India: the map of a boundless market
The Foreign Trade Agency ICE and FederUnacoma have promoted a study on the horticulture sector in the Indian Subcontinent, with the aim of analysing the evolution of individual crops and assessing the mechanical technology needs. The support of the Government is fundamental, through specific plans for agriculture and mechanization to guide the country in the development of the primary economy. Interesting business opportunities for Italian industries
There are considerable opportunities for Italian companies. The reasons are that India is a huge country and its economy has continued to grow for decades at a rate comparable only to China’s. And agriculture, one of the most important sectors, must modernize through substantial investments in mechanization. To understand how Italian companies will be able to seize these opportunities, the Italian trade agency of Mumbai and FederUnacoma have commissioned a survey on what seems the most interesting sector for Italian producers of agricultural equipment: horticulture. We should bear in mind that for India, the term “horticulture” also includes fruit trees.
The result was a very substantial report, 130 pages, full of information, tables and operational suggestions on how to actually operate on the Indian market.
To carry out a more detailed study, a partial area was chosen, namely four of the 29 federal states that make up the entire nation: Maharashtra, Karnataka, Tamil Nadu, and Uttar Pradesh. Along with the information and data provided by institutional sources, hundreds of interviews were conducted directly with farmers, sector operators and university researchers.
The enthusiasm of numbers
The entrepreneur, or any business operator who wants to tackle the Indian market, is faced with a country that is radically changing, continuing an innovation process that has been underway for decades, but that still represents numbers that are already significant on the world stage. The GDP of 2017 was around 2.6 trillion dollars, which represents 4.19% of the world economy. But the growth rate is important; in the second quarter of 2018 it was 8.2%, exceeding the forecast of 7.6%. For almost 70 years (from 1951 to 2018) the Indian GDP has grown on average by 6.16%.
Agriculture has always been the key sector of the national economy: in the last 10 years, the gross added value provided by agriculture was between 11% and 12% of that produced by the entire economy, in constant growth: from the 81 billion rupees of the total value of the economy in 2011-12, when the value of agriculture touched 10 billion rupees, to the 154 billion rupees of 2017-18, in which agriculture weighed for 16.7 billion rupees.
But why focus on a specific sector such as horticulture? Surely because it represents about half of the entire agricultural production of India: 25 million hectares out of a total of about 128 million hectares under cultivation, but with 295 million tonnes produced as opposed to the 276 million of cereal crops (international classification: foodgrains). And because India is the second world producer of fruit and vegetables, which make up almost 90% of horticulture. The remaining 10% is represented by spices, flowers and aromatic plants. For some specialized crops, like mango, banana, papaya, cashew, it is by far the largest producer.
Private companies, state plans
Considering the particularly complex socio-economic situation of the entire country, it is clear that economic and technological innovation must necessarily start from a decisive state intervention through multi-year programmes that orient resources. For horticulture the central Government of India created the MIDH, Mission for integrated development of horticulture, with which it supports development programmes through an 85% contribution, while the remaining 15% is supplemented by individual local governments.
The MIDH programme consists of sub-programmes intended for specific crops or territorial regions. The most important are the NHM, National horticulture mission, and the NHB, National horticulture board, organizational structures that manage the interventions.
The main objective of all the actions concerns precisely mechanization, whose aim is to increase productivity and reduce the physical fatigue of field work. And for this reason, the NHB has identified the area on which to concentrate support in fruit and vegetable production, with the import of 100% funded equipment, through the government agency, with 5 million rupees per machine (about 60 thousand euro).
A specific item of the interventions focuses on storage plants with refrigeration or modified atmosphere. Subsidized loans are granted for new plants as well as for expansions or modernizations of existing ones.
Specific funding is also allocated to open field projects, including for mushroom production. This programme provides a subsidy of between 40% and 50% of the entire project cost. Projects involving post-harvest activities are eligible for a 35% contribution. The specific programme for mechanization, which is part of the NHM, National horticulture mission, is the SMAM: Sub-mission on agriculture mechanization. Farmers’ associations and various charitable organizations, such as groups of women farmers, who have at least 10 members and are engaged in fruit and vegetable cultivation, can also access these economic support programmes.
The managers published a detailed list of the types of equipment with the related planned interventions, ranging from tractors up to 20 PTO Hp, tillers, soil preparation equipment and so on.
A broader plan, established in 2007, is the Rkvy, Rashtriya krishi vikas yojana (National agricultural development programme), which leaves ample room for autonomy to individual States to intervene in the areas they consider most important. The central government contributes 60% of the funding and leaves the remaining 40% to each State. Many interventions concern horticulture.
State support for agricultural mechanization concerns more specific aspects, such as training and human resources, quality control and equipment verification, and the dissemination of mechanization.
The product catalogue
Indian fruit and vegetable production is very concentrated on a few products, with some obvious differences between one State and another. Speaking only of the areas covered by the Ice Agency/FederUnacoma study, the most significant crops are: bananas, mangoes, citrus fruits and apples, for fruit; onions, tomatoes, aubergines and cabbage, for vegetables.
The production of grapes constitutes a chapter of its own, with sees India in first place among exporters, and papaya, pomegranates and tapioca cultivation is widespread.
The problem that is common to all agricultural activities, however, is the fragmentation of properties: the land belonging to one owner, in most cases, has an extension of less than one hectare. And the trend is actually towards a progressive multiplication of the owners and consequent reduction of the average size: from 1970 to the present (the report reads) so-called marginal crops, i.e. lower than 1 hectare, went from 14.5 million to 38 million. Conversely, large farms (over 10 hectares) fell from 50 million to 14 million. The average size of a farm has gone from 2.28 hectares in 1970 to 1.08 hectares in 2016. This phenomenon has a specific cultural reason.
Interventions for irrigation
The reduction in rainfall over the coming decades is seen as a very worrying prospect for the entire Indian continent. The latest survey has calculated that the irrigated surface area throughout the country is about 96 million hectares. But since 2015, the Government has launched a plan to significantly increase this area and reduce waste.
Closely related to the issue of water scarcity and rising temperatures is the challenge of increased productivity and seed selection. All these interventions require two premises: plant engineering and knowledge. Both are included as items to be financed in the Indian agriculture modernization programmes. Also because without adequate structures, and without the ability to use them at their best, support for the purchase of tractors or any other mechanical tool would be a waste.
Bureaucratic labyrinths
The recommendation that concludes the research of Ice Agency and FederUnacoma concerns precisely the approach to Indian bureaucracy. To invest in India, Italian companies can choose between setting up a “private limited company” or a “public limited company”. In any case, they will not be able to have a company with a single owner and the most practical solution is almost always the “Private limited company”, which corresponds to our Srl. The company must be enrolled in the Register of Companies through a form that you can fill out online. Of course, you can also operate as an affiliate of an Indian company or a branch of an import-export company. An Italian citizen can run an Indian company, thanks to a 2013 agreement between the two countries. The same agreement allows an Italian company to hold shares in an Indian company, with certain limits. The procedures have been simplified for those who want to install production facilities for agricultural equipment in India.
A formidable trend
After all, India can fully play the role of leading country in the process of agricultural mechanization. The growth in sales of tractors and other agricultural machinery and equipment has been impressive in recent years. The data regarding the national market - provided by Agrievolution - shows that the Asian country has gone from 392,000 tractors sold nationwide in 2008 to 660,000 in 2017, marking an increase of 68% in the decade.
The estimates provided by the Indian manufacturers’ association TMA (Tractor Manufacturers Association) indicate a further leap in 2018, which likely grew by 20% compared to the previous year, bringing the total of tractors to a record level of almost 800,000.
Together with tractors - which constitute the core of every agricultural production in India, but also of transport and the most diverse activities in the rural environment - other types of machines show consistent demand. One example are walking tractors, which in the Indian administrative year 2017-2018 (the one that goes from April 1 to March 31 and on the basis of which the agricultural year is evaluated and the purchase of the majority of the agricultural machinery and equipment is calculated) reached 60,000.
In addition to walking tractors, rotary tillers are also in demand, recording a total of 180,000 units purchased in the 2017-2018 season. In support to the mechanization of Indian agriculture there are also substantial public investments, such as those for the extension of irrigated areas, which in the last four years went from 37% to 40% of cultivated land, and specific contributions for the purchase of agricultural machinery, which should keep demand high in the coming years.
The sixth edition of EIMA Agrimach
The EIMA Agrimach exhibition, which FederUnacoma organizes in collaboration with the Federation of Indian Chambers of Commerce and Industry (FICCI) and which will hold its sixth biennial edition from December 5 to 7, represents a successful event and an important presence in the Indian subcontinent.
Launched in 2009 with 220 exhibitors and attended by 18,000 people, the New Delhi exhibition hosted 435 exhibitors in the 2017 edition, covering a surface area of 30,000 square metres, with a total of 42,000 visitors, 6,000 of them foreign from 40 countries, confirming that this showcase is now an event of reference for operators in both the Indian subcontinent and other emerging markets in Asia and Sub-Saharan Africa.
The strategic value of EIMA Agrimach - which FederUnacoma couples with other promotional and informational initiatives such as the field tests that are regularly held in Punjab or Maharashtra - is therefore to seize the demand for technologies in a country that can represent a formidable business partner, as well as a bridge to other Asian markets. A significant fact in this direction is that the 2017 edition hosted economic operators from countries such as Indochina, Nepal, Sri Lanka, as well as from countries of Sub-Saharan Africa, and that for this year’s edition, delegations are expected from around ten countries.
The above is framed by the overall development of economic relations between Italy and India. This year, the Subcontinent represents a “focus” area for Italian institutions and for the ICE Agency, and in this framework FederUnacoma’s goal is to bring the industrial agro-food supply chains to the New Delhi exhibition for the first time, in collaboration with other Confindustria Federations involved (such as Anima) and in synergy with specific projects of the Confindustria territorial organizations of Emilia Romagna, Veneto and Lombardy.
More business opportunities
“The Indian market is one of great opportunities, but it requires commitment and perseverance. Bureaucracy has been simplified in recent years, but it is still complex compared to Western standards”. This is the premise of Davide Gallarate, official of the FederUnacoma Events Office, directed by Marco Acerbi, who gained some familiarity with India precisely for having handled for years the activities of the Federation in the Subcontinent. “To give just one example - he adds - some of the Government’s development programmes require that any agricultural equipment that the Indian farmer can buy with public financial support must be certified by a government agency. And this is not a very fast process. Those who wanted to invest in India had to interface with various public agencies, while today they can solve everything with a single institutional counterpart”. “The numbers, however, show how the Indian market remains among the most interesting especially for Italian manufacturers: it is among the few in growth, while Europe and the US itself appear as more developed markets”. “The average size of an Indian farm - concludes Gallarate - turns out to be an interesting fact for many Italian producers, who are specialized in equipment suitable for small-medium sized land holdings. And this is a trend destined to continue, even in the face of the complicated Indian succession laws, which provide very strict criteria for the division of the property. This means that from generation to generation, the parcels of land become smaller and smaller, a fact that has reflections both on the quantity of potentially requested vehicles and on the characteristics of the technologies, which must be conceived largely for small companies”.
