Abstract
The economics of food processing is not identical with the economics of primary food sources from agriculture and animal husbandry. A region with an abundance of the latter might not be the hub of processing activity for food items. These raw inputs might leak out of this region to other destinations which provide a thriving environment for processed food. This is the case with Bihar, a subnational state in India, whose tryst with industrialization using food processing as the lead sector is the mainstay of the book. This chapter introduces the concepts that determine whether a region with abundance in raw agri-resources will also be the ideal destination for locating manufacturing units in food processing. The industrial ecosystem, consisting of entrepreneurs and their decision-making process, regional idiosyncrasies and constraints in the form of local demand as well as infrastructural bottlenecks and the government and its policies matter for the manufacturing for this discussion. This chapter sets the tone of the rest of the book by highlighting the importance of region-specificity in the analysis of particular industries, like food processing.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
These papers were later published in The Review of Economic Studies in different years as mentioned in the references at the end of this chapter.
- 2.
Prof. Sutton refers to this as ‘toughness’ of price competition.
- 3.
Prof. Sutton’s classic text ‘Sunk Costs and Market Structure: Price Competition, Advertising and the Evolution of Concentration.’ however, does point out several limitations of this exercise for analysing processed food sub-sectors like Ready-To-Eat (RTE) cereals, packaged soups, frozen foods, baby foods, etc.
- 4.
A subnational region (state) in the northern part of India.
- 5.
Chapter 8 elaborates on this issue.
- 6.
BBC country profile page for Ethiopia (https://www.bbc.com/news/world-africa-13349398) mentions the state of civil unrest and droughts up until 1991. Bihar, too, has had a history of political misrule and alternates between droughts and floods. Both are land-locked regions, limiting easy access to trade using sea-routes.
- 7.
Chapter 4 discusses this in detail.
- 8.
Chapter 4 provides further details.
- 9.
Our formal analysis restricts itself to registered manufacturing, as these units have been treated with policy incentives in recent years, in particular, those in food processing. The policy issues are discussed in detail in Chap. 5.
- 10.
The Yes Bank and CII (Confederation of Indian Industries) 2016 Report entitled ‘Make in India: Opportunities in the Food Processing Sector’ mentions potato, eggplant, cauliflower, tomato as the most abundantly grown crops in Bihar. It is available at https://www.yesbank.in/pdf/make_in_india-_opportunities_in_food_processing_sector.pdf.
- 11.
ibid.
- 12.
We use 2008 as a reference year, as special incentives for industrial investments in food processing were announced by the GoB in 2008.
- 13.
This holds despite the region’s proneness to floods and droughts. Soil fertility and abundant water resources have ensured that Bihar produces a large bounty of agricultural output. There are other problems, such as the small size of landholdings and yield issues in agriculture for Bihar. However, in comparison with many other states in India, it is undeniable that Bihar does produce a significant amount of maize, rice, milk and many fruits and vegetables that can sustain a viable processing industry in the state. It has a major presence in crops like maize and makhana, though there are other states with higher agricultural yield than Bihar.
- 14.
We found this empirical regularity in our survey in Bihar in 2016 for food processing. Gebrewolde and Rockey (2018) mentions a similar pattern for most industries in Ethiopia. Small-scale entry is present in developed country food processing, as noted by Vyas (2015) for a number of sub-sectors in the Scottish food and drinks industry as well as many instances mentioned in Sutton (2007) for the six countries of USA, UK, Japan, Germany, France and Italy.
- 15.
Our argument is in contrast with Sutton and Kellow (2011), who argue that the only viable form of entry into an industry in Ethiopia is for a firm to be mid-sized. We place a more relaxed condition: we find that successful entry requires entrepreneurial experience and access to appropriate information. Even small-scale entry is likely to result in productive firms being established in food processing in Bihar. Small-scale success stories are present for many countries, e.g. the Khadi example in India, food processing units in the US (see Sutton (2007)) and the UK, as discussed in Vyas (2015). Note that Sutton and Kellow (2011) generalize their findings across a diverse set of industries, from leather, textiles to pharmaceuticals and food processing. The possibility of successful small-scale entry is more likely for most sub-sectors in processed food than in others. Big firm failure is, in fact, seen in many instances such as Ruchi Sofa Industries Pvt. Ltd., which used to be India’s largest oil processing firm.
- 16.
Sutton and Kellow (2011) observe the same pattern for Ethiopia: trader experience of manager-owners of mid- to large-sized firms help them expand the capabilities of the firm better than novice entrepreneurs.
- 17.
Some of these include engaging anecdotes from an official at Udyog Mitra, who described the reluctance of a local entrepreneur in repaying the bank-loan that he had taken for his food processing venture. In a most entertaining conversation, he recounted how the entrepreneur offered to go to jail rather than part with any liquidity to repay the loan to the perplexed collection agent sent by the bank. Though this underscores the problem of finance in doing business in regions like Bihar, we have not been able to include a number of these details, as this problem is true for all kinds of business, not only food processing.
References
Bihar Economic Survey (2018-19), Finance Department, Government of Bihar
Chakrabarti R (2013) Bihar breakthrough: the turnaround of a Beleaguered State. Rupa Publications
Dasgupta C (2010) Unraveling Bihar’s ’growth miracle’. Econ Polit Wkly XLV 52:50–62
Gebrewolde TM, Rockey J (2018) The effectiveness of industrial policy in developing Countries: causal evidence from ethiopian manufacturing firms. University of Leicester Working Paper No. 16/07
Hendricks K, Porter RH (1988) An empirical study of an auction with asymmetric information. Am Econ Rev 78(5):865–883
Mukherji A, Mukherji A (2015) Bihar: what went wrong? And what changed? In: Pangariya A, Rao MG (eds) The making of miracles in Indian States. Oxford University Press, New York
Restuccia D, Rogerson R (2013) Misallocation and productivity. Rev Econ Dyn 16(1):1–10
Restuccia D, Rogerson R (2017) The causes and costs of misallocation. J Econ Perspect 31(3):151–174
Slade ME (1992) Vancouver’s gasoline-price wars: an empirical exercise in uncovering supergame strategies. Rev Econ Stud 59(2):257–276
Sutton J (2007) Sunk costs and market structure: price competition, advertising and the evolution of concentration. The MIT Press, Cambridge
Sutton J, Kellow N (2011) An enterprise map of Ethiopia. International Growth Centre, London, UK. http://eprints.lse.ac.uk/36390/.ISBN9781907994005
Tybout JR (2000) Manufacturing in developing Countries: how well do they do and why? J Econ Lit 38(1):11–44
Vyas V (2015) Low-cost, low-tech innovation: new product development in the food industry. Routledge, New York
Witsoe J (2013) Bihar in Kohli A, Singh P ed. Routledge Handbook of Indian Politics. https://doi.org/10.4324/9780203075906
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2020 Springer Nature Singapore Pte Ltd.
About this chapter
Cite this chapter
Saha, D. (2020). Introduction. In: Economics of the Food Processing Industry. Themes in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-8554-4_1
Download citation
DOI: https://doi.org/10.1007/978-981-13-8554-4_1
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-13-8553-7
Online ISBN: 978-981-13-8554-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)