Business Today

Going with the grain

Conglomerates as well as smaller players backed by dollops of private equity are investing big bucks in processing food and taking it to the consumer.

Suman Layak        Print Edition: August 8, 2010

Balram Yadav is no Gordon Gekko - not by a long shot - but when he declares "inflation is good", you can't help but recall the fictional corporate raider in the Oliver Stone-directed film Wall Street. Yadav's pronouncement may sound as mercenary as Gekko's, who famously declared: "Greed, for lack of a better word, is good.

Greed is right, greed works...." But when the CEO of Godrej Agrovet, a Mumbaibased poultry and animal feeds company, sings a paean to rising prices, his intentions may not be as self-seeking as those of the fraudulent trader that Stone captured on the big screen. "Inflation is good because it is putting money in the hands of the farmers, and is making agriculture profitable," reckons Yadav.

Yadav's premise can be argued until the cows come home - after all, if farmers are receiving higher prices for their produce, costs of various inputs too would have spiralled - but there's little doubt agri-business is an opportunity waiting to be tapped. And that opportunity - like many others in India, including those for construction of roads and highways, airports and power generation - is founded in a scenario of shortage.

A section of experts has been screaming from the rooftops about a looming crisis of food supply being around the corner. "The challenge is unbelievable. We need to treble our growth rate in agriculture in the next 15 years," says R. Gopalakrishnan, Executive Director, Tata Sons, who leads the group's charge into the agri sector.

The projections for food items like cereals, pulses, edible oil and sugar are indeed alarming, with steep shortfalls seen by 2026 (see Opportunity in a Crisis). If the crisis is deep, so is the opportunity. Consultants and industry bodies estimate just the urban food market to be worth Rs 3,50,000 crore - and 40 per cent of India is projected to live in urban areas by 2020.

The middle class pool, which is developing the adventurism and the purchasing power to try out new products, is estimated to be 580 million by 2025 - almost double the current population of the United States. And if all these numbers aren't convincing enough, here's another one: The estimated investment in food processing is expected to touch Rs 1 lakh crore by the time the 11th Plan ends (in 2012).

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