INTERNATIONAL PROJECTS PARTNERSHIP CONSULTANTS, FRANCE www.ippconsultants.com INDIA: Agribusiness and Commercial Agriculture Assessment (TA4192-IND) Final Report Volume-I Asian Development Bank May 2004 (i) CURRENCY EQUIVALENTS (as of 28th May 2004) Currency Unit - Rs Rs. 1.00 = 0.0221 $1.00 = IR 45.25 ABBREVIATIONS ADB - Asian Development Bank ADTA - Advisory Technical Assistance AEZ - Agri Export Zones AP - Andhra Pradesh APEDA - Agricultural and Processed Food Export Development Authority APM - Agricultural Produce Marketing Act APMC - Agricultural Produce Market Committees ATMA - Agricultural Technology Management Agency AWAKE - Association of Women Entrepreneur of Karnataka BIS - Bureau of Indian Standards CAC - Codex Alimentarius Commission CFTRI - Central Food Technology Research Institute CII - Confederation of Indian Industry CMU - Carnegie Mellon University CPRS - Check Post Registration System CWI - Consignment wise Inspection DAC - Department of Agriculture & Cooperation DASP - Diversified Agriculture Support Program DFPI - Department of Food Processing Industries DGHS - Directorate General of Health Services ECA - Essential Commodities Act EIC - Export Inspection Council e-Marketing - Electronic Marketing EPZs - Export Processing Zones ERC - Electricity Regulatory Commission EXIMBANK - Export-Import Bank of India FCA - Forward Contract (Regulation) Act FCI - Food Corporation of India FICCI - Federation of Indian Chambers of Commerce & Industry FIIS - Farm Income Insurance Scheme FMC - Forwards Markets Commission FPO - Fruit Products Order FSMSC - Food Safety Management Systems GATT - Generalized Agreement on Trade and Tariff GCF - Gross Capital Formation GDP - Gross Domestic Product GMP - Good Manufacturing Practices GOI - Government of India GWH - Giga Watt Hour HACCP - Hazard Analysis and Critical Control Points HOPCOMS - Horticulture Producers Cooperatives Marketing and Processing Society HRD - Human Resource Development IAAD - Indian Association for Agribusiness Development IBD - International Business Division ICAR - Indian Council of Agriculture Research ICICI - Industrial Credit Investment Corporation of India ICRISAT - International Crop Research Institute of Semi-Arid Tropics ICT - Information Communication Technology ITC - Indian Tobacco Company IFPRI - International Food Policy Research & Industry INR - Indian Rupee IPPC - International Plant Protection Convention IPQC - In process Quality Control ISRO - Indian Space Research Organization IT - Information Technology J&K - Jammu & Kashmir KVK’s - Krishi Vigyan Kendra’s MANAGE - National Institute of Agriculture Extension Management MAP - Market Access Promotion MFPI - Ministry of Food Processing Industries MIDC - Maharashtra Industrial Development Corporation MIS - Market Intervention Scheme MOA - Ministry of Agriculture MOU - Memorandum of Understanding MP - Madhya Pradesh MPEDA - Marine Products Export Development Authority MRL - Maximum Residue Level MSAMB - Maharashtra Agricultural Marketing Board MSP - Minimum Support Price MSSRF - M.S. Swaminathan Research Foundation NABARD - National Bank for Agriculture and Rural Development NAFED - National Agriculture Cooperative Marketing Federation NAFTA - North American Fee Trade Agreement NAIS - National Agricultural Insurance Scheme NATP - National Agricultural Technology Project NCDC - National Cooperative Development corporation NDDB - National Dairy Development Board NGOs - Non Governmental Organizations NWR - Negotiable Warehouse Receipt O&M - Operation & Maintenance PAN - Permanent Account Number PC - Personal Computer PDC - Planning Development and Control PFA - Prevention & Food Adulteration PPP - Public Private Partnerships PSF - Price Stabilization Fund RRBs - Regional Rural Banks RSGA - Reddiarchatram Seed Growers Association SFAC - Small Farmers Agribusiness Consortium SFVAM - Safal Fruit and Vegetable Auction Market SHGs - Self Help Groups SPS - Sanitary & Phyto Sanitary TA - Technical Assistance TN - Tamil Nadu TV - Television UK - United Kingdom US - United States USA - United States of America USDA - United States Department of Agriculture UTs - Union Territories VCF - Venture Capital Fund VHT - Vapour Heat Treatment WHO - World Health Organization WTO - World Trade Organisation WEIGHTS & MEASURES Crore - Ten Million (10,000,000) Lakh - One Hundred Thousand (1,00,000) GLOSSARY (ii) Arthiyas - Trade Intemediate Atta - Wheat Flour Bajra - Coarse Millet Choupal - Gathering place in Indian Villages. Jaie - Oats Jay - Barley Jowar - Sorghum Kala-Zeera - Black Cumin Khadi - Hand-spun Yam Khunmoh - Kisan - Farmer Koden - Kotwal - Watchman krishi - Farmer Kutcha arthiya - Broker or Commission Agent Kutki - Makkai - Maize Mandi - Market place Naan - Baked Bread Panchayat Raj - Village Governance Pucca arthiya - Stockist or Dealer Rotis - Baked Bread Sanchalak - Coordinator i TABLE OF CONTENTS SECTION TITLE PAGE Executive Summary 1 1.0 Introduction 6 2.0 Overview: Agribusiness and Commercial Agriculture 9 3.0 Key Policy, Legal and Regulatory Issues 14 Wholesale Markets 14 Futures Markets 14 Essential Commodities Act 15 Storage & Warehousing 16 Cooperatives 16 Food Processing Laws 17 Credit Availability 21 Processing 21 Taxation and Fees 26 Marketing and Distribution 28 National Programs 30 4.0 The Value Chain 31 The Producer 31 The Wholesale Sector 32 The Retail Sector 33 Losses in the Value Chain 34 Effect of Subsidies on the Efficiency of the Value Chain 35 Evaluation of the Efficiency of the Value Chain 36 5.0 Stakeholders and their Issues 41 Producers 41 Wholesalers 45 Processors 46 Consumers 56 Importers 56 Exporters 57 ii TABLE OF CONTENTS (cont’d) SECTION TITLE PAGE 6.0 Key Lessons Learned from Case Studies and the 74 National Seminar Farm Extension Training and Technology Transfer, 74 Andhra Pradesh National Institute of Agriculture Extension Management 74 MANAGE ICT Connectivity: e-choupal, The use of ICT in Direct 75 Farm Procurement, Madhya Pradesh Agricultural Technology Management Agency (ATMA). 75 International Crops Research Institute for the Semi-Arid 76 Tropics - ICRISAT Private Sector Produce Wholesale Market, Karnataka 77 Madhya Pradesh Case Study – e-choupals for Direct 79 Farm Procurement Agri Export Zones for Horticultural Produce, 81 Maharashtra The role of NGO’s in the Development of Agribusiness, 83 Tamil Nadu Diversified Agriculture Support Programs, Uttaranchal 85 Contract Farming 88 Social Aspects and Poverty Reduction 90 Delhi Workshop 100 National Seminar 102 7.0 Strategies, Roadmaps and Investment Opportunities. 107 Strategy and Roadmaps for the five States selected for 111 Investment Chhattisgarh 112 Jammu & Kashmir 113 Punjab 115 Sikkim 116 Himachal Pradesh 118 Strategy and Roadmaps for all States 120 Marketing Reforms 121 Futures Trading 121 Institutions 122 Standards 122 iii Food Processing Laws 122 Potential Investments in ICT 132 Post Harvest Handling (Applicable to all States) 140 Problem Tree Analysis 141 Tables 1 GDP from the Agribusiness Processing Sector 2 Composition of the Value of Agricultural Output 3 Changes in Food Consumption Patterns in India 4 Changes in Food Consumption among Different Expenditure Groups 5 Supply Chain of Select Agricultural Commodities 6 India’s Export of Principal Agricultural Products 7 Agriculture Imports 8 Central foodgrain stocks: actual and the norm 9 Production and procurement of rice and wheat by agencies 10 Export of Basmati rice for the last decade 11 Export of Non basmati rice 12 Export of Wheat 13 Export of Mango Pulp 14 Export of pickles and chutneys 15 Export of Preserved mushrooms 16 Packaging and Marketing of different commodities in Regulated Markets 17 Ranking of Various Sources of Information 18 Control Orders Issued by Focused State Governments 19 Trade Ratios in percent 20 Output and Export of Processed Food Products from India 21 Processed Food Exports from India 22 Multiplicity of Ministries iv TABLE OF CONTENTS (cont’d) SECTION TITLE Appendices Appendix 1 Terms of Reference Appendix 2 Case Study: Farm Extension Training and Technology Transfer, Andhra Pradesh Appendix 3 Case Study: Private Sector Produce Wholesale Market, Karnataka Appendix 4 Case Study: e-choupal, The use of ICT in direct Farm Procurement, Madhya Pradesh Appendix 5 Case Study: Agri Export Zones, Maharashtra Appendix 6 Case Study: The role of NGO’s in development of Agribusiness, Tamil Nadu Appendix 7 Case Study: Diversified Agriculture Support Programs, Uttaranchal Appendix 8 Case Study: Contract Farming Appendix 9 Persons Met Appendix 10 Reference Documents 1 EXECUTIVE SUMMARY 1 The agriculture sector in India contributed 24.2% to GDP in 2002-2003 and provides a living for approximately two thirds of the population. Although significant progress has been achieved over the past 5 years, the potential for development of agribusiness, diversification, marketing and exports has not been realized and remains under developed, value addition to food production is only 7%. India has diverse agro climatic conditions and is a major producer of agricultural produce serving one of the largest domestic markets in the world, yet its share in world agricultural trade remains very low. 2 The Tenth Five Year Plan (Tenth Plan) has identified the need to improve productivity and efficiency and proposes increased investments in diversification, infrastructure, post harvest technology and information dissemination. While the Tenth Plan proposes a significant increase in public sector investment, it is acknowledged that it encourages private sector participation wherever possible. The proposed public sector investments will only have a marginal effect on growth and more private sector investment is needed to accelerate growth in commercial agriculture and agribusiness. This can be more readily achieved if present policy and institutional impediments are substantially reduced. 3 The growth of the agribusiness sector is positively affected by agricultural productivity, changes in consumption patterns away from food staples, improvements in transportation and communication infrastructure, international trade and supportive government policy. In India, components of commercial agriculture such as fruits and vegetables, oilseeds and sugars are growing faster than foodgrains. Such behaviours in consumption pattern changes have seen more rapid growth in the consumption of items such as fruits and vegetables, oils and milk products than in foodgrains. In the future these trends may be reinforced by international trade. 4 India’s supply and demand of agricultural products face uncertainties owing to conflicting domestic policies relating to production, distribution, food security and pricing. Near self sufficiency of inputs and relatively low labor costs have enabled exports of several agricultural commodities over the years such as marine products, cereals, cashew, tea, coffee, spices, oil meals, fruits, vegetables and castor. For certain commodities like Basmati Rice, India has a niche market. 5 Given a favorable enabling environment, the Indian farmer can perform just as well as farmers in other countries where the private sector is given more freedom to operate without the burden of interventions. The problem at present is that farmers and businessmen are forced to operate in a restrictive environment reducing their ability to be efficient. More emphasis should be placed on promotion of direct marketing and the reduction of taxes on raw agricultural produce. However the overall economy suffers from inefficiencies at all levels in the agribusiness chain, input supply, production, marketing, processing, exporting, and retailing. These inefficiencies result from policy, legal, and institutional impediments to private sector initiatives over which the private sector has little control. 6 For several commodities, India’s national productivity is less than the world average and there are wide variations in productivity levels in different parts of the country. Thus the issue of competitiveness is also region specific. A regionally differentiated strategy taking into account agronomic, climatic and environmental 2 conditions is not pursued to full potential of yield in every region. A major difficulty faced by India in the international market is the high level of domestic support and export subsidies given by developed countries for agri exports. Indian agriculture can become competitive and enhance its efficiency by seeking substantial reductions in the support given to agriculture by developed countries and by providing domestic support to maintain and improve competitiveness within the WTO framework. 7 The Green Revolution enabled India to make great progress in productivity, however declining investments have retarded progress, Further incentives are required to maintain and increase productivity and growth and enhance value addition. These investments must be targeted at supporting infrastructure as well the core agribusiness sector. The production component of the agribusiness sector in India is characterized by the significant presence of small household production units and employs a significant portion of the country’s workforce. 8 Many reforms were introduced following the near insolvency crisis in 1991 including the reduction of import duties, greater private sector participation, and the easing of restrictions on business allowing greater freedom on what can be produced. However further reforms and incentives are necessary across a wide range of agribusiness activities with a corresponding reduction in market interventions aimed at improving efficiency, value addition, and the promotion of greater private sector participation. 9 Government recognizes that existing legislation is outdated and hampers efficiency in marketing and agricultural production. Recently a Model Act was formulated but has not yet been implemented. The Central Government held a high level meeting on 7 January 2004 to discuss the Model Act with the states and has given them one year to incorporate amendments to the legal framework to change the Governments role as “facilitator” rather than “controller” of agricultural markets. 10 The State Government’s mandate is to amend the APMA in a manner enabling the private sector to own, operate and manage markets including forward and backward linkages necessary to promote agribusiness without Government interventions. Although the Model Act is a progressive step, it is incumbent on the State Governments to act upon it and make it happen to better meet the needs of all stakeholders. Subsequent investment projects can then support and accommodate the reforms more directly utilizing the expertise on modern agricultural marketing practices which is clearly abundant in India. 11 Numerous ministries are directly involved in agriculture and agribusiness making the formulation and implementation of an effective agribusiness development strategy difficult and cumbersome. Private sector investment in agribusiness requires in the first place, a removal of the many legal and institutional impediments causing an adverse business investment climate. Incentives may be needed and entrepreneurs are of the opinion that once the impediments are drastically removed, the private sector will accelerate investments at a much faster pace. A rationalization of the ministries involved in agriculture and agribusiness will expedite this process. 12 The Government has promoted the establishment of Agri Export Zones (AEZ) and other entities for agribusiness through grants and other subsidies. The concept of AEZs is sound and appears to be gaining ground. Feasibility reports prepared for State agencies involved in the establishment of the AEZs do not contain comprehensive business plans, margins and profit analyses on which to justify investment and 3 government grants. The record with government involvement and interventions in these types of business has been mixed. Based on experience in other countries such as Thailand, programs that directly involve the private sector are likely to be more effective and do not require public funds or direct involvement from public sector agencies other than to ensure compliance with food safety laws. 13 The impact of increased economic growth in agribusiness can be highly effective in reducing rural poverty and increasing rural income. Contract farming may eliminate constraints associated with rural extension together with the introduction and application of modern technology, finance and marketing. In many countries, it has increased marginal farm incomes significantly and has benefited high quality agricultural production. Given the infancy of contract farming in India and its potential for agricultural development and rural poverty reduction, it is recommended that in collaboration with the private sector, a program is formulated which may accelerate contract farming in India. 14 Information and communication technology (ICT) is rapidly becoming an important aspect of agriculture. There are already various initiatives dealing with the agriculture sector including private and cooperative electronic marketing (e marketing) services providers. An important aspect of these systems is that they are completely financed by the private sector. The role of the government is limited to providing incentives that extend fast internet services to rural areas, teaching on the use of the internet, providing training to teachers and any individual interested in the use of internet. Although the Agricultural Produce Marketing Act (APMA) does not allow e marketing, some states have amended this limitation or have made specific exemptions. This demonstrates that where benefits are clearly identified, state governments will facilitate changes. 15 Despite increasing availability of agricultural credit granted by cooperative banks and regional rural banks, there has been an overall decline in the total share of agricultural credit compared to total credits for all sectors (agricultural and non agricultural). Banks still have the perception that lending to agriculture is risky and prefer to lend to non agricultural enterprises. Small farmers find it particularly difficult to obtain credit and finance because banks prefer to lend to larger groups where transaction costs and risks are lower. Private institutions such as ICICI Bank Agribusiness Division should be encouraged and incentives provided to promote the extending of credit to farmers and to agribusiness. 16 The Technology Mission for Integrated Development of Horticulture carried out in 2003 identified good potential for the development of horticulture in the states of Sikkim, Jammu Kashmir, and Himachal Pradesh. These areas experience diverse climatic conditions, suitable soils and adequate rainfall for horticultural development. A state level investment strategy to foster rapid growth in these areas is worthy of further consideration including investments in water resources management for drip irrigation, and infrastructure. DAC has prepared a report on this mission identifying the high potential for horticultural development. 17 The value chain links agricultural producers to consumers through a series of steps adding value to the produce at each stage. At the producers end, farmers optimize their strategy in an economic environment distorted by subsidies, absence of taxation, support prices, market legislation, government direct procurement, and other interventions. Similarly other private entrepreneurs in the agribusiness chain optimize their investment and management strategy in an equally distorted environment. 4 18 The marketing chain does not offer grading facilities in most locations. As the Expert Committee notes, the quantity graded at the producers level is negligible. Even in regulated markets less than 20% of them offer any sort of grading facilities. As a result, farmers lose out on the value addition that they could get from grading. Furthermore, the grading that occurs at the market yard leads to congestion in market yards during the peak arrivals period. 19 Most of India’s larger agribusinesses are in branded processing with weak procurement systems. Many other kinds of large scale agribusinesses that are important in other kinds of countries do not have a significant presence here. Important instances of this are commodity processors and traders and retailers. These are typically the firms that invest in marketing infrastructure (grading, sorting, temperature controlled storage, bulk handling) and procurement systems. 20 In India, the development of the wholesale marketing system for agricultural and allied products has been focused around protecting the farmers. Regulation and development of wholesale markets was deemed an institutional necessity and construction of well laid out markets was an essential part of wholesale markets. 21 A large number of agro processing Industries, particularly in the primary processing sector, is in the hands of individual ownership. While there are few jointly managed (Partnership concerns or Private Limited companies) or collectively managed (Cooperative organizations), most of them being small scale do not have access to modern management tools or the capabilities. 22 The growth of consumer incomes is a key factor that drives the growth of commercial agriculture and agribusiness. Higher incomes lead to (a) greater demand for perishables and non food staples and to (b) higher demand for processed foods. These impacts increase the demand for agribusiness products and services (e.g. processed foods, storage and refrigeration services). They also increase the variety of products and services offered by the agribusiness sector. 23 The key crops with high export potential and competitiveness are basmati rice, non basmati rice, wheat, cut flowers, mangoes, grapes, walnuts, potatoes, onion, mango pulp, pickles and pastes, preserved mushrooms and tomatoes (fresh and processed). A well planned promotional strategy coupled with ensuring quality through standards and specifications, research and development with modern laboratory and up to date market information are essential to maintain and increase exports. 24 Increased international food trade must require the participating countries to share the responsibilities of food safety through the entire food chain. Food safety standards are frequently and very often erroneously viewed as technical barriers to trade. Improvements to food safety and expanded international trade are mutually compatible and are an effective shared responsibility. 25 Overall emphasis must be on creation of synergy and convergence of various programs to achieve horizontal and vertical integration. For any strategy to succeed requires a strong commitment and positive attitude from all of the stake holders. Creative and innovative thinking is required. A strong agribusiness sector can only be achieved by a comprehensive reappraisal of development strategies and the institutional structures that support them. The expansion of commercial agriculture and agribusiness 5 will play a vital role in the Indian economy and will contribute to the increase of incomes and reduction in poverty. 26 Efficiency and sustainability of the subsidies policy has been seriously eroded and is financially unsustainable. High subsidies on power, irrigation and fertilizers do not improve income distribution and cause environmental damage. Excess use of subsidized fertilizers has caused imbalances in the soil and excessive use of water has caused water logging in many areas. 27 Food products in India are subject to complex and multiple laws. Their replacement by a simpler single law that is harmonized with international quality standards is on the agenda of the Ministry of Food Processing. The food processing sector pays taxes on its inputs and outputs. Its tax burden is higher than that in other Asian countries such as Indonesia, 28 Value added products have more export potential and hence development of new value added products in horticulture sector will enhance export promotion. Similarly processed fruits, vegetables, ready to serve food items need to be developed and marketed. In the field of processing and marketing, focus should be on quality improvement, reduction in cost of processing and value addition. 29 The average productivity of most agricultural and horticultural crops in India is low. A wide gap thus exists between yields obtained and potential yields with improved varieties and technologies. Programs therefore need to be implemented to reduce the yield gap by improving productivity. 30 The concept of the Agri Infrastructure Development Fund is a proposed initiative to provide incentives to the private sector to invest in agribusiness projects. The advantage of this concept is that it would also provide incentives to financing institutions and commercial banks by reducing the risk of lending to the private sector. The entity administering the fund would in effect be a stakeholder in the equity of potential projects. At some point in the future of each project, the Fund would have the option to sell its stake to other investors or to the stock market and recover its investment. The administration of the fund would be made up from representatives of Central and State Governments and the financing agency in a tripartite arrangement, thereby providing the State with the incentive to leverage its funds. 6 1.0 INTRODUCTION 1.1 The Government of India (GOI) has requested the Asian Development Bank (ADB) for Advisory Technical Assistance (ADTA) to assess agribusiness and commercial agriculture. Following consultations, ADB formulated the objectives, cost estimates, financing plan and implementation program for the ADTA. This was approved by ADB in October 2003 and IPP Consultants from France were retained to carry out the assessment study. The team of consultants mobilized in December 2003. An Inception Report was submitted in December 2003 followed by an addendum in January 2004. The Mid Term Report was submitted in April 2004. 1.2 Following discussions with GOI and ADB, a decision was made at the inception phase that the TA was to select five states for identification of investment opportunities. The five states selected together with the rational for selection are as follows: (i) Chhattisgarh: Already a focal state for ADB assistance including development of irrigation and rural roads to support and have synergy with growth in agriculture. (ii) Jammu and Kashmir: Has been given high priority by GOI and possess comparative advantage for certain horticulture crops. (iii) Punjab: At the forefront of the Green Revolution and now evolving from agriculture to agribusiness. Soil degradation and depleting water resources resulting from the rapid rotation of rice and wheat cultivation have driven the need for crop diversification. Initiatives carried out in the state can be replicated and expanded in other states. (iv) Sikkim: A new focal state for ADB assistance as part of Government’s priorities to support development of the north eastern states. Sikkim is already a producer of cardamom and ginger and has ideal conditions for expansion of floriculture and medicinal plants. (v) Himachal Pradesh: A hilly state and ideal for the development of horticulture and medicinal plants. The state also produces several out of season vegetables including cabbage, cauliflower, peas and tomatoes. 1.3 The Executing Agency for this TA is the Department of Agriculture and Cooperation (DAC) who are responsible for the formulation and implementation of national policies and programs designed to advance rapid growth in the agriculture sector. DAC nominated a counterpart team to work closely with the consultants. The counterpart team comprise the following members: P.K. Agarwal Agricultural Marketing Advisor Department of Agriculture and Cooperation S.N. Pandey Joint Industrial Advisor Ministry of Food Processing Industries A.S. Rawat General Manager Agricultural Products Export Development Authority D.G. Prasad Chief General Manager Export Import Bank of India A. Jain Managing Director National Horticulture Board G.S. Dutt Managing Director Small Farmers Agricultural Business Consortium. 7 S. Sunanda Team Leader Federation of Indian Chambers of Commerce and Industry. H. Shrivastava Director Confederation of Indian Industry R. Wig President PHD Chamber of Commerce 1.4 The consultant’s team was accommodated at the offices of the Small Farmers Agribusiness Consortium (SFAC) and provided with offices and supporting facilities. The SFAC was established in 1992 as a non profit organization providing advice to farmers and farmer groups to assist them in enhancing their skills to improve agricultural productivity, post harvest technology, processing and marketing. SFAC’s mission is to link small farmers to technology and markets in association with private, corporate and cooperative sectors. SFAC is also a financial institution and implements programs on behalf of the Ministry of Agriculture for which it receives service fees. 1.5 The methodology envisaged by the TA called for assembling a 10 member Team of experts comprising 2 international and 8 national experts, one of the International experts was designated as team leader. A Counterpart Team comprising Government officials at Central and State levels was established by DAC. A TA Manager and coordinator was to facilitate interaction between the team of experts for accessing data and information and assist with field visits. 1.6 The team leader was appointed on 2 December 2003 and served in this position on until 26 February 2004. Subsequently a new team leader was appointed on 4 March 2004. Seven out of the eight national experts were appointed in line with functional responsibilities for their involvement in the TA. One national expert was appointed after a brief delay since the original candidate could not join due to medical reasons. One international expert was appointed on 15 December 2003 until 20 March 2004 and another international expert was appointed to the TA on 5 March 2004 for a period of 3 weeks and was responsible for the preparation of the Mid Term Report. 1.7 Senior representatives were appointed by DAC and SFAC to function as TA Manager and TA Coordinator respectively. Working representatives were also appointed from NHB, MFPI, APEDA and EXIMBANK. Nodal officers were appointed from each of the 6 Case Study States and the 5 Investment Focus States. In almost all cases, the Nodal Officers were Assistant Director rank in the State Agriculture or Horticulture Departments. Due to preoccupations with ongoing responsibilities, the Counterpart Team could not meet on a weekly basis as planned. The TA Team of Experts has however benefited from frequent interactions with the TA Manager and the TA Coordinator. 1.8 The TA Team was successful in being able to directly access the key authorities for participation in State Workshops. Each Investment Focus State was provided with records of discussion at the Workshop as well as a transcript of the Mid Tern Review presentation chaired by Secretary, Department of Agriculture and Cooperation, in New Delhi on April 5, 2004. Several State Officials were required for conducting the National Elections resulting in the postponement of the National Seminar. 1.9 Two of the three national chambers of commerce and industry did provide valuable support to reach out to their industry members. A regional chamber of commerce having a North India focus was enrolled to the Counterpart Team. 8 1.10 The State Workshops were reasonably well attended and the TA Team is especially grateful to the several farmer groups representing the key stakeholders in agribusiness development. A workshop was held in Delhi on 30 April 2004 and was well attended and included a good representation from Government as well as other interest groups including the private sector. A summary of the discussions is presented in Section 6 under “Delhi Workshop”. The National Seminar held on 20 May 2004 was poorly attended in view of the continuing process of Government formation in the aftermath of the national elections. Effective consultations with the Private Sector could not however, take place on this occasion. 9 2.0 OVERVIEW: AGRIBUSINESS AND COMMERCIAL AGRICULTURE 2.1 The agribusiness sector comprises businesses that either supply farm inputs or are involved in the marketing of farm products through warehousing, processing, wholesaling and retailing. The sector can therefore be considered as consisting of economic activities relating to the supply chain of agricultural inputs and the supply chain of agricultural products. Over the years, the share of this sector has been declining while that of the other sectors, notably services have been increasing. 2.2 For large countries such as India, there is a close inverse association between the size of the agricultural sector and its productivity. In such economies, the sectoral composition of output largely reflects the structure of domestic demand. As incomes grow, the structure of demand shifts away from food and agricultural products. Such demand shifts away from agriculture are paradoxically initiated by the process of agricultural transformation. One of the most important determinants of income growth is agricultural productivity (Eswaran and Kotwal, 1993).1 Conversely, low productivity in agriculture is associated with low incomes, high shares of food in household expenditures, and a high share of the agricultural sector’s total employment.2 2.3 In value terms, 50% of agricultural output is due to commercial agriculture comprising oilseeds, sugars, fibres, fruits and vegetables, tea, coffee, tobacco and various condiments and spices. Foodgrains account for 40% of value of agricultural output. As some part of foodgrains can also be regarded as commercial, the value of agricultural output that is transacted in markets is anywhere between 65-75% of the total value depending on what we estimate to be the marketed surplus of foodgrains. 2.4 Besides foodgrains, the major component of commercial agriculture is the fruits and vegetables sector. For the twenty years from 1980-81, the fruits and vegetables output has grown at a trend rate of 4% per annum. As against this, foodgrains in this period have grown at around 2% per annum. Among the major cash crops, sugarcane and oilseeds output have grown at around 3% per annum while cotton output has grown more slowly at around 2%. If these growth rates continue, we can expect agribusiness opportunities to expand in fruits and vegetables and to a lesser extent in oilseeds, sugars and foodgrains.3 2.5 India must therefore continue to emphasize policies that will facilitate higher productivity on farms. The importance of the agricultural sector to the national economy cannot be seen fully from its contribution to GDP alone. For instance, agriculture accounts for only 1% of GDP and about 2% of the workforce in the United States. However, the food system that consists of farming, food processing, input manufacturing, transportation, trade, retailing and food establishments is estimated to account for 15% of GDP and 18% of all employment (USDA, 2000). Thus, the agribusiness sector (which can be considered to be the food system minus the farming sector) in the United States accounts for 14% of GDP and 16% of all employment. 1 The exception to this would be countries that export significant proportions of their agricultural output. In such cases, an increase in agricultural productivity would increase the sector’s share. 2 The only way for the agricultural sector to decline even without an increase in productivity would be if the growth pattern was characterized by high rates of growth of manufacturing exports together with large volumes of food imports to support the shift of employment from agriculture to manufacturing. 3 Changes in trade policy mean that agribusiness opportunities in the future may not necessarily be tied to domestic production. 10 2.6 Higher productivity in the agricultural sector derives from better inputs such as improved seeds and farm tools and from shifts in cropping patterns away from subsistence farming towards more lucrative commercial crops. As a result, many activities that would traditionally be accomplished on the farm start to move away from the farm (seeds, storage, processing etc). 2.7 India is one of the largest producers of farm commodities, including fruit and vegetables, in the world. The country has one of the largest domestic markets for food in the world and potential export markets in the nearby Middle East, South East Asia and Europe. Despite being a major producer of agricultural crops, India’s share in world agricultural trade is less than 1.3%. Criticism that anticipated benefits of the WTO agreement have not resulted in the anticipated expansion of world agricultural trade appears justified. In addition India has raised tariffs on imports for many products such as tea, coffee, pulses and edible oils to support the domestic industry by preventing competition in the domestic market. 2.8 However, even for products and foreign markets where tariffs or other restrictions do not apply, Indian exports remain severely limited. Based on yield (land productivity), India is not a competitive producer for rice, wheat, coarse cereals, pulses, oilseeds, seed cotton, onions, tomatoes, potatoes. Only less than 2% of agriculture produce is commercially processed in contrast to, for example, 30% in Thailand. Value Added to food production is only 7%, compared to as much as 23% in China and 45% in the Philippines1. 2.9 India has experienced a period of healthy GDP growth that has been particularly strong in the service sector. The Indian economy has been growing at an average rate of 5.7% since 1980 ranking India among one of the world’s faster growing economies. Per capita income of about $475 per annum remains low but actual buying power exceeds this figure by a factor of 5 because prices for many goods and services fall well below world averages. In PPP terms the annual per capita income is nearer $2,600. Agricultural growth has been the slowest in the economy with an average annual growth rate of 2.6% over the period 1993 to 2001. Agricultural production declined in 2000 to 2003 due in part to adverse weather conditions but has made a strong recovery since then. India’s agricultural growth rate should rise by 4% per annum in the next 5 years if an overall 8% growth rate in overall GDP is to be achieved. 2.10 Where subsistence agriculture dominates, the agribusiness sector is small dealing primarily with the limited volumes of marketed food surpluses. In an economy with a highly productive agricultural sector, the agribusiness sector is large consisting of complex layers of activities in marketing, storage and processing. Productivity in the agricultural sector is therefore a key determinant of agribusiness growth especially in its initial stages. 2.11 Despite significant achievements and advances, the sector remains relatively under developed in terms of agribusiness, diversification and value addition. India has also demonstrated a stark contrast between a large food grain surplus on the one hand, and widespread rural poverty on the other. There is a widening gap between the increasing prosperity of the urban population and a stagnating poverty of the rural population. 2.12 Unregistered processing accounts for about 42-47% of processing agribusiness GDP. This proportion is significantly higher than the ratio of unregistered processing GDP in all of processing GDP. Thus processing agribusiness GDP in India is 11 significantly biased towards small scale units. Processing agribusiness GDP is between 14 to 33% of processing GDP depending on how agribusiness is defined. Given that processing accounts for 16% of GDP, this means that the agribusiness component contributes to somewhere between 2 to 5% of GDP. 2.13 The impacts of agricultural productivity on agribusiness are of two kinds: (a) on commercial agriculture and on (b) the marketing sector. Regarding the first kind of impact, agricultural productivity affects both the supply and demand for the products of commercial agriculture. On the supply side, higher productivity in food staples releases land and other resources for commercial agriculture. On the demand side, higher productivity raises rural incomes leading to greater demand for non staple foods. Regarding the second kind of impact, higher agricultural productivity creates marketable surpluses without which the marketing system remains under developed. As the supply of marketing and processing services is subject to fixed costs, higher marketable surpluses lowers the cost of these services and expands this sector. Seen in this context, the Green Revolution that substantially increased foodgrains marketed surpluses has laid a firm foundation for the growth of commercial agriculture and agribusiness in India. 2.14 The growth of consumer incomes is another key factor that drives the growth of commercial agriculture and agribusiness.4 Higher incomes lead to (a) greater demand for perishables and non-food staples and to (b) higher demand for processed foods. These impacts increase the demand for agribusiness products and services (e.g., processed foods, storage and refrigeration services). They also increase the variety of products and services offered by the agribusiness sector. 2.15 Until the early 1980s, the economy was restrained by socialist politics and the elaborate license system to regulate it. From the early 1980s until 1992, the economy was slowly being liberalized, and the near insolvency crisis in 1991 prompted far reaching reforms. These reforms remain incomplete and have not eliminated all vestiges of socialism and government involvement. As a businessman put it recently, “we benefit not from what regulations the government creates, but from the regulations it removes”. 2.16 In order to maintain high growth rates, the GOI recognizes that restructuring of the economy is urgently needed. The GOI is determined to bring greater benefits to the rural India with the firm conviction that only by increasing farmer incomes will it be possible to accelerate growth rates still further while ensuring equitable participation in increasing incomes for all its citizens. To accelerate the above objective, India’s Tenth Plan recognizes the need for a fundamental review of policies, initiatives and interventions to remove impediments on agriculture and agribusiness. This is required to create an improved environment for market driven forces to develop farming systems and facilitate further private sector investment. 2.17 The Tenth Plan indicates that the equity, efficiency and sustainability of present agricultural policies needs to be restructured, in particular the strategy to secure production through subsidies. The demand for subsidies on limited fiscal resources has caused subsidies to take precedence over other much needed public investments which in turn contribute to the inefficiencies in the economy. The high level of debt servicing for the states affects the availability of funding for public investment. Further development 4 As mentioned earlier, agricultural productivity it itself one of the determinants of consumer incomes in a country like India. However, other factors also matter. 12 will require increased mobilization of private sector investment to develop agribusiness. To increase private sector investment will require effective incentives, a rationalization of policies and legislation, and investments in infrastructure. 2.18 The Ministry of Food Processing estimates the size of the processed food Industry at Rs1440 billion. Unorganized small enterprises (processing less than 0.5 tons per day) process more than 75% of the industry output in volume terms and 50% in value terms these numbers correspond to the share of unregistered agribusiness processing discussed above. Processed foods account for 13% of the country’s exports and 6% of total industrial investment in the country. The processed food industry employs 1.6m workers, which constitute 18% of the country's industrial labor force. The industry is estimated to consist of 9,000 organized units in the country of which more than 5,000 are in the fruit and vegetable processing segment alone. 2.19 The processing sector is, however, only one component of the agribusiness sector. The other and possibly larger component consists of trade (wholesale and retail), storage and transport services.5 These activities account for 20% of GDP. According to one estimate, food sales account for 63% of total retail trade. If this is indicative of the trade sector (which accounts for 14% of GDP), it would not be surprising if the agribusiness sector (including processing and services) accounted for at least 10% of GDP. Its contribution to employment would be even greater given the importance of unregistered agroprocessing and also because trade tends to employ many people. 2.20 Per capita consumption of wheat, rice and pulses has essentially stagnated while that of coarse cereals has declined. On the other hand, there is considerable increase in the per capita consumption of edible oils, fruits and vegetables, milk and milk products, and meat, fish and eggs. Remarkably, these shifts in consumption are also seen among the poor. The increase in consumption by the poor of fruits and vegetables and of other products such as milk is probably due to lower prices (from higher supply of these products) and also possibly because of change in preferences. Demand projections estimate that demand from nonstaples such as fruits and vegetables, meat and milk will grow faster than demand from foodgrain staples. 2.21 Transport and communication costs play a critical role in determining the size of agricultural markets and agribusiness. These have historically been determined by state investments in highways, railways and communication infrastructure. Even though there is greater private investment in these activities, government financed infrastructure will remain paramount for the foreseeable future. There is little doubt that India’s recent efforts in improving its road highways including rural connectivity and the increase in telephone density would have stimulated agribusiness. 2.22 International trade has the potential be a powerful engine of agribusiness growth in the future. The exports of agricultural products grew at an annual rate of 8% in the 1990s as against 3% in the 1980s. Exports of fruits and vegetables have more than doubled from US $110 million in 1981/2 to $262 million in 1999/00 (Joshi, et. al, 2003). Although India’s exports are small relative to world trade in fruits and vegetables, India has a presence in specific food products such as grapes and mango pulp. India could be a sourcing hub for products such as rice, organic produce and food products such as ready to eat meals and convenience foods (CII, 2003). 5 This leaves out financial and insurance services which are important in the agribusiness sectors of developed countries. 13 2.23 India has a reasonably well spread financial system and has followed a multi agency approach to the provision of financial services starting with cooperative credit institutions that have a long history. Other players in the financial system include the commercial banks that are predominantly in the public sector domain, then finally the regionally based and rurally focused financial institutions called Regional Rural Banks (RRBs). There are over 100 commercial banks with about 66,500 branches of which 32,000 are in rural areas. There are 196 RRBs with about 14,500 branches and credit cooperatives accounting for about 92,000 primary units at the grassroots level. Collectively these agencies provide a countrywide network of formal financial institutions. 2.24 This was achieved with a conscious effort at branch expansion followed for many years which ensured that the average population served per commercial bank branch was approximately 15,000 in 2002. The branch expansion program required a large recruitment drive for manning such branches supported by policies of direct lending to agriculture. All these efforts were intended to enable better access to financial services which were outside the fold of the formal banking institutions. While the underlying objectives were plausible and substantial progress has been made, credit flow to the poor remains low. The debt and investment surveys carried out by the Central Bank in 1991-1992 showed an alarming picture of over 36% of the farmers that continued to be dependent on the informal credit markets for their financial and credit needs. 2.25 This led to initiatives that were institution driven that attempted to converge on the existing strengths of rural banking to better serve the poor. These pioneering efforts were made by the National Bank for Agriculture and Rural Development (NABARD), a development financial institution set up by the GOI with equity contributions from the Central Bank. NABARD conducted a series of research studies that showed that despite having a wide network of rural bank branches that implemented specific poverty alleviation programs and self employment opportunities through bank credit, a very large number of the poor continued to remain outside the fold of the formal banking system. 2.26 The studies also showed that the existing banking policies, systems and procedures were perhaps not well suited to meet the needs of the poor. It also proved the fact that what the poor really needed was better access to these services and products. The launching of a pilot phase of the SHG Bank Linkage program in 1992 could be considered a landmark development in banking for the poor. Based on successful feedback of the pilot program, NABARD in 1998 crystallized its vision for providing access to one third of the poor. 14 3.0 KEY POLICY, LEGAL, AND REGULATORY ISSUES 3.1 The agribusiness sector is affected by a number of policies and laws relating to agricultural marketing, storage, rural credit, international trade, taxes, transport of agricultural commodities, cooperatives, food processing and food safety. The Government has undertaken major reviews of its existing policies through the Expert Committee on Strengthening and Developing of Agricultural Marketing, 2001 (the Expert Committee, henceforth) and the Inter Ministerial Task Force on Agricultural Marketing Reforms, 2002 (the Task Force, henceforth) Wholesale Markets 3.2 The wholesaling of agricultural produce is governed by the Agricultural Produce Marketing Acts of various State governments. The specific objective of market regulation is to ensure that farmers are offered prices that are fair and transparent. The Agricultural Produce Marketing Act (APMA) has been enacted in most states. These acts empower state governments to notify the commodities, markets and market areas that are regulated. The Act also provides for the formation of agricultural produce market committees (APMC) that are responsible for the operation of the markets. The market committees have the authority to levy and collect market fees on all transactions within regulated markets of which there are more than 7,000 in the country. 3.3 Once a commodity is notified, the APMA makes it mandatory that it be transacted in the regulated market in effect granting monopoly of marketing to the regulated markets. The Expert Committee constituted by the Ministry of Agriculture noted the problems that have flowed from this monopoly. Licensed traders have functioned to prevent new entrants. Such entry barriers have led market participants to fix their charges without being checked by competition.6 Furthermore, the monopoly has fostered a lack of accountability and as a result, important supporting services such as grading, standardization and market facilities have been neglected. The Expert Committee goes on to recommend that registration (rather than licensing) with the APMC be sufficient for private agents to carry out marketing activities in regulated markets. The Task Force recommended that the APMA be amended to allow direct marketing and the establishment of agricultural markets in the private cooperative sector. The Task Force viewed the government’s role as a facilitator “rather than that of having control over the management of markets.” 3.4 In 2003, the Ministry of Agriculture, Government of India prepared a Model Act for agricultural produce marketing which the state governments could use as a model for their individual acts. Under the Model Act, private agents can be licensed to set up a market or buy produce directly from farmers. The license will be given by an authority of the government such as the State Agricultural Marketing Board. Futures Markets 3.5 The Forward Contract (Regulation) Act (FCA), 1952, governs the regulation of futures and forward trading in agricultural commodities. Under this act, the Forwards Markets Commission (FMC) is the regulatory agency that recognizes and regulates trading practices and membership. While historically these markets were severely restricted, these prohibitions are no longer in place and futures trading is now permitted in all commodities including foodgrains. As India continues its liberalization of agricultural 6 An instance of this is reported by the committee. In Pune, the transport charges from the principal market to neighboring areas are more than the transport costs from distant areas. 15 trade, movements in international markets will affect commodity pricing in India. In this situation, futures markets will play an increasingly important role in price risk management for commodity traders and processors. There have been major advances in policy reforms in this sector; in recent years the restrictions on the futures trading of all major agricultural commodities have been lifted and several new multi-commodity exchanges have been approved. The reforms of wholesale marketing will also have a favorable impact on futures markets. With the entry of commodity processors and retailers, hedging demands will increase. The negotiability of warehouse receipts will reduce transactions costs (by facilitating delivery at maturity of the contract) and integrate futures markets with spot markets. For future reforms, a rationalization of tax laws would be essential. Currently, hedgers (such as processors, importers) cannot set off their losses in their futures trading operations against the gains in other business activity (such as processing). Such a distinction in tax laws is contrary to the nature of enterprise; marketing and risk management are integral components of an agribusiness and should be encouraged as such. Along with futures trading, the government should also support the use of forward contracts (called Non-Transferable Specific Delivery Contracts in the Forward Contracts Regulation Act). International experience suggests that farmers are more likely to be beneficiaries of forward contracting than from futures trading. Forward contracting is facilitated by futures markets and they complement each other. Under current law, contracts with delivery extending beyond 11 days are regarded as forward contracts and are subject to regulation. The government should consider exempting contracts up to 45 days from regulation. In international practice, the regulation of futures trading does not extend to forward contracts as they are meant to be customized transactions between two parties. Essential Commodities Act 3.6 The Essential Commodities Act is a legislation of the Central Government that controls the storage, movement and trade in a large number of agricultural commodities including foodgrains, edible oils, pulses and sugar, It dates back to an era when secured supply of essential commodities was considered a necessary function of the government. The State Governments have the powers to issue Control Orders under this Act. These have been used to license traders, impose stock limits, restrict movement of commodities, compulsorily purchase of the commodity at the levy price and prescribe trading practices. In 2001, the Central Government issued an order removing the licensing requirement and all restrictions on purchase, stocking, transport of specified commodities including wheat, rice, oilseeds and sugar. However, Control Orders are still in place in many states. 3.7 Whether the Government has still an active role to play in ensuring the availability of these commodities in an era of globalization, and if required, how this could effectively and efficiently be achieved is now of less relevance. Issues relate to removing controls on the movement and stocking of agricultural commodities across the country, removing restrictions and providing incentives for the private sector (including foreign investors) and cooperatives to invest in modern storage and bulk handling facilities for a range of commodities. Private investment in these facilities is likely to increase market efficiency, reduce post harvest losses, and reduce government deficits. Recently, central legislation has been modified to remove controls on the movement, 16 storage and marketing of agricultural commodities including the abolition of the licensing system. Although very few commodities remain notified under ECA at present, the powers to notify more commodities remain unless the ECA is repealed. 3.8 The Expert Committee noted that several states like AP, TN, Karnataka, J&K and MP have imposed statutory restrictions on movements of rice outside the State with a view to maximizing procurement. Some States also imposed informal restrictions on movement of foodgrains outside the state during particular periods of the year. The Expert Committee recommended the repeal of the Essential Commodities Act as it felt this Act was outdated in a period of output surpluses. However the committee was in favor of retaining the ECA as an umbrella legislation for the Central and State Governments to use if required. 3.9 The necessity of these changes are known to the government and the Expert Committee and the Inter-Ministerial Task Force have suggested them as well. Implementation of these reforms would send strong signals to investors about the government’s commitment to agriculture and agribusiness sector. It is important that the government repeal the Essential Commodities Act rather than direct states to suspend the Control Orders issued under this act. The standing committee of Union Ministers and Chief Ministers on Food Management and Agricultural Exports held that while the controls under the ECA be dismantled, the Act itself be retained as an “umbrella legislation” to be used when needed. Private investment is likely to be severely deterred by the threat of restrictions contained in an “umbrella legislation” unless the Act is held applicable only in the rarest of emergencies such as war and natural disasters. Storage and Warehousing 3.10 Most of the warehousing capacity in the country has been built up by the public sector through the Central and State Warehousing Corporations, Food Corporation of India and the State Food and Civil Supplies Corporations. This capacity mainly serves the needs of the public sector. The warehousing system operates under the legal framework of the Warehousing Corporations Act 1962 as well as the State Warehouses Act applicable in particular states. The Expert Committee noted that Government warehouses are poorly integrated with private supply chains and are not well managed. 3.11 Together with a lack of private warehousing, India also does not have a system of negotiable warehouse receipts with legal backing. This hampers the advance of post harvest credit by banks and the trading of warehouse receipts in commodity exchanges. Although the State Warehouse Acts allow receipts to be transferred by endorsement, it is not readily accepted as a negotiable instrument. Two factors play a role here. Firstly, the legal framework as it exists is not sufficient to enforce the warehouse receipts as a negotiable instrument. Secondly, the existing system of warehouse receipts is not backed by rigorous and enforceable guarantees of quality. As a result, warehouse receipts are not readily accepted by all banks. For this reason, the Task Force recommended (a) that central legislation be introduced to make negotiable instruments fully negotiable and (b) that such legislation be backed by regulations responsible for quality certification. The Task Force recommended a leading role for the Central Warehousing Corporation and the State Warehousing Corporations in evolving the infrastructure required for defining and enforcing quality standards. Cooperatives 3.12 Cooperatives have an important presence in agricultural marketing by marketing produce, providing inputs and storage. Cooperative marketing has a tiered structure with 17 a primary marketing society at the level of the grower and with cooperative federations at district, state and national levels. The features of cooperative marketing in India is that they are not usually self sustaining, are usually managed (especially at the higher level) by government appointees, and their business decisions are subject to approval by the Registrar of Cooperatives. It is widely believed that political interference and bureaucratic oversight have severely hampered the effectiveness of cooperatives. The Expert Committee concluded that unless cooperatives are freed from the shackles of politicians and bureaucracy they may not become effective alternatives to the private sector. 3.13 The Government of India appointed in March 1990 an Expert Group to recommend various ingredients of a new law to govern cooperatives. Following the recommendations, a draft legislation relating to amendments in the Multi State Cooperative Societies Act 1984 has been approved by the Union Cabinet. This draft legislation aims at reducing the role of the Central Government in the management of cooperatives. In this amended legislation, the cooperatives will get full freedom to augment their resources and raise funds through various legal means. Some of the State Governments have also taken steps to remove various restrictive provisions from the State Cooperative Acts. Andhra Pradesh and Karnataka have new laws that permit greater freedom in the formation and management of credit cooperatives. In Uttaranchal, new cooperatives can register under the Self Reliant Cooperatives Act under which cooperatives can function as independent institutions with their own equity on the basis of bylaws prepared by their members. Food Processing Laws 3.14 Most countries in the world have unified and highly focused enforcement of food laws through one or two ministries that are completely responsible for food safety and quality standards. For example in the US, there is one Food and Drug Administration, Besides a unified law for a single country, a group of countries combine their efforts to further facilitate trade through harmonised requirements, the EU Food Regulations and the Australia New Zealand Food Authority are examples. 3.15 In India as many as eight ministries deal with food laws resulting in many standard making bodies such as BIS under the BIS Act, CCFS under the PFA Act, Food Processing Ministry under the FPO, Agriculture Ministry under AGMARK. Very often these bodies work independently of each other and there is little coordination between them. Such a situation has obviously resulted in loose administration and enforcement of various laws with the result that the consumer and exporter is the ultimate sufferer. The Central Government has already initiated steps to formulate and implement a Modern Integrated Food Law. 3.16 A number of Ministries have legislative responsibility for the safety of food products for domestic consumption and exports. Each Ministry has prescribed its set of Rules under relevant Acts and Orders, often creating a confusing and sometimes contradictory environment for the industry. Certification of food on a voluntary basis is provided under AGMARK and BIS. These can be used on labels for foods and food ingredients. Processed foods must carry the FPO details on the food package for commercial sale. The Weights and Measures Rules specify packing sizes that can be used for several commonly recognized products. This provision is designed to give an easy visual identity to consumers. Labels have to carry a manufacturing identity and “Best Before” advisories. 18 3.17 The development of standards and specifications for agricultural produce and food products continues to be a painstaking process of evolution as it deals with a vast geographic spread of diversity in every sphere from farm to the consumers. In recent times, this transition has been marked by public debate on the need to cope with the realization of globalization and the implications associated with it. 3.18 Bureau of Indian Standards, BIS, formerly Indian Standards Institution, ISI, has developed a large number of standards but there are relatively few standards developed for raw agricultural produce. Many of these standards contain multiple quality levels of grades and describe bare physical parameters of size, colour and farm impurities. These relatively simple, quick and inexpensive determinants are for ready use by commerce as the lowest common denominator. Very few standards address issues related to microbiological and toxicological characteristics. 3.19 Quality requirements of foods are covered by The Prevention of Food Adulteration Act 1954, or PFA Act. PFA was enacted by Parliament in 1954 with the express purpose of protecting the food health of the consumer for both domestic and imported foods. PFA covers a wide range of food products and details compliance requirements expected for food safety and for retail labelling. PFA also lists conditions for processed foods and permitted food additives. 3.20 PFA is monitored by the Ministry of Health. A Food (Health) Authority was created under the guidance of a Director of Medical and Health Services and supported by Chief Officers in charge of Health administration in each State. Detection and control of adulteration in food is a widespread need given a low public awareness. The role and authority of the administering inspectors is broad and independent because of the structure of potential threat to life. This authority has its uses as well as abuses and assessing a immediate risks cannot be adequately addressed in the rules. 3.21 The present Model Act for APMCs circulated by the Central Government is an initial exercise to enable state governments to involve professionals in market management. Initially Public Private Partnerships (PPP) could be mobilized to accommodate issues relating to infrastructure. 3.22 Responsibility for agriculture in India is primarily assigned to the states and each state has a certain degree of autonomy to regulate and implement its own policies within certain frameworks provided by GOI. The national framework is generally adhered to but individual state policies and regulations may differ from state to state. A Task Force on Agriculture, established by The Federation of Indian Chambers of Commerce and Industry (FICCI) produced a comprehensive policy paper in 2002. The objective of the Task Force was to identify the major constraints that hinder the growth of agriculture, evaluate its competitiveness in the global market and make recommendations to overcome these constraints. 3.23 Government initiatives for promoting agroprocessing and export are often implemented when surplus of agricultural production depresses prices and causes political pressures. Because the private sector has only made limited investments in agroprocessing and exports, governments may be politically forced to make investments which should really be made by the private sector. This is for example the case with Agri Export Zones (AEZ), processing and cold storage facilities. 19 3.24 The Ministry for Food Processing Industries (MFPI) was set up in July 1999 to give an impetus to the development of food processing. However, in October 1999 it was decided that rather than being a Ministry, it should be made a Department of the Ministry of Agriculture. This seems a logical modification. However, in January 2001, this decision was overturned and the MFPI was formally established in September 2001. This Ministry is concerned with the formulation and implementation of the policies and plans for the food processing industries within the overall framework of national priorities and objectives. 3.25 In 2001 a Ministry of Agro and Rural Industries was established with the objective of integrating efforts for the development of agro and rural industries and creating more employment opportunities in the rural areas based on local raw materials, skills and technology. This Ministry is responsible for the development of village industries. In addition to the Ministry of Agriculture there are a number of other ministries and agencies involved directly or indirectly in the agriculture and agribusiness sector7. 3.26 This multiplicity of ministries involved in agriculture and agribusiness makes the changes of policies and formulation and implementation of an effective agribusiness development strategy difficult and cumbersome. To increase private sector investment in agribusiness requires in the first place a rationalization of the many legal and institutional impediments all causing an adverse business investment climate. Also, incentives may be needed once the impediments are removed, the commercial entrepreneur has already an important incentive to increase his investments if the enabling environment is conducive. Removal of the impediments to, and creating the incentives for economic development should be the responsibility of a ministry having sole responsibility for economic development and staffed by technocrats who understand the technical and commercial issues involved getting private investors motivated. 3.27 The Ministry of Commerce through APEDA implements the program of AEZs. While concentrating economic activity in designated locations may be beneficial to small entrepreneurs, the waivers, tax holidays and duty exemptions are frequently abused. Moreover, these “enclaves” may create an uneven playing field for other investors who do not have access to these benefits. This access often depends on connections with bureaucracy and often lack transparency. To provide these “enclaves” with infrastructure, waivers, tax holidays, exemption of duties, export promotional activities may retard the addressing of these impediments for the economy as a whole. 3.28 A number of programs were launched to bring technologies to farmers. An example includes the National Pulse and Oilseeds Development Programme covering 13 States launched in 1986. It is debatable whether these achievements were realized because of, or in spite of excessive government intervention, regulations, protection, incentives and subsidies. The situation might have been improved even further had 7 There are in total 42 Ministries of which many (directly or indirectly) are relevant to agriculture production and agribusiness. An entrepreneur who plans to go into agrobusiness might have to deal with the following Ministries of the Central government: Agriculture; Water resources; Agro and rural industries; Chemicals and fertilizers; Commerce and industries; Consumer affairs, food and public distribution; Communications and information technology; Environment and forests; Finance and company affairs; Food processing industries; Heavy industries and public enterprises; Labour; Road transport and highways; Small scale industries; Rural development 20 there been a relaxation of policies and interventions. India’s agricultural policies were driven by a period of shortages resulting in excessive government regulation and control, which were not relaxed when the shortages ceased creating conflicts in domestic policies and inefficiencies in production, procurement, marketing and distribution. 3.29 Further reform is needed to attract the private sector to invest in agribusiness and put agriculture on a higher growth trajectory. It is generally accepted that private investment will be the main motivator for overall economic growth and agribusiness development. Gross Capital Formation (GCF) in agriculture as a percentage of total GCF has decreased to around 8% in 2000 from 15.4% in 19818. Foreign direct investment is only 10% of what China attracted in 2002. The public sector budget deficit has been running at around 10% of GDP for the past six years. This deficit will hamper growth by limiting government spending on much needed infrastructure, education and health. Yet the government maintains a costly and counterproductive system in which the government subsidizes both agricultural inputs and procures wheat and rice and other agricultural produce above market prices. According to the FICCI Report (page 14), direct and indirect subsidies now exceed the value of all investments in agriculture. 3.30 The need to improve productivity and efficiency by encouraging private sector investment in agriculture and agribusiness is acknowledged by policy makers and planners in the Government as indicated in the Tenth Plan. The key ingredients to alleviate these problems are to increase investment in research and development (R&D), irrigation, extension, education, infrastructure (roads, storage, marketing facilities) These private sector investments will only have a marginal effect on the efficiency and growth of agriculture and agribusiness sectors if the issues of restrictive policies are not addressed. 3.31 The introduction of new technologies is essential for agricultural productivity is to increase, especially up to date information dissemination and extension services. Private sector initiatives for extension will readily yield results if contract farming, direct marketing and ICT are encouraged by government. The National Agriculture Policy (NAP) emphasizes the need for revitalizing agricultural extension services to make them innovative, decentralized and farmer driven. With the wide range of demands for agricultural technology, there is growing recognition that public extension services in isolation cannot meet the specific needs of various regions and different classes of farmers. Therefore, rather than trying to improve the existing public extension system, other more cost effective methods need to be explored further that will lead to privatization of these systems. Some states are already considering privatization and in many cases the extension force is gradually being reduced by attrition. 3.32 Twenty five percent of the funds allocated to the State Extension Work Plan have been allocated for improving information technology. Other extension modalities include private sector initiatives such as information dissemination provided by suppliers of inputs, purchasers of farm produce, and private ICT services. In particular contract farming can be an efficient vehicle for providing extension, in addition to providing finance, improved inputs, and a ready market against fixed prices. Another example of a private initiative is a digitized agricultural portal, providing information in four languages, amongst others on market prices, weather, information on extension activities, Government schemes and assistance available, information on rural enterprises and agricultural technology. The portal has a tie up with the Indian Council of Agricultural 8 Source: Report on Currency and Finance, 2000-2001. Reserve Bank of India. 21 Research and various state universities. These private initiatives should be actively encouraged by the Government. 3.33 The seed and plant breeding sector in India is largely public, in particular for cross pollinating inexpensive seed. Policy changes in the mid 1980s allowed private companies to enter the market and many private seed companies have emerged successfully, mainly focusing on low volume high value (hybrid) seeds for fruits and vegetables. A Plant Varieties and Farmers Rights Act (on seeds) deals with derived varieties, protection of endangered varieties, farmer’s rights and benefit sharing, however it does not include Plant Variety Protection (PVP). This is a major impediment for private sector development of new varieties, in particular non-hybrid. For the importation of planting material many technical regulations are in place explaining the rules for sampling, testing and quarantine. Because of the absence of relevant testing equipment, procedures can be delayed because of personal interpretation of the regulations. To stimulate further involvement of the private sector in the development of seed and plant material, plant variety protection is required. Credit Availability 3.34 The financial system is flush with liquidity but banks are reluctant to lend directly to farmers and agribusiness. Innovations in agricultural finance include pledge finance through a negotiable warehouse receipt (NWR) system should be promoted. The NWR system serves as a means to increase liquidity for the future cropping season. Under the NWR system farmers can deposit their produce in a warehouse instead of selling directly. The warehouse operators in turn issue the farmers with a warehouse receipt which can be used as a fully negotiable instrument. The farmers can either retain these receipts to reclaim the commodities later in anticipation of higher prices or use them as collateral for obtaining bank finance. Presently banks are reluctant to extend credit against warehouse receipts because of the lack of negotiability. Thus it is important to ensure that warehouse receipts are recognized as being fully negotiable instruments. These instruments are only useful for crops having a long storage life such as wheat or rice. They would not be suitable for perishable crops. Crop insurance is an important aspect of rural finance and protects farmers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. If the harvest is less than the yield insured, the farmer is paid an indemnity based on the difference between the actual yield and insured yield. Crop insurance is a very complex subject and based on statistical data, therefore its implementation should be treated as a long term goal. Processing 3.35 An impediment to reduce post harvest losses and increase processing recovery is the fact that certain oil processing industries (for example groundnut and rapeseed) are reserved for small scale industry. The rationale behind this policy appears to be politically motivated and is no longer valid. The policy hampers much needed investment in superior technology requiring economies of scale to become financially viable. The same applies to the agricultural implements and machinery manufacturing industry. 3.36 An important feature of the fruit and vegetable marketing sector is that the government is still involved in cold storage, processing and marketing, usually though state owned boards or enterprises. As a result the private sector is reluctant to invest in infrastructure and are discouraged to undertake initiatives or any risks. In some cases the Government intervenes by entering in the market at rates which are heavily subsidized at which a processor cannot compete. These direct interventions in the 22 market create opportunists rather then entrepreneurs, and are a burden to scarce fiscal resources. For example, a recent newspaper article9 describes how the government of Jammu and Kashmir has been buying low grade apples (C-grade) from farmers at Rs 3 per kg. The initial plan for buying 30,000 MT had to be scaled back to 15,000 MT because of budget constraints and refusal by GOI to contribute financially. Reportedly, the Sate government had been able to recover part of its “investment” by selling its apples to a single fruit processing unit at Rs 0.50 per kg which curtailed the State’s losses. The article continued to say the State Government would next year procure 30,000MT. This clearly gives wrong signals to producers and processors and will adversely affect efficiency in production and processing. 3.37 The domestic market for food is one of the largest in the world, and in absolute numbers the upper and upper middle classes constitute a big domestic demand for fresh and processed food products. Because of a cap of 10% on foreign direct investment in retailing, the retail sector is virtually closed to foreign investment. The Government’s reasoning for this is apparently based on strong opposition from retailers groups. Their opposition is understandable but should not intervene with the need for improved efficiency in retailing. Foreign direct investment would bring in much needed capital, technology and know how in retail marketing. 3.38 Agricultural produce marketing is subject to State level APMC Acts10. The existing Act originates from pre independence but marginal adjustments have occasionally been made by individual Sates. This Act regulates marketing of “Notified Agricultural Produce”, including the operation of wholesale markets, and compulsory sale of produce through these markets. Notified Agricultural produce may be as many as over hundred products. Owing to a large number of regulations and laws formulated and enforced by the Central and State governments, the present agricultural marketing system is highly restrictive and a barrier to modern marketing systems and integrated production systems such as contract farming. The existing APMC Act gives State governments control on agricultural marketing and is an impediment when it comes to any private initiative that could improve the functioning of the marketing system. State governments alone are empowered to establish wholesale markets for agricultural produce. The day to day management of these markets is in the hands of Market Committees that are largely appointed by the State governments and in reality, with little influence or representation from the stakeholders. Although Market Committees may legally be considered as a corporation (or Local Authority), they function as a department of the State government. Market fees are being charged on value of produce sold but these do not reflect the actual operation and maintenance cost of the wholesale market. The market fees known as the Mandi tax are seen as another tax on agricultural commodities. Recent decisions have lowered the market fees in several states and even abolition is being considered in others. The Market Committee should indeed operate as a business entity and generate revenue by providing a service, invest in modern market infrastructure, and be financially independent and accountable. Further investments in wholesale markets may either be in private sector, or the Market Committee could borrow from the state finance department, and service the loan from market fees. 3.39 Direct marketing would enable farmers to sell their produce directly to the processors or bulk buyers at lower transaction costs and better prices than what they get from intermediaries or on the wholesale markets. However, the APMC Act does not allow 9 “Government Intervention helps J&K apple growers” Business Standard 15 March 2004 10 Officially the legislation is called The State Agricultural Produce Marketing Regulations Act (APMC Act). In this report, the legislation is abbreviated to “APMC Act”. 23 direct buying by processing industries, exporters or wholesalers. Although this requirement has been waived on a case by case basis in some states under pressure from the industry, the market fee still has to be paid even though the produce never enters the wholesale market. 3.40 The principle behind this heavy government involvement in agricultural marketing is the premise that government needs to protect farmers. This may have been a valid consideration in the past, but as it stands today, it is highly restrictive and has been an impediment for agribusiness development and modern and new agricultural marketing modalities such as direct marketing, contract farming and the e-choupal. 3.41 The Model Act allows for some new developments (contract farming, direct marketing), while it allows for the development of markets in private and cooperative sectors. The Model Act prescribes that for every market area, jurisdiction lies with the Market Committee (Chapter III, Para. 10-12). The membership and election of the Market Committee is rigidly prescribed in the Model Act, and the Market Committee remains largely under the ultimate control of the Director of the State Agricultural Marketing Department, or the Managing Director of the State Agricultural Marketing Board (Chapter III, Para 14-17). Conduct of business and powers and duties of Market Committee are laid down in great detail (Chapter V), as well as the job description of the chief executive officer (Chapter VI). Market fees must be collected at rates prescribed by the State Government (Para 42 of the Model Act). The Act dictates that the Contract Farming Sponsor (for example a food processor) has to register with the Marketing Committee (Para 38-1). However, a food processor (or any other Sponsor) has likely already a legitimate registered business, and is already registered with the appropriate authority (for example Ministry of Industry). 3.42 The Model Act follows basically the framework of the existing APMC Act with some modifications and additions to facilitate contract farming and direct marketing. Whereas the Task Force had concluded “that the Government’s role should be that of a facilitator rather than having control over the management of markets”, the Preface of the Model Act has reduced that instruction by stating “Control over agricultural markets by the State has to be eased to facilitate greater participation of private sector”. 3.43 The waiving of the market fees only applies to specified produce sold under contract farming, direct sale is still subject to the market fee (Para 46-2). Direct buying from a farmer’s premises requires a license from the State government; non compliance results in a penalty (Para 47). In the case of Madhya Pradesh (which has implemented direct buying already) a demand draft of Rs 10,000 should be attached for the application of this license. Another example, the buyer must pay the seller the same day. If he does not comply with this requirement, he shall be liable to additional payment of 1% per day (Para 41). Why this has to be dictated by the Market Committee, is contrary to modern practices. 3.44 ICT is rapidly becoming available to rural areas and an electronic marketing system (e-marketing) is already well established in some areas. These so called e choupals directly link rural farmers with a company for procurement of commodities such as soybean, wheat and coffee. Review of this system indicates a high potential for e marketing which will drastically reduce the need for public investment in markets and make agricultural marketing more competitive and cost efficient. The present APMC Act prohibits this direct purchase from farmers, or direct sale by farmer to processor or retailer. Some States have amended the Act while others allow exemptions, but marketing fees 24 are still being charged by the Market Committee irrespectively which may be as high as 2.2%. Some State Governments have opposed e choupal as a result of political pressure from market operators. 3.45 In summary, a fresh look is needed at modern agricultural marketing procedures and practices, business practice, how produce are being sold etc. Market Committees should be service oriented and market fees only be charged to cover the cost of O&M of the market. Private market development should be stimulated with incentives and wholesale markets should be privatized as a cooperative or association. Based on today’s and future requirements, the Model Act needs to be modified in consultation with the Market Committees and other stakeholders, so that the desirable features are highlighted and the less desirable features removed to the maximum extent possible. This process should also involve all interested stakeholders. This should be done by a committee of stakeholders and independent experts who can inject ideas from modern agricultural marketing modalities. Proposals for assistance may include a component from which Market Committees may borrow to finance the upgrading and modernization of wholesale markets. This should be accompanied by a program which makes the Market Committees financially more independent, service oriented and accountable. In addition, pending changes in the APMC Act including deregulation, private entities (NGOs, cooperatives, corporations) could contribute their opinions and experiences from their perspective to establish wholesale markets and support facilities including e-choupals. This will create competition amongst markets, reduce market costs and offer greater choice. 3.46 The Government is a dominant market force for some commodities. Through the Food Corporation of India (FCI) the Government procures about 25% of the wheat and rice crop. The procurement is confined to selected surplus areas in mainly four states (Punjab, Haryana, Andhra Pradesh, Uttar Pradesh) and rice in Chhattisgarh. Open ended procurement and the Minimum Support Price (MSP) offered by the FCI is distorting prices and markets, and subsequently distorts farming decision making, thus affecting economic efficiency. MSPs (which, according to the FICCI report tend to be higher than those recommended by the Commission for Agricultural Costs and Prices), have resulted in stocks in excess (almost double) of the buffer norms for food security (FICCI, Appendix 11). This has resulted in high budget layouts for carrying buffer stocks and a rapid increase in cost of food subsidies. The carrying costs of foodgrains in government godowns exceeds the government’s investments on agriculture, rural development, irrigation and flood control taken together (FICCI, page 2). Related to this, the FICCI recommends that Public Distribution System should be monitored. Instead of giving foodgrains to people below the poverty line cash coupons or food stamps should be provided. The political, economic and fiscal implications of such a change are immense and require further study. 3.47 MSP applies to some 25 crops, major food crops as well as industrial crops such as cotton and jute. For the latter, commodity boards are buying at these MSPs, for example the Cotton Board, the State Trading Corporation (rubber procurement until 2001). MSP results in high costs to the economy and may be a key factor in making Indian agriculture uncompetitive in the global market. As has been demonstrated in many countries (Japan, EU), MSP causes inefficient and marginal producers to stay in the market, rather than become more efficient or switch to other produce, or even quit farming altogether. As a proposed minimum, FICCI report recommends that FCI and the Boards buy at prevailing market rates rather than at an MSP. 25 3.48 Usually in discussions about the merits and cost of FCI and other government procurement operations and MSP, the official position is the concern for food security and concerns for the poor farmers. The reality is that these institutions and policies employ a large bureaucratic force. As such any proposed rationalization of the role and function of government market intervention is opposed by politics, employees and labour unions. Therefore reality dictates that changes in FCI and MSP policy will encounter strong political opposition. These changes may only come about when the fiscal position of governments come under severe pressure. 3.49 Concerned with the problems faced by the growers of coffee, tea, rubber, and tobacco due to a fall in prices of these products, the Government established a Price Stabilization Fund (PSF). The operational modalities of the PSF were established by an Inter Ministerial committee and the recommendations of the committee are now under consideration by the Government. The PSF aims at price stabilization without resorting to the practice of procurement operations by the Government agencies. When prices fall below a certain level, the growers participating in the scheme are compensated from the PSF. When prices are above the benchmark level, growers will have to contribute to the PSF. The PSF will be operational initially for ten years commencing from April, 2003 and provides a safety net. However, the Government’s contribution of funds, rather than providing or guaranteeing a loan, may be considered a reason for government interference in the operation of the PSF. The fact that only holders with up to 4 ha may participate could mean that it is conceived as a welfare scheme and could be manipulated as such. The principle behind a PSF is that it is a mutual insurance against market price risk, and that everybody who pays the premium is allowed to participate. Usually participation is mandatory for a sector and this requires that the market channel of the product is confined and transparent. To contribute to increasing efficiency in the production of the commodity over the long term, the benchmark should be set below the production cost. If these principles are not strictly adhered to, the PSF is likely to be exhausted soon. 3.50 A well functioning Commodity Exchange and Futures Market will minimize fluctuations in commodity prices and reduce risk by hedging. The 2002-2003 budget included provisions to facilitate the extended coverage of the futures market to all agricultural commodities. The Central Government has lifted the ban in respect of 54 important commodities for futures trading by amending Forward Contracts Regulation Act and has granted ‘National’ status to two commodity exchanges in the country. Major efforts at reforming and strengthening the Commodity Exchanges are at different stages of implementation in various exchanges. The major legal, regulatory and policy impediments for development of commodity markets have been largely removed and international systems and practices in respect of brokerages, trading, market monitoring and regulation have been studied for suitable introduction in the new exchanges. Office operations have been computerized in the majority of the existing exchanges. A vibrant commodities market is part of the agricultural reform process as it helps smooth prices and the growth of the markets for agricultural produce. 3.51 Experience has shown that as long as the public sector invests in and maintains in storage facilities, investment in storage capacity by the private sector will be kept at the absolute minimum. Storage is expensive (capital investment in facility, maintenance, working capital in product stored, storage management, and handling costs). Public storage is subject to high losses because of bureaucratic management procedures. In order to reduce the burden on the government budget for storage, incentives have to be created for the private sector to invest in storage facilities. For grain, this will likely be the 26 case only when FCI goes out of the storage business. For a start, Government may consider the sell off of FCI godowns to the private sector and lease storage space when and where required. There is a case for modernizing storage systems to move away from the traditional godowns to bulk handling systems, however the capital investment in such schemes is very high and may deter the private sector. Only large private companies or a pool of companies can consider such large investments. 3.52 In India the development of marketing systems for agricultural and allied products has been focused around protecting the farmers from the vagaries of market forces rather than to preparing them to adjust production and supplies to benefit from market driven forces. Agricultural marketing has been moving through the stress and strains of invoking and revoking various controls from time to time and elements of uncertainty in marketing policies accompanied with prohibitive legislations kept the private sector away from investments in development of markets and related infrastructure. 3.53 Regulation and development of markets was taken up as an institutional innovation and construction of well laid out markets was an essential part of the regulation of marketing practices at the primary level. The strategy for development of the agricultural sector through the development of an agricultural marketing system centered around a market committee constituted under the State Marketing Legislations with agriculturists at the helm of affairs to facilitate efficient marketing of agricultural and allied commodities. The democratically constituted market committees with representation from all stakeholders and farmer having more control was conceived to be an ideal and cohesive model for the farmers and other market participants to prosper. Except Union Territories of Dadra-Nagar-Haveli, Lakshdweep, Andaman Nicobar Islands and States of Kerala and Manipur, all the States & UTs have Agricultural Produce Marketing (Regulation) Acts enacted to set up orderly agricultural marketing systems in their jurisdictions. Agribusiness as a strategy for development of the agricultural sector and in turn the farmers, has been a recent phenomenon in the country. Taxation and fees 3.54 There are a multiplicity of taxes at various stages starting from agricultural inputs up to the sale of final fresh or processed agricultural produce. Added to this are fees having their origins in providing a service by a semi public agency often providing little if any service in relation to the fee. Examples of this are the market fees, inspection fees and numerous license fees. There is considerable variation in the structures of taxes and fees levied on agriculture and agribusiness, which distorts the market. The tax system is highly complex and adversely affects domestic and export marketing. A rationalization of taxes is required. A much needed uniform national value added tax has repeatedly been postponed. This in particular is a serious constraint for the agroprocessing industry and agriculture export. 3.55 The main tax revenues in India at national level are from corporate tax (21%), Income tax (18%), Customs duties (19%) and Excise duties (39%). Persons having agricultural income and not having any other taxable income are not required to obtain or quote a Permanent Account Number (PAN), and do not have to pay tax. 11 This leaves much room for negotiation and interpretation about who is a farmer and what is part of the farming business (for example, on farm cold store, on farm processing, rural transport). Taxation of agribusiness is non transparent and complicated. For agro processors an excise taxation system applies. The details of this system are different 11 Source website of Ministry of Finance. 27 between states, and the rate also depends on the different stages in the food chain. This again leaves much room for negotiation and interpretation. In Sikkim at the borders with West Bengal, the State taxes the export of cardamom, oranges and ginger12. This “export tax” is a disincentive to producers. In very few States, “Octroi” tax still exists. Its collection delays transport, and thereby increases transportation costs resulting in deterioration of fresh produce. 3.56 For the marketing of fruit and vegetables a market fee is levied, which, depending on state, is between 0.5% to 2.2% of the value sold. Officially this fee is to support the operation of the wholesale market and market development. A 1998 study 13 reveals that the revenues of the wholesale markets in the four cities are for approximately 90% from the collection of the market fees. Of that, 50% is used for operation and maintenance of the market. The market fee does not relate to the services rendered but to costs made and number of employees of the government who use this source to pay their salary14 and any balance left for rural (market) development activities elsewhere in the state. 3.57 Organizational and institutional support for horticulture is available both in the Ministry of Agriculture and Ministry of Commerce at national level. At State level, Departments of Agriculture and Horticulture provide the required infrastructure. A number of boards, councils, directorates and other authorities have been established under the Ministries at Central and State level to promote their product both in the domestic and export market. Various organizations engaged in production and marketing and export of horticultural crops include the National Horticulture Board and the Agriculture and Processed Foods Development Authority (APEDA) 3.58 The National Cooperative Development Corporation is a major development financing institution for the cooperative sector with the objective to promote, strengthen and develop the institution of farmer’s cooperatives for increasing production and productivity, and for instituting post harvest facilities for augmenting income. The Corporation’s focus has been on programs for agricultural inputs, processing, storage and marketing of agricultural produce and supply of consumer goods in rural areas. In the non farm sector, the Corporation’s endeavour has been to equip cooperatives with facilities to promote income generating activities with special focus on weaker sections of the community and rural poor such as handlooms, sericulture, poultry, fisheries, etc. The Government of India implements its cooperative development programs through the NCDC who can play a leading role in the development of horticulture in the future. 3.59 National Agriculture Cooperative Marketing Federation (NAFED) has a mandate to promote cooperative marketing of agricultural produce for the benefit of farmers. NAFED has 4 regional offices at Delhi, Mumbai, Calcutta and Chennai and 29 branches located in the state capitals and other important cities, 5 agro service centres, four sales outlets of processed foods and five industrial units. NAFED undertakes internal trade and export and import of agricultural and horticultural commodities. NAFED is the central nodal agency for procurement of oilseeds and pulses under price support scheme and for procurement of horticultural commodities under the Market Intervention Scheme (MIS). NAFED is also undertaking buffer stocking of onions on behalf of Central 12 In Sikkim export tax is levied at the border Rs 12/60 kg bag of ginger and Rs. 20.4 /kg on cardamom based on a 6% sales tax and 6% central tax of 1970 floor prices for cardamom at Rs. 170/kg and Rs. 100/60kg bag for ginger. 13 CEBECO India, A study of the fruit and vegetable markets in New Delhi, Calcutta, Mumbai and Bangalore, 1998 14 In Bangalore HOPCOMS market served officially 13,000 farmers but depends mainly on only 2,000 farmers/suppliers who ship produce to the market. It counts 1,000 persons employed. (one employee for every two suppliers). 28 Government for checking price rises in the consumer markets. It has also opened a NAFED Bazaar for making available various consumer items of daily use at reasonable prices. 3.60 Small Farmers Agribusiness Consortium (SFAC). SFAC functions as a society under the Ministry of Agriculture, Department of Agriculture and Cooperation. It is involved in many diverse activities including technology transfer, assists farmer’s interest groups, collective grower's groups, to organise better inputs, material supply and production services for the agricultural produce and undertakes or assists in publicity campaigns of awareness and market niche for organic farming and environment friendly products. SFAC is also active in the promotion of organic farming, organic inputs for agriculture, horticulture and plantation crops and will function as a Venture Capital Fund (VCF). Marketing and Distribution 3.61 Wastage is usually part of the price setting mechanism and associated with the risk of farming and marketing. When prices are high, over production may occur next season and part of this will go to waste. For example, large quantities of top quality produce which do not reach the set minimum price are taken out of the market and destroyed and is not even allowed to be sold to the processing industry to prevent distortion of the market. 3.62 Under liberalized trade, export and import are considered the main instrument for stabilization of domestic demand and supply. However due to the high volatility in international prices, India could not use trade options very satisfactorily to stabilize the supply of foodgrains. It has become particularly difficult to dispose off large stocks of rice and wheat in the international market. Despite surplus stock, exports of rice witnessed a big setback during 1999-2000 and 2000-01 mainly due to (i) international prices of rice dropping sharply 1998-99; (ii) domestic prices have been moving up mainly under the pressure of increasing support prices. This has reduced competitiveness and profitability of rice exports. The net result has been piling up of rice in government stocks which has remained above 22 million tonnes during the early months of the year 2001 as against 15 million tonne a year earlier. In order to reduce the level of buffer stock to a reasonable level, FCI sold rice at Rs.5,650 per tonne to traders for export even though the open market price in the country was around Rs.9,500 per tonne during the year 2001. This offer attracted a good response as private traders were able to book export orders at higher prices. Infrastructure 3.63 Like other segments of the economy, the growth of the agribusiness sectors will depend on the availability of efficient infrastructure in roads and power. Beyond that, the government has a key role to play in facilitating (a) market information systems and (b) research, development and dissemination. Even with alternative marketing networks, regulated mandis directly controlled by the government will continue to play a major role in agricultural marketing. It would therefore be appropriate for the government to lead efforts in collection and dissemination of market information to farmers. 3.64 In research and development, the government might consider integrated commodity research centres that research not only production aspects but also distribution and processing. However, this would be useful only if their research can be disseminated to the small agribusinesses that dominate the industry. Dissemination must therefore be an important component of these centres. 29 3.65 As the agribusiness sector matures, the private sector will also provide market information and also invest in research and dissemination services. Public sector involvement should therefore target activities that are unlikely to be economically viable for a private provider but which have social value. Many kinds of research are public goods such as crop and pest management practices and basic seed research in developing open-pollinated varieties. The gains from such research cannot be appropriated by private suppliers and will not be supplied by them. In providing information services, the efforts of the government must be to target farmers rather than the agribusiness community, which would be served well by private information providers. Trends in past production, production and costs in competing areas and price forecasts in major markets are instances of information that are not available to farmers in any sort of timely and accessible manner. 30 National Programs National Agriculture Policy (NAP): gives comprehensive guidelines for management of national resources, strengthening of rural infrastructure, promotion of value addition, accelerating the growth of agro-business, creation of employment in rural areas, securing a fair standard of living for farmers, agricultural workers and their families, and for meeting the challenges arising out of the economic liberalization and globalization. National Policy on Cooperatives: to facilitate all round development of all cooperatives, and developing the cooperative institutions as autonomous self reliant and democratically managed institutions accountable to their members, cooperatives would be provided with necessary support, encouragement and assistance. National Policy on Seeds: to create conditions for development and increasing availability of quality seeds and registration of seeds facilitating the sale of good quality seeds. Plant Variety Protection is still a main issue to be dealt with in the study. National Policy on Extension: to reform public sector, promote private sector extension, augment mass media and information technology support for extension functionaries and farmers and mainstream gender concern in extension. National Commission on Farmers: set up to promote investments in agriculture, to encourage new experiments in farming and studying the various problems faced by the Indian farmers and to suggest policy and programs for improving the economic viability and sustainability of diversified agricultural growth. National Agricultural Insurance Scheme (NAIS): launched from Rabi 1999-2000 to protect all farmers against crop losses suffered on account of natural calamities such as drought, flood, hailstorm, cyclone, pests and diseases in 23 States and 2 Union Territories covering all food crops for which past yield data are available for adequate numbers. Farm Income Insurance Scheme (FIIS): implemented to provide income protection to farmers against decline in yield and prices for paddy and wheat crops. Market Information Network: implemented since 2000 to provide farmers up to date information on price movements of agricultural commodities and essential data and to provide connectivity among various market centers spread across the country. Strengthening of Agriculture Extension Systems: Agri Clinics and Agribusiness Centers launched during 2001-02 to use unemployed agriculture graduates to provide extension services to the farmers on payment basis by setting up their private ventures. Kisan Call Centres set up for use of telecom infrastructure to meet the information and knowledge needs of farmers. Mass Media Support to Agriculture Extension being used to deliver extension services through available mass media infrastructure. 31 4.0 THE VALUE CHAIN 4.1 The scope of agribusiness lies in the value chain that begins from the grower and ends with the consumer. Transport, storage, handling, marketing and processing and retailing are of the services that add value to the product at different points in the chain. Thus there are about 4 to 6 intermediaries between the grower and the consumer. Fruits and vegetables tend to have more intermediaries than field crops. These links are connected by several forms of transport including air, rail, road, bullock carts, push carts and even head loads. A typical value chain includes the following: Grower (producer) trader (pucca arthiya) commission agent (kutcha arthiya) wholesaler (processor) retailer consumer 4.2 There are more intermediaries in the Indian marketing chain than in the supply chain in developed countries. The CII-McKinsey report shows that while it is common to have up to 6 intermediaries in the fruit and vegetables chain in India, there is just the wholesaler and retailer in the US chain. Similarly, there are at least 2 intermediaries between the wheat farmer and the flour mill in India compared to just one in the U.S. The length of the marketing chain stems partly from the need to consolidate supplies. Such assembly happens at the village and district level as the supplies find their way to the wholesale markets. 4.3 Value addition to foods by processing is only 7% in India of total value of production while it is 23% in China and 45% in Philippines. (Expert Committee, 2003, CII, 1997). It is also claimed that only 2% of India’s output of fruits and vegetables is commercially processed as against 30% in Thailand, 70% in Brazil and United States, 78% in Philippines and 83% in Malaysia (FICCI, 2002). 4.4 Thus modernizing the agro food processing industry to ensure not only quality food stuff is manufactured in a clean environment, but also the increase of value addition and reduction of wastages occurring during the post harvest handling is most important to the agribusiness sector. The Producer 4.5 The Directorate of Marketing and Inspection has estimated how the price gets built up along the value chain. It is quite clear that the gross marketing margins are much higher for the horticultural products than for the field crops. This could be because of greater complexity of the marketing structure in horticultural products, which leads to more intermediaries than in the case of field crops. Horticultural products are also more perishable and hence handling and wastage costs are correspondingly greater. For field crops, the price increase is of the order of 50% while it is more than 100% for the horticultural crops. Other evidence supports this general scenario (Acharya, 2001). As a consequence, the farmer’s share in the rupee paid by the consumer is higher for foodgrains than for perishable horticultural products. For foodgrains, the farmer’s share is between 60-65% while for horticultural products, it is typically less than 50%. 32 4.6 Indian agribusinesses are small. Over 75% of units in food processing are small scale. Even the large scale companies are small by international standards. The average size of top 20 Indian food companies was $125 million as against average revenues of $400-500 million of the top food firms in Malaysia and Indonesia (CII, 1997). 4.7 A detailed examination reveals that the value addition to primary agricultural produce incorporated through some processes does show a positive pattern albeit in the selected three year period. For illustration, Sesame & Niger Seeds share in the export basket increases from 1.3 per cent in 1998-99 to 2.2 per cent in 2000-01. The processed fruits and vegetables, fresh fruits and vegetables have shown an increasing share in the past four years. 4.8 Even in the case of foodgrains the value addition is limited at present. An examination of the Rice value chain will indicate the value added product possibilities. However due to technological and market constraints and lack of government institutional supports, we are still not utilizing the value addition opportunities fully. Utilisation of byproducts from the rice milling industry for the manufacture of value added products like rice bran oil (processed to a limited extent at present), soluble rice bran oil, and medium density fibre board are yet to be commercialized successfully. A large majority of rice mills are conventional mills with low technology and in need of modernization. Value added products from rice like vermicelli, rice flour, or the commercialization of rice based Indian traditional foods or the utilization of broken rice in to alcoholic beverage or fuel ethanol are yet to be commercialized on a mass scale. Value added products like, cashew butter, salted and coated cashew nuts, utilization of cashew fruit for the manufacture of juice, jams, candies, fenny and brandy are only done to a limited extent. 4.9 Planning for agriculture in the last decade demonstrates a distinct shift from concentration on food crops to horticultural crops. Horticultural crops in view of their ability to generate higher profitability for the farmers through higher economic returns per unit area and being a good source of nutrition (fruits, vegetables, plantation crops), have emerged as a viable agribusiness diversification option. The importance of horticultural crops was recognized through a significant increase in the developmental support by GOI during Eighth and Ninth Plans. This increase in allocation enabled strengthening of the ongoing programs on fruits, vegetables, plantation crops and spices besides initiation of new programs in mushrooms, medicinal and aromatic plants. The Wholesale Sector 4.10 Marketing margins in India are higher than in countries with developed marketing systems. In India, wholesaler and retail margins are each 15-20% compared to 2-3% and 3-4% in wholesaling and retailing respectively in the U.S. (CII, 1997). As a result, farmers receive a higher share of the retail price in the U.S. than in India. For instance, in wheat, farmers in U.S. receive 92% of the retail price as against 65-70% in India. 4.11 Statutory charges in the form of various market fees and taxes account for 12 to 18% of the gross marketing margins (Acharya, 2001). These are highest in the state of Punjab amounting to at least 11.5% of the value of produce (Chand, 2003, World Bank, 2003). 4.12 Marketing margins could be higher than estimated because of hidden costs from malpractice and fraud in the regulated markets. An expert committee in Punjab listed several mal practices by commission agents: evasion of market fees and other taxes, 33 over weighing of agricultural produce of the farmers, non payment of incidentals due to labour, deduction of excessive charges, illegal gratifications to the procurement agency and the marketing staff at the expense of farmers and illegal commissions (World Bank, 2003). 4.13 As most growers offer small quantities for sale, the principal service offered by the intermediaries in first half of the marketing chain is aggregation of these quantities. After they are wholesaled, the process is reversed. The CII-McKinsey study estimates that in India only half of the total price increase (that occurs as the commodity moves through the supply chain) is due to costs incurred by intermediaries compared to 80% or more in the U.S. This happens because U.S. intermediaries offer services more than just assembly such as grading, storage and temperature control. Reforms directed at the agricultural supply chain in India would therefore offer considerable opportunities for reducing margins and costs. 4.14 The marketing chain does not offer grading facilities in most locations. As the Expert Committee notes, the quantity graded at the producers level is negligible. Even in regulated markets less than 20% of them offer any sort of grading facility. As a result, farmers lose out on the value addition that they could get from grading. Furthermore, the grading that occurs at the market yard leads to congestion in market yards during the peak arrivals period. 4.15 The facilities at the regulated markets are woefully inadequate to permit efficient handling. As the Expert Committee notes, there is limited capacity for auction platforms and the number of shops and godowns within the regulated market. At harvest time, markets are severely congested. Although the produce arrives in bulk, there are no bulk handling facilities at the mandis. Delays in sales are common and covered space to store unsold grain is limited. This leads to spillage, waste and quality deterioration. 4.16 Private investment in bulk storage facilities is minimal. Private facilities are small scale and are usually covered and plinth (CAP) storage or covered godowns. CAP storage involves losses upto 20%. The existing cold chain storage capacity in the country is sufficient for only about 10% of total production of fruits and vegetables. This storage capacity is primarily designed for storing potatoes (Patnaik, 2003). 4.17 A well designed storage, transportation and distribution system can effectively retrieve the present losses due to deterioration and drying without reducing the freshness of the produce. However, to keep the unit value within the purchasing power of the consumer would be a tremendous task necessitating careful study of the situation and state intervention by giving subsidies and or reducing taxes and duties and or entering the field to counter the trade malpractices which is mainly responsible for increase in unit value. Also improper or careless handling of perishables during transportation and storage can lead to damaged cargoes and extensive losses. The Retail Sector 4.18 Most of India’s larger agribusinesses are in branded processing with weak procurement systems. Many other kinds of large scale agribusinesses that are important in other kinds of countries do not have a significant presence here. Important instances of this are commodity processors and traders and retailers. These are typically the firms that invest in marketing infrastructure (grading, sorting, temperature controlled storage, bulk handling) and procurement systems. 34 Losses in the Value Chain 4.19 Losses always occur in the value chain both in financial and in technical terms. Damage may occur at harvest, on farm storage and processing, transport, handling, and infestation. Much of this is related to economics and lack of incentives for high quality produce. Transport charges based on a per bag unit will result in overfilling of the bag. The result is breaking and crushing of produce, decrease in quality and lower price. High stacking on trucks is another important factor for damage. In India often 40% losses in fruit and vegetables are mentioned without much evidence for and should not be used in analyses. From 1998 surveys undertaken amongst traders, the following figures are derived. During transport by truck in general 2% losses for products like onions and potatoes, for more perishable produce like fruity and leafy vegetables this increases up to 6%. During the retail, no physical losses occur because there is a buyer for every quality grade, but 10% of the produce may be damaged and sold at a lower price. 4.20 A large fleet of privately owned trucks transports the commodities between the different links in the chain. The roads are long and bumpy, and in cities over congestion causes long travel time and allowing only small trucks to use the roads. The planned connection of the four mega cities by a double lane highway system will have a major effect on the efficiency of the chain because of reduction in travel time and distribution cost, lower fuel cost and use of larger capacity vehicles. 4.21 Market legislation forces the product flow through the wholesale markets, which has a substantial impact on handling and transport cost and quality and quantitative loss. The abolition of this part of the legislation will decrease marketing costs directly (e. g., handling and transport) and indirectly (less damage and deterioration of produce). The notional demand is changing fast but at the other end of the chain, suppliers face legal and institutional constraints which makes it very difficult to satisfy these changing demands, and to produce and supply more efficiently in economic terms. The fruit and vegetable chain in terms of transport and marketing is highly competitive. However at the consumers end, absence of direct marketing causes high transport and handling costs and losses, especially in the case of bulky commodities like potatoes. This causes the market to be inefficient relative to the rest of the chain. In summary, marketing margins do not appear to be excessive but market costs could be reduced significantly if market legislation is drastically overhauled. 4.22 At the producers end, the chain depends on supply from many farmers. Most have little land and are illiterate. The main inefficiency is caused by lack of standardization of grades which is the key for transparent and efficient marketing. Presently the grades are flexible and subjective. Minimum standards for quality grades may induce farmers in adding value through grading and improved packing, but this requires incentives which may only become available when direct marketing becomes a regular phenomenon. For export, quality standards and grades as well as hygiene and other requirements are dictated by foreign markets. For the domestic market these requirements are to be established by an association representing all stakeholders. For example in Europe, these criteria exist for almost any major agricultural commodity and such an entity can impose fines and disciplinary measures. 4.23 The Indian supply chain is characterized by extensive wastage and poor handling. According to one estimate, 30% of horticulture products are wasted every year due to inadequate storage and transport infrastructure (Expert Committee). Another estimate puts the wastage of 40% of the total production of fruits and vegetables (CII, 1997). The wastage occurs because of rough handling, inadequate packaging, and lack 35 of temperature control. Wastage occurs even in grains which are less perishable than horticultural products. Here the principal sources of wastage comes from inefficient handling, repeated bagging and poor storage. The movement of grain occurs in bagged form rather than in bulk form. 4.24 Wastage is also an indication of the low value of the crop at the time of harvest. With perishables, even a small increase in supply can create a glut and crash prices. In these circumstances, the incentive to properly handle the product is weak and leads to significant wastage. Such situations are reflective of small market sizes and transportation constraints. 4.25 The physical wastage is one component of the inefficiency in the supply chain. There are other inefficiencies as well in terms of the loss in quality and the excessive cost of the large number of intermediaries in the food chain. Taken together, the CII- McKinsey study estimates that “at least 20% of the value of food produced in India today is squandered.” Effect of Subsidies on Economic Efficiency in the Value Chain 4.26 The overall electricity consumption in India was in the year 2000 more than 316,000 giga watt hour (GWH) of which one-quarter was used for agriculture. In some states like Andhra Pradesh, Gujarat, Haryana, Karnataka and Rajasthan this is even more than 40%. This energy is subsidized and mainly used to pump irrigation water. Subsidized electricity will discourage switching to more efficient irrigation technology, crop diversification, investments in more efficient modern cold storage and processing facilities for agricultural produce. 4.27 Several States have Electricity Regulatory Commissions (ERC) to improve the accuracy in estimating agricultural consumption as well as to rationalize agricultural tariffs and to reduce the subsidy. Although the ERCs have directed utilities to achieve direct metering, the actual situation is such that most (95%) of the agricultural power connections have no meters installed15 and users pay a flat rate based on installed capacity. Before the ERCs were established the State Electricity Boards estimated the consumption in a cumbersome manner to keep the transmission and distribution losses within the “official” acceptable limits. After the ERC reviewed these estimates, the estimates on losses (largely pilferage) increased to over 50%16. A second important role of the ERCs will be to rationalize and simplify the tariff structure for electricity. Tariff structures differ between the states. In some states the tariff for small (< 2HP) irrigation pumps differs from tariffs for large (>2HP) irrigation pumps; some have a special tariff for drought prone areas; some have urban and rural tariffs, some have income related tariffs, some have special tariffs for pump owners selling water to others. In addition, some have continued supply, others have interrupted supply, and some offer financial incentives to install meters. For the time being, this situation of flat rates, cross subsidizing, and cumbersome tariffs is subject to abuse, and creates economic inefficiencies. It should be understood that this (as well as indirect subsidy on fertilizer) is a subsidy to a sector which does not pay income taxes, and has other fiscal incentives. This all contributes to economic inefficiency of agricultural production. 4.28 The electricity act of 2003 in the electricity sector frees generation and allows trading of electricity and choice of supplier. This together with the requirement of tariff 15 For instance, in Maharashtra 19.7% of 2.2 million and in Karnataka 0.3% of 1.3 million hand pumps are metered. 16 Estimating power consumption in Agriculture, Siddharth Honnihal, EPW February 21, 2004 36 guidelines is expected to result in a removal of cross-subsidies. The likely effect for the agricultural sector will be that cross-subsidies in the power sector disappear and that their energy bills will increase. The implementation of this new policy and reducing the present leakage of the system (unmetered consumption) will be a great achievement. 4.29 The policy to subsidize fertilizer is set at a national level and focuses on production to control mainly urea17 prices. The subsidy was originally based on an overall common price component for all factories; later it was based on energy source specific subsidy per factory. The result is that in 2001, 40% of all subsidies for agriculture were spent on fertilizer. This year the government unveiled its plan to subsidize new or extension of existing capacity and eventually deregulate the pricing of fertilizer within five years. The policy retards investment in efficient fertilizer production technology. If domestic fertilizer cannot compete with imports, then the need for a domestic fertilizer industry should be reassessed, and its financial support may be better utilized to productive investments. 4.30 Subsidies for irrigation during the sixties lead to an increase in area irrigated and subsequently in an increase in food production. In the last 15 years the growth in irrigated areas has ceased, partly because the most suitable areas are already under irrigation and partly because of financial reasons. Large parts of operation and maintenance cost for these systems are not covered by the water users and/or are still undertaken by government agencies. In 2001 this policy amounts to 39% of all subsidies18 to agriculture mainly used for the operation and maintenance of existing irrigation infrastructure and not for investments in new infrastructure. The review of the irrigation subsidies indicates that most of these subsidies do not reach the farmer and are used to finance the gap between revenues collected for services provided and operation and maintenance costs. There are several modalities which would result in more efficient operation of irrigation systems. 4.31 The policy to give food security much weight has led to large subsidies to the food producing sector totalling in 2001 it was Rs. 347.8 billion19 (Rs. 2,174 on average per farmer) in the form of input subsidies and price support. This policy has actually two objectives, one directed at the producer, the second at the consumer. The main objectives of the Government's price support policy is ensuring remunerative prices to the growers for their produce as well as safeguarding the interest of the consumer by making food available at reasonable prices. While the FCI was supposed to be the buyer of last resort it has become a preferred buyer. The MSP has become in some areas a preferred price and led to the distortion of market and prices. Inefficient producers have no reason to change to other crops or adopt more efficient technologies as long as an attractive support price is offered. At the consumer’s side of the chain, the purchasing power in both rural and urban areas increases. However the number of vulnerable persons still remains large and a safety net in the form of emergency food stock remains needed. This could be in the form of partly financial and partly as physical reserves. Evaluation of the Efficiency of the Value Chain 4.32 An efficient farm marketing chain is an important means for raising the income levels of farmers and for promoting the economic development of a country. Generally, marketing efficiency is measured either as operational efficiency or pricing efficiency. The former is measured in terms of gross marketing margins, marketing costs and net 17 The main fertilizer components are N, P and K, Urea contains mainly nutrient N and to produce it requires much energy. 18 Total subsidy amounts to 34,784 crore IRS (approximately in present exchange terms of 45 IRS/USD 7.7 milliard USD) 19 Source: Central Statistical Organization, New Delhi. 37 marketing margins while the later is measured in terms of price series correlations and through Cointegration analysis. 4.33 A large number of studies have used the concept of farmer’s share in consumer’s rupee for assessing value added efficiency. Generally the researchers interpret higher farmer’s share in consumer’s rupee as higher efficiency. The difference between the farmer’s share and consumer’s price is the sum total of margins and costs, however higher costs do not always reflect inefficiency in the value chain. 4.34 The farmer’s share in consumer’s rupee has been estimated as 56% to 89% for paddy, 77% to 88% for wheat, 72% to 86% for coarse grains and 79% to 86% for pulses. For oilseeds, the farmer’s share ranged between 40% and 85%. The farmer’s share in consumer’s rupee for perishable farm products is generally lower. In the case of fruits, vegetables and flowers, it varied from 32% to 68%. Studies conducted by the Ministry of Agriculture reveals that costs and margins account for 30% to 35% of consumer’s price in foodgrains, 45% to 55% in fruits and vegetables and 12% to 36% in oilseeds crops. The GMM in marketing of agricultural products from national Accounts Statistics using difference between the total consumer expenditure on a particular farm product and the value of the output at the farm level to estimate gross marketing margins indicated that the GMM as %age of consumer’s price is 19.2 in cereals, 7.2 in oilseeds, 32.9 in fruits and vegetables, 6.7 in milk and milk products, 37.2 in sugarcane/sugar with an overall average of 19.3 % for all agricultural commodities. 4.35 It is assessed that statutory charges account for 12% to 18% and net marketing margins account for 15% to 30% of the gross marketing margins. Remaining 52% to 77% is the real cost of performing various marketing functions. The marketing efficiency can be increased by reducing costs and margins for given level of marketing functions. Obviously this can be achieved by (i) reducing losses during storage, transportation and handling by providing scientific know-how and facilities for these activities to farmers; (ii) establishing farm-retail outlet linkages; (iii) establishing retail chains/supermarkets to achieve scale economies’ and (iv) establishing farmer-processor linkages (backward and forward integration) by organization of direct marketing through contract farming. 4.36 Price series correlation is another approach used to measure marketing efficiency. The price series bi-variate correlations for 10 important markets of the country for the period 1982-88 and 1992-98 reveal that out of 45 markets pairs, between eighties and nineties, the degree of co-movement in prices has increased in 80%. The correlation coefficient exceeded 0.8 in 31% market pairs in the eighties but increased to 64% market pairs in the nineties. The correlation coefficient exceeded 0.90 in 42% market pairs in the nineties as against only in 6% market pairs in the eighties. The degree of market integration for the second period (nineties) is considerably higher than that for the first period (eighties). The markets for wheat have become more integrated during the nineties. 4.37 In the case of paddy/rice, out of 105 market pairs during the nineties, in 48% market pairs, the correlation coefficients were more than 0.70 and for 65% pairs, these were more than 0.60. In 83% market pairs of which comparable price data are available, the size of correlation went up during the nineties compared to the eighties. 4.38 Comparison of wholesale and retail prices at the same point of time for a commodity is also an indicator of pricing efficiency or existence of integration in markets in terms of movement of prices at different stages of marketing. This difference (retail price 38 minus wholesale price) should not exceed the costs necessary in moving the commodity from wholesaler to retailer level. 4.39 The other consideration for higher pricing efficiency or for existence of integration is that the price differential between raw and processed form of the product should not exceed processing cost. Studies reveal large variability in processed horticulture products and bakery products than in wheat flour, pulse splits and edible oils. The difference between spot price of oilseed (rapeseed and mustard) and oil was 214% of seed prices in Kolkatta market and 168% in Kanpur and Delhi markets during early eighties (1981-84). 4.40 One other dimension of integration of agricultural produce markets is the relative changes in prices at farm, wholesale and retail level. It is now well established that prices of agricultural commodities are discovered in the wholesale markets. Looking at the extent to which the movement in wholesale prices are reflected at the farm level and also at the retail level, in the case of cereals and pulses during the rising phase of prices, generally wholesale prices rise at the rate higher than the rise in the prices at the farm level. The results also reveal that during this phase, the increase in the retail prices is considerably higher than the increase in the wholesale prices. It has also been observed that when general level of prices declines, the decline is more in farmgate prices and less in retail prices than that in wholesale prices. While part of the explanation for downward trend in farmgate prices and upward trend in retail prices may be found in the behaviour and structure of marketing costs, there is a need to direct efforts at better understanding of price discovery mechanism of agricultural commodities. It may be due to lack of competition resulting from the absence of appropriate institutions who can compete within themselves to bring in fair amount of transparency in the markets. 4.41 Cointegration analysis is another mathematical tool used by marketing analysts to analyze the integration and thereby the efficiency of the marketing system. In a recent comprehensive study, Wilson (2001) has analyzed the integration of markets for three important cereals viz: rice, wheat and sorghum by using Cointegration techniques. Using month-end wholesale prices for 18 years for 14 markets for wheat, 36 markets for paddy/rice and 13 markets for sorghum, the results for wheat revealed that (a) market adjustment has been fast during both the eighties and nineties; (b) the degree of market integration for the nineties has been considerably higher than that during the eighties; and (c) the markets which demonstrated a high degree of integration during the eighties have certainly become more integrated during the nineties. In the case of paddy/rice, the results show that (a) the markets for rice also adjust relatively rapidly; and (b) the markets during the nineties are integrated to a higher degree compared to that during the eighties. However, in the case of sorghum, though the markets exhibit significantly rapid equilibrating adjustments, the integration is of much lower degree as compared to wheat and rice. Further, the market integration for sorghum during the nineties does not appear to be higher than that during the eighties. The results for oilseeds show the increasing degree of market integration for rapeseed-mustard in the post-liberalization period. 4.42 A study conducted by Dhankar and Rai (Directorate of Marketing & Inspection, Government of India) on marketing interventions for apple and off season vegetables in Shimla District in Himachal Pradesh, in the year 2000, revealed substantial hidden costs in marketing of these commodities. Conservative estimates about the hidden costs at various stages in respect of a sample case of one box of apple (20 kg) amounted to Rs.15/- and for per bag (50 kg) of cabbage Rs.12/- for the producer for taking produce to Azadpur Fruit and Vegetables market at Delhi. During the season Shimla district alone 39 dispatched 11.63 million boxes to Delhi as against total dispatch of 17.71 million boxes from the State. At a conservative estimate of Rs.15/- per box as a hidden cost of a total sum of Rs.174.6 million has gone into the pockets of unscrupulous intermediaries by robbing the apple growers. For the apple growers of the State this figure comes to Rs.265.7 million. It is pertinent to note that this drain has been continuing since several years and has in fact become an integral part of the marketing chain. Recovery in excess of prescribed charges at market place has now become inherent in the marketing chain. Magnitude of hidden costs, based on ground realities, estimated for some commodities observed by the study are as below: Name of the Package unit per Marketing Marketing Marketing commodity pack costs at costs with costs with normal hidden cost at hidden costs rates conservative at liberal Rs. estimates Rs. estimatesRs. Apple Rs./box @ 20 kgs 132 147 158 Cabbage Rs./bag @ 50 kgs 92 102 118 Cauliflower Rs./basket @ 75 kgs 83 102 116 Pea Rs./bag @ 40 kgs 103 123 129 Potato Rs./bag @ 80 kgs 122 137 148 Tomato Rs./basket @ 10 kgs 32.80 38.80 48.80 4.43 APMC Adds Cost Without Adding Value - An Example: The cost of statutory and non-statutory charges are as high as 37% % in case of wheat purchased under MSP. In Punjab mandi charges @ 6.5% and purchase tax at 4% i.e. 10.5% constitute statutory charges and non-statutory charges viz. labor in the market place, transportation, storage, establishment and administrative charges, etc. account for Rs.52.37 for a price of Rs.620 per quintal. The cost of wheat per quintal thus becomes Rs.738 from Rs.620 – its MSP purchase price. Forwarding charges atRs.1.24 per quintal and Rs.18.29 per gunny bag makes it Rs.758.25 per quintal. If the processor/bulk buyer or even FCI buys directly from the farmer at least 6.5% mandi charges (2% market fee + 2.5% commission + 2% Rural Development Levy) can be reduced. APMC thus without adding value to the product adds cost which can be saved and both purchaser and farmer/seller can save a considerable amount. Removal of wholesale charges alone saves 2.5% cost for farmer in Punjab and hence it should not be obligatory to come to a mandi where he has to sell through a commission agent. 4.44 Road Map To Efficient Agribusiness Value Chain: Agri-business is the sum total of all operations involved in the manufacture and distribution of farm supplies; production activities on the farm; and the storage, processing and distribution of farm commodities and the products made from them. Every agribusiness commodity industry may be viewed as vertical in structure with the following components: Input suppliers, farmers, processors, wholesalers and retailers. 4.45 In order to encourage the private sector to make necessary investments required for development of alternative marketing systems, infrastructure and supporting services to promote agribusiness, a new law based on business model is required to create a lawful role for the private sector in development of agribusiness value chain and infrastructure. To attract promoting agencies to take up the infrastructure projects, the Central/State Governments need to keep themselves away from any kind of intervention. External funding can additionally be sought to augment the resources of public and 40 private sector for infrastructure development programs. Investments in marketing infrastructure has to be linked to deregulation and reforms for promotion of agribusiness. The Government should be only ‘facilitator’ in setting up new markets by offering incentives in the form of tax holidays, fast approval of logistics, concessional loan assistance, etc. To avoid the laissez faire approach by the private sector the Government can provide guidelines which it could supervise for proper implementation. 4.46 While the Minimum Support Price Policy (MSP) served the country well in the past three decades, it discouraged private sector participation in the grain trade. In the changing environment it is essential to think of an alternative policy delinking MSP from procurement particularly if the private sector is to take its rightful role in agribusiness. The alternative policy should allow market forces to determine the price and provide financial support through an insurance programs to farmers for protection of their incomes in falling markets. Until the alternative policies are put up in place, the existing nodal/ central agencies and State organizations engaged in procurement under MSP should: buy at village level directly from farmers; buy at ruling market price and not at MSP; and restrict procurements strictly to norms (10% or so). 41 5.0 STAKEHOLDERS AND THEIR ISSUES Producers 5.1 There are 160 million farmers in India, the majority are marginal with an average farm size of 0.40 ha (62%) The other categories are small (19%) with 1.42 ha, semi- medium (12%) 2.73 ha, medium (6%) 5.84 ha and large (1%) having 17.21 ha in average. The average size of holdings has been decreasing from 2.69 ha in 1961 to less than 1.5 ha at present. There are 105.3 million operational holdings of which more than 75% are of an average size of 0.92 ha. 5.2 These figures indicate that the majority are subsistence farmers and for many of them the production capacity of their land has reached the limit. 60% of the farmers are illiterate and their willingness or ability to organize themselves into groups is alien to them. Their empowerment, mobilization and active participation in increasing the efficiency of the value chain is a big challenge. Most farmers in India produce either cereals, or fruit and vegetables. Some farmers are engaged in the production of both categories of food as a step towards diversification, while others are venturing out into relatively newer activities including floriculture, and mushroom cultivation. 5.3 Fruit and vegetable farmers are large in numbers and are dispersed all over the country. Most are small scale producers, own less than 2 acres, and grow a variety of crops partly for self subsistence and partly for sale. They grow two to three crops per year. In most states a producer must sell his produce at the regulated markets. They seem to prefer the handling and marketing of the produce themselves directly through an agent with whom they have long standing relationships. The farmer has a choice to sell through another agent and most (80%) have done this at some stage, but in general they remain with the same agent. Some farmers receive advanced payments or farm inputs from the agent. 5.4 At present the Government subsidizes the main inputs, water and fertilizer, needed to produce crops and plays a large role in the procurement of grains through MSP support mechanisms. This causes inefficient and marginal producers to stay in business or provides little incentive to increase productivity. 5.5 The village Industry sector is the lowest cost option for generation of employment as it requires only Rs. 10,000 for a village industry per employment. The promotion of village level and small scale food industry should be based on economic consideration of the region and economy of scale of operation, and adequacy and capability of technology adopted available to make the product competitive with respect to quality. As many of the farms are too small to achieve economies of scale, it may necessary to adopt cluster approaches and/or cooperative approaches to achieve economy of scale as well as to minimize overhead costs by sharing the expenses within the cluster concept. 5.6 During the 1970s, the focus shifted to cater to the developmental needs of small and marginal farmers, dry-land agriculture and irrigated agriculture. However, the research focus was on improving the production by way of hybrid seed technology and other inputs. Some of the technologies relating to cereal crops like rice, wheat, sorghum helped in increase in the yield levels thereby helping the country to be self-sufficient. 42 5.7 Development Policy: One of the requirements of any country to develop agriculture is to have a dynamic and competent farming community which means the competency of the farmers has to be developed sufficiently also. For farmers to be competent they need skills in four major areas such as technology, organizational skills, business skills and managerial skills. The present system of research and extension is trying to provide some skills relating to technology alone and the farmers are left to themselves to identify the ways on operation of other skills. The present policy mandate has not explicitly indicated these requirements both in research and extension organization and needs to be rectified. The implication of this is going to be a greater demand for a high level of competency among the extension workers and the researchers. 5.8 One of the reasons for lack of effective farmers involvement is the structure of research and extension being perpetuated. The structure provides for linkage between research and extension but very limited interaction between research and farmers. Hence the function is not being undertaken at all in an effective manner. There is a need for modifying this structure accordingly. The overall research policy is aimed at improving production and productivity of various crops in general under different conditions. However, during policy setting there is no mechanism to get the involvement of farmers in policy and program development process. 5.9 Inputs for Horticulture Crops: Seed is the most important input of agricultural production potential, on which the efficiency of other agriculture inputs is dependent. Seeds of appropriate characteristics are required to meet the demand of diverse agro- climatic conditions and intensive cropping systems. Sustained increase in production and productivity is dependent, to a large extent, on development of new and improved varieties of crops and an efficient system for timely supply of quality seeds to farmers. 5.10 The seed sector has made impressive progress over the last three decades. The area under certified seeds has increased from less than 500 hectares in 1962-63 to over 5 lakh hectares in 1999-2000. The Seeds Act, 1966 and Seeds Control Order and the New Policy on Seeds Development, 1988, form the basis of promotion and regulation of the Seed Industry. Far-reaching changes, however, have taken place in the national economic and agricultural scenario and in the international environment since the enactment of the existing seed legislation and the announcement of the 1988 Policy. 5.11 Seed availability and seed replacement rates (SRRs) for most of the crops remained inadequate and below the desired levels. There is also a mismatch in availability and demand of seeds of different varieties. It has become evident that in order to achieve the food production targets of the future, a major effort will be required to enhance the seed replacement rates of various crops. This would require a major increase in the production of quality seeds, in which the private sector is expected to play a major role. 5.12 At the same time, private and Public Sector Seed Organisations at both Central and State levels, will be expected to adopt economic pricing policies which would seek to realise the true cost of production. The creation of a facilitating climate for growth of a competitive and localized seed industry, encouragement of import of useful germplasm, and boosting of exports are core elements of the agricultural strategy of the new millennium. Biotechnology will be a key factor in agricultural development in the coming decades. Genetic engineering/modification techniques hold enormous promise in developing crop varieties with a higher level of tolerance to biotic and abiotic stresses. 43 5.13 Globalization and economic liberalization have opened up new opportunities as well as challenges. While unnecessary regulation needs to be dismantled, it must be ensured that farmers are not exploited. GOI has announced the National Seeds Policy (2002), which envisages to serve as a catalyst to meet the objectives of sustainable development of food production including horticulture crops and better returns to farming communities and making available the best planting material available anywhere in the world to Indian farmers, to increase productivity, farm income and export earnings. 5.14 The main objectives of the National Seeds Policy, therefore, are the provision of an appropriate climate for the seed industry to utilize available and prospective opportunities, safeguarding of the interests of Indian farmers and the conservation of agro-biodiversity. An efficient system for supply of seeds of the best quality to the cultivator has to be evolved. For the National Seeds Policy to lay the foundation for comprehensive reforms in the seed sector, significant changes in the existing legislative framework have to be effected accompanied by programmatic interventions 5.15 Given the diversity of agro-climatic conditions, strong seed production infrastructure and market opportunities, India holds significant promise for export of seeds. A long term policy for export of seeds could be developed with a view to raise India's share of global seed export from the present level of less than 1% to 10% by the year 2020. Such an export policy could be dovetailed specifically to: • Liberalized climate for increasing seed production and marketing. • Encourage custom production of seeds for export. • Establishment and strengthening of Seeds Export Promotion Zones • Establish a data bank to provide information on the International Market and on export potential of Indian varieties in different parts of the world and data base on availability of seeds of different crops to assess impact of exports on domestic availability of seeds • Promote seed production in non-traditional areas including backward areas with special incentives such as transport subsidy • Promotional programs to improve the quality of Indian seeds to enhance its acceptability in the International Market. • Testing and certification facilities in conformity with international requirements. 5.16 According to the World Bank’s assessment, the seed sector comprises the following activities with varying opportunities for private and public investment: • Plant breeding. Seed enterprises require access to new varieties. Although private plant breeding capacity is increasing, many crops will depend on public sector breeding programs for the foreseeable future. Public plant breeding organizations must have adequate links to private seed distribution mechanisms. • Source seed production. Production of commercial seed entails multiplication of several generations of source seed (for example, breeder seed, foundation seed). Enterprises managing commercial seed multiplication may or may not have capacity to produce and maintain source seed. • Seed multiplication. Source seed is multiplied to produce commercial seed. In most cases, a seed enterprise supervises contract farmers to multiply seed. • Quality control. The multiplication process must ensure both the genetic purity and physical quality of the seed. Quality control systems may range from 44 managing a mandatory seed certification scheme to only requiring that seed be truthfully labelled. Responsibility for quality control is now shifting to seed enterprises. • Seed conditioning. Seed must be cleaned, dried, treated, and stored before sale. This requires specialized equipment and (for certain crops) considerable storage capacity. • Seed marketing. Seed is sold through input dealers, requiring distribution capacity through a competent, independent network of wholesalers and retailers. 5.17 These components of seed provision may all be managed by a single firm or by various linked enterprises. Any investment in seed enterprise development must examine the options of supporting smaller, specialized operations versus larger, integrated firms with the choice depending in large part on the resources and capacities available and the stage of evolution of the seed industry. 5.18 Fertilizers: The average fertilizer consumption at 92 kg/ha remained low and imbalanced in terms of the use of (Nitrogen, Phosphorous and Potash (NP&K))(6.69:2.59:1.0 ) (2001-02). The per hectare fertilizer use remained very low in some States, especially North-Eastern States, Himachal Pradesh (42 kg), Orissa (47 kg), Rajasthan (35 kg) and undivided Madhya Pradesh (29 kg). Besides, the increasing deficiency of micro nutrients, especially zinc, iron, etc. in the soil has been observed in recent years. The fertilizers which use nitrate as resource of nitrogen, phosphate as the source of P and potassium nitrate as the source of K and N are chloride free fertilizers which are expensive (cost 5 to 6 times the cost of water soluble conventional fertilizers) but still are cost effective for high value crops like grape, strawberry and crops grown in green houses. 5.19 The manufacturing plants for such fertilizers require large capital investment and require large production capacities. Therefore, it will be necessary to continue to import such fertilizers, and encourage manufacturing in the country. Water soluble fertilizers in different grades can easily be produced in liquid form using conventional solid fertilizers available in the market (Urea, D.A.P., Potash) such as 8 : 8 : 8, 12 : 6 : 6 etc. grades and supplied to farmers in cans which could be applied through water very easily. Since, these fertilizer grades are not included in the Fertilizer Control Order it cannot be manufactured and marketed. 5.20 Alternatively, fertilizer grade Phosphoric Acid can be made available to be used for the production of liquid fertilizers with high concentration of N, P and K. This will bring down the cost of Liquid Fertilizers. Presently fertilizer grade Phosphoric acid is imported in bulk by the large fertilizer manufacturers and is not available to small manufacturers of water soluble liquid fertilizers. Further, subsidies are available on fertilizer but not on liquid fertilizer reducing the cost effectiveness although fertigation provides 50 per cent savings of fertilizer. Therefore, there is a need to review the Fertilizer Control Order and promote support. 5.21 Plant protection chemicals: The consumption of plant protection chemicals have declined, due to the growing popularity of the Integrated Pest Management (IPM) approach and the increasing awareness about the hazards of pesticides. The availability of quality pesticides remain a matter of concern. The infrastructure for enforcing the provisions of the Insecticide Act, 1968, also remained inadequate. Promotion of integrated pest and disease management thus reducing costs of chemical pesticides 45 and fungicides envisaged in X plan and gaining popularity of bio pesticides may result in the retaining the requirements of plant protection chemicals at IX plan level 5.22 Until now the focus of extension has been to operate either individually with the farmers or with the group of contact farmers for providing technical advise on one or two crops. On the contrary, there is need for shifting the extension strategy to build in capacity of a farmer through organized groups and farmers’ organizations at different levels so as to build in strength among the farming community. Unless this is spelled out as a policy, linkages in farmers, extension and research workers remain less effective. 5.23 Given its range of agro-ecological setting and producers, Indian agriculture is faced with a great diversity of needs, opportunities and prospects, the well endowed irrigated areas, which account for 37 percent of the country’s cultivated land currently contribute about 55 percent of agricultural production, where as, rain fed agriculture which covers 63 percent accounts for only 45 percent of agricultural production. In these less favorable areas, yields are not only low but also highly unstable and technology transfer gaps are much wider as compared to those in irrigated areas. 5.24 It is expected that future agricultural growth would largely accure from improvements in productivity of diversified farming systems with regional specialization and sustainable management of natural resources. Effective linkages of production systems with marketing, agro-processing and other value added activities would play an increasingly important role in the diversification of agriculture. Public extension system requires a paradigm shift from top-down, blanket dissemination of technological packages towards providing producers with the knowledge and understanding with which they solve their own location – specific problems. Wholesalers 5.25 The marketing chain for agricultural products in India is fairly long with large number of intermediaries between producers and consumers adding more to costs than the value of the product. As many as 80 marketing channels exist for 17 agricultural products or group of products. In the fruit and vegetable wholesale markets, many kinds and varieties of products are being marketed. 5.26 In India, the development of the wholesale marketing system for agricultural and allied products has been focused around protecting the farmers. Regulation and development of wholesale markets was deemed an institutional necessity and construction of well laid out markets was an essential part of wholesale markets. On the other hand wholesalers had been subjected to various control orders, laws, regulations, etc. in an endeavour to protect the interests of the farmers. The strategy for development of the agricultural sector through development of a wholesale marketing system centered around market committees constituted under State Marketing Legislations. 5.27 The wholesale marketing system today comprises of 27,294 rural primary wholesale markets and 7,300 wholesale assembly and terminal markets set up under various State Marketing Legislations. The geographical area served per market ranges between 50 m2 to 2,079 m2 The population served by an agricultural market in the country varies from 200,000 to 587,000 A market fee is collected at rates varying from 0.40% to 2.25% of the value of produce sold. Wholesale marketing responsibilities for agribusiness products gradually became diffused among several departments and agencies who often tended to work in isolation. 46 5.28 The regulation of wholesale markets achieved a limited success in providing an efficient agricultural marketing system in the country because, over the years, these development oriented institutions turned out to be more of revenue generating institutions rather than facilitating efficient marketing practices to benefit the farmers. Moreover, this legislation has been drafted mainly with reference to the customs and practices prevalent in the wholesale markets and did not meet the needs of primary market, Having emerged as monopoly institutions providing agricultural produce markets in the country, they digressed from their basic mandate to facilitate increased returns to the producer through transparent and efficient marketing. 5.29 Owing to multiplicity in ownership and management however, no substantial development of these markets took place under market development through regulation. Its regulation has only resulted in collection of fees by one more agency. Further, this has prevented private sector from taking initiatives in the development of alternative marketing systems and infrastructure. 5.30 The main source of income of the state Agricultural Marketing Boards is the contribution they receive from APMCs. The Boards spend 37% of their income on establishment and only 28% on development works. Considerable part of the market fee gets transferred to state government and not used for market related development activities in the country. Processors 5.31 The average processor of food products can be categorized as small in size of operation since the capital investment in these average food processing industries is extremely low. Constraints to increase value addition by the processors are barriers to entry of the private sector. In spite of the fact that India already has a sound network of R & D systems and proven technologies, there are still several constraints which adversely affect development of a sound agro processing industry. 5.32 While the technology for the processing of foodgrains, oil seeds as well as horticulture produce is readily available in the country through research institutes and universities, technology for most of the value added products as well as plant and machinery for the large scale production of convenience and fabricated foods are currently being imported or manufactured with foreign collaboration. The research and development activity for developing simple machinery for the small scale sector and for mechanization of small scale food processing activities needs to be encouraged along with providing technical guidance to enable efficient operation of their enterprises helping generate additional employment opportunities in rural areas. 5.33 In order that the benefits of modernization accrues to the units in real terms and hence to the farmers, there is a need to provide adequate infrastructure and Policy supports Some of the actions initiated by the Central Government include removal of the ceiling for FDI participation and simplification of approval procedures. 5.34 A large number of agro processing Industries, particularly in the primary processing sector, is in the hands of individual ownership. While there are few jointly managed (Partnership concerns or Private Limited companies) or collectively managed (Cooperative organizations), most of them being small scale do not have access to modern management tools or the capabilities. The Government has established few 47 management development institutions and entrepreneur development institutions, However inadequate management in the small scale sector is of concern. 5.35 A large number of Rice mills, Pulse mills and Oil mills have yet to be modernized. Modernization of rice mills will result in improved total rice as well as head rice recovery. Similarly modernization of Pulse Mill and oil mill will result in improved recovery and better quality products. The equipment required for this activity is now available in India. Modernization is an ongoing exercise of the Ministry of Food processing Industry. 5.36 In the case of edible oils, the domestic price of two major edible oils, groundnut oil and mustard oil has been more than twice the international price of most globally traded oils. This is because India not only has little comparative price advantage in the production of oilseeds, but oil extractions are also based on obsolete traditional technology as edible oil production is still reserved for the small scale sector. Domestic supply of edible oils is unable to meet the domestic demand requirements and India is forced to import about 4 million tonnes of edible oils annually. 5.37 Interventions required for strengthening management will provide facilities for the demonstration of technologies and machinery designs suitable for rural areas as well as provide on the job training in all aspects of running a food processing enterprises. Such integrated approaches will be more beneficial to the rurally based food processing entrepreneurs rather than providing entrepreneur development training, demonstration of processes, or machinery as a pilot project on a piecemeal basis. 5.38 Incubators for post harvest handling (drying, grading and storage) of foodgrains (cereals and pulses) and primary processing (milling), oil seeds (drying and grading) and post harvest handling, grading and pre cooling (waxing, vapour treatment, grading and removal of field heat by pre cooling) of fruits and vegetables, post harvest facilities for spices, medicinal plants and herbs (separation, drying and grading), simple processing units for medicinal plants, spices and herbs (steam distillation, cooking and drying, cleaning etc) can be established in regions having large scope for promoting a number of such units. These facilities can be used by future entrepreneurs in rural areas with the help of incubation center staff until they attain the capability to start their own units. 5.39 The Export Inspection Council (EIC) and its related agencies provide certification and inspection services to Indian exporters as well as other industries, both in regulatory areas as well as on a voluntary basis. The following three types of export inspection and certification systems continued to be operational for agriculture and food products: 5.40 Quality Control Systems lay emphasis on the responsibility of manufacturers and processors in ensuring consistency in quality during all stages of production by adopting quality control procedures and exercising control on raw materials, manufacturing process, packing and final testing. Manufacturing and processing units, adjudged as having adequate levels of quality control in all these areas are approved by EIC based on their assessments. Units approved under this system are eligible to obtain a certificate of export worthiness without further verification of the quality of the out going consignments by EIC and random spot checks of the consignments are carried on a regular basis. 5.41 Based on such standards, which are being prescribed by several of India’s trading partners of European Union, EIC has introduced certification of product quality integrated with the systems approach. At present only Fish & Fishery Products, Egg 48 Products and Milk Products are being certified under the above system. The majority of WTO members have a domestic economy that is predominantly driven by the agricultural sector. The sanitary and phytosanitary agreement concerns the application of food safety regulations and is integrated with agriculture. The SPS Agreement is perceived to be one of the six non-tariff barriers to market access. It has become mandatory to become SPS compliant if market access to many member countries are sought. 5.42 The Ministry of Food and Consumer Affairs is the main Government agency dealing with product standards for consumption in the domestic market, although each Ministry/Department also has its own system of framing and notifying product standards. State Governments also have their own systems of adoption of standards, notably in the area of weights and measures. The main Rules and Regulations are contained in The Prevention of Food Adulteration Act and The Export Quality Control and Inspection Act. 5.43 The Bureau of Indian Standards (BIS) is the main Standard Setting body in India for all domestic market requirements. It sets voluntary standards that can be acquired to indicate the quality of the product by the use of “ISI” mark. However, BIS is also the guiding organization behind most of the mandatory standards set by Government agencies. Notably, BIS is also the enquiry point of India under the WTO Agreement on Technical Barriers to Trade. 5.44 The Export Inspection Council (EIC) is the Chief enforcement body for exports and was set up by the Government of India in order to ensure sound development of export trade of India through quality control and inspection. The EIC and its associated agencies are expected to: • notify commodities subject to quality control and/or inspection prior to export. • establish standards of quality for such notified commodities • specify the type of quality control inspection to be applied to such commodities. • prohibit exports of notified commodities unless it is accompanied by a certificate issued indicating that it conforms to the standard specification applicable to it. • certification of quality of export commodities through quality assurance systems in the exporting units as well as consignment-wise inspection. • certification of quality of food items for export through installation of Food Safety Management Systems in the food processing per international standards. • laboratory testing. • training and technical assistance to the industry in installation of Quality and Safety Management Systems based on principles of Hazard Analysis Critical Control Point (HACCP), ISO-9000 and other related areas. 5.45 Ministry of Food Processing Industries (MFPI) Recognizing that a robust and dynamic food processing sector is to play a vital role in the new emerging global economy, all policies and plans for the food processing industries in the national interest is coordinated by the Ministry of Food Processing Industries. In the domestic market there are a number of legislations that becomes relevant to the food processing in its entire chain terminating at the global market. The most important legislative initiatives can be summarized as follows: 49 Ministry of Agriculture • Insecticide Act • Milk and Milk Product Control Order (MMPO) • Meat Food Product Order 1973 Ministry of Rural Development: Directorate of Marketing and Inspection (DMI) • Agricultural Produce (Grading and Marking) Act Ministry of Health & Family Welfare • Prevention of Food Adulteration Act 1954 Ministry of Food Processing Industries • Fruits & Vegetable Products (Control) Order – FPO 1955 Ministry of Commerce • Export (Quality Control & Inspections) Act 1963 Ministry of Civil Supplies, Consumer Affairs and Public Distribution • Standards of Weights & Measures Act Mandatory regulations have become a norm for all export bound commodities. All SPS compliant activities are generally handled by the autonomous institution under the Ministry of Commerce. 5.46 International Standards Organisation (ISO): ISO is the most important of international standard setting organisations. It is a world federation of 123 national standards bodies, its core business is the development, approval and promulgation of consensus based international standards. ISO develops standards through 200 technical committees split into about 650 sub-committees and 2,000 working groups. ISO interfaces with specific users of standards including those in the private sector. However given its credibility as the most internationally accepted organisation, ISO standards have considerable trade affects due to their wide use in international trade. ISO certification is a costly process by Indian standards. It may cost between Rs 100,000 to 500,000 to get certified, apart from the cost of maintaining the certificate. ISO 9000 series is the general quality certification standard of ISO, India has about 5,000 ISO 9000 companies. 5.47 HACCP: The Hazard Analysis Critical Control Point (HACCP) system is being increasingly used as a food safety system all over the developed world. HACCP is not the panacea that solves all food safety problems. It is, when properly applied, a set of preliminary steps and principles that gives a systematic method for identifying significant hazards and properly applying preventive measures so that food borne hazards are prevented, eliminated or reduced to an acceptable level. With emerging international and national agreement on HACCP principles, their application would create commonality of understanding of the development, implementation and maintenance of a food safety system. HACCP involves seven principles: 50 • Analyze Hazards. Potential hazards associated with a food and measures to control those hazards identified. The hazard could be biological, chemical or physical. • Identify Critical Control Points: These are points in food production from its raw state through processing and shipping to the consumer. At any point the potential hazard can be controlled or eliminated. • Establish preventive measures with critical limits for each control point: For a cooked food this might include setting the minimum cooking temperature and time required to ensure the elimination of any harmful microbes. • Establish procedures to monitor the critical control points: Such procedures might include determining how and by whom cooking time and temperature should be monitored. • Establish corrective actions to be taken when monitoring shows that a critical limit has not been met. • Establish procedures to verify that the system is working properly. • Establish effective record keeping to document the HACCP system: This would include records of hazards and their control methods, the monitoring of safety requirements and action taken to correct potential problems. Each of these principles must be backed by sound scientific knowledge. 5.48 Having these commonly understood principles, many food processors, for example, require their suppliers to have a HACCP system for production of ingredients that they supply. Knowing that a source of food borne hazards can be from a particular point there will be more attention given to that for implementation of effective, documented systems that eliminate or reduce the likely occurrence of food borne hazards. Application of HACCP offers widely understood principles for identifying significant risks and their control. 5.49 HACCP does not cover only pathogenic bacteria. In applying HACCP, all food borne hazards are to be considered. There are a number of hazards that can originate during production. Some examples of food borne hazards that can originate during production include Biological -Salmonella, Campylobacter jejuni, E. coli, Listeria monocytogenes, Yersinia enterocolitica, Cryptosporidium parvum, and Trichinella; and some chemicals, particularly pesticides and drugs. 5.50 An important definition in HACCP is the one for Critical Control Point (CCP): a point, step or procedure at which control can be applied and a food safety hazard can be prevented, eliminated, or reduced to an acceptable level. Therefore, if the identified food safety hazards are to be controlled through a HACCP system, there must be a step or steps in production where control can be applied and there must be an associated preventive measure. 5.51 It is essential that there be scientifically documented steps and preventive measures. If this criterion cannot be met, then a HACCP system cannot be developed. A HACCP system can only be developed through proper application of the preliminary steps and principles of HACCP. An essential prerequisite to HACCP is the adoption of Good Manufacturing Practices (GMPs). The biggest problem in HACCP Plans is the lack of true CCPs. 51 5.52 The issue is that biological hazards are much more difficult to deal with than most of the food processing. For example, we know that proper heating times and temperatures will kill E.coli; therefore, this can be a CCP. However, at present not enough is known about the sources and control of E.coli to be able to apply preventive measures. Hence the emphasis on Good Agricultural Practices (GAP) as a precursor to the HACCP Plans. 5.53 Thus there is lack of knowledge and research at the pre-processing stage. The research has not provided for reduction or elimination of these pathogens at pre- processing stage. There are possible interventions that could be considered as preventive measures on which a CCP could be based. However, these interventions need considerable research before they could be applied on a practical basis in a HACCP system for actual production. The recommended Seven-Step HACCP Plan is solely dependent on a serious review of the pre-requisite programs made up of GAP and GMP. 5.54 There appears to be a need to bring in a more deeper and sustained participation from the scientific fraternity. The scientific fraternity belong to three distinct streams, namely human health, plant and animal health. This is facilitated by regularly attending the annual meetings where major decisions are discussed. The next step is a pro-active effort demanding participation in technical committees and subcommittees in which standards are specifically discussed. The final two steps are participation in the administration of the organisation and scientifically influencing the discussions. 5.55 A growing volume of international trade in agricultural products in the post-WTO period has made it abundantly clear to India that vulnerability to food based health problems, be it humans, plant or animal lives, is indeed serious. Practitioners of HACCP demand documentation. The fundamental question, however, for Indian producers aspiring to gain access to the international market is a question of not much significance. 5.56 The Indian experiences during the last five years in facing the SPS measures in their export consignments have been very varied. The product specific detentions by the US government show an interesting picture. This complex situation of so many players in the chain and when you want a fully vertically integrated system in the country, the food safety becomes a major problem as there are so many handlers and these handlers are doing different jobs and many a times they may not be aware of the food safety requirements. Many companies operate from the primary breeding stage where rest of the chain is integrated and the control is centralised which may put them in an advantageous position in terms of food safety as compared with the companies that are not integrated and where separate and different companies are responsible for different steps in the chain, as is evident in India. 5.57 Mango Pulp In the export business of Mango pulp a proactive role played by APEDA appeared to have helped the exporters. The implementation of HACCP was encouraged by the Ministry of Food Processing Industries in association with APEDA. APEDA has taken firm export promotion steps for the sector that is in fact, extending the Indian brand equity enjoyed by the fresh Mango fruit in the market. The compliance costs for implementing HACCP would have been prohibitive, had APEDA not come to their rescue with both financial and technical assistance. All the participating units in the Chittoor District have implemented HACCP. Five units were assessed and certified by International Standards Certification (ISC) South Asia Pvt. Ltd. during the 1998 mango season. 52 5.58 Six units of Chittor District and 6 units of Krishnagiri District were assessed during the 1999 mango season. The National Sanitation Foundation (NSF) has recommended all the participating units of Chittoor district for certification after the certification audit. A certification audit of all the 6 units in the Krishnagiri District was carried out by the Quality Assurance Service (Australia). All of these, interestingly, have been recommended for certification. Small units have not been able to benefit from APEDA’s efforts. There have been problems in applying HACCP at the farm level because of the nature of farms and practices in India. 5.59 According to some small exporters, HACCP has not been followed in the pulp industry. There is a general awareness about HACCP, but they think it has not been passed as a law so far and they do not have to worry about it yet, especially because there is no consumer insistence in India for such standards. They admit that HACCP will certainly increase market accessibility, but they will have problems in adopting this. Some of the problems pointed out were: (a) Since orchards land holdings are small and contractors procure all the raw material, it will be impossible to keep records at the field level as required for HACCP. The general age of orchards ranges between 3 - 100 years, so it will be difficult to establish control (b) Since this industry is seasonal (3 months per annum) it is not feasible to adopt these standards, and to retrain staff, as the units cannot keep permanent staff. (c) It will be more viable for large plants or industrial houses, which deal in multiple products, work throughout the year and have their own orchards. But most of the units are small in this sector and HACCP will not suit them (d) As far as the financial aspects of HACCP compliance is concerned, units which are setting up now, will not have any problem. It does not cost much for new units, but the old units will have to revamp their infrastructure. It is a costly affair; according to rough estimates the cost for following HACCP will increase by 40% (e) Financial institutions do not fund HACCP activities (f) Main markets for Mango Pulp are Gulf countries and they are only interested in cheap prices not HACCP. (g) It costs money to get ISO certification. The cost may range between 1.5 -2.5 lakhs for ISO audit. The surveillance audit is every six-month and it costs Rs. 10,000 per man-day. Apart from HACCP, pesticide residue is one of the main quality issues. These are packaging issues and do not affect health. The reason for above packaging problem is the quality of packaging material available in the domestic market. 5.60 Testing is a major problem for these units. There are a number of institutions but these are spread all over the country are quite expensive. The Central Food Technological Research Institute (CFTRI) charges Rs.3000/-per test and Societe Generale De Surveillance (SGS) charges 0.27 per cent of f.o.b. value of the consignment. Laboratories in India are not equipped with equipment based on the new technology required for the complicated tests necessary to comply with HACCP. Foreign health authorities are moving from parts per million (ppm) to parts per billion (ppb). Indian laboratories are not equipped to perform these tests. 53 5.61 There are differences between the test results of India and those of Europe, allegedly due to the methods of testing, and not due to the objectives behind the tests. In Europe only natural food imports are encouraged, i.e. no sugar should be added. However, sugar is also a natural product but if sugar is added there is an increase of 13 per cent import duty. The duty is 6.5 per cent without sugar and 19.5 per cent with sugar. They add sugar themselves because they have a surplus of beat sugar, which is also subsidised in Europe. The buyers are interested to buy the pulp with sugar but are dissuaded by the higher duty levied. 5.62 Successful exporters feel that the quality of Indian food has to be monitored for exports, and APEDA should introduce licensing. It will be very difficult to monitor implementation of norms if everybody is allowed to export. The main issue to be appreciated here is the issue of processing industries where the time temperature and moisture contents in the harvested fruits play a decisive role. At each stage different food safety regulations come into reckoning that is not entirely in the control of the processor. A good agricultural practice protocol unfortunately does not hold any promise as the scale and intensity of mango cultivation is entirely different in India. 5.63 The Ministry of Commerce takes interest in their operations, as they are responsible for trade promotion. But the problems faced by the exporters are quality or health related for which the Health Ministry should be involved. Even in business negotiations, the foreigners want an assurance from the Health Ministry, which is not easy to obtain. There is a need to create better policy coherence here. Food laws lay an emphasis on economic offences and not on safety. The basic thrust of food laws is thus misplaced so far as export promotion is concerned. 5.64 Mushrooms are an enterprise with rich backward linkages in terms of employment generation without competing for the scarce arable land resource. In fact, Mushroom cultivation offers an opportunity to value add on biological coarse inedible resources with a little help from the scientific endeavour. A severe constraint in productivity is being experienced by most of the small growing units. 5.65 In the late eighties and early nineties, modern cultivation units were established with help from various companies in Europe which were more interested in selling their machinery and in the establishment of the mushroom farms at their asking rate. That is where the Indian industry took a beating and unit after unit failed to produce mushrooms on a scale of profitability. This is the period when sometime was taken to tune the production parameters until economic yields were obtainable by most of the units in India. 5.66 CONCLUSIONS A detailed analysis of the institutional and legal framework in India envisaged to usher in an efficient SPS regime in the post-WTO phase bring out more challenges in three distinct areas. First, is that the current emphasis on legislative roles for the legal professionals and bureaucrats perhaps is being overplayed at the WTO Secretariat. 5.67 The second area is the dovetailing of scientific knowledge with the existing institutions in the country with the trade concerns for facilitating processing inputs in the production stages. Given the base of scientific manpower in the country, this task is not at all daunting. 54 5.68 Biological processes have a distinction that may not be easily accounted for in the industrial processing activities. Besides, the residual limits for pesticides/insecticides or presence of micro-organism etc. do require a level of sensitivity of high precision. The Indian instrumentation sector in that sense is not in its infancy but requires encouragement and support. The experiences of the “lab to land” and other reaching out initiatives of the scientist therefore begs for a re-look in the present environment where GAP, GMP and HACCP lay a heavy emphasis on many disaggregated processes. 5.69 Import of all such edible/food products, domestic sale and manufacture of which are governed by Prevention of Food Adulteration Act. 1954 shall be subject to all the conditions laid down in the aforesaid Act. Import of all these products will have to comply with the quality and packaging requirements as laid down in the Act. Compliance of these conditions is to be ensured before allowing customs clearance of the consignment. Most of these laws restrict the functioning of trade industry in a competitive trade without attaching much importance to food safety standards. There is a multiplicity of agencies both for making as well as implementing the food safety standards which has resulted into a very lose system which is not at all coherent or integrated. 5.70 It is very important for the decision-makers in India to recognise that presence of multiplicity of food laws in the country is not going to serve the purpose particularly in the international trade. In order to give a boost to the food industry the need of the hour is to harmonise not only the various food laws but also the agencies. According to apex industrial bodies there should be only one national food safety code, which should cover all aspects of Indian food safety under a unified system. 5.71 What is more important is to have a comprehensive, integrated food law which can not only take care of ensuring public health, safety but also specify quality norms for meeting the globally recognised standards. If the enabling environment for rapid growth of food processing industry is to be created then the major challenges before the food industry today are availability of choices, threats of imports as a result of globalisation, rapid advances in science and technology, changing consumer preferences and concerns which can be addressed by a legal framework which would need simplification and amendments across Central, State and local legislation. 5.72 The multitude of laws and controls has led to a system which is over-regulated and under administered. It neither assures safety nor quality. Moreover, the documentation part is completely neglected. An urgent need for re-focussing existing food laws and aligning them with internationally prescribed standards followed in the world is required. It has been now recognised that this would greatly enhance innovation and would also protect adequately the consumer. Prevention of Food Adulteration (PFA) Act, 1954, currently the most important regulation for ensuring food safety and quality in India continues to be out-dated. The objective of this Act is to formulate and monitor the standards of quality and purity. 5.73 The PFA lays emphasis on the prevention of adulteration of foods and is not comprehensive enough to deal with the contamination of food through the animal feed and the food chain. The apex industrial bodies like Confederation of Indian Industries (CII), Federation of Indian Chambers of Commerce and Industry (FICCI) and Central Food Technological Research Institute (CIFTRI) have very strongly called for a complete overhaul of PFA in order to harmonise it with the international standards. 55 5.74 The demand from the food industry is to protect the health of the people but at the same time there is a concern that food safety standards by other countries are being used against India as non-tariff barriers to stop/restrict exports from India to the developed countries. A cursory look at the quality of food commodities being sold in the domestic market and PFA functionaries, who are more than 6000 Food Inspectors, the domestic market challenges towards food safety standards come to the fore. These typical Food Inspectors very often have no scientific background, but orientation is towards legal technicalities. Any re-orientation of food laws may not have any incentive to perform their duties diligently and honestly. 5.75 Food Testing Laboratories There are 72 food laboratories under the administrative control of Central and State Governments. Central Food Labs: Four Central Food Labs have been established under the PFA Act. Samples of food articles taken by Food Inspectors from State and Local levels are tested. Two of these labs, the Food Research and Standardisation Labs, and Central Food Lab, are under the administrative control of the Directorate General of Health Services. The other two, Central Food Lab (CFL), Pune and Food Central Lab, Mysore are under the administrative control of Government of Maharashtra and Council of Scientific and Industrial Research. In addition to this, there are 84 State Food Labs and one-third are under the administrative control of local bodies. Some labs under EIC and BIS are also operating. Presently, there is no national apex lab that can offer entire range of testing services and results of which cannot be challenged by the labs and the buyers in developed countries. 5.76 These labs lack infrastructure except the CFTRI lab at Mysore. Insufficient capacity and inadequate training etc: Another important weakness in the food quality assurance system is lack of proper training facilities in the area of food safety and testing despite the fact that India has a large human resource base. The training given to Food Inspectors is minimal, highly inadequate and it is not relevant in the present scenario of globalisation. Out of the 150 Universities and colleges teaching agriculture and health, only few offer courses related to food safety and quality. 5.77 BIS developed standards for most processed foods that are domestically traded in India. In general these standards cover raw material permitted and their quality parameters, hygiene conditions under which the products must be manufactured and meet the packaging and labelling requirements. Producers who comply with BIS standards can obtain the ISI mark. The BIS has four regional offices and its Head Quarter is in Delhi. 5.78 In view of growing concern the world over regarding health and safety parameters of food items being imported, international standards on Food Safety Management Systems (FSMSC) like HACCP/GMP/GHP have been developed. Based on such standards, which are being prescribed by several of India’s trading partners such as the European Union, EIC has introduced certification of product quality integrated with the systems approach. At present only fish products, egg products and milk products are being certified under the above system. Testing equipment and procedures need greater attention at the national level and funding of laboratories. Mutual recognition and agreements with important buyers may be necessary and should be encouraged. 5.79 To implement HACCP would require a large investment which has to be sustainable. Not only do these expenses have to be sustained but they will go on increasing as the developed countries introduce newer and stricter measures. To keep 56 abreast with international levels of food safety, health and hygiene, it would be possible for the larger units to implement SPS measures with a reasonable cost, however, it would be very difficult for the small and marginal stake holders to implement these procedures due to their inherently high cost and technical complexities. Consumers 5.80 The growth of consumer incomes is a key factor that drives the growth of commercial agriculture and agribusiness. Higher incomes lead to (a) greater demand for perishables and nonfood staples and to (b) higher demand for processed foods. These impacts increase the demand for agribusiness products and services (e.g., processed foods, storage and refrigeration services). They also increase the variety of products and services offered by the agribusiness sector. 5.81 Over the period 1983 to 2000, per capita consumption of wheat, rice and pulses has essentially stagnated while that of coarse cereals has declined. On the other hand, there is considerable increase in the per capita consumption of edible oils, fruits and vegetables, milk and milk products, and meat, fish and eggs. Remarkably, these shifts in consumption are also seen among the poor. The increase in consumption by the poor of fruits and vegetables and of other products such as milk is probably due to lower prices (from higher supply of these products). 5.82 Demand projections estimate that demand from nonstaples such as fruits and vegetables, meat and milk will grow faster than demand from foodgrain staples. The CII- McKinsey study postulates that the biggest growth will come from “basic” foods which are mass consumption processed foods such as atta, milk and chicken. 5.83 In rural as well as urban areas, per capita consumption of rice, wheat and coarse cereals has declined sharply since 1987-88. In contrast to this, per capita consumption of edible oil, vegetables, fruits and meat, egg and fish has shown appreciable increase. This provides evidence that in India food consumption pattern is getting diversified towards non cereal products. 5.84 The drive towards upgraded standards is driven by higher expectations and demand. The demand for better food safety has tended to increase with growing consumer affluence and awareness of food safety issues. Importers 5.85 In 2000-01, the country’s agri imports were only US $ 1.8 billion, much lower than agri exports of more than US$ 6 billion. In recent years, edible oil, accounting for nearly 60 to 70 % of the value of total agri imports, has become the single largest item of agri imports. Raw cashew nuts and almonds from the USA and pulses are among the other dominant agri imports, each of which accounts for nearly 5 to 10% of total agri imports in recent years. Sugar and cereals, each of which also accounted for 5 to 10% of agri imports, in recent years, have registered substantial decline both in terms of value and share in 2000-01. Agri imports in 2000-01 constituted only a small proportion of country’s total imports i.e. 3.7 %. The share of agri imports to total imports of the country has hovered around 5 to 6 %. 5.86 The commodities imported by India shows that imports in quantity terms have fallen for 41 primary and 46 processed products, these two categories together constituting 54%. The share of imports during the pre reform period as compared to 31% during the post reform period, even though for 8 primary and 9 processed products out 57 of the ones mentioned above, imports have increased in value terms. On the other hand, imports in quantity terms have increased for 50 primary and 44 processed products. The share of such products increased from 41% to 62%. Out of these products, 9 each of primary and processed commodities have achieved a fall in imports in value terms (their share in the import basket decreased from 1.6% to 0.74%). Notable among the foodgrain products for which the share has increased over these years are wheat (from 3.5% to 6.15%) and pulses (from 2.3% to 4.5%). 5.87 In estimating the relative unit value payments made by the country for the major items of import of agri commodities, it is found that the subset of the basket for which the relative unit value is more than unity and that too is increasing further between the pre and post reform periods, is having an increased share in total import basket from 27.6% to 31% after the introduction of reforms. The unit value is increasing also for another subset of imports, even though their relative unit values are less than unity. They are enjoying a share of 16.7% in imports, compared to 14.8% during the earlier period. In all, the share of the imported items experiencing an increase in relative prices has increased from 42.4% to 47.6%. In other words, India has been buying about a half of its imports at relatively higher prices compared to what the other importing countries are paying on an average during the post reform period. Exporters 5.88 It is estimated that the ratio of agricultural exports to GDP has shown a steady rise from 1.3% in 1986/87 to 2% in 1995/96. The ratio of agricultural imports to GDP, on the other hand, showed a rise from 0.78% in 1986/87 to 1% in 1995/96. The mixed picture indicates the adjustment process consequent to new export order following the Agreement on Agriculture namely, market access, export subsidy and domestic support (WTO). 5.89 In 1995 when the various agreements were signed under the WTO, there were expectations that in a liberalized trading environment for agriculture, trade barriers would be reduced and fair trading opportunities would open up for all countries, including India. Based on these assumptions of substantial reductions in tariffs, some studies predicted enormous gains for developing countries. These macro models assumed perfectly competitive markets for agricultural commodities. Unfortunately, even nine years after signing the WTO agreement, an imperfectly competitive export market structure still persists. 5.90 Exports have increased form 0.28 million tonnes in 1992-93 to 0.71 million tonnes in 2002-03. Basmati rice from India is exported regularly to Middle East, Europe, USA, SAARC countries, Saudi Arabia and Europe. Efforts to explore new markets through organization of delegations’ visits to potential regions and hosting of buyer-seller meets is regularly done. 5.91 India has been able to improve the value share of processed exports from 35% to 49%. Agri exports experiencing drop in quantity terms and increase in value terms in the post reform period continue to have a negligible share in this group and that share has fallen further. Items experiencing increase in quantity terms and drop in value terms during these two periods have reduced their share from 6 to 2%. India needs to put more efforts on promotion of only those items where unit value realization has been rising, and must also find out why unit value is failing to rise for other items. 58 5.92 Along with price rises, farm technology, extension, credit, and marketing, all these have to lend support to production efforts. Given the unwillingness, and not the inability, of developed countries to dismantle their massive domestic support and export subsidies to agriculture in their countries, it would be unrealistic to expect a major breakthrough in India’s agricultural exports. In the 1990s, India increased its exports of both fresh and processed fruits and vegetables, but further expansion in this area would require improvement in quality and safety, infrastructure, storage, transport, processing, and the ability to meet sanitary and technical requirements. 5.93 India’s agri exports continue to be mostly to developed countries. This means India needs to have special care in improving the quality standards of its exports. It is especially important in view of the fact that India has recently increased in percentage shares of its exports in NAFTA and OECD countries. It is also a good sign that India has made moderate progress toward diversifying exports to nearby developing countries under ASEAN and SAARC. This momentum needs to be maintained in the future. 5.94 International trade can be a powerful engine of agribusiness growth in the future. The exports of agricultural products grew at an annual rate of 8% in the 1990s as against 3% in the 1980s. Exports of fruits and vegetables have more than doubled from US $110 million in 1981/2 to $262 million in 1999/00 (Joshi, et. al, 2003). Although India’s exports are small relative to world trade in fruits and vegetables, India has a presence in specific food products such as grapes and mango pulp. India could be a sourcing hub for products such as rice, organic produce and food products such as ready to eat meals (CII, 2003). 5.95 Processed food exports are handled by two apex level agencies, namely, Agricultural and Processed Food Export Development Authority (APEDA) and Marine Products Export Development Authority (MPEDA). The Ministry of Food Processing Industries (MFPI) being the nodal government entity is proactively involved with the food processing industries within the macro issues of policies and plans for the sector. 5.96 Raising the level of productivity and quality standards to internationally competitive levels is one of the major challenges following the dismantling of quantitative restrictions on imports, as per the WTO Agreement on Agriculture. 5.97 India continues to be either absent or at most a marginal player in most of the leading markets for its exports. In some of the traditional markets like tea, its position is being seriously eroded by rival exporting nations like Kenya and Sri Lanka. For quite a few of its products, India does not seem to have succeeded in establishing direct export contacts with the importing countries, as a result of which a large number of its exports seem to being re-exported by other countries, thereby losing a large part of the gains of trade in the process. 5.98 The key crops with high export potential and competitiveness are basmati rice, non basmati rice, wheat, cut flowers, mangoes, grapes, walnuts, potatoes, onion, mango pulp, pickles and pastes, preserved mushrooms and tomatoes (fresh and processed) A well planned promotional strategy coupled with ensuring quality through standards and specifications, research and development with modern laboratory and up to date market information are essential to maintain and increase exports. 5.99 In the global wheat trade of over 100 million tonnes, India has been only a marginal exporter even though up until the mid 1990s it was price competitive. In recent 59 years, when India could export at least 3 to 5 million tonnes of wheat annually, global prices have dropped to a level that exporting wheat has become uneconomical. 5.100 Although some of the developed countries have remained or become India’s leading importers, India seems to have penetrated more in the neighbouring developing countries in the Middle East and South East Asia. The introduction of regulations by the EU prescribing unreasonably low levels of Octratoxin-A in Coffee, pesticide residue in vegetables, fruits, Honey, etc. are hindering exports of these commodities. 5.101 The issues of food safety regulations for the country require a detailed examination in a logical framework of different processes. The need for such an examination can be well highlighted if one could visualize a food market output and export matrix or the volume value matrix with the respective share in the total for the country. 5.102 Globalization of food supply introduces the prospect of widening the spread of food safety risks from contaminated food to well beyond their origins. Trade in international markets thus requires systems and methods to manage food safety hazards. These hazards can include new risks and revival of risks that will have to be controlled. 5.103 Differences in standards and regulations may lead to trade conflicts and disputes. They do provide a useful platform to promote dialogue between the countries so involved and exert a productive influence on improvement of the internal food safety systems wherever lacking. Regulatory agencies worldwide have focused their attention on ISO guidelines for code of conduct and a specific system for the food industry known as Hazard Analysis and Critical Control Points, HACCP. 5.104 Organic Certification are the most prominent and widespread tools of the trade. They signify an independently assessed compliance and conformity with uniform quality assurance systems for food safety. Food has an inherent variability to it and these systems focus on methodology of risk containment through well stated guidelines supported by independent check systems. 5.105 Increased international food trade must require the participating countries to share the responsibilities of food safety through the entire food chain. Food safety standards are frequently and very often erroneously viewed as technical barriers to trade. Improvements to food safety and expanded international trade are mutually compatible and are an effective shared reinforcements. 5.106 Companies engaged in foreign trade are being encouraged pursue ISO Certification. The Export Import Policy 2002-2007 provides lower threshold limit for units having ISO 9000 certification for grant of Export House status and attendant benefits. Other quality systems recognized for this purpose include ISO 14000, HACCP, WHO GMP and SEI CMM level-2 and above. 5.107 The Ministry of Commerce together with The Export Inspection Council, (EIC) monitor food quality and ensure sound development of the export trade. Per WTO Agreements and in particular the Sanitary and Phyto Sanitary (SPS) Agreement, such certificates of authenticity can facilitate exportation. The SPS Agreement seeks to apply technical restrictions only to the extent necessary and to avoid unjustifiable discrimination. Since SPS measures can be viewed as shielding domestic industry, 60 certain specific obligations have been incorporated. Systematic information about member countries’ regulations is made available. HACCP is increasingly specified as a means of keeping risks under control. 5.108 Exports of horticulture products from India are highly dependant on factors such as exportable surpluses, consumer preferences, varieties, quality, domestic and international prices and availability of infrastructure facilities for storage and post harvest handling. The export strategy of the Government has attempted to enhance export earnings leading to higher income to farmers. 5.109 One of the most effective strategies available to farmers to improve income from horticultural production is by exporting. However, the potential markets in developed countries are very demanding. Production systems and supply chains in India are not at present tailored to meet these demanding conditionalities. Total agricultural exports in 2002-2003 were of the order of US$ 6,428 million, which is 13.5% of total exports from the country. Fruit and vegetable exports accounted for 6.1% of total agro-exports with the major share going to fresh produce (4.1%) as compared to processed horticultural products (2%). 5.110 The Government has initiated a number of interventions periodically to stabilize and boost agricultural exports, particularly horticultural products. However, the success achieved so far has been below expectations and far below its existing potential. India has been exporting fresh fruits, vegetables, processed products of fruits and vegetables, flowers, cashew, tea, coffee, spices and seeds. Exports of fruits & vegetables as well as their processed products have shown an appreciable growth during recent years but they are yet to attain the status of the dominant foreign exchange earners despite the high potential. There is high potential for increasing exports of fruit and vegetable products by improving processing and value addition including post harvest handling and storage. Export Performance 5.111 There have been significant increases in the export of horticulture products during the past ten years, particularly fresh fruits and vegetables. Mango was the main fruit exported and onions the main vegetable. APEDA has initiated a program for an integrated training of horticulture producers for selected fruits such as grape, mango, litchi, Kinnow. Farmers have been provided training in integrated post harvest management practices for better handling of the produce to ensure export of quality products. APEDA is also making efforts to enhance the shelf life of fruits through the use of controlled/modified atmosphere storage and use of reefer containers so that produce can be transported by sea freight and achieve a higher competitive advantage. 5.112 Fruit: During 2002-03, fruits and nuts (excluding cashew) fetched export earnings of Rs. 437 crore. Mango occupies a premier position among fruits valued at Rs. 791.37 million. Other fruits, which have attained significant exports, are grape, walnut, citrus (Kinnow), banana and apple. Small quantities of other fruits e.g. litchi, guava, custard apple, pineapple, papaya and tamarind have also demonstrated demand in the export market. 5.113 Vegetables: Fresh vegetable exports have been on the rise. During 2002-03, total vegetable exports was valued at Rs. 650 crore. The major item exported is onion, worth Rs 362 crore, with a share of 55.69% in vegetable exports. Other crops with significant exports include tomato (Rs.4.75 million) peas (Rs.1.63 million) and cucumber (Gherkin) 61 (Rs.71.65 million). Mixed vegetable exports amounted to Rs.265.73 million, with the share of exports being 12.63%. Main vegetable exports from India are to South-east Asia and Middle East, except cucumber and gherkin which are exported to Europe and the U.S.A. High-value beans, peas, green chilli etc. have good scope for export. 5.114 Processed Fruits & Vegetables: Export of processed fruits and vegetables is another growth area for increasing export of value added products. Given the huge potential for manufacturing of processed horticulture products and limitation of the domestic market in consuming these products, it is imperative that the focus should be on export processed horticulture products. Whilst the processing industry in India has been dependent on small units without modern facilities, a large number of multinational companies have entered the processed food industries in recent years with a target on exports. 5.115 New products introduced into market include tomato paste in bulk, freeze dried and instant quick frozen fruits, vegetables and gherkins. The total export of processed fruits & vegetables from India (2002-03) was Rs 1207 crore comprising 46.48% of dried & preserved vegetables, 24.60% of mango pulp, 16.16 % of other processed fruits & vegetables and 12.76 % of pickles & chutney. 5.116 Potatoes: Limited quantities of potatoes are exported from India as fresh potato, seed potato and frozen potato. Major potato exports are to the neighbouring countries of South Asia and South East Asia. Since most potatoes in India are harvested in spring when fresh potatoes are not available in Europe, with a large production base and a sound export strategy, India has opportunities to exploit fresh potato as well as seed potato exports. 5.117 Mushroom exports started in 1993-94 with a total of 4,811.478 tonnes exported. However, there has been a decline in mushroom export during 1998-99 with a total export of 3,548.37 tonnes, mostly in dried/processed form. Dried mushrooms were exported to 18 Countries, the major share of which went to France, Germany and Switzerland. The major importer of processed mushroom from India were USA, Israel, Denmark and Canada. 5.118 Flowers: Although India's share in the export market of flowers is still insignificant, it has registered a sharp increase from Rs.14.45 crore in 1991-92 to Rs. 166 crore in 2002-03. Cut flower export value has shown substantial growth mostly due to the establishment of a large number of export oriented cut flower units in the country during the last ten years. The major product has been rose being grown by more than 90 per cent of commercial units followed by tropical orchids (dendrobium). Limited exports are also taking place in carnation and geranium. The major destinations have been Europe (Germany, Holland & U.K.). The other markets importing Indian flowers are Japan, Australia, Russia and Singapore. Other potential commodities for export are house plants, tissue culture material, dry flowers and hybrid seeds. Dry flowers contribute a major share of the floriculture trade. Flower crops like dahlia, bell cup, marigold, jute flower, wood roses and lotus pods which can be easily processed and preserved as dry flowers hold enormous potential as these are becoming popular due to their non- perishability. 5.119 Export of dry flowers and floral products has been going on since 1985. The Indian flower trade has surpassed 10,000 tonnes with the major markets being US, Israel, Hongkong, Japan, Singapore and West European countries. U.K. has been the 62 largest importer of dried flowers from India, ahead of Germany, Italy, the Netherlands and Spain. 5.120 Medicinal and Aromatic Plants: Demand for medicinal and aromatic plants has been increasing progressively with the increase in the number of multinationals establishing consumer oriented cosmetics and pharmaceutical enterprises. Currently most of these herbs are grown in large quantities and marketed by France, U.K., Canada, Turkey and the U.S.A. The foreign exchange earned by these countries through the export of these medicinal and aromatic plants and their products is substantial and profits are high due to growing demand. The potential for foreign exchange earning by India from the exports of medicinal and aromatic plants is estimated to be over U.S. $3,000 million per annum. The exports of these plants and their products have tremendous potential, particularly to the U.S.A., Japan and Europe. The demand for such plants is increasing both in developing and developed countries. The international market of medicinal plants related trade is estimated at US $ 60 billion per year having a growth rate of 15% per annum. Furthermore the annual exports of derivatives of medicinal aromatic plants are to the tune of Rs. 2800 crore. 5.121 Fruit and vegetable Seeds: India has emerged as an important exporter of fruit and vegetables seeds and planting material. The export is directed mainly to developed countries such as, US, Japan, Italy, Netherlands, France and neighbouring Bangladesh and Pakistan. 5.122 Current Trends: Comparison of commodities in India’s horticulture export basket reveals that vegetables (fresh and dried & preserved) account for nearly 50% of total horticulture exports. More recently, the export of grapes is growing in exports. In short, India's export of horticultural product is too small and diversified outside these few main products. In terms of product categories, fresh vegetables occupied the highest share of exports while in the case of fruits, the product category of provisionally preserved fruits contributed the maximum followed by fresh fruits. 5.123 The analysis of export trends indicate that in flowers, cut flowers (dried) and foliage branches (dried) dominate their respective categories while cut flowers (fresh) are emerging as potential items. For vegetables, onions dominate followed by mushrooms. Cucumbers and gherkins in various forms have shown promise while value added vegetables such as dried, dehydrated, pickles, are gradually improving their position in total vegetable exports. 5.124 For fruits, mangoes dominate this category in fresh and other value added forms while grapes are moving up in the rank. The value added products seem to offer good potential provided their markets are systematically developed. Considering India's strength in production and global growth in consumption of fruit juices, tropical fruits (including products) offer attractive potential. Fruits needing systematic development for this purpose are mangoes, bananas, guavas, lychees, papayas and pineapples. 5.125 The analysis with regard to export destination suggests that in case of fruits and floriculture, India's trade is mainly with developed countries while it is geographically wide based in case of vegetables. This is evident from data on direction of exports in case of mango products (Middle East, US and countries in Europe), grapes (UK), walnuts (European countries and Egypt), jams and jellies (Countries in Europe, North America and Middle East) and cashew (US, Europe and Japan). 63 5.126 Prospective View of Indian Export of Horticulture Produce: Analysis indicates that the categories which offer the greatest potential include dried and preserved vegetables and fresh vegetables, while the emerging category includes fresh fruits and fruit and vegetable seeds. In terms of product categories, fresh vegetables occupied the highest share in exports while in case of fruits, the product category of processed fruits contributed the maximum followed by fresh fruits category. The inference provides a useful guide to policy planners. 5.127 The products where India has made an impact in world trade are onions (fresh and dry), mangoes, walnuts (shelled), dried mushrooms, mango juice, and shelled cashew nut. Other products showing relatively greater potential are fresh grapes and all product lines of cucumbers and gherkins. This goes on to suggest that India's status in the global market of horticultural products is relatively weak and secondly, its exports are too diversified. Therefore as a part of India's export strategy it will be necessary to consolidate its market share in the world trade around the above products to strengthen its position in the global marketplace. India could also aim at 1-2% of world trade in the short term and aim at 5% in the world trade. 5.128 Strategies to Gain Access to International Markets: Major Apple Exporting Countries of the World are the U.S.A, Belgium, China, France, Italy, New Zealand, Greece and Brazil. Major Apple Importing Countries of the world include the Netherlands, China, Belgium, U.S.A., Iran, and Russia. India’s share of world exports is negligible (<1%). Further, in the last few years exports have declined. India’s share to its traditional markets in Bangladesh has reduced from 99% in 1996-97 to 49% in 1999-2000 and in the case of Sri Lanka, from 11% in 1996-97 to 5% in 1999-2000. 5.129 Further analysis reveals that countries like Australia, New Zealand and the USA have become more aggressive in promoting their products in Asian countries. Further, they are able to offer much better quality at almost competitive prices for a longer duration. This has resulted not only in cutting into India’s share, but also increasing the size of markets in those countries. These countries are able to do so primarily because of proper pre harvest and state of the art post-harvest (storage & transportation) infrastructure. 5.130 While making all efforts to improve the quality, emphasis should be laid on the exports to SAARC countries in the initial thrust over the next 5 to 10 years. The bulk of apple exports should be to Bangladesh, Nepal, Sri Lanka, and Maldives. UAE and other Singapore markets are also attractive and where India should focus. India could easily export 10,000 tons in 2001-2002 and 50,000 tons in 2006-2007. 5.131 India should continue to focus on in its traditional markets (Bangladesh and Sri Lanka) and also explore further opportunities available in other nearby destinations such as UAE, Singapore, Thailand, Mauritius and other SAARC countries. Market share for different countries, based on their imports and India’s competitive advantage in these countries that can be targeted in five years is as follows: In order to achieve the export projections, it is necessary to undertake following steps: • Implement a Quality Enhancement Program • Organize Pre-harvest management • Improve storage and distribution infrastructure • Undertake market promotion activities and export enhancement programs 64 5.132 Traditional markets for Indian apple are Bangladesh, Sri Lanka, UAE and Singapore. The thrust of India's export promotion should be: • Promote export oriented production • Improve the quality of produce through pre-harvest management and post- harvest (grading, packing, transport and handling) measures. • Focus on SARC countries Bangladesh, Nepal, Sri Lanka and Maldives. • Target a market share of 75% in Bangladesh and 50% in Sri Lanka. • Achieve an export volume of 70,000 T by 2008-2009. • Target UAE and Singapore markets for a market share of 5% and 3% respectively. • Devise a long-term strategy to expand the export to South East Asia and Europe. The interventions which need to be addressed in the horticulture sector in order of priority, are: • Infrastructure development • WTO compliance • Promotion and marketing of India's horticulture products in overseas markets 5.133 The success of the horticulture produce sector depends on a carefully designed supply chain. Given the highly perishable nature, post harvest management in horticulture is a capital-intensive operation requiring a chain of infrastructure facilities. It requires pre- cooling units, packing and grading sheds, cold storage facilities, refrigerated containers for transport and finally storage and phytosanitary facilities at airport. 5.134 Export promotion of horticulture produces and products have to broadly address the following: • Promoting introduction and commercial cultivation of varieties having established export value. • The final quality of any horticulture produce is the outcome of practices being followed at primary production, harvesting and post harvesting level. Under Codex, various hygienic codes have been developed for dealing with primary production, harvesting and post harvesting of fresh fruits and vegetables. As a first step these codes should also be implemented through the extension network for the identified crops having export potential. • Better understanding of domestic & export trade to identify potential areas of marketing. All major towns / mandi dealing with marketing of horticulture commodities need to be linked through Market Information Services, preferably through the internet. • Creation of infrastructure facilities like cold chains e.g., pre-cooling units, grading and packing sheds, cold storage, refrigerated trucks & wagons, refrigerated containers, adequate cargo space both through sea and air at appropriate locations. • Establishment of plant clinics in the private sector for soil, water, tissue analysis, identification of pest and diseases. 65 • Promotion of organic farming in selected export oriented commodities. To achieve this, adoption of vermiculture, use of bio-fertilizers, use of mycorrhizae, farm yard manure, and enriched compost need to be promoted. • Measures for accelerating certification for organic farming for different crops needs to be promoted. There is an increasing demand for organically produced commodities in the international market, hence there is a need to promote organic farming for different horticultural commodities. • The concept of alternate markets, having backward and forward linkages which is being tested on pilot scale should be promoted. • The potential for exports to earn foreign exchange from medicinal and aromatic plants is estimated to be over U.S. $ 3,000 million per annum. Since India is one of richest sources of medicinal plants as well as traditional systems of medicines, it is necessary to make sustainable use and export of such plants or plant products in which India has a competitive advantage. While a wide variety of germplasm is available in most of the horticultural commodities, varieties most suited for exports have not been adequately identified in several crops. Similarly many well known varieties having demand in the international market have not been introduced. Arrangements have to be made to identify the items and importing the same into the country on priority basis either on exchange basis our outright purchase basis. • Create facilities for enhancing shelf life of fruits through use of controlled and modified atmosphere. • Sanitary and Phyto-sanitary standards already available in India for fresh horticulture produce should be immediately harmonised with international guidelines and if higher level of measures is required, the scientific justification should be documented. • Under Hazard Analysis Critical Control Points (HACCP) Certification Program, horticulture produces and products may be covered on a large scale. In the context of removal of quantitative restrictions and the WTO regime there are a number of factors which govern the competitiveness in the global trade including lack of range of varieties; pre harvest practices to control post harvest losses; loss of produce at the primary level; lack of adherence to maturity indices; lack of facilities for physical and chemical treatment after harvesting; lack of post harvest infrastructure and logistics. 5.135 Lack of data and awareness of such factors greatly hampers the process of withstanding global competition in terms of price and quality of horticultural produce. Efforts are, therefore, needed to document the data and create awareness on these issues. New opportunities such as organic farming and import substitution having an edge in the international market needs to be promoted for sustained advantage and profit. 5.136 Indian standards in the agricultural sector have been established by various departments of the Government. These organizations are responsible not only for production and product standards, but also for their inspection and quality control. Some of the major organizations involved are; Directorate of Marketing Inspection (Agmark), Directorate of Plant Protection, Quarantine & Storage, State Seed Certification Agencies (SSCA), Food Products Order (FPO) Department of Food Processing Industries (DFPI), Bureau of Indian Standards (BIS), Agricultural and Processed Food Export Development Authority (APEDA), the standards developed under these organizations for the various 66 products need to be harmonized to meet the standards of importing countries under one authority with wider participation. • The qualitative aspects of processing will have to be attuned to modern trends, consumer preference and branded packages. • There is also multiplicity of standards in several horticultural products. There is, therefore, an urgent need to not only rationalize standards fixed by various organizations but also to harmonize this with ISO standards for different commodities. Standards for growing and package requirements of international markets are also not available in a large number of commodities. The standards developed by Directorate of Marketing and Inspection are outdated. • Quality assurance systems should be developed to exploit the potential for export of horticultural crops to safeguard against the import of sub standard material. • Logistics that form the most important part of horticulture produce export needs to be specifically addressed. Logistics will help to identify the bottlenecks in export of horticulture produce and will provide a prioritized agenda for investing in infrastructure. • Provision of facilities for transportation of refrigerated export cargo by transporting it with passenger trains, at concessional rates or in collaboration with container corporations. • Provision of low cost finance for setting up and buying specialized transport units • There is a need to create an awareness and establish the usefulness of reefer transport in the horticulture produces meant for export. Presently such temperature controlled transport is considered a luxury and therefore the cost of such facilities even in exports is priced uncompetitive. • India's case is unique looking at the diversity of climates, it becomes necessary to focus on mobile units for post harvest technology and transportation. • Provision of airfreight subsidies for initial product promotion and market establishment of efforts should be made available. • Abolish all duty and handling charges for export cargo of fruits and vegetables. • Providing cold store facilities at all airports having a reasonable number of international flights to cater to exports. • Encourage the use of charter flights from airports near the farm, which otherwise do not have any/few international flights. Specific strategy to boost exports of horticulture has to focus on the following: • Strengthening Agri Export Zones • Establishing a supply chain management system • Cold chain system • Innovative packaging • Packhouses/value-added centres • Market oriented approach 67 • Shift in focus from bulk exports to value-added exports 5.137 Drawing from the experience of many countries, it is suggested that export orientation of the horticulture sector is one of the prime requirements for its success in international trade, but it has to be complemented with a sizeable processing industry and strong internal market for horticulture products. It is known that the processing industry is not sizeable and internal market for horticulture products is relatively weak. Therefore, the desired export orientation could be brought about with a twin track approach (separate approach for development of domestic and overseas markets). In this context, current policy initiatives of the government may be fine tuned along the following lines: • The strategy of 'product-market' opportunity identification to consider additional criteria in case of horticultural products, • Making AEZ as more holistic, particularly in terms of institutional mechanisms • Emphasis on cold supply chain rather than on cold storage alone • Vertical integration of pre harvest technology and post harvest infrastructure with marketing network and processing units, export houses through linkage networking mechanisms in order to ensure capacity utilization • prioritizing development of primary processing and preservation facilities with focus on export as a part of National Food Processing Policy. • Policy initiatives will have to be enlarged with new policy initiatives to introduce further reforms in the horticulture sector. The areas identified for new initiatives are seed and planting material, research and development, food safety and quality. 5.138 The organic farming industry is an emerging area and is relevant to all focal states of the project. Organic food sales in the year 2000 accounted for 1.5-2% of total food sale in these countries (Europe, US and Japan) and annual growth rates forecast at 20 % or more for the next 5-10 years according to the International Trade Centre. As per a recent FAO report the demand for organic fresh produce continue to exceed production in developed countries and imports will be needed to meet consumer demand. The report suggests that the best opportunities are in counter seasonal fresh organic temperate zone produce and non temperate zone produce. There may also be some opportunities in seasonal produce in processed fruit and vegetables. Regulatory Requirements 5.139 With the establishment of the WTO regime, it was expected that measures like Sanitary and Phytosanitary measures (SPS) and Technical Barriers to Trade (TBT) may not arbitrarily or unjustifiably discriminate between countries. But India has already experienced their impact as Non Tariff Barriers (NTB) in case of mangoes and grapes. It is likely that Indian exporters will face such problems in future from other developed countries. One way to deal with such issues is to take them up with concerned governments. Simultaneously, attempts should be made to evolve quality standards for horticulture products, which are at par with international standards. The products that do not comply with the requirements should not be allowed to be exported. In the medium and long term, a 'twin track' strategy will achieve the desired outcomes i.e. readying selected geographical areas for competition in the international trade. 5.140 New regulatory requirements have been developed and enforced for product attributes such as food safety and quality. These regulations can become barriers to 68 trade and pose considerable obstacle to agricultural and food exports of developing countries. These concerns have to be addressed in a systematic manner and ensure that application of these measures does not reduce India's competitive position in horticultural trade, in terms of international cost and quality standards. The European Union (EU) has introduced regulations on pesticide residue levels in fruits and vegetables imported from different countries. Numbers of chemicals are regularly added to this list. All the exporters from India and elsewhere are required to comply with the maximum pesticide residue levels for exporting the products to the EU. 5.141 It is likely that more such problems will be faced by Indian exporters in the future, not only from these countries but from other developed countries as well. For instance, US rules governing import of fresh fruits and vegetables are very stringent. USDA gives clearance only after detailed tests involving inspection of the production areas. 5.142 International trade will increasingly be dictated by new regulatory requirements in food safety and food quality. At the same time it is a fact that various horticulture producers, fresh and processed, produced in India do not confirm to world standards prescribed by developed countries. Undoubtedly, the thrust of any intervention in future has to be on improving quality as defined and understood in international trade. In these circumstances, only a 'twin track' strategy will achieve the desired outcomes i.e. readying selected geographical areas for competition in the international trade. 5.143 The market structure in developed countries is witnessing changes with increasing consolidation and internationalization of supermarket chains. These supermarkets specify the requirements for price, quality, delivery and food safety for horticulture produce in developing countries in order to guarantee around the year supply. Moreover, specific marketing efforts might be required to gain consumer confidence in importing country. A survey by Proactive International in Europe has brought out the need for marketing promotion efforts that have to be coordinated with importer, wholesaler and retailer in order to supplement distribution and sales efforts to ensure success in overseas markets. Grape exporters from Maharashtra have been adopting this strategy for some time now. This has to be widely adopted in India's main export destinations for horticulture products like Middle East, Europe and North America. DHANKAR INPUT ToR (ii) 5.144 Agri-exports account for 14% to 18% of total annual exports of the country. The stagnating agri-exports in recent years can be traced partly to distorted domestic prices for products like rice, wheat, oil meal, tea and coffee. A major difficulty faced by India in the international market, is the high level of domestic support and export subsidies given by developed countries for agri exports. Indian agriculture can become competitive and enhance its efficiency by seeking substantial reductions in the support given to agriculture by developed countries and by providing domestic support to maintain and improve competitiveness. Large regular increases in Minimum Support Prices (MSP) of rice and wheat and afterwards selling them much below the economic cost of FCI to make them export competitive in the international market needs serious consideration. 5.145 The key crops with export potential and competitiveness are basmati rice, non- basmati rice, wheat, cut flowers, mangoes, grapes, walnuts, potatoes, onion, mango- pulp, pickles and pastes, preserved mushrooms, tomatoes (fresh and processed). Whereas the country’s exports of basmati rice is nearly 400 to 500 thousand tonnes 69 annually, it is for non basmati rice that it finds itself edged out of the nearly 25 million tonne global market because of high domestic prices. 5.146 The thrust of the export effort has to be highly selective. Assuming that there is a rise in the export prices of a commodity it does not automatically ensure higher production of that commodity. Along with price rises, farm technology, extension, credit, and marketing all have to lend support to production efforts. For example, India has become a major rice exporter and Indian rice is likely to remain competitive, especially in Asian markets, given the lower freight costs, compared to the US. Given the unwillingness, and not the inability, of developed countries to dismantle their massive domestic support and export subsidies to agriculture in their countries, it would be unrealistic to expect a major breakthrough in India’s agricultural exports. 5.147 India seems to have achieved a sharp change in the composition of its exports in favour of rice, soya beans, sugar, wheat, groundnuts, flour and coffee extracts, and recorded sharp reductions in the shares of beverages, tea and groundnuts. It is a matter of concern that India has been able to achieve only marginal increases in its share of exports, whose relative unit value is increasing or remaining constant during the post- reform period (from 21% to 28%). It has marginally lost the share of exports with greater than or equal to unitary value of the relative unit value realization index (from 42% to 38%). The most disturbing fact is that India has significantly increased its share of items (from 31% to 39%) whose relative unit value is less than unity and that too has been declining over the years. Not only the relevant agri-business enterprises, but also the relevant Trade Missions in the countries of export need to be sensitized on the performances of individual export items for possible clues to solutions of the underlying problems. 5.148 Exports have increased form 0.28 million tonnes in 1992-93 to 0.71 million tonnes in 2002-03. In terms of value, they increased from Rs. seven thousand million to 21 thousand million during the same period. Efforts to explore new markets through organization of delegations’ visits to potential regions and hosting of buyer-seller meets is regularly done. 5.149 Basmati Rice: Basmati rice is a unique commodity grown only in the foothills of Himalayas in the state of Punjab, Haryana and Uttaranchal. It is estimated that a total of around 1.3 million tonnes of basmati rice is produced in the country each year. Basmati rice is a major foreign exchange earner in the agricultural exports basket. Indian basmati rice has the strength of being a monopoly commodity with a good production base and high unit value realization. Pakistan is the sole competitor in this segment for India. Poor conditions of physical market infrastructure and lack of proper supply chain management, lack of systems for integrated production and high cost of production due to small holdings are some of the weaknesses in this commodity. A well planned promotional strategy coupled with ensuring quality through standards and specifications, research and development with modern laboratory and up-to-date market information are essential. 5.150 India is a major producer of non basmati rice in the world with a 24% share. West Bengal, Uttar Pradesh, Andhra Pradesh, Tamil Nadu, Punjab, Bihar, Orissa, Madhya Pradesh and Karnataka are the major growing States. Current production is estimated to be around 91 million tonnes. A high incidence of Minimum Support Price announced by the government is one of the major factors adversely affecting the domestic prices of non basmati rice. Since liberalization in 1991, India emerged as a 70 major exporter of non basmati rice and from a meager 0.27 million tonnes exports peaked at 4.54 million tonnes in 1995-96. But, in subsequent years due to higher domestic prices, and the general recessionary trend globally, exports have been fluctuating from year to year. 5.151 Branded product in consumer packs and development of rice based snacks and cereal products are seen as opportunity areas. Thailand and Vietnam emerging as suppliers of low cost product pose serious threat. Chhattisgarh is best suited for investment in increasing productivity and production of non-basmati rice for commercial purposes. Chhattisgarh traditionally being a major rice grower, greater commercial opportunities exist for production and agribusiness in rice both for domestic as well as exports. 5.152 The global market for flowers is as big as US$ 35 billion in terms of consumption and over US$ 7 billion in terms of international trade. The growth in demand is estimated at around 15%. Due to the high cost of production in developed countries, the emerging trend is to outsource flowers from developing countries where the cost of production is low. The key flower exporting countries are Holland, (59% share in the world export market), Columbia (10%), Italy (6%) and Israel (4%). The major destinations for export of cut flowers from India are Europe (45%), Japan (30%), Australia, Singapore and North America. 5.153 The cut flower industry in India is at its nascent stage. India enjoys the advantages of favorable agro climates, cheap labour and skilled manpower. India has a very high potential for export of cut flowers and exports have shown a steady growth from Rs.188 million in 1993-94 to Rs.1658 million in 2002-2003. India’s exports are mainly to the Netherlands, Middle East and Far East countries. However, the major market is very quality conscious and has tough quarantine regulations. At present technology is weak and post harvest handling has not been developed to the requirements of world markets. Protection of plant breeders rights and simplification of plant quarantine procedures are required. 5.154 Mango the “national fruit” of India accounting for 42% of fruit cropland is grown in almost 80 countries. India is the largest producer in the world contributing to approximately 50% of the total world production. In a good year, India harvests more than 11 million tonnes of mangoes. The normal production is within the range of 8 to 10 million tonnes. Other significant mango producing countries are Brazil, Indonesia, Mexico, Nigeria, Pakistan, and the Philippines. 5.155 India’s strength is in its being largest producer in the world, having long season and number of varieties which have uniqueness in taste and aroma. Sufficient R&D strength is available for product modification to suit international market requirements. However, it suffers from weaknesses such as establishment of post harvest protocols for sea transportation, an unorganized sector, lack of quality and consistency, lack of pre harvest and post harvest practices and facilities, lack of infrastructure, and lack of awareness about the requirements in the international markets. 5.156 The total area under grape cultivation is 45,000ha with an annual production of 1.05 million tonnes. Grape growers of Maharashtra have made a breakthrough in export of grapes by shipping the first refrigerated container to the UK by sea in 1991. During the Indian season, Chile, South Africa and Israel are the major competing countries. Total imports during the Indian season is 120,000 tonnes. Based on import estimates, a 25% 71 market share can be achieved. The potential thus works out to 30,000 tonnes which can be eventually increased to 40,000-50,000 tonnes during successive years. Various UK and Dutch importers have been working with Indian suppliers for the last decade, rendering technical and marketing assistance. The problem with Indian grapes is the image of poor, inconsistent quality. 5.157 The total market for grapes in South East Asia is more than 70,000 tonnes out of which, the three major markets i.e. Singapore, Malaysia and Hong Kong account for more than 60,000 tonnes. Major suppliers are USA, Australia, South Africa and Chile. Exporters should be considering South East Asian markets for additional export opportunities. However, it has a serious weakness in its sole dependency on single variety i.e. Thompson Seedless, relatively small size berries with limited harvesting season. The country has opportunities if introduction of new cultivars for early harvesting to position for the demand for the Christmas season. 5.158 Total production of walnuts is between 35,000-40,000 tonnes. Production has stagnated for the last few years due to the fact that walnuts are naturally grown trees. Cultivation in the form of organized plantations has not been taking place to date. One of the reasons is the long gestation period of 10-15 years taken by the walnut tree to come into fruition. Considering the enormous export potential, the revival of walnut production on a large scale should be pursued. Being a region specific, product its rejuvenation would help improve the economy of J&K which holds the monopoly in production and distribution. USA, China and Israel are the major competitors of walnuts in the international market. USA is the major exporter, supplying nearly 80,000 tonnes of walnuts followed by China, The major destinations for export of Indian walnuts are, Spain, France, The Netherlands, Germany, Egypt and Australia. 5.159 Potatoes occupy the largest area under cultivation for any single vegetable crop in India. It produces more food per unit area than cereals. The potato has wide range of seasonal adaptability and India produces about 23 million tonnes of potatoes each year. Export surplus from potato is available in the country. In terms of production, it ranks after wheat, maize and rice. Productivity is 19 tonnes/ha which is higher than the world average of 16.5 tonnes/ha. The major exporters in Asia are China, Israel, Syria and Turkey. India’s share in world potato exports has been quite insignificant and variable. 5.160 The Netherlands, the USA and Canada are the world leaders in the production and export of processed potato products. In the USA over 60 per cent of potato production is processed, while India has an installed capacity to process only 0.5 per cent of potato output in the organized sector. In India, most potatoes are grown in winter under short-day conditions and harvested from January to March when there is no fresh harvest of potato in most parts of northern hemisphere making it a strategic crop from export point of view. 5.161 World trade in processed tomatoes are in the form of paste, ketchup/sauce, puree and canned tomato. Italy ranks as the largest exporter of processed tomatoes, making its presence felt in the world market for all the four processed tomato items. In the case of canned tomato, Spain is another important exporter. In case of tomato puree too, Italy enjoys close to a monopoly. For the tomato paste market, India is not a dominant player in the world market, whether that be in the context of production, imports or export. India's share in world production is only 0.79%. However, the Indian tomato processing industry prides itself of being the largest in Southeast Asia. Another encouraging trend has been that India's production level of processed tomato has risen 72 by 50%. Major institutional customers of tomato paste are local restaurants. The manufacturers of ketchup/sauce account for about 80% of the consumption. Tomato juice and puree have not yet established themselves firmly in the middle class food market. The domestic market is expanding, and there is also world demand for this product. Tomato paste is another item in which India possesses export competitiveness. 5.162 India is exporting honey mainly to Germany, UK, Netherlands, Philippines, Russia, USA, UAE and Kuwait. During the year 1996-97 to 2000-01 the exports in value terms was been in the range of Rs.37 million. India has vast potential for increasing honey production in many States with its diverse variety of available bee flora. Plentiful and competitive cheap labour for setting up beekeeping coupled with Khadi and Village Industries Commission (KVIC)’s network of trained beekeepers offer substantial scope for apiculture. A large population and rural base are ideal for the development of beekeeping industry as an employment avenue for rural areas. With improved yields, cost of production could be competitive for exports. Low capital cost for setting up of beekeeping industry and prevalence of generally, disease free bees add to India’s advantage. 5.163 India exported around $80 million worth of medicinal plants to different countries in the year 2000. Leading markets are USA, Japan, Germany, UK, Taiwan, Italy, France, Indonesia, Pakistan and Hong Kong. The National Medicinal Plant Board set up in the Union Health Ministry has recently introduced (2003) a promotional scheme providing incentives for commercial cultivation of medicinal plants which have export market. Total acreage under cultivation of medicinal plants in India is estimated at 111,000ha. 5.164 Considered as a sunrise sector, organic agriculture has been reported to be growing at more than 20% annually in EU and USA. Although, currently a small size market, high growth rate of this market will soon convert it into a significantly large market. This market needs to be promoted after exploiting its commercial potential. There is a scope for India to gradually build an image of large and authentic producer of organic agriculture products. The State of Sikkim, Chhattisgarh offer better opportunities owing to traditional natural ways of cultivation of different agricultural commodities including horticulture. 5.165 The food processing sector accounts for a gross output of Rs. 1,12,0000 million which forms 6.3% of GDP, 6% of total industrial investment, 13% of exports, and 18% of industrial employment. The bulk of the sector consists of milled grains, pulses, raw milk, meat, fruits and vegetables, most of which is consumed without further value addition or processing. Non-deployment of modern agricultural practices and technologies coupled with the absence of post-harvest management, resulting in value degradation and high wastages compound the difficulties. According to official sources, less than 2% of fruits and vegetables produced in India are being processed, against the high percentages in Thailand (30%), USA (60-70%), Brazil (70%), Philippines (70%), Malaysia (80%) etc. 5.166 The country aims at increasing food processing from the current 2% of output to 10% by 2010, and 25% by 2025. It is estimated that a target of 10% of output in food processing would call for an investment of Rs. 1400,000 million which would create direct employment for 7.7 million, and indirect employment for 30 million. With developments in this direction, post-harvest losses are expected to come down by Rs. 80,000 million per year, and value addition enhanced from 7% to 35%, with a corresponding contribution to GNP. 73 5.167 India’s exports have substantially increased in volume over a period of 1995- 2000 rising from 36,000 tonnes to a level of 57,303 tonnes. The industry feels that domestic consumption is also increasing. Promotion of fruit juice as a safe and natural source of energy and nourishment in important consuming nations provides opportunities for further development of the fruit pulp industry in India. International demand for processed tropical fruits is growing and hence provides opportunities for India to diversify into more fruits like pineapple and passion fruits. 5.168 Pickles & Chutneys (paste) have long been traditional items of export covering a wide market which includes the UK and USA, the Middle East, Singapore, Malaysia and Australia. They are largely mango-based, cater largely to the ethnic food market, particularly, UK which is said to have the most diverse and advanced Ethnic Food market in the world. However, the spread of ethnic restaurants and specialized food caterers and their active promotion of a variety of ethnic cuisine is increasing in popularity including hot, spicy pickles & chutneys. The pickles and chutney industry requires to take due cognizance of these developments and develop innovative products suiting requirements of major markets. 5.169 While India has a large raw material base as its strength, it has weakness as product is shipped largely for ethnic consumption. More than 84% of exports to EU is to the UK and there has been no market diversification. It faces strong competition from local brands in UK and European buyers prefer sourcing from the UK due to assured quality. Most traditional pickles are oil-based and therefore have limited market appeal. There has been no product innovations in pickles and chutneys. 5.170 India is not a major mushroom producer at present. The mushroom industry came up in response to liberalization measures announced by government in 1991. This industry faced trying times since it was very nascent and there was no previous experience of hi-tech mushroom cultivation in the country on commercial scale to export. About 280 species are produced In India, the white button mushroom variety is gaining maximum importance among the growers due to its highest growth rate in production. The major varieties of mushrooms produced in the world are European or white-button mushroom (Agaricus bisporus) and the Oyster mushroom or Dhingri (Pleurotus spp), The variety gaining maximum importance in India has been the white-button mushroom, which registered the highest growth rate in production. 5.171 However, in the last few years the US market has opened up for India, due to withdrawal of China, on account of imposition of penal anti-dumping duties on Chinese mushroom. Exporters are promoting exports to the US. The demand for mushrooms will rise multifold in both the domestic and export markets. Technical manpower at the reasonable cost is going to be scarce in major consuming countries opening an opportunity for Indian mushrooms but competition from other countries will be severe. 5.172 Cultivation is concentrated in the hands of small & medium growers. It has non- remunerative yields and high cost of production. Successful thrust in US market should be encouraging for India. Besides stringent food laws and legislative requirements in consuming countries come in a way as possible threats. The States of Himachal Pradesh and Chhattisgarh among the focused States are coming up in mushroom production. Considering the commercial opportunities available both in domestic and export market, the TA Project could consider investments in promotion of the product in these States. 74 6.0 KEY LESSONS LEARNED FROM THE CASE STUDIES AND NATIONAL SEMINAR 6.1 The TA required case studies to be conducted in 6 States to review examples of agribusiness initiatives and learn from lessons to assist in formulating future programs for investment. In addition, a case study on contract farming was required in order to assess the potential social and poverty impacts. The 6 States selected are as follows: Andhra Pradesh Farm Extension Training & Technology Transfer Karnataka Private Sector Produce Wholesale Market Madhya Pradesh E-Choupal – The Use Of IT In Direct Farm Procurement Maharashtra Agri Export Zones For Horticultural Produce Tamil Nadu The Role Of NGO’s In Development Of Agribusinesses Uttaranchal Diversified Agriculture Support Programs The case study on contract farming took lessons from an all India perspective and Punjab in particular. The above 7 case studies are appended to this report. The lessons learnt from each case study are presented in the following pages. Andhra Pradesh Case Study – Farm Extension Services 6.2 This State has two institutions that focus on farmer extension services to facilitate transfer of farm technology to the farmer in an effective manner. National Institute of Agriculture Extension Management - MANAGE 6.3 MANAGE was established by Government of India in 1985 under the Ministry of Agriculture with the objective of providing a unified, effective agriculture support to the farmer by bringing together the several R&D technical resources existing both at the Central and the State levels. The mandate is to: Take care of program design and content development with the assistance of limited core faculty and associate faculty as facilitators spread over different institutions and State Governments. Demonstrate model training of farmers using distance learning methods in collaboration with Non Governmental Organizations (NGO’s), Krishi Vigyan Kendra (KVK’s) and Farmers Training Centres. Use its strong institutional linkages with State Agricultural Universities, ICAR institutions, ICRISAT and other international institutions in India and overseas to draw on the best talents for training. • Conduct training programs for capacity building of agricultural extension and research services. • Conduct research studies, consultancies and trainings which are tailor made for participants. 75 • Piloting the extension component of National Agricultural Technology Project (NATP). 6.4 Apart from the learning institutions created at Hyderabad and Jaipur to teach the trainers of the future, MANAGE has undertaken certain field pilots for the NATP as Innovations in Technology Dissemination. ICT Connectivity 6.5 Improving the information capacity of technology dissemination systems is one of the important goals of NATP. A two way communication between researchers and extension managers and farmers was to be achieved by video conferencing. As a first step, over 10 participating agencies and technical institutions were linked in a virtual manner by establishing a static system of internet and video conferencing. Thereafter a dynamic system of videoconferencing with farmers at the field level was sought through a mobile van equipped with a video monitor, dish and landline internet access. ATMA 6.6 Improving the existing extension system by decentralizing the decision making to the District level was sought through the creation of Agricultural Technology Management Agency (ATMA). ATMA sought to create a Society of key stakeholders at the individual district and facilitate technology transfer with a direct local focus and achievability. The organization structure comprised the following: • National Level Technology Dissemination Management Committee comprising Central Government and MANAGE • State Level Interdepartmental Working Group and Nodal Department • District Level District Governing Board and ATMA Management Committee • Block Level Block Technology Team and Farmer Advisory Committee • Village Level Village level Extension Officers and Farmers Organizations A total of 28 Districts spread over 7 States were selected to run the pilot scheme. Each Society was funded directly from the Central Government and segregate accounting was done for fund flow and utilization. Lessons Learned: • There appear to be too many organizations seeking to fill the void left by depleted State extension services trying to service the changing needs for farmers. A lack of clarity in extension objectives and in the priorities among them in addressing on site issues will take time to develop given the broad array of agricultural practices. • There is limited input from farmers who viewed the videoconferencing pilot. Farmers were not able to describe their field conditions and situation except in their local language. Since the pilot van was unable to travel to the fields, 76 extension managers were unable to observe the ground reality to enable render directly relevant advice. • The use of information technology via clinics and business centres as points for receiving, interpreting and disseminating a possible technological intervention is more advanced than the content which can suffer from confusion and ambiguity. • Agriculture has become more diversified and specialized in many ways and there is a strong component of assistance with commercial features of farming; farmers can be prepared to change to selective crops and selective practices but do need the comfort of marketing support for a meaningful overall activity. • A focus on productivity increase by itself did not appear to enthuse adopting the recommendations and undertaking the extra farm field implementation costs; the interaction between research and its field application is not a sure step since most farmers believe that research results would have probably entailed extra input costs which may not be economically justifiable. • The ATMA structure is highly systematized with elaborately defined roles and responsibilities in the administration content. Small and marginal farmers may find themselves excluded from participation. International Crops Research Institute for the Semi-Arid Tropics - ICRISAT 6.7 The aim and objective of ICRISAT is to help developing countries apply science to increase crop productivity with special reference to farming of crops that are suitable for semi arid tropical areas in developing countries where water is a primary constraint to agricultural development. Apart from collecting over 113,000 lines of crops that are important to diets of the poor, ICRISAT focuses on better rainwater utilization and plant breeding biotechnology to improve water use efficiency. 6.8 ICRISAT has focused on Sub Saharan Africa to guide and target its activity. The focus crops are sorghum, millet, groundnut, chickpea and pigeon pea. ICRISAT has taken up several ground level projects with improved cultivars as a part of ongoing research and proving in a field scale up. Recent Projects include pearl millet in Tamil Nadu and soybean chickpea rotation farming study conducted in 35 sites all over the country. 6.9 Keeping sustainability in mind, the focus has always been kept on the farmers and the learning, adoption of new technologies, use of farming implements and watershed management. 6.10 It is involved in a project for sorghum cultivation in certain semi arid districts of Andhra Pradesh. Growers are to supply sorghum to the poultry feed manufacturers, an effort to combine technology with a commercial benefit from such directed land use. The project components are better seeds, water harvesting and utilization, integrated plant management and harvesting systems which will ultimately meet the buyers demand. The project was tested last year and is likely to be developed on a commercial scale in 2004. Lessons Learned • A participatory research approach to commercial agriculture has shown that about half of the innovative ideas are adaptations and modifications to externally introduced ideas and options; the other half originated from the farmers. The joint 77 force of researchers and farmers have enabled in developing a number of innovations in a short period of time. • The commercial focus must be inbuilt; the applied approach will improve its chances of becoming self sustaining over the longer term; this will entail close supervision and assistance over a longer period and the ability to meet and sustain costs. • For any real value to be delivered to empower farmers, the extension mechanism must work with the farmer at the farm field itself; given the limitations of reach out of State extension mechanisms, the knowledgeable private sector has the opportunity to carry this forward as commercialization of agriculture. Karnataka Case Study – Private Sector Wholesale Produce Market 6.11 Karnataka is the eighth largest State in the country and has a population of 52.7 million. The capital is Bangalore, home to 12.5% of the total population. Bangalore is the main transit market for this horticulture focused State. Under the Karnataka State Agricultural Produce Marketing Regulation Act of 1966, State Department of Agricultural Marketing and State Marketing Board operate and regulate all wholesale produce markets in the State. Bangalore receives 5,000 tonnes of fruits & vegetables daily of which nearly 2,000 tonnes are consumed in the city and its environs. Bangalore currently has 3 APMC market and a further 4 satellite market are proposed. HOPCOMS – Horticulture Producers Cooperatives Marketing and Processing Society Limited was allowed about 10 years ago to establish retail units, a cold store, a processing unit and 4 procurement centres. This retail focus initiative has faced difficult times and about 100 retail units have since closed from a total of the 312 original units. 6.12 National Dairy Development Board (NDDB) is India’s largest milk cooperative and in a special endeavour to bring farmers and wholesalers together, NDDB was given permission to own and operate a wholesale market in Bangalore. SAFAL is NDDB’s brand name for fruit & vegetables and SFVAM – Safal Fruit and Vegetable Auction Market came into existence in February 2000. 6.13 The State Government MOU with NDDB authorizes setting up SFVAM at an estimated cost of Rs 1500 million. The project envisaged facilitating 225 farmer associations with about 50,000 grower members for produce production and supply to SFVAM wholesale market via 45 produce collection centres. The Farmer Associations are to be provided with training on produce aggregation. The auction facility can accommodate 200 items on trade. Forward linkages with consumers and retailers were sought via 20 cash & carry retail stores. 6.14 SFVAM is designed on the lines of European Auction markets, offering clean and hygienic market environments designed to handle 1,600 tonnes of fresh fruit and vegetables daily. The market yard is fully IT equipped for transaction transparency. Indian Space Research Organization (ISRO) was retained to provide remote sensing satellite imagery for crop and area forecasting. The market is equipped to: • sort, grade and quality check produce in retailer and wholesaler friendly packs for easy handling and transport • provide short term facility to store fresh produce • state of art facilities for fruit ripening 78 • efficient transportation to and from the market yard • online wholesale price information of all items to keep buyers and suppliers apprised in making purchase and sale decisions 6.15 60 acres of land were provided by the State Government in March 2001. The market was made fully operational in September 2003. However, commercial operations are yet to commence. State Government has initiated several facilitative steps to assist this venture to its fruition. These include: • Facilitating wholesale trade in certain fruits by de-notifying the existing market • Helping wholesalers to relocate by offering a low interest soft loans with deferred interest for 75% cost of the new shops allotted • Proposed shifting of the existing vegetable market to a new location which is proposed to be developed for the State Government by NDDB on 27 acres at a project cost of Rs 350 million Lessons Learned • The wholesalers are not prepared to shift to SFVAM because of the cost of relocation of their shops & establishments, plus they are required to pay large deposits specified under the rules drawn up for participating in the auction floor • There are over 1000 F&V wholesalers in Bangalore; the SFVAM provides allotment to only 102, a move that is potentially disrupting to traditional trading linkages, some of which were established over many generations of trust and loyalty • The Government move to de-notify certain produce markets has prompted the market casual labour to approach the Courts prompting stay orders being issued; current distribution methodology for fruits and vegetables has a large manpower involvement and there are social issues involved with relocation and availability • Wholesalers believe they will have to maintain two establishments which will increase their operating costs; existing rentals being paid are very low • The forward linkages of 20 cash & carry stores proposed for retail distribution are not ready; attractive retail is a key to securing perceived value imparted by proper grading, packing and hygiene • Though 100 Farmer Associations have been provided with necessary training for delivering their crops, the proposed collection centres have yet to manifest themselves; this delay will hamper a farmer shift away from known & trusted traditional systems • The dynamics of aggregation of small lots of produce from the multitude of small farmers has yet to be tested • Overseas models of wholesale auction markets have food service distributors who buy in bulk for on time distribution to distant retail outlets, hotels, restaurants and other institutions; this nature of forward linkage derives the maximum benefit from market standardization but is as yet in a nascent stage. 79 Madhya Pradesh Case Study – e-choupals for Direct Farm Procurement 6.16 Madhya Pradesh is the second largest State in the country. After cereals, oilseeds are the second largest crop produced. Known as the soybean State, Madhya Pradesh accounts for over two thirds of the total soybean production in the country. The State has a large number of oilseed growers and the largest processing capacity in the private sector for solvent extraction to obtain edible oil and oil meal. Most of the soymeal produced is destined to export markets. India has secured a special competence in soymeal, both in terms of high protein content and a non GMO character that is distinctly different from other large soybean producing nations. 6.17 ITC Limited is one of India’s foremost private sector companies with sales of around $2.6 billion. It has well established and diverse interests in cigarettes, paper, hospitality industry, packaging, processed foods and consumer products. It has an International Business Division (IBD) which is India’s second largest exporter of agricultural products. 6.18 ITC IBD is a regular exporter of soymeal to international markets. Traditionally, soybeans are sourced from APMC market yards, a process that involves a vast number of intermediates in the supply chain from farm gate to factory gate. This is a dynamic, well dispersed system that sets its own patterns of stocks in trade, market price and physical delivery systems. A feature of the resultant speculation is that contracted deliveries are often made up as mixed lots of several origins and qualities. This resulting diversity is a disadvantage to quality processor operators who seeks to deliver uniform reliability in its trade products. 6.19 ITC has opted therefore to set up a system that would allow direct purchase from a wide supply base and to use Information Technology as a means to collect and collate the vast number of transactions so entailed. The e-choupal initiative does precisely this for ITC. 6.20 Realizing the fact that quality identity is likely to be lost at any point after first farm gate delivery, ITC targeted small village communities in the hinterland and far removed from the traditional mandis. At such selected village communities each serving about 600 farmers, an e-choupal terminal was established to contract supplies directly with the farmers. Each e-choupal is provided with an internet on line terminal platform to serve the following main functions: • declare a spot price every evening based on the market for the day • conclude spot sale/purchase contracts with farmers for next day delivery • provide sale/purchase slips as delivery validation to the receiving hub 6.21 Farmers bring in the contracted soybeans to the collecting hub in bulk. All deliveries are promptly sampled, weighed, tested and paid for in full, on-the-spot. Each process step is fully transparent. The hubs are linked to the State Office for the administrative work, cash inventory and shipping to the nearest crushing unit. Each e- choupal is managed by a sanchalak, a trained local farmer/intermediate. The sanchalak receives a purchase commission of 0.5%. The receiving hubs are managed by an ITC agent who receives a similar purchase commission. 6.22 ITC have established about 1,600 e-choupals in Madhya Pradesh, each at a cost of Rs 175,000. Special permission was sought by ITC from the State Government since 80 direct procurement of specified commodities is prohibited by the APMC Act. ITC emphasized that the ‘spirit’ of the Act (to benefit the farmers) is better serve by e- choupals by leveraging a productive role of IT. Notwithstanding this direct procurement modus operandi with no mandi involvement, ITC is required to pay the full mandi fee applicable. This fee is collected daily and under the direct supervision of mandi officials assigned to each procurement hub. 6.23 ITC are reportedly able to save about Rs 200-250 per tonne on procurement costs because no double handling/transportation is involved. Any undelivered contract can be traced back to the concerned e-choupal and informed to the farming community for the social fabric to take over. Excess delivery over the stipulated quantity is not permitted. Quality checks are done very quickly and scientifically. Price adjustments are transparent and vastly different to the traditional mandi practice. • For the farmers, the major benefits compared to mandi practice are: • accurate weighing machines • scientific determination of quality • on-the-spot payment in full • transparent price disclosure 6.24 Farmers can receive on line information on prices in different markets & competing oilseeds, best farm practices, weather reports, farm input prices, availability etc., and making e-choupal a place for social gathering, directly related to commercial agriculture. • For ITC, the e-choupals provide: • origin tracing • quality identified raw material • ear-on-the-ground for price trends, crop progress • a distribution outreach for other products & services Lessons Learned • The e-choupal requires a substantial start-up investment and the economic return will be driven by the need and ability to effect large and regular purchases • Collecting the full mandi fee further disadvantages similar private sector initiatives and particularly smaller companies engaged in food processing • Trade intermediates in the smaller mandis can be effectively repositioned with the benefit of IT based transparency and awareness • Regulated mandis may like to reinforce the systems in place for accurate weighings and other trade transparency issues. The e-choupal platform may also provide financial services to farmers since contract performance is a matter of record which is not too dissimilar to a credit history. 6.25 Information availability and dissemination such as agricultural extension, distant education, e governance (information about government schemes, aid programs, land 81 records, employment opportunities, etc), are now all within reach of the ICT system in rural areas. The investments in the internet system and training would quickly be recovered if the market fees would be waived. An important aspect of the system is that it completely financed by the private sector and requires no public investment in a market place. The Government should ensure that no restrictions are being placed on the expansion of this system. The social impact of ICT on the rural population and poverty reduction will have a significant impact. Maharashtra Case Study – Agri Export Zones for Produce Export 6.26 Maharashtra is a key agricultural State with about 59% of its geographical area under agriculture, well above the national average of 43.4%. The diversity of climatic conditions ranges from hot & dry inland plateau to the vast coastal stretches that receive large monsoon rains. Diversified agriculture is widely practiced including a focus on horticulture. Mumbai is the country’s largest commercial centre and Mumbai port has perhaps the best shipping facilities for general cargo. 6.27 Maharashtra is a large producer of mango, grapes, oranges, strawberries, pomegranate, banana and many other fruits. The prized alphonso mango is widely grown in the Konkan coastal region and Kesar mangoes are spread over the south central part of the State. Grapes are relatively recent but have made great progress particularly since the early 90’s which saw a marked upgrading in every stage from cultivation to processing to access to international markets. Floriculture is another emerging competence in the State. 6.28 The success achieved by many Maharashtra grape cooperatives can be traced back to the focused approach adopted for all round development of the export led purpose, a market to farm understanding and its careful implementation. Grape cooperatives were formed simply as a means to consolidate truckload shipments to domestic markets. The need to stagger and elongate the peak supply time frame was quickly understood and this was taken back to appropriate harvest readiness practices at the farm. Pre cooling facilities were created close to producing origins and this was followed by new varieties and better field practices including safe pest management. Direct export contracts with the overseas buyers have now established the market strength of this activity. 6.29 APEDA is the agricultural produce export development agency of the Government. The Agri Export Zone (AEZ) scheme was announced on March 31, 2001 to develop the geographical competence of different agricultural products grown in the country for the export markets. Export promotion zones have long been popular as a policy measure for industrial products. These EPZ’s have a well defined demarcation for offshore activity. However, given the vast array of agricultural produce, the AEZ structure has virtual boundaries to encompass a wider production base and the many processing units that would need to associate to the chain from farm to export. The AEZ scheme envisages a convergence comprising: • Awareness at the farm level for appropriate production propagation techniques • Development by way of suitable varieties to meet consumer demands • Marketing under appropriate infrastructure and trade linkages. 82 6.30 The AEZ scheme provides Central Government funding for approved projects and APEDA is the nodal agency. Maharashtra was the first State to be granted AEZ approval in February 2002, for alphonso mango. Maharashtra received approval for 7 AEZ’s of which funding has started for 4 AEZ’s – Alphonso mango, Kesar mango, Floriculture and Grape Parks. The first two have Maharashtra Agricultural Marketing Board (MSAMB) as the nodal agency. The Floriculture and Grape Park AEZ’s are being guided by Maharashtra Industrial Development Corporation (MIDC) as the nodal agency. 6.31 Maharashtra has a strong network of public sector institutions for production, manufacturing, procurement and supply of agricultural products. The State has 5 National Research Centres and a huge institutional network of a private sector participation at all stages of the value delivery chain. The AEZ for Alphonso mangoes envisages an outlay of Rs 350 million spread over 5 years, with Rs 260 million as Government support and Rs 100 as million private sector investment. The AEZ has been operational for two years. Some highlights are: • Over 1200 farmers were provided training through 28 training programs conducted at the Dapoli, Konkan Agricultural University • A vapour heat treatment plant has been installed by MSAMB at Vashi Port terminal • Infrastructure for fruit handling, pack houses, pre cooling, cold storage etc. has been created both as new units and by strengthening existing units • 75 growers groups have been formed with the help of ATMA and fact sheets in regional languages are helping create awareness • Research projects on spongy tissue and pest risk analysis have started • Some farmers have since opted to do away with pre harvest sale of orchards to traders to take up harvesting and direct marketing • Non availability of stable electricity continues to hinder proper use of infrastructure • Three private sector entrepreneurs are likely to setup processing infrastructure The AEZ for Kesar mangoes envisages an outlay of Rs 185.6 million including private sector investment of Rs 109.5 million, mainly for pulp processing units. Some highlights are: • Over 1850 farmers have been provided training through 32 programs • Infrastructure for handling and storage is under construction in Aurangabad • A start has been made in direct export of Kesar mangoes The AEZ for floriculture envisages an outlay of Rs 178.9 million including Rs106.6 million from the private sector. Some highlights are: • a floriculture auction center is being created in Mumbai • MSAMB has established an international standard polyhouse training centre at Talegaon to impart practical training in protected and open field cultivation 83 • Pune Agriculture College offers hands on entrepreneur development of polyhouse based floriculture management to unemployed agricultural graduates, polyhouses are leased for 1 year subject to entire operations being done by the individuals Lessons Learned • The AEZ scheme has just started and it is too early to judge the export benefits • A convergence of effort is visible but the cooperatives may not be as compact as the successful grape model which is in close proximity to cooling infrastructure • Long gestation and technology adoption lag are to be expected, farmers derive the maximum benefit with training imparted closest to their fields and local conditions 6.32 The AEZ provides a focus and direction for exports of key agricultural produce in marketing, market promotion and market development. The need for market oriented research, development and extension activities has been recognized under the AEZ and appropriate activities proposed to achieve both short and long term goals of the Indian export industry. The program offers substantial fiscal incentives. Capital goods at 5% rate of duty, duty free fuel for running diesel generating sets, exemption of sales tax and other taxes and duties on inputs used for export. Any restrictions on, or impediments to obtaining the proper varieties must be eliminated and national breeders encouraged to invest in developing these varieties and have seed locally multiplied. Tamil Nadu Case Study – NGO’s in the Development of Agribusiness 6.33 Dr. M. S. Swaminathan is one of the architects of India’s Green revolution which has brought about self sufficiency in foodgrain production. The M.S. Swaminathan Research Foundation (MSSRF) is a worthy example of harnessing the knowledge of technology for the benefit of farmers. MSSRF is an NGO which is a research oriented action focused organization that bridges the gap between theory and practice. 6.34 MSSRF is doing action research in five areas – Coastal Systems Research, Biodiversity and Biotechnology, Ecotechnology and Sustainable Agriculture, Reaching the Unreached and Education, Communication, Training and Capacity Building. MSSRF focuses on agriculture development through Self Help Groups (SHG’s) in a bottom up participatory approach which places people above technology. Community participation is ensured in all developmental activity, the cornerstones being participation in: • decision making, identifying problems, formulating alternatives, planning activities, allocating resources • implementation, carrying out activities, managing operating programs and services • economic, social, political, and cultural benefits, both individually and collectively • evaluation, activity outcome, feed-back based decision making, implementation of future programs, correcting existing programs, benefit sharing 6.35 The selection and training of SHG’s is designed to help build grassroots institutions for rural entrepreneurships. Starting with inculcating the habit of savings, internal credit mechanisms give timely loans at low interest rates to members and start 84 up of viable micro enterprises to increase job opportunities for the landless poor. Some visible examples of success are: • A Seed Growers Association was formed with corporate and research institute participation to supply quality seeds and assistance after sowing; over 60 region specific varieties are now in regular supply • Organic farming of lemon, pepper and coffee has commenced and farmers are being linked to certifying and marketing agencies • Paper and paper board is being produced from banana waste in a fully eco- friendly manner • Trichogramma bio-pesticides are being produced by 3 women SHG’s and are being marketed directly as well as through corporate tie-ups 6.36 The Bio village Project was started in Pondicherry in 1992 to impart on-farm demonstrations on integrated pest management, soil health monitoring, bio-fertilizer and bio-pesticide production for micro-enterprise development. 18 villages were selected spread over 4,000 ha and covering a population of 25,000. The objectives of pro-nature, pro-poor, pro- women use a blend of ecotechnologies of traditional wisdom and frontier technologies of bio-information, renewable energy and communication technologies. A trial system of rice intensification was conducted at the bio-village centre. 50 farmers from local villages receive on-farm training and nearly all of them have since carried the benefits of this technology to their own fields and are now helping to train their neighbours. 6.37 The use of IT through an Information Village Project provides directly relevant information to the farm community. This project began in 1998 in Villanur which was selected as having a reasonable telecom infrastructure and a social profile where the reach of electronic media was reasonably high considering that most households are poor with an annual income of less than Rs 16,000. Predominant sources of information were local shopkeepers, the market place and input suppliers. 6.38 An intranet hub and spoke system provides farmers with databases that are updated with relevant content. Some examples of most used information are; • Meteorological report • Vegetable prices at Farmers markets • Paddy purchase prices • Fertilizer stock availability at go-down • Gold & silver prices Databases include: • Government schemes and programs • Health information • Agricultural information • Educational information • Citizens charter 85 6.39 MSSRF has developed an excellent sense of purpose in their trainers who are the visible face with distant village communities. The trainers are patient, multi-skilled and are easily able to integrate with the farm village community. Lessons Learned • Well-informed NGO’s can make a very useful contribution to imparting skills and systems that have a direct meaning and benefit for the local community • Agriculture that works is the need, not just on the farmer’s fields but must go beyond to reach out to the commercial linkages that can drive some profit back to the farm • There are a large number of landless who are deeply integrated into the village social fabric; farm based micro enterprise activity by SHG’s can be very supportive to the agricultural environment • The farmer needs to receive current information on all of his first steps for: • taking the planting decision • sourcing the right inputs • knowing the current market prices • deciding when to sell Well directed IT can be the essential and impartial means to empower the farmer. 6.40 NGO’s in general make a significant contribution to agricultural development and are well suited to organizing farmers into groups to their overall benefit. However NGOs need to place more emphasis on the commercial aspects of agriculture and assist farmers to produce revenue on a sustainable basis to avoid interventions and reliance on external support grants. In order to achieve this objective, NGOs need to plan their activities to maximize farmer’s incomes and not get too involved in those activities that detract from these objectives however altruistic they may be. Training programs should be tailored to fit in with these objectives so that commercial viability and sustainability remain the primary focus. A link up with commercial enterprises is usually key to success. For example, organizing seed growers for (hybrid) seed production companies, organizing farmers for contract farming. Uttaranchal Case Study – Diversified Agriculture Support 6.41 With the help of World Bank, the Government of Uttar Pradesh launched a Diversified Agriculture Support Program (DASP) in 1998 at a project cost of $ 160.5 million of which 20% was the share of the State. The DASP program commenced on September 30, 1998 and had a projected lifespan of 5 years. After the formation of Uttaranchal State on September 9, 2000, the DASP program was bifurcated and a separate Project Coordination Unit was set up for Uttaranchal and having a budget of $ 15 million. 6.42 The principle behind these entities is that key infrastructure and services are provided to private enterprises. As of now some 39 Food Parks have been sanctioned but the progress in making them operational has been slow. They are yet to develop a clear perspective of their role as a facilitator, infrastructure provider, and catalyst. They are proposed to provide common cold storage facilities, quality control labs, pilot plants, uninterrupted power supply, adequate water supply and effluent treatment plants. The 86 role of Government and government agencies is not clearly defined and although two Food Parks have been established in the private sector, most are established by the public sector. The latter are reportedly not functioning very well. Rs. 650 crores have been allocated during the Tenth Plan but this strategy may need to be reconsidered pending performance of the Parks. 6.43 The DASP program ended on September 30, 2003. The program covered 5 Districts of the State of which 4 Districts are in the hilly zone. Uttaranchal has 13 Districts and except for two, the rest are hilly regions, extensively forested (62%). The area under cultivation is 13.97% of which 44% is irrigated. The foothills of the Himalayas receive good rainfall and there are numerous mountain streams and valleys that make up the platform for agriculture in the State. Majority of the farming is done on narrow terraces which face the challenges of high soil erosion resulting in subsistence farming systems. Fertilizer consumption varies from 200 kg/ha in the flatland Districts to 5 kg/ha in the hilly regions. Rice, wheat, maize, oilseeds and pulses are the major crops cultivated. 6.44 Broad strategies for diversification prepared by the State Government have identified hilly region opportunities as off-season vegetables, spices, medicinal and aromatic plants and flatland region for seed production, basmati rice, litchi fruit and floriculture. A concessional package of incentives was announced by the State to facilitate setting up of industrial units. The principal objectives of DASP were to increase agricultural productivity through support of States’ diversified agricultural production systems, promote private sector development and promote rural infrastructure. The aims include: • Strengthening the delivery of agricultural services to exploit market led opportunities for growth in horticulture, livestock production and agro-processing • Integrating project investments with policies and legislative/regulatory framework that facilitates rationalization of public & private sector roles and creates an enabling environment fro greater private sector investment • Supports the expansion and rehabilitation of rural infrastructure • Foster Panchayat Raj institution, NGO’s and beneficiary participation devolution of responsibilities for sustainable management of rural assets. The project components sought to address four sectoral issues through its implementation: • Policy reforms of improved cost recovery and privatization of Government services • Technology development and dissemination aimed at intensification and diversification of farming systems • Greater participation of SHG’s to share production and marketing knowledge as well as credit from the banking system; NGO’s were expected to play a major role in formation and nurturing of these groups • Human Resource Development by providing self employment to workers involved in various sub-sectors of the agriculture and allied sector. 6.45 MANAGE (ATMA) and CFTRI, Mysore provided on-ground support for technology spread and quality examination. Indian Institute of Management, Lucknow 87 was entrusted with monitoring and evaluation of project impacts. Their report at the end of two years highlights: • Cropping intensity in the project area was 212% compared to 168% in the non project area • 16% of the farmers shifted to horticultural crops; hill districts shifted to perennial crops whereas in the flatlands, the shift was to short duration vegetable crops • Under the practice of Integrated Plant Nutrient Management, soil testing for better fertilizer management was carried out by more than one-third of the farmer compared to 8% in non project area • Despite a shift to organic farming and in the first year, a lack of follow-up saw sharp drops in use in the second year • Yield comparisons did not show variations in different categories of farmers except for cereals which recorded marginal increase in the project areas • The income of farm households showed an increase of 23% over a three year span and that the number of female workers in farming activities had increased • The tendency of availing credit facility increased with the formation of SHG’s and there was a steep decline in use of credit from informal sources. 6.46 DASP in Uttaranchal has received proactive leadership by the State Government. The productive role of SHG’s and NGO’s as social intermediates has been noteworthy. Project funding under the ATMA model direct to the District Units helped in generating community ownership and the ability to respond to local flexibility issues. However, the newness of the State has impacted lack of ownership at the Departmental level and there is poor documentation of implementation steps. The project ended in September 2003 and a transitional mechanism of follow-through plans is yet to take active shape and substance. Lessons Learned • Visits have played a significant role in ensuring better farmer and community acceptance of technology • Regular consultation with farmer communities on their needs and finding local solutions to their problems helped farmer’s ability to absorb new technology • Successful utilization of local social intermediates and NGO’s has led to greater utilization of community participation in project implementation • Facilitating market linkages for farmer communities has not provided adequate attention thus slowing down the impact of the program and its sustainability • Decentralization of the implementing authority and use of NGO institutions to enhance farmer participation is not fully imbibed by the line Departments and may not thus sustain beyond the project phase • Heavy reliance on using technical staff from outside of the system has contributed to a high degree of dependency and inadequate internalization of the program’s objectives and processes. 88 Contract Framing 6.47 Contract farming is a common feature of commercial agriculture in many other countries, where it has been a blessing for small marginal farmers. In many countries it has been the vehicle for lifting marginal incomes to prosperity, and has become a necessity for supply of high quality agriculture produce. In particular for agro-industry an assured supply from many small farmers frequently presents a problem for an agro- processor or fresh produce exporter. 6.48 Contract farming is a form of agriculture undertaken to meet a very specific need of agricultural produce. A specific buyer agrees with a specific farmer to grow a particular quality and quantity of produce which is intended for the sole purchase by the buyer from the farmer and at a predetermined price. 6.49 As with any contract agreement, there are individual needs and considerations that are the cause for such partnerships to happen and to mature successfully. While there can be great variability in such mutual arrangements, some key issues of need are: The Buyer: • Predictable source of predictable quality that arrives in a planned timeframe for the next process and can be traced for food safety standards • Predetermined price and quantity which helps control the risk element on account of the quantity and its value payable The Farmer: • Existing market systems can be tedious and ex farm-gate delivery is expedient and has no intermediary that can diminish farm gate earnings • Access to potentially improved profitability through any alternate farmland use to produce a specialty product, distinguishable from traditional cropping • Access to better seeds, inputs and new technology and alternate credit and financing systems In developed countries, contract farming systems are a mutually beneficial mechanism for sourcing specific kinds of products from the farm. These could be: • staggered maturity from different origins • Crops that are not traditional • Industrially distinguished character/composition • Select produce for retail markets • Organically grown produce • Experimental crops 6.50 Developed countries have a very low farmer base and contract farming often takes the role of a contract for land use. There are well established systems for commercial recourse and fair business practice. 6.51 India has had limited experience so far with contract farming. The large majority of farmers are economically weak and the size of individual land holding is often too 89 small to be commercially viable and sustainable. The purpose of the contract is a safe delivery; the outcome of a farm activity however well intended, is always prone to factors beyond their control. The ability and capability to share and absorb risk cannot be one sided and is very individual sensitive and contract serviceability on both sides is an issue that is not fully predictable. 6.52 Contract farming faces the barrier of policy. The APMC Act restricts farmers from entering into direct marketing contract with purchasers as all produce is required to be sold through regulated markets only. Certain States have granted issue-based permission to the private sector to purchase specified crops directly. The Model Act circulated by Central Government is designed to facilitate State Governments to enact suitable amendments or changes to their individual APMC Acts. The Model Act also provides a draft agreement structure for Contract Farming. 6.53 Statutes for contract farming would be hard pressed to accommodate the very wide diversity and the sheer magnitude of the numbers of Buyers and Farmers who may be disposed towards entering into contract farming agreements. 6.54 There are increasing instances of scattered success in contract farming. Many of these have been boosted by the entry of large corporate companies and responsible players who see the benefit of the increased food safety value that can be obtained by direct procurement. These models have a large component of technology and inputs transfer, the two cornerstones of a sustainable relationship. The approach to the inherent uncertainties of agriculture production at the end of the day ranges from models that have farmers to grow larger acres so that only a portion of the produce is risk protected, to models that have flexibility in pricing based on a future market or mutual agreement. 6.55 Contract farming would rarely be sustainable if applied to just one season – the need to develop longer tem linkages between select buyers and farmers is mutual. Contract farming has an inbuilt model to succeed with fairness on both sides. Whilst this does not rule out exceptions, the sharing of repetitive risks from year to year would hardly benefit from legal recourse. 6.56 The social interface of contract farming has been used as an important factor to satisfactory performance. Incentives, rewards, & public recognition have been used to create select supplier relationships. There are no hard and fast rules for selection of partners, one model did use farmers having a minimum of 8 cultivable contracted acres. Absentee landlords were not considered. Integrating with the community is critical and this begins with the quality of technology being imparted and the trust this conveys. 6.57 The social interface has succeeded admirably when women and education are partners of the process. The milk cooperatives and the poultry sector are vibrant examples. Horticulture is a labour intensive farm activity and the role of gender is of significance. The productive role of NGO’s and Community Grower Groups having the ability to undertake larger combined acreage is a productive inopportunity. 6.58 Agri clinics and private sector Krishi centres run by fertilizer and other input suppliers are well placed to interact with farmers. Contract procurement with farmers who have a known performance background is a potentially useful means for effecting agreements that are sustainable and are thus worth investing in by both sides. 90 6.59 Contract farming has the ability to eliminate constraints associated with rural extension, introduction and application of modern technology, finance and marketing and has become a necessity for the supply of high quality agricultural produce. Given the infancy of contract farming in India and its potential for agriculture development and rural poverty reduction, it is recommended that in collaboration with the private participants, a program is formulated which may accelerate contract farming in India. NGOs can make an important contribution in contract farming by organizing farmers in groups. Examples are the rapid growth of agriculture and poverty reduction in rural Thailand such as shrimp cultivation, high value crops (coffee, tobacco, seed, etc.) In The Philippines and Indonesia, poultry, egg and pig farms have benefited from contract farming. Social Aspects and Poverty Reduction 6.60 The potential social and poverty impacts of Agribusiness and Commercial Agriculture development is based on data and information collected from government and other sources, people interviewed, and visits to three case study States and to three of the five Road Map States. Agricultural workers, small and marginal farmers and casual workers engaged in non agricultural activities constitute the majority of the rural poor. Small land holdings and low productivity are the main causes of poverty among the population the majority of which depend on agriculture for their livelihood. 6.61 The Tenth Plan places emphasis on alleviation of poverty, generation of adequate employment and provision of basic minimum services such as drinking water and shelter. The creation of employment opportunities for the unskilled workforce remains a major challenge. Good education, health, nutrition and low fertility help reduce poverty by increasing opportunities to generate incomes. India has experienced substantial improvement in education and health over the past few years, however indicators continue to show low levels of literacy and school enrolments, high levels of infant mortality, maternal mortality and malnutrition. A 1999 IFPRI report20 ranked government expenditures by their effectiveness in reducing poverty, in the following order: • Expenditure on roads has by far the largest impact on rural poverty, with each Rs. 1 million (about $21,000) investment in roads estimated to lift 165 people above the poverty line. • Investment in research and extension has the largest impact on productivity. A Rs. 1 million investment in this area was estimated to raise 91 poor people above the poverty line. • Spending on education has only a modest impact on productivity growth, and a Rs. 1 million investment is estimated to raise 32 people above the poverty line, mostly by increasing non farm employment opportunities and wages. • Expenditure on rural development has an impact on poverty reduction comparable to that of additional investment in education. However, it has no discernible impact on productivity growth in agriculture, and thus does not provide a long-term solution to the poverty problem. • Public expenditures on irrigation have the third largest impact on productivity growth. 20 Linkages between Government Spending, Growth, and Poverty in Rural India ; IFPRI, 1999 . 91 • More than 90% of the effects of investment in rural electrification are derived from non farm employment; the rest comes from productivity increases as a result of electrification of irrigation pumps. The highly positive effects of rural roads on income and poverty reduction are well established21. Usually rural roads are identified by poor beneficiaries as having the highest priority22. Indeed the GOI Tenth Plan gives high priority to rural roads and agricultural research and extension, where investments not only have a large impact on poverty reduction for each additional rupee spent, but also give rise to the greatest growth in agricultural productivity. As has been discussed earlier in this report, policy and institutional constraints are impediments to fully exploit the potential of these investments for poverty reduction. These road blocks should be eliminated first in order to the make the proposed investments fully effective. 6.62 Social protection should not be viewed as a cost, but rather, as an investment in human capital formation. Lacking or inappropriate social risk management will negatively impact economic development and growth and can perpetuate poverty. Inter state disparities are still large and the rural urban differences are wide. The poor, rural women, disabled and people belonging to scheduled castes and scheduled tribes continue to stand out as the most vulnerable sections of society. 6.63 Farmer Empowerment: Group and cluster formations encourage the formation and mobilization of social and financial capital enabling the poor to interact with other social groups from an enhanced position of strength. By encouraging savings and internal lending among the members of the group augmented by revolving fund grants from the government and linkages with banks and other credit agencies would greatly enhance their prospects of creating sustainable enterprises. This would ensure a minimum level of employment and stability to the incomes of the poor giving them the opportunity to develop their collective strength and improve their economic position to reduce their vulnerability. 6.64 Programs of other Development Agencies: The Food and Agriculture Organization (FAO), United Nations Development Program (UNDP), the World Bank and other bilateral aid agencies such as the European Union, Department for International Development (DFID) of the British Government and others support the initiatives of the Government of India in addressing agricultural development and poverty alleviation. The World Bank has been financing the Diversified Agriculture Support Project of the Uttar Pradesh and Uttaranchal Governments, and also District Poverty Initiative Programs (DPIP) in certain districts and states. DFID finances PACS (Poorest Areas Civil Society) Program through a joint managing agency. The European Union provides funds to civil society organizations for environment regeneration and basic education programs. 6.65 Despite food grain production increasing from 175 million tons in the 1980s to 206 million tons in the 1990s, the growth rate in availability of foodgrains per capita has come down. There is a strong case for using these stocks for reducing rampant malnutrition among the vulnerable sections of the society without adversely affecting the food security. Universal screening of vulnerable segments of the population to identify individuals who are undernourished and providing them with subsidized foodgrains from available foodstocks will reduce prevalence of malnutrition. 21 See also; Infrastructure and Poverty Reduction-Making Markets Work for the Poor. ERD Policy Brief No. 14; ADB 22 For example, by land reform beneficiaries in the Philippines, rural roods rank consistently at the top of priority. 92 6.66 There are a number of interventions that can make a significant contribution to poverty alleviation by creating employment opportunities for small and marginal farmers. Some of the more important interventions are identified below: 6.67 Contract Farming: There should be a commitment on the part of the major political parties to promote contract farming. Contract farming can enable many small and marginal farmers to participate in the production of high value crops such as fruits, vegetables and flowers and benefit from market driven growth, this should be seen as a strategic step towards promotion of agribusiness and a means to increase small farmers incomes. However a review of the Indian experience of contract farming demonstrates that it is not always necessarily beneficial or detrimental to small farmers. Workers employed in contract farming tend to be subjected to poor terms and conditions. Case studies show that farmers are the weaker party in each aspect of contract farming and policy reforms need to be mobilized to promote contract farming. In many states, marketing acts have yet to be modified to allow agro processing firms to purchase directly from farmers. The effect of contract farming on small farmers as well as its ultimate viability depends on how the firm manages the scheme, what terms are included in the contract, and how sensitive it is to the needs and expectations of the local farming community. When firms enter into contracts that are favourable to both parties, supply enough inputs, offer fair contract prices, and conduct their dealings in an open and transparent manner, farmers are more likely to benefit. Legal protection to farmers as a group is essential to protect them from exploitation and procedures should be put in place for resolving disputes expeditiously. In many states, agricultural tenancy is legally banned. Tenants who do not enjoy security of tenure cannot participate in contract farming, hence legalization of tenancy is essential. 6.68 Agriclinics and Agribusiness Centers: The Scheme for a Network of Agriclinics and Agribusiness Centres was launched in 2002 by the Ministry of Agriculture in association with SFAC, MANAGE and NABARD. The basic objectives of the scheme is to supplement public extension efforts and provide specialized extension services and create entrepreneurial opportunities for unemployed agriculture graduates. Agriclinics and Agribusiness Centres are expected to revolutionize the agriculture extension system in the country. The scheme envisages establishing 25,000 agriclinics and agribusiness centres during the Tenth Plan period. The promotion of Agriclinics and Agribusiness Centres appears to be very timely. Agribusiness Centres will particularly meet the growing need for mechanization of agriculture without the small marginal farmer having to own the assets. NGOs should also be in a position to establish Agriclinics and Agribusiness Centres. Agriclinics and Agribusiness Centres will have a positive but indirect effect on income generation of small farmers by virtue of their ability to provide advice to farmers. 6.69 Food Parks: Food Parks is an initiative to tap the large potential for food processing contributing to the overall development of rural areas and generating off farm rural employment opportunities. Food Parks can become a catalyst in the Agriculture- Industry-Trade linkage by providing various constructive benefits to both the Food Park promoters and the Food Processing units. Collective storage and processing may also become an option for the future to provide employment opportunities. 93 6.70 Agri Export Zones: The concept of Agri Export Zone focuses on a particular produce and location for the purpose of developing and sourcing the raw materials, processing, packaging and exporting. Marketing the product is the key to success and the capability to position the product in an appropriate market at the right price ultimately determines whether the AEZ can be a viable proposition. This AEZ concept does not conform to the definition of a ‘zone’ as such where there are physical boundaries. There is also no export obligation on the basis of this being a so called export zone. The obligations emanate from the licenses that the exporter chooses to take. The concept therefore is much more flexible and hinges more on Convergence, Partnership and Focus. Convergence relates to coordinating all the ongoing schemes of Central and State Governments to take care of the interventions required at various stages of value chain. Thus the extension and inputs related assistance can flow from other schemes, marketing assistance could come from APEDA. The Partnership envisaged between Central Government, State Government, farmer, processor and exporter lies at the heart of the concept of AEZs. AEZs do not appear to have been of direct benefit to small and marginal farmers to date although the potential for them to be part of the chain and derive benefits is significant. Benefits can come from the strengthening of backward linkages with a market driven approach, value addition, reduction in costs through economy of scale and increased employment opportunities 6.71 NGOs: NGOs have so far played a limited role in promoting the development of agribusiness and commercial agriculture. NGOs can use their strength of community mobilization and for empowering the farming community. They have an inherent advantage in reaching the poor due to their proximity, the trust they generate by working in the area, their commitment, flexibility in approach, responsiveness and cost effectiveness. NGOs can help the development of commercial agriculture and agribusiness to create an enabling environment helping to reduce poverty and generate employment for the poor. The role played by NGOs and farmer organizations in developing agribusiness include the promotion of SHGs, (particularly amongst women), successful clusters, federations and cooperatives. NGOs can help SHGs to start viable micro enterprises to increase job opportunities of the landless poor. The process starts with mobilizing the poor to form groups for capacity building and identifying and initiating suitable micro enterprises with financial support from government agencies and local commercial banks. Successful experiments in the promotion of micro enterprises has revealed a strong partnership between NGOs and financial institutions. The inadequacies of formal credit institutions could be overcome by combining the strengths of commercial banks with the intermediation capabilities of NGOs to effectively link the poor with the commercial banking channels. This would be a cost-effective alternative for providing credit to the poor as banks would be able to reach a larger number of small borrowers with lower transaction costs. Typical NGOs include: M. S. Swaminathan Research Foundation is a research oriented (NGO) registered in 1988. MSSRF’s mandate is the promotion of agricultural and rural development through the conservation and enhancement of natural resources, promotion of sustainable livelihoods, gender equality, and skills enhancement. MSSRF has also introduced the concept of precision farming which is suitable for small and marginal farmers. Precision 94 farming makes optimal and efficient use of available resources to achieve and increase productivity. DHAN Foundation: DHAN (Development of Humane Action) Foundation is a grassroots action agency working with poor communities in villages. Enhancing poor people’s livelihoods in a sustainable manner and enabling poor communities are the focus of the programs. The mission of the organization is to build institutions for innovation in development work to bring positive changes in the lives of poor. DHAN Foundation believes in building the capacity of people in planning, organizing, conflict resolution and implementation of development programs. DHAN Foundation initiatives are aimed at building people constituencies around specific themes and linking them with formal systems. Sadguru Foundation: Sadguru’s strength lies in the unique partnership it has developed with the Central and State governments. In the Road Map States, particularly Chhattisgarh, Sadguru Foundation (NGO) should be considered a resource organization for promotion of horticulture and floriculture amongst tribal farmers. Promotion of horticulture, floriculture and vegetable farming is a natural progression for the Sadguru Foundation, after working on developing water resources in the area for more than a quarter century. 6.72 Self Employment Programs: Generation of self employment for the poor in the rural areas is one of the important components of anti-poverty and rural development strategies adopted by the Government. SGSY is a major ongoing program of self- employment generation for the marginalized sections of rural communities. The formation of SHGs by itself contributes to the empowerment and economic well being of the poor by improving their collective bargaining position. Groups also encourage formation of social capital enabling the poor to interact with other social groups from a position of strength. SHGs move through various stages: social mobilization and formation of groups (initial phase); savings and internal lending among the members of the group on their own, augmented by revolving fund grants from the government and linkages with banks and other credit agencies (second phase); obtaining micro finance (third phase) and setting up of micro enterprises (fourth phase). Since the commercial banking network has its limitations in reaching the rural poor, other formal institutions that cater to the specific credit needs of the rural population could be integrated into the credit delivery structure for self-employment programs. Primary Agriculture Credit Cooperative Societies (PACS) have an extensive network in the country and possess detailed knowledge of the borrowers. Regional Rural Banks (RRBs) and other credit organizations presently outside the purview of micro finance activities, could be associated with self-employment programs. Self-employment programs are likely to have an uneven regional spread, succeeding in areas that have a tradition of artisanship, developed road and rail infrastructure, banking facilities and a skilled human resource base. The negative relationship between the incidence of rural poverty and land access is well established. The landless face the greatest risk of poverty. Access to even small pieces of land which may not be sufficient for providing income to a family for subsistence can significantly reduce poverty and food insecurity by providing an essential component in a diversified livelihood system. Their impact may be less visible in under-developed, backward and tribal regions. The SGSY program should continue to promote land-based 95 activities for individual and group beneficiaries in backward regions. Diversification into other land-based activities such as sericulture, aquaculture, horticulture and floriculture should be encouraged. The program could, support the purchase of land and its distribution to the landless rural poor. Micro enterprises succeed only if they cater to the specific needs of an area. It is necessary to identify livelihood opportunities and constraints in the realization of these opportunities and the investments that would have to be made to remove these constraints. The micro-level planning process would have to be strengthened in the districts for the program to succeed. In this endeavour, the involvement of PRIs, banks, micro finance institutions and NGOs would have to be ensured. They would have to work in close coordination in the preparation of a District Plan for activities under SGSY. Marketing strategy is an integral part of every self-employment venture. Market intelligence has to be developed and Surveys of local and urban markets to understand product demand is necessary. Rural village markets have to be set up to position the products of self-help groups and linkages to these would have to be developed largely through private channels, industrial enterprises and export houses. Self employment programs have in the past made significant contributions to the reduction of poverty and growth of rural development. Establishing a micro enterprise could be the objective of every group. However, only groups possessing special skills, technical know-how, marketing linkages and access to essential infrastructure can aspire to the stage of micro enterprise. 6.73 Wage Employment Programs: Wage employment programs provide only short- term relief to the poor. Long-term sustainable poverty reduction in the underdeveloped regions can come about only if other sectors of the economy grow rapidly. It is imperative, therefore, to ensure that the growth process is inclusive and pro-poor. Agricultural growth still holds the key to poverty alleviation and there is considerable scope for increasing agricultural productivity through expansion of irrigation, better land and water management practices and infrastructure support. The SGRY program seeks to provide productive employment opportunities in employment-intensive sectors and the Government should endeavour to generate a shelf of projects for execution under SGRY that fits into the overall development plan of an area. SGRY has three streams, one to address the need for rural infrastructure in all states, the other to provide focused attention to areas facing endemic poverty and the third would respond to natural calamities. The general stream universalized across states would be for the creation of local infrastructure. Village communities could augment the resources under the universal stream by mobilizing contributions from within the community. The second stream would seek to provide an employment guarantee of at least 100 days for areas facing chronic unemployment and poverty. The districts and blocks would be selected on the basis of an objective criterion and efforts would be made to create at least minimum infrastructure in these areas by ensuring convergence of other government programs. Such an assurance would ensure a minimum level of employment and stability to the incomes of the poor and give them an opportunity to develop their collective strength. It would improve their economic position, reduce vulnerability and discourage migration to facilitate their continued access to health, education and welfare facilities available in the village. 96 The third stream would be an enabling mechanism for the Government to respond to natural calamities such as floods, droughts, earthquakes and other contingencies that require quick response to mitigate the hardships faced by people. 6.74 Bio Village and production of Bio Pesticides: The Bio Village concept is designed to provide the efficient and sustainable use of natural resources using recent advances in bio technology to achieve a continuous and steady growth of agricultural production while protecting and improving the environment. It promotes sustainable human development through an integrated approach of technological empowerment and social development. The methods used to achieve the objectives are knowledge, skill information and organizational empowerment of rural families based on a blend of traditional wisdom and frontier technologies such as bio information, renewable energy and communication technologies. The Bio Village project encourages the setting up of "Biocentres" which are operated by the Bio Village Societies. The Bio Village societies comprise of many "self help groups" in each village. Four to ten such groups constitute a Bio Village society. These enterprises will not only help the rural population in using all their available resources but also improve the rural economy substantially. The objectives of biocentres are to: • Provide necessary production and Market information. • Enable efficient production through centralized services. • Confer on small-scale producers the power of marketing. • Provide necessary facilities for effective functioning of Bio Village societies. • Serve as a meeting place for entrepreneurs to exchange experiences and ideas. The Bio Village project is comprehensive as it goes all the way from on farm demonstrations to integrated pest management, soil health monitoring, bio-fertilizer and bio-pesticide production to social mobilization and micro enterprises, prospects for replication are good. The State Bank of India has shown an interest in integrating Bio Village concepts in its rural credit program. The experiences gained will be used in large- scale replication all over the country. Members of the bio-council have been actively involved in enabling the community to develop an action plan for a credit linked Bio Village. The Bio Village concept has, thus been a resounding success. An awareness has been created which is spreading very fast and the people are actively participating in the program to extend the program to other villages because the success is very visible and reduces the cost of agricultural production. 6.75 Information Technology: The role of ICT in agribusiness is now seen to be indispensable. Case studies have demonstrated significant benefits to small and marginal farmers in almost every respect. ICT helps to create dynamic, location specific, learner defined learning materials to improve their information knowledge. To be of use to farmers, the information should be rendered into locality specific knowledge that farmers can use to plan their activities and maximize the benefits. Information and knowledge are the main instruments of development and empowerment of community but many rural areas still lack an effective communication network. Information is being 97 provided on agriculture, farming, livestock, government schemes, acts, laws, policies income generation activities, women issues and natural resources. Information technology should be given a high priority in any investment program. It has a significant potential impact on agribusiness development and can benefit poor farmers by reducing their costs of production and providing up to date information on growing the right crops to suit predicted market conditions. Empowering people through access to timely and relevant information can make a difference in the life of the rural poor. Particularly popular thus far are women's health information, advice on growing local crops and protecting them from diseases, daily market prices for the crops, local weather forecasts, and clear information about programs that are provided by the Central and State government to aid poor families. Uniqueness of the project is the fact that most information is collected and fed in by the local community itself. Objectives • Maintenance, updating and dissemination of information on entitlements to rural families using an appropriate blend of modern and existing channels of communication • Conducting impact assessment based on organization of surveys and participatory rural appraisals. • Building of a model in information dissemination and exchange in rural areas that uses advanced information and communication technologies • Conducting research on formation of multi-sectoral partnerships (private public/government-NGOs) with rural communities to form a sustainable model of ICTs for rural areas • Development of ICT based applications for rural areas, especially community banking online and distance education, to assess their potential to contribute to the sustenance of a rural ICT program • Exchange of research results with tele-centre program in different parts of the world, to arrive at a more comprehensive picture of impact assessment and sustainability issues and its possible internalization in project implementation. Setting up of village information shops enable rural families to access modern communication technologies. Each information village must adhere to the following three requirements: • Community ownership • Must be used as a development tool and not just as a technology demonstrator • Must not be restricted or associated with just one group or caste 6.76 Finance and Credit: Establishing direct linkages between local banks and groups is a prerequisite for long term sustainability and will help address developmental issues of the poor. The experience of lending to poor so far has not been positive as many schemes for the poor are target driven and subsidy oriented. However efforts have been made to organize programs and training to orient many bank officials and influence their attitude through interaction with group members. Banks provide the loans at market 98 rates and charge an interest rate of 12% per annum. More importantly banks were to link more groups only after experiencing 100% repayment rates. Establishing direct linkages between local banks and groups is a prerequisite for long term sustainability. The linkages reduce the transaction costs for banks and provides timely credit for the poor at an affordable price. Being close and locally available, the banks can build sustainable business relationship with the groups and federations to bridge the gap. Addressing social development aspects need to be preceded by sound financial systems and institutional practices. People’s organizations need to be supported to build such systems and practices by the promotional institution. This is a precondition for sustainability of the institutions and will help address developmental issues of the poor. 6.77 Productivity: Poverty is adversely affected by low productivity. There is considerable scope for increasing agricultural productivity through provision of high quality seeds and inputs, expansion of irrigation, better land and water management practices and infrastructure support. A large number of rural facilities have been built under various programs over successive Plan periods. However, they have degenerated either due to their initial faulty design and construction, or lack of maintenance. Small land holdings is not conducive to high productivity, hence the importance of promoting the formation of groups and clusters comprising a number of small farmers to take advantage of economies of scale in buying inputs and marketing. 6.78 Diversification: Diversification into activities such as mushrooms, sericulture, aquaculture, horticulture and floriculture should be encouraged, especially for small farms. This can be facilitated by educating farmers to make them aware of the advantages of cultivating alternative crops. Incentives such as free seeds and technical expertise on post harvest technology and marketing should be provided. Subsidies on fertilizer, water and electricity use should be reduced to encourage farmers to use these services more efficiently. There is the need to promote cultivation of mushrooms in three of the five Road Map States. There are success stories in two Case Study States and also in the three Road Map States visited. A mechanism for documenting and disseminating successes should be developed and also for supporting some of the entrepreneurs wanting to scale up their mushroom cultivation programs. 6.79 Specific Interventions (Crops) Wheat: The cultivation of wheat does not have an appreciable effect on employment to the small and marginal farmers except in weeding operations. Rice: Cultivation of rice is very labour intensive. From an employment perspective, cultivation of rice provides assured employment. Medicinal Plants and Non Timber Forest Products: The main source of income of tribals for their livelihood is forest and agriculture. Non-timber forest products that include medicinal and herbal plants play a very important role in the tribal economy. Horticulture: From a poverty alleviation and social perspective, diversification into horticulture has a significant social impact. Fruit trees can provide nutrition and 99 supplemental income. For landless families, employment in the orchards provides a steady income. Vegetable Cultivation: Vegetable cultivation being a labour intensive activity has significant potential. Landless families are assured of employment almost round the year. Mushrooms Cultivation (white button mushrooms): This is the most promising agribusiness activity for a small cultivator or even a landless family and there is the need to promote cultivation of mushrooms and support should be provided for entrepreneurs wanting to scale up their mushroom cultivation programs. Mushroom Cultivation (Oyster Mushrooms) The basic technology is simple enough for poor people to easily learn and practice to gain experience and confidence. The investments are low enough for poor people to sustain even in a scenario of uncertain low production performance. Replication on a small scale in areas with moderate temperatures and high humidity conditions is possible. Value Added Products: Processing of pulses, cereals and mushrooms by producing Papads and Vaddis is an activity that provides steady stream of income to poor women in rural areas and urban slums. Zero Energy Cool Chambers Storage of fresh vegetables for a few days is a serious problem. The low cost cool chamber developed by Indian Agriculture Research Institute, New Delhi. It is an on farm storage chamber working on the principle of evaporative cooling. It is constructed with locally available materials. Vegetables can be stored for longer periods giving the farmer the opportunity to sell produce over a longer period. 6.80 Overall Conclusions and Recommendations to minimize poverty impacts and optimize benefits to small and marginal farmers NGOs have a key role to play in helping small and marginal farmers to optimize benefits from agribusiness and commercial agriculture. NGOs can facilitate the following: 1. Organize farmers into self help groups (SHGs), cluster associations and federations 2. Provide advice and hands on support to SHGs for deciding the crops (cereals, pulses, vegetables, fruits, mush rooms, plantations, medicinal plants, etc.) that should be grown. 3. Help SHGs identify entrepreneurs, preferably amongst themselves for becoming service providers (e.g. procuring and selling quality seeds, right quantity and quality of insecticides and pesticides, common farming services, such as ploughing, harvesting, threshing, storing, etc.) 4. Help SHGs with market information and facilitate contract farming. 5. Organize farmers into Community Grower Groups for facilitating contract farming, e.g. Ion Exchange Enviro Farm’s (a company engaged in promoting organic farming) initiative of linking up with M. S. Swaminathan Research 100 Foundation for helping small farmers grow pineapples in Kolli Hills in Tamil Nadu for export market. 6. Help SHGs access credit and subsidies where applicable. Key NGOs identified: 1. M. S. Swaminathan Research Foundation (MSSRF) and DHAN Foundation located in South India for organizing SHGs, cluster associations and federations in all five road map states, and particularly in Punjab. MSSRF also for applied research, bio-villages and production of bio pesticides, information centers and zero energy cool chambers. 2. N. M. Sadguru Water and Development Foundation and BAIF Research and Development Foundation in Western India for promoting orchards, floriculture, vegetable cultivation, etc. in Chhiattisgarh with the tribal farmers. 3. PRADAN in Central India for promoting cultivation of Oyster Mushrooms in Chhattisgarh. 4. Ion Exchange Enviro Farms, a for profit company, to link up with NGOs in Himachal Pradesh, Jammu & Kashmir, Sikkim, Chhattisgarh for promoting organic farming for export markets. Delhi Workshop The Delhi Workshop was held in Delhi on 30 April 2004. The workshop was attended by representatives from Central and State Governments, Financial Institutions, representatives A summary of the discussions is presented below: • Efficient marketing is crucial for the future growth of agriculture. Issues facing this sector of low productivity, high wastage, low value addition and absence of linkages in the markets could be effectively dealt with by encouraging private sector investments in infrastructure projects followed by reforms in the market. • While several steps have been taken by the Government to introduce a more liberalized market regime such as liberalization of the Essential Commodities Act, introduction of the negotiable warehouse receipt system, opening up of future markets, risk management, formulation of integrated food laws and a Model Act on Agricultural Marketing. • In order to encourage private financing initiatives, entrepreneurs could be assisted by way of advice, financial management, quality assurance and project marketing. • It was proposed that the private sector will react favourably to the concept of the Project Development Facility and a Special Purpose Vehicle to assist in the formulation of infrastructure projects and identifying implementation bottlenecks. • The agriculture sector has to be transformed from supply driven to demand driven to make it cost competitive. Soft infrastructure to facilitate flow of market information and agri knowledge to farmers need developing alongside physical infrastructure. 101 • Reforms are needed in taxation, neutralization of incremental costs on electricity and irrigation. Tax rebates on agri extension services should be treated on a par with research and development. • Production and productivity of crops could be significantly increased by reforms in the seed sector and by supporting the seed industry. In many states sales tax and market fees on seeds were acting as a disincentive. • Industry’s effort to involve farmers in the development process faced several problems such as non availability of institutional finance to farmers and their consequent exploitation by intermediaries and evasion of tax by small players making value chain operations by the corporate sector unviable. • To promote integrated value chain in agriculture, the Government needs to deregulate the sector by permitting foreign investment in food retailing, facilitate farm finance by simplifying procedures and reducing interest rates on agricultural lending to support financing of the value chain. • Risk taking capacity of farmers is low and therefore insurance has to play a vital role in risk mitigation emanating from weather as well as from markets. There is a need to promote auction houses and aggregating units at farm gate level and tax incentives provided on extension services. • While several fertilizer companies took up extension work to promote integrated nutrient application, recent changes in fertilizer policy deprived the industry of funds to continue with the extension work. • The pesticide industry had a well organized network of distribution and their efforts could lead to doubling of yield at farm level by bringing into the mainstream extension a vast pool of agricultural graduates. • Representatives from the financial sector suggested that assistance for agricultural extension, seed storage and infrastructure projects could be provided by the proposed Fund but one has to look at different options and interventions which could enhance value addition. The Fund could share risks with the financial institutions. • Investment credit in the agriculture sector has been decreasing recently. To reverse this trend, there is a need to connect farmers with the corporate sector in contract farming to facilitate larger flows of credit to them. Technical expertise in banks needs to be strengthened to handle finance to farmers through self help groups. • Representatives from the Reserve Bank of India said that the Vyas Committee are likely to submit a report shortly to address many of the problems relating to flow of credit in agriculture. Absence of appropriate land records and non recognition of land leasing were some of the major inhibiting factors affecting agricultural credit. • Representatives from the private sector expressed the opinion that the market place was not always the most efficient way of handling trade in foodgrains. In several instances farm gate procurement was a better option and eliminated the need for double handling. Market yards function without any forward and backward linkages and were causing obstacles to establishing value addition. 102 • There is a huge potential for private sector initiatives in pre and post harvest extension and in setting up primary processing facilities at the farm level. Contract farming arrangements should also be promoted for medicinal and aromatic plants. National Seminar The National Seminar was held in Delhi on 20 May 2004. The seminar was attended by representatives from Central and State Governments, Financial Institutions and the TA Team. The seminar was divided into two sessions. SESSION 1 The first part of Session 1 presented the key issues in commercial agriculture and agribusiness as follows: • Commercial Agriculture and Agribusiness must be Market Driven for the domestic and international markets. • The need to create an enabling environment • The need to Empower farmers • The Multiplicity of Schemes needs convergence • Numerous laws, regulations and taxation structure require rationalizing (e.g. Food Laws) • Financing of private investment projects needs modalities Comments from the seminar participants on Key Issues Identified: • The subsidies on seeds, fertilizers and pesticides intended for farmers often do not reach them due to multiplicity of schemes, poor publicity, and bureaucratic procedures, these need to be streamlined. • Diversification in agriculture and market orientation must be harmonised with farmers and nation’s food security concerns. • Commercialisation of agriculture must be justified in terms of increasing employment and farm incomes and their share in value addition. • There are too many non-market players, such as police and municipal Inspectors who appropriate a significant share out of the output price, thus denying legitimate profits to producers, especially in floriculture. • Policy reforms must be accompanied with investment reforms, which should be aimed at achieving a balance between subsidies and capital formation. • Extension machinery in the states is being utilised for various functions other than extension, thus denying small farmers the benefit of new technology and knowledge. The second part of Session 1 presented the case studies undertaken by the TA during the first phase of the project. Only five of the six case studies were presented due to shortage of time. The last case study (Uttranchal) was only briefly summarised. 103 Comments and on Case Studies: Safal F & V Auction Market: • This market has not been a success. The location is not convenient for many customers. Location of markets is important and need to be conveniently located. • Commission agents have their established places of business elsewhere, and are not willing to shift to the new location because of very high rentals. • A European Union project in Kerala funded six new style markets and none of them are working. • The country is not yet ready for change to these types of markets • Greater thought must be given to operational and logistical considerations. This was perceived to be an impressive example of a public private partnership but has not succeeded AEZs Maharashtra • It is still uncertain whether AEZs are functioning satisfactorily. Further evaluation studies are necessary. At this point the Government has frozen AEZs until further notice. • Horticulture provides more employment than annual crops, and hence deserves more attention. However, there could be demand constraints unless export markets are tapped. Manage Case Study It was observed that in high technology adoption areas like Punjab and Haryana the need for extension has been low as farmer-to-farmer spread of technology is much faster in homogenous irrigated production environment. Elsewhere too, in today’s administrative environment it is neither possible for a government servant to live in the villages nor is it realistic to expect him to provide knowledge to the farmers. If any service is needed at the village level, it must be entirely controlled by the user groups themselves, or transmitted to them through centralized IT systems. Other General Comments on Case Studies There should have been case studies based on commodities rather than communities, this would have revealed more meaningful information of practical value. Initiatives should be focused on increasing the value chain. PPCs with cold chains should be encouraged, especially for fruits and vegetables and horticulture produce. Cleaning, sorting, grading and packing can all take place at PPCs Produce should be cooled as soon after harvesting as possible, preferably at the farmgate. PPCs should be managed by cooperatives and NGOs PPcs should include: bulk cold storage, effective delivery systems, ICT infrastructure and Agribusiness incubators all at the same location. The role of government as regulator and in conflict resolution between farmers and the industry must be clarified. The adoption of contract farming would immensely benefit small and marginal farmers in accessing technology, quality inputs and assured price and market support. Similarly, the company gains from assured supply of quality raw material at a pre-agreed price. However, the contract should be managed in a more 104 transparent and participatory manner, so that there is greater social consensus in handling contract violation from either side without getting involved in costly as well as lengthy process of litigation. Companies may be unreliable or exploit the farmer. Unreasonable quality and quantity expectations. Presentation and Discussion on Investment Opportunities and Road Maps: General Comments on Investment Opportunities and Road Maps • Only the larger farms (4 to 15 acres) are willing to diversify where the risk can be more evenly spread. • The whole process of market orientation should be farmer friendly and participatory in nature. • At present not only is the price determination non-transparent, the large number of middlemen, each of whom charges a commission, squeezes the realization of the farmer so that the gap between the farm-gate price and the retail price paid by the consumer is very large. • Although originally designed to protect farmers’ interests by creating regulated markets, the Mandi Act has actually created a monopoly situation in which a small group of traders and agents are able to extract huge benefits. It is absolutely essential to liberalise the existing laws and allow competing markets to be set up. SESSION 2 a) Policy and Institutional Reforms General comments on Institutional Reforms The Model Act • The present Model Act is Stage 1, Stage 2 will incorporate more changes to facilitate more private sector participation. This has to be done in a phased process and should evolve over a period of time. • Direct marketing and contract farming are areas to concentrate on eliminating many constraints and allowing farmers to receive better prices for their produce. • Create conditions for the farmer to have a choice to use different lines to market access. • Carry out the implementation of the road maps first and then make necessary changes to the Model Act later to suit the prevailing circumstances at the time by a process of evolution. • It is clear and well known that infractions have taken place at regulated markets but this is true of all markets, not just regulated markets. • Many producers prefer to sell at regulated markets because at least they know where they stand with the market fees. In unregulated markets the seller is more vulnerable. However conditions at regulated markets need considerable improvements and better facilities provided such as more space, power and longer opening hours. • Under the Model Act, private traders can be licensed to set up a market or buy produce directly from farmers. 105 • State intervention in markets should be to turn markets friendly to the poor, by transferring many functions of the market (storage, transport, processing) to the poor themselves, on the other hand these functions had in the past been acquired by government through law, causing more market distortions. • Removing obstacles that hinder the poor as well as deregulating markets that work in favour of the poor would also help expand economic opportunities. Presentation and Discussion on Private Sector Participation and Financing • Cooperatives have been the dominant force for the past 50 years • The Government has to invest in infrastructure • Synergy has to be built • SFAC has seen the fundamental dynamics of synergy, i.e. a) trust b) equity c) transparency. SFAC themselves have taken equity positions in enterprises. • There is a big market in India, there are now 350 million Indians in the middle class bracket which is more than the United States and represent a huge market for processed foods. • It must be remembered that the private sector is in the business to make profits and it should not be assumed that they are in it for altruistic reasons only. • In a global world agribusiness must be given a greater say in providing solutions and take the initiative. • Dispute settling mechanisms must be put into place and must be quick and fair to all parties concerned. • Foreign direct investment must be allowed. It will benefit wholesalers and retailers and will eventually percolate to grass roots level. General Comments on Private Sector Participation and Financing Direct foreign investment in the retail sector may not benefit the farmer in the long term. At first the foreign retailers will buy from local suppliers but there is a danger that as their standards increase and the local suppliers cannot comply with the demanded standards of quality, they will simply import produce to the detriment of the farmer. Closing Remarks: • Index number of agricultural production in India (with 1981-82 =100) has moved from 176 in 1996-97 to 172 in 2002-03. Despite stagnation in production there is no scarcity, often there is a glut situation. This shows that demand constraint is a more powerful driving force in Indian agriculture today than the supply constraint. In the short run it can be overcome by either exports, or reducing cost of production, or by reducing marketing margins by making markets more efficient. • It is useful to admit that markets can both help and hurt farmers, especially small farmers in backward regions. Markets can perform both functions, allocative and exploitative. To the extent that markets facilitate commodity production, and integrate producing regions with consuming regions, they help farmers in choosing the most profitable cropping pattern. Farmers allocate their resources in commodity production on the basis of signals they receive from markets. But markets may also play a retrogressive role by coercing producers to sell at a low 106 price, interlocked contracts, fraud, credit and withholding of information. In such a case, commercialisation may take place either without an increase in production or the consumption/income of producers. • Distortion in markets is often the end result of government intervention. Distorted markets help those who are powerful, and not necessarily those who are more efficient. • Farmers operate in several markets; credit, input, land, and output. Liberalising one without others can have disastrous consequences. For instance, small farmers cannot get credit because many of them are not registered landowners. The law relating to prevention of fragmentation of holdings works against the interest of small and marginal farmers. Changes in land laws are needed. • Several regulations still continue, though a policy decision has been taken to repeal them. For instance, GOI has repealed the Cold Storage Act, but West Bengal still continues to operate a local Act. Several control orders under the EC Act are still in operation in UP and other states. Reservation for small scale industry for rice mills reduces efficiency and increases wastage. • Several pulp mills have been buying wood from farmers under a price guarantee scheme. Lessons learnt from their experience may be kept in view while promoting contract farming in agriculture. • Empirical evidence is needed to prove that small farmers’ cropping pattern is different from those of large farmers. Perceived “lack of knowledge” of small farmers is not always true. If you go to some villages you will find that their cropping patterns are no different to large farmers. • Government cannot be expected to provide extension indefinitely. • Finally exports should be emphasized, especially if the domestic market is limited. Here again there are quantitative restrictions and requirement of registration; these need simplification. 107 7.0 STRATEGIES, ROAD MAPS AND INVESTMENT OPPORTUNITIES 7.1 First and foremost, the strategic thinking and any consequent roadmap methodology must be repositioned as commercial agriculture and agribusiness. The TA has made substantial learnings from the 7 Case Studies as described in Section 6. The Case Studies have involved a vast geographic spread of various farm functions, and have reviewed the specific needs of agribusiness. Field visits have helped understand the multiple concerns of the stakeholders. 7.2 Following the Case Studies, the TA has interacted with each of the 5 focus States. The State Workshops provided an opportunity to interact with the three key stakeholders to review issues of direct and immediate local concern. This consultative process has assisted the TA to evolve a strategic approach to recommend an implementation roadmap. Elements of the strategic approach are taken forward to the respective States so that recommendations for investment can be suitably planned. The Strategic Approach The strategic approach has three key elements: 1. Empower the farmer to shift to commercial agriculture to raise incomes 2. Minimize losses in the post harvest systems 3. Facilitate creation of agribusiness activities Empowering the Farmer to Shift to Commercial Agriculture Strategy: i. Make the right planting decision Issue: • Market value achievable should be influenced by the private sector. Direct purchase is a key feature. The role of professional service providers must be facilitated. Action: - Amend State APMC Acts to facilitate direct procurement alternates - Assist private sector entry by facilitating favourable tax incentives for farm investments Issue: • Proper availability of high yielding or specific varieties of seeds Action: - Assist private sector production of labelled seeds at par with certified seeds - Provide special facilitation for fruit orchards which require longer gestation 108 Strategy: ii. Access the right technology Issue: • Farm production needs the benefit of technology to deliver sustainable commercial agriculture. Action: Expand the reach-out of the ATMA system with added support on marketing Assist the private sector by facilitating tax incentives on farm investment Issue: • Modern farm services can help provide benefits of mechanization which would be otherwise unavailable to smaller farms. Action: Assist the private sector to acquire latest equipment at concessional terms Assist private sector to establish soil testing facilities at concessional terms Strategy: iii. Credit support for diversification Issue: • Farmers must have access to better seed replacement to overcome the failing productive yields of farm produced seeds. Action: Assist seed finance by deferred credit terms Assist delivery of credit via private sector farm extension service providers Issue: • Treat crop diversification on par with loans for irrigation since diversification benefits need time to maintain and sustain. Action: Establish need-based lending criteria Assist delivery of credit via private sector farm extension service providers Minimize Losses in Post Harvest System i. Create aggregating centres closest to the field Issue: 109 • Primary Process Centres are a key to horticulture activity. Handling of small lots to the market involves several intermediates and is a disincentive to growers. Small lots can be aggregated at the farm itself rather than spoilage in and en-route to markets. Produce can be segregated at source for fresh markets (domestic and export) and for processing, thus transferring grading to the farm and to the benefit of the farmer. Action: - Amend State APMC Acts to permit direct delivery - Eliminate barriers to interstate movement of horticultural products - Assist private sector to own and to operate/buyout such centres ii. Create standardizing centres for oilseeds Issue: • Farmers are severely disadvantaged in value realization for oilseeds because of subjective quality determination practices. A standardized quality specification can be achieved by simple processes of drying, cleaning and grading. Standardized grades are best suited for safe silo storage, thereby creating the ability to defer sales and avoid seasonal price drops. Action: - facilitate credit delivery against NWR for quality protected silo stored oilseeds - Eliminate barriers to interstate movement of oilseeds iii. Upgrade the existing markets Issue: • Horticultural products are at the greatest risk of spoilage and value loss. Several existing markets were setup many decades ago and are severely under provided to handle current volumes, modern transport and retail systems. Action: Amend State APMC Acts to privatize creation of new markets Upgrade existing markets by joint sector arrangements and management Facilitate Creation of Agribusiness Activity i. Integrated Food Law Issue: • The PFA is an outdated document in view of changes in technology and in current requirements of food safety in domestic and international markets. Shortcomings in the regulatory system lead to arbitrariness and the lack of a graded response. Action: Enact the Integrated Food Law at the earliest possible 110 Decentralize approval and monitoring responsibilities Support private sector to adopt ISO and HACCP ii. Public-Private Partnerships Issue: • Private sector investment in food processing faces uncertainties of produce availability and the market purchase system. This has given rise to a host of intermediates who determine the market price with no benefit passing back to the farmer. Action: - Amend State APMC Acts to facilitate direct procurement - Eliminate barriers to interstate movement - Eliminate market fees for direct procurement - Participate in venture funding and its establishment iii. Agribusiness Incubator Issue: • Agribusiness as a meaningful value addition is in its infancy. Most of the private sector involvement is in areas of handling, temporary storage, transportation and financing. Crucial as these are, agribusiness has to look beyond these functions by harnessing technology and globalized actions. Action: Recast and strengthen the role of SFAC as a nodal agency Establish services for hands-on management of greenhouse horticulture 111 The Five States Identified For Investment The five States identified proposed investment in Agribusiness and Commercial Agriculture are: • Chhattisgarh • Jammu & Kashmir • Punjab • Sikkim • Himachal Pradesh A perspective of agriculture related features in the 5 States is as follows: Description Unit Chhattisgarh J&K Punjab Sikkim Himachal Area Sq. km 135,191 222,236* 50,362 7,096 55,673 Population million 20.796 10.070 24.289 0.540 6.077 Pop. below the % 37.4 3.5 6.2 36.6 7.6 Poverty Line Villages number 20308 6477 12795 411 16997 Forest Area Sq. km 6,083 20,433 1,342 3,127 12,501 (as % of total) % 45.0% 9.2% 2.7% 44.1% 22.5% Net Sown area ‘000 ha 4805 733 4238 95 549 Cropping 121 148 192 134 177 intensity Irrigated area % 31.6 42 93.0 17 19 Cereals ‘000 11,428 1,100 25,280 98 1,441 produced(00- tonnes 01) Cereal yields Kg/ha 857 1,255 4,064 1,400 1,798 Fertilizer kg/ha 47.2 72.0 163.0 7.6 36.0 usage Gross Fiscal Rs 14,506 16,128 49,698 279 18,599 Deficit (02-03) million Agriculture Rs/ha 1,104 437 10,786 252 2,839 credit * The total area reported under Census 2001 was 101,437 sq. km. 112 Key features of each State with reference to its agriculture are as follows: Chhattisgarh 7.3 Following a States reorganization of Madhya Pradesh State, Chhattisgarh State was created on November 1, 2000. Chhattisgarh is situated in the central eastern part of the country and its capital city is Raipur. The State shares its borders with 6 other States and was formerly a relatively lesser developed part of the original State of Madhya Pradesh. Chhattisgarh is one of the newest States in the country. It has 16 Districts and connectivity both by road and by rail is limited with only 9 district headquarters linked by rail. The State has one airport at Raipur and the nearest port is Vishakhapatnam, Andhra Pradesh. Kolkata in West Bengal is the nearest large city at over 500 km distance from Raipur. 7.4 Chhattisgarh has three distinct geographic zones, the Northern Hills, the Central Flatlands and the Bastar Plateau in the South. The State has large relatively flatland forests that spread over 44% of the State and provide a rich bio diversity and climate influences. It is known as the Rice Bowl State with about 77% of the net cropped area being used to cultivate grow paddy. The climate is dry and sub humid with an average rainfall of 1,400 mm, mostly entirely received during the monsoons from June to October. The State has abundant resources of minerals. 7.5 Mono cropping of rice in the Central Flatlands is predominant and its rainfed cultivation takes place over 80% of the area. The productivity is about 1,000 kg/ha, well below the national average. The socio economic condition of farmers is poor. Towards the South, there is a large tribal population that exists on forest produce. This area is known for tobacco leaves and minor forest oilseeds. The collection of medicinal plants in this region is a major tribal activity. The Northern Hills are suited for horticulture production, chiefly vegetables. In recent times, mushroom cultivation has become popular in the State. 7.6 Chhattisgarh’s low population, low income and landlocked nature with poor connectivity have contributed to its backwardness. Major consuming cities are over 250 km. away. A poor transport infrastructure leads to costs and losses which impact negatively to farm gate value. Food processing activity is limited to just one recognized processing plant in the State. 7.7 The State provides good opportunities for crop diversification targeted for interstate markets given the fact that internal consumption is likely to remain low in the short term. The State has a large workforce at the farm village level and has the potential of becoming a significant producer of horticultural crops. Fruit orchards including mango, banana, and cashew cultivation are some of the plans identified by the State under Vision Plan 2004-05 to 2011-12. 7.8 Infrastructure development in the shape of a cost effective cold chain starting from the producer origins will be critical to target and enable interstate market access. Connectivity by road and by rail is being addressed but larger investments need to be made for farm economic development. 7.9 Individual farmers in the selected villages in the cluster who are not involved in the group will also benefit with this program. Selection of farmers would be based on conditions such as availability of irrigation facilities, interest shown and willingness to spare their land for development. Scheduled tribes, scheduled caste and women farmers 113 will be given appropriate representation. After selection, farmers (beneficiaries) will be provided extensive training followed by visit to successful units. Selected farmers will be allowed to form groups by themselves on the basis of horticulture crops grown in their fields. Priorities for Investment in Chhattisgarh Medium Term Create and fund a State Counterpart to National Agribusiness Consortium Establish Joint Sector Primary Process Centres for vegetables & fruit Enroll and Support Professional Service Providers for Rice productivity Support Modernisation of Rice Milling and Rice Bran Oil Create Regional Research Centre for Mushroom Production & Processing Create SPV to fund Orchard propagation Longer Term Establish a Board for Medicinal Plants and Research Centre Undertake Modernisation of Wholesale Markets with Joint Sector Operation Establish Inter-State Cold Chain Connectivity Establish Joint Sector processing facilities for fruit & vegetables Jammu & Kashmir 7.10 Jammu & Kashmir is the northernmost State in the country and shares international borders with Pakistan and China. Jammu & Kashmir has been politically sensitive for over 50 years. It has three distinct regions, Jammu which is the sub tropical plains region, Kashmir which is the elevated valley region and Ladakh which is a high altitude desert. A major portion of the State is hilly with elevations ranging from 1000 feet to 28,500 feet in the Himalayan mountains. 7.11 Jammu & Kashmir has 14 districts and is connected to the rest of the country by a road to its south. The nearest railway terminus is at Jammu and construction is in progress to extend this to the Valley region. The State has two capitals, Srinagar the summer capital and Jammu the winter capital in the Plains. Many parts of the Valley are snowbound during the winter. Ladakh is accessible by road for just 5 months of the year. The State has three airports which are at Srinagar, Jammu and Leh which services Ladakh. 7.12 Jammu and Kashmir are the agriculturally significant regions, each having a distinct eco structure. Jammu has a tropical climate similar to that of Punjab. The average rainfall is 1,116 mm and the Jammu region is known for traditional crop agriculture. The Kashmir Valley has a temperate climate and has an average rainfall of 650 mm. The Valley is a significant producer of several fruits and a specialty crop, saffron. 114 7.13 Rice, wheat and maize make up nearly 98% of the food crops in Jammu. Rice and maize are the major food crops in the Valley. Jammu & Kashmir is ideally suited to horticulture in the country. Apples, pitted fruits, walnuts and saffron grow well in the State which is known for its horticulture oriented farming. Migration of the farm sector to tourism and the continuing political unrest has seen a lack of developmental work in replanting and expansion. 7.14 The State has two very active agricultural Universities and the Jammu Regional Research Station has pioneered significant work in herbs and medicinal plants. The State has a very active horticulture department. Productivity improvement through replanting of old and unproductive orchards through high density plantation followed up by fruit and vegetable preservation are a part of the integrated plans prepared for the State. Special focus fruit crops have been identified including strawberry, olive, pear and cherry. 7.15 The productivity of apples is receiving special attention including planting of newer varieties. Apple yields have fallen to 10 tonnes per hectare, well below international norms of 50 tonnes per ha. Poor infrastructure for handling a timely harvesting is a major constraint. The disturbed conditions in the State have contributed to abnormal post harvest losses. 7.16 Post harvest handling of fruits and vegetables is one of the most important aspects to the development of horticulture. Post harvest losses in this sector is estimated at 35-40% for lack of handling, poor packing, inadequate marketing and processing facilities. 7.17 The large marketable surpluses, contracted supply schedules and demand spread over longer periods, land locked nature of the state, locational disadvantage in terms of distance from major consuming centres, inadequacy of infrastructure for post harvest handling of fresh fruits, need for bulk reduction and value addition and presence of 40% off grade fruits in production sector, point out the need for promoting processing on a large scale in Jammu & Kashmir. Priorities for Investment in Jammu & Kashmir Medium Term Create and fund a State Counterpart to National Agribusiness Consortium Establish Joint Sector Primary Process Centres for vegetables & fruit Create SPV to fund Orchard propagation Longer Term Establish a Board for Medicinal Plants and Research Centre Undertake Modernisation of Wholesale Markets with Joint Sector Operation Establish Inter-State Cold Chain Connectivity Establish Joint Sector processing facilities for fruit & vegetables 115 Punjab 7.18 Punjab is the most agriculturally progressive State in the country. Though it has just 1.5% of the geographic area and 2.4% of the population, it is the largest foodgrain producing State by contributing 21% of the wheat production and 10% of the rice production in the country. Chandigarh is the capital of the State. Punjab’s soil is made fertile by alluvium deposits of rivers originating from the Himalayas. The state is devoid of any large scale diversity. This has proved to be an advantage for building roads that facilitate accessibility to the producing hinterland. 7.19 Punjab has a sub tropical climate with distinct rains in the monsoon months and the winter months. The average annual rainfall is 625 mm. 70% of which is during July to September. A key feature of Punjab’s productivity is its irrigation which is at near total coverage. This is provided by canals and tubewells. About 40% of its workforce is engaged in agriculture. 7.20 Punjab ushered in the Green Revolution nearly 4 decades ago. This was achieved with better planting materials (high yielding varieties), better irrigation and better soil fertilization. The State accounts for 40% of wheat and 60% of rice procured under the Public Distribution System. Apart from this grain surplus being difficult to store adequately against spoilage, the wheat rice cycle has taken strong root in the farming community. The degradation effect taking place to soil conditions and water quality is of increasing concern. 7.21 A key problem in the State is availability of farm labour at crucial points in the production cycle at the farms. The State depends heavily on migrant labour from far away States to meet this need. Mechanization using combine harvesters and tractor drawn equipment for harvesting, threshing etc., is widespread. By nature the farmer in Punjab is hard working. The signs of affluence in the State are coupled with an increasing dependence on easy and timely credit being provided by market arthiyas, influential trade intermediates for on farm and for social purposes. However, since a significant increase to existing productivity (which is well above average) seems somewhat limited, the farming community will need to structure the ability to maximize revenue from diversification. 7.22 Realizing the necessity for providing cold chain in the State for efficient marketing of horticulture and vegetable produce, Mandi Board has recently formulated a scheme to provide for 25% subsidy to the traders dealing in fruits and vegetables in the markets who undertake to build cold rooms in their shops. It has also been decided that Mandi Board would give land on long lease to private parties for building big cold stores in the markets where adequate facilities shall be created for storage of vegetables and horticultural produce in order to minimize the losses in marketing operations. 7.23 Analysis of the marketing regulations in the state reveal the need for the amendment of Agricultural Marketing Regulations Act and strengthening of apni mandis. Other policy initiatives like contract farming act are essential to promote commercial horticulture ventures in a big way in the state. Priorities for Investment in Punjab Medium Term 116 Create and fund a State Counterpart to National Agribusiness Consortium Establish Joint Sector Primary Process Centres for vegetables & fruit Enroll and Support Professional Service Providers for Crop Diversification Establish Joint Sector Oilseed Primary Processing Centres Support Modernization of Mobile Distillation of Aromatic Herbs and Oils Support Modernization of Rice Milling and Rice Bran Oil Support Commercial Production of Seed and Planting Materials Longer Term Establish Inter-State Cold Chain Connectivity Create SPV to Modernize Wholesale Markets with Joint Sector Operation Create Research Centre for Fodder and Biomass Sikkim 7.24 Sikkim is a mountainous state in the eastern Himalayas and shares borders with Tibet, Nepal, Bhutan and is linked to West Bengal State to the south. The altitude varies from 210 mtr. to 8,583 mtr. The capital of Sikkim is Gangtok. The State is divided into 4 districts, South Sikkim is the most habited part of the state. 7.25 Sikkim has neither air nor rail connections. The single highway NH31A connects Sikkim to West Bengal and Siliguri town which is about 95 km away, provides the main link for all trade & commerce. The border with Tibet at Nathula is about 25 km from Gangtok. 7.26 The forest cover in Sikkim is almost 46% of total land area and another 36% comprises mountains, glaciers, lakes and meadows. Agriculture is practiced in only 11% of the land area, almost always in terraced land. The State is crisscrossed by numerous mountain streams and rivers that emanate from glaciers, lakes and melting snow. 7.27 The main hill oriented agricultural crops are maize, rice, barley and potato. The State is deficient in foodgrain and in horticulture. However, the climate is well suited to citrus fruit and to specialty spices. Sikkim is the world’s largest producer of large cardamom, a prized spice. Hill ginger is another cash crop. Sikkim is emerging as a centre for floriculture, chiefly orchids. 7.28 Because of its mountainous terrain and deep valleys, Sikkim has a variety of microclimates. Organic farming is widely practiced. The State does not have any agricultural Colleges or University to impart farm learning and training. The State has very few industrial enterprises. Most of the produce is being sent in a raw form to other States for value addition through grading and processing. Medicinal plants from forests are also being sent out, often without appropriate value addition. 7.29 Sikkim has a low domestic demand for food products. The variety desired for both fresh and processed products are often unable to attract a critical mass to spur domestic production. A proposed road linkage to Tibet via Nathula could open up opportunities for the State in the international trade. 117 7.30 Post harvest infrastructure and management is the weakest linkage in the development of horticulture in Sikkim. Farmer’s produce highly perishable multiple products in small quantities with heavy wastages with no vital linkages of cold storages, marketing and distribution network. Farmer's organization are either non existence or disorganized as against the well organized traders resulting only about 10 to 20% farm gate price of retail price as compared to 70% in advanced countries. Very often a glut situation occurs resulting distress sale of the products, followed by scarcities in the market. The state has practically no infrastructure for post harvest and marketing except for one cold storage for the entire state. The existing pre and post harvest infrastructure and management of horticulture crops in Sikkim is very poor. 7.31 For marketing of horticultural products 2 wholesale markets and 14 Rural markets have been planned. Out this only one Wholesale market at Rongpo is functioning. However, a number of rural apni mandies are functioning in various places though systematic infrastructure is yet to be developed in these markets. Under Technology Mission these markets have been identified for modernization. 7.32 Several product based cooperatives and other NGOs such as Cardamom Grower's Association, Ginger Grower's associations, Off-season Vegetable Grower's, Flower Broom Grower's Associations are functioning for marketing of horticultural crops. Actions are made regularly in the market attracting traders from distant places. Priorities for Investment in Sikkim Medium Term Create and fund a State Counterpart to National Agribusiness Consortium Create SPV for setting up Primary Process Centres for spice products Create SPV to fund Fruit Orchard propagation Create Greenhouse Floriculture Training Centres Privatize and Modernize the State Sikkim Fruit Factory Longer Term Create SPV to Establish Inter-State Cold Chain Connectivity Create a State College for Agriculture Training Production of quality planting material required for area expansion of all kinds of horticultural crops need to be given Development of drip irrigation Development of marketing infrastructures with cold storages and other modern facilities Providing vital linkages of cold chain and connectivity to international transport 118 Himachal Pradesh 7.33 Himachal Pradesh is situated in the north-western region of the Himalayas and is almost wholly mountainous with altitudes ranging from 305 mtr. to 6,975 mtr. Shimla is the State capital and was at one time the summer capital of colonial India. The State has 12 Districts and a population density of 109 per sq. km compares with 324 for the country. The State is served by railhead at Kalka in neighbouring Haryana State and at Pathankot in Punjab State. There are three highways that connect the State to the rest of the country. The hilly terrain in most of the State limits the efficacy of road connectivity. 7.34 The climate ranges from sub-humid tropical, warm and temperate, cool and temperate to cold alpine and glacial. Southern extremities of the State are well populated and developed compared to the western Districts. High mountains in the north-eastern regions including a border with Tibet are least populated. 7.35 Horticulture is the principal occupation of the farming community and apples lead the fruit production in the State. Introduced by British settlers many years ago, apple production in recent times has come under stress. Failing productivity due to ageing orchards, outdated clones and limited variety expansion are a great concern. The nearness of the wholesale market in Delhi exerts a great influence on the apple industry in the State and in all spheres be they in grading, storage, credit and the all important market value that does travel back to the producer after ‘costs’. 7.36 The lower elevation regions of the State practice traditional agriculture and rice, maize and coarse cereals are the principal crops. Mushroom production in India started in Himachal Pradesh taking benefit of the cool environment. However, the advent of newer technologies for climate control has seen the production shift to the Plains. A revival of the small scale industry is being planned. Floriculture has done well in Himachal together with off-season production of vegetables. Seed potato and citrus plantation are successful diversifications. 7.37 Himachal has a number of institutions that focus on horticulture research and development. They include two Universities, several Research Institutes, Field Stations. The bio-diversity of the State is home to several medicinal plants and essential oils. New crops such as hops have been successfully grown in the State and for the first time in the country. Bee keeping is finding favour for honey production and uniform pollination advantages for field and fruit crops. 7.38 is a State owned fruit and vegetable processing unit having three manufacturing plants in the foothills. There are a few private sector units as well but are working to well below capacity utilization. Collection and transportation of the fruit products is believed to be a key constraint to sustainability. Investment Roadmap for Himachal Pradesh Medium Term Create and fund a State Counterpart to National Agribusiness Consortium Create SPV for setting up Primary Process Centres for vegetables & fruit 119 Privatize and Modernize State Horticulture Produce Marketing & Processing Corp. Create SPV to fund Fruit Orchard propagation Create Greenhouse Agribusiness Training Centres at State Universities Create Joint Sector Controlled Atmosphere Warehousing for Apples Longer Term Undertake Modernization of Wholesale Markets with Joint Sector Operation Create SPV to Establish Inter-State Cold Chain Connectivity Establish a Board for Medicinal Plants and Research Centre 120 Strategy and Roadmaps (for all States) 7.39 It is widely recognized that there is high potential for India’s agribusiness sector. Value addition is low and size of the processing sector small. The value chain for agricultural commodities which is the core that sustains agribusiness is marked by many inefficiencies. Large scale investment is necessary to overcome these inefficiencies. The world over, large agribusinesses are commodity processors and chain retailers. These businesses have prospered by investing in the value chain such as procurement and collection centres, grading, bulk storage and handling facilities. As a result food chains in the developed countries have evolved to become efficient. 7.40 In India’s agribusiness strategy, the removal of legal impediments to investments in the supply chain must be the first priority. Following this, the next steps in the strategy must be to facilitate and support markets, institutions, standards and infrastructure in the agribusiness sector. A strategy for achieving this must encompass the following: (i) amend policies and redefine Government interventions to make agriculture and agribusiness more efficient and market driven. (ii) higher private and public investment in infrastructure. (iii) increase value addition (iv) increase private investment 7.41 Overall emphasis must be on creation of synergy and convergence of various programmes to achieve horizontal and vertical integration. For any strategy to succeed requires a strong commitment and positive attitude from all of the stake holders. Creative and innovative thinking is required. A strong agribusiness sector can only be achieved by a comprehensive reappraisal of development strategies and the institutional structures that support them. The expansion of commercial agriculture and agribusiness will play a vital role in the Indian economy and will contribute to the increase of incomes and reduction in poverty. 7.42 Earlier policies on agriculture focused on increasing production through subsidies in inputs, power, water and fertilizer rather that improving infrastructure. (e.g. irrigation, power and rural roads). Serious difficulties were encountered because limited finances used for subsidies depleted the budget for infrastructure and eroded budgets for maintenance of canals, roads and power supply. 7.43 Efficiency and sustainability of the subsidies policy has been seriously eroded and is financially unsustainable. High subsidies on power, irrigation and fertilizers do not improve income distribution and cause environmental damage. Excess use of subsidized fertilizers has caused imbalances in the soil and excessive use of water has caused water logging in many areas. 7.44 Finally the true potential of Indian agriculture can be realized only when there is diversification of crops. The food and nutritional requirements of the population for leading healthier lives demand a wider range of foods than are presently consumed on average. In order to accelerate diversification, considerable attention must be given to post harvest technologies and marketing infrastructure. It would also require a critical 121 review of policies and regulations governing agricultural trade, which frequently acts against the farmers best interests and distorts their incentive structure. Marketing Reforms 7.45 Empowered State governments with the statutory right as well as organizational capability to develop a sound revenue base can make significant difference to the success of farm and non farm activities. They can be instrumental in building and maintaining infrastructure, managing public services and in making the legal system function. Three key marketing reforms are required: 7.46 While the Essential Commodities Act no longer serves any useful purpose, it deters private investment in storage and distribution and thus the large scale entry of commodity processors. 7.47 The third reform is the enactment of legislation that would make warehouse receipts negotiable. Institutions would also need to be created for certification and regulation of warehouses. 7.48 The necessity of these changes are known to the Government and the Expert Committee. The Inter Ministerial Task Force have also suggested these. Implementation of these reforms would send strong signals to investors about the Government’s commitment to the agriculture and agribusiness sectors. It is important that the Government repeal the Essential Commodities Act rather than direct states to suspend the Control Orders issued under this act. 7.49 It should also emphasized that the sum outcome of these reforms together is greater than the sum of these changes enacted individually. India’s agribusiness sector needs investment in modern facilities for storage and handling, new marketing channels and new financial instruments (for credit and trade). These complementary investments should occur in parallel to be effective. Commodity processors that invest in bulk storage and handling are likely to make extensive use of negotiable warehouse receipts for trading. Similarly, retail networks that create elaborate procurement systems would want to invest in cold chains and storage facilities unencumbered by stock limits and licensing requirements. Futures Trading 7.50 There have been major advances in policy reforms in this sector; in recent years the restrictions on the futures trading of all major agricultural commodities have been lifted and several new multi commodity exchanges have been approved. 7.51 The reforms of wholesale marketing will also have a favourable impact on futures markets. With the entry of commodity processors and retailers, hedging demands will increase. The negotiability of warehouse receipts will reduce transactions costs (by facilitating delivery at maturity of the contract) and integrate futures markets with spot markets. 7.52 For future reforms, a rationalization of tax laws would be essential. Currently, hedgers (such as processors, importers) cannot set off their losses in their futures trading operations against the gains in other business activity (such as processing). Such a distinction in tax laws is contrary to the nature of enterprise. Marketing and risk 122 management are integral components of agribusiness and should be encouraged as such. 7.53 Along with futures trading, the government should also support the use of forward contracts (called Non-Transferable Specific Delivery Contracts in the Forward Contracts Regulation Act). International experience suggests that farmers are more likely to be beneficiaries of forward contracting than from futures trading. Forward contracting is facilitated by futures markets and they complement each other. Under current law, contracts with delivery extending beyond 11 days are regarded as forward contracts and are subject to regulation. The government should consider exempting contracts up to 45 days from regulation. In international practice, the regulation of futures trading does not extend to forward contracts as they are intended to be customized transactions between two parties. 7.54 Even with alternative marketing networks, regulated mandis directly controlled by the government will continue to play a major role in agricultural marketing. It would therefore be appropriate for the government to lead efforts in collection and dissemination of market information. In research and development, the Government might consider integrated commodity research centres that research not only production aspects but also distribution and processing. However, this would be useful only if their research can be disseminated to the small agribusinesses that dominate the industry. Dissemination must therefore be an important component of these centres. Institutions 7.55 In many cases, cooperatives have played an important role in integrating the supply chain. In India, the best example occurs in dairy where cooperatives have invested in collection centres and milk tankers to move milk from producers to processors without intermediaries. 7.56 Cooperatives will also be important for making partnerships with chain retailers seeking to strengthen their procurement systems. For a retailer or a processor seeking large volumes, it would be very costly to deal with individual farmers. This would particularly be so once retailers seek production standards to be complied with individual farmers. On the other hand, processors and retailers could work very well with village cooperatives and farmer’s associations. These institutions could play an important role in implementing grading and sorting at the village level. Standards 7.57 A major role for the government is to coordinate grading standards for agricultural produce. The Government can work with trade and industry associations to evolve grading standards for rice, wheat and major horticultural products. This is particularly important for the export market. Food Processing Laws 7.58 Food products in India are subject to complex and multiple laws. Their replacement by a simpler single law that is harmonized with international quality standards is on the agenda of the Ministry of Food Processing. The food processing sector pays taxes on its inputs and outputs. Its tax burden is higher than that in other Asian countries such as Indonesia, Thailand and Malaysia (where it is less than 10%). A moderate value added tax would stimulate this sector. 123 7.59 The present approach for developing cold chain linkages implemented by organizations like NHB, NCDC, APEDA, etc, primarily assist private entrepreneurs to set up cold chain facilities in their respective units. This approach has been followed by these organizations for the last 5-6 years, resulting in the introduction of cold chain facilities amongst a number of units in the agro sector. However, a look at the performance of these units. 7.60 Post harvest facilities for highly perishable produce have to established as close as possible to the farm area. The entrepreneurs having good farm linkages are to be able to feed the pack house, exporters and interstate trade on a regular basis. Considering the fact that the cost of setting up any infrastructure to cater to any single commodity having a season of less than one month is not feasible, the present infrastructure support proposed is expected to be utilized by other fruits and vegetables grown in nearby areas. 7.61 A Specific strategy proposed includes the setting up of "Mobile Modern multi Product" post harvest facility which can be moved on a seasonal basis from one area to another, thereby justifying its capital cost and utility. 7.62 It is proposed that a strategy for providing facilities collectively for a region having potential strengths for production of different crops throughout or for most of the year. This would enable the facility to be utilized throughout the year making the activity economically viable. Integration of post harvest infrastructure with marketing export networks that link the growers and consumers would be a better approach than creating infrastructure in isolation. 7.63 A strategy to reduce wastage and increase value addition and processing is of considerable significance to India. Value addition can be in the form of grading, cleaning, packing, pre cooling, primary processing like cutting, trimming, removal of inedible portions, processing to primary and final products etc. In contrast to other countries, value addition at farm level through grading, pre cooling and minimal processing is altogether absent in India. Hence, there is an urgent need to improve the value chain infrastructure in the country. 7.64 The world market provides a good opportunity for processed produce from India. Export oriented production of fresh and processed fruits and vegetables in India need to be encouraged. Indeed significant success has been achieved in the export of mango pulp and there is good potential for fruit (frozen/canned/dehydrated) candied and semi candied produce used as a health snacks and fruit based juices and beverages. 7.65 Value added products have more export potential and hence development of new value added products in horticulture sector will enhance export promotion. Similarly processed fruits, vegetables, ready to serve food items need to be developed and marketed. The following areas are the top priorities. In the field of processing and marketing, focus should be on quality improvement, reduction in cost of processing and value addition. 7.66 Analysis of Indian agriculture industry shows that it is characterized by a close knit of supply chain players. Multiplicity of players (6 to 7 as against 2 to 3 in UK), inefficiency due to lack of coordination among the intermediaries, absence of a well defined grading and sorting system, regulated marketing and poor post harvest handling systems have resulted in a supply chain totally against the interests of the producer as 124 well as consumer. Vertical integration is totally absent in the existing system. Due to these factors, the raw materials have become costly for processing industries. On the export side, Indian products are not competitive and as a result, farmers are unable to make economic gains. 7.67 In contrast to the Indian supply chain system, in many countries including some developing countries, closed and coordinated supply chain organizations and management are rapidly replacing open markets, especially for perishable foods. Coordinated supply chains are institutional arrangements that link producers, processors, traders, retailers, and consumers. They regulate the flow of products, payments and capital, technology, ownership rights, and information among the participants and exploit synergies for market expansion and cost reduction. Closed chains perform the same functions within one company that controls various stages in the product chain. In developing countries, the development, organization, and management of supply chains is primarily a function of the private sector requiring private investment in inputs, equipment, market information, technology, and skills. In developing countries like India, the total private sector approach may not find favour due to the significant presence of small holders in the supply chain. Hence the public sector has a role to play by creating favourable conditions for the development of supply chains through ensuring public private cooperation and inclusion of small holder enterprises in the system. 7.68 The current scenario in India is that of a supply driven system producing heterogeneous commodities in uncertain quantities and qualities which has become already obsolete in the global context. A close review of the successful players in international business reveals that most of them have adopted demand driven supply chains after effecting major changes in production, technology, and logistics. In order to make a major impact in India in this direction, the real operation of the supply chain should be with private sector and cooperatives that show commercial interests in coordinated supply chains to share information and technology, pursue common marketing strategies, reduce risks and transaction costs and safeguard quality of products. The requirements of the demand driven supply chain management, still remains a major task for most individual enterprises in India. 7.69 Public sector involvement may be appropriate to facilitate the transition from product based supply driven marketing systems to demand driven systems, especially to ensure that involvement of smallholders are maximized and their interests are addressed. Hence the public investment associated with policy and regulatory reform, improving infrastructure services, demand driven public R&D, training, and advisory services may have to be continued at least during the Tenth Plan period to improve the efficiency and competitiveness of the supply chain and its transition to being demand driven. 7.70 As part of the strategy for promoting marketing, an integrated marketing network is proposed. Horticulture produces being highly perishable in nature require careful handling to avoid wastage and spoilage, however, in India perishable commodities are handled in a very crude way. There are 3 to 4 intermediaries in the value chain between farmer and consumer making the product costly and leading to wastage at different levels. Hence, the concept of the integrated market is proposed for reducing the number of intermediaries in the marketing chain of perishable products. This will enable the producers to obtain better prices and at the same time, the consumers also receive the products of good quality at reasonable prices. 125 Strategies to gain access to international markets 7.71 Specific strategies to boost exports has to focus on: Establishing a supply chain management Cold chain systems Innovative packaging and labelling Packhouses as value added centres Shift in focus from bulk exports to value added exports In order to achieve the export projections, it is necessary to undertake following steps: Implement a Quality Enhancement Program Organize Pre harvest management Improving Storage and distribution infrastructure Market promotion activities Export Enhancement program Efforts for export promotion of products have to address the following Promoting introduction and commercial cultivation of varieties having established export value. 7.72 Final quality of produce is the outcome of practices being followed at primary production, harvesting and post harvesting level. Various hygienic codes have been developed for dealing with the primary production, harvesting and post harvesting of fresh fruits and vegetables. As a first step these codes should also be implemented through the extension network for the identified crops having export potential. 7.73 Promotion of organic farming in selected export oriented commodities. To achieve this, adoption of vermiculture, use of bio fertilizers, enriched compost need to be promoted. Measures for accelerating certification for organic farming for different crops needs to be promoted. There is an increasing demand for organically produced commodities in the international market. 7.74 Varieties most suited for exports have not been adequately identified in several crops. Similarly many well known varieties having demand in the international market have not been introduced. Arrangements have to be made to identify the items and importing the same into the country on priority basis. 7.75 Sanitary and Phyto-sanitary standards already available in India for fresh horticulture produce should be immediately harmonised with the international guidelines and if higher level of measures is required, the scientific justification should be documented. 7.76 Under Hazard Analysis Critical Control Points (HACCP) Certification programme, horticultural products may be covered on a large scale. In the context of removal of quantitative restrictions within the WTO regime there are a number of factors which govern the competitiveness in the global trade including - lack of range of varieties; pre harvest practices to control post harvest losses; loss of produce at the primary level; lack 126 of adherence to maturity indices; lack of facilities for physical and chemical treatment after harvesting; lack of post harvest infrastructure and logistics. Provision of low cost finance for buying specialized transport units. Presently such temperature controlled transport is considered a mere luxury. Provision of airfreight subsidies for initial product promotion. Abolishing of all duties and handling charges for export cargo of fruits and vegetables. Providing cold store facilities at all airports having a reasonable number of international flights to cater to exports. Summary of Hardware Investments Recommended Primary Process Centres Cold Storage Chains ICT Infrastructure Venture Capital Fund with Credit Guarantees Transportation Drip Irrigation Summary of Software Investments Recommended Enabling Legislation in the States to: Strengthen Cooperatives Rationalize multiplicity of regulations in the Food Laws Rationalize the multiplicity of agencies Create an environment to foster awareness and facilitate mobilization. Develop Public/Private Partnerships Develop strong links between producer and exporter. Develop the concept of the Agri Infrastructure Development Fund Modalities Create financing modalities for: Venture Capital with Credit Guarantees for investments in PPCs, SPVs and Cooperatives. Collaboration between the producer cooperatives and the private sector will be encouraged to promote agro-processing industry The strategy of 'product-market' opportunity identification to consider additional criteria in case of horticultural products Emphasis on cold supply chains rather than on cold storage alone Prioritising development of primary processing/preservation industry with focus on export as a part of National Food Processing Policy. The scope of policy initiatives will have to be enlarged with new policy initiatives to introduce further reforms in the horticulture sector. The areas identified for new initiatives are seed and planting material, research and development, food safety and quality. 127 Agro Processing 7.77 Encourage investments targeting quality improvements and higher value addition through technology transfer arrangements and better food chain processes and linkages. Introduce processing grade specifications based on international standards. Arrange pre shipment inspection of consignments by recognized agencies in India and importing countries rather than post arrival testing under customs detention and allow testing of samples while the consignment is in transit. Extend farm crop insurance cover on commercial terms to all commercial crops as well as to processing units. Introduce certification zones to facilitate high value exports. Promote organized retailing to improve markets for the processed food products. Modernization of cold storages. Modify storage control orders to facilitate removal of quantitative restrictions and advised rental rates on storage warehouses. Reduce excise and sales tax on all basic (primary processed) food products in packaged form. Improvements to market access and tariff protection (reciprocal commitments). Road Map Identification of Agency such as SFAC to: Coordinate all stake holders and linkages with focus on extension services, marketing and processing Act as facilitator for obtaining various approvals clearances from State and Central Government authorities for infrastructure development Devise programs for market driven production scheduling for organic production Help the exporters and farmers to implement international standards by providing support for setting up quality assurance eg HACCP Provide business advice to the new entrepreneurs Perform an infrastructure assessment inventory and gap assessment of infrastructure for connectivity, input supply, post harvest handling, processing, marketing and export. Identify locations for setting up new infrastructure and strengthening existing infrastructure. 128 Formation of field level functional units i.e. voluntary informal Self Help Groups of farmers using the cluster principle. Each SHG may have 20 to 25 farmers as members. SHG’s functions include technology transfer and training farmer members. Each SHG has to develop master farmers, each one having responsibilities for production, financial management, marketing and post harvest activities. The master farmers coordinate activities of all the farmers in the SHG. The criteria to measure the sustainability of the SHG may require that its member must be permanent residents of the project area, own land and cultivate a minimum acreage of crops. Identification of capacity building requirements of growers in respect of production of high value crops, marketing and post harvest handling. Convergence and partnership for investment promotion with focus on dove tailing investment plans with the ongoing programs of various agencies. Encourage participation in international exhibitions, publicity and support for setting up quality assurance, upgrading to HACCP quality control laboratory, infrastructure assistance for collection centres, storage facilities and post harvest management. Review of the role of various agencies like National Horticulture Board (NHB), Agricultural and Processed Food Products Export Development Authority (APEDA) and Department of Food Processing reveals that the sector needs state support in terms of favourable policy initiatives to attract investments, improve its efficiency and build its capacity to compete in the global markets. Furthermore, a coordinated approach between these agencies can avoid overlaps in their functioning and resolve issues, which require their combined support. Contract Farming 7.78 To facilitate contract farming, initiate policy changes to (a) maintain an equitable and fair link between the farmers and markets (b) facilitate high productivity through pre harvest management. (c) minimize wastage through post harvest management viz. Grading, packing, logistics, storage and distribution of agriculture products. Contract Farming will have a positive impact on the efficiency of domestic agriculture by promoting technological innovation and stimulating competition within the sector. The major policy issues that need to be addressed are: Exemption from Agricultural Land Ceiling Act Development of Waste Lands Development of Degraded Forest Land Power supply from Industrial feeder lines and industrial tariff Capital subsidy for green house, irrigation and cold chains Legislation support for early settlement of disputes between farmers and contracting companies 7.79 Contract farming programs by processing or marketing firms should be promoted without government intervention of any kind. Taxes by way of market fee, duties, etc. on procurement of agricultural or horticultural produce under the Contract Farming program should be waived. Land laws in the country such as the Land Ceiling and the Land Tenancy Acts impose restrictions on the extent of land holding by a single entity, and also on leasing of land for cultivation. Restrictive tenancy laws have not served much purpose for either growth or equity. Leasing of land by agro processing companies 129 should be possible. In the State of Punjab land leasing is not banned but the tenant acquires a right to purchase the leased land from the owner within a specified period of creation of tenancy. States like Sikkim, J&K and Himachal Pradesh have their own Land Laws which prohibit contract farming/land leasing. In Chattisgarh land leasing is not encouraged for fear of exploitation of tribals by non tribals. Although prevalence of informal leasing is reported it should be legal so that agribusiness entrepreneurs can source regularly raw material through contract farming and land leasing. Without removal of existing legal bottlenecks contract farming, agribusiness will not flourish. Government should make it mandatory for providing indemnity for land and property and allow contract farming to occur freely between sponsor and the farmer. In the guise of dispute resolution, protection of farmers’ interest the proposed registration of contract may discourage this alternative marketing system to take off, therefore an effective dispute resolution system is essential. Timely availability of inputs, arrangements for planting materials and improved post harvest handling and marketing facilities will facilitate improved quality and cost competitiveness both for domestic and export markets. Constraints 7.80 While small land holdings and non availability of good quality planting material have been the major issues of concern, it is expected that quality of planting material would improve in the long run due to selection, hybridisation, breeding and tissue culture. The deterring factors to fruit growing is that it requires a high initial investment and long gestation period. For poor farm management practices, there exists a strong need for extension education and training for the growers. Cooperative and contract farming may solve the problems for small land holdings towards improved yield and quality in the long run. Application of fungicides and pesticides and chemical preservatives are to be phased out and replaced by more environment friendly technologies in the long term. The constraints include: Poor quality seeds and planting materials. Preponderance of old orchards and their poor management practices. Small and uneconomic average farm size of the orchards. High order of perishability of horticulture produce leading to high degree of wastage. Lack of modern and efficient infrastructure facilities, Poor technological support Poor post harvest management practices. Under developed and exploitative marketing structures. Absence of adequate standards for quality produce. Inadequate research and extension support to address specific problems and their linkages with farming community and industry. 130 Utilizing available arable land by changing crop priorities Promoting use of wastelands for growing suitable horticulture crops Promotion of cost effective poly houses in the arid temperate regions of Lahaul & Spiti, Promote the production of off season vegetables using greenhouses. Better utilization of area through inter cropping in existing orchards, through identification of synergic crops e.g. growing of crops in vacant space, growing of shade loving crops in grown up orchards. Strategy for increasing productivity 7.81 The average productivity of most agricultural and horticultural crops in India is low. A wide gap thus exists between yields obtained and potential yields with improved varieties and technologies. Programs therefore need to be implemented to reduce the yield gap by improving productivity. The following strategy for increasing productivity includes: Production of disease free, quality planting material of only released and recommended varieties and hybrids. Improving orchard efficiency by gap filling and rejuvenation of old unproductive plantations through substitution of old varieties with improved high yielding varieties in crops like mango, apple, cashew, rubber, tea, coconut. High density planting by reduction in planting distance or use of plant growth inhibitors and dwarfing rootstocks as recommended in crops like mango, citrus and apple. Use of protected cultivation under controlled conditions using Hi-tech horticulture for growing fruits such as strawberries, vegetables such as cucumber, cabbage, capsicum, tomato and temperate vegetables in plain areas and high value cut flowers for domestic use and export. This ensures the best utilization of land. Use of honeybees for pollination thus increasing fruit set and productivity in most of the cross-pollinated horticulture crops with the added advantage of honey production. Need for policy initiatives 7.82 An assessment of the existing regulatory framework of seed and planting material required for horticulture and plantation crops indicates that the Seeds (control) Order, 1983 of the GOI has become out dated. In view of the growth of the sector, it will be necessary to replace the earlier order of 1983. Availability of quality planting material is essential for the growth. It is all the more relevant for tree crops with long gestation periods. At present there is no legislation to regulate production and sale of propagated planting material of most horticulture crops by nurseries. A mechanism to ensure the quality of planting material needs to be developed through registration and quality control. In many horticultural crops, excellent cultivars are available abroad thus in selected cases import of planting material of proven quality should be encouraged for trial in local conditions. 131 Farm Level Intervention For Processing Production 7.83 It is suggested to provide the basic guidelines for producing processing produce with implementation carried out in direct consultation with the farmers providing internationally acceptable farm techniques and good practices to the farmers" and disseminating the knowledge at the field level in a phased manner with relevant monitoring mechanism will require the following steps: Strategy 7.84 The current scenario of is that of a supply driven system producing commodities in uncertain quantities and qualities which has become already obsolete in the global context. A close look at the successful players in international horticulture business reveals that most of them have adopted demand driven supply chains after affecting major changes in production technology. This calls for production scheduling in line with market demand. Common Areas of Investment 7.85 In order to establish a complete supply chain from farm to market, infrastructure facilities will have to be created at the following levels: Small pre cooling units and evaporative cooling chambers in the production areas where the field heat of the produce is to be removed at a fast rate to reduce the temperature of the produce to the desired level before putting the product in the cold storages. The refrigerated transport units from the farm to the cold storages are also utilized as mobile pre cooling units for this purpose. 7.86 Specialized cold storage with high humidity and controlled/modified atmosphere are required for storage of the produce for a longer period. These specialized storages are essential for extending shelf life of the produce without these facilities proper storage of the produce to meet the demand in the off season is not feasible. Other components like ripening chambers close to the markets and display cabinets at retail outlets. 7.87 Integrated pack house centres to serve farms in regions having an area of around 5,000-10,000 ha. are proposed. Farms associated with each of the centres collect farm produce and bring them to common cold storage centres, where this produce will be subjected to treatments, such as washing, sorting, grading, waxing and packaging. The treated products will then be preserved in the appropriate cold storage facility. The services of these centres would contribute to increase the value of the farm products. Storage Infrastructure 7.88 The storage infrastructure for carrying the agricultural produce from production to consuming periods needs augmentation especially in hill and remote areas of various states. Hence the infrastructure creation for storage has to be addressed on a product specific basis. Cold Storage Facilities 7.89 The most important infrastructure need for post harvest handling of perishable and semi perishable commodities like fruits, vegetables and nuts will be cold storage facilities. Priority should be for multi chamber cold storages to cater the requirements of various horticultural produces grown in India. The present storage capacity available is sufficient only for only 10% of total production of fruits and vegetables. 132 Cold Chain Facilities 7.90 As part of strengthening the post harvest infrastructure, reefer containers, zero energy coolers etc. are to be provided for perishable commodities. There is an acute shortage of reefer containers and vans in comparison to the present production of perishable commodities. For handling the expected higher production during the Tenth Plan period, the Inter Ministerial Task Force on Agricultural Marketing Reforms constituted by Ministry of Agriculture, GOI has recommended the creation of an additional cold chain facilities at an investment cost of Rs 2500 crore of which Rs 625 crore are to be provided as investment support and Rs 1875 crore to come from private investment. Potential Investments in ICT 7.91 The use of information technology is one of the most important aspects of commercial agriculture and agribusiness and investments are needed to augment information technology and media for information dissemination which will have a direct impact on small and marginal farmers. Various ICT based initiatives in the private as well as the public sector have been made in India but further investments are necessary, particularly from the private sector. 7.92 Private Sector Initiatives: Almost all the ICT initiatives have unique features of their own but they can be classified into the following broad categories:23 • Rural connectivity and allied service providers such as N Logue and Drishtee. • Private and cooperative sector related initiatives such as ITC, EID and NDDB. • Pure Information services providers such as agriwatch.com, ikisan.com, kisanindia.com, commodityindia.com and indiaagronet.com. • Knowledge networks and knowledge banks such as Honey Bee Network, Harit Gyan, Indian Society of Agribusiness professionals etc. 7.93 In addition to the four above categories, there is a fifth category, entrepreneurs operating as partners in the form of kiosk owners and franchisees in the districts, talukas and villages. All the initiatives work with entrepreneurs as partners (at village level). These entrepreneurs are the final links in the chain. They are termed sanchalaks under the ITC choupal system. Depending on the type of initiative, the initial investment of these entrepreneurs could range from Rs 80,000/- to Rs 150,000/-. In case of the ITC Choupal initiative this investment is in the range of Rs 150,000. Summary of Typical Initiatives in ICT Entities Activities Private sector based initiatives such as Market place, procurement ERP, those of ITC, Tata Kisan Kendra, EID Knowledge dissemination and Parry, etc. training Rural connectivity and allied Technology back-end, services in infrastructure services providers like collaboration with other categories Drishtee and N Logue Pure Information services providers such Dynamic data such as prices, as Ikisan, Agriwatch, Kisanindia, commodity trends, weather, etc. 23 Source: ICT in Agriculture Extension, FAO, Paper by Sunil Khairnar 133 indiaagronet. Knowledge networks such as Honey Bee, Harit Problem solving and advisory Gyan, etc. services, technical information services. Multiple rural services like Gyandoot, Agriculture, rural health, education, e- Warna wired village, Village Information governance, etc. Kiosks 7.94 Agrinet Solutions Pvt Ltd: Agri Net Solutions limited (ANSL) is an agricultural information management company providing agricultural information in English, Marathi, Hindi and Gujarati. ANSL provides value added information that supports decision- making in dynamic agriculture situations and have invested around Rs 30 crores in this initiative. In order to provide this information, ASNL has set up many distribution centres called Kisan India Kendras (KIK). Members can obtain free access to the ANSL website and also avail themselves of online and offline activities including monthly location specific publications. 7.95 The ANSL website includes agro eco-logical and location specific modules which are dynamic and are updated on a daily basis to provide up to date information on advanced crop production technologies, animal health, weather, mandi prices, government initiative schemes and rural enterprises. ANSL also conducts offline activities for the benefit of KIC members, which includes discussions with experts to understand problems under different agro eco-logical and location specific conditions in various disciplines of agriculture to provide solutions. ANSL has links with the Indian Council of Agricultural Research (ICAR) and various State Agriculture Universities (SAUs) for providing the latest technologies. 7.96 SOL Star International Ltd. is another example of a company involved in ICT. The company was awarded the contract to execute a project on a Build, Own Operate (BOO) Model. The vendor and project partners’ line of business involves Software, IT Training, Smart Card, Hardware Development, and Connectivity. 7.97 Investments required in ICT based initiatives: Supporting Agribusiness Entrepreneurs: Most of the successful initiatives have a critical component in its chain, the village/ taluk level entrepreneur who invests in and runs the kiosks from where the services are disseminated. The government could play a decisive role by: • Ensuring availability of space at strategic locations (e.g. Mandis) • Making finance available to these entrepreneurs at the same rates as have been announced for farmers and against the certificates of qualifications of these entrepreneurs. They should not be required to provide assets as collateral. Finance is a critical constraint for entrepreneurs as the commercial banks expect these entrepreneurs to furnish collateral for the loans. • The entrepreneur must have an MOU with at least one approved service provider of each of the main categories of service providers. • Commitment of the entrepreneurs to the kiosks avoiding conflict of business interests. • Preparation of detailed business plans including quarterly milestones 134 7.98 Potential Investments in the Focal States: Himachal Pradesh with 12 districts Bilaspur, Chamba, Hamirpur, Kangra, Kinnaur, Kullu, Lahaul & Spiti, Mandi, Shimla, Sirmaur, Solan and Una could have up to 1,200 internet information center kiosks which would require a funding of around Rs. 9-12 crores Jammu and Kashmir with 14 districts Anantnag, Baramulla, Budgam, Doda, Jammu, Kargil, Kathua, Kupwara, Leh, Poonch, Pulwama, Rajauri, Srinagar and Udhampur could have up to 1,400 kiosks which would require a funding of around Rs.11-14 crores. Punjab with 17 districts Amritsar, Bathinda, Faridkot, Fatehgarh Sahib, Firozpur, Gurdaspur, Hoshiarpur, Jalandhar, Kapurthala, Ludhiana, Mansa, Moga, Muktsar, Nawanshahr, Patiala, Rupnagar and Sangrur could have up to 1,700 kiosks which would require a funding of around Rs. 13-17 crores. Sikkim with 4 districts East Sikkim, North Sikkim, South Sikkim and West Sikkim could have up to 100 kiosks which would require a funding of around Rs. 1 crore. Chhatisgarh with 16 districts like Bastar, Bilaspur, Dantewada, Dhamtari, Durg, Janjgir- Champa, Jashpur, Kanker, Kawardha, Korba, Koriya, Mahasamund, Raigarh, Raipur, Rajnandgaon and Surguja could have up to 1600 kiosks which would require a funding of around Rs. 12-16 crores. 7.99 The numbers of kiosks have been assumed at very conservative penetration levels which would make them viable. These kiosk operators cannot operate in a vacuum and require players like N-Logue and Drishtee for managing the technological and services backend which requires investments in addition to those mentioned above. 7.100 Investments required by Internet Infrastructure Organizations: Drishtee.com Pvt Ltd which works at the District level with the local administration for reaching out to the rural community has already set up more than 300 kiosks in key north Indian states. It acts as a catalyst for setting up of ICT centres by conducting Need Assessment and Data readiness surveys and paves way for setting up a platform for rural networking and marketing services for enabling e-governance, education and health services. 7.101 The following is an order of magnitude cost estimate for a drishtee type of intervention for the implementation of an ICT project. As per Drishtee surveys there is a potential for 3,000 self-sustaining revenue earning kiosks. The total investment required to setup one Kiosk is Rs. 125,000 including the hardware, software, training and promotion cost. Drishtee requires a loan of Rs. 55,000 per kiosk as a loan at 4 % payable quarterly. Drishtee, the partnering organizations and the village entrepreneur himself would put up the rest of the investment. An estimate of the Drishtee Kiosk cost is as follows: Cost Item Cost Rs Computer and Peripherals 53,000 Software license cost 20,000 Security Deposit 10,000 Computer Training 2,000 Entrepreneurial Training 2,000 Promotion Training 2,000 Train the Trainer Program 10,000 135 Service Rent 6,000 Promotion Costs 20,000 Total Cost 125,000 7.102 N Logue could link up 500,000 villages in India if Rs 350 crores were made available as a loan. This is on the basis of the Rs 42 Lakhs investment required by N- Logue for setting up a hub at a district level with spokes into the villages. Even in the N- Logue model, the village level entrepreneur can raise funds through loans from commercial institutions. Around 100,000 remote villages in India require special solutions and that current technologies used by their organization would not be able to wire up these villages. These figures translate into a loan requirement of Rs 27-30 crores for the 63 districts in the targeted states for the IT infrastructure. 7.103 Both Drishtee and N-Logue may not be interested in states like Jammu and Kashmir, Himachal Pradesh and Sikkim because of the anticipated difficulties due to terrain, lower population and lower levels of agribusiness development. The loans to agribusiness entrepreneurs and the loans to infrastructure players need to be tied together as the entrepreneurs would not be viable without the support from the infrastructure players. 7.104 Investment into the APMC Markets: On the lines of the E Krishi Vipanan Initiative, cost efficient IT-based interactive agricultural commodity transaction systems need to be set up in all the key APMC markets in the target states. It is also envisaged that such a market led IT based model would trigger a cycle of higher productivity leading to higher rural incomes. This could be a model for state governments to involve private sector in offering services and facilities similar to those being offered through the chaupal system by ITC. Proposed Investment: Complete computerization of 145 market committees including computerization of activities such as auction, weighing, mandi fee calculation, mandi fees accrued, mandi fee collected, traders ledger, financial accounting, payroll and mandi engineering. 7.105 E-Krishi Vipanan in Chhatisgarh: This state has 72 Market Committees. Proposed Investment: Complete computerization of 72 market committees including computerization of activities like auction, weighing, mandi fee calculation, mandi fees accrued, mandi fee collected, traders ledger, financial accounting, payroll and mandi engineering. 7.106 The investments required over a three year period on the basis of Madhya Pradesh experience appear to be around Rs 45 crores for Punjab, Rs 20 crores for Chhatisgarh, and Rs 5 crores for Himachal Pradesh. In case of Punjab and Chhatisgarh the investment would be in the form of loans to the BOO operators. The APMC markets in the states of Sikkim, Himachal Pradesh and Jammu and Kashmir would have to undergo computerization under the ownership model as private sector players may not be interested in investment on a BOO basis in these states who would win contracts for implementation. 7.107 ICT and its role in Credit and other inputs: Use of smart cards needs to be encouraged in agribusiness through credit-input linkages. One year pilot projects with 136 10,000 farmers in Punjab and 5,000 farmers each in Himachal Pradesh, Jammu and Kashmir, Sikkim, Chhatisgarh need to be tried out with different local banks in each case. The cost of this exercise is estimated to be Rs 4.5 crores which could be shared with the local partner banks in each states. NABARD, ICICI and others have tried out a number of experiments on a small scale. This investment by ADB would go a long way in establishing the usefulness of the smart cards and their impact on agribusiness and commercialization of agriculture. Smart cards are an integral part of the future plans of the EKVI, ITC E Chaupal as well as many micro finance players. The Kisan Credit Card which is today a physical card representing the farmers bank account could be converted by the bankers into smart cards which would enable credit, input purchases and sale of produce at the APMC or to private markets. 7.108 Typical Plan of Action: As a first step the ‘Expression of Interest’ (EOI) being sought from interested parties which may be companies or consortium of companies who can execute projects on Build, Own and Operate basis ( BOO). The returns i.e. user charges for the parties from the project may be in terms of fixed charges per transactions made, reports generated and percentage of the mandi fees collected. Additional returns can be generated with written approval from the mandi board from the advertisements made at mandis about agricultural produce and agriculture related items such as fertilizer, seeds, pesticides, farm practices and export orders. The short listed parties will be asked to make presentations on their capability to take up such projects and run them for a minimum period of five years which will involve deployment of the latest hardware, software and manpower and maintenance. 7.109 Parties will be further short-listed and will be given the task of preparing a Detailed System Study (DSS) and present a Detailed Proposal (DP). This is necessary since and in-depth study of mandi activities, mandi manual and by-laws are essential pre-requisites for assessing the actual workflow, various procedural and administrative requirements and output reports. The technical details of eventual e-agricultural marketing and commercial offer of the charges for software development and the BOO option that will be charged per transactions made, reports generated and percentages of the total months mandi fee receipts will be presented. 7.110 One successful bidder among the parties who have submitted the DP after DSS will be selected based on technical and commercial merits. The selected party will be required to execute an agreement as well as furnish a Bank Guarantee (BG). Failing to comply the offer in part or full, the selected party would be blacklisted by Mandi Board MAP-IT and thus would be debarred for participating in any future business deals. 7.111 The selected party will execute a pilot project within a specified period which will be evaluated and modified if necessary before the full roll out of the plans which may be in phases to be decided on the experience gained during the pilot project. The software development would be a one time event and thus its charges will be paid for by the Mandi Board only after it has been fully validated and approved. The Mandi Board will thus retain the intellectual property rights to the software. 7.112 The Mandi Board shall have the full right to make any alterations, omissions, additions or substitutions in scope of work and specifications in the interest of the project and the farmers at any time and reserves the right to modify/amend/add steps in the process of evaluation of the EOI with due consideration to all the bidders concerned. 7.113 The following criteria for bidders should be followed: 137 • A strong IT back ground with national / international experience. • Have accomplished at least three major projects each of Rs. 1 Crore or more, during the last three years. • Be a total solution provider with core strengths in e-consultancy, e-commerce, application development and outsourcing. • Have experience and financial capability to take up the project. Specific experience in software development and deployment, complete networking including deployment of Hardware and operation, maintenance of the system, deployment and control of manpower and experience in crisis and disaster management is essential since functioning of the system is required to obviate farmer’s inconvenience due to non-functioning of the system. • Be capable and have experience in running the system on a long term engagement of continuous two years or more. 7.114 Scope Of Work: Software will essentially cater for Mandi activities; • Entry/gate slip management • Auction slip management • Weight slip management • Cash memo management • Mandi Tax and other taxes and receipts management vehicle in /out management at the mandi gates and inter/intra state barriers, • Licensing • Traders stock assessment • Local and export gate pass management. • Commodity wise daily rates/arrivals • Generation of vehicles reports, growers reports, Block wise arrival reports, reconciliation of arrivals and dispatches. • E-Commerce, where a farmer can sell his produce at the village level to a license holder trader and the trader can receive E-copy of essential transit permit from the requisite mandi enabling him to transport the material directly to the processor. • Software for mandi accounting: Software will essentially cover the following procedures of mandi accounting. • Voucher processing • Daily cash and other accounting books • Accounts receivable and payable • Budget preparation and analysis • Transfer entries • Trial balance, income and expenditure statements • Reconciliation of bank accounts. • Mandi board loans 7.115 Most suited architecture and plan of action for prevention of virus corruption and loss of data is a prerequisite for data warehousing. Crisis and disaster management is an integral and essential requirement so that minimum time is lost in the event of disaster for recovery of data and restarting the system. These issues have to be fully addressed in the study as well as in the proposed system. To disseminate information in the mandi, it is desirable that an electronic display screen of an appropriate size 138 enabling legible display is put up connecting this with the computer for online daily rates, arrivals, important news, announcements as well as the advertisements display for the visiting farmers. 7.116 The Detailed Proposal (DP) has to be prepared after in-depth study conducted by the party, and other interactions with the officials of the selected Agricultural Marketing Committee, hitherto addressed as Mandi, M.P. State Agricultural Marketing Board. The DP shall outline existing systems, available infrastructure for computerization in the mandi and in the mandi area, with the basic infrastructure providers. Suggested Methodology to evaluate investment opportunities. • Team formation . • Visits to the area of operation. • Understanding the business processes and data flows. • Data collection methods, frequency of data flow and quality of data assessment. • Frequency review, daily, fortnightly , monthly and yearly. • Formulation and selection of application software and system Software. Facilities for Cleaning, Grading and Packing 7.117 These facilities are required both at markets and the villages from where produce is being brought to the market for sale. Scientific packaging also should be encouraged. An investment of Rs.1000 crore is projected for these purposes during the Tenth Plan period. Criteria for Prioritization • Raises farmers incomes • Increases employment • Market Driven for both the domestic and international market. • Increases efficiency in the value chain • Reduces dependence on subsidies • States willingness to allow implementation of recommendations • Sustainability • Promotes forward linkages to agro processing • Potential for private sector participation • Potential for Public/Private Partnerships • Social impact • Present condition of infrastructure(availability of transportation facilities, irrigation, storage facilities etc.) Agri Infrastructure Development Fund (AIDF) 7.118 The concept of the Agri Infrastructure Development Fund is a proposed initiative to provide incentives to the private sector to invest in agribusiness projects. The advantage of this concept is that it would also provide incentives to financing institutions and commercial banks by reducing the risk of lending to the private sector. The entity administering the fund would in effect be a stakeholder in the equity of potential projects. At some point in the future of each project, the Fund would have the option to sell its stake to other investors or to the stock market and recover its investment. The administration of the fund would be made up from representatives of Central and State Governments and the financing agency in a tripartite arrangement, thereby providing the State with the incentive to leverage its funds. 139 Special Purpose Vehicles (SPVs) 7.119 With this concept it is proposed that investments could be channelled into projects with different stakeholders participating. For example, an SPV would be established to improve mandis by receiving funds from the stakeholders as start up capital, the funds could be leveraged to secure larger loans from commercial banks and the SPV would invest the funds in several mandis. Repayment of the debt would take the form of a fee from each mandi after which the SPV would be wound up. Critics might argue that we are simply replacing one fee with another but in this case the fees would be used to pay down a loan and there would be a finite period of repayments, whereas with the present system, market fees are paid in perpetuity unless other interventions are introduced. Project Development Facility (PDF) 7.120 The Project Development Facility would in effect be a project implementation unit to handle all the various aspects of project implementation including but not limited to: project appraisal (financial and technical), project management and contract administration, performance monitoring and quality assurance. The PDF would also be responsible for advising applicants on how to access the funds and by soliciting proposals for review and evaluation. It is envisaged that applicants would submit proposals including technical and financial aspects, preparation of business plans and cash flow projections etc. The PDF would be staffed by well qualified personnel across a wide range of disciplines. 140 Post Harvest Handling (Applicable to all States) Short term Medium term Long term Post-harvest Selective use of pre- Increased use of pre- Extensive use of mobile treatments cooling for high cooling techniques like pre-cooling value crops ventilation and evaporative cooling Use of irradiation not Use of broad spectrum Limited use of irradiation for likely chemicals to continue potato, onion & spices Use of broad spectrum chemicals to be curtailed Storage No significant 5-10% of fresh produce to 20-25% of fresh produce to change from be channelled through be channelled through cold currently followed cold chain chain practices in storage at field level Less than 5% of produce would be channelled through cold chain CA/MA storage only Very Limited use of Extensive use of CA/MA for high value CA/MA Storage Storage perishable produce Transportation Mainly by trucks and Increased use of Reefer Reefer trucks and CA/MA by cart load trucks containers for transport Packaging Traditional Traditional methods to Traditional methods to packaging methods continue continue but use of plastic (Jute bags, Rattan packaging to grow at the baskets, modern cost of wood based boxes) to continue packaging Use of CFB Cartons, Use of CA/MA packaging to shrink wrapping for increase significantly exports Emergence of packing stations TA 4192 IND Commercial Agriculture and Agribusiness Problem Tree Analysis Difficult to move forward in agribusiness due to the many policy and regulatory impediments Agribusiness will continue to expand at a slow pace unless a more having a negative impact on private sector investment. Other inititives in the absence of policy favorable enabling environment is expedited and farmers have easier reforms will only have a marginal effect on agribusiness. access to inputs and credit National capacity to Opportunities for private sector Farmers unable to generate Low productivity and high post Agroproccessors engaged in implement reforms is investment are being missed incomes to their full potential harvest losses is having a export activities are particularly NATIONAL IMPACTS hindered by lack of a single resulting in slow growth in because of their lack of power negative effect on farmers affected by lack of uniformity agency responsible for agribusiness to create loby groups to incomes leading to overall low in food laws agribusiness influence Government policies. value addition in agribusiness. CONSEQUENT Agribusiness strategies take Private sector is deterred from Lack of an effective education Lack of better quality seeds National policy on food laws is IMPACTS too long to implement due to investing in agribusiness due campaign to impart knowledge and other inputs to improve being reviewed by Governmen the many impediements and to the multiplicity of policy and and entrepreneurial skills to productivity and lack of cold but lack of cohesiveness still lengthy decision making regulatory constraints still farmers and farmer groups. chains to reduce post harvest exists processes prevailing. Lack of cluster approach losses and increase value addition. KEY SECTOR Agribusiness is hampered by outdated policies and regulations retarding growth in this vital sector PROBLEM Absence of a single agency Private sector not making Farmers not empowered. Low productivity and high post Too many food laws by too DEFICIENT SECTOR to coordinate agribusiness significant investments in Agribusiness not market harvest losses causing low many agencies agribusiness driven value addition. INPUTS Responsibility for While some progress is being Lack of empowerment by Low productivity and high Multiplicity of food laws agribusiness is distributed made, there is still an absence farmers and farmer groups wastage levels at the farm creates a confusing amongst too many of a clear and positive renders them vulnerable and level due to lack of post environment to agro ministries causing lack of commitment to attract private open to exploitation by traders harvest infrastructure is having processors, especially those coordination and sector investment in a negative effect on farmers engaged in exports convergence agribusiness incomes LIST OF TABLES TABLE No Description 1 GDP from the Agribusiness Processing Sector, 2001/02, Rs. Million 2 Composition of the Value of Agricultural Output, 1996/97-2001/02 3 Changes in Food Consumption Pattern in India, 1983-2000 4 Changes in Food Consumption among Different Expenditure Groups, 1983-99 5 Supply Chain of Select Agricultural Commodities 6 India’s Export of Principal Agricultural Products 7 Agriculture Imports 8 Central foodgrain stocks: actual and the norm (million tonne) 9 Production and procurement of rice and wheat by official agencies (1985-86 to 2000-01) 10 Export of Basmati rice for the last decade 11 Export of Non basmati rice 12 Export of Wheat 13 Export of Mango pulp 14 Export of pickles and chutneys for the years 1993-94 to 2000-01 15 Export of Preserved mushrooms 16 Packaging and Marketing of different commodities in Regulated Markets, Delhi 17 Ranking of Various Sources of Information 18 Control Orders Issued by Focused State Governments 19 Trade Ratios in percent 20 Output and Export of Processed Food Products from India 21 Processed Food Exports from India 1 Table 1 GDP from the Agribusiness Processing Sector, 2001/02, Rs. Million Proportion of total that No Category Registered Unregistered Total is unregistered 1 Food Products 113,510 68,260 181,770 38% 2 Beverages & Tobacco 47,160 57,610 104,770 55% 3 Cotton Textiles 55,160 58,630 113,790 52% 4 Wool & Silk 53,750 16,170 69,920 23% 5 Jute Textiles 7,610 3,110 10,720 29% 6 Textile Products 45,190 37,030 82,220 45% 7 Wood & Furniture 5,360 44,300 49,660 89% 8 Paper and Printing 34,740 29,110 63,850 46% 9 Leather and Fur products 11,730 21,270 33,000 64% Agribusiness Processing GDP 10 160,670 125,870 286,540 44% Definition 1: 1 + 2 Agribusiness Processing GDP, 11 277,190 203,780 480,970 42% Definition 2: 10 + 3 + 4 + 5 Agribusiness Processing GDP, 12 374,210 335,490 709,700 47% Definition 3: 11 + 6 + 7 + 8 + 9 13 Total Processing GDP 1,400,890 729,760 2,130,650 34% Agribusiness Processing 14 As % of total processing GDP 11.5% 17.2% 13.5% --- Definition 1 Agribusiness processing 15 As % of total processing GDP 19.7% 27.9% 22.6% --- Definition 2 Agribusiness processing As % of total manufacturing 16 26.7% 46% 33.3% --- GDP Definition 3 Source: National Accounts Statistics, 2003 2 Table 2 Composition of the Value of Agricultural Output, 1996/97-2001/02 Foodgrains 40% Oilseeds + Sugars + 22% Fibres Fruits and 23% Vegetables Tea, coffee, 5% tobacco, condiments and spices Byproducts, other 10% crops and kitchen garden Total 100% Source: Computed from National Accounts Statistics, 2003 Table 3 Changes in Food Consumption Pattern in India, 1983-2000 Annual per capita consumption (kgs) Rural Urban 1983 1999/00 1983 1999/00 Rice 87 91 70 70 Wheat 52 52 58 56 Coarse cereals 43 14 13 5 Pulses 11 11 12 15 Edible Oils 4 8 6 13 Fruits & Vegetables 49 84 97 115 Milk 37 63 56 91 Meat, Fish and Eggs 4 7 1 10 Sugar 11 13 12 16 Source: Kumar and Mruthunjaya (2002) 3 Table 4 Changes in Food Consumption among Different Expenditure Groups 1983-99 Annual Per Capita Consumption (kgs) Poor Upper Expenditure Group 1983 1999/00 1983 1999/00 Rice 67 76 94 86 Wheat 44 45 71 60 Coarse Cereals 37 12 29 9 Total Cereals 147 132 194 155 Pulses 8 7 18 17 Edible Oils 3 5 8 14 Fruits & 38 58 85 109 Vegetables Milk 16 21 90 117 Meat, Fish & 2 4 5 11 Eggs Sugar 6 6 19 19 Table 5 Supply Chain of Select Agricultural Commodities Rice* Wheat* Apple* Onion* Apple+ Groundnut* Producer Producer Producer Producer Producer Producer (100) (100) (100) (100) (100) Primary Miller (129) Forwarding Commission Local Merchant/Commission Wholesaler Agent (128) Agent (107) Trader Agent (103) (119) (174) Wholesaler Secondary Commission Wholesaler Wholesaler Oil Miller (135) (142) Wholesaler Agent (169) (153) (182) (139) Retailer Retailer Wholesaler Retailer Retailer Wholesaler (144) (154) (150) (187) (193) (232) Consumer Consumer Retailer Consumer Consumer Retailer (146) (239) Consumer Consumer * Source: Directorate of Marketing and Inspection (1985) + Source: Shaheen and Gupta (1999-2000) 4 Table 6 India’s Export of Principal Agricultural Products (US$ million) No. Products 1998- %Agri 1999- %Agri 2000- %Agri 1999 Exports 2000 Exports 2001 Exports 1. Tea 538 8.9 412 7.3 433 7.2 2 Coffee 411 6.8 331 5.9 259 4.3 3 Cereals 1,495 24.8 724 12.9 744 12.4 4 Tobacco 181 3.0 233 4.2 191 3.2 5 Spices 388 6.4 408 7.3 354 5.9 6 Cashew 387 6.4 567 10.1 411 6.8 7 Sesame and 78 1.3 86 1.5 131 2.2 Niger Seeds 8 Guar gum 173 2.9 188 3.4 132 2.2 Meal 9 Oil meals 462 7.7 378 6.7 448 7.5 10 Fruit and 184 3.0 209 3.7 248 4.1 vegetables 11 Processed 69 1.1 86 1.5 122 2.0 fruits and vegetables 12 Meat and 187 3.1 189 3.4 322 5.4 meat preparations 13 Marine 1,038 17.2 1,183 21.1 1,394 23.2 Products 14 Others 446 7.4 614 11.0 815 13.6 Agri-Exports 6,037 100.0 5,608 100.0 6,004 100.0 Per cent of 18.2 - 15.2 - 13.5 - agri to Total exports Total Exports 33,218 - 36,822 - 44,560 - 5 Table 7 Agriculture Imports (US $ million) Commodity 1998-1999 1999-2000 2000-2001 Value % to total Value % to total Value % to total Agri Agri Agri Imports Imports Imports Cereal 288 9.9 222 7.8 19 1.0 Pulses 169 5.8 82 2.9 109 5.9 Milk & cream 3 0.1 25 0.9 2 0.1 Cashew nuts 230 7.9 276 9.7 211 11.3 Nuts and fruits 159 5.5 136 4.8 175 9.4 Sugar 264 9.0 256 9.0 7 0.4 Oil seeds 2 0.1 4 0.1 2 0.1 Veg. Oils 1,804 61.8 1857 65.0 1,334 71.8 TotalAgri Imports 2,919 100.0 2,858 100 1,858 100.0 % of Agri to Total 6.9 - 5.8 - 3.7 - Imports Total Country 42,389 - 49,671 - 50,536 - Imports Table 8 Central foodgrain stocks: actual and the norm (million tonne) Year January April June October Actual Stock 1997 20.0 6.4 22.4 15.3 1998 18.3 18.2 28.5 24.2 1999 24.4 21.9 33.1 28.0 2000 31.4 21.7 42.2 40.0 2001 45.7 44.7 61.7 58.3 2002 58.0 62.4 Norm 16.8 15.8 24.3 18.1 Source: Economic Survey 2001-2002. 6 Table 9 Production and procurement of rice and wheat by official agencies (1985-86 to 2000-01) Million tonnes Year Production Procurement Procurement as % of production Rice Wheat Rice Wheat Rice Wheat 1985-86 63.8 47.1 9.9 10.3 15.51 21.89 1986-87 60.6 44.3 9.2 10.5 15.19 23.69 1987-88 56.9 46.2 6.9 7.9 12.13 17.11 1988-89 70.5 54.1 7.7 6.6 10.92 12.20 1989-90 73.6 49.9 11.8 8.9 16.04 17.85 1990-91 74.3 55.1 12.7 11.1 17.09 20.13 1991-92 74.7 55.7 10.2 7.8 13.66 14.01 1992-93 72.9 57.2 13.0 6.4 17.84 11.19 1993-94 79.0 59.1 14.3 12.8 18.10 21.65 1994-95 81.8 65.8 13.7 11.9 16.75 18.09 1995-96 77.0 62.1 10.0 12.3 12.99 19.81 1996-97 81.7 69.4 13.0 8.2 15.90 11.82 1997-98 82.5 66.3 15.5 9.3 18.78 14.02 1998-99 86.0 70.8 12.6 12.7 14.65 17.94 1999-00 89.5 75.6 18.2 14.1 20.34 18.66 2000-01 84.9 68.7 20.8 16.4 24.50 23.66 2001-02 90.7 73.5 20.2 20.6 22.27 28.03 Source: Bulletins of Food Statistics, Ministry of Agriculture. 7 Table 10 Export of Basmati rice Qty: Tonnes Val: Rs. million Year Basmati Rice Quantity Value 1992-93 286,170 6,998.4 1993-94 527,233 10,612.6 1994-95 442,167 8,653.8 1995-96 373,314 8,506.6 1996-97 523,127 12,476.3 1997-98 592,678 16,850.2 1998-99 597,756 18,769.0 1999-00 605,458 17,359.4 2000-01 847,458 21,487.9 2001-02 665,843 18,390.8 2002-03 710,292 20,625.9 Table 11 Export of Non basmati rice Qty: Tonnes Val: Rs. million Year India Quantity Value 1992-93 276,735 1,981.4 1993-94 240,454 2,254.4 1994-95 448,446 3,403.9 1995-96 4,540,699 37,174.0 1996-97 1,988,847 19,247.2 1997-98 1,796,280 16,859.6 1998-99 4,365,842 44,038.4 1999-2000 1,216,681 13,694.3 2000-01 682,764 7,774.9 2001-02 1,532,348 13,243.6 2002-03 4,347,140 38,330.0 Source: DGCIS for India. 8 Table 12 Export of Wheat Qty: Tonnes Val: Rs. million Year Quantity Value 1998-99 1,763 13.6 1999-2000 690,400 6,222.3 2000-01 879,840 4,442.2 2001-02 2,649,380 13,302.1 2002-03 3,671,253 17,598.7 Table 13 Export of Mango Pulp Year Qty (Tonnes) Value (Rs.million) FOB 1990-91 19,496 270.7 1991-92 23,213 370.5 1992-93 27,506 583.4 1993-94 26,220 579.8 1994-95 34,460 807.1 1995-96 36,023 846.0 1996-97 40,302 1,050.1 1997-98 45,875 1,253.1 1998-99 38,234 1,385.6 1999-00 72,834 1,965.2 2000-01 57,303 2,638.5 Source: Monthly Statistics of the Foreign Trade of India (DGCICS Calcutta), annual Numbers Table 14 Export of pickles and chutneys for the years 1993-94 to 2000-01 are as below: Year Qty (Tonnes) Value (Rs.million) FOB 1993-94 13,106.16 361.3 1994-95 17,719.44 497.4 1995-96 15,597.26 525.5 1996-97 18,390.31 564.3 1997-98 24,372.27 767.1 1998-99 21,138.05 759.6 1999-00 26,737.60 899.8 2000-01 40,703.54 1,364.6 9 Table 15 Export of Preserved Mushrooms Year Qty (Tonnes) Value (Rs.million) FOB 1997-98 520.555 17.1 1998-99 3,458.245 139.2 1999-00 3,660.581 174.2 2000-01 6,807.289 253.2 Table 16 Packaging and Marketing of different commodities in Regulated Markets, Delhi Name of the Package unit per Marketing** Marketing Marketing commodity pack costs at costs with costs with normal hidden cost at hidden costs rates conservative at liberal Rs. estimates Rs. estimates Rs. Apple Rs./box @ 20 kgs 132 147 158 Cabbage Rs./bag @ 50 kgs 92 102 118 Cauliflower Rs./basket @ 75 kgs 83 102 116 Pea Rs./bag @ 40 kgs 103 123 129 Potato Rs./bag @ 80 kgs 122 137 148 Tomato Rs./basket @ 10 kgs 32.80 38.80 48.80 ** Includes Transportation, Packaging and Market charges in Regulated Market, Delhi. Table 17 Ranking of Various Sources of Information Rank Other farmers 1 Traders/millers 2 Marketing Boards 6 Cooperatives/Associations 8 Newspapers 7 Magazines 11 Radio/TV 4 Notice Boards in Market 3 Internet 10 Extension Services 9 Personal Visits 5 Others 12 10 Table 18 Control Orders Issued by Focused State Governments 1. Chhattisgarh 1. Rice Procurement Levy Policy. Chhattisgarh (Food Stuffs), Public Civil Supply Distribution Scheme, 2. 2001. Rest of the Control Orders as in Madhya Pradesh have been enforced. 2. Himachal 1. H.P. Coal Licensing and Price Control Order, 1989. Pradesh 2. H.P. Trade Articles (Licensing and Control) Order, 1981. H.P. Specified Essential Commodities (Regulation and Distribution) 3. Order, 1979. 4. H.P. Hoarding and profiteering Prevention Order, 1977. 5. H.P. Commodities Price Marketing and Display Order, 1977. There is ban on movement outside the State of foodgrains (except 3. Jammu & basmati rice) pulses, singharas, oilseeds, cheese and butter and Kashmir vegetables of all kinds. 4. Punjab 1. The Punjab Hoarding and Profiteering Prevention Order, 1977. The Punjab Sugar Khandsari and Gur Dealers Licensing Order, 2. 1978. 3. The Punjab Rice Procurement (Levy) Order, 1983. The Punjab Regulation of Compounded Cattle Feed, Concentrate 4. and Mineral Mixtures Order, 1988. 5. The Punjab Trade Articles (Licensing and Control) Order, 1992. The Punjab Light Diesel Oil and Kerosene Dealers Licensing Order, 6. 1978. 7. The Punjab Cement (Licensing and Control) Order, 1973. 8. The Punjab Coal Control Order, 1973. 5. Sikkim 1. The Sikkim Sugar and Gur Dealer. Licensing Order, 1977. 2. The Sikkim Coal Control Order, 1977. 3. The Sikkim Edible Oils and Pulses Dealers Licensing Order, 1977. 4. Rice and Wheat (storage) Control Order, 1992. Sikkim Key Essential Commodities (Distribution) Control Order, 5. 1982. The Sikkim Salt (Manufacture, Distribution & Movement) Control 6. Order, 1980. 11 Table 19 Trade Ratios in percent Year Total Exports/GDP Agri Exports/GDP Agri Imports/GDP 1990-91 6.81 1.32 0.63 1991-92 7.97 1.43 0.56 1992-93 8.51 1.39 0.74 1993-94 9.53 1.72 0.56 1994-95 9.63 1.55 0.93 1995-96 10.97 1.97 1.02 1996-97 11.24 1.95 0.78 1997-98 9.36 1.82 -- 1998-99 8.74 1.63 -- 1999-00 9.09 1.42 -- 2000-01 10.73 1.51 -- Table 20 Output and Export of Processed Food Products from India Period Output Growth Export growth 1981-90 7.00 0.33 1991-95 6.59 14.95 1996-99 NA 0.34 Table 21 Processed Food Exports from India Rs. Crores Year Fruits and Other Processed Rice Walnuts Vegetable Products Food 1996-97 473.77 1,835.92 3,172.35 78.93 1997-98 761.50 1,494.80 3,370.00 56.40 1998-99 705.60 1,134.50 6,279.40 68.90 1999-00 993.60 1,494.40 3,125.80 60.50 2000-01 1,345.50 1,798.00 2,943.30 109.90 2001-02 1,100.57 1,780.07 3,172.97 117.98 2002-03 1,400.00 1,600.00 3,750.00 100.00 Note: Based on official exchange rate between the Indian Rupee and US Dollar. P- Provisional; Q- Quick estimates -- not calculated Source: Economic Survey, Ministry of Finance, Government of India, different issues.
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