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Value addition in Agriculture- Prospects and challenges

Dr.T.P.Sethumadhavan

 Agriculture plays a vital role in India’s economy. 54.6% of the population is engaged in agriculture and allied activities (census 2011) and it contributes 17.4% to the country’s Gross Value Added products (current price 2014-15, 2011-12 series). Given the importance of agriculture sector, Government of India took several steps for its sustainable development.
Recently Department of Agriculture and Farmer’s Welfare, Government of Kerala organised International Workshop and exhibition on Agro Processing and Value addition namely VAIGA at Thiruvananthapuram from 1st to 5th December 2016. VAIGA aims at value addition for income generation in Agriculture. Adding value is the process of changing or transforming a product from its original state to a more valuable state. The value of a changed product is added value, such as processing wheat into flour. It is important to identify the value-added activities that will support the necessary investment in research, processing and marketing. Value added agriculture is acquiring momentum across the globe. Recent statistics reveal the through the farm produce marketing 65 percent of the profit goes to the middle men. Farmers used to get nearly 35 percent of the profit margin. Lot of Farmer producer organisations started working in these areas which will facilitate to provide better profit to the producers.
While talking about value addition regardless of whether you capture value or create value, the bottom line is that you get paid for providing value. If your business venture does not provide value to the system, there is no reason to expect a return. So the process of creating a successful business involves the search for providing value. Providing value can be in the form of marketing a unique product, filling a market niche, simplifying the supply chain, providing a service, lowering costs, and many other ways. The more value you provide the more return you can extract from the marketplace.
Value-added agriculture generally focuses on production or manufacturing processes, marketing or services that increase the value of primary agricultural commodities, perhaps by increasing appeal to the consumer and the consumer's willingness to pay a premium over similar but undifferentiated products. Usually, a value-added addition is a worthwhile investment because it generates higher return, allow penetration of a new, potentially high-value market, extend the production season, or perhaps create brand identity or develop brand loyalty.
The produce and sell mentality of the commodity business is being replaced by the strategy of first determining what attributes consumers want in their food products and then creating or manufacturing products with those attributes. Market forces have led to greater opportunities for product differentiation and added value to raw commodities because of increased consumer demands regarding health, nutrition and convenience; efforts by food processors to improve their productivity and technological advances that enable producers to produce what consumers and processors desire.
Producers involved with adding value will become more than commodity producers absorbing all the stocks brought about by global markets in this transitional period of agriculture. They will think of themselves as producing products for end users, instead of producing only raw commodities.
Producers have a challenge to be responsive to consumer demands by producing what is desired. Attentiveness to consumer demands in quality, variety and packaging are important, because demographic trends show growth in the convenience-oriented, health-conscious and environmentally concerned sectors where price is not as important as quality. Because value-added research is important, producers might examine competitive advantages obtainable with processed products compared to raw commodities.

Approaches to Adding Value- Innovation and Integration
Adding value to products can be accomplished by innovation or Integration.
Innovation focuses on improving existing processes, procedures, products and services or creating new ones. Often, successful value-added ideas focus on very narrow, highly technical, geographically large markets where competition is sparse. Innovative value-added activities developed on farms or at agricultural experiment stations are sources of national growth through changes either in the kind of product or in the technology of production. By encouraging innovative ideas, adding value becomes a reality.
Innovation also can come from research about alternative crops that can be grown successfully by producers to replace traditional crops. Value-added producers are able to economically profit by growing these alternative crops instead of traditional crops.

Integration focuses on arrangements among those that produce and market farm products. Horizontal integration involves pooling or consolidation among individuals or companies from the same level of the food chain. An example would be hog producers combining their market hogs to make a truckload. Vertical integration includes contracting, strategic alliances, licensing agreements and single ownership of multiple market stages in different levels of the food chain. Vertical coordination, either through ownership integration or contractual arrangements, is necessary to link production processes and product characteristics to the preferences of consumers and processors.

Fundamental changes through integration are altering traditional marketing relationships that link consumers, food retailers and wholesalers, food processors and producers. However, individual producers usually do not have sufficient levels of production to effectively produce process and market their products. Few individuals possess all of the very different skills necessary for processing, marketing and business management, as well as staying efficient with their production enterprises. Therefore, a coordinated effort is needed to increase market efficiency or cost reduction.
Vertical Integration
Complete vertical integration is to align and control all of the segments of a production and marketing system under single ownership. The factors aligned and controlled are price, quantity, quality and transactional terms of exchange. Producers who invest in value-added projects past the farm gate cause the market to become more vertically integrated. A totally integrated system can provide consistent quality from the field to the shelf, eliminating middlemen and even saving money for consumers. Integration downstream towards consumers by producers commonly involves an equity investment for processing, sometimes by means of a producer owned business. So, producer owned businesses are positioned uniquely for further integration in food processing. The success of these value-added ventures hinges on thorough planning and implementation.
Entrepreneurship and Value chains
Entrepreneurship is acquiring momentum in agriculture sector. Entrepreneurship has two logics like forecast and creation. Technology is important for creating enterprises. Innovation is the pre requisite of entrepreneurship. Technology facilitates innovation.
The main components of value chain are Value chain production, value chain processing, value chain marketing and value chain support agencies.
A. Value Chain Production Cluster development and formation of Farmer Producer Organizations/ Companies Assistance for on-farm input production unit and off-farm inputs Off-farm inputs such as bio fertilizers, bio-pesticides and neem cake etc.
B. Value Chain Processing Value Chain Post Harvest - Financial assistance for setting up of financial infrastructure for collection and grading units.
C. Value Chain Marketing Branding, labelling, packaging, publicity and certification of processing units.
D. Value Chain Support Agencies Setting up of Lead agency Staff, Manpower, Travel and contingencies, surveys, consultancies information and knowledge ecosystem, market research, etc.
Value chains differ from supply chains, which refer to logistics: the transport, storage and procedural steps for getting a product from its production site to the consumer. A value chain encompasses the flow of products, knowledge and information, finance, payments, and the social capital needed to organize producers and communities.
Agriculture in developing countries often is characterized by dual value chains operating in parallel for the same product: one informal or traditional and the other formal or modern. Small holders are frequently involved in informal chains that deliver products to local middlemen and then to small local stores. Formal value chains can deliver the same product, usually in better or more uniform quality, from larger farms or more organized groups of small farmers to more commercial wholesalers and from there to supermarkets or exporters. Value chain analysis-A value chain approach in agricultural development helps identify weak points in the chain and actions to add more value.

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