How to start your own Agribusiness - Kotak Bank
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11 SEPTEMBER, 2017

Agriculture has been playing a pivotal role in India’s economy. It is one of the largest contributors to India's Gross Domestic Product (GDP), and more than half of the rural households depend solely on this sector as their primary means of livelihood. It is heartening to see that since early 2000, agriculture has witnessed a jump of about 350%!

India is a land endowed with vast areas of arable land and climatic conditions that facilitate production of a range of agricultural commodities. The government too has taken several initiatives to ensure sustainable development of the sector. The growing demand for feed, fodder, bio-fertilizers; the increasing scope of biotechnology applications; the opportunities for secondary and tertiary processing of food; the growing demand for export; rich resources like livestock and forest, all promise a huge scope for agribusiness in India.

Agribusiness in India, is today, at the crossroads of a major revolution. Overall modernization of the agri chain, equipments and structure; rise in production; incoming of huge investments; and increase in exports; are all expected to happen in the next one decade. Thanks to the increasing awareness about the need to strengthen agriculture, there's more and more attention being given to Agriculture as a sector, and the allied businesses; and agribusiness thus stands out as a lucrative business option.

The scope

The business sector that encompasses farming and farming-related commercial activities is referred to as Agribusiness, and it involves all the steps needed to send agricultural goods to market i.e. production, processing, and distribution. Agribusiness covers crop production, distribution, agrichemicals, fodder, breeding, farm equipments, seed supply, raw and processed commodities of food and fibre, storage, transportation, packing, soil testing, marketing, retail sales, and more.

If you are planning to venture into Agribusiness, the primary step is to decide on the product/service type you wish to focus on. But you can take this decision, only when you are clear about your business objectives, business plan, and available resources. Even if you're not an expert on equipments, products, grains, soil, seeds or plants, you can still consider venturing in, but you need to start off armed with relevant information about the sector, a solid business plan, and the right team.

Here’s a step-by-step guide to help you through the process:

1. Market Research

Before you decide on an idea, product, or service, it is imperative that you do a thorough research of the specific market you're planning to enter. It will help you decide if you should go ahead or not, at the entry level itself. This process must have clear answers to the following questions:

  • What is the present potential of the market?
  • How is the future of the market?
  • What problems are the consumers facing?
  • What problems are other competitors facing?
  • What are the bottlenecks?
  • How do you see yourself in this market?
  • How difficult or easy are the legalities?
  • Will your business be local, regional, national or global?

Once you have all the answers in place, analyse the prospects, and look for your window of opportunity. Always look out for relevant and credible information, and resources. This could provide valuable insights, and open up opportunities and a large array of helpful networks.

2. Creation of a Business Plan

Business plan is one of the most integral parts of a business. It is the root that connects the whole business to each other. Simply put, it is a formal document that explains what the business goals are, and how they plan to achieve them. It includes a plan from a marketing, financial and operational viewpoint. A good plan will help you go a long way. Hence do plan wisely! Here are some of the questions to be covered: -

  • What is your USP?
  • What is your strategy? (Business, Marketing and Operational)
  • How do you plan to structure and manage your business?
  • What is the initial cost to start the business?
  • What are the regular costs and expenses involved (daily, monthly and yearly)?
  • How will you arrange for the funds?
  • What are the targeted markets?
  • How many employees would you require initially?
  • Competitor analysis
  • S.W.O.T Analysis (Strengths. Weaknesses. Opportunities. Threats.)
  • A 1000-day financial projection (covering the expenses and expected revenue)

3. Arrange funds

Agribusiness generally has the inherent advantage of always having a customer, considering the fact that demand for food will only increase. Many agribusinesses tend to begin as a proprietorship, and then go about raising funds when they wish to grow. Investors prefer to come in at the pre-growth or growth stage, and hence it is crucial for agribusinesses to get some years behind them, and show some track record of growth.
If you are looking for funds, there are options like bank loans, crowd funding, incubators or accelerators, winning contests, microfinance, etc. However, these options depend on the business model and several other factors. 

4. Understand the Laws and Regulations

Both central and state governments have their own laws and regulations for the sector. These are mainly based on the price setting, distribution arrangements, workforce management, advertising, etc. It is very important that you understand these before you dive in. Some of the laws that directly/indirectly affect the agribusinesses in India include:

  • Indian Contract Act, 1872
  • Factories Act, 1948
  • Minimum Wages Act, 1948
  • The Companies Act, 1956
  • Trade and merchandise Marks Act, 1958
  • Monopolies and Restrictive Trade Practices Act, 1969
  • The water (Prevention and Control of Pollution) Act, 1974
  • The Air (Prevention and Control of pollution ) Act, 1981
  • Sick Industrial Companies (Special provision) Act, 1985
  • Environment protection Act, 1986
  • Consumer protection Act, 1986
  • Taxation laws covering Corporate tax, indirect taxes like Excise, Customs, Sales tax and Wealth tax)

5. Register your business and acquire licenses

There are several types of company registrations – Proprietorship, Partnership, Limited Liability Partnership, Private Limited, and Public Limited.
The four major steps to registering a company are: Acquiring Digital Signature Certificate (DSC), Acquiring Director Identification Number (DIN), Filing an ‘eForm’ or ‘New user registration’, and Incorporating the company.

There are many legal firms and individuals who can help you through the process. You can also do it by yourself by visiting the Registrar of Companies.

In addition to registration, you will also need to get all the relevant licenses to start off. The licenses will depend on the segment you get into. In most cases, the legal companies that help you with the registration also help you get the licenses. There are also specialized firms that mediate in getting the same. You can also do it all by yourself by visiting Indian government's portal for the same.

6. Final Arrangements

It is only after the completion of the aforementioned steps that you should proceed to making all the final arrangements like buying/leasing of land / office space, office stationery, machinery (if any), equipments, etc. This is also the stage to plan and execute all the required business tie-ups and partnerships.

Deciding, planning and strategizing to get into the agricultural sector is a huge and promising step. But do you know what is equally important? Its successful execution!
Check out related articles to know how to run your agribusiness seamlessly.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.