Agribusiness and Commercial Agriculture Assessment by ror63494

VIEWS: 1,212 PAGES: 162

									  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.

								
To top