Agriculture Sector – A Lucrative Investment

Cash Flow Vs Agriculture Sector

Investment in agriculture has a huge possibility for healthy dividends from multiple sources. The steep hike in farmland prices has been of major concern over a few years. World has witnessed prices have doubled, tripled, and even quadrupled of farmland since 2004. Prices of almost every commodity and basic needs have risen multiple times due to inflation. Under these circumstances cash flow that branches from leased agriculture and from the commodities can provide a sustainable and solid return. Investment companies can cut down the trouble by renting land to the farmers who handle the farmland and pay monthly lease to owners of the farmland. In addition, cash flow can also be driven by contracting land owners or investing in funds for the management of farms. It may catapult the risk, but the great returns in cash flow make it an attractive opportunity.

A Haven In Inflation

Inflation is all time high in the recent years and lavish lending trends has resulted in critical global economy. Increase supply of money can be the partial solutions practiced by government of different nations. In addition, rat of interest have gone down to almost nil. This all will lead to a higher inflation in the near future. Under these circumstances farming appeared to be a lucrative option. It has performed extremely well in high inflationary times. Agricultural investment also can protect from inflation as well as it also pays you for the same.

Diversification

Farmland also gives the investors the opportunity to diversify from bonds and stocks, as agriculture is not highly related with these volatile asset resources. It also offers the stability to the portfolio in the vulnerable markets in an effort to enhance a portfolio’s risk adjusted return.

Synopsis

The above scenario has established that under the heat of rising inflation and reducing resources, investment in agriculture is the most lucrative industry attractive investors.

Investment Opportunities in Indian Agriculture Sector

The primary source of employment in India has been agriculture for several years having more than 65% of the population trusting on it. Indian agriculture has always been the major contributor when it comes to the Indian economy, playing a lead role in supporting the country’s sustainability and growth.

Size of Agriculture Market in India

India has been the highest supplier of jute, milk, jute, pulsed and organic fibers in the global market. It’s the second biggest supplier of wheat, rice, sugarcane, groundnuts, vegetables, and cotton. It also supplies the biggest chunk of spices and plantation crops across the world. Apart from all these, India also leads the supply of poultry, livestock, and fisheries.

Considering the growing population and other factors, the growth of the agricultural sector in India manifests a huge impetus with growing demand for agricultural products from the international market. The demand for rice from countries like western Asia, Southeast Asia, and some countries in Africa has been growing immensely.

Investment Opportunities in the Indian Agricultural Sector

Demand of agricultural products like hybrid seeds and high quality fertilizes has received an overwhelming demand.

Tons of food in India gets wasted each year because of lack of proper storage facilities. The investment opportunities in the food storage facilities are also a promising sector for both private and foreign investors.

Opportunities of Investments in Food Storage Infrastructure:

In 2011-12 year budget, an automatic route by 100% FDI has been allowed for the investment companies in food storage infrastructures.

Service tax has been fully exempted along with the 5% concession on stamp duty for the companies investing in cold storage expansion plans in India.

In addition, the refrigerator units for the storage vehicles like vans, trucks are also totally exempted from customs duty.

Foreign companies that are investing in the Indian agricultural industry will require investing minimum half of the total investment amount on infrastructure and support facilities.

Synopsis

The Indian government is working towards transforming the agriculture sector a promising investment industry for global players. With the Food Security Bill introduced in parliament, the need for better investments in this sector of India has gotten new impetus. Investment in agriculture in India is one of the most promising opportunities for global companies as well.

Micro-insurance Can Improve Agriculture in India

Indian farming is considered to be high-risk and low-rewarding industry. As farmers face unpredictable weather, disease impacting animals and crops, and uncertain market fluctuation, there are counted farmers having access to right investment like insurance or loans, allowing them to save for contingencies.

Investment in agriculture sector in India can offer farmers a safe and affordable way to spend in equipments and machinery, buy fertilizers and other inputs, and have access to required support services to yield better agricultural produce.



Micro Insurance in Indian Agriculture
Whereas 25 million farmers account for almost 60% of international weather-driven micro-insurance loans, there are potential customers that are not leveraging micro-insurance as it is difficult to administer, sell, and support.  IT services and m-technology can make it simpler to support and bundle micro-insurance programs meant for farmers.

Challenges of Micro Insurance
It is quite hard to sell micro-insurance and offer support service. It’s difficult to educate farmers about the risk and potential benefit of available micro insurance products. The willingness to purchase insurance is driven by factors like household wealth, risks associated, product literacy etc.
This micro-insurance industry also face number of other challenges that include the high cost of selling, inefficient distribution channels, unviable rural social obligations and many more.

Micro Insurance Opportunities in Agriculture Sector
Technology can make it easier to distribute and support large quantity of farmers, which can lead to lower provision costs. This can decline cost and increase support services. This will help more farmers to gain access and take benefit of micro-insurance programs.

Bundling New IT Services with Micro-Insurance
IT and cloud based services can be integrated to create new partnership opportunities within the agribusiness value chain.  Although, micro-insurance is already bundled with seeds in large-scale agribusiness, the increasing accessibility of IT and mobile enabled services are offering new bundled opportunities for loan services. This investment in agriculture, like weather-based index insurance, in which technology can make possible the distribution of disbursements and compensation based on macro weather trends.

Synopsis
There is great deal of opportunities emerging from the growing IT services and mobile based insurance and other finance services that can help improve the overall condition and yield of the Indian farmers.

Factors that Will Drive Growth in Agriculture Sector in India

The agriculture industry is a major part of Indian economy, which supports nearly 50% of India’s workforce, and is spread over one third of the country’s total geographical stretch. This sector is the single biggest contributor to the Indian economy, albeit its contribution to GDP has witnessed a sharp decline since India’s independence. It is majorly linked with the supply chain of the manufacturing sector, and has been instrumental in the rural development of the country. 

The green revolution has played a great role in making India self reliant in catering to its food demand. There have been several plans of investment in agriculture sector in India, which has resulted in the growth rate of the agricultural sector. Of late the relatively vigorous performance of this sector is majority because of the steps taken by the Indian government in terms of plan for investment in agriculture and other factors to improve agricultural produces.

Responsible Growth Factors

Some of the factors responsible to drive growth in the future include:

Prominent Extension Systems: Easy functioning of extension systems by adding skilled workforce to fill in positions available will encourage distribution of technologically advanced crops among farmers. This will lead to improved productivity and enhancement in overall farm output.

Technologically Advanced Products: Breakthrough of technologically better variants of crops will also enable the farmers to catapult the productivity and quality resulting in the overall farm output.

Rain Fed Areas: Dropping agricultural yields can attribute to lower output in rain fed parts, which still depends on monsoons. It is clear that improved water management systems, particularly watershed development, can influence positively the farm’s output in rain fed regions.

Management of Quality Soil: Right balance of soil usage for optimum application of fertilizers in underused and overused regions will increase the soil quality and thus add to the overall agricultural output.

Agricultural Credit: Investment in agriculture sector in terms of extended credit to farmers will provide required financial support to small farmers, which will lead to improved farm output.

Synopsis

The government is already running various investment plans and schemes catering to the requirements of the agriculture sector, after initiating the 12th Five Year Plan, the affect of government policies will be more visible.

How and Why Investment in Agricultural Sector in India is Gearing Up

In the current economic uncertainty with volatile equity markets and low interest rates, investors are on the lookout for sectors that are backed by strong and long-term fundamentals.

Agriculture sector in India provides with a treasure of opportunities to capture growth and profit. Whether investing directly in this sector or buying shares in agribusiness companies; investors are out to invest funds in this sector, given the ever increasing population with rising demand of feed, food and fuel.

Catapulting Demand and Short Supply

Global demand for agricultural commodities is increasing, given the population growth, and readiness to spend increasing income in food and energy along with demand of a more resourceful western-pattern diet.

Nonetheless, agricultural productivity is limited due to technology limitations, loss of vast spectrum of irreparable productive land each year to urbanization and climate change including many other factors. This cuts down the adequate supply of food products.

Opportunities in Agriculture Investment

Diversification consolidates risk-management in portfolio planning, and the agriculture sector provides with great opportunities for PE or VC firms to participate in the growth and profit derived at the grass root level from the production of food.

Synopsis

Whether opt to invest via financial markets, or to lead the real asset space, the agriculture sector is packed with growth and income potential, geared by basic demographic trends. Certainty the sector is expected to expand with an objective to accommodate 60 million fresh mouths to feed every year, but of course all the agribusiness companies are not going to flourish; so it is important to select the right stock for the investment firms.

Myths and Truth about Investment in Agriculture

Myths often add value to many aspects of life, but unfortunately in investment, they are of no worth. Here are a few myths about agricultural equity investment that requires attention in order to prove the companies are meant for consideration for inclusion in a well-organized portfolio.

Myth 1
Prices of soft commodity should increase to gain positive returns from agricultural equities.

Truth
It is not only the prices that are solely responsible for its performance. Revenue is the outcome of four basic factors: quantity of production, scale of operations, cost and productivity performance, including the nature of agricultural business. Actually, agricultural equity revenues have been resilient when the prices of soft commodity fluctuated.

Myth 2
Returns of agricultural equities are unstable.

Truth
Agricultural equities are not ‘directional’ investments. They offer relatively uncorrelated returns to the soft commodity prices by investing across the agricultural value chain, which suffocates the volatile return of overall agricultural equities. No single component will perform well at all times. Some segments like pulp production, benefits from improving market consumption trends, whereas others, like forestry, did well due to developed countries’ better economic conditions.

Myth 3
The ecosystem of agricultural is small.

Truth
The listed agricultural ecosystem is vast. More than 1,100 companies are registered in 81 countries that constitute this industry. It has a market capital of 1.1 trillion US Dollar that becomes potentially best fit for a diversified portfolio, which is usually weighted towards industrial, financials, technology and healthcare.

Myth 4
Food prices have increased after investment in biofuels production agricultural equities.

Truth
Investment in agriculture sector is done to increase production of food or accelerate production process. Such investment companies make food products available to more people everywhere. Latest biofuel production is about 2% of global arable land and land for biofuels is in no means capturing land for food.

Synopsis
In the light of above myths and the associated truths, agriculture industry can be considered to be high revenue yielding industry if right volume of investment in agriculture sector is made by financial institutes.