The Union Budget of 2024-25 has done well to prioritise agriculture sector development. It has allocated ₹1.52 lakh crore to agriculture and allied sectors, focusing on climate resilience, productivity, innovation and value added exports. This is just as well because exports of agricultural products fell by 8 per cent to $48.9 billion in 2023-24 from $53.2 billion in 2022-23. The original target was $60 billion for agriculture exports in 2022-23.
The average annual growth rate of agri-exports was just 2 per cent during 2014-23. Notably, five products — rice, meat, spices, sugar, tea/coffee, and oil meals — account for over 50 per cent of total agricultural exports. Only 25 per cent of our agro-exports are processed or value added. This has remained virtually unchanged over the last decade.
In contrast, the global average is nearly evenly split between primary and value-added agro exports. The Economic Survey 2023-24 cites a Deloitte study, showing India’s food processing levels at 4.5 per cent for fruits, 2.7 per cent for vegetables, 21.1 per cent for milk, 34.2 per cent for meat, and 15.4 per cent for fisheries, compared to 30 per cent in China and 60-80 per cent in Western countries.
It has been over five years since the agro-export policy was introduced with the aim for boosting high value- and value-added agriculture exports. While value-added exports increased by $6.5 billion over the last five years, taking total value-added exports to $15 billion, it only marginally improved our global rank from 21 to 17. This can be surely improved.
Global scene
Global exports of processed agricultural products are nearing $1 trillion, with Germany and the US each accounting for around 6 per cent, indicating a balanced export landscape. The top food and beverage (F&B) exporting economies are Germany ($63 billion), the US ($58 billion), the Netherlands ($57 billion), China ($53 billion), and France ($50 billion). South-East Asian nations like Indonesia, Malaysia, and Thailand are also major exporters of processed agricultural products.
The agriculture sector is often more highly protected compared to manufacturing and services all across the world. This is largely due to its strategic importance of providing food security. However, some firms have taken advantage of technology, scientific research, and strong manufacturing capacities to capture a substantial share in global agro/food processing markets.
Notable examples include Nestle S.A. (Switzerland), PepsiCo Inc. (US), Anheuser-Busch InBev SA (Belgium), Mondelez International (US), Diageo Plc (UK), Kweichow Moutai Co., Ltd. Class A (China). Nestle S.A. (Switzerland), with an annual turnover of $111.3 billion, is the largest producer in the processed F&B sector. There are also some large firms from Australia, New Zealand and Japan, which operate in the global markets.
In contrast, top Indian firms in processed agriculture are far behind in operational size, production capacity, and in meeting international standards. For example, AMUL, the dominant Indian player, has a group turnover of $9 billion with the majority of this revenue coming from domestic sales.
Meanwhile, top global players listed above have processing and manufacturing capacities across various countries, covering their domestic market as well as exports.
The Production Linked Incentive Scheme for Food Processing Industry (PLISFPI) was implemented in 2021-22 precisely with the objective of attracting large globally competitive firms to produce in and export from India. This policy aims to expand processing capacity, grow strong Indian brands, increase global market presence, create jobs, and boost farmer incomes.
PLISFPI aims to incentivise manufacturing in four major food segments, which are ready-to-cook/ready-to-eat (RTC/RTE) foods including millets-based products, processed fruits & vegetables, marine, and mozzarella cheese. It also purports to support branding and marketing efforts of Indian companies in external markets.
PLI allocation
The government allocated ₹10,900 crore ($1.25 billion) for fiscal incentives under the PLISFPI scheme from 2021-22 to 2026-27, to be disbursed after firms meet their production and employment targets.
As of May 2024, the government has disbursed only ₹1,073 crore ($129 million) among 158 beneficiaries, with a proposed investment of ₹7,697.2 crore ($927 million). With only 10 per cent of the funds utilised halfway through the timeline, the scheme is apparently in need of some more focused policy intervention.
The majority of the 158 beneficiaries’ firms appear to be SMEs. For achieving the twin objectives of the PLI scheme that of achieving global competitiveness and ramping up exports, these SMEs will need to get into joint ventures with globally established ‘anchor’ firms.
With 90 per cent of PLISFPI funds still unutilised, the focus should be sharply on attracting well established and reputed food processing companies, for connecting with global and regional food and agro processing networks.
By bringing in frontline food processing technologies, establishing globally acceptable quality standards and providing access to external markets, this targeted approach for attracting ‘anchor firms’ will achieve the desired goals.
Apple is a prime example in the electronics manufacturing sector, of the success of this ‘targeted approach’. Electronics exports, primarily of smart mobile phones, have increased from less than $3 billion in 2020 to $15.6 billion in 2023.
Even more importantly perhaps, Apple has created over 100,000 direct and 300,000 indirect jobs, mostly blue-collared ones and now manufactures 14 per cent of the world’s iPhones in India.
This example needs to be replicated across industries. The Food Processing Ministry would do well to partner with non-profit think tanks for formulating and implementing a time bound outreach programme for targeting anchor firms and facilitating their joint ventures with companies registered under the PLISFPI. This will bring new energy and dynamism to PLISFPI.
Kumar, is the Chairman of Pahle India Foundation; and Jha is a fellow at Pahle India Foundation