Growth and Productivity of Food Processing Industries in Punjab – An Empirical Analysis

Rohin Malhotra

Published on: 2019-03-30

Abstract

One of the important factors in the success or otherwise of a process of starting a new business and helping the entrepreneur to identify business opportunities is social capital. However, the importance of social capital as a catalyst for the recognition of entrepreneurial opportunities has been little studied. Given this importance, it is certainly possible to question the impact of social capital on the recognition of new entrepreneurial opportunities. To answer the various questions raised, a questionnaire-led and administered interview was conducted with 50 entrepreneurs. For data analysis, different statistical methods were used. First, in order to describe the characteristics of the entrepreneurs and companies studied, we use descriptive statistics. Then, we proceeded to the purification of the measurements by using the method of exploratory factorial analysis. Finally, a passage to the selection of the most revealing variables between the groups was made using the discriminant analysis method.

Keywords

Social capital; Recognition of new entrepreneurial opportunities; Information resources; Financial resources

Introduction

Momentum in agriculture (in India) that was gained in 1960s due to the introduction of green revolution started fading away in 1980s and the success story carved began to be hovering around wheat and rice crops only. Later, it was realized that the states which were primarily the beneficiaries of green revolution (Punjab, Haryana, Western Uttar Pradesh and parts of West Bengal etc.) witnessed slow growth in productivity of agriculture due to depleting water table as well as increasing soil salinity and micro-nutrient deficiencies accompanied by rising costs of production thereby leading to stagnating income of the farmers. New farm technology adopted by farmers since mid-sixties required heavy investment of capital in the form of farm machinery, irrigation equipment’s and other inputs like chemical fertilizers, pesticides/insecticides, etc. to maintain pace [1]. Farmers had to spend huge amounts of cash on purchasing market supplied farm inputs and machinery to carry out their production operations [2]. Farmers needed finance for carrying out the cultivation as well as for subsistence. Farmers borrowed money year after year, yet they were not able to clear their loans because the proceeds from agricultural produce failed to commensurate with the amount to be returned [3]. All these factors turned out to be responsible for increasing indebtedness among the farmers and suicides in the farm sector [4]. Thus, Green Revolution of 1960s turned out to be conflict-producing instead of conflict-reducing after almost five decades.

Economic prosperity and the lead of Punjab in terms of per capita income is now history and other states have surpassed this long lead. There is growing need to provide respite to the farmers and bring back the lost glory of the state. Accordingly, there is a need to emulate the growth pattern of out shining states of India. In recent decades, different states like Maharashtra, Gujarat, Andhra Pradesh and Uttar Pradesh etc. have brought substantial changes in the pattern of production, consumption, and trade in Indian agriculture. An important change is the shift in production and consumption from food grains to high value agricultural commodities such as fruits and vegetables, milk and milk products, meat, eggs, fish and processed food products. The trade in these high value products is also increasingly displacing exports of traditional commodities such as rice, sugar, tea, coffee, tobacco, etc.

With an increase in the number of working couples, there is paucity of time to prepare the meals by married females which has necessitated the requirement of ready-to-cook foods. Thus, high value agricultural crops are assuming increasing weightage day by day. Moreover, due to improvement in technology, physical input of the people has decreased because of which their lifestyle has become sedentary which has deteriorated the quality of life [5]. Therefore, people are becoming more diet conscious and relying on healthy foods with lower carbohydrates and cholesterol contents like zero-percent transfer snacks and biscuits, slim milk, whole wheat products, oats, soybean products, cornflakes etc. Consumers are aggressively demanding better, safer and convenient food products for which they are even willing to pay a higher price. This has given an added stimulus to the food processing industry in the recent times [6]. Further, a strong and dynamic food processing sector provides vital linkages and synergies between agricultural and industrial sectors thereby providing a potential for the growth of the economy [7]. Since Punjab’s agriculture is plagued by inherent problems and food-processing industry having been identified as catalyst in transforming the misfortunes of the state into fortune, eminent economists like Johl are strongly advocating the case for developing food processing industries in the state on war footing basis [8-10]. Taking a step ahead, the present study attempts to find out the growth and productivity of food processing industries in the state. Specifically, objectives of the study are:

  1. To find out the dominant and fastest growing food processing industries in Punjab
  2. To analyses the patterns of labor and total factor productivity growth in the manufacturing sector using state-level data from the Annual Survey of Industries for the period 1980/1 to 2007/8

Briefly, the study is divided into five sections. Section I is introductory in nature wherein the relevance of food processing industries is highlighted. In section II, database and methodology is discussed in detail. Analysis pertaining to the dominance and growth of Punjab’s food-processing industries is presented in section III. Productivity of food-processing industries of Punjab is discussed in section IV. Concluding remarks follow section V.

Data Base And Methodology

For the purpose of study, secondary data from various issues of Annual Survey of Industries (ASI) published by the Central Statistical Organization, Ministry of Planning, Department of Statistics, Government of India for the years 1980-81, 1990-91, 2001-02, 2010-11 and 2015-16 is used. Broad classification of industries listed in the group of food-processing have undergone drastic reclassification from 1980-81 to 2015-16. In order to arrive at comparable and meaningful results a concordance is developed by clubbing the similar industries classified under different codes in National Industrial Classification - 2008 (Annexure I) [11-15]. First of all, we have assessed the share of food processing industries in total food processing group in Punjab in terms of total output, number of factories, and number of workers, invested capital, and net value added. It is undertaken to examine the dominance of different food-processing industries in Punjab. In order to study the growth of food-processing industries, compound growth rate of each of the selected indicators have been calculated for different time periods. Trends in growth are studied by computing the compound growth rate through principle of least squares, using following formula

Log Y = Log a + (Log b)t

The data given in ASI reports is on current prices but for proper comparison, values are deflated with the help of suitable deflator (1993-94 = 100). For finding out the productivity, we have used the non-parametric method of Data Envelopment Analysis (DEA) primarily on the assumption that all food processing industries in Punjab share a common production practice. We have taken gross value added as output and labour and capital as two inputs in the production function. We neutralized the heterogeneity impact of using different production functions for different industries. The Malmquist indices are computed on the basis of annual time series data for the time-period 1980-81 to 2015-16. Using DEA, Malmquist indices of productivity change is decomposed into components of change in pure technical efficiency, technical progress, and scale efficiency. It enables us to identify the sources of productivity growth to make efforts to transform the lagging industries into the leading ones. We assume that all the industries are operating at an optimal scale. The Malmquist input oriented Total Factor productivity (TFP) change index between the base period t & the following period t+1 is defined as:

A value of M greater than unity implies a positive TFP growth from period t to period t+1 whereas a value of M less than one indicates a TFP decline. Equation above is the geometric mean of two TFP indices. The first index is calculated with respect to period t technology, while the second index is evaluated with respect to period t+1 technology. The advantage of the Malmquist index is that it allows us to distinguish between shifts in the production frontier i.e. Technological Change (TC) and movement of firms towards the frontier Technical Efficiency Change (TEC). The measure of technical efficiency must be between 0 and 1 [16-20].

Pure Technical Efficiency Change Index =

Dominance and Growth of Food Processing Industries in Punjab

From 1990 – 2001 and 20% in NVA and Profits from 2000 -2016. Meat Industry shows a growth of only three percent in number of factories from 1980 – 1991, Seven percent from 1990 – 2001, seven percent from 2000 – 2016 and overall growth of around Two percent in the number of factories from 1980 – 2016. Meat Industry shows an overall growth of 16% in NVA and 17% in Profits from 1980 – 2016 [21-25].

Dairy Industry shows growth of around Twenty Eight percent in Net Value added and Profits from 1980 – 1991, around Twenty – Two percent in NVA and Profits from 1990 – 2001 and decline of around 4% in NVA and 20% in Profits from 2000 -2016. Dairy Industry shows an overall growth of 11% in NVA and 3% in Profits from 1980 – 2016. Table shows that there is a growth of 18% in the number of factories from 1980 – 1991, 10% from 1990 – 2001 and only two percent from 2001 – 2016 and exhibited an overall growth of Five Percent in the number of Factories from 1980 – 2016. Manufacture of Grain Mill, Starches and other Starch products and prepared animal feeds industry exhibits a growth rate of around Twelve percent in Net Value added and Four percent in Profits from 1980 – 1991, around Fourteen percent in NVA from 1990 – 2001 and 7% in NVA and 60% in Profits from 2001 -2016. Manufacture of Grain Mill, Starches and other Starch products and prepared animal feeds Industry shows an overall growth of 4% in number of factories, 12% in Output, 11% in NVA and 38% in Profits from 1980 – 2016.

Manufacture of other food products industry exhibits a growth rate of around 14% in Net Value added and Five percent in Profits from 1980 – 1991, around 15% percent in NVA from 1990 – 2001 and 3% in NVA and 22% in Profits from 2000 -2016. Manufacture of other food products Industry shows an overall growth of 10% in NVA and 33% in Profits from 1980 – 2016. Table also shows that there is a growth of 6% in the number of factories from 1990 – 2001 and exhibited an overall growth of around two percent in the number of factories and only one percent growth in the number of workers from 1980 – 2016. Manufacture of beverages industry exhibits a growth rate of around 36% in Net Value added and 54% in Profits from 1980 – 1991, around 6% percent in NVA from 1990 – 2001 and 9% in NVA and 6% in Profits from 2001– 2016. Manufacture of other food products Industry shows an overall growth of 15% in NVA and 14% in Profits from 1980 – 2016. Table also shows that there is an overall growth of Five Percent both in the number of Factories and in the number of workers from 1980 – 2016. Above table interprets that Meat Industry shows higher growth than other food processing industries of Punjab.

The table 3 shows the market share analysis of different food processing industries of Punjab and its trend from 1980 – 81 to 2015 – 16. The share of Meat, Dairy Industry, Grain, Starch, Other Food Products Industry and Beverages Industry has declined and has witnessed upward and downward trends since 1980 - 81. The above table shows that the Grain, Starch Industry enjoys higher percentage of share than other food processing industries trends of market share of different food processing industries of Punjab and with respect to whole industries operating in the state from 1980 – 81 to 2015 – 16.  Meat Industry enjoyed the second position amongst five industries [26-30].

Empirical Results

The output-oriented Malmquist indices of productivity change are computed using the DEA. Table 1 presents the mean estimates (geometric means) of Malmquist indices of different Food Processing Industries of Punjab from 1980 -81 to 2015-16 [31-32].

The above table indicates that there has considerable growth of Food Processing Industry of Punjab due to positive growth of TFP (Total Factor Productivity). All the Food Processing Industries except Meat Industry shows negative growth in TEC (Technical Efficiency Change). PTEC (Pure Technical Efficiency Change) for Meat and Beverages Industry remains constant whereas for Dairy, Grain, Starch and other Food Products Industry, it is negative which implies that these industries lack in the learning process. On the other hand, Scale Efficiency for Meat Industry is positive indicates that this industry has increased its productivity by increasing their size. Above results shows that in Meat, Diary, Beverages Industry and Other food products industry, both Total Factor Productivity Change and Technological Change contributed to the growth of overall efficiency. 

If technical efficiency change index is greater than one, it means that there is an improvement in efficiency or catching-up effect the best practice frontier. On the other hand, if it is less than one it shows deterioration in production performance of the decision-making unit. The technical efficiency change is also decomposed into pure efficiency and change and scale efficiency changes. The scale efficiency change index being greater one indicates the success of cooperative to produce in optimal scale, while pure efficiency change index greater one indicates that there is a learning process in the decision-making unit.

Table 5 presents the Total Factor Productivity (TFP) growth and various efficiencies change for both the pre-and post-reform periods in Punjab. The results indicate that the mean TFP for the Meat and Dairy Industry has decelerated in the post-reform period as compared to pre-reform period. TFP change for Beverages, Grain, Starch, and other food products accelerated during post-reform periods as compared to pre-reforms period. The Technological Change of food processing industries shows a positive trend during pre-reform period as compared to post-reform period. Scale Efficiency Change of Meat and Other Food products Industry accelerated during post-reform period as compared to pre-reform period. Technical Efficiency Change of various food processing industries shows more growth in post-reform period as compared to pre-reform period [33-37].

Efficiency and various efficiencies change in the period from 1990 – 91 to 2015 – 16(post- liberalization period) over the period from 1980 – 81 to 1990 – 91(pre- liberalization period) for all Five different food processing industries are presented in Table 6. The results exhibit that the TFP growth in all of 5 industries shows positive growth in the period from 1990 – 91 to 2015 – 16 as compared to the period from1980 – 81 to 1990 – 91. There are only three industries, viz., Meat, Grain, Starch, and other food products, where the Technical Efficiency Change is negative during 1990 – 91 to 2015 – 16. The three major industries meat, grain, starch and other food products industry also show a negative productivity growth during 1990 - 91 to 2015 - 16 over the previous periods [37-43].

It is interesting to find a positive change in technical and scale efficiency in most industries in the post- reform periods over the pre-reform periods. The overall results suggest that the growth of productivity in the post-reform periods is mostly affected by technical progress.

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Tables

Table 1: Dominance of food processing industries in Punjab (In Percent).

Industry

Year

Number of Factories

Number of Workers

Invested Capital

Total Output

Net Value Added

Profit

Share in total industries in Punjab

Slaughtering, preparation and preservation of Meat

1980 – 81

17.33

10.95

17.56

33.33

18.72

22.00

6

1990 – 91

13.49

12.93

18.94

37.98

18.37

20.18

4

2000 – 01

5.39

7.09

14.06

24.07

8.16

8.51

7

2010 – 11

10.95

12.12

24.05

25.50

6.17

1.49

8

2015 – 16

7.89

12.76

14.47

23.02

50.31

160.23

9

Manufacture of dairy product

1980 – 81

1.47

3.50

16.17

11.89

17.51

26.16

 

1990 – 91

1.41

6.00

17.51

13.83

31.46

48.81

 

2000 – 01

3.03

8.23

12.61

23.49

52.24

88.96

 

2010 – 11

2.05

6.60

5.88

12.99

9.14

1.21

 

2015 – 16

2.14

8.77

11.86

14.82

9.87

1.82

 

Manufacture of grain mill products, starches and starch products, and prepared animal feeds

1980 – 81

72.80

56.83

44.64

42.75

34.67

20.58

 

1990 – 91

78.12

61.50

33.67

31.00

17.70

-4.36

 

2000 – 01

82.20

60.48

30.53

32.99

16.47

-0.13

 

2010 – 11

79.86

61.09

46.14

34.12

15.25

1.03

 

2015 – 16

84.04

57.93

48.01

40.85

17.60

-51.92

 

Manufacture of other food products

1980 – 81

6.13

24.72

16.20

8.54

24.39

28.71

 

1990 – 91

3.61

12.65

22.21

10.08

15.37

6.70

 

2000 – 01

5.80

16.69

31.19

11.94

15.33

-1.05

 

2010 – 11

3.23

11.21

11.67

9.89

12.04

-0.95

 

2015 – 16

2.79

12.58

14.84

9.37

11.43

-15.99

 

Manufacture of beverages

1980 – 81

2.27

3.99

5.42

3.49

4.72

2.55

 

1990 – 91

3.37

6.93

7.67

7.11

17.10

28.67

 

2000 – 01

3.57

7.51

11.61

7.51

7.80

3.71

 

2010 – 11

3.91

8.98

12.25

17.51

57.40

97.22

 

2015 – 16

3.14

7.95

10.81

11.93

10.78

5.86

 

Source: Supplement to Annual Survey of Industries, various years.

Table 2: Growth of food processing industries in different time periods (In Percent).

                                         Characteristics / Year

Growth from 1980 – 81 to 1990 – 91

Growth from 1990 – 91 to 2000 – 01

Overall Growth from 1980 – 81 to 2015 – 16

 Industry Group

G-I

G- II

G- III

G- IV

G- V

G-I

G- II

G-III

G- IV

G- V

G-I

G- II

G-III

G- IV

G- V

Number of Factories

2.84

5.05

6.2

0

9.72

-7.37

9.6

2

6.46

2.11

1.59

 

4.92

 

4.24

 

1.58

 

5.13

 

Number of Workers

6.15

10.19

5.24

-2.4

10.3

-0.85

8.66

5.1

8.24

6.13

3.61

5.84

3.23

1.25

5.5

Invested Capital

22

22.07

17.7

25

25.4

10.63

10.29

13

17.91

18.81

13.95

13.58

14.8

14.28

16.78

Total Output

19.4

19.63

14.1

19.8

26.5

7.01

-25.5

13

13.92

12.63

11.32

-0.43

12.33

12.76

16.38

Total Inputs

19.4

17.7

13.9

20.8

24.4

7.01

17.19

13

13.89

14.1

10.7

13.37

12.39

13.29

16.48

Net Value Added

19.8

27.27

12.2

14.6

36.5

6.27

21.25

14

15.22

6.55

15.92

11

10.68

10.43

15.4

Profit

19.9

28.77

-11.3

4.61

54.1

6.77

23.59

-18

-27.5

-5.14

17.62

3.37

13.06

10.52

13.91

Table 3: Market Share Analysis.

 

1980 – 81

1990 – 91

2000 - 01

2010 - 11

2015 - 16

Industry / Market Share

% Share (FPI)

% Share (Overall)

% Share (FPI)

% Share (Overall)

% Share (F P I)

% Share (Overall)

% Share (F P I)

% Share (Overall)

% Share (FPI)

% Share (Overall)

Meat Industry

33.33

7.43

37.98

8.72

24.07

6.12

25.5

4.8

23.02

4.74

Dairy Industry

11.89

2.65

13.83

3.18

23.49

5.98

12.99

2.45

14.82

3.05

Grain, Starch Industry

42.75

9.53

31

7.12

32.99

8.39

34.12

6.43

40.85

8.4

Other Food Products Industry

8.54

1.9

10.08

2.31

11.94

3.04

9.89

1.86

9.37

1.93

Beverages Industry

3.49

0.78

7.11

1.63

7.51

1.91

17.51

3.3

11.93

2.45

Total FPI

 

22.29

 

22.96

 

25.44

 

18.84

 

20.57

Table 4: Malmquist Index Summary of Firm Means.

Industry

Technical Efficiency Change

Technological Change

Pure Technical Efficiency Change

Scale Efficiency Change

Total Factor Productivity Change

Meat

1.008

1.21

1.001

1.006

1.219

Dairy

0.903

1.162

0.951

0.949

1.049

Grain, Starch

0.873

1.049

0.93

0.939

0.916

Other Food Products

0.873

1.17

0.874

0.999

1.021

Beverages

0.946

1.184

1

0.946

1.12

Mean

0.919

1.154

0.95

0.967

1.06

Table 5:Total Factor Productivity Change and Various Efficiency Change across the Three-digit Industries.

 

        Pre-Liberalisation Period

        Post-Liberalisation Period

 

1980-81 to 1990-91

1990-91 to 2015-16

Industry

Technical Efficiency Change

Technological Change

Pure Technical Efficiency Change

Scale Efficiency Change

Total Factor Productivity Change

Technical Efficiency Change

Technological Change

Pure Technical Efficiency Change

Scale Efficiency Change

Total Factor Productivity Change

Meat

0.726

1.383

0.744

0.976

1.004

1.094

0.868

1.085

1.008

0.95

Dairy

1

1.675

1

1

1.675

0.88

0.804

0.988

0.89

0.707

Grain, Starch

0.774

1.234

0.627

1.235

0.955

0.9

0.815

0.943

0.954

0.733

Other Food Products

0.637

1.353

0.72

0.884

0.862

0.945

0.822

1.043

0.905

0.776

Beverages

1.12

1.317

1

1.12

1.475

0.907

0.86

1

0.907

0.78

Mean

0.833

1.385

0.804

1.036

1.153

0.942

0.833

1.011

0.932

0.785

Table 6: Productivity Growth, TP, and Efficiency Change during 1990 – 91 to 2015 – 16 (post – liberalisation) as compared to the period from 1980 – 81 to 1990 – 91 (pre – liberalisation period).

Growth Rates in Percentage

Industry

Technical Efficiency Change

Technological Change

Pure Technical Efficiency Change

Scale Efficiency Change

Total Factor Productivity Change

Meat

-33.64

59.33

-31.43

-3.17

5.68

Dairy

13.64

108.33

1.21

12.36

136.92

Grain, Starch

-14.00

51.41

-33.51

29.45

30.29

Other Food Products

-32.59

64.60

-30.97

-2.32

11.08

Beverages

23.48

53.14

0.00

23.48

89.10

Mean

-11.57

66.27

-20.47

11.16

46.88