PERFORMANCE OF AGRO-PROCESSING INDUSTRIES Performance and Prospects of Agro ...

49 Pages·2012·0.6 MB·English

Performance of Agro-Processing Industries 1
PERFORMANCE OF AGRO-PROCESSING INDUSTRIES

Performance and Prospects of Agro-Processing Industries in Haryana

Dr. Rajiv Khosla; Dr. H. S. Sidhu; Dr. Sharanjit Singh Dhillon
Chandigarh Business School, Gharuan, Mohali, India

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 2
Abstract
Agro processing industries serve as an important link between agriculture and industry.
Agro- industries in India have not been developed on scientific lines, as is the case in the
developed countries of the world. Lack of proper infrastructure, inadequacy of capital, lack of
entrepreneurial environment and the absence of proper policy framework are some of the
constraints that did not allow this industry to grow on scientific lines. But during the last one and
a half decade or so there has been a significant progress in this industry. Further, the
development of this industry is expected to solve inherent problems faced in agriculture sector. It
calls for an in-depth study of the agro-industrial scene of food surplus states. Thus, in the present
study an attempt has been made to analyze the performance of agro- industries in Haryana state
to see and to analyze what is their relative position as compared to the other states of the union.
A set of agro-processing industries have been identified on the basis of pattern, performance and
scope of the industry within the state and comparative advantage vis-à-vis other states of India
which can become future of Haryana’s industrialization strategy followed by suitable policy
measures so that agro-processing industries of the state are developed on modern lines.

Dr. Rajiv Khosla is Associate Professor and Head, Chandigarh Business School,
Gharuan, Mohali. Mob. [phone], email: [email protected]

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 3
Dr. H. S. Sidhu is former Professor of Economics, Punjab School of Economics, Guru
Nanak Dev University, Amritsar.
Dr. Sharanjit Singh Dhillon is Professor, Punjab School of Economics, Guru Nanak Dev
University, Amritsar.

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 4
SECTION I
INTRODUCTION
Agro processing may be defined as a set of economic activities that are concerned with
the conservation, handling and processing of agricultural products. These activities try to make
agricultural products usable as food, fuel or industrial raw material. Agro processing industries
can be categorized as primary and secondary industries. Where primary processing is concerned
with sorting, grading and packaging of the agricultural products, secondary processing includes
the conversion of agricultural products into value added products like juices, concentrates,
pickles, jams, chutney, squashes etc. Thus, the scope of agro-processing covers all operations
from the stage of harvesting till the finished product reaches its destination.
The World Development Report (World Bank, 2007) states that in developing economies
that are a hub of rural poor, rising inequalities lead to the unfulfilled expectations that create
political tensions. It necessitates the growth in agriculture and the rural non-farm economy to
reduce rural poverty and narrow down the prevailing inequality. It assumes greater importance in
the context of Indian economy, where it is expected that the fragmented US$350 billion retail
industry will double in size by 2015, and where modernization and liberalization of retail foreign
direct investment (FDI) have given rise to heightened investment coupled with significant protest
and policy push-back (Vorley, Lundy and Mac Gregor, 2009).
Though India is the world's second largest food producer, yet the contribution of
agriculture sector to GDP is as little as 18 percent, that too, with more than 50 percent Indians
employed in agriculture related activities. The most plausible reason that may be attributed to the
dismal position of the agriculture sector can be improper value-addition to the food produced.
Whereas in developed countries, up to 14 per cent of the total work force is engaged in agro-

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 5
processing sector directly or indirectly, in India, only about 3 per cent of the work force finds
employment in this
sector.(http://agritech.tnau.ac.in/agricultural_marketing/agrimark_AgroProcessing.html) The
value addition to the produced food stands merely at 7 per cent in India compared to over 22
percent in China, 45 percent in Philippines and 188 percent in UK (Chintala, 2008).
Although post green revolution era has seen some growth in processing sector in India
still this sector is in its infancy. Not more than 2 percent of the food items are processed in the
Indian economy (Annual Report, MFPOI, 2005-06). The development of agro processing
industries in the Indian context can provide a viable answer to the problems of this sector.
Different economists have weighed the rationale for the development of agro processing
industries from their own perspective.
(Rao et al, 2006) concluded that persistently high economic growth coupled with
increasing urbanisation has given a boost to the demand for high value food commodities like
fruits, vegetables, milk, meat, eggs and fish. Further, the producers are also following the
emerging demand patterns thereby making necessary changes in their production portfolio. This
is has created an opportunity for the development of agro based industries in the country. Chadha
(1999) observed that India is world’s second largest food producer and had the potential to be
world’s number one food producer. The reasons for growth of agro processed food industry were
attributed to a rise in incomes of the people, increasing number of working women, increase in
population and expansion of media both print and electronic. Bansal (2003) reaffirmed the
proposition that development of agro-industries is the only viable option to achieve employment
led growth in rural areas. Kachru (www.agricoop.nic.in/Farm%20Mech.%20PDF/05024-06.pdf,
2006) stated that round the year availability of raw materials, social acceptability of agro-

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 6
processing, support from the central government and vast domestic market are major strengths
favoring the development of Indian agro-processing industries. Naik (1993) argues that world
trade in processed fruits and vegetables is continuously increasing. International trade was
around US $ 5 billion consisting largely of juices, concentrates, pastes, etc. Ministry of Food-
Processing Industries (www.mofpi.nic.in, 2006) observed that domestic consumption of
processed foods is picking up with changing consumer behavior due to economic growth and
changing life styles.
The state of Haryana is 100 percent self sufficient in terms of food grains production.
Further, nearly 80 percent of the total area of the state is sown. Not only this, approximately 86
percent of the net area sown is also irrigated. Furthermore, about 70 percent of the total
population of the state is dependent on agriculture and 30 percent of the total income of the state
comes from agriculture sector. Beside this food-processed and agro-processing product worth Rs
1,500 crores are being exported annually from the state (www.techno-preneur.net/business-
ecosystem/cgovt/haryana/haryana-policies.htm as seen on 20/5/2009). Thus, the state has
tremendous opportunity for the agro-processing industries. The present study aims to identify the
promising agro-processing industries in the state. Specifically, it intends to fulfill the following
objectives:
i. To assess the performance of agro-industries in Haryana since 1998-99 and to see the
impact of economics liberalization on this industry.
ii. To compare the performance of agro – industries in Haryana with other major states of
India.

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 7
iii. To identify the areas where Haryana’s agro-based industries have an advantage over
other major states of India in terms of return per unit of invested capital and per unit of
value added.
iv. To give suggestions and draw policy implications with a view to develop agro-industries
in the state on a sound footing.
SECTION II
DATABASE AND METHODOLOGY
Secondary data at 3 - digit level from Annual Survey of Industries (ASI) published by the
Central Statistical Organization has been used. Since the year 1998-99, the National Industrial
Classification (NIC) has introduced a stratum of an industry group at a 5 digit level NIC of 1998.
The new NIC 1998, which is pretty wide-ranging, at the 5 digit level, has not been found to be
comparable with the NIC 1987. Thus, keeping this limitation of data in mind, for the present
study, analysis has been undertaken at two points of time - one pertaining to the time period with
NIC 1987 and the other with NIC 1998.
The study identified a group of industries that are dominating in Haryana for the year
1997-98 in which an analysis for 42 industrial groups have been made (based on NIC – 87). For
studying the growth of agro-processing industries, compound growth rate of each of the selected
indicators have been calculated for the period from 1980-81 to 1997-98. Year 1980-81 is unique
in the sense that CSO started supplying electronic data from this year onwards only. Further, the
performance of each agro-processing industry in Haryana is compared to the same industry in
other states of India. Based on NIC–98, 17 agro-processing industries have been studied for the

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 8
year 2007-08. The modus operandi of comparison for the agro-industries remains the same as
discussed above.
The trend in growth has been studied by computing the compound growth rate through
principle of least squares, using the following formula
LogY Log a t(Logb)
The data given in ASI reports is on current prices but for proper comparison, the values
are deflated with suitable deflator and expressed in 1993-94 prices. The study has been divided
into five sections. Section I is introductory in nature. In section II database and methodology for
the present study is discussed. Pattern, performance and scope of agro-processing industries for
the year 1997-98 are identified in section III. Section IV identifies the pattern, performance and
scope of agro-processing industries for the/up to the year 2007-08. Suggestions for the
development of agro-processing industries in Haryana are given in section V. Concluding
remarks is given in section VI.
SECTION III
PATTERN, PERFORMANCE AND SCOPE OF AGRO-PROCESSING INDUSTRIES IN
HARYANA
The share of different industries in agro-processing group in the factory sector is presented in
table 1. The table shows that the grain mill products group of agro-processing industries
contributes the maximum share (22.47 percent) to the total output of the agro–processing sector
in the state. Further, grain mill products industry also holds the top rank in case of the percent
share in the net value added and total number of units in agro-processing industries. The second

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 9
slot goes to Manufacture of rain coats, hats, etc. whose share stands at 5.68 percent of the total
output of the agro – processing sector. It is also seen from the table that the top five agro-
processing industries of the state are Grain mill products, Manufacture of rain coats, hats etc.,
Wool spinning and weaving other than in mills, Manufacture of food products n.e.c. and
Manufacture of dairy products.
Together these five agro industries account for 44.23 percent of the total agro –
processing production in Haryana. Further, the table shows that Weaving of cotton, Other edible
oils, Cotton ginning, cleaning and baling, Sugar manufacturing and refining and Spinning,
weaving and finishing of other textiles along with the top five agro-processing industries
Table 1
Share of Different Industries in Agro-processing Industrial Group in
Factory Sector of Haryana: 1997-98
S.No. Industry Output NVA Units Workers
1. Grain mill products 22.47 16.71 35.31 8.04
2. Manufacture of rain coats, hats etc. 5.68 8.66 6.57 5.42
3. Wool spinning and weaving (other than in mills) 5.59 4.85 12.22 3.53
4. Manufacture of food products n.e.c. 5.25 14.38 1.06 0.96
5. Manufacture of dairy products 5.24 -1.95 1.41 58.78
6. Weaving of cotton 5.11 5.84 3.88 3.36
7. Other edible oils 4.92 1.2 3.25 0.77
8. Cotton ginning, cleaning and baling etc. 4.90 -0.52 6.36 1.72

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)
Performance of Agro-Processing Industries 10
9. Sugar manufacturing and refining 4.86 -9.77 0.64 3.53
10. Spinning, weaving and finishing of other textiles 4.80 8.47 1.69 3.4
11. Pulp, paper & paper board 4.40 4.00 3.53 0.84
12. Manufacture of leather footwear 4.34 12.43 1.77 2.39
13. Manufacture of bakery products 3.73 9.66 0.49 0.67
14. Hydrogenated vanaspati, ghee etc. 2.56 1.57 0.42 0.22
15. Weaving carpets, rugs etc. 2.10 5.23 1.27 0.45
Manufacture of water-proof textiles, such as oil
16. cloth, tarpaulin etc. 1.81 3.79 0.64 0.73
Manufacturing of textiles n.e.c. like linoleum,
17. wadding, upholstering and filling, etc. 1.58 0.64 0.42 0.05
Manufacture of Paper and Paper Board Articles
18. and Pulp Products n.e.c 1.44 2.51 0.35 0.34
19. Malt liquor and malt 1.35 3.01 0.49 0.35
20. Weaving cotton textiles in power looms 1.15 1.94 2.47 1.15
21. Manufacture of soft drinks 1.02 0.37 0.21 0.12
Printing, publishing books, maps, atlases,
22. journals etc. 0.99 1.53 1.69 1.18
Manufacture of special purpose paper whether or
23. not printed n. e. c. 0.95 0.85 0.21 0.22
24. Production of khadi 0.49 0.51 0.92 0.17
25. Manufacture of veneer, plywood etc. 0.48 0.37 3.04 0.09

Proceedings of 2nd International Conference on Business Management (ISBN: 978-969-9368-06-6)