opened up new channel of sales of paper especially as these channels use paper in form of packaging which has opened up new segment for the companies to venture into.[6]

Market Restraints

The cost of raw materials available for processing is very high because of several factors such as competition, lack of credit to farmers, transportation costs etc. Another problem is that as agricultural crops used for processing are sown in a particular season the availability of raw materials is limited to short-period of time.[1]

Processed foods which are packaged and sold in the market fall under the luxury class especially the gourmet food which is subject to high amount of taxes.[1]

There are stringent regulations being implied in the tobacco industry. The tax rates levied in the industry is high which has decreased the sales and production volume of tobacco products in India. The government has also banned smoking bidi and cigarettes in public places and picture warnings are displayed in over 85% of the packets of cigarettes sold in India.[5]

Industry Challenges

The agro processing industry overall is unorganized as it integrates very less research & development activities and technology usage is also limited. In addition to that the products are not graded in terms of quality and standardization is not implemented.[1]

The raw materials extracted by this industry is not handled well due to which a lot of raw materials are usually underutilized which creates lots of wastage. The operational procedure in processing is not efficient to the extent required.[1]

The supply chain integration within the agriculture and allied industries are not proper and standardized. The input supplying industries do not conduct proper research and development activities which leads in production of low quality crops and also causes inefficiencies in harvesting or extracting crops in time. As these raw materials supplied by agriculture are processed by the agro-based industries, the end product also lacks quality and the overall inefficiency in processing of the industry. Thus, if all industries work together to come up with better quality raw materials that could result in a better end-product then this value chain would benefit all industries.[1]

Technology Trends

All the sectors in agro-based industry except food processing and textiles need an up gradation and investment in new technologies to improve their operational efficiency and production capacity. Further, at this digital age industries have not been able to tap on to the power of e-commerce.

  • Food Manufacturing & Processing
  • Uber Technologies Inc is planning to launch 'UberEATS' which is going to be a food delivery service to India with a wide coverage of network across all geographical region of India.[4]
  • Global e-commerce giant, Amazon is planning to enter the Indian food retailing sector by investing US$ 515 million in the next five years.[4]
  • Textile & Textile Products

Smart textiles are the new kind of products that are increasing in the Indian textile market where India is rising and top exporters from the Asian region. The major companies involved with this segment are Ducere technologies, Lumious design technologies and Broadcast war and they have been identified with notable investments in smart apparel, wearable devices and integrating technology related features in backpacks and jackets.[7]

Regulatory Trends

  • Textile & Textile Products

As of 2018, the Indian government has increased the custom duty to 20% from 10% on 501 textile products to boost products made in India. Also, government has introduced a special scheme to boost exports and create up to 10 million jobs through this sector by the year 2020. The government has also allowed 100% FDI in this sector which is why $3.78 billion of additional investments was added in 2018 alone.[3]

  • Food Manufacturing & Processing

100% FDI has been allowed in the food processing sector as well and government has initiated various incentive based programs along with focus on supply chain infrastructure. As of 2017-18 Union Budget about $1.2 billion has been allocated for the dairy processing. The food testing infrastructure is further improved by upgrading laboratories and mobile testing labs for food with an investment of $72.3 million respectively.[4]

  • Tobacco Industry

As of the Union Budget of 2016-17 the tobacco related all products are set by government at high price But this has not stopped the tobacco manufacturing companies as they have expanded their line of brands to curb more revenues from these additional segments.[5]

  • Leather goods Industry

The Indian government has focused on the leather sector in its Indian Foreign trade policy as it is one industry which has large growth prospects in terms of exports and employment generation. Various industrial developmental programs as well as promotional activities are held which is going to enhance the production capabilities, innovative technology and will take the industry to match the international standards in terms of output. As government has also ingested $400 million for employment generation and initiative to open flour clusters in various regions across the country that will include manufacturing units and training centers.[8]

Other Key Market Trends

  • Tobacco Industry

The Tobacco Board of India is a enabler for tobacco growers, traders and exporters. It creates synergies between these entities. The board is responsible to ensure fair price of all the products and it also maintains its corporate social responsibility status by giving crop loans, fertilizers and necessary inputs to farmers. It also counsels farmers to produce quality crops to meet international demands. Further, it is trying to improve the Indian market in tobacco by providing companies to participate in international exhibitions where brand building exercises are held.[9]

  • Food Manufacturing & processing

Contract farming has been one of the rising trends in the Food manufacturing & processing segment within agro-based industries. However, the experience for the large private market players have faced with success and failures while doing so. It has assisted both the processing companies, via increasing sales and therefore expanding their incomes, as well as providing access to better technology and enticing better prices by acquiring a guaranteed market for Indian farmers.[2]

  • Paper Industry

The Indian paper industry has been quite responsible towards the repercussions that could be caused by production of paper as it does not cut ‘forests’ to make paper. The industry plants more trees than it cuts for making paper. For every tree it cuts, it plants two. The industry is increasing the country’s green cover. In India, 35 % of the paper is produced using waste paper and 42% of it is made by using agro-residues like sugar cane, bagasse, wheat and paddy straw. Only 23 % of the paper is produced using wood, out of which a higher percentage is made from imported wood pulp.[10]

Market Size and Forecast

  • Textile & Textile Products[3]

As of 2017, the total production of fiber in India was recorded at 1.364 million tonnes and the total market value if estimated at $150 billion respectively. As of 2019, the value of the textile industry in India is expected to reach $250 billion and is expected to increase at a CAGR of 8.4% until 2021.

  • Food Manufacturing & Processing[4]

Indian Food Processing Industry is currently valued at $ 223.08 billion as of 2017. Indian Food Processing Industry is expected to increase at a CAGR of 9.41% until 2021 and reach a market value of $ 315.11 billion.

  • Leather Goods Industry[1]

The estimated market Value of the leather goods at a CAGR of 8.22% as of 2017 is $ 6.90 billion and is expected to grow at the same rate until 2020. By 2020, the market value is expected to reach $ 8.73 billion.

  • Tobacco Goods Industry[1]

The tobacco market in India is expected to grow at a CAGR of 6.3% from 2016 to 2020 where the market value stands at $10.36 billion in 2017 and is expected to reach $12.43 billion by 2020.[5]

  • Paper & paper Products

The paper market in India is expected to grow at a CAGR of 6% from 2016 to 2020 where the market value stands at $ 8.98 billion in 2017 and is expected to increase at a CAGR of 10% from 2020 to 20205 and reach a market value of $15.7 billion by 2025.[6]


Market Outlook

Overall, the agro-based industries in India are performing quite well. All the five major sectors within the industry is expected to grow at a CAGR of more than 6% with major growth projected in paper and textile industries followed by medium growth in food processing & leather industries whereas least growth in tobbaco industry with 6.3 CAGR respectively.

In the textile industry, the production of raw cotton in India is expected to reach 34.9 million bales in 2018 which is a positive outlook for the industry to thrive in future. The new scheme called 'Amended Technology Up-gradation Fund Scheme' is estimated to create job opportunities for 3.5 million people and investments in this sector up to $14.17 billion by 2022.[3]

Similarly, the demand of paper is expected to reach 23.5 million tonnes by 2025, this growth prospect is great for India because of its potential to produce paper. Every year, the industry is growing at 6% which also makes it fastest growing market in paper in the world. The projected demand for the newsprint papers is expected to reach 5.1 million tonnes whereas specialty paper will face a demand of 0.6 million tonnes respectively. The domestic demand for paper in India is increasing which makes the future of this industry promising.[6]

Despite of the stringent regulations, the consumption of tobacco products are also increasing in the domestic market and cigarettes are exported overseas. Leather goods industry is also gaining momentum in the international market and the government initiatives to improve quality of leather produced in India as well as make in India initiatives are going to increase exports of Indian leather goods and welcome multiple FDI into this sector.

Finally, the food processing sector which is the largest among all sectors is growing but at a slow pace as the industry itself is consolidated but the entry of new players, especially international is going to make the competition high in near future.[2]

Competitive Landscape

The Agro-based Industry in India is flourishing and is dominated mostly by five sectors which are

  1. Food manufacturing & Processing
  2. Textiles
  3. Tobacco
  4. Leather Goods
  5. Paper Products

In terms of market value, revenues, export value, contribution to GDP,employment generation and number of establishments the most competitive sector within the industry is Food manufacturing & processing followed by textiles.


Competitive Factors

  • Textile & Textile Products
  • As of 2018, Vardhman Textiles and Reliance Industries have partnered for creation of state-of-the-art fabrics.[3]
  • As of 2017, Arvind Ltd signs MoU with the Gujarat government to set up a mega apparel park with an investment of $46 million in Ahmedabad district.[3]
  • Paper & Paper Products

Century pulp which is one of the largest paper manufacturing companies in India is foraying into the tissue paper segment. As the tissue paper consumption on per ca pita basis is limited to 123 grams only, the company is launching an awareness program in various cities of the country about importance of using tissue paper. Venturing into new segment will add up new stream of revenue to the company's existing revenues.[11]

  • Leather & Leather Products

The Make in India is one of the initiative under which the huge production centers for the encouragement of production of leather has been established. The Foreign companies are also welcome to set-up their ventures in relation to this industry. As India is emerging as a major production center and it has all the infrastructure and workforce available for the production of leather and leather goods, more foreign companies are eyeing at India to foray into leather manufacture.[8]

  • Tobbaco & tobbaco products

ITC is the market leader in tobacco manufacturing in India because of its state-of art technology use in the production, it brings upon the most diverse range of products as it is the only company that has introduced 17 different varieties of cigarettes. It is one of the largest exporters of Indian cigarettes and is leader in foreign countries like Barahin & Qatar too.[12]

  • Food Manufacturing & Processing
  • Danone SA, a French giant is planning to focus on nutrition business in India and is aiming to double the revenues by the year 2020.[4]
  • US-based food company Cargill Inc., is aiming to introduce sunflower category oil in India and become the brand leader by 2020. It has also projected to expand to over 800,000 retail stores across India.[4]

Key Market Players

Top 5 textile companies according to highest revenues, brand identity and highest market share in the industry earned are:[3]

  • Vardaman
  • Arvind
  • Sutlej
  • Bombay Dyeing
  • Raymond

According to the biggest selling and established brands in the food processing category, the top players in the Indian Market are:[4]

  • Kissan
  • LT Foods Ltd.
  • Brittania
  • Nestle
  • Parle Agro
  • Amul

According to the brand value and sales growth the players dominating the tobbaco market in India are:[5]

  • ITC
  • Godfrey Philips
  • VST Industries

According to the production capacity of 6 million annual tonnes the top companies in Indian paper sector are:[13]

  • Ballarpur Industries Ltd.
  • JK Paper Ltd.
  • Tamil Nadu Newsprints & Paper Ltd.
  • Century Pulp & Paper
  • Andra Pradesh Paper mills Ltd.
  • West Coast Paper mills Ltd.

The most prominent players in the manufacture of leather & leather products in India are:[8]

  • Prara Leathers Private Limited
  • Rahman Industries Limited
  • Farida Prome Tannery Private Limited
  • Tata International Limited
  • Super Tannery Limited
  • Blue Diamond Leaders.

Strategic Conclusion

The agro-based industries are thriving yet the scope to grow remains still higher because the India has competitive advantage in agriculture. The agriculture industry is rising and production of crops are increasing every year, however the agro-processing industries are utilising less than 5% of the total production in the country.

Further, the government of India has been supportive to all the sectors within the agro-based industry followed by few restrains and challenges faced by the overall industry. The consumption of Indian population is increasing day by day and also the output of the agro-based industries which is increasing the products demand in international markets. Thus, demand drive in both domestic and international market is likely to maintain this industry's competitiveness.

From here to future, the focus of all agro-based industries must be to invest in new and upgraded technology systems to enhance production capacity, efficiency and quality.


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