Monday, 27 January 2014

Limitations and Solutions for Agriculture Funds in India

The food processing industry of India mostly encompasses SME with restricted potential to invest in further growing their resources, which lack advantages of scale.

As per Dr. K.G Karmakar, MD of Nabard - majority of such units are engaged in primary and secondary food processing. The startup units engaged in tertiary processing usually generate unbranded products that attract the lower sector of the food market and are not likely to compete with branded products. 

Agriculture Funds in India

Constraints Faced by Agribusiness Companies
For this sector, agriculture fund is an area of concern. Keeping in view the small scales of such units, seasonality of food products and stand-alone nature, a much greater risk is associated with this sector.
Agri-business companies face constraints in the absence of well-established risk management system, lack of business intelligence, poor economic viability, lack of resources, general apathy, negligence from bankers, and cyclical nature of the business.

The major constraints faced by finance companies in offering loans to food processing business include:
  • The small scale of operations because of fragmented structure of the sector
  • Insufficient assets to be utilized as loan security
  • Inexperienced sponsors in food business
  • Limited availability of risk mitigation tools
  • Lack of basic competitiveness of some agri-business operations that only exist on subsidies or tariff protection.
Solutions to These Constraints
As per Mr. Karmakar – Necessity of high investment in food processing industry coupled with factors resulting in high production cost makes the investment risky and the investors indifferent. This restriction needs to be cleared at the initial stage to increase credit flow to the agri-business sector. This industry needs to be projected and promoted as bankable, economically-viable and commercially-feasible to earn cash credit flow for development.

It is believed that microfinance is the potential tool to promote the value chain in the SME agri-business ventures. The efforts for promoting the food processing sector should be focused on expediting the pace of capital formation; ensuring lucrative costs for the farm produce; marketing and post-harvest management, erecting infrastructure with focus on transportation, and exports.

Prasad Gopalan, head of International Finance Corporation (IFC) and Agri-business (Asia) puts it precisely - Financial institutions are capable of playing a crucial role in promoting the development in food and agriculture sector by offering customized agriculture funds in India to these SMEs.

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