Unit-II

Management: Importance and needs of agro-based industries Classification of industries and types of
agro based industries. Institutional arrangement, procedures to set up agro based industries.
Constraints in establishing agro-based industries. Agri-value chain: Understanding primary and
support activities and their linkages. Business environment: PEST & SWOT analysis.

Management: Importance and Requirements of Agro-based Industries

India is an agricultural country, where about 60% of the population is directly or indirectly dependent on
agriculture. In such a situation, agro-based industries have a very important place in the country's economy.
Agro-based industries are those industries that produce products using raw materials obtained from
agriculture, such as milk processing, food processing, cotton industry, sugar mill, oil extraction industry, etc.
Proper management is required for the successful operation of these industries, so that the society and the
country can get maximum benefit from them.
Importance of Agro-based Industries
Agro-based industries are those industries that use agricultural products as raw material and convert them
into processing, storage, marketing or other forms. These industries play an important role in rural
development, employment generation, and strengthening the national economy. Their importance increases
even more in an agricultural country like India.
1. Development of rural area: Agro-based industries are established in rural areas, which leads to the
development of infrastructure in these areas. Availability of roads, electricity, water and other essential
resources improves the condition of villages.
2. Employment opportunities: Agro-based industries provide employment opportunities to rural youth in
their villages itself. Such as milk processing, food processing, oil extraction, jaggery manufacturing etc.
This also reduces migration towards cities.
3. Increase in income of farmers: When the products of farmers are purchased by industries at the local
level, they get a fair price and their income increases. For example, milk is purchased by the dairy industry
and products like cheese, curd etc. are made from it, which leads to value addition.
4. Preservation and value addition of agricultural products: Many times agricultural products get
spoiled because they are not used on time. Agro-based industries preserve these products. Such as making
sauce from tomatoes, making juice and jam from mangoes etc. This reduces crop wastage and farmers get
better prices.
5. Contribution to the national economy: Agro-based industries contribute significantly to India's GDP.
These industries also earn foreign currency through exports. For example, tea, coffee, spices, and other
processed food items have a big market abroad.
6. Promotion of small and cottage industries: Many agriculture-based industries run as small or cottage
industries. Such as making pickles, grinding spices, making jaggery, etc. This also provides women and the
elderly with a means of income sitting at home.
7. Coordination of industry and agriculture: Agriculture-based industries act as a bridge between
agriculture and industry sector. This leads to the development of both sectors together and takes a solid step
towards self-reliant India.
8. Technological innovation and exchange of knowledge: When raw material related to agriculture goes
to industries, modern techniques and processing methods are adopted there. This also brings awareness
among farmers and they move towards advanced type of farming.
9. Women empowerment: Many agriculture-based industries provide self-employment opportunities to
women. Such as making pickles, papad, jam, jelly, etc. This empowers them economically and increases
their participation in society.
10. Environmental Protection: Reuse and recycling of organic waste is possible in agro-based industries.
For example, making fuel or manure from sugarcane waste, which also has a positive impact on the
environment.

Need for Management for Agro-based Industries

Management means efficient use of resources so that goals can be achieved effectively. Management is
necessary at various levels to make agro-based industries successful:
1. Management of raw material supply: For agro-based industries, it is necessary to obtain raw material
such as milk, grains, fruits, vegetables etc. on time and with quality. For this, proper coordination with
farmers and management of supply chain is necessary.
2. Production Management: The production process includes modern technology, trained human
resources, maintenance of machines etc. The smooth operation of all these is ensured by management.
3. Financial Management: Establishment of industry, operation, purchase of raw material, payment of
wages, marketing etc. require capital. Planning investment, expenditure and profits at the right time is the
function of financial management.
4. Marketing and Branding: Promotion, distribution and proper pricing of the product in the market is a
challenging task. This requires strategic marketing and branding, which can only be done by skilled
managers.
5. Quality Control and Standardization: Food safety standards and quality check are very important. If
the products do not meet the quality standards, then their acceptance in the market decreases. For this, good
management of the quality control department is necessary.
6. Human Resource Management: Taking care of the recruitment, training, salary, job satisfaction and
safety of the employees working in the industry is also a part of management.
7. Research and Development (R&D): Research is necessary to bring innovation in agriculture based
industries. Such as new processing technology, new form of product, cost reduction etc. Planning and
implementation of all these is possible only with a competent management.
Agro-based industries are not limited to processing the products of farmers, but they also play an important
role in the development of rural areas, employment generation and strengthening the national economy. But
their sustainable development is possible only when they are managed in an efficient, scientific and
strategic manner. For this, trained human resources, modern technical assistance and government support
are also required. Therefore, management is not only necessary in agro-based industries, but its quality
determines the success of the industry.

Classification of agro-based industries

Agro-based industries can be classified on various bases:
1. Classification based on raw material
Agro-based industries are classified on the basis of what type of agricultural products they use as raw
material.
a.Food Processing Industries
As – making food products by processing fruits, vegetables, grains etc.

Example: juice, jam, pickle, flour mill, biscuit etc.

b. Fiber-based Industries

As – making clothes from cotton, jute, silk etc.

Example: Textile industry, jute bag industry.

c. Oil-based Industries

As – making edible oil from mustard, peanut, soybean etc.

Example: Oil mill, vegetable ghee industry.

d. Dairy Industry

As – processing milk to make ghee, cheese, curd etc.

Example: Amul, Mother Dairy.

e. Sugar Industry

As – making sugar, jaggery, ethanol etc. from sugarcane.

Example: Sugar mills.

2. Classification based on infrastructure
a. Small Scale Industries
Small scale industries running in rural areas.
Example: Domestic pickle industry, papad manufacturing unit.
b. Medium Scale Industries
Slightly larger investment and labour base.
Example: Dairy plant, mini rice mill.
c. Large Scale Industries
Based on large capital, more workers and modern technology.
Example: Amul, Patanjali Food Processing.
3. Classification based on location
a. Rural-based Industries
These are established directly in rural areas and use local raw materials.
b. Urban-based Industries
These are established in urban or semi-urban areas, where there are better marketing and transportation
facilities.

Types of Agro-based Industries

India is an agricultural country, where the livelihood of most of the population depends on agriculture and
related sectors. Agriculture is not limited only to food grain production, but there are many industries
related to it which play an important role in the development of rural areas. Such industries are called Agro-
based Industries. These industries manufacture various types of products using raw materials obtained from
agriculture. Let us know in detail about the types of agro-based industries and their importance.
Major types of agro-based industries
1. Food Processing Industries
Food processing industries process agricultural products into useful and durable products. These include:
a. Fruit and vegetable processing: jams, jellies, squash, pickles, sauces, canned fruits and vegetables, etc.
b. Grain processing: flour mills, rice mills, pulses mills, bread and biscuit manufacturing.
c. Dairy products industry: production of curd, butter, ghee, cheese, ice cream, etc. from milk.
d. Meat and fish processing: meat packing, fish canning, processed non-veg items.
2. Textile Industry
Textile industries are based on agricultural products such as cotton, jute, wool, silk, etc.
a. Cotton industry: yarn, garments, terrycot manufacturing from cotton.
b. Jute Industry: Sacks, ropes, carpets, bags etc.
c. Silk Industry: Silk thread and textiles from silkworms.
d. Wool Industry: Sweaters, blankets, jackets etc. from wool obtained from sheep.
3. Oil Industry
In this industry, oil is extracted from oilseeds like mustard, groundnut, sunflower, soybean etc.
a.Edible oil manufacturing: Refined oil, mustard oil, soybean oil etc.
b.Oilcake: Which is used in animal feed.
4. Jaggery and Sugar Industry
Sugarcane is a major agricultural crop which is used in:
a. Jaggery manufacturing units, which operate on a small scale at the rural level.
b. Sugar mills produce sugar, molasses and ethanol from sugarcane on a large scale.
5. Paper Industry
Bamboo, wheat/paddy straw, wood pulp etc. are mainly used for paper production.
This industry is important in education, media and packaging.
6. Animal-based Industries
Milk, wool, leather, meat etc. are processed in these industries.
a. Dairy industry – milk and milk products.
b. Leather industry – shoes, belts, bags etc.
c. Wool industry – textile manufacturing by obtaining wool from animals.
7. Herbal and Medicinal Industry
Medicines, cosmetics and herbal products are made from herbs and plants obtained from agriculture.
Ayurvedic medicines, herbal shampoos, soaps, tea etc.

Institutional arrangements and processes for setting up agriculture-based industries

India is an agricultural country where most of the population depends on agriculture. Agro-based industries
are those industries which use agricultural products as raw material, such as dairy, food processing, oil
extraction, horticultural product processing etc. The establishment of these industries not only increases the
income of farmers, but also generates employment opportunities in the rural area.
Institutional arrangements and processes required for setting up agriculture based industries -
1. Preparation of business idea and plan
Before setting up any industry, it is necessary to make a clear and business plan for it. Under this, the
following points should be paid attention to:
i. Which agricultural product is to be used to start the industry (eg tomato sauce, pickle, jam, dairy, organic
manure etc.).
ii. Availability and durability of raw material.
iii. Target market and consumer class.
iv. Production process, technology, machinery and labor required.
v. Initial capital and potential profit.
2. Registration and legal formalities
Any industry must be legally recognized. For this, the following registrations and licenses are required:
i.UDYAM registration (under MSME): This is mandatory for micro, small and medium enterprises.
ii.FSSAI license: Food processing industries are required to obtain a license from the Food Safety and
Standards Authority (FSSAI).
iii.GST registration: GST registration is necessary if the turnover is above the annual limit.
iv.Pollution Control Board permission: Environmental clearance is required for some industries.
v.Shop/institute license from the local body.
3. Financial assistance and loan facility
Setting up agriculture-based industries requires initial capital, which can be obtained in the form of loan or
grant from the following institutions:
i. National Bank for Agriculture and Rural Development (NABARD): It provides loans at concessional
rates for rural development and agriculture-based projects.
ii. Pradhan Mantri Mudra Yojana (PMMY): It provides loans under Shishu, Kishor and Tarun categories.
iii. Agricultural and Processed Food Products Export Development Authority (APEDA): It provides grants
and guidance for processing industries.
iv. Khadi and Village Industries Commission (KVIC): Provides financial assistance to promote village
industries.
4. Location selection and infrastructure
While selecting a location for the industry, some things need to be kept in mind:
i. Proximity to raw material.
ii. Availability of transport, electricity and water.
iii. Availability of labour.
iv. Access to local market.
Along with this, infrastructure like building construction, installation of machinery, electrical connections,
drainage system etc. has to be established.
5. Technical assistance and training
Modern technology and skilled human resources are required for the success of the industry. For this,
training can be obtained from the following institutions:
i. Krishi Vigyan Kendras (KVKs)
ii. Indian Council of Agricultural Research (ICAR)
iii. National Institute of Food Processing (NIFTEM)
iv. CFTRI (Central Food Technological Research Institute)
These institutes provide assistance in technical information, machinery operation, product quality control,
packaging and marketing.
6. Market system and marketing
After the product is ready, its marketing is equally important. For this:
i. Contact with local markets and retail stores.
ii. Sales on online platforms (like Amazon, Flipkart, ONDC).
iii. Participation in government fairs, exhibitions and markets.
iv. Adopting branding, packaging and promotion strategies.
7. Government schemes and support
The Government of India has launched several schemes to promote agro-based industries:
i. Pradhan Mantri Krishi Sinchai Yojana (PMKSY) – Food Processing Component
ii. Pradhan Mantri Micro Food Processing Enterprises Upgradation Scheme (PMFME)
iii. Rashtriya Krishi Vikas Yojana (RKVY)
iv. Startup India and Standup India Scheme
Under these schemes, financial assistance, training, marketing support, branding and technical guidance are
provided.
Establishment of agro-based industries is an effective means of strengthening the rural economy. This
requires a well-organized plan, institutional support, training, capital and marketing system. If all the
processes are followed properly, this industry is not only economically profitable, but also encourages
employment and development from a social point of view.

Obstacles in setting up agro-based industries

The role of agro-based industries is very important in an agricultural country like India. These industries not
only provide employment opportunities in rural areas, but also provide farmers a fair price for their produce.
Despite this, there are many obstacles in the establishment of agriculture-based industries, which hinder
their development.
1. Irregularity of raw material: Agricultural production depends on weather, climate, seeds, irrigation etc.,
due to which the availability of raw material is not permanent. Due to lack or excess of rainfall, pest
infestation, natural disasters etc., raw material is not available on time and in sufficient quantity, due to
which industries are affected.
2. Lack of capital: Lack of capital investment is a major obstacle in rural areas. Farmers and small
entrepreneurs do not have adequate financial resources, and it is also difficult to get loans from banks or
financial institutions. Complications like guarantee and interest rates limit investment.
3. Lack of technical knowledge and training: Modern technology and training is required to run
agriculture-based industries, which most rural entrepreneurs do not have. Due to this, they lag behind in
both quality and quantity of production.
4.Inconvenience of transportation and storage: Many rural areas lack good roads, warehouses and cold
storage, which makes it difficult to transport the produced goods to the market or to store them safely for a
long time. This increases the wastage and loss of goods.
5.Lack of marketing system: An organized and strong marketing system is required to sell agricultural
products and related goods, which is not available in most areas. Farmers and entrepreneurs are unable to
get proper market, price and buyers, due to which the industries are not able to become profitable.
6.Complexity of government policies: There are government schemes and subsidies, but it is sometimes
difficult to access their benefits. The complexity of documentation, permissions, licenses and rules
discourages small entrepreneurs.
7.Lack of electricity and water: Regular supply of facilities such as electricity and water is not available
in many places for the operation of industries, which affects production.
The above obstacles in setting up agriculture based industries are serious, but if they are removed in a
planned manner, then these industries can strengthen the rural economy. Government, private sector and
social organizations have to work together to find solutions to these problems so that India's agricultural
potential can be fully utilized.
Agricultural value chain- Primary and supporting activities and their relationships:
Agricultural value chain is a process that links various stages of agricultural produce from the farm to the
consumer. This chain consists of many activities which are divided into two parts: primary activities and
supporting activities. Their interrelationship determines the success of the value chain.
1. Primary Activities: Primary activities are the main activities that are directly related to the production,
processing and distribution of the product. These include the following:
a. Agricultural production: sowing seeds, growing crops, irrigation, pest control, harvesting etc.
b. Storage: Storing the crop safely after harvesting so that its quality is maintained.
c. Processing: Converting the raw product into useful products like wheat to flour, milk to curd or cheese.
d. Packaging: Packing the product in a suitable manner so that it can reach the market safely.
e. Marketing & Distribution: Selling the product in the market and reaching it to the consumer.
2.Support Activities: Support activities are those that help in the smooth running of primary activities:
a. Infrastructure: Roads, electricity, warehouses, cold storage etc., which help in the movement and
storage of the product.
b. Technology Support: Use of improved seeds, machinery, drones, mobile apps, etc. which increases
productivity.
c. Human Resource Management: Availability, training and management of skilled workers.
d. Financial Support: Loans, insurance, subsidies, etc. which provide financial support to farmers.
e. Government policies and institutional support: Agricultural laws, market system, government
procurement system, etc.
Relationship between primary and supporting activities
Primary and supporting activities are deeply interconnected. For example, if a farmer gets good quality
seeds and training (supporting activity), he can produce better (primary activity). Similarly, if there is no
storage facility, the crop may get spoiled, which disrupts the value chain.
It is necessary to maintain coordination and balance between these two types of activities so that the quality
of agricultural produce is maintained, farmers get fair price, and consumers get good quality product at a
fair price.
The primary and supporting activities in the agri-value chain form an integrated system that can transform
agriculture into a commercial and profitable activity. Strengthening this chain can not only increase the
income of farmers but also promote food security and rural development.
Business Environment: PEST and SWOT Analysis
Analysis of business environment is very important in agribusiness management (ABM). Business
environment is the set of external and internal elements that affect the operations, decisions and growth of a
business. Two major tools are used in this analysis – PEST analysis and SWOT analysis. Both these tools
help in strategic planning, decision making and gaining competitive advantage in the market.

1. PEST Analysis: PEST is an acronym, in which four major external factors are analyzed
P – Political
E – Economic
S – Social
T – Technological
(a) Political Factors: These factors are related to government policies, regulations, taxes, subsidies,
agricultural laws, export-import policies, etc. For example:
Minimum Support Price (MSP) policy on agricultural produce
Crop Insurance Scheme
Foreign Investment Permission (FDI)
All these policies affect the cost, risk and profit of agribusiness.
(b) Economic Factors: These factors include the economic condition of the country such as inflation rate,
interest rates, currency stability, rural income, availability of agricultural loans, etc.
If interest rates are low, farmers and entrepreneurs will invest more.
Increase in income of rural areas increases demand.
(c) Social Factors: These factors are related to the culture of the society, population growth, consumer
preferences, education level and eating habits.
Increasing demand for organic products
 Health awareness
Young people's inclination towards modern agricultural techniques
(d) Technological Factors: Innovation and technological advancement increase the efficiency of the
business.
Drip irrigation, satellite imaging, mobile app based market price information
Agricultural machinery and biotechnology
2. SWOT Analysis: SWOT is an internal analysis tool that assesses the strengths, weaknesses,
opportunities and threats of a business.
(a) Strengths: These are the internal capabilities of the business with which it can compete in the market.
High quality product
Trained human resources
Brand identity and customer trust
(b) Weaknesses: These are the areas where the business needs improvement. Lack of capital
Lack of distribution network
Lack of marketing strategy
(c) Opportunities: Those opportunities available in the market which give the business a chance to expand
and increase profits.
New schemes of the government
Export opportunities
Change in consumer behaviour
(d) Threats: External factors which can pose a threat to the business.
Natural calamities (drought, flood)
Policy uncertainty
Increasing number of competitors
Integrated use of PEST and SWOT:
When a business strategy is formulated, both PEST and SWOT analysis should be used jointly. PEST
analysis evaluates the external environment while SWOT analysis reveals the internal situation of the
business.
For example: If PEST analysis shows that the government has a strong business environment, then the
strategy should be used to make a business strategy.

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Dr Ajit Kumar Singh, Assistant Professor, Dept. of Agricultural Economics