So you thought startup funding was all about fancy technologies and geeky innovations? Think again. Old-fashioned agriculture and food-based industries are brimming with as much potential, say private equity (PE) and venture capital (VC) funds.
Food and agricultural businesses have received as much as $324 million in private equity investments in 2008 and thus far in 2009, but they are said to be must below the potential they offer.
“Indian companies involved in agriculture production saw 15-20 per cent growth at a time when the world was reeling under recession,” said Vijay Chandok, senior general manager at ICICI bank.
Recent research shows that if current trends continue India would on the whole receive around $20 billion (about Rs 95,000 crore) of PE funding in 2010.
Agriculture now accounts for less than 19 per cent in India’s GDP, but 65 per cent of the population depends on agricultural or other rural non-farm activities.
“India is a growth story and continued growth in agriculture is inevitable given the demographic condition of India,” said Rajesh Srivastava, chairman and managing director, Rabo Equity Advisors at a summit on agriculture, food and emerging sectors organised by VCCircle, an information service for private equity.
Large and organised formats account for 72 per cent of food consumption across the world, while in India, this is only 4 per cent, leaving scope for businesses that build up scale and organisation in agro-based activities. But profit margins are said to be low.
Around 95 per cent of the sector’s firms have a turnover of less than Rs 119 crore each, experts said at the seminar.
“The agribusiness sector offers good opportunity for VC and PE funds, but they have to be resilient and ready to scale to tap huge opportunity that exists,” said Prasad Gopalan, Head of Agribusiness, Asia, International Finance Corporation.