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[Food Processing] Introduction, Scope, Significance, Awesomeness (hardly), Obstacles

(truckload of) for GS Mains


Prologue
In the new Mains syllabus, UPSC has included: Food processing and related industries in India

their Scope, significance, Location

Supply chain management (SCM)

Upstream and downstream requirements

But ^thats not the end. Food processing topic also overlaps with

GS2

GS3

1.

Ministries and Departments of the Government

2.

Government policies and interventions for development in various sectors and issues arising out of their design and
implementation.

3.

storage, transport and marketing of agricultural produce and issues and related constraints;

4.

Sci-Tech research e.g. Food irradiation, developing new crop hybrids, animal-breeds etc.
+ same food processing points can be selectively used for discussing rural-unemployment,
food inflation, general inflation, FDI in multi-brand retail; even current account deficit and rupee
depreciation: whether its essay / interview or group discussion (in case of SBI/CAT) hell even RBI
Officer phase II descriptive papers.
Structure of the [Food processing] Article series:
1.

We get basic overview of significance-scope-potential-obstacles

2.

Truckload of Government schemes related to post-harvest management, Mega Food parks


etc.

3.

Model APMC acts, the direct cooperative marketing etc.

4.

Finance, taxation, FDI, export related issues

5.

Then we start basic theory of supply chain management (SCM), and upstream downstream
issues of individual food processing sub-sectors viz. Dairy, Fruit and Veggies, Egg-MeatFishes, Confectionary, Wine, Edible oil etc.
References used for this article series

Source

Title

comment

1.

Books

2.

3.

A Manual for
Entrepreneurs: Food
Processing Industry
(Tata McGraw-Hill
Publication)

Food processing:
Opportunities and
Challenges (ICFAI
university press)

IGNOU MBA booklets


(Coursecode: MS-55)

Some chapters deal with food industries in China,


Australia etc but hardly any good fodder points
Some chapters provide details of individual food
processing sector but mere copy paste job from Vision
2015 PDF document.
for theory on supply chain management, upstreamdownstream requirements

State of Indian agriculture 201213 (By Agricultural Ministry)

for agro-livestock-fish-production information and


schemes

Vision 2015 for food industries:


part 1 and 2

for opportunities and obstacles in individual sector:


dairy, meat, wine etc.

Flavors of Incredible India: A


report by Ernst & Young and
FICCI

for supply chain diagrams of individual food processing


sector
+ Additional points for opportunities, obstacles.
plenty of fodder on

PDFs
Planning commissions report
on Encouraging Investments
In Supply Chains and cold
storages

Web

Initial chapters provide the challenges/problems


with food processing industry. Rest goes into actual
management, accounting, sales, marketing strategy for
a food entrepreneur=useless from UPSC point of view.

supply chain,

opportunities, obstacles

various schemes

12th FYP documents

doesnt have much specific fodder points for food


processing though.

IBEF report on Food processing


industry

some fancy charts, numbers.

pib.nic.in, Indian express

for government schemes, salient features, export/


dumping issues.

Note: All those Food processing related PDFs have been uploaded on https://files.secureserver.net/
0sL2N0Ej5XwsWc
12th Five year plan uploaded on https://files.secureserver.net/0sLrYY0FFJRric
Indian food processing industry: Significance

size

Has more than 35000 registered units

Output of ~5-6 lakh crores

Food processing contributes about 9-10% of GPD, in Agro-Mfg. sector.

Location wise: Maximum factories in (ie. more than 1000 in given state)
Coastal states: Andhra, Maharashtra, Karnataka, Kerala, Gujarat, Punjab, WB
location
Non-coastal States: UP, Punjab
Observe majorities of the food processing factories are concentrated in the coastal states.

Increasing Employment

Food processing industry provides plenty of direct and indirect employment opportunities,
because it acts as bridge between Agriculture and Manufacturing

As per ASI survey in 2010, Food processing industry generated highest employment among
all industry. Giving employment to almost 17 lakh people.

12th Five year plan (FYP) wants to create more than 50 million jobs. Out of that, Food
processing sector is to create one million jobs.
Curbing Migration

When food processing plants are setup near agro/rural regions, they reduce:

1.

Poverty among villagers,

2.

disguised unemployment

3.

exploitation of farmers

4.

rural-urban migration

1.

unplanned urbanization,

2.

slums/hygiene/social problems in cities


Curbing Food Inflation

In the last few years Food inflation has been a major problem. Food inflation is eventually
passed through into manufactured goods through higher money wages.

Therefore persistent high food inflation= bad for general macroeconomic stability.

well-developed food industry + compact supply chain=reduces food inflation via:

1.

Disintermediation (meaning no middlemen/commission agents)

2.

less wastage/spoilage of perishable products

Thus food industry is significant for reducing food inflation.


Crop-diversification

Indian villagers are away from market= have to grow cereals. (as we learned in Von Thunen
model)

In recent years, Government increased Minimum support prices for rice and wheat.

That leads to surplus grain production=>Pvt. Players give less price to farmer=>government
has to buy wheat @Minimum support price (MSP) but FCI didnt have enough storage
capacity

Result: Wheat gets rotten @godowns and railway stations.

On the other hand, weve to rely on imported oilseeds because of higher MSP, farmers prefer
to grow rice/wheat than oilseeds=> higher oilseed import adds to Current account deficit
and leads to 1$=62 rupees=>crude oil expensive=petrol expensive=everything transported
through petrol/diesel gets expensive=thus the cycle of middle class exploitation is complete.

Coming to the original point: we need crop diversification, all farmers shouldnt be growing
just rice and wheat. But if want to seduce the farmers into growing other crops, then following
must be done

1.

Promote food industry with backward linkages to farmers growing fruits, vegetables, milk, fish,
meat, poultry, grain, etc.

2.

Aggressively market the processed food in India + Abroad

once weve done #1 + #2=> then even the farmers away from market area will see good income
opportunity in growing non-cereal crops => crop diversification => the excessive rotting-wheat
surplus problem is solved.
Some filler significance points: food processing
1. Increases shelf life: milk vs butter
2. Increase value: milk vs butter
moveing to.
Scope/Potential

Abundant Raw Material


Indias world
Rank

in production of

milk, ginger, chickpea, banana, guava, papaya, mango, buffalo meat

rice, wheat, potato, garlic, cashew nut, groundnut, dry onion, green peas, pumpkin,
gourds, cauliflowers, sugarcane, tea

among top
five

coffee, tobacco, spices, oilseeds

With such a huge raw material base, we can easily become leading food supplier in the world. (But
we havent, because of the obstacles discussed later).
Geographical advantages
1.

46 out of 60 soil types are present in India.

2.

More than 26 types of climatic conditions= can cultivate large variety of fruits, crops,
vegetables.

3.

Large coastline, villagers in 13 states engaged in fishing as their secondary activity.

4.

Variety domestic animals such as cows, buffaloes, goats, chicken, lamb, sheep.

5.

Large irrigated area under cultivation. Ample supply of fresh water for human, plant and
animals.
New Demand

In the upcoming years, there will be good demand for healthy, modern food products due to following
reasons:

1.

Youth population (age group 15 25): doesnt shy away from trying new food products.

2.

More Nuclear families: usually working couple => less cooking time + expensive maids=need
ready to eat / ready to cook food.

3.

Rising incomes, middle class and rich families=can afford processed food.

4.

Emergence of Tier 1 and Tier 2 cities, shopping mall culture.

5.

Growing migration from rural to urban India + rising income = demand for bread, butter etc.

6.

Media penetration, advertisements=> demand is created for health-drinks, noodles, creambiscuits, cornflakes etc.

7.

Celebrity chefs, cookery channels= new dishes, international cuisines introduced=>demand


for their ingredients, vegetables in India.

8.

Diabetes, obesity, Blood pressure, lifestyle diseases =>demand for healthy food.

As a result, food processing industry is expected to reach

year

turnover USD

2015

>250 billion

2020

>300 billion
Government Initiatives

Many food processing sectors that were earlier reserved for small scale industries (SSI) have
been de-reserved

FDI limits have been relaxed, Excise duties have been reduced, export subsidies given

National mission on food processing, Vision2015 for food processing,

New schemes for mega food parks, cold chain etc.

Many states have reformed their outdated APMC laws.

and so on (^all these elaborated in later articles.) Together they facilitate the expansion of food
processing industry in India. More scope points, specific to individual sector (i.e. Dairy, meat, fish
etc) later articles.
so far everything sounds hunky dory but if our food processing industry was so awesome, then UPSC
wouldnt have included it in the syllabus. Then, what are the.
Obstacles to food processing?

country

__ % of total fruits/vegetables processed

India

barely 6-7

China

>20

USA

>60

So, why low level of food processing in India?


Economies of scale
When you produce something on large scale, the unit production cost decreases. How / Why?

1.

When you purchase raw material in large bulk, you negotiate/bargain with supplier.

2.

Fixed cost remains same (building rent, cost of lights, initial cost of buying machinery etc.)
e.g. you bought a ice cream machine for 10 lakh- whether you make 100 liters ice cream or
1000 liters ice-cream per day- its upto you but the more ice cream you produce, the average
unit cost decreases. (think of 100/5 vs. 100/50)= hence bigger the plant, cheaper to produce.

Most of Indian food processing units/companies/enterprises/factories are small sized meaning = poor
economies of scale. It leads to following problems:

Aspect

problems of small company / poor economies of scale

Pricing

Since unit production cost is high, he cant sell his products cheap unlike a big MNC, and Indian
consumers are price sensitive.

BrandBuilding

Small players=small profit, seasonal business. In global market they cant establish themselves as a
long-term player they only do opportunistic businesses, undercut each other.

Low
Technology

Marketing

Cant invest in R&D to develop new products (e.g. chilli chewing gum or tomato cream
biscuit!)

Cant do marketing research / survey to find out what consumers want?

Cant invest in advertisement campaigns to create new demand.

e.g. Kellogs is aggressively advertising its cornflakes in India, highlighting weightloss


benefits.

but on the other hand, an Indian Halwai (sweet maker) cant do same level of marketing in
USA to create demand for jalebi or peda.

Un-Export
Quality

retailing

cant do backward linkage e.g. contract farming: giving seeds/fertilizer/pesticide to farmer.

Instead small company relies on multiple small supplier hence Raw material=non-uniform in
quality.

Then their products are rejected in US/EU market for not meeting the Codex/HACCP
standards. (e.g. mango juice rejected for stone weevil, buffalo meat rejected for food-nmouth disease, fish rejected for heavy metal contamination and so on.)

Cant do forward linkage e.g opening its own factory retail outlet like Nike, Adidas or Apple
=> small company has to rely on third party retailers and need to give them margin from
sales= profit decrease and poor economies of scale continues.

But why do we have this poor economies of scale?

1.

For long, many food processing items were reserved for Small scale industries only.

2.

High input costs due to multiple taxes, middle men. Profit level is low=cant expand.

3.

Government schemes, subsidies, grants have low-ceilings =Individual person cant setup big
plants

4.

Hard to get bank loans. (more elaboration in later article)

5.

Bigger the plant, bigger the headache in terms of tax-liabilities. Creative Indian entrepreneurs
rather setup multiple small plants to get subsidies/tax benefits of MSME-industries, and sell
unbranded food products.

Anyways, some more obstacles for Indian food processing industry:

Price Sensitivity

Indian public=Low per capita income = higher price sensitivity and higher income
elasticity in relation to food expenditure.

Preference For
Fresh Food

Indians prefer freshly cooked products as compared to packaged products.


Traditional mindset: fresh = nutritious.

truckload of agri-problem. Well see the individual problems in later articles. for
the overview:

Agri Problems

Agriculture/Dairy production yield levels are among the lowest amongst


the BRIC countries.

Land holdings=small, fragmented.

Area under cultivation is decreasing due to urbanization, real-estate


development, industrialization and ofcourse thanks to totally awesome
people like Raabert Vadhera.

there is no common policy on contract farming throughout India

Supply Chain
Problems

Logistics

high cost of raw material (driven by low productivity and poor agronomic
practices)

Presence of intermediaries thanks to Nuisance called APMC acts.

high cost of packaging, finance, transport and distribution

lack of organized retail

Logistics cost= transportation, warehousing, material handling etc.

In India, Logistics accounts for about 13% of GDP, which translates to


over USD130 billion.

This cost is significantly higher as compared most developed countries.

Inadequate infrastructure of storage, sorting, grading and post-harvest


management.

Private sector unwilling to invest in logistic or infrastructure under


prevailing economic conditions and policy paralysis.

hard to get loans (for both farmers and food-entrepreneurs)

food industry subjected to variety of taxes.

Taxes on processed food in India are among the highest in the world.

Except India, No country distinguishes between branded and unbranded


food sectors for taxation.

Multiple and complicated tax regimes have rendered the food industry
uncompetitive

Plethora of government schemes: overlapping, ambiguous,


low ceilings. e.g. you need crore rupee worth machine, they barely give
few lakhs- that too after months of visits to various offices.

Food laws are often inconsistent and overlapping.

The Food Inspectors cause of harassment and bribe-demands in terms


of pulling up entrepreneurs under the Weights and Measures Act,
ingredient content and mix, labelling norms, etc.

While the various acts are necessary, court cases turn out to be
expensive for small-entrepreneurs- especially if involved in inter-state
trade.

Infrastructure

Finance

Taxation

Schemes

Laws

Market
Information

Manpower

Packaging

Market information not easily accessible

Small players cannot buy international journals/magazines to find the


latest trends in demand/innovation. Most of them also dont know how to
use internet for business/marketing.

Lack of trained manpower.

Very few universities offer special courses for food processing and
entrepreneurship.

Since Indian consumers= price sensitive, most of the food products


are sold in small packages (Rs.5 noodles, biscuits etc)=more plastic
required= higher share of packaging costs as a proportion of total
costs.*
*High packaging cost

Packaging cost is ___ % of total production cost

Potato Chips

20%

Fruit Juice

19%

Jam

12%

Chicken Nuggets

8%

Branded Atta

6%

A recent ICAR study on Status of Post-Harvest losses

type

post-harvest % loss

cereal

wheat

pulses

blackgram

oilseed

groundnut

10

fruits

guava

18

veggies

tomato

12

spices

turmeric

marine

inland-fish

moving to more problems faced by Food processing industry:


Lack of organized retail
In USA there are two types of retailers

1.

Big malls: Walmart etc.

2.

small kirana walla known as mom and pop shops

But both of them have cold-storage facilities, hence they sell l both dry and wet/fresh food products

dry

fresh

bakery items, noodles, pasta, flour, cheeze etc.

fruits, milk, veggies, meat, chicken, fish

But in India, kirana stores dont have cold storage facilities=> they only sell dry food products.

and fresh produce is sold through vendors with push-carts=>wastage because they dont
have cold storage.

Meat, poultry and marine products are primarily sold in separate markets but they too dont
have cold storage=>wastage.

Thus, lack of organized retail, leads to

1.

low product quality

4.

low hygiene levels

2.

lack of variety, choice

5.

low value for money

3.

poor shopping experience

6.

high cost of product

Lack of Food testing facilities


1.

The number of laboratories in the country is insufficient. Most of these laboratories lack worldclass facilities and infrastructure. Equipment, Testing manuals outdated

2.

Many laboratories are not equipped with basic facilities such as for testing antibiotic residues,
heavy metal contamination and other toxic contaminants in the food items.

3.

Very slow response time of Government controlled food laboratories is long, extending to upto
5 years.

4.

Most laboratories at sea ports are not fully equipped to handle testing of imported products,
organic foods, residual radioactive matter, new toxins and allergens, textural analysis,
residues of veterinary drugs, enzymes and hormones etc. these tests are necessary for
complying with Codex, HACCP , GMP , GHP etc before exporting to in US/EU markets.
Lack of Skilled Manpower

A food processing unit requires skilled manpower, including

Production Managers or Supervisors

Quality Control Scientists

Product Development Technologists

Research Technicians

Food Engineers

Technical Representatives

Food Microbiologists

machine operators, assistants

Problems

As per a study by National Skill Development Corporation: the annual


human resource requirement in food processing industry is estimated at
about 5 lakh persons including about one lakh persons in the organized
sector.

But right now, every year, barely ~5000 graduates and postgraduates
pass out from in different disciplines of Food science and technology.

very few universities offer graduation/PG courses, entrepreneurship


courses for food science and technology

Need short-term, diploma/certificate type courses for rural youth.

need to introduce courses for small scale players such as retailers,


halwais

Need specialized institutes for training/R&D in bakery, confectionery,


wine making.

Syllabus/courses in university departments are not being updated


regularly and are in most cases, outdated with respect to the present
trends and food industry requirement.

The teaching faculty in most of the Indian academic institutions studied


has limited industry experience / exposure.

Food inspectors unaware of GMP, GHP & HACCP standards, latest


developments in food standards, new products, and laboratory network

Engineering curriculum does not equip graduate engineers with the skill
of designing cold chain infrastructures. Fresh graduates find it difficult
to make heat load calculation and configure the plant & machineries in
energy-efficient manner.

There is urgent need to upgrade the syllabus accordingly.

Lack Of Men

Lack Of Courses

Outdated
Syllabus And
Professors

Inspectors

Engineering

Lack of R&D

1.

Indian food processing industry is mainly madeup of small


scale players= they cant invest money in R&D=> becomes
governments responsibility to do the R&D.

But Sarkari Research objectives are outdated, food market

Sarkari Domain

requirements keep changing frequently given the new


product launches by MNCs.

2.

3.

4.

Baba Adams
Mindset

Manpower

Implementation

Multinational Food companies typically have an in-house


global network of R&D professionals.

Although theyre willing to work with Indian institutions for


developing India-specific products and processes.

But the quality of R&D currently undertaken by existing


Indian institutions is not in line with their requirements.

The chairmanship of public research institutes usually given


to (retired) IAS or politicians=> lack of dynamism/marketorientation of the hardcore professionals in food-MNCs.

Many students prefer alternate careers which are found


to be more fulfilling and remunerative. There has been a
significant drop in the quality of people entering the R&D
field

Indian Government recently introduced a variety of kiwifruit


in North India, but could not provide adequate support/
advice on cultivation practices. Result= domestic kiwi
produce is much smaller in size than imported kiwi.

5.

There is a huge opportunity for developing and commercializing desi foods for export e.g.
ethnic beverages such as kokum, coconut water and ethnic food such as khakra, amla
preserve etc. But, to make them appealing to foreign consumers, R&D required for product
development, food-texture, rheology, mouth-feel, smell, color, packaging etc.

5.

Internationally, following research-developments are ongoing, while we are generations


behind in research:

area

processing

packaging

What foreign players are doing in R&D?

Non-thermal food processing technologies to preserve the nutrients in milk,


fruit juices and also for killing microorganisms in eggs.

Role of ozone in fresh food sterilization

Calcium treatment to extend the shelf life of melons

Packaging films that offer optimal barrier properties to extend shelf life.

Biodegradable films made from pectin and starch

Silicon oxide films that improve oxygen and moisture barriers.

Use of natural antioxidants in packaging materials for shelf life extension of


combat rations for soldiers.

Active and intelligent packaging systems To monitor product quality and


trace a products history through critical points in the food supply chain.
Transport problems

Transport capacity

India

developed countries

Normal distance covered by trucks/trailers

250 -300km / day

600- 800 km/day

roads capacity to handle maximum weight

16 tonnes

36 tonnes (USA)

Indian national highways account for only 2% of the total road network but carry 40% of all
cargo.

This puts a high pressure on the highways due to the high traffic volumes => delays in transit
+ damage to perishable products

Though highways are well-spread, theyre yet to connect all 550,000+ villages in India

Railway
problems

Ports

Railway is cheaper than road transportation but railways currently contribute


barely ~25% of the total cargo transported

Last mile connectivity from rail transporters =absent.

Inefficiencies associated with a government monopoly. (timing-schedules,


technology upgrades etc)

Lack of wagons with cold storage facilities.

Congested rail stations, lack of sorting, grading, warehousing facilities nearby.

Road transport operators provide more flexibility.

Although The Dedicated Freight Corridors are expected to improve the


connectivity of the railways, increase carrying capacity and reduce the transit
time.

Environmental and social hurdles in land acquisition= hard to get setup new
port / expand the existing port.

High dependence on manual labor + low technology usage= increases the


turnaround, loading/unloading times at ports, thus impacts entire supply
chain lead time and increases cost For e.g. the cost of an import container in
India=~$500, elsewhere ~350 in foreign ports.
Export Problems

Although India is the second largest producer of food in the world but its share in worlds exports is
very low despite its inherent strength in tea, spices and rice. Why?

Fragmented base of suppliers=uniform quality not available

Lot of intermediaries=raw material cost increased.

High duties on imported raw material: additives/flavorings etc.

As a result input cost =high, hence pricewise, we cannot compete with other
exporters.

Our processing has largely remained in primary forms like pickling, sun
drying and/or making preserves. Sometimes we just export intermediate
product to second country theyll further process it and sell to third country
@even higher price. (e.g our shrimps to Japan, Japan selling them to US)

Often our products rejected from US/EU markets for not meeting Codex,
HACCP quality standards

yet to Build global brands on the back of Indias strengths (Darjeeling


tea, Basmati rice, Durum wheat, Alphonso mango, Tamilnadu Banana or
Kashmiri Apples)

Developed countries view India as an unpredictable and unreliable source


of food and agro products.

transport

Poor cargo facilities at airports and ports are other bottlenecks discussed
earlier

Packaging

yet to develop packaging technologies for Indian food products to make


them more acceptable to foreign consumers.

Dumping

Desi shrimps face Anti-dumping duties in USA.

1$=~60 Indian rupees while 1$=~100 Paki rupees

Given these exchange rates and local prices of Basmati in India vs


Pakistan. From an American/Europeans point of view, it is cheaper to
import Basmati from Pakistan than from India.

expensive
Raw Material

low
processing

low quality

Branding

Devaluating

^these are just few of the many problems/obstacles faced by Indian food industry. In the next article,
we see various government schemes related to post-harvest management, food processing industries
and agro-export.
Mega Food parks, Agri-Export Zones(AEZ), Cold Chains and truckload of government
schemes
Problems with government schemes
1.

Agriculture is a State subject. No scheme can be successful without coherence between the
Centre and States in policies and strategies. But we have plethora of bodies and departments
@center and state level=empires within empires. Even Left hand doesnt know what right
hand is doing. Problem is compounded when ruling parties are different at state and center
level.

2.

Most schemes have Low ceiling (they just give a few lakh rupees) + as plant size increases,
the MSME tax benefits decrease. So, food-entrepreneur setups two small plants using money
two schemes, rather than one big plant. Smaller the plant=>poor economies of scale=>high
production cost, cant invest in marketing-research, innovation, export quality products.

3.

These Subsidies/grants are back-ended (meaning ca$H is not given before you start the
project, but only after the project is completed or in final stage)

4.

But Parameters of project approval/ file-Processing= non-transparent (just like our UPSC).
Timely clearance of project files=nope. Sometimes they dont even give reasons for rejecting
project. Food-Entrepreneur is unsure whether bureaucrats will approve his file or not (+bribe
demand)

5.

Significant time lags from the date of application for financial assistance, to release of funds=
affects the project schedule= cost overruns for the investor.

6.

Most schemes seek to get investors to pump money in certain infrastructure without providing
the necessary support for the utilization of the infrastructure. (e.g. asking pvt player to setup
cold storage, without guaranteeing continuous electricity supply).

7.

Overenthusiasm =Excess capacity. Example: many tax-benefits given to groundnut oil


refining industry=new units keep popping up even when groundnut cultivation is not sufficient
to provide raw material to all refineries. Result: No unit runs on full capacity, industrial
sickness, loan defaults, NPA.

8.

Inputs of Panchayati raj institution, cottage industries, local entrepreneurs are considered
irrelevant in scheme design.

9.

Lack of focus/financing for freezer cabinets in retail outlets/kirana stores, vending machines
for tea/coffee/beverages.

10. Working capital requirements are high for food processing industry (thanks so many
intermediaries, electricity, high duties on imported chemicals etc.) But these schemes only
give money for initial project/machines. Dont provide support for working capital (i.e. cost of
day to day operations, buying raw material, electricity-utility bills etc.)
Solution: Integrate all schemes offered by various Ministries and allied agencies.
After years of stupidity and badass thuggary, finally they woke up during 12th Five year plan drafting.
Now theyre converging various schemes of Horticulture board, Agriculture ministry, Food processing
ministry and Commerce ministry under the National Mission on food processing. ok, better late than
never but even small time players like Thailand and Vietnam have reformed before we did. So theyre
already ahead in the race of capturing export market. Anyways, lets check various plans, missions,
schemes.
12th FYP: food processing
Starting with some (stupid) numbers:

work

12th FYP projection (crores)

Horticulture development

more than 50,000 cr.

post-harvest management + cold


storages

more than 7000 cr.

more than 15000 cr. (in 11th FYP this was barely 4000
crores)

food processing

12th FYP wants following:

1.

Develop the food processing sector to reduce food inflation and food
wastage

2.

Create 1 million additional jobs during the Twelfth plan period in the food
processing sector

3.

Set up National Mission on Food Processing with State governments


involvement

4.

Integrate of various ongoing schemes for horticulture development (NHM,


HMNEHA, NHB, CDB, NMMI and NBM) into one Integrated National
Horticulture Mission

5.

Setup 120 integrated cold chain projects, of which 20 projects would be of


irradiation facilities.

6.

Existing infrastructure development schemes Mega Food Parks Scheme,


Integrated Cold Chain Scheme= Expand and modify them.

7.

Setup of Innovation Fund and Venture Capital Fund to promote innovations


and technology development in Food Processing.

8.

Knowledge sharing and HRD via

overall

Schemes

Finance

Fancy
Things

Export

9.

a.

National Institute of Food Technology Entrepreneurship and


Management (NIFTEM),

b.

Central Food Technology Research Institute (CFTRI)

Harmonise Indian Food Standards with International Codex standards.


Ministry of Food Processing Industries (MoFPI)

Side note: The new Mains syllabus contains Ministries and Departments of the Government so, in
that context, while were doing the food processing, better prepare this ministrys functions as well:
Functions of MoFPI
1.

Launch National Mission on Food Processing

2.

R&D in food processing, Specialized packaging for food processing industries, Technical
assistance and advice to food processing industry

3.

Enhance Processing level and reduction in wastages

4.

Food Safety & Quality assurance

5.

Financial assistance, grant-in-aids, tariff issues related to

6.

Fruits and vegetable, Food grain milling industry,

Dairy products, poultry, eggs, meat, Fish processing

Bread, oilseeds, meals (edible), breakfast foods, biscuits, confectionery, other ready
to eat food products

Alcoholic drinks, beer, Aerated waters / soft drinks and other processed foods

strengthen institutions such as

National Institute for Food Technology and Entrepreneurship Management (NIFTEM)

Indian Institute of Crop Processing Technology (IICPT)

Indian Grape Processing Board (IGPB)

National Meat & Poultry Processing Board (NMPPB)

MoFPI is responsible to 2 fancy missions +3 (bogus) schemes & given ~700 crores in 2013s budget.

2 fancy missions

3 schemes

1.

mega food parks

1.

Vision 2015 for food processing

2.

modernization of abattoirs (slaughterhouses)

2.

National Mision on food processing

3.

cold chain infrastructure

+ some chillar schemes for HRD, R&D.

Lets see their salient features:


Vision 2015 Food processing

by Ministry of Food processing

adopted In 2005

What?

targets by 2015

processing perishable food produce

20%

value addition to food produce

35

Indias share in global food trade

3%

investment

100 thousand crore

This vision2015 document was prepared by Rabo India Finance ltd. It talks about individual sectors
(dairy, meat, tea, coffee etc.) Well see those points later during articles on individual sector.
National Mission on Food Processing (NMFP)

Launched under 12th Five year plan.

for decentralized implementation of various schemes under Ministry of Food processing with
help of state governments.

Contribution ratio:

Centre

state

North East

90

10

Except North East

75

25

Will do following:

1.

increase agricultural productivity

2.

increase farmers income

3.

Help state governments to create synergy between their agricultural plans vs. food processing
sector.

4.

Help state governments in institutional and infrastructural gaps

5.

Create efficient Supply Chains for agricultural produces.

6.

Skill development, training and entrepreneurship for both post-harvest management and food
processing industry.

7.

Give capital/technology/skill to MSMEs so they can setup/modernize food processing units

8.

Help food processing industry to meet quality /food safety standards for both desi and foreign
markets.

This national food processing mission has following schemes:

1.

Technology Up-gradation / Setting up / Modernization / Expansion of Food Processing


Industries

2.

cold chain facilities for Non-Horticultural produces and Reefer Vehicles

3.

Primary Processing Centres/Collection Centres in rural areas

4.

Modernization of Abattoirs

5.

Modernization of Meat Shops

6.

Human Resource Development (HRD)

7.

Promotional Activities

8.

Up-gradation of Quality of Street Food


National Food Processing Development Council (NFPDC)

function

composition

provide guidance to all schemes of Ministry of Food Processing including above


national mission on food processing.

Chairman: Sharad Pawar, the b0$$ of both Agri and Food processing
ministries.

representatives of State Governments

related Govt. departments

Industry associations

^this is ~200 words. From UPSC point of view, the Aukaat of NMFP is not beyond 15 marks questions
on salient features. Hence not covering any further. Moving to the three schemes
#1: Mega Food Parks:
Mega food parks will be setup in 12th Five year plan. Government allotted more than 1700 crores for
it.

First, a Special Purpose Vehicle (SPV) will be created to setup the Mega Food Park.

So, What is this special purpose vehicle, does it look like Tata Sumo or Tata safari? Long
thing cut short: youre aware of debt vs equity. SPV = a limited company setup with money
from farmers associations, private players, financial institutions, state level agencies etc.
(meaning theyre are equity holders)

Then Government will give them grant to cover **% of project cost. Thus Food Park is setup
and everyone benefits.

Financial assistance for mega Food Park:

Area

Government gives grant: __ % of the


project cost

General

50

North East, Hill area, areas under integrated Tribal


development plan

Maximum of Rs 50 crore per project.

Land cost not included in project cost.

75

Facilities @Mega Food park

Core Infrastructure
Facilities

Non-Core Facilities

Common Facilities

Basic Infrastructure

Services

Weighing bridge, cleaning,

grading, sorting, packing,

dry and temperature controlled warehouses, ripening chambers,


reefer vans etc.

administrative buildings, conference room

internet-wifi connectivity for download mp3, movies and games.

training centres,

trade centre/display centres, marketing support system etc

workers hostels, canteen, guesthouses

bore well, overhead tank, water treatment plant

sorting, grading, packing, specialized and dry warehouses,

irradiation facilities

testing laboratory, stems sterilization units, food incubation cum


development centers

Post office, ATM, Bank branches

road-road connectivity

drainage, sewage, water supply, effluent treatment

electricity, telecom-internet

parking bays

hiring of domain consultants for preparation of DPRs,

supply chain management, logistics


Hub and Spoke Model

Mega food parks are based on the hub and spoke model. So what is this Hub and Spoke model?

Imagine a bicycle wheel: it has a strong central hub with a series of connecting spokes. Thus we have

One Central Processing Centre (CPC) as the hub

Multiple Primary Processing Centres (PPC) that supply raw material to the hub

Three Tiers:

SHG

Field collection
Center

Primary
Processing
Center (PPC)

What?

A self-help Group of 10-20 farmers.

They aggregate fruits/veggies produced by member-farmers @village


level.

Society or association of 10-20 self-help groups (SHG)

They provide basic minimum facilities for post-harvest management=


washing, fumigation.

Supply of inputs: seeds, fertilizers etc and information via internet


kiosks.

made up of 10-20 field collection centers.

These PPCs do the primary processing viz. sorting, grading, packing


of raw material and ensure regular supply of raw materials to the food
industries in the central processing center (CPC) of the Mega Food
park.

^ Similar concept for eggs and milk. click the following diagram and concept will become clear:

Mega Food Park (Click to Enlarge)

Here, each tier is viable, independent and linked with higher players in the market.

This way thousands of farmers directly connected to food industries located in the Mega food
park, without any commission agents= Small, marginal, poor farmers will get more money.
Location Factors: Bhagalpur and Chittor

Details

Srini Mega Food park, Andhra

Bhagalpur Mega food Park, Bihar

Central
Processing
Center (CPC)

Mogili Village in Chittoor District

Kahalgaon in Bhagalpur district

Primary
Processing
Centers
(PPC)

1.

Nuzvid,

2.

Tirupati,

3.

Madanapalle

1.

Purnea

2.

Katihar

3.

Khagaria

4.

Samastipur

4.

Mogilli

1.

Chittoor already an Agroexport processing zone,


leading producer of
mangoes.

2.

Location
Advantages

only 120 kms from Tirupati, a


pilgrim center with more than
150,000 floating population
per day=plenty of demand
for processed food.

3.

on the National Highway


connecting Bangalore and
Chennai

4.

equi-distant from two


major metros in India, a
major port (Chennai) and
two international airports
(Chennai and Bengaluru)
and one domestic airport
(Tirupati)

Countrys first Mega food


parklaunched in 2012

Sidenotes

5.

Banka

1.

This region is second most


productive zone in Bihar in terms
of total production of fruit and
vegetables

2.

The cluster is very close to


Begusarai (about 100 kms) that
is a transport hub and provides
good support for transportation
of products. NH-31 (Barhi to
Guwahati) and NH-28 (Lucknow to
Barauni) meet at Zero Mile near
Barauni in Begusarai district.

3.

It is also the gateway to Northeast


for goods transportation, being
a zone heavy surface traffic
movement.

#Epicfail. Few days back, main promoter


company (Kevantar Ltd) left the project
because of land acquisition problem.

back to the mega-food park topic:


Benefits of Each Mega Food park
1.

will benefit 6000 farmers / producers directly and 25000-30000 farmers indirectly.

2.

will generate ~40,000 direct and indirect jobs.

3.

New employment opportunities created within rural areas= Itll reduce

rural-urban migration,

unplanned urbanization,

slums/social problems in cities

4.

will accommodate 30-40 Food Processing Industries in it.

5.

will have annual turnover of ~500 crore.

6.

will provide efficient supply chain management from farm gate to retail outlet.

7.

common facilities=reduces operational cost

8.

farmers can utilize the Cold Storages, Ripening Chambers, and Ware houses = less wastage,
no distress sales

9.

good transportation facilities viz reefer trucks and vans

10. Food entrepreneur can establish backward linkages (with farmers) and forward linkage (with
retailers) = compact supply chain=more profits.
#2: Cold Chain infra
Full name of scheme: Establishment of Cold Chain, Value addition and Preservation
Infrastructure
Looks like FoodPRO ministry doesnt have any intelligent babu to comeup with a fancy name/
abbreviation for this scheme. Atleast they could have named it after you know who. But alas $harad
Pawar is the b0$$ of Foodpro ministry, perhaps thats why schemes are not allowed to be named
after you know who.
Anyways what does this cold storage scheme do?
Helps creating integrated cold chain and preservation infrastructure facilities without any break from
farm to consumer. Under this scheme, following facilities created:

1.

Minimal processing centre at the farm gate level having facilities like weighing, sorting,
grading, pre-cooling, cold storage and normal storage facilities;

2.

Mobile pre- cooling vans and reefer trucks;

3.

Distribution hubs having facilities such as multi-purpose cold stores, variable humidity stores,
blast freezing etc.

4.

food irradiation plants

Financial assistance

Area

Government gives grant: __ % of the


project cost

General

50

North East, Hill area, areas under integrated Tribal


development plan

75

Maximum grant: Rs.10 crore per project.


Well see more details on cold storage with respect to fruit-veggies processing in separate article
later.
#3: Abattoir modernization
Abattoir= slaughterhouse/ butcher house. Food processing ministry runs a scheme for them. This
scheme Under PPP mode with involvement of local bodies (Panchayats or municipalities) via

1.

build-own-operate (BOO)

2.

build-operate-transfer (BOT)

3.

Joint venture(JV) basis.

Features:

1.

establish new modern abattoirs

2.

modernize existing abattoirs

3.

promote scientific and hygienic slaughtering.

4.

Modern technology for waste management.

5.

better by product utilization (bones, skin etc.)

6.

provide chilling facility, retail cold chain management etc.

Financial assistance

area

grant for __ % of the project


cost

General

50

North East, Hill area, areas under integrated Tribal development


plan

75

Maximum grant: Rs.15 crore per project.


Ten slaughterhouse projects ongoing:

1.

Dimapur (Nagaland)

6.

Patna (Bihar)

2.

Kolkata (West Bengal)

7.

Ahmednagar (Maharashtra)

3.

Ranchi (Jharkhand)

8.

Jammu (Jammu & Kashmir)

4.

Shimla (Himachal Pradesh)

9.

Srinagar (Jammu & Kashmir)

5.

Hyderabad (Andhra Pradesh)

10. Shillong ( Meghalaya)

So, these three were the main schemes of Food processing ministry.

1.

mega food park

2.

cold chain infra

3.

slaughterhouse modernization.

Now lets look @some chillar schemes of this MoFPI (Ministry of food processing industries)
MoFPI: Misc. Schemes

North
East

Name: Technology Mission for Integrated Development of Horticulture in NE


States + Himalayan States

it has four mini-mission

mini-mission #3 To create post-harvest management, marketing and export


facilities (by ICAR+Department of Agri research and Education)

Mini-Mission #4: To Process horticulture produces (by Food processing


Ministry)

#1 Institutes
MoFPI has two institutes to offer B.Tech, M.Tech, Ph.D level programs in food processing

HRD

1.

National Institute of Food Technology Entrepreneurship & Management


(NIFTEM) at Kundli, Sonepat, Haryana

2.

Indian Institute of Crop Processing Technology (IICPT) at Thanjavur, Tamil Nadu

#2 Grant to Other universities

1.

all recognized universities- public / private can get funding upto 75 lakhs for
starting food processing related courses, buying books, e-journals, magazines,
teaching infrastructure etc.

2.

funding is given for training centers, entrepreneurship development program for


food processing.

Quality

To export in developed countries, your food processing plant would require HACCP,
GMP, GHP certificates. Ministry gives financial assistance for it.

testing
labs

scheme for Setting up/Upgradation of Food Testing Laboratories

Enough of Food processing Ministry. Lets look at the schemes by other departments/ministries.
(Here, Im only focusing on schemes related to post-harvest management, storage, food processing
and Agro-export, otherwise there are dozens of schemes related to agriculture, public procurements
etc. but theyre ignored here.) First the food grains
National Policy on Handling and Storage of Foodgrains
Launched in 2000.

1.

To Minimize storage and transit losses in foodgrain.

2.

Declaration of foodgrains storage as infrastructure (meaning it can get various tax benefits
for investment)

3.

Encourage mechanical harvesting, cleaning and drying at farm and market level

4.

transport of grains from farm to silos by specially designed trucks

5.

Construct chain silos.

6.

private sector participation via Build-Own-Operate (BOO)

7.

encourage private sector to

a.

building storage capacities in which grains procured by Government agencies would


be stored on payment of storage charge

b.

create infrastructure for the integrated bulk handling, storage and transportation of
foodgrains
PEG scheme

By Whom? = Department of Food & Public Distribution (DFPD)

In recent times, Government has increased the Minimum Support Price (MSP) for wheat and
rice. Result? high procurement but FCIs storage capacity =limited=rotten grains.

In 2008, new scheme was made Private Entrepreneurs Godowns (PEG-2008).

To increase grain storage capacity with help of Private sector.

Government

gives grants to private players, for constructing godowns

FCI

gives a business guarantee of ten years for assured hiring.

meaning FCI will hire that private godown to store public-procured food grain
and pay for service
FCI reforms

Initiates to prevent rotten grain in godowns, FCI will be doing following:

1.

Dunnage materials: wooden crates, bamboo mats, polythene sheets to prevent moisture
from floor to the foodgrains.

2.

fumigation, insecticides to control pests and rats.

3.

Regular periodic inspections of the stocks/godowns by senior officers.

4.

The principle of First in First Out (FIFO) to avoid longer storage of foodgrains in godowns.

5.

To avoid damage during transit:

a.

Only covered rail wagons will be used to transporting grain

b.

use of tarpaulins (waterproof canvas) on trucks during road movement.


Gramin Bhandaran Yojana

By Department of Agriculture & Cooperation

1.

Create scientific storage capacity and allied facilities in rural areas

2.

grading, standardization and quality control of agricultural produce to improve their


marketability;

3.

Provide pledge finance and marketing credit to farmers, so they dont have to distress sale
immediately after harvest.
National Horticulture Mission (NHM)

By Whom? = Department of Agriculture and Cooperation

To increase production of all horticultural products (Fruits, Vegetables, Flowers, Plantation


crops, Spices, Medicinal Aromatic plants) in the states.

Provides funding for various activities (R&D, nurseries etc) including funds for post-harvest
management, supply chain infrastructure, cold storages.
Terminal market complexes (TMC)

scheme is being implemented under National Horticulture Mission

These Terminal market complexes will establish forward linkages with wholesalers,
distribution centres, retail cash and carry stores, processing units and exporters.

via PPP model under 12th Five year plan.

Maximum subsidy Rs. 50 crore to the Projects based on competitive bidding.

Some Terminal market complexs (TMC) projects:

1.

Patna, Pothai (Bihar)

3.

Babangaon, Thane, Nasik (MH)

2.

Perundurai and Madura (TN)

4.

Sambalpur (Odisha)

National Horticulture Board (NHB)

Autonomous society (falls under Department of Agriculture & Co-operation, Ministry of


Agriculture)

For food processing, NHB runs following schemes

Commercial Horti

Full name: Development of Commercial Horticulture through Production


and Post Harvest Management of Horticulture Crops

long name for scheme without catchy abbreviation!

but In short, they give subsidy for setting pack house, pre-cooling unit,
cold storage, controlled atmosphere (CA) storage, refer transport,
ripening chambers etc.

More subsidy is given for North East, Hill states and scheduled areas.

NABARD provides financing

Technology Development and Transfer for promotion of Horticulture

Tech Dvlp

1.

Introduce of New Technology

2.

Visit of progressive farmers to other states / abroad.

3.

Technical know-how from India/Abroad

4.

Technology Awareness

5.

Organising/participation in seminars/symposia/exhibitions

6.

Udyan Pandit award to farmers

7.

Publicity and Films

8.

money to scientists for effective transfer of technology

9.

Accreditation and Rating of Horticulture Nurseries

10. Mother Plant Nurseries


nation-wide communication network for speedy collection and dissemination of
market information including:

market
information

1.

wholesale prices, arrivals and trends in various markets of the country


for important fruits, vegetables & flowers etc.

2.

retail prices in selected markets/cities

3.

international prices for potential export items

4.

horticulture database, production trends

then NHB issues farmers advisory using above reports.

Horticulture
Promotion
Service

1.

Specialized studies and surveys for targeted beneficiaries.

2.

Technical laboratories and consultancy services.

3.

Review the present situation of horticulture development in particular


area/ State

4.

Identify constraints in horticulture development and suggest remedial


measures

5.

Develop short term and long term strategies for systematic development
of horticulture,

6.

Develop primary/secondary data of various aspects on horticulture

7.

Provide consultancy services, expert services & establishing labs etc

8.

Conduct technical scrutiny and certification of cold chain infrastructure

9.

Preparing reports relating to export competitiveness in the area of fresh


horticulture produce

National Centre for Cold Chain Development (NCCD)


Setup during 11th FYP, under Societies Registration Act, to do following

1.

Create an enabling environment for the cold chain sector

2.

help private sector involvement in cold chain sector

3.

Financial assistance upto 90% to State Governments to setup/modernize/expand cold


storages and ice plants via cooperatives.

4.

establish standards and protocols related to cold chain testing, verification, certification and
accreditation as per international standards

5.

Provide technical assistance to Financial Institutions, Government Departments/ agencies,


and industry for selecting cold chain component e.g. refrigeration units, refrigerated transport
equipment, display cabinets, milk tanker etc.

6.

HRD and technical advisory.


Scheme for Agri Market

Full name: Scheme for Development/Strengthening of Agricultural Marketing Infrastructure, Grading


and Standardization (Again too bad no fancy abbreviation.)
By Ministry of Agriculture.

1.

To Develop and Strengthen agricultural marketing infrastructure.

2.

Facilitate private and cooperative sector investments in marketing infrastructure.

3.

Provide additional agricultural marketing infrastructure to agriculture, dairy, poultry, fishery,


livestock and minor forest produce.

4.

facilities for grading, standardization and quality certification of agricultural produce so


farmers can get money commensurate with the quality of their produce;

5.

Introduce Negotiable warehousing receipt system

6.

promote forward and future markets

7.

To create general awareness and provide education and training to farmers, entrepreneurs
and market functionaries.
Agmarknet

Agricultural marketing information network (http://agmarknet.nic.in/)

by Directorate of Marketing & Inspection (DMI) under Agro ministry.

it is an online portal that provides information on following

Prices

daily prices of various commodities

Movement

information on the type of goods that have arrived across the various wholesale
markets Commodity

Farmers Advisory

Weather

A comprehensive database 300 commodities and 2,000 varieties

Appropriate farming practices which can be adopted by the farmer

All India weather conditions and weather forecasts and their impact on
the agri-production levels

Commodity
Exchange

information on various commodity exchanges in India and abroad along with

Research

higher institutes for agricultural research, international agencies like the Food
and Agriculture Organization

ok so far we saw the schemes associated with Agro+Horti+Marketing. Now moving to Dairy
Dairy Schemes
By Department of Animal Husbandry, Dairying & Fisheries
They run following schemes:

1.

install Bulk Milk Coolers at village level close to the area of milk production

2.

for installation of bulk milk cooler

Intensive Dairy Development

100 per cent grants in aid for

Scheme (IDDS)

Dairy Entrepreneurship
Development Scheme (DEDS)

Dairy processing and marketing

milk equipment for bulk milk coolers, chilling centers,


refrigerated tankers and cold storage

to encourage entrepreneurs in setting up modern


dairy infrastructure for clean milk production

helps in bulk milk coolers, transportation facilities


including refrigerated vans, cold storage facility

National Dairy Plan (NDP)


by National dairy development board (NDDB), with support from International Development
Association (IDA)

Phase-1 (2012-17) was launched at Anand, Gujarat.

Scheme will run in 14 states Uttar Pradesh, Punjab, Haryana, Gujarat, Rajasthan, Madhya
Pradesh, Bihar, West Bengal, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Orissa
and Kerala.

^These states collectively account for over 90% of countrys milk production.

National Dairy plan will do following:

1.

Breed improvement + animal nutrition=> increase milk production, reduce methane emission.

2.

Strengthen of village based milk procurement system= Rural milk producers to get greater
access to the organized dairy sector.

3.

HRD, management, knowledge sharing, R&D and other fancy stuff

Funding pattern

ca$h comes
from

to

1.

International Development Association (IDA) of the World Bank

2.

Central government (Department of Animal Husbandry, Dairying and


Fisheries)

NDDB: National Dairy Development Board (a statutory body)


End Implementing Agencies (EIAs):

ultimately to

State Government

Cooperative dairy federations

Milk Producers Unions

ICAR institutes, and veterinary/dairy institutes and universities

^Exactly 159 words. Again aukaat of National dairy plan cannot be beyond 12-15 marks from UPSC
point of view, hence not going into further details. Besides, well look more into Dairy sector in
separate article later. Time to move on to Agro-Export related schemes
Agri Export zones (AEZ)

In 2001, By Commerce Ministry.

Total 60 AEZs in 20 states.

To converge the efforts of central and state governments to increase agro-exports

AEZ concentrates on a particular produce/ product located in a geographically contiguous


area (e.g. Mango in Chittur District of Andhra) and coordinates the ongoing Central-State
schemes to cover the entire value chain from farm to the foreign consumer, including sorting,
grading, packaging, processing, exporting.

Agri Export Zones in India (Click to Enlarge)


AEZ: Problems
1.

Government Agencies dont take ownership or responsibility.

2.

Villagers and field officers are unaware about the scheme and its conceptual framework

3.

The Design of AEZ itself doesnt have project orientation.

4.

Lack of coordination/ monitoring system in AEZs

5.

The investment made by central and state government have not materialized into real-useful
assets on the ground.

6.

Indiscreet proliferation of AEZs in certain states. WB, Maharashtra have multiple Agro export
zones while Odisha barely got one AEZ and that too in 2013= More than a decade after the
scheme was launched in 2001!
Export credit schemes

get duty credit for exporting food products

1.

Focus Product
Scheme (FPS)

2.

Focus Market Scheme


(FMS)

Export to Europe, Latin America block, African block, or


Commonwealth Independent States (CIS) block are entitled for duty
credit.

3.

Market Linked Focus


Product Scheme
(MLFPS)

duty credit for exports to countries NOT included in above FMS list
e.g. Thailand, Taiwan and the Czech Republic. (ok then when next:
another scheme for countries not included in MLFPS list?)
duty credit for exporting following
1.

Agricultural Produce and their value added products;

4.

Vishesh Krishi

2.

Minor Forest Produce and their value added variants;

5.

And Gram Udyog


Yojana

3.

Gram Udyog Products;

4.

Forest Based Products; and

5.

Other Products, as notified from time to time.

Doubt: what is duty credit?


Without going into all technical correctness:

You exported xyz worth Rs.100 then Director General of Foreign trade will give you a scrip
(piece of paper) worth Rs. 2 to 5 (or whatever % credit is decided in the scheme)

When you import capital goods, youve to pay custom duty. But you can use these credit scrip
to pay for that custom duty.

Another doubt: Why does or why should government give duty credit?
Ans. Because other (stupid) schemes have failed to improve the rural infrastructure, hence it is
difficult to transport/market these products from India to abroad. Therefore duty credit is given to
offset infrastructure inefficiencies and other associated costs involved in marketing of these products.
Misc. Bodies
List is not exhaustive (and that is the criticism: too many bodies=lack of coordination.)
Export related

APEDA

Agricultural and Processed Food Products Export Development Authority (APEDA)

Statutory body under commerce ministry

provides financial assistance to food exporters.

MFEDA

bears the cost for doing analysis of peanuts, grapes for meeting HACCP/Codex
standards.

Gives money to State Government, Public Sector Undertakings for conducting


surveys, feasibility studies etc.

Marine Products Export Development Authority (MPEDA)

Ministry of Commerce, Government of India

acts as a coordinating agency with different Central and State Government

For Fishery production and allied activities.

Export Inspection Council of India (EIC)

statutory body under Commerce Ministry

For inspection- certification for marine, milk, meat, poultry, marine and egg
products, and honey for export units.

EIC approved units have to implement following

international standards of CODEX laid down by FAO and WHO,

Good Management Practices (GMP)

Good Hygiene Practices (GHP)

EIC

Boards

Coffee
Board

Spices
Board

Tea Board

bodies under commerce ministry

offers various schemes, services to growers and exporters

R&D, HRD

maintains database, runs newsletters

Promotes Indian products international food fairs

Indian Grape Processing Board (IGPB)

Under Ministry of Food processing Industries (if tea, coffee and spices
boards were setup under Commerce ministry then why did they setup
grapes board under Food processing ministry? Ans. so they can
confuse aspirants to ask a stupid MCQ in some exam.)

Promote cooperative efforts, backward and forward linkages between


growers and wine industry in general.

Grapes

Nddb

Meat + Poultry

set up facilities for wine analysis, testing, standards, certification of


wine and promoting Good Manufacturing Practices (GMP)/ Hazard
Analysis and Critical Control Points (HACCP)

National Dairy Development Board

Statutory body

To promote, finance and support dairy cooperatives.

National Meat and Poultry Processing Board (NMPPB)

Under Ministry of Food Processing Industries

a single window service provider for producers/manufacturers and


exporters of meat and meat products,

For analyzing various microbiological and physico-chemical


parameters related to various food and food products.

Training meat workers


Research/Education related

Indian Council of Agricultural Research (ICAR) is an autonomous


organisation under the Department of Agricultural Research and Education
(DARE), Ministry of Agriculture, Government of India.

ICAR is the apex body for co-ordination, research n development (R&D)


and education in agriculture including horticulture, fisheries and animal
sciences in the entire country. HQ=Delhi

Central Food Technological Research Institute(CFTRI), Mysore (part of


CSIR)

R&D in food science, food safety, low-cost food processing etc.

Indian Institute of Crop Processing Technology (IICPT)

under the Ministry of Food Processing Industries,

Teaching, research, labs and extension services in food processing

National Institute of Food Technology, Entrepreneurship and Management


(NIFTEM)

Deemed to be University

Under Ministry of Food Processing Industries

ICAR

CFTRI

Crop
processing

NIFTEM

Nutrition

Horticulture
research

high quality educational and research programme

support the regulatory authority through referral advice on food standards.

Developing world class managerial talent with advanced know how in food
science and technology.

National Institute of Nutrition under Ministry of Health and Family Welfare

for R&D on food-nutrition-toxicology studies.

Indian Institute of Horticulture Research, Banglore

developing new hybrids, pest-disease-nutrient management etc. for fruits,


vegetables, ornamentals, medicinal and aromatic plants and mushrooms

Next article, we see the nuisance of middlemen, APMC Acts, direct cooperative markets (Rythu bazar
etc).
Nuisance of APMC Acts, Commission Agents; Marketing of agricultural produce: issues and
constrains for GS Mains
APMC Acts: What and Why?
In news columns, and TV Debates surrounding food inflation and FDI in multibrand retail, youve
often heard experts talking about APMC acts. So, what are these APMC Acts and how did they led to
proliferation/nuisance of middlemen/intermediaries in food supply chain?

In old Bollywood villages, there is always one Lala / Muneem type character. He lends money
to farmers for seeds/cattle/marriage expenses, then arbitrarily purchases his wheat/rice
@throwaway prices + compound interest rate + illiteracy =>farmers in perpetual debt.

To fix above problem, State governments started enacting Agricultural Produce Market
Committee (APMC) acts since 50s.

APMC acts run on two principles:

1.

Ensure that intermediaries (and money lenders) do not compel farmers to sell their produce at
the farm gate @throwaway prices=farmer is not exploited

2.

All food produce should first be brought to the market yard=> sell through auction=farmers
gets good money.

Under APMC Acts:

A State is geographically divided and Market (Mandis) are established at different places
within the states.

Farmers have to sell their produce through the auction @mandi.

To operate in Mandi, a trader has to get license.

Wholesale, retail traders (e.g. shopping mall owner) or food processing company etc cannot
buy farm output directly from farmer. Theyve to get it through the Mandi.
Old APMC Acts: Problems?

Membership

State APMC Market Committees have 10-17 members

Either elected or nominated by Government in accordance with provisions


of the respective State APMC Act.

But in several States, regular elections of APMCs = not held.

APMC board are administrated by bureaucrats. As a result

1.

APMC bodies have lost democratic nature.

2.

bureaucrats run the show= red tapes + bribery

Most Mandi traders do following:

Farmers
Cheated

Double
Commission

Even after receiving the fruit/veggies/grains, they delay payment to


farmers for weeks and months.

If payment is done on spot, then trader would arbitrarily deduct some


amount, on excuse that he has not received payments from the other
parties.

To avoid tax/cess, the traders dont give sale slips to farmers=>Later it is


difficult for farmer to prove his income to get loans from banks.

on an average basis the farmer is able to receive barely 1/4th to 1/3rd of


the final retail prices

Middlemen @Mandi charge commission on both seller (farmer) + buyer


(the urban retailer / food processor)

=double commission=final consumer has to pay even more!

Middlemen donot pass the benefit to either side


Hurting Both
Sides

Resistance To
Reform

1.

during peak season, when they buy from farmer @low prices, they dont
drastically reduce the prices to final consumer.

2.

during lean season, when consumers prices are high, the farmers do not
get higher returns on their produce.

Middlemen have rent-seekers mentality.

They resist anything thatll increase transparency or reduce transaction


cost and time.

Even when electronic auction centres were established like the Safal

National Exchange in Bangalore, the existing markets did not allow the
transition to a transparent system.

No Value
Addition

Price
Discovery

No auction

Cess

Middlemen have no facilities to do grading/sorting, all they do is pass


the produce from farmer to final consumer and charge truckload of
commission in between.

Thus, post-harvest losses continue to be in the range of 18 to 40 per cent


for several commodities

For cereal, pulses and oilseeds, government announces Minimum


support prices (MSP). So farmers know in advance, what the price of their
produce.

But for most perishables fruits/veggies, government doesnt declare MSP.

thus, farmers are completely dependent for price discovery and on


intermediaries

During peak production of seasonal crops, prices drop so drastically, the


farmers cant even cover the cash expenses of transportation to markets,
leave alone the cost of production.

The licensee traders and commission agents have formed informal cartels
@mandis. No auction takes place. Even if auction is held, collectively
these traders keep low bidding so farmer never benefits.

Cess= tax on tax

In every Mandi, every transaction is subjected to market tax + market


cess.

This Cess money is to be used for further development of Mandi


infrastructure- sorting grading storage facilities etc.

But money is not used for that purpose (Raja/Kalmadi-type elements


omnipresent.)

As a result, fruits and veggies often get rotten due to lack of processing,
storage facilities at the Mandi. Even the good produce gets contaminated
due to flies and larvae=>gastrointestinal diseases.
License raj=Lootera-raj

To operate in an APMC Market (Mandi), you need to get a license. This license raj leads to following
problems:

1.

In most Mandis, the pre-condition to get license=> you must own a shop or warehouse in the
Mandi. But Shops / warehouses are limited n number= extremely high prices.

2.

If you cant find a shop/warehouse, then youll have to find an old man who has license but
leaving business due to age/health problems and his sons not keen to join this profession.

Then you buy his shop/license @extremely high price (because there will be other buyers too
outbidding each other to buy his license!)
3.

In any business where license is required=>Bribes have to be paid. Be it Telecom or mining


or APMC mandi. So again, you must exploit the farmers to recover your (bribe) investment.

Because 1+2+3=> Commission agent/middleman/trader has to make heavy investment to start his
business in APMC. So, he decides to exploit the farmers to recover that big investment.
In Mandi, even weighmen, Paddlers, Hamals have to get license => they also need to pay huge
bribes=> they also overcharge the farmers to recover their (bribe) investment.
Hoarding
Over the years, Indias Agro-production has increased but number of intermediaries in APMC
remained constant= their cartel controls the supply= hoarding, opportunistic profiteering. But how?
Lets understand that with potato example:

Potato: peak supply

December to March

Potato demand

Throughout the year.

Big traders, agents: they buy potatoes from farmers @throwaway prices in the Mandi.

They rent large cold storage houses across different states for storing potatos only. (Majority
of cold storage facilities in Uttar Pradesh and West Bengal only devoted to Potato-storage)

Thus these traders control the potato supply across India. And whoever can control the
supply, can control the prices.

Thanks to this hoarding and cartelism=> in peak and lean season of potato, youll find price
difference up to 150 per cent or even more. Similar case for onions, tomatoes, daal and
everything else.
APMC Definition vs MSP

In APMC Acts, the definition of agriculture=very wide and vogue.

Although main focus was on cereals, pulses and oil-seeds, even horticulture produce (fruits
and veggies) also came within the broad definition of agriculture.

And over the last five decades, the share of perishable produce in the APMC market is
increasing For example, the Azadpur Mandi in Delhi principally caters to perishable crops
rather than cereal or oilseeds.

Ok so whats the problem?

Problem= government declares minimum support prices (MSP) for many cereal, pulses and
oilseeds crops=> middleman @APMC cannot exploit the farmers beyond a level (otherwise
he can sell it to the FCI)

but for fruits and veggies, government doesnt declare minimum support prices (MSP)=>
gives plenty of opportunity for the middleman to exploit farmer (as well as end consumer).
Model APMC Act

So far we saw that original APMC Acts enacted by various states=bogus, inefficient, useless,
ridiculous.

2003

After years of badass thuggary and inefficiency, suddenly Union agriculture ministry woke up,
drafted a new Model APMC act, and asked the State governments to adopt it. (Why? Because
Agriculture is a state subject. So it is upto the States to reform their laws..)

2006

Bihar repealed its state APMC act altogether.

2012

So far only 16 states have adopted the model APMC act. (as per the reply given by $harad
Pawar in Loksabha)

This new/reformed/model APMC Act of 2003 has following features


Model APMC Act: Salient Features
New Model Act

Old Bogus Act

Farmer doesnt need to bring his produce to APMC Mandi. He can


directly sell it to whomever he wants. (Although, if he doesnt bring his
produce to Mandi, then he cant run for election in that APMC marketing
committee.)

farmers must bring all


produce to the Mandi.

Farmers Processors, exporters, graders, packers, etc. can buy


agricultural produce directly from farmers.

Noone can purchase


farm-produce from
farmer outside Mandi.

Permits Private market yards, Direct Purchase Centers, farmers market


for doing trade in agriculture produce. (monopoly of Mandis=destroyed)

Only State managed


APMC Mandi can to the
trade. (monopoly)

Public Private Partnership in the management and development of


agricultural markets in the country for post-harvest handling, cold storage,
pre-cooling facilities, pack houses etc.

lolz

A separate Chapter to regulate and promote contract-farming


arrangements in the country.

Dispute resolution mechanism for contract farming.

Prohibits commission agents in any transection.

lolz

commission agents
permitted.

establish State Agricultural Produce Marketing Standards Bureau

for Grading, Standardization and Quality Certification of


agricultural produce (so they can fetch higher prices in desiforeign markets)

lolz

Increased the responsibilities of APMC committee. They have to:


1.

ensure complete transparency in pricing system and transactions


taking place in market area;

2.

ensure payment for agricultural produce sold by farmers on the


same day;

3.

promote agricultural processing + value addition

4.

Publish data on arrivals and rates of agricultural produce brought


into the market area for sale.

5.

Setup and promote public private partnership in Mandi


Management.

maha-lolz

Ok this new Model APMC act sounds all well and good. But here are the problems
Model APMC Act: Limitations/Problems
1.

So far, Only 16 states adopted the Model APMC Act (as of 2012). Why? Because Middleman/
trader lobby made truckload of cash from exploiting farmers and consumers. Part of that
money given in election funding to ruling parties in States=>reforms stalled.

2.

Model APMC act is not uniformly adopted, states have made their own modifications. For
example

Andhra

Andhra Pradesh permitted private markets but theyve to pay a license fee of
Rs 50,000 and project must be min.10 crores =discourages small farmer/trader
associations from setting up their own private markets.

Odisha

Orissa has not permitted private markets for paddy/rice

Haryana

Only adopted Contract farming related provisions.

Some states

Even the private markets are subjected to Mandi tax and Mandi cess.

commission
agent

Madhya Pradesh abolished commission agent system but some other states didnt
adopt this provision of model APMC.

Bihar

WB

Repealed its APMC act in 2006.

Now, SDM is in-charge of the unregulated markets

No market fee are charged from the farmers But other charges for loading/
unloading/Hamal charges are vogue/uncontrolled.

Yet to amend its APMC Act.

Mamata opposing the concept of contract farming on the premise that it


could jeopardise farmers interests.
Additional suggestions to reform APMC

(These were made by committees of planning commission, inter-ministerial groups etc.)

Horticulture should be specifically excluded from definitions of APMC.


Because these Mandis are main culprits for inflation and wastage of fruits
and veggies.

E-Auction

All APMCs Mandis should introduce electronic auction platform

Membership

Open membership of APMCs by encouraging wholesalers and retailers to


enter into transactions with the growers.

Anyone should be allowed to trade in APMC market. Licensing system


should be abolished.

The APMC Market Committee should only fix the transaction fee and keep
a Bank Guarantee from traders to ensure that the farmers payment is not
affected.

all the taxes/cess levied in APMC Mandis should be abolished.

Remove
horticulture

No License

No Cess/Tax

Contract farming
Contract farming is a forward agreement between farmers and buyers

buyer

farmer

Agrees to buy produce from farmer @predetermined price.

Usually provides inputs (Seeds, fertilizers, pesticides), technology and production


practices so that final produce meets his desired quality.

Agrees to grow and supply the produce to the buyer @ predetermined quality,
quantity and prices.

Contract farming is prevalent only in those states, where the APMC acts are favorable for private
player e.g. Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, Maharashtra who adopted the
model APMC Act.

Farm produce

Area under contract farming


(acres)

Buyer company

Potato, Tomato,
Chilli

6000

Pepsico (for their potato


chips)

Basmati, Maize

400

Mahindra Shubhlabh

Soyabean

1200

ITC

Karnataka

Ashwagandha

700

Himalaya Healthcare

Madhya
Pradesh

Wheat

15,000

Hindustan Unilever

State

Punjab

Contract Farming also done for export oriented cropping of Basmati, Chilli, Gherkins and soybean.
Below APMC-Mandi market

Below the Mandi markets, there are primary assembly markets such as village-bazaar,
weekly haat in tribal areas etc.

There is wide variation in their governance. Some states run them under Panchayati Raj
institutions, some states put them under supervision of district administration.

Condition of cattle markets and fish markets are even worse. Most of them do not have even
basic amenities like sheds, sanitation or drinking water.

Immediate reforms/upgrades necessary in all these markets.


Direct Sale / Cooperative markets

Long before the circulation of Model Act (2003), several States had promoted Farmers Market.
Example
Rythu Bazar

By Andhra government in 99

to eliminate middlemen

to help farmers directly sell their produce to customers

Every farmer in the Rythu bazaar sells his produce as a retailer.

Current scenario:

Rythu Bazar in Andhra

>100

villages covered

>2000

farmers covered

>40000

similarl direct marketing iniatives in other states:

Punjab and Haryana

Apni Mandi

Rajasthan

Kisan Mandi

Tamil Nadu

Uzhavar Shanthigal

Maharashtra

Shetkari bazaar

Problem: Over the years, small traders have taken over the place of farmers in many of these
markets= again problem of middlemen and commission agents.
In South Korea, with direct marketing of agricultural products= middlemen were removed and as a
result:

consumer prices declined by

upto 30%

farmers income rose by

upto 20%
Virtual Markets

Example of such virtual markets= Future exchange, Spot Exchange, Warehouse Receipt
System and Web Marketing.

In India, the Multi Commodity Exchange (MCX) and the National Commodity Derivatives
Exchange (NCDEX) are the two biggest players in the agro-futures market.

NCDEX

MCX

Setup an e-mandi (online wholesale market).

Farmer will first deposit his produce to a NCDEX nominated warehouse, gets
receipt.

This receipt can be traded by the participant on the e-mandi across the country.

Working on similar project like above, with help of Yes bank.

MCX online portal for commodity trading also available in regional languages to
help non-English speaking farmers.

an allied topic is negotiable warehouse receipts, but well see it in the next article under financetaxation-FDI-exports.
ITC e-Choupal
In 2001, ITC (India Tobacco Company Limited) started small internet kiosks at the village level.
Provides following:

1.

direct procurement framework

2.

Real time market information related to prices

3.

Availability of inputs: seeds / fertilizers, their prices

4.

scientific farm practices

5.

weather, monsoon data

6.

Dispute resolution between the company and the farmers.

Coverage

more than

farmers

4 million

villages

40,000

kiosks

6000

Thanks to ITCs e-Choupal, farmers income increased by 10-15% (compared to earlier when they
relied on middlemen @mandi)
Anyways well see more about these intermediate market, supply chains in individual articles for fruitveggies etc. Now moving to the next law topic
Single Food Regulator
USA

Single regulator: Food and Drug Administration (FDA).

UK

Food standard agency (FSA) is the single authority for formulating all food laws.

Aus+NZ

Australia and New Zealand have a common single regulator known as Food
Standards Australia New Zealand (FSANZ)

Totally awesome: just check the list of overlapping and outdated laws

India

1.

Prevention of Food Adulteration Act 1954 (PFA)

2.

Essential Commodities Act 1955 (ECA)

3.

Vegetable oils, De-oiled meal and edible flour control order, 1967 ( VPO)

4.

Fruit Product Order, 1955 (FPO)

5.

Meat Food Products Order, 1973 (MFPO),

6.

Milk and Milk Products Order, 1992 (MMPO)

7.

Agricultural Produce (Grading and Marketing) Act 1937

8.

Bureau of Indian Standards, 1986

9.

Standards and Weights Measure Act, 1976

10. Export (Quality Control and Inspection) Act, 1963


In 2006, After sleeping for decades, Government enacted Food Safety and Standards Authority of
India (FSSAI) Act to provide for a single food law regulator, and repealed those outdated acts. But
until then, for so many years, those old laws did not allow Indian food processing industry to grow.
How?
Problem with overlapping laws
1.

Many ministries deal with food laws = multiple bodies which set food standards = ambiguity,
confusion for consumers, traders and manufacturers.

2.

Very few standards developed for raw agricultural produce.

3.

They dealt only with physical parameters of size, colour and farm impurities. But not on
microbiological and toxicological characteristics (which are necessary for export to US/EU).

4.

Food laws are often inconsistent and contradicting each other. e.g. Emulsifiers and
Stabilisers are permitted for use in Jams, Marmalade & Fruit Chutney under PFA but not
under FPO.

5.

In many cases, where one standard is more stringent than the other. Then food-entrepreneur
would adopt the more stringent standard in order to prevent potential penalization and bribe
harassment by food inspectors. For example, FPO allows use of artificial sweeteners in
certain fruit products whereas PFA does not. Hence, the industry avoids using artificial
sweeteners altogether.
FSSAI Act 2006: Features

Established a statutory body The Food Safety and Standards Authority of India (FSSAI)
@Delhi Under the Administrative control of Ministry of Health & Family Welfare

Repealed various outdated central Acts viz.

Prevention of Food Adulteration Act (PFA)

Various Orders by Central Ministries e.g. Fruit Product Order (FPO), Meat Food
Products Order. Milk and Milk Products Order, Vegetable oil, Edible flour Order etc.

FASSAI made responsible for:

Scientific Food standards: frame them, enforce them

Regulate the manufacture, import, processing, distribution, and sale of food.

Make Guidelines for accreditation of food laboratories, food safety


management bodies.

International technical standards for food, sanitary and phyto-sanitary


standards (SPS)

Advisory

Scientific advice and technical support to Central Government and State


Governments food safety and nutrition related policies and rules.

Survey

Collect Data on food consumption, food contamination, biological risk etc.

Create information network across the country to connect public, consumers,


Panchayats etc.

Provide them rapid, reliable and objective information about food safety

Rapid alert system for food contamination and biological risk

Promote general awareness about food safety and food standards.

Training to people involved in food business

Guidelines

Networking

HRD

In the next article, we see the finance-taxation-FDI-export matters related to food processing industry.
Then well dig into Supply chain management, upstream-downstream requirements for individual
sectors: dairy, confectionary, fruit-veggies meat-fish, etc.
Export, Dumping, FDI, Finance, Taxation, Budget Provisions, CODEX, NWR, BRGF, RKVY
Agriculture Export
World Trade Organization (WTO) aims to improve international-trade by reducing the tariff and nontariff barriers. Lets refresh the concept:
Tariff Barrier
Taxation tools that affect import / export: Examples

1.

In the Colonization-era, British had imposed heavy taxes on Indian textile coming to London,
in order to protect their local industries from competition.

2.

Before the LPG reforms of 1991, India too had imposed heavy taxes on most of the imported
items: be it wristwatches, goggles, cars or radios.

3.

Aug 2013, Union Government increased the import duty on gold to 8 per cent to reduce
the gold consumption (and to provide sustainable livelihood to desi-smugglers who
were not given 100 days in work under MNREGA.)
Dumping

When businessmen export goods at a price that is less than the price charged in the domestic
market- its called dumping.

WTO system=> Agreement on Subsidies and Countervailing Measures (SCM)=if a country


finds evidence of dumping, it can extra impose duty (known as countervailing duty, CVD) on
such dumped products. (=meaning this type of tariff barrier is permitted in WTO)

USA has imposed a countervailing duty (~6%) on Indian frozen shrimps, because Indian
shrimp gets plenty of subsidies from Indian government for shrimp farming and export and
hence Indians are able to dump shrimps to USA and hurt USAs local shrimp businessmen.
(or atleast thats what America claims).

Anyways, Indian shrimps are not the only items subjected to anti-dumping duty in USA.

Shrimps
from

Why subjected to anti-dumping duty in USA?

Thailand

government buys shrimp from farmers and sells it to processors at low price

China

government gave finance to build the worlds largest shrimp-processing and export
plant

Malaysia

government gave finance to build shrimp farms.


Dumping by India

List not exhaustive (but in recent news)

Country

Which Indian export was slapped Anti-Dumping duty

Recently China also started Anti-dumping investigation on Indian exports such as

China

1.

food preservative chemical from India (known as TBHQ)- widely used in


Chinese food industry.

2.

Optical fiber imports from India after allegations from the local Chinese
industry that they were being sold at artificially low prices.

Thailand

Indian steel

Indonesia

Against two leading Indian steel firms: Jindal and Essar.


Dumping to India (by foreigners)

List not exhaustive (but in recent news)

1.

Weve slapped anti-dumping duty on steel wheels imported from China used in commercial
vehicles.

2.

Under probe: US, China, Malaysia and Taiwan: Because Theyre exporting solar equipment
to India at ridiculously low prices and was bleeding the desi industry. Similar issue with
glassmakers and electric cable manufacturers from those countries.
Non-Tariff Barrier

Non-tariff barriers affect import/export, without using taxation tools. For example

Quantitative restrictions

Under Gold control Acts of 1960s, An Indian Gold Smith was not
allowed to possess a stock of more than 300 gms of primary gold at any
time.

Import prohibitions

On ivory, fur, tiger skin/bones, narcotics, illegal weapons, explosives


etc.

Import licensing

When Murthy started Infosys, he had to make 50 trips to Delhi for three
years just to get a license to import computers.

Export Subsidies

We already saw some duty credit schemes for Agri-exports in the


second article. click me

Labour/Environment
standards

e.g. some developed country banning import from third world country
saying child labour was used etc.

Health Standards

Codex, HACCP- given below.


CODEX standards

In the 60s, FAO+WHO setup Codex Alimentarius Commission.

To develop harmonised international food standards, guidelines and codes.

In WTO system => Sanitary and Phytosanitary measures (SPS Agreement) a country can
impose ban on imported food products, if they do not meet the Codex standards. (=meaning
this type of non-tariff barrier is permitted in WTO).

and as you can guess, Indian food products get banned/restricted in developed countries for
not meeting those quality standards

This is a two-way street though, India also banned import of American Chicken to prevent
Avian influenza among Indian poultry. (Although USA has dragged India to WTO saying India
has not provided any scientific evidence in line with international standards to justify this ban.)

Anyways, here are some of the Indian food export, there were banned in US/EU/China/Japan
in past.

Indian food item

banned/restricted abroad thanks to


Aflatoxin

1.

Groundnut

2.

Mangos

3.

Indian Buffalo Meat

4.

Indian Shrimp

5.

Fish

6.

poultry

stone weevil, fungus


foot-and-mouth disease
Antibiotic residues
Heavy metals and antibiotics
bird flu/Avian influenza

Adding insult to the injury, once the ban is imposed and IF we want to get the ban revoked, then

Weve to invite their food inspectors/specialists to India, let them check our premises

Weve to bear all the cost of their accommodation, travel expenses etc.

=expensive game, small Indian players/companies cant survive in the international food business.
HACCP

HACCP (Hazard Analysis Critical Control Point)

This certification system is adopted by the Codex Alimentarius Commission.

For preventing microbiological, chemical and physical contamination along the food supply
chain.

So, if you want to safely export food products to US/EU, then first you need to get certificate
that your plant meets the HACCP standards. (certificate system similar to ISO standards)

It doesnt mean we havent anything. Here are some of the steps taken:

Export Inspection Council of India (EIC)

statutory body under Commerce Ministry

for inspection- certification for marine, milk, meat, poultry, marine and egg
products, and honey for export units.

EIC approved units have to implement following


EIC
1.

international standards of CODEX laid down by FAO and WHO,

2.

Good Management Practices (GMP)

3.

Good Hygiene Practices (GHP)

EIC certificate is recognized in European Commission (EC) for marine products and
basmati rice and by the US for black pepper.

APEDA

BIS

collaboration

Agricultural and Processed Food Products Export Development Authority


(APEDA)

Statutory body under commerce ministry

Provides financial assistance to food exporters.

Bears the cost for doing analysis of peanuts, grapes for meeting HACCP/
Codex standards.

Bureau of Indian standards

has adopted the CODEX, hazard analysis and critical control point (HACCP)
and food hygiene standards

helps Food processing units to adopt these systems on a voluntary basis

Were collaborating with USA, UK, Netherlands, Switzerland and Germany for Agritechnology transfer, financial and marketing tieup and quality control.

Ministry of food processing industries

Gives financial assistance for fee charged by Certification Agency, plant


and machinery, technical civil works, and other expenditure towards
implementation of Total Quality Management System, ISO, HACCP, GMP
and GHP.

MoFPI

General Area: max 15 lakh assistance


NE, difficult area: max. 20 lakh

Additional Suggestions

Negotiation

Foreign
Offices

Certification

Government needs to expedite the negotiations with US, EU, China and Japan, to lift
restrictions on Indian fruit/food/marine exports into these countries.

Encourage importing countries (primarily USA, EU, Japan) to set up offices


in India for certification of export consignments

APEDA already supports the cost of quality certification programs such as HACCP
and Eurepgap for grapes and peanuts. More food-items should be included in this
scheme.

Food Safety and Standards Authority of India. We already saw its salient
features in previous article,click me

FSSAI needs to harmonize the differences between Codex standards and


Indian food standards.

Desi Labs

Encourage food testing laboratories in India to obtain accreditation from


international agencies. Given high cost of international accreditation,
Government can incentivize laboratories by part funding these costs.

Zoning

Government should introduce certification zoning systems: e.g. pesticide


free zones, organic production zones, disease free zones to facilitate high
value exports from India

Sample Cost

Food exporters to US/EU are first required to their samples to the importing
country to get trade-approval. Government should provide financial
assistance to small/medium exporters for this.

Fssai

FDI: Agro, Food Processing, Retail


Foreign Direct Investment: Agriculture
100% FDI with automatic approval in following sectors:

Seeds and planting material, their development and production


Conditions

1.

Genetically Modified seeds/plants= have to comply with

Seeds

Livestock

a.

Environment (Protection) Act

b.

Genetic Engineering Approval Committee (GEAC)

2.

If seeds are imported then have to comply with National Seeds Policy

1.

Animal rearing + dog breeding

2.

Poultry breeding farms

3.

Aquariums

4.

Pisciculture (breeding, rearing, and transplantation of fish by artificial means


aka fish farming)

5.

Apiculture (bee keeping)

Plantation

No FDI is not allowed in any other plantation except Tea.

In Tea sector:

49% FDI via automatic route

100% FDI with government approval.

Note: Besides ^above, FDI is not allowed in any other agricultural sector/activity
In July 2013, Government changed FDI limits in 12 sectors, here is a fancy graphic courtesy of
Indiatoday

FDI: Food processing

India allows 100% FDI in food processing sector.

Foreign firms

1.

dont need government-approval to start business in India.

2.

Are eligible for grants, subsidies, benefits offered by various government schemes.

Our food industry got FDI >Rs.6000 crore in last three years (2009 to 12)

When talking about FDI in food processing, a doubt comes in mind: if foreign giants are
permitted in India, will there be no place for small players, will they be wiped out?

Fragmented
Demand vs
Economies of
Scale

In Trivandrum, people use more than 10 different spices in their


cuisine, while in New Delhi and Mumbai, barely 4-5 spices.

Different communities in each state prefer different blending of


spices, color/pungency in chilli-powder.

Cottage and small units do well ^in such product segments because
of their local traditional knowledge.

But Bigger enterprises may find it difficult to enter into such


fragmented and price conscious consumer base. Their large scale of
economies may not be optimized for it.

MNCs economies of scale to be effective, theyve to make something


with large demand e.g. cream-biscuits, ice-cream or chocolates
because kids from Kashmir to Kanyakumari like it irrespective
location, community or religion.

Wheat flour has daily and universal demand in India. But most
Indians prefer to get wheat grains and get it milled in Local flour mills.

MNCs are not likely to enter into such products, as it is difficult to


charge premium prices for their brand image, advertisement costs
and a narrow consumer base for readymade packaged flour.

In IT/BPO cities like Banglore, Pune, Hyderabad =fast pace of


life = big demand for processed/ready to eat food among working
professionals/couples.

But cities like Ahmedabad, Jaipur or Indore but pace of life is


not that fast. Hence processed foods has not made as much an entry/
demand.

Cheapness

Pace of life

Thus, MNC-food Giant doesnt get automatic success is every region and every product. Small
players have their own opportunities in the food processing sector, while big / international players
have theirs.
FDI: Retail

100% via automatic route

but only in Business to Business (B2B) e-commerce and not


in retail trading.

Cash and Carry wholesale


trading

100% via automatic route

Single Brand Retail.

upto 49% via automatic route

upto 100% with government approval

E-commerce

List of Single Brand retail wholl setup shops in India:

Single-Brand Retail

What do they sell?

IKEA

Furniture

Pavers England

British Footwear

Brooks Brothers

American Luxury Clothing

Damiani

Italian Jewelry

Promod

French Fashion

Le Creuset

Crockery

Decathlon

Sporting Goods
FDI: Multibrand Retail

Maha-clichd topic, you probably have read/heard/seen it dozen times already. Hence not going into
all details.

Permitted limit of FDI in Multibrand


Retail

Country

India

51% with government approval

China, Thailand, Russia, Indonesia, Brazil, Argentina,


Singapore

100%

Difference In Single Vs Multibrand Retail?


Single Brand Retail

Multi-Brand Retail

Multi-brand retail store like Walmart


sell products from more than one
brand

e.g. mouse-keyboard from Dell, HP,


Logitech and Microsoft.

While Printer from HP, Cannon,


Epson and so on

FDI upto 100% with government approval

FDI upto 51% with government


approval

Need to procure of 30% of the goods from Indian


MSMEs, village and cottage industries, artisans and
craftsmen, in all sectors.

Similar condition on 30%


procurement

+additional conditions on location


and backend infra.

can be setup only the states that


agreed. (list given below)

they sell only their own products.

Example in IKEA store you can buy sofa, bed,


chair, table, cupboard etc- but they all belong
to IKEA brand only.

can be setup in any city, any state.

States/UT that permitted Multibrand Retail

As per the official FDI circular, State Governments/Union Territories would be free to take
their own decisions in regard to implementation of FDI in Multibrand Retail.

As of June 2013, Following states/UT permitted foreign giants to open multi-brand retail
outlets in their area.

1.

Andhra

2.

Assam

3.

Delhi

4.

Haryana

5.

HP

6.

JK

7.

Karnataka

8.

Maharashtra

9.

Manipur

10. Rajsthan
11. Uttarakhand
12. Diu-Daman-Nagar Haveli (UT)
(As of June 2013)

But How / Why is Multibrand-FDI relevant/important from food processing/agro point of view?

desi food players are mostly small scale = poor economies of scale = they
dont have the money to invest in backend infrastructure.

less Wastage

Government made FDI condition that Retail giant needs to invest


part of his FDI investment into backend infrastructure (=processing,
manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce
infrastructure etc.)

Better Income

These retail giants have deep pockets = large economies of scale = they
use direct purchase / contract farming to get the fruits-veggies. Thus
middleman eliminated=farmer gets more price.

Small Scale

Government made FDI condition that Retail giants need to buy part of
their goods from small scale industries.

employment

Increases direct/indirect employment opportunities in the supply chain,


logistics, retail and wholesale.

The Foreign giants bring their own IT technology, best management


practices for running the business at extreme efficiency.

Foreign giants will tie up with a local player (e.g. Bharti, Tata etc)=Indian
managers/workers in those desi companies also learn new things

Later some of thm might setup their own firms utilizing the workexperience=Thus foreign business knowledge, technology trickles down
and benefits Indian economy.

Techknowledge
upgrades

The Diluted Conditions

No investors came forward, even after Government permitted 51 per cent foreign direct
investment in multi-brand retail (henceforth referred as Walmarts to save the typing
headache).

so recently government decided to relax the conditions to attract them (+to bring more dollars
to calm down the rupee fall)
Tight Conditions before

CITIES

Diluted After July 2013 Reform

Walmarts can be opened only in cities


with more than 10 lakh population (as
per 2011 census)

Matter left to the discretion of


the state governments.

Meaning Walmart can


open retail stores even in
cities with less than 10 lakh
population (e.g. Gurgaon
and Aurangabad), with the
permission of the States or
Union Territories.

Walmart still needs to buy


30% of its goods from small
vendors but Definition of small
vendor relaxed.

Walmarts will need to buy 30% of its


goods from small vendors.

*Small vendor= an Indian micro


medium small enterprises (MSMEs)
with total investment of $1 million.

Small vendor now includes


even a medium scale industry
upto $2 million.

And, during the course


of this relationship, if that
small supplier outgrows the
investment of $2 million,
even then such dealing/
procurement is allowed.

The 50% only for the first


tranche of $100 million.

In other words, if WalMart


is bringing $100 million FDI
in first go, then, 50%=$50
million will have to be spend in
backend infrastructure.

But after that, If WalMart


brings another $50-100-200
million FDI, they dont need to
invest any part of that money
in backend infrastructure in
India.

MSME

Walmarts needs to invest 50% of


its FDI investment into backend
infrastructure.

example of backend
infrastructure=processing,
manufacturing, distribution, design
improvement, quality control,
packaging, logistics, storage, warehouse, agriculture market produce
infrastructure etc.

BACKEND

Expenditure on land cost and rentals,


will not be counted as backend
infrastructure.
Finance

To run any type of business: be It farming or food processing= you arrange for finance. What are the
Sources of Finance?

Banks

regional rural banks, cooperative banks, commercial banks

NABARD

offers refinance facilities for food processing, agri infrastructure,


development

SIDBI

EXIM

NCDC

APEDA

Sharad Pawar

NHB

Small Industries Development Bank of India

gives loan to Micro Small and Medium Enterprises (MSMEs) in the


country

although Food processing sector forms very small part of its loan
portfolio

Export Import Bank

Helps in financing and facilitating foreign trade/export, including for


food processing companies.

National Cooperative Development Corporation

helps in promoting, planning and financing the agricultural supply


chain from production, processing, storage and trade

also helps in marketing fertilizers, pesticides and agricultural


machinery etc.

Agricultural and Processed Foods Products Export Development


Authority (APEDA):

helps to form market linkages between desi producers vs


international market

financial assistance for market development, infrastructure etc.

Agricultural ministry

runs many schemes for specific crops, seeds, irrigation, farm


implements, inputs, infrastructure and training

National Horticultural Board

gives financial assistance for post-harvest management


infrastructure, R&D, soft loans etc.

with most of the schemes directed to specific horticulture subsector


of the food processing industry.

MFPI

financial assistance for HRD, Quality testing, food parks, slaughter


houses, cold storage etc.

venture funds/angel
investors

Non-existent for food processing sector.

But both farmers + food processing entrepreneur have trouble getting loans/financing. Why?
Why cant Farmer get loans easily?
Bank manager hates NPA in their branch. Because it affects his reputation and further career growth/
promotions. On the other hand.

shrewd
farmer

Im not going to repay the loan because I know that government will launch another
debt-waiver scheme just before election and my loan will be forgiven!

good
farmer

Why the hell should I pay the loan diligently while ^others can get away scot-free?

Hence bank reluctant due to lack of credit-discipline among farmers.

Even when banks give loan, agriculture is a risky business because of pests,
vagaries of monsoon=crop failure

Government doesnt immediately disburse insurance money to farmers=loan


default=NPA.

Rural bank branches have shortage of manpower to process loan papers


quickly

Farmers need small loans e.g. 10-20-50,000 rupees. =>banks need to employ
a large staff to look after all the documents and processing work=>additional
salary burden= cost of giving loan increases.

Banks find it more lucrative to use the manpower in urban branches where
individuals need loan in larger amount (e.g 12-15 lakhs or more in each
homeloan)

If farmer mortgages his land to get loan, he has to pay stamp duty =additional
burden on the farmer.

Some states (Andhra, UP, TN, Gujarat, HP) have relaxed rules in this regard,
other state governments need to take similar steps.

NPA

Manpower

cost of
credit

Stamp duty

documents

many small-marginal farmers dont have documentary proofs for their land/
cattle ownership= problem while filling up the loans-application forms.

Thus for banks, Agro-loans=risky, high-cost, low-return game.


Regional imbalance
Loan/Credit distribution among
farmers

States

High

Southern

Medium

Northern and Western

Low

Eastern (Bihar, Jharkhand, odisha and West Bengal) and


NE

Nearly three quarters of the farmer households still do not have access to the formal credit or
insurance system= have to rely on informal borrowing/credit from evil moneylender @very high
interest=always in debt.
Talking of insurance: three main agro-insurance schemes run by Agriculture Insurance Company
(AIC):

1.

2.

3.

National Agricultural
Insurance Scheme
(NAIS)

Weather Based Crop


Insurance Scheme
(WBCIS)

Coconut Palm
Insurance Scheme
(CPIS)

available to all farmers, irrespective of their farm size.

Practically all risks covered (drought, excess rainfall, flood,


hail, pest infestation, etc.)

Agro-insurance from incidence of adverse conditions


of weather parameters like rainfall, temperature, frost,
humidity etc.

Challenge: Need lot of automatic weather stations for


successful implementation/assessment . (Right now barely
~3000, while we need atleast 10000)

To provide insurance to coconut growers against natural


calamities.

Negotiable Warehousing Receipts (NWR)

WE know that prices of potatoes, onions vary significantly between peak harvesting season
and lean season. The middlemen @APMC control this storage and supply and make a killing
business.

Then why dont farmers themselves store their produce for the lean season? Because a
farmer cannot afford to wait selling his potatoes for such long time in hope of getting better
money. He needs quick cash so he can buy seeds, fertilizer, pesticides for the next round of
cropping cycle. (and to settle the loans he took for the previous cycle)

The negotiable warehousing receipts can help him here. How?

To put this without getting into all technical details:

Farmer bring his produce to a certified warehouse/cold storage of WDRA.

He Deposits his produce, gets a piece of paper called Warehouse receipt.

He deposits this Warehouse receipt to bank, as a collateral and gets short-term loan for next
cropping.

The farmer can decide to sell his warehouse-produce when prices are favorable (during lean
season) and use it to settle the loan.

WDRA
Warehousing Development and Regulatory Authority.
Statutory body under Ministry of Consumer Affairs, Food & Public Distribution (2010). Main functions:

1.

Regulate, certify, and develop warehouses in the country.

2.

dispute resolution between warehouses and warehouse receipt holders;

3.

HRD, training warehouse personnel.


Benefits of NWR receipts

1.

Bank faces lower risks because collateral for the loan is a liquid asset (agro-produce
recipient, backed by a central act).

2.

Previously, Small/marginal farmers couldnt easily get loans because they didnt have
conventional loan collateral (land, gold, cattle etc.) But now they can get it easily using Kisan
Credit Card +Negotiable warehouse receipt.

3.

Protects farmers against distress sale of their produce and exploitation by middlemen.

4.

Minimizes Wastage perishable produce. (Because theyre stored in certified warehouses/cold


chains).

5.

Reduces hoarding and food inflation (because farmers less cartelized than APMC
Middlemen.)

6.

Provides alternate employment opportunity for those APMC middlemen- they can form a
group, setup warehouse and get certificate from WDRA.

7.

Warehouse receipts are a proven tool for financing, already successful in Brazil, Indonesia,
Singapore and Argentina

Enough of Farmers finance, time to move on:


Why cant food entrepreneurs get loans easily?
From a Bank managers point of view: again the fear of NPA

1.

2.

3.

4.

Most of the Mango processing units in Andra run for barely


70 days per year. This type of seasonal-businessmen are
considered risky from bankers point of view.

Most of the food processing units hide actual sales in the


account books (to evade taxes

Banker never gets true picture of a firms financial strength. He


is not sure whether the given entrepreneur is loan worthy or not?

If an urban middle class man wants to take Car/Home loan,


then bank can always check his credit-history from the Credit
Information Bureau of India Ltd. (CIBIL).

But CIBIL doesnt maintain such data/record for the food


processing sector=> difficult for bank to find out whether given
food entrepreneur has diligently paid his previous loans in from
other banks or is he a scamster doing iski topi uske sir pe?

In many food processing sectors, Government gives grants/tax


exemption for first few years.

As a result plenty of new small players emerge=>There is not


enough raw material to run each plant @full capacity (e.g.
Groundnut oil refining)

Sooner or later ^these small players fall sick because of heavy


competition=> loan defaults.

Seasonality

Strength

Credit Rating

Excess
Capacity

5.

New
Tech=Risky

To improve yields: farmer/entrepreneur will need money for


starting high density farming, greenhouse floriculture, controlled
environment livestock farming, bio-technology, tissue culture,
embryo transfer technology, bio-pesticides and bio-fertilizer, etc.

But from Bankers point of view, the success of new technology =


not been tested in actual situations / widely popular in India.

So he fears high chances of business failure= loan


defaults=NPA.

Therefore,

1.

Bank manager will either refuse to give loan OR

2.

He will give loan but charge higher interest rate for the additional risk.

3.

He might give loan for the initial capital for buying plant, machinery, vehicle (for which
government provides grants/subsidies) but not for the working capital requirements.

By the way what is working capital requirement?

1.

Raw Materials, Consumables & Packing Materials

2.

Electricity, phone, internet, utility bills

3.

Administrative and Selling Exposes

4.

Repairs and maintenance

5.

salaries of workers

6.

monthly bribes to food inspector

For Small sized food processing unit, the working capital requirement is quite high because high cost
of raw material, many middlemen= low profits. Result?

1.

Poor Economies of scale that we already saw in first article. (click me)

2.

Cant do any timely up gradation of technology, cant improve quality of products /


advertisement / marketing.

3.

Dont have spare money for backward linkages with farmers. (e.g. contract farming, supplying
farmer with seeds/fertilizer to get quality agro produce.)
Permission-raj

As an entrepreneur, even if you manage to get loan/finance, you still need following permissions
before setting up a cold storage / food processing unit:

1.

Approval from district collector for change of land usage and land conversion.

2.

NOC from Gram Panchayat, if the land falls under Gram Panchayat.

3.

Approval of building plan

4.

Fire safety approval, If the building is taller than 15 metres.

5.

Approval under Factories Act. (has to be renewed periodically)

6.

NOC from Pollution Control Board. (has to renewed from time to time)

7.

SSI registration in case of Small Scale enterprises.

8.

Approval from local Excise Department for getting CENVAT exemption for Cold Storage
equipment

9.

Truckload of forms/formalities if you want to get grants/subsidies under government schemes.

Thus, it takes lot of time (and bribes) to get so many permissions=> food-entrepreneur gets
demotivated. Not just Food entrepreneur- any small entrepreneur has to go through same ragging by
banks and government departments and as a result:low IIP + low GDP + low export + High CAD +
High inflation and so many other problems to Indian economy.
License Raj

Today, Industrial license is not required for most food processing enterprises, except for
alcohol and beer and those food items reserved for small scale sector (=Pickles, chutney,
bread, mustard oil, ground nut oil.)

But for long, food items were reserved for SSI=hampered the growth of this industry.
Taxation

1.

Agriculture produces have long been subject to numerous taxes, charges: market fees,
market cess, commission charges, Octroi entry tax, sales tax, weighing charges, labour
charges for handling, loading and unloading, purchase tax, Rural Development cess etc.

2.

For example, In Punjab, the total market charges on transactions of foodgrains are more than
15% of the final value (2011 data)

Punjab

tax%

market fee

2%

Purchase Tax

4%

VAT

4%

rural development fund (RDF) cess

3%

Punjab infrastructure development fund (PIDF)

3%

^These are just the legit taxes, the commission by middleman is additional burden on the final
consumer.

3.

Tea/coffee/rubber plantation incomes are subjected to Income tax. Tea plantations also
subjected to land tax in Assam.

3.

Previously plastic packaging, aluminum packaging had been subjected to high excise duty
(~16%)= high input cost for food industry.
Budget 2013: Agro and Food processing

Lets look@how Budget 2013 will directly/indirectly help agriculture/food processing sector
$pending
Numbers not important, the point is truckload of cash allotted to help farmers (or atleast to pretend)

Agro Ministry

25000 cr

Agro Research

3000 cr

Green Revolution To Eastern India

1000 cr

Crop Diversification Program

500 cr

Ago-Credit Target

7 lakh crores

Rashtriya Krishi Vikas Yojana

9000 cr

Integrated Watershed Program

5000 cr

Small FarmersAgri Business Corporation

100 crores for Credit Guarantee Fund

Farmer Producer Organization (FPO)

lakhs per FPO

Rural Infrastructure Development Fund (RIDF)

20000 cr.

NABARD

5000 cr. to construct warehouse


Budget 2013: Schemes/initiatives

That will directly/indirectly help agriculture/food processing sector

Green
Revolution

Assam, Bihar, Chhattisgarh and West Bengal have increased their


contribution to rice production.

Interest
Subvention

Interest subvention scheme for short-term crop loans

Borrowers from private sector scheduled commercial banks also eligible.

Nutri-Farms will cultivate new crop varieties rich in micro-nutrients such


as iron-rich bajra, protein-rich maize and zinc-rich wheat.

Pilot projects in districts most affected by malnutrition.

National Institute of Biotic Stress Management @Raipur to addressing


plant protection issues.

setup Indian Institute of Agricultural Bio-technology@ Ranchi

Scheme to replant and rejuvenate coconut gardens in Kerala + Andaman


& Nicobar.

To support poultry, dairy farming and fisheries.

Itll have sub-missions for

Nutri Farms

Institutes

Coconut

National
Livestock
Mission

increasing availability of feed + fodder

Improving animal breeds to raise milk yields.

(Dont you think this overlaps with the national dairy mission that we saw in last
article!)

Storage

IDF

Skill

BRGF

NABARD to finance construction of warehouses, godowns, silos and cold


storage units designed to store agricultural produce, both in the public and
the private sectors.

Infrastructure Debt Funds (IDF) already discussed earlier. Goto Mrunal.org/


economy

Target of skilling 50 million people in the 12th Plan period, including 9


million in 2013-14.

(^food processing sector will benefit)

Backward Regions Grant Fund

New criteria for determining backwardness to be evolved.

more details on BRGF at bottom of the article.


Budget 2013: Taxation

That will directly/indirectly help agriculture/food processing sector

CTT

Agricultural commodities will be exempted from the proposed Commodity Transaction Tax
(CTT).

TDS

Chindu introduced 1% TDS on transfer of immovable property but exempted agricultural land
from this.

GST

Work in progress.
Income tax deduction

If you setup business in following category, youll be given tax-deduction (how to calculate income tax
and deduction? already explained click me)

category

income tax deduction

cold chain facility

150%

warehousing facility for storage of agricultural produce

150%

warehousing facility for storage of sugar

100%

Bee-keeping and production of honey and beeswax

100%

Custom Duty

reduced the
duty on

Exempted
from duty

1.

Hazelnuts

2.

De-hulled oat grain

1.

raw sugar, white or refined sugar will not attract any export duty. But,
in future, exemption may be withdrawn to regulate its export in case of
shortage within India.

2.

De-oiled rice bran oil cake


Excise Duty

item

excise duty (2013)

milk, milk products

nuts-fruits (Fresh and dried)

veggies

Sabudana (Tapioca Sago)

2% (classified under merit goods)


processed fruits and vegetables, Soya Milk, Flavored milk
else 6%

Service tax: Negative list


Chindu put following services in negative-list (meaning theyre exempted from service tax).

Area

What is exempted from Service tax?

Agro operations: cultivation, harvesting, threshing, seed testing etc.

supply of farm labor

Agro-machinery: renting/leasing

Food
Processing

processing @Farm: drying, fumigation, curing, packaging etc. which do


not alter essential characteristics of agricultural produce but make it only
marketable for the primary market;

Supply Chain

loading, unloading, packing, storage or warehousing of agro produce;

Services of Agro-commission agent

transport of chemical fertilizer and oilcakes;

transport of various agro products, tea, coffee, sugar, milk, salt and edible
oil etc. (except liquor.)

Testing activities for agriculture and agricultural produce. (this is new


serviced added in the negative list)

agricultural extension services

Cultivation

Transport

R&D/Support

Misc.
Although unrelated to the main title of this article, but lets get overview of following, since they found
mention in the Budget 2013:
Backward Regions Grant Fund (BRGF)
Who?

Ministry of Panchayati Raj Institutions + Planning commission

When?

2007

Why?

To reduce regional imbalance in development.

What?

gives additional Ca$h to backward regions

Has two components:


More than 270 backward districts in 27 states
1.

DistrictComponent

Note: At least prepare overview of backward districts in your home-state


for the profile based Interview questions @UPSC + for State PSC class
1-2 exams.
Gives special funding to

2.

StateComponent

1.

Bihar

2.

Odisha: the Kalahandi-Bolangir-Koraput (KBK) districts

3.

West Bengal

4.

UP: Bundelkhand Package


How does it work?

Ca$h
Movement

Transparency

1.

from Union to State Consolidated Funds

2.

from state to Panchayats.

3.

Each district given min.1 crore.

System of electronic tagging and tracking to ensure funds go to each


Panchayat without delay or diversion.

(jholachhap) NGOs to help in account-keeping and social audit.

Panchayats will prepare plans for

Planning

Implementation

improving infrastructure: water, sanitation, schools, street lights

agrarian reforms

can use money to fill gap/add value to other programs

Through peoples participation.


Rashtriya Krishi Vikas Yojana (RKVY)

2007, under 11th Five year plan (FYP)

When

to achieve 4% annual growth in the agriculture sector


Why?
to encourage States government to allocate more cash to agro and allied sectors
How much?

More than 60,000 crores allotted in 12th FYP.

Sub-Schemes
In Eastern India: Assam, West Bengal, Orissa, Bihar, Jharkhand, eastern
Uttar Pradesh and Chhattisgarh to improve in their rice cultivation

1.

Green
Revolution

2.

Pulses

3.

Edible Oil

4.

Veggies

Initiative on Vegetable Clusters to increase in the productivity and market


linkage of vegetables.

5.

Nutri-Cereals

bajra, jowar, ragi and other millets: create awareness regarding their
health benefits.

6.

Protein

National Mission for Protein Supplements: to promote animal based


protein production: milk, pigs, goats, fisheries.

7.

Fodder

8.

Rainfed

9.

Saffron

10. Vidarbha

Promote Pulses Villages in Rainfed Areas.


Oil Palms=increase area under cultivation

Accelerated Fodder Development Programme


Rainfed Area Development Programme to improving productivity of
crops in rainfed areas.
Mission In Jammu & Kashmir.
Intensified Irrigation project in Vidarbha, Maharashtra.

11. PPP

PPP for Integrated Agriculture Development

Rashtriya Krishi Vikas Yojna (RKVY) has greater acceptance among states as it provides flexibility to
formulate state-specific strategies

States

projects undertaken

Sikkim, Arunachal Pradesh and


other North East States

Maharashtra

Tamil Nadu, West Bengal, Bihar,


Jharkhand and tripura
Andhra Pradesh

1.

projects on piggery,

2.

wayside market sheds,

3.

area expansion through land terracing

4.

promotion of off-season vegetable cultivation,

5.

low cost onion storage structures

6.

farm ponds to tackle water stress

7.

System of Rice Intensification (SRI)

8.

vegetable cultivation through pandals and trellises.

9.

underground pipe lines for irrigation

Haryana and Punjab


10. Promoting elite breed of murrah buffaloes
11. Community animal housing
Gujarat

Kerala

12. check salinity ingress in coastal areas


13. Custom hiring centers providing farm machinery (to
solve labour shortage problem.)

RKVY challenges:

1.

More than 80% of farmers have small/marginal landholdings= poor economies of scale.
RKVY hasnt not effectively addressed the issue of land consolidation / land reforms.

2.

Less than 10% of the plan outlet spent on Marketing / Post Harvest Management.

3.

Often the projects proposed under RKVY are not in tune with priorities and developmental
gaps identified in State Agricultural Plan (SAP).

Supply Chain Management, Upstream Downstream requirements for Fruit & Vegetables,
Confectionery industries
What is supply chain management?

Supply chain is a system that links a company with its suppliers and customers.

Supply chain management (SCM) tries to optimize ^this system by

1.

getting the right things

2.

to right place

3.

at right time

4.

In a cost-effective manner.
What is upstream-downstream?

In any business, you get input (men/material)==>process it==>output (goods/service).

In Supply chain, Upstream-downstream depends on the point of reference. For example,

Point of
reference

farmer

food
processing
company

Kirana shop

Flipkart.com

In short,

Upstream

Traders of seeds, fertilizer, pesticides and agromachinery.

1.

Farmers,

2.

Mandi-agents

3.

Suppliers of food-preservatives, ediblecolors, plastic-aluminum packaging etc.

Wholesaler

Book publishers

Mobile/electronics/computer companies

Suppliers of packaging boxes,


bubblewrap plastic etc.

Downstream

1.

middlemen @Mandi

2.

Food company (if he


has contract farming
agreement)

3.

households (if he is
directly selling to final
customers)

1.

distributors

2.

wholesalers

3.

retailers

4.

final-customers

Aam-admi

Online buyers

Upstream

downstream

towards suppliers to your company (+ intermediaries if


any)

towards consumers (+intermediaries if


any)

What is Forward-Backward Integration?


Integration

Backward

Forward

What

Company expands its activities


to upstream areas

Company expands its activities to downstream


areas

Why?

Company aims to get raw material


@cheap rates, uniform quality,
steady supply and eliminate any
middlemen.

Company aims to get more control over sales,


consumer-contact and eliminate any middlemen/
kiranawalla/wholesellers/retailers.

Examples

1.

Amul sets up dairy


farmers cooperative in
villages to collect milk.

2.

In the late 60s, Dhirubhai


started Reliance for
textile manufacture. But
since polyester is made
from petrochemicals,
so he entered in
Petrochemical business.
But petrochemical is
derived from Petroleum
refining, so he moved
into Petroleum refining as
well.

3.

Andrew Carnegies main


business was Steel. Later
he bought coalmines,
iron-ore mines, even the
ships and railways that
transported raw material
to his steel factories.

4.

Starbucks (chain of
coffee bars) buys coffee
plantations in Central
America.

5.

When a Car company


acquires a tire company,
heavy engineering
company acquires a steel
plant etc.

1.

Amul has its own pizza outlets and ice


cream parlors.

2.

Raymond opened an outlet in Karachi this


year.

3.

Nike, Adidas, Apple have their own retail


outlets in big cities.

4.

Flipkart has its own courier Ekart


logistics so they dont have to rely
on Bluedart, DHL and other courier
companies to deliver packages.

5.

And of course, if some Desi-liquor mafia


opens dance-bars and gambling dens,
that is also an example of Forward
integration.

Vertical integration

When companys backward and forward integration is so good that it practically runs
everything from making raw material to selling final product to final customer. Example Oil
giants such as Shell/BP have their own oil wells (supply), refineries (processing) and petrol
pump (retail).

In other words, Vertical integration is achieved when Single firm absorbs several firms
involved in all aspects of a products manufacture from raw materials to distribution.

For Indian food processing industry, Vertical integration is extremely difficult because like we
saw earlier:

Indian food entrepreneurs are small sized and loan starved, while Vertical integration
requires deep pockets and truckload of cash.

FDI permitted only in a few specific sectors of Agriculture. Many states have outdated
APMC laws. = backward integration is difficult.

FDI in Multibrand retail is permitted but with many conditions.= Forward integration
also difficult.

So, what we can have is linkage. For example

Setup

Mega Food parks

Rythu Bazar

promotes ____ linkage

from ____s point of view

Backward

food industrys

forward

farmers
Food Industry: Supply Chain

Indian Food processing supply chain has two type of Stakeholders

stakeholder

those included in Supply


Chain

those influencing supply


chain

Who?

1.

Creators: Farmers, Food Entrepreneurs

2.

Contributors: Middlemen, Retailers, Commodity


Exchange

3.

Consumers: Domestic And Foreign

4.

Government: Laws, Taxation, Incentives

5.

Infrastructure: Transport, Storage, Power

Based on level of processing, we can classify food products into:

Processed
Products

What?

Primary

Products consumed in the original state. Dont have any no value addition. (e.g.
just chop apple from the tree, pack it in wooden-boxes and send to market)

Secondary

Basic level of processing: grading, sorting, cleaning, cutting, drying, grinding etc.
before they are consumed. (e.g. dried fish, turmeric powder, chili powder, wheat
flour.)

Tertiary

Combining multiple primary, secondary products from above and doing high value
addition (e.g. ice creams, biscuit, jam, cakes, pastries etc.)

As you can imagine: tertiary food products ought to have a longer supply chain than primary
products because tertiary food products need variety of inputs.

But in India, even primary processed food too has a lengthy supply chain thanks to dozens of
intermediaries before farm produce reaches the fork. Observe the following diagram:

click to enlarge
As you can see this supply chain is lengthy and fragmented= high cost and wastage. An ideal fruit
supply chain should be similar to FHELs.
FHELs Apple Business: Optimized Supply Chain

Container Corporation of India (CONCUR)= a PSU under Railways ministry.

Fresh and health Enterprises ltd (FHEL) = subsidiary company under CONCUR, started in
2006

to create world class cold chain infrastructure in the country


FHELs Apple Upstream

FHEL directly procures Apples from Shimla & Kinnaur districts of Himachal
Pradesh and transports them to Sonepat for sorting, grading, packing &
storage.

Company has its own trucks, as a result apples reach to from HP to Sonepat
within a day.

FHEL sends Agro-scientists to the Apple farmers on its own cost.

These scientists interact with the farmers, help improving apple quality and
productivity, post-harvest management.

FHEL also arranges all inputs required by the farmers like nutrient packages,
pesticides/ fungicides, packing materials, farm implements, etc.

Raw Material

Uniform
Quality

Middlemen

FHEL was among the first companies to procure apples directly from the farmers
and has now refined the procurement system. This has eliminated middlemen in the
chain.

FHEL works in an open and transparent manner (unlike UPSC), therefore,


when FHEL procures apples, all the farmers in Himachal Pradesh know the
rates offered by it.

This acts as a benchmark and all the farmers are able to bargain well with
other apple traders.

The company has state-of-the-art storage technology to ensure that the


apples last upto 8 months in the storage + sorting, grading, packaging
facilities.

Price

Storage

FHELs Apple Downstream


FHEL sells its apples

1.

via Marketing Associates in Delhi, Mumbai, Chennai, Ahmedabad and other big cities

2.

Via Cash and Carry wholesale or Retail Chains such as Bharti Wal-Mart, Big Bazaar, Aditya
Birla retail, etc.

With the above upstream and downstream arrangements, FHEL has shortened and optimized its
supply chain and as a result

1.

less spoilage / wastage of apples

2.

More profits to both company and farmers, since middlemen are eliminated.

3.

Apple available at cheaper price to consumers

Ok well and good for FHELs apples but most of the Indian food processing industries dont have such
supply chains. From the last three articles on [Food Processing], we can derive a few common points
What are the upstream requirements for efficient supply chain management? (From Food
entrepreneurs point of view)

Upstream requirement

1.
2.

3.

4.

5.

solution

Need backward linkage with


farmer: via contract farming

1.

Amend State APMC laws.

2.

R&D and exertion services in agro

3.

introduce new fruit/veggie hybrid varieties

4.

farm mechanization

5.

land reforms

6.

farmers should easily get loans

7.

FDI only permitted in a few specific agro-sectors.


Relax this policy.

8.

cold storage infrastructure for seasonal raw material


e.g.potatoes

9.

Reduce indirect taxes on agro-produce, packaging


material, preservatives, food colors and other
chemicals.

Need to eliminate middlemen.

need uniform high quality raw


material

Need steady supply of inputs


@reasonable prices

quick transport

10. railroad connectivity

Next, What are the Downstream requirements for efficient supply chain management? (From
Food entrepreneurs point of view)

Downstream-Requirement

Organized retail stores, for efficient


distribution of products

solution

FDI in Multibrand retail

Reaching the costumers in foreign


countries

compliance with CODEX, HACCCP


standards

R&D, product development, packaging


keeping those foreigners in mind

Promotion of Indian products abroad

less taxes on air-cargo

more efficient cargo handling at ports

better railroad connectivity with ports

Fruit Veggies Processing (F&V)


In the first article we had seen the scope-significance of entire food processing industry. Now lets get
more additional points specific to Fruit-veggies industry:
Top 5 States
VEGGIES

FRUITS

UP

Andhra

WB

MH

Bihar

Guj

Odisha

TN

TN

Karnataka

Big list of individual fruit/veggie grower states= given at bottom under the title Misc.
Export potential
Processed Food

demand and export potential in

Mango Pulp

Saudi Arabia, Kuwait, UAE, Netherlands and Hong


Kong

Pickles, Chutney

Saudi Arabia and UAE, USA, UK and Germany

Tomato Paste, Jams, Jellies And


Juices

USA, Russia, UK, UAE and Netherlands.

Fruit Juice demand

More youth + Higher disposable incomes + heath consciousness=> Urban junta preferring
fruit juices over carbonated drinks (e.g. Thumbs up, Coke)

In 2012, Fruit Juice segment was more than 50 billion rupees.

This shift is creating newer opportunities:

Exotic flavors: cranberry, lychee and pomegranate,

Vitamin, nutrient or fiber-enriched fruit juices.

Big players have responded to this trend by focusing on their non-carbonated soft drinks
(+More ads using Bollywood celebrities like SRK, Kat, Bips)

Fruit juice product

Boss

Slice, Tropicana

Pepsico

Real

Dabur

Maaza

Coca Cola

Frooti

Parle Ago
Fruit-Veggies SCM: Upstream Requirements
#1: Need New Varieties

Almost 1500 mango varieties are grown in India but only 3-4 of them are worthy of export but they too
face problems:

Alphonso
Mango

Famous and highly valued. But due to its thin skin, it can only remain fresh for 20
days (even in cold storage) = low shelf life.

Totapuri
mangoes

Cheaper than Alphonso mangoes and have higher pulp content. But Totapuri
mangoes banned in some foreign countries due to stone weevil pest

Similar problem for other fruits/veggies:

Raw
material

Potato

quality problem

Most Indian potato varieties = dont have uniform size and length=> cant make
good chips/French fries.

Orange

Very old variety grown in India= high bitterness level and pip content.

Pepsi and Dabur import orange juice concentrate for their juices

India grows red delicious variety = very cheap and hence preferred by Desi
costumers

But this apple varieties has cardboard-like texture and peculiar taste that
foreigners hate. Hence US/EU consumers prefer New Zealand / Australian
Apples over Indian.

Apple

Nuisance of Middlemen

For most fruits, the cultivation/gestation period at least 3-4 years. But banks dont easily give
loans to farmer for such long period.

Hence difficult to encourage farmers to experiment with new varieties of fruits/veggies, even if
the new variety has more profit/export potential.

Given this lack of timely financing from banks / financial institutions, the fruit-farmer goes to
middlemen, who advance money to the take the farm on lease.

Then middlemen manipulates selling prices, to enhance their margins. e.g. Indian
Mangoes=wide price fluctuations in Middle-east.

South American countries offer more consistent prices and are a threat to India. Indias
dominance in the pulp sector is gradually eroding due to this factor

What is the solution/requirement?

1.

Research-development (R&D) to make new varieties of fruits n veggies with longer shelf life,
disease resistance and export quality-uniform size-length-color-texture.

2.

Government should promote cultivation specific fruits and vegetables in a specific states.
It would lead to ease in monitoring of new verities + uniform quality=> easier to process +
export worthy. For example

Raw
Material

What to do?

Where to focus?

Orange

Develop varieties with low-bitterness, suitable for juiceprocessing

Maharashtra, Andhra
Pradesh

Potato

Develop varieties suitable for processing into French fries,


Chips (low sugar content, uniform length)

UP , West Bengal,
Gujarat

Apple

Encourage cultivation of foreign Varieties from NZ,


S.Africa etc.

Jammu & Kashmir,


Himachal Pradesh

Mango

Identify other varieties for processing, and reduce


dependence on Totapuri, Alphonso

UP , AP , TN,
Maharashtra

Sapota

Focus on cultivation of uniform size, firm fruits with longer


shelf-life

Karnataka, Maharashtra,

Litchi

Cultivate varieties with higher shelf life, and smaller seed


size

Bihar, West Bengal

Onions

Cultivate sweet and white onions- they have export


demand

Maharahstra

Partnership/Collaboration

As we saw above, Indian orange=bitterness=not good for juice making. Pepsi imports FCOJ
(Frozen Concentrate of Orange Juice) as raw material for its Tropicana juice brand

Recently Pepsi and Government of Punjab have partnered to promote cultivation of new
orange variety in Punjab, to reduce dependence on the imported FCOJ.

More such partnerships are necessary in the Fruit-veggie sector R&D.


#2: Need more Cold Storages

Why is Cold storage important?

1.

Reduces losses due to spoilage

2.

Reduces gluts and distress sale by growers,

3.

Reduces transport bottlenecks at the peak period of production,

4.

Maintains quality of the produce

5.

Ensures that a crop harvested over a period of one or two months is capable of serving the
round the year market demand.
#investment in cold storage

Broadly, fruits & vegetables can be classified into three segments, based on their shelf-life in cold
storage

Shelf lifein Cold


Storage

Long (6-8
moths)

Example

Does it attract investment?

Potato, Apple, Chilies

Most investment comes here.


Especially for potato- for hoarding
during lean season.

Moderate(8-10
weeks)

Grapes, Pomegranates, Banana,


Tomatoes

not much investment coming here,


Except few export oriented chains.

small (few days)

Papaya, Melons, Gourds,


Cabbage, Cauliflower, Leafy
Vegetables.

hardly

Needless to say, for category B and C, government needs to provide innovative tax-reliefs/incentives
to attract more investment.

Non
Horti

There has been a relative neglect of the non-horticulture cold chains especially
those relating to meat, poultry and fishing.

State Governments need to actively work on these cold chains via their Animal
Husbandry & Fisheries Departments.

In cold storages, following technologies need to be adopted

New
tech

1.

Use of Global positioning system (GPS),

2.

better electronic weighing systems,

3.

local language billing machines

4.

General Packet Radio Services (GPRS) for updating the details on the central
server for storage and movement of produce in and out of cold storages
#Electricity

Desi cold storages have high operation cost than their foreign counterparts, mainly because
of high consumption of electricity.

Reason: Food entrepreneur doesnt buy efficient (and expensive) equipment on Engineers
advice. Instead, they buy cheap quality equipment on CAs advice. Why? Because we saw
earlier, government schemes have low-ceilings + if project cost increases too much foodentrepreneur wont get loans under Priority sector lending of Bank and wont be eligible for
various tax benefits available to MSME industry.
#3: Transport

Government: enhance road-connectivity to rural areas.

Entrepreneur: needs to get easy loans for reefer vans and refrigerated trucks.

Railways: Introduce dedicated horticulture trains. More frequency of freight trains in agroregions.
Horticulture trains

Who?

1.

National Horticulture Board (NHB)

2.

Container Corporation Limited (Concor), under Rail Ministry

Because conventional goods trains have following problems

Why?

When?

1.

have no ventilation => fruit/veggie gets rotten

2.

Since there is no ventilation, they keep the doors open =>theft during transport.

3.

slow speed

2009: idea mooted under Kisan Vision Project of Indian Railways in 2009.

2012: Horti train between Maharashtra and Delhi, with banana and potato as core
cargo.

12th FYP: 100 crores to be spent on this project

Benefits/Features of Horticulture trains:

1.

Specially designed containers with good ventilation=>increases the shelf life of the produce

2.

Container train has been designed to run at a top speed of 100 kilometre per hour (kmph) as
against the maximum speed of 75 kmph of conventional railway wagons and trucks= faster
delivery less rotting.

3.

Accepts small quantities, to the unit of one container without agents or middleman. Even
small farmers who wish to transport goods to various destinations now have the chance to do
so without coughing up huge sums to middle-men or clearing agents.

Lets see an example, Banana Train= connects Maharahstra to Delhi. Lauched in Sept.2012

core
cargo

direction

Banana

Jalgaon (MH) to the rail yard of the Azadpur mandi in Delhi.by the way, Azadpur Mandi
@Delhi= Asias biggest market for fruits and vegetables.

Potatos

in the return journey (i.e. from Delhi to MH).

If train returns empty with no cargo=uneconomic. In Delhi-Maharashtra route, we connected them with
Banana and potatoes. Similarly following projects should be considered:

1.

Delhi to W.Bengal (Apples) and return WB to Delhi (potatoes)

2.

JK to Delhi (Apples) and return Delhi to JK (potatoes: originally from WB)


Kisan Vision Project

Who?

Railway Ministry

When?

Mamtas rail budget 2009*

Why?

To encourage creation of facilities of setting up cold storage and temperature controlled


perishable cargo centres through Public Private Partnership (PPP)

PPP via public sector logistics viz.

How?

1.

Container Corporation of India Ltd. (CONCOR)

2.

Central Warehousing Corporation (CWC)

3.

Central Railside Warehouse Company Ltd. (CRWC)

*Although topic is from 2009 but been in news in August 2013 for:

1.

Rail Ministers reply in Parliament (available @pib.nic.in)

2.

News reports on how it is #epicfail

And for us, it becomes important for GS Paper 3 because UPSC syllabus contains

1.

Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

2.

transport of agricultural produce and issues and related constraints;

Anyways, under this Kisan Vision project, 6 Perishable Cargo centers were to be developed at:

1.

Nasik (Maharashtra)

2.

New Azadpur (Delhi)

3.

New Jalpaiguri (West Bengal)

4.

Singur (West Bengal)

5.

Dankuni (West Bengal)

6.

Murshidabad (West Bengal)

A Pilot project was started @Singur, WB in 2009 itself but yet to take off because

Although facility has the capacity to store more than 1,000 tonnes of potatoes, but lack
of proper roads for trucks to enter the area. Recall the criticism of government schemes
from earlier article. Most schemes seek to get investors to pump money in (Cold storage)
infrastructure without providing the necessary (road) support for the utilization of the
infrastructure.

Cold storage projects have to be near the market, especially the multi-purpose ones. This
project was located far away from the market and could not find many takers.
Fruit and Veggies SCM: Downstream Issues
Export Transport

It takes about 3 weeks to send Mango from India to EU via sea=> sea transport is unsuitable
for Alphonso Mango export. Youve to transport it via air

Indian air-cargo-transport=> fuel surcharge and variety of taxes. Combine that with exchange
rate difference =Pakistani mangos are cheaper in EU compared to Indian mangos.

Similarly Terminal handling charges at several ports are also high (compared to Hong Kong
etc).

poor frequency of ships / flights leaving from various ports / airports

need customs clearance=>inefficiency, delays, bribes

All ^these results into

1.

wastage of perishable food/veggies

2.

Higher cost of transport => product price increased in destination country = pricewise, it
becomes uncompetitive.
Export: Regulatory issues

Japan

Indian mangoes without Vapour heat treatment (VHT)=banned.

Australia

Indian mangoes import facing problem due to fruit fly

USA

Indian mangoes import facing problem due to Stone weevil.

EU and in the Middle East follow CODEX standards when importing fruit based products.

Indias problem: Lack of post-harvest treatment facilities such as for vapor treatment Lack of
packhouses from farm to port.

Even after complying with these requirements, Indian exporters need to invite and sponsor
visits of the quarantine departments of the relevant importing country for lifting of the ban.
Such visit / inspection costs about ~ USD 100,000/visit/person

Similarly for grape exporters: the cost of EurepGap certificate Rs.75000 / farmer.

APEDA (under Commerce Ministry) provides financial help for Eurepgap certification, more
fruits and veggies need to be given similar help to meet with the certification/ requirements in
foreign markets.
Retail

As we saw in the first article, The Kirana-wallas in USA (known as mom and pops stores) have cold
storage / refrigeration hence they can sell fresh fruits/veggies but our cart-pullers, small-veggies
sellers dont have such facilities=wastage. Hence FDI multi-brand=necessary for the growth of fruit-

veggie industry and to contain food inflation.


lets move to next sector:
Chocolate /Confectionery Business
Scope/significance:
The per capita chocolate consumption in India is much lower than most European countries. But there
is lot of potential in upcoming years, because:

1.

Increased disposable incomes, newly rising middleclass = higher propensity to spend on


impulse categories such as chocolate.

2.

Chocolates-sale no longer confined to children only. Companies trying the power of


advertisement to attract:

Youth= Those ads involving romance/valentine day angle.

Middle-aged= Chocolate gift boxes for Diwali and Raksha-bandhan etc. This
advertisement model has been successful in China, chocolate box gift has become a
routine-gift for wedding receptions.

Year

Chocolate business in billion Rs.

2012

60

2017 (Projected)

140

(^doesnt include the income of Dentists.)


ChocoSCM@Upstream
#Sugar

(same can be used for soft-drink industry)

woolly aphid (an insect pest) causing high damage to sugar crops in Maharashtra and
Karnataka

UPs yields are much lower than Tamil Nadu.

successive increase in sugarcane prices in past years, mainly politically driven= abnormally
high cost of production of sugar

This Increase in raw material (sugar) prices has hurt profit margins of confectionary units
because companies are unable to pass on the higher costs to consumers.

^To put this in other words- the dairy owners can form a cartel and raise milk prices every
month, but youll still purchase it, because milk is an essential item.

But If toffee makers form a cartel and raise price of 1 toffee from one rupee to two rupees,
then most people will stop buying or giving additional pocket money to their kids! Meaning
toffee-maker cannot pass the increased raw material cost to the final consumers.

Hence Desi confectionary industry wants rationalization of the sugarcane pricing policy. For
more read Ranagarajan Sugar committee article click me.
#Cocoa

Kerala is the leading cocoa producing state in the country but industrial demand is
significantly higher, estimated at nearly three times the cocoa cultivation.

But cocoa cultivation= Inadequate marketing network + fluctuations in prices =farmers feel
insecure.

Indian varieties of cocoa=low chocolate yield.

Need R&D, Need to introduce superior varieties using clonal technology to improve yields.

Cocoa buying attracts >10% purchase tax in Kerala= input cost increased for confectionary
unit.

Base
Gum

Weve to import most of the basegum (for chewing gum) from Europe and South
East Asia=>manufacturing cost increased.

Need to promote R&D and production for base gum within India.
@Processing

To create new demand and to attract health conscious adult consumers,


industry needs to develop sugar-free, fruit based gum, vitamin-enriched
products, breath strips etc. like the Americans are doing to attract the diabetes
patients.

In developed markets, consumers buy chocolate/toffees in large pack.

But Indian consumer=price conscious, hence toffees usually sold in single unit
(e.g. 1 clairs for 1 rupee)

smaller/Individual package=need more plastic=Operation cost increased

Innovation

Packaging

ChocoSCM@Downstream

Taxation

Reach

freebies

Unorganized/non-branded toffee makers= evade taxes.

This puts organized confectionery (branded players) at a disadvantage,


especially in rural areas.

local kirana stores and large retailers, paan and cigarette outlets are covered
extensively

But cost of distribution is high particularly to rural outlets

In Toffee business youve to lure kids by offering free tattoos, stickers, toys etc.

Export
Potential

In the aspect, Indian toffee makers are far behind their American/European
counterparts.

Currently, African countries= dominated by Brazilian confectionary import. Much


potential for Indian toffee makers.

In China, the recent trend of gifting chocolate at wedding banquets has led
rise demand for premium-chocolate gift packs, we can make an entry Chinese
market too.

Indian confectionery products dont find demand in US/EU due to lack of


innovative products/flavors compared to their local producers. But The Indian
industry can engage in contract production for foreign brands, given the lower
manufacturing costs in India. (chocolate outsourcing)
Misc.Useless tables

Just some stupid Tables for informative purpose only, otherwise hardly relevant from exam point of
view.
Leading States: Fruits
Fruit

leading producer

Banana

Maharashtra, Tamil Nadu, Karnataka

Mango

Andhra Pradesh, Uttar Pradesh, Bihar

Citrus

Maharashtra, Andhra Pradesh, Karnataka

Papaya

Andhra Pradesh, Karnataka, West Bengal

Guava

Bihar, Maharashtra, Karnataka

Grapes

Maharashtra, Karnataka, Tamil Nadu

Pineapple

West Bengal, Assam, Bihar

Apple

Jammu and Kashmir, Himachal Pradesh, Uttaranchal

Litchi

Bihar, West Bengal, Assam

Sapota

Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh

Total fruits (incl others)

Maharashtra, Andhra Pradesh, Tamil Nadu, Karnataka


Leading States: Vegetables

Potato

Uttar Pradesh, West Bengal, Bihar Punjab

Brinjal

West Bengal, Orissa, Bihar

Tomato

Maharashtra, Karnataka, Bihar, Andhra Pradesh

Tapioca

Tamil Nadu, Kerala, Andhra Pradesh

Cabbage

West Bengal, Orissa, Bihar

Onion

Maharashtra, Karnataka, Gujarat

Cauliflower

West Bengal, Bihar, Orissa

Okra

Bihar, Orissa, West Bengal,

Peas

Uttar Pradesh, Jharkhand, West Bengal

Sweet Potato

Orissa, Uttar Pradesh , West Bengal

Total veg. (incl others)

West Bengal, Uttar Pradesh, Bihar Orissa


Big Companies: Fruit/Veggies Processing

Jam

Hindustan Unilever, Mapro, Marico , Malas

Pickles

Priya foods, Praveen, Desai Brothers, Cavin Kare, GD Foods

Sauce / Ketchup

Hindustan Unilever, Nestle, Heinz

Juices / Fruit based drinks

Pepsi, Dabur , Parle, Godrej, Mother Dairy

Squashes

Hindustan Unilever, Haldiram, Mapro

Ready to Eat Vegetables

Tasty Bite, ITC, MTR

Potato chips

Pepsi

Cooking pastes

Dabur, Hindustan Unilever


Big Companies: Chocolate business

Company

brands of chocolate/chewing gum etc.

Perfetti

Brooklyn, Big Babool, Alpenliebe, Center Fresh, Chlor Mint, Golia, Cofitos

Parrys/
Lotte

Coffy Bite, Lacto king, Coconut punch, Caramilk, Madras Cafe, Soft-Spot, Flavoured
Candy, Mango, Sunshine, Shakti, Pineapple

Parles

Melody, Mango bite, Kismi, Poppins, Rola cola, LuxDairy, Peppermint, Rosemint

GDC/ Joyco

Boomer, Bonkers, Donalds,PimPom, Mickey,Bonkers

Candico

Minto, After smoke, Candy king, Americano, Orange-tutti frutti, Drum Beat, Vanilla
Roll, Elaichi roll, Big Freedom, Jumbo-Gumbo, LocoPoco, Minto-Fresh

Ravalgaon

Pan pasand, Mango mood, Coffee breakSupreme,

Nestle

Polo, Allens Splash, Soothers, Toffo Butter, Fruit Rings, Foxs

Cadburys

Googly, Mocka, English toffee, Frutus, Gollum, Eclairs, Pops.

Next time we see upstream downstream issues related to milk-meat-marine, tea-coffee-liquor-oil etc.
Milk Dairy Sector, Supply Chain, upstream downstream issues, Amul Model, Operation Flood
Scope-Significance of Dairy Sector
Top five Milk producers (World)

HIGHEST
PRODUCTION

1.

India

2.

United States of America

3.

China

4.

Pakistan (as per NDDB, but Im baffled nonetheless.)

5.

Russian Federation

LARGEST

India has the worlds largest livestock population

POPULATION

half the world population of buffaloes

1/6th of the world goat population

CONTRIBUTION TO
GDP

Livestock sector (milk, meat, eggs) contributes 3.6% of GDP. (2010s


data)

Availability

EMPOWERMENT

Per capita milk availability All India: ~290 gm; Punjab (highest):
>900gm.

still per capita milk availability in India less than world average

To Farmers, Women And Consumers

more details under operation flood

India has proximity to milk deficit countries e.g.

1.

Bangladesh

5.

South

2.

Indonesia

6.

Korea

3.

Malaysia

7.

Sri-Lanka

4.

Philippines

8.

Thailand

Hence Indian dairy production could be utilized to earn good foreign exchange by targeting those
markets. More under Downstream=>Export.
SOME STUPID NUMBERS FROM ECONOMIC SURVEY:

Year

Milk (Million Tonnes)

Eggs(Million Nos.)

Fish(Million Tonnes)

2011-12

>120

>60,000

>8500

Location: Dairy cooperatives


STATE

Brand Name

official name

GUJARAT

Amul

Gujarat Cooperative Milk Marketing Federation


(GCMMF)

ANDHRA

Vijaya

Andhra Pradesh Dairy Development Cooperative


Federation (APDDCF)

KARNATAKA

Nandini

Karnataka Cooperative Milk Producers


Federation (KMF)

MAHARASHTRA

Mahanand, Gokul, Dhawal,


Dudh Pandri

Maharashtra Rajya Sahakari Maryadit Dugdh


Mahasangh (Mahasangh)

PUNJAB

Verka

Punjab State Cooperative Milk Producers


Federation (MILKFED)

TN

Aavain

Tamilnadu Cooperative Milk Producers


Federation Ltd (TCMPF)

Issue: there is a regional imbalance in production and processing capabilities. e.g. UP contributes
over 17 percent of Indias total milk production. Ironically, only one percent is procured by cooperatives, remaining milk goes to private-dairy players, who exploit farmers, and do adulteration.
Top 5 states
NO. COWS N BUFFALOS

MILK PRODUCTION

PER CAPITA MILK AVAILABILITY

1.

Uttar Pradesh

1.

Uttar Pradesh

1.

Punjab

2.

Madhya Pradesh

2.

Rajasthan

2.

Haryana

3.

Rajasthan

3.

Andhra Pradesh

3.

Rajasthan

4.

Andhra Pradesh

4.

Punjab

4.

Himachal Pradesh

5.

Maharashtra

5.

Gujarat

5.

Gujarat

Bottom in all of above: North Eastern States, Delhi, Goa and UT.

Milk production =directly related to fodder availability.

Fodder=need irrigation.

Therefore, states with good irrigation facilities and / or rich farmers that can afford tubewells=
milk production is high.

For these reasons, you can see how MP is in top-5, for number of cows and buffalos BUT still
MP doesnt figure in top-5 in milk production due to fodder shortage. (Rankings taken from NDDB
website)
@Upstream Issues
Low productivity of milch animals

Country

Avg. Cow Milk Kg Per Year

Australia

>4000

EU

>5500

USA

>8000

World Average

3100

India

800

India has worlds largest cow population, but the average productivity of Indian cows is among the
lowest in the world. WHY?

1.

Veterinary service problems

2.

Breeding problems

3.

Fodder problems

Lets see them one by one:


#1: Veterinary problems

1.

2.

3.

Manpower

To support health programmes for the massive livestock


population, we need more than 60000 veterinary doctors in the
rural areas. (right now we only have ~25000)

Need to strengthen the mobile veterinary services to ensure doorstep veterinary support, particularly in inaccessible areas.

Veterinary hospitals, dispensaries are inadequate in rural areas.

The disease reporting is neither timely nor complete which delays


proper interventions.

NIC developing software for computerized National Animal Disease


Reporting System (NADRS)

Itll link taluka, Block, District and State Headquarters to a Central


Disease Reporting and Monitoring Unit at the Department of Animal
Husbandry, Dairying & Fisheries (DADF)

This will ensure faster and reliable disease reporting

information

Inadequate availability of vaccines vs. High prevalence of FMD, theileriosis and brucellosis
amongst cattle

3.

FMD alone causes economic loss of ~Rs.20,000 crore per year to India. lets check more
details about FMD for MCQs.
Foot and mouth Disease (FMD)

FMD is a viral disease that spreads rapidly between animals.

high prevalence in Africa, the Middle East and Asia

FMD affects cloven-hoofed animals (those with divided hoofs), including cattle, buffalo,
camels, sheep, goats, deer and pigs.

It can even affect wild animals e.g. Deer, wild pigs and buffalos.

Pigs are regarded as amplifying hosts because they can excrete very large quantities of the
virus in their exhaled breath.

Cattle are very susceptible to FMD. They get infected by breathing even small quantities of
the virus.

FMD spreads rapidly from one animal to another, especially in cool, damp climates and/or
when animals are housed closely together.

Although FMD is not very lethal in adult animals, it can kill young animals and cause serious
production losses.

Animal suffering from FMD :

Becomes lame and unable to walk to feed or water.

Stops eating because its tongue and mouth gets blister- very painful to chew
anything. =Adult animal can survive a few days of starvation but young animal will
die.

Its mammary glands are damaged=milk production loss.

FMD has serious ramifications in international trade of milk and meat. Because countries that
are free of the FMD disease= they ban or restricting imports from FMD affected countries.

There is no cure for FMD. The Affected animals will recover with time. Although Vaccines can
protect against the disease.

Department of Animal Husbandry, Dairying & Fisheries (DADF) has initiated National Programmes for
prevention and control of FMD, with help of State government.
#2: Breeding issues

CLIMATE

The cattle from temperate region have higher milk production. (e.g.
Denmark)

But India: tropical, sub-tropical, hot-humid type climate

So even when we import foreign cattle breeds, they give less milk
because of climatic factor.

BREEDING
RESEARCH

Notable breeds

Present breeding strategy focuses on high yielding cows/buffalos rather


than developing breeds that are tolerant to adverse climate/fodder
conditions.

Crossbred animals are sent to areas poor in feed resources=they dont


survive/dont produce optimum amount of milk.

Limited availability of quality breeding bulls and semen.

Cow: Sahiwal, Gir, Rathi and Kankrej

Buffalo: Murrah, Mehsana and Jaffarbadi

Solution?

BREED

promote in ___ area

HOLSTEIN FRIESIAN

in feed-fodder rich states

JERSEY

in states poor in feed/fodder resources.

Government started National Project for Cattle and Buffalo Breeding (NPCBB) is to promote
genetic upgradation of Indian cattle livestock through Artificial Insemination.

NGOs like BAIF and JK trust are operating about 6,000 mobile artificial insemination centres.
#3: Fodder problems

1.

Rich farmers=irrigation /tubewell =can grow fodder=>higher milk yields

2.

But majority are poor farmers= rely on common pastures =>underfed cattle= less milk yields.

3.

For the same reason: MP is in top 5 for cattle population but not in top 5 for milk production

4.

While the number of livestock is increasing, the grazing lands are diminishing, because

Real-estate mafias and National Son-in-law encroaching on such land

Farmers prefer growing food grains, oil seeds, and pulses hence fodder production
generally gets lower priority.

5.

At present, fodder is being cultivated only on 4% of gross cropped area= insufficient to meet
requirement.

6.

High quality fodder seeds =not available.

7.

Agriculture crop residues are sold to paper industry, packaging, etc. rather than using as
animal feed.

8.

We dont have specific extension machinery with specialized manpower for popularization of
good fodder varieties.

Solutions?

FODDER
BANKS

to procure surplus fodder from the farmers in areas with good rainfall /
irrigation.

Convert this fodder into silage or fodder blocks for storage

Supply this packed fodder to the deficient areas.

the degraded forest areas, mostly under the Joint Forest Management
Committees (JFMCs), can be used for assisting growth of indigenous
improved fodder varieties of grasses, legumes, and trees under areaspecific silvi-pastoral systems.

Dovetail the ongoing schemes like MGNREGA and RKVY for ^this
purpose.

to improve quality of nutrition for the livestock

Lets see Azolla in detail, for UPSC is nowadays obsessed with asking
minimum one MCQ from some random agro related plant/organism thing
E.g. Mycorrhizal biotechnology and Nostoc algae in CSAT 2013.

FOREST

AZOLLA
PRODUCTION

Azolla fern

Azolla is a floating fern. It resembles algae, Multiplies very rapidly.

widely distributed in tropical belt of India.

Grows in paddy fields or shallow water bodies.

FOR CROPPING

FOR LIVESTOCK
FEED

Azolla is a Nitrogen fixing fern= aids in the growth of rice.

Azolla reduces evaporation from water surface and increases water use
efficiency in rice.

Suppresses the weed growth.

Azolla has 50-60% protein on dry weight basis, rich in almost all
essential amino acids, vitamin A, vitamin B-complex and minerals

Livestock easily digest it.

Dry Azolla can be mixed with other fodder, or can be given directly to
cattle, poultry, sheep, goats, pigs and rabbits.

Green Azolla is also a good feed for fishes.

Milk Quality
From farm to dairy, there is significant deterioration in milk quality. Because of two reasons:

1.

2.

BOGUS
INFRASTRUCTUR
E

BOGUS
HANDLING

1.

lack of all-weather roads in many villages

2.

Electrical problems in rural areas= cooling centers dont work


24/7 basis.

3.

lack of potable water and supply sewage disposal => animals


kept in unhygienic condition=milk gets contaminated.

1.

Contamination through equipment. Because lack of potable


water=> milk-cans, buckets, tankers are not regularly washed.

2.

Bad roads=more transport time=more bacterial growth in milk.

3.

Careless attitude of cooperative-staff. They dont keep the


prescribed low-temperature during collection and transport of
milk.

4.

^Why careless attitude? Because Dairy cooperative elections


won through money power and then such office-bearers
recruit any swinging dude in dairy as long as he is payin
bribes for getting the job.

Result: following properties of milk get affected

SENSORY PROPERTIES

color, taste, odour

COMPOSITION

fat, protein etc.

HYGIENE

bacteriological growth

Solution?

1.

Currently, when farmer supplies milk @dairy cooperative society (DCS) of his village, they
only test one thing: fat content. Therefore, farmer has no incentive to maintain any other
qualities of milk.

2.

Setup quality testing facilities @collection center to test bacteria count, acidity, smell/taste,
bacterial count, heavy metals, pesticides residue etc. and not just fat-content alone.

3.

Train farmers on hygiene habits for milk collection.

4.

Pay farmers more money if they supply quality milk

5.

Supply of Hygiene Kits+ Training to DCS staff. Impose penalty if they dont comply with the
standards.

6.

Less manual handling, use more machines: Bucket Milking machines, Feed racks, water
bowls and partitions etc.
@Processing Level

A typical supply chain of milk sector:


Regional imbalance

Bulk of new capacity in the period in last decade, has been established in the Northern states,
Maharashtra and Tamil Nadu. Remaining states are lagging in dairy growth.

Capacity utilization of dairy plants is about 60% (assuming 300 working days in a year). Due
to Lack of milk availability in the lean season.

For e.g. Rajasthan has 8% share in milk production and 11% share in consumption of milk
products, however the share in dairy processing capacity is 4%. Meaning much of the milk
escapes from the value-addition in dairy supply chain. A similar situation prevails in Bihar.
Anand/Amul Model/dairy cooperative model

1946

1965

Sardar Patel encourage the farmers of Anand region in Gujarat, to form their own milk
cooperative, to protect themselves from exploitation from private milk traders

National Dairy development board setup @Anand, to replicate the dairy cooperative model
throughout country.
(PM Lal Bahadur Shashtri)

1971

Gujarat Cooperative Milk marketing federation setup (GCMMF)

1974

GCMMF starts maketing milk products under single brand name Amul (Anand Milk Union
Limited)
Amul Supply Chain

VILLAGE

DISTRICT
MARKETING
COOP.UNION

STATE MILK
COOP.
FEDERATION

In the given village, a dairy Cooperative Society (DCS) is formed.

Every dairy cooperative society has ~110 farmers.

Combined, all DCS together handle more than 18 million kg milk / day.

theyre equipped with Automatic milk collection unit (AMCUS):


computer analyses fat content of milk, automatic printing of receipts
etc.

they process milk=> butter, ghee, milk powder, cheese, ice cream etc.

E.g. Banaskantha District Cooperative Milk Producers Union Limited


known as Banas Dairy. They manufacture a large number of dairy
products under AMUL, SAGAR and BANAS brands. Usually Banas
products sold locally, and Amul products sent to other states.

similarly Gandhinagar District Co-operative Milk Producers Union


Ltd.=Madhur dairy.

Surat= Sumul Dairy

Surendranagar District Co =Sursagar Dairy.

They can sell their products under the brand name Amul as long as
they meet the requirements of GCMMF. (e.g. must collect 30,000 litres
milk daily for a period of three years)

The main boss is Gujarat Cooperative Milk marketing federation


(GCMMF).

All of above district cooperative unions (Banas, Madhur, Sumul


Sursagar) etc. fall under GCMMF umbrella.

Amul has more than 5000 outlets of own- at high streets, residential
areas, Railway Stations, Bus Stations, Educational Institutions, across
India.

2012: Amul planned to setup 10000 retail outlets across India.

Other than that, even private shops, hotels, restaurants etc. too sell
Amul products.

RETAIL

this Amul Model eliminates middlemen and directly engages farmer with the processor
(dairy)

These cooperatives form part of a national milk grid which links the milk producers throughout
India with consumers in more than 700 towns and cities

here is one more supply chain diagram: click to enlarge

Cooperative sector limitations

Reach

Competition

Management

While dairy Cooperatives have played an important role in Indian milk


industrys development, but still dairy cooperatives reach barely ~20% of the
Indian farmers.

Dairy cooperatives face increasing competition from private dairies: both in


procurement + retailing of milk.

Private players are more agile, offering better incentives to farmers


compared to the cooperative.

Even the largest Indian dairy player (Amul)s annual turnover is quite lower
than a large MNC dairy company like Nestle.

Dairy cooperatives are subject to state laws /regulations. But often, the
elections in dairy cooperatives are won using money and caste equations.

When such fraudsters get key positions in the dairy board, all they care is
how to recover their investment by taking bribes in appoint of dairy staff=>
inefficiency + lack of new initiatives.

Hence, State governments need to make these dairy cooperatives more


accountable, democratic and professional in their functioning.
Downstream issues
#1: MRP and adulteration

WPI for Milk product= more than 190 (for 2012)

Meaning there is 90% increase in the wholesale price of Milk, compared to base year 2004.

This type of killer price rise=> has led to adulteration, fake milk from urea, Nakli-Maawaa etc.
once in a while, youve seen reports about this, particularly in Delhi-UP region.

Such fake milk products are extremely hazardous to health.

In long term, theyll destroy Indias name in foreign market, just like Chinese milk products lost
business internationally, after news reports of Melamine adulteration in 2008.
Synthetic Milk

Synthetic milk is prepared by mixing urea, caustic soda, refined oil (cheap cooking oil) and common
detergents.

INGREDIENT

Why added in synthetic milk?

REFINED OIL

As a substitute for milk fat.

Detergent acts as an emulsifying agent. Meaning it helps above refined oil


to get mixed in water and give a frothy white solution that looks like milk.

Even in legit (real) milk, the traces of detergent are found because farmers
and dairy staff use cheap detergents to clean vessels, buckets etc. but dont
thoroughly wash them.

DETERGENT

CAUSTIC
SODA

UREA

STARCH

To neutralize the acidic PH of other ingredients and thus prevents fake-milk from
turning sour during transport.

To increase solid-not-fat (SNF) content.

Higher the SNF=better the milk-quality, fetches more price when sold to
dairy.

it also increases viscosity (thickness) of the liquid so you feel youve


bought premium quality milk .

Prevents curdling in fake-milk.

Heath hazards of Synthetic milk: damages kidney, heart problems, cancer and even death
National Survey on Milk Adulteration 2011

Was conducted by FSSAI. click me to learn more about FSSAI

Bihar, Chhattisgarh, Odisha, West Bengal, Mizoram, Jharkhand and Daman & Diu= their milk
failed in all tests.

only Goa and Puducherrys milk passed all the test.

~70% of Indian milk doesnt meet the standards set by set by the Food Safety and Standards
Authority of India (FSSAI)

Last year, Union government quoted ^this report, while filling affidavit in SC about milk adulteration.
Union also said that it Is state governments responsibility to act on milk adulteration problem. Later
SC asked state governments to file affidavit about what action theyve taken.
#2: Ethnic products: untapped potential

Examples of ethnic milk products: Paneer, Rasogolla, Sandesh, Pantua, Rasomalai, Cham,
Rajbhog, Kulfi, Rabri, Basundi, Burfi, peda, Gulabjamun, Kalakand, Dahi, Mishti Doi, Lassi,
Chhach / Mattha, Srikhand etc.

Scope: For ethnic milk products, profit level is ~12-38% of the input cost.

PROBLEM

1.

2.

3.

SOLUTION

Most of the ethnic milk products are


made by local halwaii / sweet shop=
unbranded, unorganized. Cant compete
in foreign market. You need to create
a brandfirst to earn the respect and trust
of foreign customers.
Since this is done on small scale = they
use cheap quality packaging material,
even harmful colors and preservatives
used, =Doesnt meet quality norm in US/
EU market.

1.

Train small manufacturers of ethic dairy


products, such as halwaiis: make them
to adopt hygienic practices, use state /
district level bodies, cooperatives, ITIs
can be involved in such efforts

2.

Catalyze R & D for commercialization of


ethnic dairy products

3.

The Ministry of Food Processing, in


conjunction with the NDDB, needs
to undertake generic promotional
campaigns to enhance the image of
Indian ethnic dairy-based products in US/
EU markets.

To make Indian ethnic milk products


famous like cakes, pastries, pastas
and noodles => have to invest a lot in
marketing promotions abroad. Small
scale firms cant do that.
#3: Export issues

Import export of milk products (2012-13) in crore Rs.

export

import

>700

>100

Earlier we saw India is located close to the milk deficit countries, but still India hasnt capitalized on
this location advantage due to the following reasons:

1.

Low quality and hygiene standards.

2.

Only ~35% of milk produced in India is processed. Rest is sold by local doodhwalla= not
enough milk available for export.

3.

Domestic consumption of milk has increased => less surplus left for exports

4.

Lack of experience in marketing products in international markets, particularly for ethnic milk
products.

5.

Low productivity and quality are the key reasons due to which processors in India, are not
able to achieve the scale of operations of their counterparts in New Zealand or Australia.
Ban

2011

Export of milk powders (Skimmed Milk Powders, Whole Milk Powders, Dairy Whitener, Infant
Milk Foods etc.), Casein and Casein Derivative was prohibited

2012

ban lifted, these milk/casein products export given under Vishesh Krishi and Gram Udyog
Yojana(VKGUY)
Fonterra crisis

New Zealand = one of the biggest dairy exporter of the world.

Fonterra= New Zealands biggest dairy company

2013: News report came that Fonterras milk powder could have been contaminated with the
Clostridium bacteria. It can cause fatal botulism.

After this news report, China and Sri Lanka banned Fonterras products.

Fonterra CEO says: it was a false alarm, the bacteria variety found in our milk powder is not
capable of causing botulism, but nonetheless we have recalled all the batches exported. So
dont worry

Anyways, all this negative publicity and banning of New Zealand dairy products= gives opportunity for
Amul to tap those export markets.
#4: Tax on inputs

In earlier times, dairy industry had been subjected to octroi and sales tax etc. creating a nonlevel playing field with the unorganized sector.

There had been high level of taxation on dairy equipment and machinery (excise, sales tax,
octroi) Even the excise duty on polyethylene film, aseptic packaging machines, milk vending
machines, pouch filling machines, used in packing and distribution.

This has hampered the growth of dairy industry. Although nowadays, taxes on most of these
items have been reduced / abolished.

Necessary Reform: Speedy implementation of GST.

Enough of supply chain, lets look at some allied topics: NDDB, Operation Flood, Government
schemes related to dairy sector.
NDDB

National Dairy Development Board

Statutory body (1965)

apex organization of dairy cooperatives in the country

Chairman: Amrita Patel

HQ: Anand, Gujarat

2013: NDDB been in news because

AWARD

CHAIRMAN
(PERSON IN
NEWS)

NDDB has Won Indira Gandhi Rajbhasha Award for the financial year
2011-12. (But declared in 2013).

Rajbhasha awards are presented to institutions for outstanding


achievements in the use of Hindi language to ministries/departments,
banks and financial institutions, public sector undertakings and
employees.

Dr. Amrita Patel: Chairman National Dairy Development Board.

Recently decided to resign.(although Mohan wanted her to continue).

After Vergese Kurien, the father of white revolution, she has been
managing NDDB.
Operation Flood

1965

NDDB setup.

1970

NDDB launches Operation flood.

1996

The End of Operation flood.

Operation flood had three objectives:

1.

Increase milk production (a flood of milk)

2.

Increase farmers income.

3.

Reasonable milk prices for consumers

Op.Flood setup following hierarchy of dairy cooperatives

LEVEL

Org.

VILLAGE

Primary Village Cooperative Society

DISTRICT

District Union

STATE

State Federations

NATIONAL

NDDB

Operation flood worked in three phases from 1970 to 1996:

PHASE1

PHASE2

PHASE3

Setup dairy cooperatives in 10 states and link them with four metropolitan cities: Mumbai, Delhi, K
Chennai.

Finance: by the sale of skimmed milk powder and butter oil gifted by the European Union

Karnataka, Rajasthan, MP

Connected more than 40,000 villages and 4 million farmers in the dairy cooperative umbrella.

finance: by World bank loan

To consolidate the gains made from previous phases.

Vaccination, Breeding research, artificial insemination, farmers training etc.

The end: 1996

Result of Operation Flood

Made India the largest Milk producer of the world.

Imports of milk solids ended. Our milk requirements now met through desi-dairies. (Otherwise
imagine, if we were still relying on imported milk, like imported crude oil than what will be
the current account deficit and rupees downfall!)

CONSUMER
EMPOWERMENT

ECONOMIC
EMPOWERMENT

SOCIAL
EMPOWERMENT

1.

Per capita milk availability increased.

2.

Reduced the regional imbalance in milk availability.

3.

Reduced the seasonal variation in milk prices.

4.

Farmers connected in cooperative dairy grid=no exploitation,


increased income.

5.

Village dairy cooperatives= less nuisance than APMC / food grain


middlemen.

6.

Milk production doesnt require much land. Even landless poor can
participate.

7.

Village Milk Cooperatives bypassed the feudal power structure


associated with cropping/foodgrains in villages. It covered farmers
from all castes and religion.

8.

In that way, operation flood was more successful in Social


empowerment than land reforms and Panchayati raj.

9.
WOMEN
EMPOWERMENT

Many women dairy cooperatives were setup. (Particularly during


and after phase III)

10. Women became direct members and office bearers of such


cooperatives and started earning.
11. You may have seen in the latest Amul ad Maari bairi sethani thai
gayi che: translated my wife has become a Sethani (thanks to
dairy income from Amul.)
Government Schemes

(Although given in previous article, but copy pasting again for the sake of continuity during readingrevision)
Department of Animal Husbandry, Dairying & Fisheries
They run following schemes:

1.

install Bulk Milk Coolers at village level close to the area of milk production

2.

for installation of bulk milk cooler

Intensive Dairy Development


Scheme (IDDS)

Dairy Entrepreneurship
Development Scheme (DEDS)

fodder

clean milk

100 per cent grants in aid given to provided to Dairy


Milk Unions/Federations:

for Dairy processing and marketing

for milk equipment for bulk milk coolers, chilling


centers, refrigerated tankers and cold storage

for developing dairy infrastructure at the village and


district level.

to encourage entrepreneurs in setting up modern dairy


infrastructure for clean milk production

helps in bulk milk coolers, transportation facilities


including refrigerated vans, cold storage facility

Centrally Sponsored Fodder and Feed Development


Scheme (CSFFDS)

with help of state governments

Official name: Strengthening Infrastructure for Quality


& Clean Milk Production

trains of farmers on good milking practices

Fund to setup Bulk Milk Cooler (BMC) @village level.

fund to setup laboratories for testing of milk

National Dairy Plan (NDP)


By National dairy development board (NDDB), with support from International Development
Association (IDA)

Phase-1 (2012-17) was launched at Anand, Gujarat.

Scheme will run in 14 states Uttar Pradesh, Punjab, Haryana, Gujarat, Rajasthan, Madhya
Pradesh, Bihar, West Bengal, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Orissa
and Kerala.

^These states collectively account for over 90% of countrys milk production.
National Dairy plan will do following:

1.

Breed improvement + animal nutrition=> increase milk production, reduce methane emission.

2.

Strengthen of village based milk procurement system= Rural milk producers to get greater
access to the organized dairy sector.

3.

Use of ICT technology: Internet Based Dairy Information System (i-DIS), Data warehousing
System along with Business Intelligence tool etc.

4.

HRD, management, knowledge sharing, R&D and other fancy stuff

Funding pattern

ca$h comes
from

to

1.

International Development Association (IDA) of the World Bank

2.

Central government (Department of Animal Husbandry, Dairying and


Fisheries)

NDDB: National Dairy Development Board (a statutory body)


End Implementing Agencies (EIAs):

ultimately to

State Government

Cooperative dairy federations

Milk Producers Unions

ICAR institutes, and veterinary/dairy institutes and universities


Mock Questions

MCQs

1.

Correct Statements about Foot and mouth disease(FMD)

2.

3.

4.

5.

6.

a.

It is caused by brucellosis bacteria

b.

Wild animals are immune to FMD

c.

FMD is usually lethal to Adult buffalo

d.

None of above

Incorrect Statement about Foot and Mouth disease (FMD)

a.

Pigs are considered amplifying hosts for FMD

b.

Pigs themselves are immune to FMD

c.

Both

d.

None

Find odd term

a.

Sahiwal

b.

Murrah

c.

Gir

d.

Kankrej

Correct statement about Azolla fern

a.

It is a weed that negatively affects paddy cultivation.

b.

If Azolla fern is mixed with fodder, it improves the health of cattle.

c.

both

d.

none

Why is caustic soda used in manufacturing of synthetic milk?

a.

To act as an emulsifying agent and give frothy appearance to the liquid.

b.

To neutralize the acidity of other ingredients and stops milk from turning sour

c.

To increase the milk fat content

d.

None of above

Correct statements about National Dairy plan

a.

Itll be uniformly applied to all 28 states of India, in its first phase.

b.

International Development Association will finance part of this project.

c.

Both

d.

None

1.

NDDB

2.

Intensive Dairy Development Scheme (IDDS)

3.

Dairy Entrepreneurship Development Scheme (DEDS)

Descriptive

2m

12m

1.

Write a note on NDDB and its contribution in white revolution.

2.

National Dairy Plan (NDP) is a scientifically planned multi-state initiative to improve


milch animal productivity. Comment

3.

Write a note on the functions of Department of Animal Husbandry, Dairying and


Fisheries.

25m

1.

The destruction of Indias village system was the greatest of Englands blunders.

2.

Government initiatives to boost the milk productivity in India.

3.

Dairy cooperatives have played an important role in the women empowerment and
social transformation of rural India. Comment

4.

Write a note on the upstream and downstream issues in the dairy sector of India.

Essay (200m)

1.

Education remains the key to both economic and political empowerment.

2.

There is more potential for economic growth in rural India than at any time in
decades.

3.

The Internet is becoming the town square for the global village of tomorrow.

4.

Emigration, forced or chosen, is the quintessential experience of our time.

5.

The notion of the world as a village is becoming a reality.

6.

A nation that continues year after year to spend more money on military defense than
on programs of social uplift is approaching spiritual doom.

Fisheries: Freshwater, Aquaculture, Shrimpfarming: supply chain, upstream, downstream,


Marine Policy, Fisherman Welfare Scheme
Prologue
syllabus of UPSC Mains (GS)

topics in this article

(GS1) Distribution of key natural resources across the world and India

just a brief table on EEZ

(GS2) Government policies and interventions for development in


various sectors

Comprehensive Marine
Fishing Policy, 2004

(GS2) Welfare schemes for vulnerable sections of the population

Fishermen Welfare
Scheme

(GS3) Food processing and related industries in India-scope and


significance, location, upstream and downstream requirements, supply
chain management.

Related to freshwater,
saltwater and shrimps.

later: well see [Food processing] Poultry, meat, tea, coffee, wine, edible oil.
Fisheries: Scope/significance
Ranking

India is the second largest producer of fish in the world

GDP contribution

~5% within GDP from agri-allied sector.

~0.8% within total GDP.

Indian Fish export >$3500 million dollar

Indian meat export ~$3000 million dollar

still, Indias share in world export Is barely 0.1% (for each fish
and meat individually)

3000 fishermen villages

8 lakh fishermen families

40 lakh fishermen

Export (2011-12 data)

Gives employment to
more than

Top 5 fish producers

Top-5 Countries (2009 data)

Top-5 States (2012 data)

1.

China

1.

Andhra Pradesh

2.

India

2.

West Bengal

3.

Peru

3.

Gujarat

4.

Indonesia

4.

Kerala

5.

Vietnam

5.

Tamil Nadu

Some stupid numbers from economic survey

Export (2011-12 data)

export (approx. Million dollar)

Indias share in world trade (approx.)

Fish

3400

3%

Meat

2700

2%

Geographical advantage:

Coast Line

more than 8100 kms

Continental Shelf

~half million sq.km

Exclusive Economic Zone (EEZ)

more than 2 million sq.km

+millions of hectares of ponds, tanks, rivers, reservoirs, canals, brackish water area.
EEZ Exclusive Economic Zone
The EEZ of India can be further divided into the following regions:

North West

Gujarat & Maharashtra

South West

Goa, Karnataka & Kerala

Lower East

Tamil Nadu, Andhra Pradesh & Pondicherry

Upper East

Orissa & West Bengal

WEST COAST=42% OF EEZ

EAST COAST=28% OF EEZ

Remaining EEZ area under Andaman and the Nicobar Islands.

Andaman- Nicobar

Lakshadweep

6 lakhs sq km EEZ

4 lakh sq km EEZ

There is immense potential for import of fish into India from neighboring countries in South Asia and
South East Asia.
Indian fisheries sector classification

1.

Marine

A. Deep Sea Fishing


B.

Coastal Fishing

2.

Inland (Freshwater)

3.

Aquaculture
Supply chain: Fisheries

click to enlarge Supply Chain of Fish

Among all Desi food processing industries, Fish processing supply chain = shortest. Because
in most of the cases, fishermen themselves sell their catch directly to consumers via local wet
fish markets.

Alternate channels for distribution: Fishermen=> commission agents=> Fish market.


Saltwater@Upstream

1.

Arabian sea=broader continental shelf=fish production higher than Eastern coast.

2.

Despite government ban, fisherman use fine-sized net= even Juvenile fish are being caught.

3.

30% to 40% of the catch is discarded by fishermen in high seas because juvenile fish who
dont fetch good prices in market= resource lost.

4.

During breeding season, fishing is banned in coastal waters. But the authorities dont enforce
it strictly.

5.

Lack of surveillance of territorial waters= even outsiders (Pakistani fishermen) do illegal


fishing in our area.

6.

The EEZ around Andaman-Nicobar and Lakshadweep confluences with international waters.
This makes these Island territories vulnerable to illegal Fishing by foreign vessels.

7.

Most fishing vessels dont have facility to freeze the fish onboard immediately after catching=
quality deterioration before they reach the coast.

8.

unregulated fishing of highly migratory species just outside the EEZ=negative impact on
Marine biodiversity.

9.

Most vessel dont have special equipment to do deep water fishing beyond depth of 400m.
Example yellow fin tuna found around Lakshadweep islands. Theyre almost unexploited
since the technology for deep long lining is not prevalent in the Islands.
Freshwater@Upstream

For inland fisheries, two big players= WB+Andhra.

But even those state governments not enforcing fishing net size in rivers, lakes and
reservoirs= juvenile fish caught and discarded.

Fishing ban during breeding season not strictly enforced.


Aquaculture@upstream

National Fisheries Development Board vs. Department of Animal


Husbandry, Dairying and Fisheries.

Their jurisdictions/responsibilities are still not clearly defined

Result: overlapping, lack of synergy.

Freshwater aquaculture, contributed to the Blue Revolution in the


country in late 1970s. But not it is now almost stagnating in terms of yield
rates.

Fish production can be enhanced 2 to 4 times by creating more rainfed


water bodies via MNREGA labour. But this potential is largely ignored.

Fish feed not available at reasonable prices.

Most farmers are small/marginal, dont know best practices in cultivation,


post-harvest management for fish farming.

waste disposal done in hygienic manner= environmental implications

EMPIRES

MNREGA

AQUACULTURE

Shrimp-farming@Upstream

Nellor District, AP= Shrimp Capital of India.

Pink revolution=Shrimp.

PARENTS

ANTIBIOTICS

FEED COST

TRAINING

Disease free brooder stock (parent shrimps)= not available. Hence their next
generation is also diseased.

If you import the brooder stock=there are no regulation/quality checks


=infected stock=>the shrimps thus grown have variety of disease=rejected in
US/EU for export.

For aquaculture/shrimp culture, you need to get approval from State


fisheries Department. But Often, the state departments take 3-6 months to
scrutinize documents= project implementation delayed.

Imported feed or antibiotics=>high custom duty=expensive.

Therefore lot of Chinese/counterfeit/spurious products in market.

Farmer unknowingly uses such input= antibiotic traces found in Indian


shrimps=>theyre rejected in US/EU market.

feed cost accounts for 50% of the total cost

Government investment in research for low cost feed and technology


required.

Need to educate farmers on modern techniques of shrimp farming so they


can enhance the quality and body weight of shrimps.

but there is shortage of extension staff for fisheries in state departments.


@Processing

NOTABLE
PLAYERS

WATER
QUALITY

PACKAGING

Adani Exports, Hindustan Lever Ltd, Ruchi Worldwide, Vishal Exports,


Aditya Enterprises ,Liberty, Falcon Marine.

Potable water is not available at landing and cleaning sheds at the ports.

EU specifies more than 50 parameters of water, If traces of these


chemicals are detected= product rejected. (and as you can guess, our
exports are often rejected.)

Need Focused research to develop low-cost packaging for seafood


products, both for the export + domestic market.

LOW VALUE
ADDITION

INVESTMENT

Even for exports, our fish-processing is primary/basic level

We merely freeze/mince the fishes/shrimps and export them to China/


Thailand/Japan.

They do more value-addition and create variety of ready-to-eat fish food


(e.g. sushi shrimps) =>export to US/EU @higher prices.

To comply with US/EU/HACCP regulation, we need huge capital


investments to upgrade our processing units.
@Downstream

More than 1/3rd of Indians eat fish but demand for processed fish=limited because

Indian consumer prefer wet (fresh) fish rather than processed fish.

Cost of processed fish product= 20-25% higher than fresh fish.(due to indirect taxes)

Desi Consumers prefer to buy fresh fish from wet markets and process it at home

Therefore, Indian fish processing segment=entirely export-oriented, due to lack of local/


domestic demand

INFLATION

Fish prices more than doubled during the Eleventh Plan, a higher
inflation than either crops or any other livestock segment.

This is negatively affecting business and demand.

There is inadequate awareness about nutritional benefits of fish.

Need marketing campaign to increase desi-demand- showing hygienic,


healthy, consistent quality of branded, packaged fish products over the
unhygienic macchi-market.

Large number of retailers are unable to sell processed fish products


because they dont have due to cooling storage facilities + electricity
problems.

We dont export Ready to eat marine products in significant volumes,


because we are not aware of varied tastes and cuisines in different
regions of the world

need investment in marketing research in foreign consumers food


preferences.

US Department of Commerce has imposed an anti-dumping duty on


Indian Shrimp. more on dumping, already discussed click me

MARKETING

RETAILERS

MARKETING
RESEARCH

DUMPING

REJECTIONS

US/EU/foreign countries often reject our fish/shrimp cargos for traces of


antibiotics, heavy-metals, foul smell.
Government Policies/Schemes

Jurisdiction:

States

Marine fisheries within the territorial waters are the subject of maritime states

Centre

Fisheries beyond this limit within the EEZ fall in the jurisdiction of Central Government.
Comprehensive Marine Fishing Policy, 2004

By Department of Animal Husbandry & Dairying, Ministry of Agriculture


Three main objectives: 1) boost export 2)socio-economic welfare of fishermen 3) protect marine
ecology/biodiversity

ACTIVITY

policy will address following:

1.

SUBSISTENCE FISHING

2.

SMALL-SCALE FISHING

3.

protection + welfare
technology transfer to small scale sector

INDUSTRIAL FISHING

work out strategy for fishing in Antarctic waters by


Indian owned vessels

infrastructure support, Joint Venture for fish processing


and export

PPP: Build-Operate-Own and Build- Operate-Transfer


systems.

Salient Features of this policy

1.

ATTENTION TO CONSUMERS

increase per capita (fish) protein intake

Attention to consumer rights. Ensuring food safety, mandatory bar coding and
packaging for sale of fish products.

Ensure international quality and food safety in fish and fishery products.

Ensure Hygiene in fishing harbor and processing centers.

Protect consumers from fish contaminated with heavy metals and other hazardous
chemicals discharged from industrial establishments.

o
2.

3.

4.

eco labeling of marine products

ATTENTION TO FISHERMEN

Each fisherman household would be given a card for easy identification.

Strengthen Cooperative movement of fishermen

Uniformity in central-state welfare schemes for fisherman.

Greater participation of cooperatives, NGOs and local self-Governments

Government to contribute towards Insurance scheme for only those fishermen who
do not own a boat.

Fishermen Housing Schemes will unified and implemented as a master plan through
a national agency.

ATTENTION TO ENVIRONMENT

responsible and sustainable fishing practices to Preserve environment and


biodiversity

Strict ban on all types of destructive methods of fishing.

Regulate Mesh sizes in different parts of the fishing gear. Penalties for violations of
mesh regulations.

Prohibit Catching of juveniles and non- targeted species=prohibited

greater liaison between Central and State Pollution Control Board to control all
industrial establishments discharging effluents in to the sea

Hazard Analysis and Critical Control Points (HACCP) in effluent discharge systems
will be made mandatory.

Mangrove plantation in Coastal areas.

ATTENTION TO FANCY THINGS:


o

HRD, R&D, use of IT, strengthening marine database via satellites etc.
National Fisheries Development Board (NFDB)

HQ: Hyderabad. For both inland and marine fish. Promotes following

1.

Accelerated development of the fisheries and aquaculture in a sustainable manner

2.

Hygienic development of wholesale and retail markets

3.

Mariculture (cultivation of marine organized in enclosed section of ocean / pond / tank etc.
Example: prawn, pearls, agar etc)

4.

Training to fishermen/fish farmers

Government Schemes

Component of Rashtriya Krishi Vikas Yojana.

to promote production of animal based protein through


livestock development, dairy farming, pig and goat
rearing and fisheries

Development of Inland fisheries &


Aquaculture

fish farmers were provided assistance for freshwater


aquaculture. ~30000 already benefitted under
11th FYP.

Development of Marine Fisheries,


Infrastructure Post Harvest
Operations.

development of 13 fishing harbors and 4 fish


landing centres, 4 fishing harbors were repaired and
renovated. (11th FYP)

safety appliances provided

Under the scheme, inland water bodies are surveyed


and mapped in the States.

Work already finished in W.Bengal.

National Mission for Protein


Supplement (NMPS)

Strengthening of Database &


Geographic Information System for
Fisheries Sector.

Fishermen Welfare Scheme


In the 90s, there were multiple schemes for fishermen welfare but in mid-2000s, all of them combined
into single Centrally Sponsored National Scheme on Welfare of Fishermen (duh, no catchy name/
abbreviation, not named after you know who. but then again, scheme falls under Department of
Animal Husbandry & Dairying= under Sharad Pawar=not directly underyou know whos party.)
anyways, this scheme has:
Two pronged approach
PROTECTIVE

To prevent any short term decline in the standard of living. (via insurance
+ savings)

PROMOTIONAL

To enhance the long term general living standard of the entire community.
(via model village + training)
four broad components

1.

MODEL
FISHERMEN
VILLAGES

fishermen (both inland and marine) will be given basic


civic amenities like houses, drinking water, tube-well and
commonplace for recreation and work.

for housing- Preference will be given to fishermen below


poverty line and to landless fishermen.

2.

INSURANCE

3.

SAVINGS CUM
RELIEF

4.

TRAINING

Group Accident Insurance for Active Fishermen.

Rs 50,000/- against death or permanent total disability and


Rs 25,000/- for partial permanent disability.

50:50 cost sharing by Center:state

during the fishing season (8 month), fisherman will give


Rs.600, + government will contribute another Rs. 600. (total
1200)= this plus bank-interest will be given to fisherman
during lean season (remaining 4 months of the year)

self explanatory

to update knowledge and improving skills of fishers in regard


to modern fishing technology.
Misc.

CIBA
IMMUNoDot

Silver
pompano

An immunodot blot test for early detection of WSS virus in shrimp. Patent pending.

Successful breeding experiments carried out.

can be done in ponds, tanks and floating sea cages.

price of pompano is about Rs.200/-per kg, The species is able to


acclimatize and grow well in the vast low saline and brackish waters of our
country.
International Support

Several international organizations, including the World Bank, UNDP , DANIDA, NORAD,
ODA (UK and Japan) provide aid to India for the development of fisheries sector .

(UK) has provided technical aid for the prevention of post-harvest losses in marine fisheries.
Recently, FAO launched a scheme for providing technical assistance to implement Hazard
Analysis Critical Control Points (HACCP) in seafood processing industries.
State governments

They need to do following:

1.

Enforce fishing holidays during breeding season.

2.

Awareness camps to educate the fishermen on importance of the breeding cycle of the fish to
replenish the stock.

3.

Regulate fishing net size. 30 mm mesh size should be standardized for use.

4.

Announce specific financing schemes for purchase of requisite vessels and equipment

5.

Allow only a sustainable number of vessels to operate in the coastal waters. Dont give
license to everyone.

6.

Leasing of coastal zones There is need to consider leasing of coastal zones on a long
term basis (30 years) to private sector players, for introduction of advanced mariculture
technologies such as cage culture, pen culture etc. for augmenting fish production.
Mock Questions

MCQs

1.

2.

Correct Statement about EEZ of India

a.

Eastern Cost has larger area under EEZ than Western Cost

b.

Among Union Territories, Lakshadweep is surrounded by the maximum EEZ area.

c.

Both

d.

None

Correct statements about yellow fin tuna

a.

Found in the shallow coastal waters around Lakshadweep

b.

It is on verge of becoming extinct, because of destructive fishing in this region.

c.

Both

d.

None

1.

Obstacles to Pink Revolution in India

2.

MODEL FISHERMEN VILLAGES

3.

National Mission for Protein Supplement (NMPS)

4.

National Fisheries Development Board (NFDB)

Descriptive

2m

12m

1.

Issues affecting supply chain of marine fisheries.

2.

Write a note on Centrally Sponsored National Scheme on Welfare of Fishermen.

3.

Enumerate the salient features of the Comprehensive Marine Fishing Policy.

4.

25m
1.

Define Aquaculture and Mariculture. Discuss their significance in rural development in


coastal areas.

Although India is the second largest fish producer of the world, the share of fisheries
sector in Indias GDP is negligible. Examine the reasons for this phenomenon and
suggest remedies.

Essay
1.

Civilization is like a thin layer of ice upon a deep ocean of chaos and darkness.

2.

India is rich in people, rich in culture, rich in resources and rich in trouble.

Poultry, Meat, Supply Chain, Upstream, Downstream, Avian influenza, government schemes
revious article was on fisheries, now comes meat/poultry.

UPSC syllabus

prelims
GS2: Statutory, regulatory and
various quasi-judicial bodies.

topics in this article

avian influenza related MCQ under sci-tech

Veterinary council of India

fodder points that


GS2: Government policies and
interventions for development in
various sectors

1.

lack of clear policy on buffalo meat hampers the growth of


meat industries..

2.

Non implementation of GST hurts Keralas poultry sector.

GS2: Bilateral agreements


involving India and/or affecting
Indias interests.

fodder point that China has agreed to allow meat import from
India. (earlier it was banned because of diseases)

GS2: Effect of policies and


politics of developing countries
on Indias interests

fodder point that Omans ban on Indian poultry has badly affected
our business.

GS3: economics of animalrearing

Plenty of fodder points on poultry and buffalo meat.

GS3: Changes in industrial


policy and their effects on
industrial growth.

fodder point that Meat processing industry was de-licensed in the


90s and as a result, now India is 6th largest exporter of bovine
meat, produces meat worth >Rs.60,000 crores.

GS3: Food processing and


related industries in India

for poultry and buffalo meat

After this, only one and last article remains in [Food processing]: tea, coffee, wine, edible oil and
confectionary.
Poultry: Scope/significance
Poultry business has potential to grow because:

1.

There is no religious sentiment associated with poultry.(unlike beef or pork)

2.

It takes far less feed to produce a kilo of chicken than the equivalent amount of pork or beef.

3.

Many youngsters becoming non-vegetarian under the influence of advertisements e.g. KFC,
McDonalds etc.

4.

Consumer studies from other countries say when vegetarians choose to convert to nonvegetarianism, they first experiment with poultry before trying other meat products.

5.

Increasing prosperity in emerging markets= people can afford to put more meat on the table.

Contribution to economy:

1.

Meat: more than Rs.80,000 cr

2.

Eggs/Poultry: more than Rs.17,000 cr (and export ~450 crore)

3.

Backyard poultry provides cheap protein nutrition and side income to poor families.

4.

Per capita availability of eggs = ~ 55 per year


Locations- Poultry Business

REGION

characteristic

Contract farming for poultry= well-developed

Production concentrated around Coimbatore.

Fully integrated/organized players control over 95% market

Namakkal District in TN:


SOUTH

NORTH

Largest egg production zone in the country

accounts for more than 95% egg exports from India

produces more than 3 crore eggs daily

(but recently hit hard by ban from Oman.)

Contract farming for poultry= under-developed

Mostly unorganized players.

EAST

WEST

No concentration of production.

No full integrators.

No concentration of production

Only 1 integrated player- Arambagh

High cost of maize feed, transport problems =hampered the growth of organized
poultry farming.

Production concentrated around Pune. E.g Venkys

few integrated and semi integrated players


Poultry Supply chain & Backward Integration

click to enlarge
Big poultry companies have backward integration. Lets observe the case study of Saguna Foods

UPSTREAM

Contract farming agreement with more than 20000 farmers in 16


states.

Company has its own pharma division in TN. They provide are
anti-bacterial, antibiotics, vitamins, mineral supplements etc. to
those contract farmers.

1.

MEDICINE

2.

FEED

Company has Indias largest feedmill near Bangalore. They supply


their own scientifically manufactured feed to those contract farmers.

3.

TRAINING

Sagunas experts make regular field trips and train the farmers on
how to raise poultry in a scientific-efficient manner.

As a result of 1+2+3, all chicken/eggs are uniform in size, shape and quality.

4.

PROCESSING

HACCP certified, Good Manufacturing Practice (GMP) certified


processing plant at Coimbatore.

Can process >35000 birds per day and export >1500 metric
tonnes chicken per month.

Company has implemented Enterprise Resource Planning


(ERP) system, entire plan can be monitored from a single
computer.

Another big player with similar backward integration is Venkys (Pune based company):
supplies Chicken to Indian outlets of McDonalds, KFC, Pizza Hut, and Dominos.

But just two Cinderella stories doesnt mean everything is well and good with Indian Poultry
business. Lets observe the constrainsPoultry@Upstream
Maize (Poultry-Feed)

Poultry Feed constitutes almost 60-70% of the total broiler cost.

Therefore, fluctuations in the prices of maize, soybeans/oilmeals significantly affect input cost
in poultry business.

Maize consumption by the animal feed sector (which accounts for almost 50% of maize
consumption) has been growing much faster than maize production.

Maize is primarily a rain-fed crop, the annual production level is dependent on monsoons=
fluctuations in production level (and therefore fluctuation in price level).

Government offers better MSP for rice and wheat. Hence farmers prefer rice/wheat over
Maize cultivation.

December-April period, maize is grown only in a small region in Eastern India = high feed
prices for North East poultry business.

Adding insult to the injury: Indian exports of maize to Bangladesh, Nepal and other countries
have been rising exponentially. These countries do not have significant domestic maize
production, yet their poultry industry is growing rapidly. (Meaning, Bangleshi and Nepali
are using Indian maize to improve their poultry business, while Indian poultry farmers are
struggling.)

After the outbreak of bird flu, (+ inflation), desi customers decreased egg/chicken
consumptions and foreign countries also imposed ban on Indian poultry. As a result, most
poultry farmers are making losses.

Government needs to address this inconsistency in its policy on maize and poultry rearing.
Avian Influenza

Outbreak of Avian influence (commonly known as bird flu)= culling of poultry + fall in
demand= hurt the business.

Since many poor families raise poultry in backyard dont maintain hygiene standards=flu
outbreak.

This not only hurts the family but also commercial players, because foreign countries will
impose ban on import of Indian egg/chicken because of the bird flu news.

Influenza virus has two components

Haemagglutinin
(H)

Protein found on the surface of influenza viruses.which is responsible for binding


the virus to the victim-cell

Neuraminidase
(N)

Enzyme found on the surface of influenza viruses.

There are multiple varieties of (H) and (N), and based on their combination in the given virus,
scientists name it H5N1, H5N2 etc.

Avian flu

Swine Flu

Bird

Pigs

H5N1

h2N1

Two types of Avian influenza

LPAI

HPAI

low capacity for causing disease (low pathogenic


avian influenza or LPAI)

causes disease very easily (highly pathogenic


avian influenza or HPAI)

Species affected

Migratory water fowl

Poultry flocks
(chickens, ducks,
turkeys, geese)

One type of wild ducks constitute the natural reservoir of the virus.
Wild birds may carry H5N1 from one area to another through the process of
migration.

virus can spread rapidly through contact between a sick bird and a
healthy bird.

Unhygienic conditions at poultry-farms, rice paddy fields = mixing of


sick and healthy birds=disease transfer.

this virus causes a high mortality rate. Even healthy birds have to
be culled to prevent further spread of virus.

Over the years, H5N1 virus has infected numerous birds in Asia,
Europe, America and Africa.

Cats, tigers, leopards

found to be affected by Avian influenza, after eating raw infected birds

Human

Disease can also affect humans but only after eating poultry meat that has
not been cooked properly or after very close contact between a person and
an affected animal.first outbreak: Hongkong97

Steps taken by our government so far:

1.

The Action Plan to combat Avian Influenza was revised in 2012 and circulated to the State/UT
Governments for implementation.

2.

About 90% veterinary workforce of India has been trained to combat bird flu.

3.

Culling of entire poultry population in the affected zone of 0-1 Km

4.

Upgraded laboratories, stockpiled materials, medicines etc.

5.

Bio-Safety labs setup @Jalandhar, Kolkata, Bangalore & Bareilly.

6.

Education and Communication (IEC) campaigns to sensitize general public

7.

All the state governments have been alerted to be vigilant about the outbreak of the disease.

8.

Government has banned imports of poultry from bird flu positive countries. (and Oman
banned our poultry exports, so tit for tat, the circle of karma is complete.)

9.

Government has alerted Border check posts with neighboring countries to stop transport of
live-birds/eggs/chicken.
Contract Farming

Contract Farming prevalent in Southern India for poultry business. eg. Saguna Foods and
Venkys.

Farmers provided with feed, medicines and bird growing fee. Some companies have state of
the art processing plants located close to cities.

But this contract farming model has still under developed in the remaining parts of India.
@Processing

Poultry processing capacity India ~ 25,000 birds per hour BUT, Average utilization is barely
30%. Because Several of the operating units are run by small and unorganized players.

The only big players in Indian Chicken business= Venkys, Godrej, Arambagh and Suguna.
@Downstream
Poultry Hygiene

At Retail level, chicken are slaughtered on street side shops/hotels by untrained people. Result?

1.

Clean water not used for washing= contamination

2.

Poor hygiene practices in defeathering, chopping, removal of viscera etc. =contamination.

3.

Lack of chilling facilities= immediate bacterial attack.

4.

Lengthy farm-to-slaughter time + no cold storage= dehydration= shriveled/bad quality meat.

5.

Improper ventilation and space for storing live chicken = droppings / feed / feathers spread
bacteria.

Slaughter waste generated per day in Mumbai alone is about 150 tons.
Solution= ban street side slaughter of all animals + rigorous food inspection of all such shops, just
like in developed countries.
Taxation and Smuggling

Kerala imposes ~13% VAT on chicken

On the other hand Tamilnadu has exempted Meat, fish eggs, poultry and livestock from VAT.

Result: Smuggling of chicken from Tamilnadu to Kerala = revenue loss to government

Solution: uniform GST all over India.


Export

OCT
12

WHO confirms bird flu outbreak in government-run turkey farm at Hesaraghatta, Karnataka,

NOV
12

Oman, the biggest egg export market for India, bans import of eggs and chicken from India because of bird flu

JUN
13

Oman has lifted the ban on importing poultry products from India, but with condition that an Indian company m
its premises and husbandry procedures verified by Omani officials first.But in during this ban time, the Oman
businessmen made import-contracts with Brazil and Holland for supply of eggs and chicken. So, even after th
we are not seeing much high demand from Oman.
Demand

High cost of feed, high food inflation, ban by Oman= Poultry business is deeply affected, Most poultry
farmers are selling below production cost and making losses.
Govt. schemes for poultry
#1: Poultry Development Scheme

100% centrally sponsored.

By Department of Animal Husbandry Dairying & Fisheries (DADF) under Agro Ministry.

Has three components

1.

Assistance to State
Poultry Farms

One time assistance is provided to strengthen poultry farms.e.g. for


buying/upgrading hatchery, brooding and rearing houses, laying
houses for birds, in-house disease diagnostic facilities and feed

analysis laboratory.
Poultry given to BPL families= supplementary income + nutritional
support.

Rural Backyard
Poultry
Development

2.

In these poultry estates, entrepreneurship skills given to educated,


unemployed youth and small farmers, so they start poultry related
business-activities.

Poultry Estates

3.

#2: Poultry Venture Capital Fund

Scheme provides finance through NABARD.

To setup poultry breeding farms, feed godown, feed mill, marketing of poultry products, egg
grading, packing and storage houses for export, egg and broiler carts for sale of poultry
products etc.

Additional finance for SC/ST/North Eastern state.


#3: Central Poultry Development organizations

REGION

org. located @

NORTH

Chandigarh

EAST

Bhubaneswar

WEST

Mumbai

SOUTH

Bangalore

They help farmers diversify poultry rearing by adding new species:

REGION

poultry species introduced

SOUTH

Duck, Emu, Turkey

NORTH, WEST

Japanese Quail

EAST

Guinea Fowl

They train farmers, women beneficiaries, various public and private sector poultry organizations,
NGOs, Cooperatives and foreign trainees etc.
National Livestock Mission (NLM)

in the Union Budget 2013-14.

To support poultry, dairy farming and fisheries.

Itll have sub-missions for

increasing availability of feed + fodder

Improving animal breeds to raise milk yields.


Misc.

Athulya chick

Kalamasi Fowls

Heat tolerant hen breed by ICAR, Kerala.

Gives larger sized eggs

Bird is heat tolerant=mortality rate is low.

Already covered under Hindu Sci-tech compilation. click me

Enough of eggs, chicken and poultry. Lets move to


Meat: Scope/Significance
Indian buffalo meat is witnessing strong demand in international markets because

1.

Our main competitors (Aus+US) are on decline. (more under downstream=>Export )

2.

Indian buffalos have near organic nature (i.e. grown without use of drugs/antibiotics unlike
American cattle=less harmful effect on human health).

Indias world ranking

in

livestock

goats

sheep

Bovine meat export.

Weve export demand in

BOVINE MEAT

Saudi Arabia, Vietnam, Malaysia, Angola, Kuwait, Egypt, UAE, Jordan, Iran

SHEEP

UAE, Saudi Arabia, Vietnam, Qatar , USA

CHICKEN

Oman, Afghanistan, Sri Lanka, Kuwait


Meat SCM@Upstream
#1: Livestock markets

Livestock market = where buying selling of animals done for dairy/meat.

Supervision falls within the purview of the local bodies (panchayats, municipalities or
corporations).

Problems of Livestock markets:

1.

Markets are primitive in functioning. No facilities for weighbridges, ramp facilities for loading
and unloading, feeding and watering animals.

2.

No veterinary doctors available in market to certify animal health before sale.

3.

No separate markets for different species of animals.

4.

No licensing/registration of merchants, brokers or suppliers= non-transparent pricing,


margins/commissions almost 30% of the consumer prices.
#2: Buffalo Slaughter Policy

The global trend is Contract farming For animal rearing.

Meaning, the meat-processing companies pay advance money, veterinary services, fodder to
the farmers and ask them to raise buffalos/sheep/pigs for slaughtering.

But in India, buffalo slaughter is allowed only when the buffalo outlives their useful life as a
dairy or a draught animal.

Result:

1.

Male buffalo calves often slaughtered illegally (=revenue loss for government)

2.

Theyre starved when farmers do not find them useful for draught purpose.(=resource loss,
animal cruelty)

3.

Meat processing companies find it difficult to do contract farming for buffalo/sheep etc. Hind
Agro is the only Indian player which has backward linkages with male buffalo calf rearing.

4.

No control over animal feed =meat quality is not uniform = doesnt commend high prices
abroad.

5.

inadequate veterinary care = various diseases= export rejected from US/EU

Meat yield

Jafarabadi breed in Gujarat and Maharashtra = known to be one of the


heaviest buffalo breeds in the world but its meat yield is low.

Need for crossbreeding for buffalos that have higher meat yields.

Need to educate farmers on modern scientific methods to fatten male


buffalo calves.

Some countries have banned Indian buffalo meat due to Foot and Mouth
Disease (FMD). We already discussed FMD in the dairy article click me

Lack infrastructure/facilities for disease diagnosis, reporting, epidemiology,


surveillance and forecasting.

Disease

veterinary
services

same like previous article on milk/dairy business.

fodder

same like previous article on milk/dairy business.

@Processing Level
There are two types of slaughter houses in India:
#1: MUNICIPAL SLAUGHTER HOUSES

Municipal slaughter houses are owned and operated by local and state governments.

Their infrastructure + facilities are (as you can guess) inadequate and outdated.

They charge fees but often money is not used for upgrading the infra/facility.

The animals are often kept in poor conditions (due to lack of adequate infrastructure)
=unhygienic meat.

#2: PRIVATE SLAUGHTER HOUSES

meat processing was delicensed in 1991

Meat-export companies need to have private slaughter houses to meet the quality standards
of US/EU.

But since meat is a highly controversial subject involving religious, social angles=> local
authorities are reluctant to give land allocation for new private slaughter houses.

Result: Plenty unauthorized slaughterhouses: almost 50 percent of animals slaughtered here


=> unhygienic meat + revenue loss to government.

Since many of the slaughterhouses are unorganized and illegal- the byproducts of livestock
slaughter are not utilized for additional income e.g. Meat-cum-Bone Meal (MBM), tallow, Bone
Chips etc. could be sold as pet food. Viscera, waste could used for methane generation etc.

Since 9th Five year plan, Central government had come up with a scheme to upgrade municipal
slaughter houses, but progress is unsatisfactory. Why?
Under this scheme, center: state will share cost burden equally (50:50) but state governments are
reluctant to pay their 50% money, because of following reasons

1.

Frequent interference by animal rights activists

2.

Negative perception of meat eating and therefore limited proactive action by all concerned
authorities.

Solution: Privatize the Municipal slaughter houses.


Notable private players in Meat industry

COMPANY

BRAND

PRODUCT

Hind Agro
Industries Ltd

Fast Prax (fast food


outlets)

Buffalo, sheep and goat meats

Allana sons Ltd

Premier, Saffa

Premier (fruits and vegetables) Saffa (meat)

Al Kabeer

Al Kabeer

Vegetables and fruits, snacks, meat and poultry, ready


meals and sea food
@Downstream

PRICE

Indian consumer = price sensitive. Chicken and Buffalo meat are more
consumed than other varieties.

TAXATION

Currently , there are no taxes levied on wet market sales (i.e. fresh
meat)

But branded/sealed meat attracts VAT/sales tax.

This creates a non-level playing field between wet markets and


packaged meats.

We need zero excise and state-level taxes on value added and


branded meat products.

SELF-BAN

Even non-vegetarian refrain from consuming meat on certain religious festivals

REGIONAL
PREFERENCE

Eastern India and Coastal regions prefer marine products over poultry/animal.

FRESH

Indian consumers prefer to buy freshly cut meat from the wet market, rather
than processed or frozen meats. Health concerns associated with red meats
leading to preference for poultry.
Meat Export

Potential market in China

Till now, China did not allow import of Indian meat because of concerns about Rinderpest
and foot & mouth disease.

But in May 2013, India-China made agreement thatll help in export of buffalo meat, fishery
products and poultry feeds from India to China.

Decline of competitors
Indian buffalo meat exports =potential to grow, because some of our competitors are on decline:

COMPETITOR

AUSTRALIA

WHY DECLINING?

Significant exporter of bovine meat.

But its production level has been affected by ongoing drought.

Export capabilities have been affected by occurrences of BSE disease


(Bovine Spongiform Encephalopathy).

US meat industry uses too much antibiotics, some health conscious elite
customers from US/EU prefer Indian buffalo meat for its organic nature.

USA

Government Schemes for meat/livestock


Conservation of Threatened Breeds of Livestock

covers all livestock species except cattle and buffalo

To protecting threatened breeds of livestock whose population is about of 10,000 (for animal))
and 1000 (for poultry)

Example of breeds covered under this program

state

Bonpala sheep

Sikkim

Black Bengal goat+Haringhata Black Fowl

West Bengal

Yak

Jammu and Kashmir

Kachchhi camel

Gujarat

Chegu goat

Himachal

Nilgiri sheep

Tamil Nadu

Muzzafarnagari sheep

Uttar Pradesh

Berari Goat

Maharashtra

Abattoir modernization
(copy pasting from earlier article)
Scheme by Ministry of food processing industries.
Abattoir= slaughterhouse/ butcher house. Food processing ministry runs a scheme for them. This
scheme Under PPP mode with involvement of local bodies (Panchayats or municipalities) via

1.

build-own-operate (BOO)

2.

build-operate-transfer (BOT)

3.

Joint venture(JV) basis.

Features:

1.

establish new modern abattoirs

2.

modernize existing abattoirs

3.

promote scientific and hygienic slaughtering.

4.

Modern technology for waste management.

5.

better by product utilization (bones, skin etc.)

6.

provide chilling facility, retail cold chain management etc.

Financial assistance

area

grant for __ % of the project


cost

General

50

North East, Hill area, areas under integrated Tribal development


plan

75

Maximum grant: Rs.15 crore per project.


Ten slaughterhouse projects ongoing:

1.

Dimapur (Nagaland)

7.

Patna (Bihar)

2.

Kolkata (West Bengal)

8.

Ahmednagar (Maharashtra)

3.

Ranchi (Jharkhand)

9.

Jammu (Jammu & Kashmir)

4.

Shimla (Himachal Pradesh)

10. Srinagar (Jammu & Kashmir)

5.

Hyderabad (Andhra Pradesh)

11. Shillong ( Meghalaya)

National Mission for Protein Supplement (NMPS)

Component of Rashtriya Krishi Vikas Yojana.

to promote production of animal based protein through livestock development, dairy farming,
pig and goat rearing and fisheries
Disease eradication schemes

by Department of Animal Husbandry, Dairying & Fisheries

National Project
on Rinderpest
Eradication

Foot & Mouth Disease


Control Programme
National Control
Programme of Peste
des Petits
National Control
Programme on
Brucellosis

Rinderpest: viral disease, regularly devastated buffalo and cattle


herds in Asia and Europe.

Recovery from rinderpest disease confers lifelong immunity, but


only a few animals are known to survive. Most animals collapse
and die within a few days after this viral fever.

2011 FAO conference declared that Rinderpest eradicated from


the world.

viral disease, already covered under previous [Food processing]


Article on milk/dairy.

is a viral disease, causes mortality in sheep and goats.

Brucellosis, bacterial disease, causes abortions and infertility in


animals=decline in milk production

Token Schemes by NABARD


The limitation of each of the following 3 schemes= government has allotted a token sum of only Rs.1
lakh for the given year.
#1: Salvaging and rearing of male buffalo calves

to rear male buffalo calves for meat production

to develop linkages with export oriented slaughterhouses in Andhra Pradesh, Bihar,


Chhattisgarh, Jharkhand, Kerala, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Uttar
Pradesh, Punjab and West Bengal.

is expected to generate substantial quantity of meat, hides and by-products

also provide direct part employment and indirect employment to people in feed, fodder, meat
leather and various input services.
#2: Slaughterhouses @small towns

to be establish/ modernize slaughterhouses in rural areas and smaller towns

to produce wholesome and hygienic meat for supplying to the cities/towns.

This way, the loss in the meat sector due to transportation of live animals, shrinkage of meat
and environmental pollution in the cities will be prevented

fresh hides and skins in the tanneries in vicinity of the slaughterhouses will boost production
of quality leather.

pilot implementation in three states: Uttar Pradesh, Andhra Pradesh and Meghalaya
#3: Utilization of Fallen Animals

More than Rs.900 cr are lost per year, due to non-recovery/ partial recovery of hides/skins and other
by-products from the fallen animals. Hence this scheme was launched with following objectives

1.

Provide opportunity of employment to rural poor engaged in carcass collection, flaying and
by-product processing

2.

Produce better quality hides and skins through timely recovery, better handling and transport

3.

Prevent bird-hit hazards to civil and defence aircrafts


Misc. Schemes

rabbits

Livestock Insurance

Integrated Development of Small Ruminants & RabbitsNABARD. The


scheme is aimed for women beneficiaries, poor and marginal farmers

To protect farmers against eventual loss of their animals due to


death.

Farmer pays 50% of the insurance premium, remaining 50% by


Central government.

Benefit of subsidy is to be restricted to two animals per beneficiary


per household.

first Livestock census was conducted during 1919-20 and since then
it is being conducted quinquennially by all States/UTs in India

19th Livestock census was done in 2012.

100% cost bourne by Central government

under Directorate of Animal Health

to prevent ingress of livestock diseases into India by regulating the


import of livestock and livestock related products, and providing
export certification of International Standards for livestock and
livestock products which are exported from India.

Livestock Census

Animal Quarantine
and Certification
Service

Livestock Health
& Disease Control
program

Quarantine stations in the country out of which four located at New


Delhi, Chennai, Mumbai and Kolkata

The scheme helped to prevent the entry of exotic diseases like Madcow disease (BSE), African swine fever and contagious equine
metritis.

supports the state Governments for animal immunization, strengthening of


existing Laboratories and in-service training to Veterinarians

Pig Development

Particularly in North-Eastern States by rearing pigs

Encourage commercial rearing of pigs by adopting scientific methods


and creation of infrastructure

Create supply chain for the meat industry


Misc.Org

Veterinary Council of India

Statuary body constituted under the provision of Indian


Veterinary Council Act.

Regulates veterinary practices (just like MCI for doctors.)

maintains uniform standard of veterinary education across


the country

National Institute of Animal


Health

at Baghpat, Uttar Pradesh to undertake the testing of animal


vaccines and drugs.

Central Sheep Breeding


Farm

Hissar (Haryana). as the name suggests: sheep breeding research.

Central/Regional Disease
Diagnostic Laboratories

Izatnagar is functioning as Central Laboratory for surveillance and


diagnosis of various livestock and poultry diseases including Avian
Influenz

Mock Questions
MCQS

1.

Which of the following is a part of concurrent list under 7th Schedule?

a.

prevention of cattle trespass

b.

prevention of animal diseases

c.

infectious or contagious diseases or pests affecting animals or plants

d.
2.

3.

4.

5.

None of above

Correct statement about Avian influenza

a.

It is caused by H1N1 virus

b.

Migratory water fowl is the natural reservoir of the virus

c.

Carnivore animals such as Cats, tigers, leopards are immune to avian influenza.

d.

None of Above

Poultry Venture Capital Fund provides financial assistance through

a.

Central Poultry development Organization

b.

NABARD

c.

Department of Animal husbandry

d.

Ministry of food processing industries

Find odd term

a.

Rinder pest

b.

Brucellosis

c.

Foot and mouth disease

d.

Peste des Petits

Find correct match

a.

Chegu Goat: Kerala

b.

Haringhata Black Fowl: MP

c.

Bonpala Sheep: Sikkim

d.

None of above

Descriptive

2 marks

1.

Veterinary Council of India

2.

Livestock Insurance

3.

Livestock Census

4.

National Project on Rinderpest Eradication

5.

Abattoir modernization scheme

15 marks

1.

Discuss the negative impact of Avian influenza on Indian poultry business.


Enumerate the steps taken by Indian government to combat this disease.

2.

Discuss the Upstream issues affecting Indian poultry business and suggest remedies.

3.

Lack of backward integration in the buffalo meat supply chain, has hampered the
growth of meat processing industry in India. comment

4.

List the initiates taken by Department of Animal Husbandry, Dairying & Fisheries for
promotion of meat and poultry industry.

5.

Innovations that are guided by smallholder farmers, adapted to local circumstances,


and sustainable for the economy and environment will be necessary to ensure food
security in the future. Comment

6.

Factory farming is one of the biggest contributors to the most serious environmental
problems. comment

Essay

1.

Physical bravery is merely an animal instinct; moral bravery is much higher.

2.

Throughout the history, evil has survived through concealment.

3.

Man is the only animal for whom his own existence is a problem which he has to
solve.

4.

Man-The only animal in the world to fear.

Tea, Coffee Supply Chain, Upstream, Downstream for UPSC General Studies Mains
Tea: Scope Significance
Indias rank

in world (2012, as per Teaboard)

production

consumption

export

Provides employment to more than 50,000 workers around Darjeeling alone and overall ~5
lakh tea-farmers

Brings ~4000 crore rupees through export.

Location

REGION

TEA SEASON

North: Assam, West Bengal

March-December.

South: Tamil Nadu and Kerala

throughout the year

main states: Assam, WB, TN and Kerala

small scale: Karnataka, Tripura, HP, Uttarakhand, Arunanchal, Manipur, Sikkim, Nagaland,
Meghalaya, Mizoram, Bihar and Orissa.

For more on location factors: refer the [Geography] article click me


Tea Supply Chain: Upstream

Old bushes=low yield

A tea plant is most productive between 15 and 35 years of its planting.

Yields of tea usually drop after 50 years. Tea gardens in Darjeeling are about 80-100 years
old.

In Kerala, around 80 % of the tea bushes are over 40 years old

Result? = low yields and deterioration in tea quality= low prices in foreign market.

Solutions?

Need to upgrade Tea estates through replanting, uprooting and cloning of high yielding
varieties.

But these solutions are expensive and time consuming.

Therefore most tea estates prefer to maintain status quo. Thus production keeps declining
with each year.

Land Ceiling
Act

Collectivization

Single biggest reason for the slow growth in area under tea cultivation in
India.

Under this Act, the Government acquired large tracts of then uncultivated
land from tea estates

But Land Policy does not permit land with the government to be
transferred to the corporate sector for cultivation.

Small sized tea gardens =>no economies of scale, unaware of world


supply-demand trends, cant invest in high yielding tea bushes/replanting
etc.

Therefore, such small farmers should be organized under a producer


company / collective farming where each farmer has a shareholding in the
producer company equivalent to his contribution to total tea sales.

Government needs take proactive steps to encourage ^this.


High labour costs

As per The Plantation Labour Act 1951, Tea companies need to

provision under Plantation Labour Act

implication for the tea estate owner

Maintain a minimum number of employees


pay certain minimum wages

Salaries alone account for ~55% of operation cost


(way higher than Vietnam / Argentina)

Provide other amenities to workers (housing,


school etc)

High cost of labour welfare. (compared to Sri lanka,


Kenya)

Thus plantation labor act increases cost of production. Hence, tea estate cant afford replantation/
cloning=lower yields every year.
lets look at some more negative factors

RAINFALL

FERTILITY

Erratic rainfall pattern causes frequent landslides in the hilly terrain, causing
huge damage and heavy losses to the estates.

During rainy season, even workers refuse to come due to fear of landslides.

erratic and heavy rainfall=>soil erosion from hills=>fertility declined

Hence farmers started using more chemical fertilizer=>harm to environment


and long term yields of tea.

POLLUTION

over the years, urbanization + deforestation + vehicular traffic=air pollution.


negatively affecting tea-yields.

Poor infrastructure, such as roads and bridges=> loss of workdays and a


deterioration in the quality of the tea.

In the Assam-Darjeeling region, the transportation of goods is highly timeconsuming and costly because of the poor condition of the narrow roads

during agitation for a separate Gorkhaland, when many tea estates were
closed for indefinite periods

Some mafia-type elements took advantage of the situation, unlawfully


and forcibly occupying a portion of land on each estate=>area under teacultivation declined.

ROADS

LAND
MAFIA

Taxation
TAX

tea plantation is subjected to

CENTER

STATE

corporate tax

tea cess, excise duty.

Agricultural tax. Varying from 30% or even more.

Purchase tax, employment & production cess.

Tamilnadu removed tea from agricultural tax though. Other major tea growing
states need to follow suit.

Unbranded, loose tea manufacturers at local level- they are not required to pay any taxes/
excise duty/corporate tax or any other state-level levies.

This leads to MRP price difference between branded and unbranded tea.

Branded Tea players see less demand= stretched financial condition= again, cant invest replantation
of tea shrubs.
Bought leaf factories

Bought leaf factories (BLF) have their own independent tea processing units

But they donot own tea plantations, they procure leaf from small growers via auction centers.

BLF factories are not subject to the plantation labour act or agricultural tax=> their operation
cost is lower than tea estates.
Exit

Initially, the fast-moving consumer goods (FMCG) companies like Tata tea and Hindustan
Unilever bought tea plantations in Assam and Tamilnadu to bring down the cost of raw
material.

but both had negative experience due to ^above Upstream issues, so by 2005, they sold
away plantations to former employees and other companies.

Now Tata and Hindustan Unilever focus on blending, packaging and marketing only.
Tea Auction

About 50% of world production continues to be traded via the auction mechanism.

Auction centres are located at all major producing countries, with the exception of China.

In India, Tea Auction centres located at Guwahati, Siliguri, Cochin, Calcutta, Coonoor,
Coimbatore and Amritsar.

Guwahati = largest CTC tea auction centre in the world.

Problem:= in auction, the brokers gulp down majority share. tea producer doesnt get fair
share.
Tea Supply Chain: Downstream

DESI
CONSUMER

YOUTH
DEMAND

~90 of tea manufactured in India is of the CTC variety

local demand for green tea= negligible

But in foreign countries, the demand for green tea and non-CTC orthodox
variety=high.

Therefore, Indias export potential not fully utilized.

Among the Youth coffee and fruit juices perceived to be more

contemporary and tea is regarded as an old fashioned drink= slight decline


in demand.

PREMIUM

The premium tea (Expensive brands) = very small demand in India, not even 10%
of total tea sales.
Export related

leading exporters

importers

India, Sri Lanka, Kenya, Indonesia and China.

Russian Federation, UAE, Iraq, UK and Kazakhstan

lets check the issues

LOW VALUE
ADDITION

KENYAN
COMPETITION

Fall of USSR

TRADE
AGREEMENTS

A significant proportion of Indias exports are in bulk form to UK,


Netherlands.

They blend our tea varieties, repack and re-export it to other countries
@higher price.

Kenya is emerging as a significant competitor

it has ~65 % market share in Pakistan

also penetrating in Iraq.

Earlier, Indian producers had attuned their production to suit


the requirements of the erstwhile USSR, given its dominance in
consumption and imports. They did not focus on alternate markets.

but now USSR has collapsed and newly emerged CIS countries prefer
to import cheaper tea from Sri-Lanka, Kenya, Bangladesh, Indonesia
etc.

Thus, our share in world tea export has declined.

India has entered into Trade Agreements with Nepal and Sri Lanka,
which have resulted in imports of tea from these countries into India.

Indian tea sector already facing high competition from 1) loose


unbranded tea @Domestic level 2)Kenya, China @foreign level. Hence
Trade agreement with Nepal-SriLanka and subsequent competition from
their tea players in Indian market=insult to injury.

The combined negative effect of all of above upstream, downstream issues can be seen in following
table:

Indias % share in world export

1970

2011

tea

33%

10%

another table:

2011

export in Rs. cr.

teas share in Indias export

Indias % share in world tea-export

tea

4000

less than 0.5%

10%

Meaning: despite favorable agro-climatic conditions and cheap manpower, tea doesnt fetch us much
export earnings.
Foreign consumer Preference
BLACK TEA

GREEN TEA

fruit/herbal tea, oolong tea, white tea,


mint, chamomile, organic tea

~70% of global tea drinkers prefer black tea.

Preferred in far east, Japan.

Although its popularity is rising elsewhere, mainly


due to its perceived health benefits.

both Green tea and black tea are made from the
same tea plant, Camellia sinensis

Small demand, but much potential in US/Western


Europe and other non-tea drinker countries.

Future strategy

1.

Government needs to streamline taxes, help estate owners to plant new shrubs.

2.

In the traditional tea-drinker Western markets (i.e. UK, Ireland, Netherlands, Australia, New
Zealand) strong growth in tea-demand is unlikely. Because their younger population is
shifting towards Coffee. Tea is regarded as an old-fashioned drink.

3.

Indian government + tea growers need to make marketing/awareness campaign about the
health benefits of green/herbal/organic tea to create its demand in non-tea drinkers and youth
abroad.
Tea Board of India

1.

Statutory body under the Ministry of Commerce.

2.

The Board has members drawn from Parliament, tea producers, traders, brokers, consumers,
and representatives of Governments from the principal tea producing states, and trade
unions.

3.

The Board is reconstituted every three years.

4.

Provides Financial and technical assistance for cultivation, manufacture and marketing of tea.

5.

helps plantation workers and their children through labour welfare schemes

6.

Darjeeling Tea is given GI-status (Geographical indicator), Tea board coordinates with foreign
agencies to see that it is strictly enforced.

7.

Export Promotion

8.

Data collection, analysis, R&D etc.


Coffee: Scope/Significance

India is a small but competitive producer of coffee

India is the fifth largest coffee producer in the world.

The Indian cafe business is estimated at ~1500 crore rupees, and is expected to grow at
more than 10% per year.

Plantations are eco-friendly, also provide the perfect habitat for birds.

2011

export in Rs. cr.

%share in Indias export

Indias % share in world export

coffee

4500

less than 0.5%

2%

(Source: Economic Survey 2012)


Location
Coffee growing regions in India can be grouped under three distinct categories:

Traditional areas

Southern states of Karnataka, Kerala and Tamil Nadu.

Bababudangiris in Karnataka, known as the birthplace of coffee in India.

Non-traditional

Andhra Pradesh and Orissa in the Eastern Ghats.

North Eastern
region

Seven Sister states of Assam, Manipur, Meghalaya, Mizoram, Tripura,


Nagaland and Arunachal Pradesh.

for more on location factors: refer the [Geography] article click me


Two main coffee-varieties grown in India:

ARABICA VARIETY

ROBUSTA

In terms of % area under cultivation: TN leads

Kerala leads.

Higher cost of cultivation

less

needs more labour

less

more susceptible to stem borer disease

less

Coffee Supply Chain: Upstream issues


1.

Price of Coffee beans susceptible to fluctuations in international commodity market.


Sometimes coffee farmer gets merely 5% of the final price.

2.

Drought across the key coffee-growing regions of South India

3.

Stem borer attack wiping out coffee plantations.

Solutions?

1.

Crop diversification. Apart from coffee, the planter should also start vanilla, cocoa, cinnamon,
cashew , pepper, cardamom, cinnamon, medical and aromatic plants. (Depending on soilclimatic conditions).

2.

Such crop diversification would ensure continued employment of the existing labour force
without affecting the ecological balance.

3.

Problem? = The state land ceiling acts do not permit reduction in acreage under coffee. They
need to be amended especially for TN and Karnataka.
labor

The labor laws for the plantation sector stipulate that any person who is employed for more
than 90 days, needs to be treated as a permanent employee of the estate. And He must be
given gratuity, housing, education, canteen facilities etc.

Such labor laws impose an additional burden on the small coffee estate where labour is
required seasonally.

Further, coffee estate owners are moving to Robusta cultivation. Robusta variety needs less
labour than Arabica. (yet difficult to give VRS to redundant labourers because of the laws)
Organic Coffee

Organic coffee is produced by using only non-synthetic nutrients and plant protection
methods. (e.g. bio fertilizers and biopesticides).

It has high demand in the health/environment conscious consumers of Europe, US and


Japan.

At present, biggest exporters of Organic coffee=Peru, Ethiopia and Mexico. And India has
good potential for organic coffee production because:

1.

Traditional farming practices such as use of cattle manure, composting, manual weeding etc.,
already done in vast majority of small holdings.

2.

skilled manpower available for labour intensive operations like manual weeding, shade
regulation and soil conservation measures etc.

3.

Majority of these small holdings especially in Idukki zone of Kerala, Bodinayakanur zone of
Tamil Nadu and all the tribal holdings in Andhra Pradesh and the North-Eastern states are
already growing coffee using organic methods.

Suggestions:

1.

setup farmers collectives to ensure uniform quality.

2.

Agricultural extension services with special focus on organic farming methods.

3.

marketing abroad to showcase Indian coffees organic nature.


Taxation

Coffee growers are subjected to dual taxes

union

state

Income tax.

Coffee retains better quality if cured immediately.

But if coffee grower sells his coffee in cured form, he is subjected to income tax.=>It
discourage the coffee grower from value addition or curing. they sell coffeebeans in
unprocessed form=less income.

Agriculture income tax. Karnataka has imposed purchase tax on coffee=>tax evasion
by unregistered units, while honest grower suffers. This tax should be scrapped.

+Depreciation allowance should be provided on coffee plantations


Coffee Supply Chain: Downstream

Majority population =tea drinker. Domestic coffee consumption mainly in South India: Tamil
Nadu, Karnataka, Kerala and Andhra Pradesh + selected big cities.

coffee chains in India

no. of outlets

Annual Revenue in Rs. from EACH outlet (approx.)

Tata-Starbucks

11

1.5 crore

Coffee Bean and Tea Leaf

32

3.5 crore

Costa Coffee

100

60 lakh

Cafe Coffee Day

1200

40 lakh

No, UPSC is not going to ask ^this, but Im providing the info to show that coffeeshop is also a good
career backup option. Only challenge: real estate cost/rents in prime locations.
Govt.Control

For long, the domestic and export market of coffee was administered and regulated by the
Indian Coffee Board = typical inefficient marketing-distribution of a government agency.

But Coffee export was liberalized in the 90s, Indian Coffee Boards monopoly was
removed=export improved. But we were late to enter the game, Brazil, Columbia etc. already
had captured the international business. The top Coffee MNCs made contract farming
agreements with them and Indian coffee growers have been lagging behind ever since.
Cess

Coffee exports are subject to a cess= makes our coffee expensive in foreign market.

This export cess is pooled into the Consolidated Fund of India, BUT money not used for
benefiting the coffee sector (i.e. for estate upgradation, R&D, HRD etc.)

Government should either remove this cess or use its money for benefitting coffee sector.
Coffee bars

Globally, the largest growth in coffee markets is driven by liquid coffee retailing through coffee
bars and vending machines. E.g. Starbucks, Nescaf etc.

Other coffee growing regions are also capitalizing on this trend by establishing their own
brands of cafes in the major consuming regions. e.g. Juan Valdez, the icon of Colombian
coffee, has opened Juan Valdez coffee shops across the world.

In such business environment, exporting coffee beans alone, wont bring lot of money. We
also need to establish forward linkages e.g. Indian retail coffee bars abroad.

The combined negative effect of above Upstream-downstream issues can be seen in this table:

Indias % share in world coffee export

1970

2011

coffee

1%

2%

^as you can see very negligible rise in our export. (Source Economic Survey 2012)
Foreign Marketing
Indian coffee: Positive attributes

1.

A large proportion of coffee in India is shade-grown= superior taste,

2.

plantations are eco-friendly and provide the perfect habitat for birds

3.

Use of agro-chemicals for coffee is minimal in India= Indian coffee is near-organic.

Government + industrial associations need to make generic campaigns abroad, to highlight ^these
positive attributes of Indian coffee.

Monsooned
coffee

During monsoon season, Coffee beans swell because of the air-moisture. It


gets a mellow yet unique taste. This is called Monsooned coffee.

This variety is greatly appreciated by consumers in Scandinavian countries.

we should focus more on this variety + marketing campaigns abroad.

Although Japan and China are traditionally tea-drinking countries, coffee is establishing itself as an
everyday beverage, among the youth= potential for Indian coffee exports.
Coffee Board of India
1.

Statutory body under Commerce Ministry.

2.

Encourages the consumption of coffee in India and abroad.

3.

participates in Coffee/Food and Beverages exhibitions in India and abroad

4.

runs India Coffee Houses/Depots in the country.

5.

provides quality control via testing laboratories

6.

provides Market Intelligence & Statistical analysis to the industry

7.

research related to the coffee trade including WTO issues


Mock Questions

5m

1.

Tea Board Of India

2.

Coffee Board Of India

15m

1.

Despite favorable agro-climatic factors and labour availability, Indias share in


world coffee exports is negligible. Examine the upstream and downstream issues
responsible for this and suggest remedies.

2.

Despite favorable agro-climatic factors and labour availability, Indias share in world
tea exports has declined considerably over the years. Examine the upstream and
downstream issues responsible for this and suggest remedies.

Essay

1.

Like fire, government is a dangerous servant and a fearful master.

2.

To stimulate wildly weak and untrained minds is to play with mighty fires.

3.

Liberty, when it begins to take root, is a plant of rapid growth.

4.

An idea needs propagation as much as a plant needs watering.

Edible Oil: Supply-Chain, Upstream, Downstream, Onion-Crisis and ofcourse Desi-liquor


UPSC GS MAINS SYLLABUS

TOPICS IN THIS ARTICLE

Government policies and interventions for


development in various sectors and issues arising
out of their design and implementation.

fodder point on how Government tax sops


are hurting edible oil sector and how MSP for
wheat-rice hurts oil seed cultivation.
How Governments SSI reservation has
prevented growth of edible oil sector

cropping patterns in various parts of the country

for onion

storage, transport and marketing of agricultural


produce

for onion

Food processing and related industries in India-

For edible oil.+Some passing reference to


bread-butter and liquor industry (because they
too use agriculture inputs!)

This article marks the end of food processing series from my part but shouldnt mark the end from
your side because nothing prevent UPSC from asking any other topics not covered in these articles.
Keep an eye on newspapers, you can never know when youll get lucky.
Edible oil: Scope-Significance
1.

India is the worlds fourth largest vegetable oil economy after US, China and Brazil

2.

India is blessed with many agro climatic zones- allows us to cultivate Groundnut, mustard/
rapeseed, sesame, safflower, linseed, castor seed, coconut and oil palms.

3.

Edible oil industry in India has made an investment of Rs 10,000 crore and employs around 5
lakh people.

4.

Andhra and TN has good scope for oil palm cultivation.

5.

Since India is the second largest producer of rice in the world next to China, there is good
scope for rice-bran oil production.

6.

Good scope for Tree Borne Oilseeds (TBO).(more details in middle part of this article)
Edible oil: Location

Oilseeds area and output is mainly concentrated in Central and southern parts of India.

oilseed

top 3 states (2011 data)

Groundnut

Gujarat, Tamil Nadu, Andhra Pradesh

Rapeseed & Mustard

Rajasthan, Madhya Pradesh, Haryana

Soyabean

Madhya Pradesh, Maharashtra, Rajasthan,

Sunflower

Karnataka, Andhra Pradesh, Maharashtra

Total Oilseeds

Madhya Pradesh, Rajasthan, Gujarat

REGIONAL PREFERENCE:

edible oil

Preferred in ____ India

mustard/rapeseed

North-east

Soybean

North

groundnut

west

Coconut oil

south

In terms of overall consumption: Palm oil (mainly imported) >>soybean >>mustard oil>>groundnut oil.
Upstream issues
#1: Low supply of oilseed
From late80s to mid90s, the oilseed production in India was good because

1.

Government had launched Technology Mission on Oilseeds (TMO) program to boost oilseed
production.

2.

During that time, MSPs for grains were kept in check (now theyre quite higher oilseeds)

3.

Government controlled imports = low imports of edible oil.

But in later years, oilseed cultivation declined because:

1.

In 94, government liberalized edible oil imports=> consumers shifted to cheap varieties like
Palm oil and Soybean oil.

2.

In recent years, Government has raised the minimum support prices (MSP) for foodgrains
more than MSP for oilseed. Farmers find it more lucrative to grow wheat/rice than oilseed.
Although Government shouldnot Increase in the MSP of oilseeds, because itll lead to
corresponding increase in the market price of such products=>both consumer and oil refiner
will suffer.

3.

Hardly any agri-research on developing new varieties + contentious issue of GM crops=>


Indian oilseed yields are 50% of the global average and one-third of the worlds best.

Result?

1.

Domestic oilseed cultivation is insufficient to meet desi-demand of edible oil.

2.

More than 40% of edible oil demand met through imports. Leads current account deficit =
rupee depreciation.

3.

In 2011 alone, we imported edible oil worth more than 45,000 crore rupees. (=~2% of import)
#2: Oil palm cultivation

Palm oil forms significant part among the imported edible oil. We need to become less dependent on
imports. Solutions?

1.

Focus on Andhra Pradesh, Karnataka and Tamil Nadu enhance local production.

2.

Oil palm has long gestation period (4-5 years) =farmers are hesitant to shift to oil palm
because of the fear what will we earn during those 4-5 years?=> Government should
promote intercropping (Banana, Maize , Chilies and Vegetables in the first three years), to
make oil palm plantation more sustainable and economically viable.

3.

Government should declare Minimum support price for Oil Palm.


#3: Improve yields per hectare

Under the current MSP regime, economics are superior for wheat and rice than oilseeds. (from
farmers point of view)=> it is difficult to get more area under oilseed cultivation. Solutions?

1.

For different agro climatic zones of the country, develop early maturing and disease resistant
varieties of oilseeds with higher oil content.

2.

Encourage private sector participation and direct farmer processor linkages. This would
ensure adoption of superior crop management practices.

3.

Promote selective mechanization in farming e.g. Groundnut digger and decorticator,


sunflower harvester, scotching machine for linseed etc.)

4.

Promote oilseed cultivation in areas with low-irrigation, salinity problems.

5.

Develop warehouse receipt based financing. Itll allow farmers to store the output and sell it at
favorable prices.

6.

Integrated nutrient management, bio-fertilizers, micronutrients, drip irrigation, farmers training


etc.
#4: Rice Bran

Rice Bran Oil is obtained from the outer brown layer of rice.

Rice Bran oil is Heart Friendly Healthy Oil.

Were the second largest producer of rice in the world next to China, with potential to produce
about 1 million of Rice Bran Oil per annum.

But rice-bran oil production hasnt pickedup the momentum yet.

There is need to modernize the huller rice mills => easy separation of husk and bran. Then
bran can be used as raw material for rice-bran oil.
#5: Tree borne oilseeds (TBO)

Examples?

1.

Sal

2.

Mango Kernel

3.

Mahua

4.

Neem

5.

Karanja

8.

Kokum

6.

Jojoba

9.

Kusum

7.

Chura

10. Tung

TBO: significance?

1.

Tree borne oils grown in forest, non-agricultural land= less harmful to ecology (Compared to
fertilizer, pesticide based farming.)

2.

generates employment in tribal areas

3.

helps rural and cottage industries

TBO product

can be used as

Neem and karanja cakes

manure with pesticide properties.

De-oiled meals of sal and mahua

Cattle feed.

Vegetable fats from sal, mango kernel,


kokum, dhupa etc

as cocoa butter in the chocolate industry

oils and fats from all of these TBO

soaps, lubricants, paints, varnishes, bio-diesel, hair oils,


cosmetics and medicines

There is a growing trend among international chocolate manufacturers, to use TBOs fats from
Western Africa/Indonesia. This highlights the export potential for Indian TBO. Following should be
done to utilize this potential:

1.

increase awareness among tribals about TBO

2.

improve collection facilities

3.

Improve marketing network, export linkages.


@processing level

Unnecessary tax exemptions

Many state governments offer tax-exemptions to new oil processing units.

Result=>Old units (which have outlived the tax-exemption period)= they become
uncompetitive.

Thus new units keep adding despite existing industry-wide surplus capacity.

The average profit margins for oil-processing in edible industry are low (<5%).

Therefore, the government should not provide any tax incentives, which create a non-level
playing field for existing players vs new players
Economies of Scale

Edible Oil production involves three stages

1.

crushing and expelling (separating oil from the solids),

2.

solvent extraction (to chemically remove residual oil from the oilcake solids)

3.

oil refining

In EU, US, China above three processing stages are done in one vertically integrated plant= shortercompact supply chain=economies of scale.
But in India, the Crushing of groundnut, rapeseed/mustard , safflower and sunflower =reserved for the
small scale sector. These small scale institutes make up more than 75% of edible oil industry.
Result?

1.

poor economies of scale.

2.

Lack of significant investments in large, integrated processing plants.

3.

lower oil recoveries from oil seeds (because outdated equipment technology)

Solution?= Dereservation would allow for crushing of seed and solvent extraction of cake to be carried
out in the same complex. This will increase oil recovery. As per industry sources, due to economies of
scale, the cost price for the final oil produced would be lower by 2%.
PLAYER TYPES:

Ghanis

Ghanis are small traditional (cottage industry) crushers, mainly in rural


areas.Covered by SSI policies.

Small scale
expellers

relatively modern facilities than Ghanis.

Solvent
extractors

They crush and process hard oilseeds with low-oil content such as soybeans and
extractors cotton seed as well as chemically extract residual oil from the oilcake

processed by above SSI players

These plants refine solvent-extracted oil. However, oil refiners are usually not
integrated because of the SSI problem.

Oil Refiners

NOTABLE PLAYERS

Edible Oils

National Dairy Development Board (Anand), ITC Agro- Tech (Secunderabad), Marico
Industries (Mumbai), Ahmed Mills (Mumbai)

Vanaspathi

HindustanLever (Mumbai), Wipro (Bangalore), Rasoi (Calcutta), Avi Industries


(Mumbai)

Oil brands

Sundrop, Dhara, Saffola, Sweekar, Postman

1.

Wilmar, the largest palm oil conglomerate in the region, already owns one of Indias largest oil
refineries in collaboration with the Adani group.

2.

Bunge Agribusiness India, bought Dalda Vanaspati from Hindustan Lever Ltd
Entry of foreign players

100% Foreign Direct Investment ( FDI)is allowed in Indian vegetable oils and vanaspati in industry
through the automatic route.
Past few years, foreign players have setup port-based edible oil refinaries in India. Location factor?

RAW
MATERIAL

MNC players source oils/oilseeds from other countries where they have a
sizeable presence.This reduces the cost of raw materials and improves their
competitiveness.

TRANSPORT

Port location= can import crude edible oil/oilseeds, refine and distribute it.Refined
oil is then transported by rail.

TAX

duty differential between crude and refined oils makes it advantageous to import
crudeoil and refine it in India.
Port-based refineries also enjoy tax concessions for a few years in certain states.
Downstream issues
#1: Tax Uncertainty

2001: import duty on both sunflower oil and safflower oil increased from 35% to 75%,

Result: MRP of those two oils increase and consumers started shifting to cheaper varieties
e.g. soybean oil. =this type of quick shifts are bad for desi oil producers.

Thus Frequent change in import duties increases operational complexity and uncertainty for
the domestic oil processing industry.

we Need stable taxation policy for edible oils @both union and state level. Lahiri Committee
Report on Edible Oils said the same thing.
Price

Indian consumers are very sensitive to prices. Price of edible oils is the biggest driver for
consumption. We can see it from following evidences:

1.

Only a small percentage of edible oils are sold in branded form. (Because branded oil attracts
more taxes=>more expensive)

2.

The penetration of branded oil is barely ~30% in Urban areas and ~10% in rural areas.

3.

Soybean oil, Palm oil => cheaper than other varieties. In recent years, their
import+consumption has increase significantly.

4.

Consumption of olive oil (mainly imported) = negligible, due to high prices. Olive oil mainly
used by high income families and premium hotel/restaurants only.
#2: Health concerns

Exports get rejected because:

1.

Aflatoxin in groundnut and cottonseed,

2.

glucosinolate in rapeseed / mustard

Because Local oil businessmen lobby (and their election funding) => most state Governments are not
stringent about edible oil quality.
Recent innovations by edible oil companies:

INNOVATION

how

Branded players have improved the packaging for customer convenience e.g.

PACKAGING

BLENDED
OIL

1.

Tetra packs,

2.

easy-to-pour pouches,

3.

taps on 15-litre containers

Companies are launching blended oils, combining the health benefits of two
types of oils. e.g. a blend of Sunflower oil and Ricebran oil in the ratio 20:80

Some of the leading blended oils include: Soybean + Sunflower, Ricebran +


Sunflower, Ricebran + Safflower , Corn + Safflower etc
#3: Adulteration

Crude palm oil=>refine=> Palm oil + by-product Stearin

Stearin is non-edible fat, and used for soap manufacturing. Can also be imported at a very
low custom duty.

Thus, some bogus players use (imported) stearin for making fake vanaspati oil. This is bad for
both

consumer health

other businessmen that manufacture real vanaspati oil.

Solution

Increase custom duty on cheap stearin import + Increase vigilance.


#5: Unfair trade agreements

1.

Under the current free trade agreements with Sri Lanka / Bangladesh / Malaysia / Indonesia,
crude palm oil is imported @0% duty. Then used for making palm oil. Result=>desi palm
farmers dont get good prices.

2.

Malaysia and Indonesia-the two biggest exporters of palm oil- give subsidy to their refiners.

3.

On the other hand, Indian government has moved in the opposite direction- imposing more
and more duty on desi refiners.

4.

Already one refinery has shut down while many others are struggling- leading NPA problems
for banks.

5.

When edible oil refineries shuts down=>negative impact on soap industry as well, because
Stearin is keyinput for soap making. Stearing is generated as a by-product during the edible
oil refining process.

6.

To counter this, and to protect its own refining industry, the Indian Government should levy
higher import duty on Refined Palm Oil/Palmolein coming from Malaysia, Indonesia.
#6: Soybean export

Because of the concerns over genetically modified food, many customers in Europe, Japan prefer
non-GMO soybean products. Indian Soybean is non-GMO= weve good export potential. But following
needs to be done:

1.

Government + industrial associations need to make focused promotion campaigns in US/EU


to highlight that Indian Soybean is non-GMO.

2.

Government should provide transport subsidy for soy meal exports because most of the
processing units are located in the hinterland.

3.

Soybean Meal needs to be classified and included in the Vishesh Krishi Upaj Yojana
(Special Agricultural Produce Scheme) to boost exports. By the way, this scheme was started
to promote export of fruits, vegetables, flowers, minor forest produce and their value-added
products. Exporters of such products shall be entitled for duty credit scrip.
Onion Crisis

Onion crisis is too clichd-blow-out-proportion topic, hence the chances of getting a UPSC Mains
question=very low. But still here it goes:
India produces all three varieties of onion red, yellow and white.

REGION

ONION GROWN DURING ___ SEASON

North India

winter (Rabi)

South and Western India

both winter (rabi) and rainy (kharif) seasons.

TOP PRODUCERS OF ONION (2010 DATA)

World

India

1.

China

1.

Maharashtra

2.

India

2.

Karnataka

3.

USA

3.

Gujarat

4.

Egypt

4.

Bihar

5.

Iran

5.

MP

#1: Low yields


Although India is second largest onion producer, our per/hectare yield is significantly lower than other
countries such as Korea, USA, Spain and Netherlands. Why?

1.

Poor irrigation facilities, irregular monsoon.

2.

use of local variety seeds,

3.

small land holding and poor economic background of farmers,

4.

lack of use of improved method of cultivation,


#2: Nuisance of Middleman
Small and marginal farmers are compelled to sell their produce immediately
after the harvest because

FINANCIAL
DISTRESS

ASYMMETRY OF
INFORMATION

They needs instant cash repaying earlier loans, family expenses,


purchase of inputs for next season.

Cannot afford the transport cost to bring their onions directly to


markets in metropolitan areas, nor they can afford the storage costs in
warehouses.

Farmers generally take reference of the local markets rates before


selling their onions.

But traders compare rates of all markets, including major distant and
export market and then decide where to send their produce or just
hoard it until prices rise up.

Commission agents and wholesalers have huge turnovers. This


creates oligopoly like situation in the market, and restricting entry for
new entrants.

Even during APMC-auctioning they collude together and keep the


bidding price low.

Onion Traders wear many hats by bending (not breaking) the APMC
rules.

Same individual simultaneously works as

OLIGOPOLY

Middlemen

STRIKES

commission agent cum wholesalers

order suppliers,

forwarders cum store owners

some are even transport or railway agent too!

They have different firms with or without licenses to handle same


function!

Result? =They make lot of money through commission, control the


supply of onion, and thus the retail prices.

Whenever government tries to reform APMC mandi, these agents and


Market functionaries often resort to a strike which finally ends up in
market closure.

Storage

Farmer from distant part has to go empty handed / his produce gets
wastage because of such strikes

For historical and financial reasons, large storage capacities for onion
have remained with private traders and that too in Nasik belt= they can
hoard the onions and create artificial scarcity to increase prices.
#3: Lack of onion cooperatives

In the dairy article, we saw how dairy cooperatives saved the farmers from exploitation and
empowered the women and weaker sections of the society. Then why cant same story repeat with
Onion cooperatives?

1.

Due to various agro-climatic reasons, onion belt is in actually a scattered chunk of large
number of smaller sub belts. This prevented liaison and coordination among farmers of
various tehsils.

2.

Farmers dont have the trading expertise, market knowledge and risk bearing capacity- hence
their cooperatives havent been successful in onion business

3.

Onion traders with deep pockets, can maintain yearlong expenses even in lean seasonfarmers cooperatives cant.

4.

Consumers in different regions of India have different requirements of Onion

REGION

Consumers PREFER

eastern India / Bangladesh

small sized onion

North and West Indian

bigger sized onion

Traders buy onions small lots from the market yards and pool the produce for sorting /
grading

Then, they send different grades to different markets all over India.

But Individual farmers/ farmers cooperatives lack the training and resources to do this.
Export policy

1.

Governments export policy on onion has been unpredictable.

2.

Unseasonable rains in late Sept and Oct 2010 destroyed the onion crop. Yet the government
agencies allowed traders to export more than 1 lakh tonnes of onion in October 2010.

3.

Nowadays, whenever onion prices begin to increase, government bans the export (without
fixing he fundamental problems) still exporters manage to sell onions though fake documents.

4.

As a result, Indian traders and farmers lost their credibility in the export markets as unreliable
suppliers. Foreign buyers prefer onions from other countries over India.
Lack of Irradiation

Food irradiation= foods are exposed briefly to a radiant energy source such as gamma rays
or electron beams. This kills harmful bacteria and increases the shelf life of the crop.

food irradiation increases onion shelf life by stopping sprouting which causes the crop to spoil.

BARC had setup a food irradiation unit in Lasalgaon in Nasik district of Maharashtra.

This Lasalgaon plant can irradiate 10 tonnes of onion per hour.

But In the last four years, not a single onion has been irradiated here. Irony is many of
the farmers in this area are not even aware of this facility-. I do not know what happens
inside. But my friends tell me that it is a facility used to make and test bombs, says
Nandu Kor, an onion farmer from nearby village!

Current Onion crisis (Sep13) is blamed on following:

1.

Much of the stored onions of last years crop are exhausted= hence shortage.

2.

Onion districts of Maharashtra were facing severe drought. Farmers had to hire water
tankers and brought water from 30 and 40 kilometers to their onions. Thus, cost of input
increased=>MRP also increased.

3.

The ongoing rains have also stopped the arrival of fresh crop from Rajasthan, Madhya
Pradesh, Andhra Pradesh and Tamil Nadu because of transport and logistic problems.

4.

New crop from South India is yet to arrive in the Northern cities of India. (most probably in
October)

5.

From Sept 7 to 15: Lasalgaon market (Asias largest wholesale market for onion) was closed
for five days due to holidays and weekends. This led to decline in onion supply in the market
=Price rise.

6.

Traders with political affiliation are hoarding onions to raise prices and create an issue before
state assembly elections
NAFED & Onion Crisis

NAFED functions:

1.

National Horticultural Research and Development Foundation

2.

Was setup under the Multi State Co-operative Societies Act.

3.

To promote Co-operative marketing of Agricultural Produce to benefit the farmers

4.

To undertake import, export , wholesale or retail of agricultural, horticultural, forest and animal
husbandry produce.

5.

manufacture of agricultural machinery and implements

6.

Marketing of manure, seeds, fertiliser, agricultural machinery etc.

7.

Act as warehouseman under the Warehousing Act.

8.

Construct its own godowns and cold storages.

9.

marketing research-analysis, International collaboration, PPP, HRD, R&D and other fancy
things.

ROLE IN ONION CRISIS

1.

NAFED is responsible for fixing the minimum export price (MEP) of onion in collaboration with
DGFT (Director General of Foreign Trade).

2.

When there is shortage of onion in desi market, NAFED will increase the Minimum export
price (MEP) to reduce the export of onions.

3.

Example: In August-2013: the MEP for onion was $650 a tonne. Meaning as an export
you cannot send onion abroad for a price cheaper than $650 (although many exports fake
documents and send onions anyways)

4.

NAFED intervenes in the domestic marketing whenever there is glut in the market and prices
reach uneconomical levels. In such situation, NAFED procures onions from farmers and
traders.

5.

In extreme case, it also imports onions from abroad. E.g. during current September crisis,
NAFED floated a global tender to import onions from Pakistan, Iran, China and Egypt to boost
domestic supply and curb prices.
Solutions?

PANCHAYATI
RAJ

DESTROY
OLIGOPOLY

EXPORT

INFRA

1.

Under 11th Schedule of constitution: the markets and fairs fall under
the purview of Panchayats. State governments should empower the
Panchayats to carry out this function efficiently. (rather than relying on the
APMC mechanism)

2.

Encourage free entry of new commission agents and traders (including


private companies).

3.

Mandate NAFED to procure onions directly from farmers.

4.

Promote direct sales of farmers to retail chains.

5.

Weed out market intermediaries that are engaging in unfair practices


(like low price bidding; collusion; hoarding to create artificial scarcity etc.
Cancel their licenses, put fines and penalties,

6.

Since APMCs seem to be largely dominated by traders lobbies, APMCs


need to be reformed and strengthened to avoid collusions and hoardings
in the markets.

7.

Discouraging export ban on onion and arbitrary fixation of MEP as these


will have long run effect on market functionaries as also farmers

8.

Encourage farmers to use the food irradiation facilities.

9.

Improve the weather forecasting system in the major onion producing


area. This would help in taking appropriate decisions about onion export.

10. R&D, new farm technology irrigation etc.


Basmati

just some fodder points

1.

India is the largest producer and exporter of Basmati rice in the world.

2.

At present, Haryana accounts for over 50% of total basmati rice production in India, Punjab
accounts for 15% and the balance is cultivated in Uttaranchal and UP.

3.

Key export markets for Indian basmati are the Middle East, Europe and the United States.

4.

Middle East accounts for bulk of basmati exports because of the large South Asian expatriate
population.

5.

Small players account for a significant proportion of Indias rice exports, some of whom do
not adhere to the requisite quality requirements. This creates a negative perception, not only
about specific players, but also about the country of source i.e. India.

6.

Negligible focus on identity preservation. (Indian basmati rice or India durum wheat). In US/
EU the marketing focus must be on how Indian varieties are non-GMO.

7.

Therefore, it is essential that the Government via APEDA, undertakes necessary steps to
educate exporters and ensures compliance with norms.
Bread-Biscuit

Just some fodder points.

BREAD

The bread industry is expected to register rapid growth driven by consumers


need for convenient food options for breakfast as well as increased propensity
to snack

Bread-based foods such as burgers, sandwiches and pizzas, are becoming the
key food offerings of most restaurants.

White bread dominates market but brown bread demand growing due to health
benefits.

For long, the biscuit industry was reserved for the SSI sector=hampered the
growth and economies of scale. But after de-reservation, the biscuit industry has
picked up the growth momentum, SSI units have joined as franchisees of large
biscuit manufacturers.

Factors contributing to growth

BISCUIT

1.

Aggressive TV marketing

2.

Product differentiation through convenient packaging, (smaller packs at affordable


price points of Rs.5, 10)

3.

Product innovation (such as Little Hearts, and Good-day brands of Britannia


and Hide and seek brand of Parle) has resulted in increased sales and superior
price to manufacturers

4.

Growing income levels and increased consumer spending on high value food
items.
Two types of wheat

Bread Wheat

Durum Wheat

Grown North India

Central And South India

largest area under


cultivation

less

soft to medium

very hard

less

high protein and high gluten strength

less

Indian durum varieties have a high level of resistance to leaf rust and other
diseases

not much

Middle East, South Africa and Mediterranean countries are the potential
clients for Indian durum wheat.

Challenges:

There is negligible on-farm cleaning

no permanent storage structures available at the field level.

The grain is handled manually. Impurities and moisture levels translate into higher losses
along the chain.

click to enlarge
Supply Chain Britannia

EDIBLE OIL

Crude palm oil from Malaysia and Indonesia=> Kandla port


->refined ->sent to Britannia plants.

SUGAR

Sugarmills in Maharashtra and Bangalore- prepare


specialized syrup and sucrose for biscuits.

UPSTREAM

From UP, Punjab, Haryana, Raj.,MP, Gujarat


and Bihar=>goes to organized flour mills such as
Krishna floormill in Bangalore.

These mills make flour for Britannia as per the


requirements of bread and biscuits.

WHEAT

Has units in WB, Delhi, Uttaranchal and TN. Almost 1/5th


of its output is generated by factories in Tamilnadu.

PROCESSING

DOWNSTREAM
(RETAIL)

GENERAL

Distributors=> Kirana, Provision stores, shopping malls

INSTITUTIONAL

via hotels, airlines, canteens, hospitals.

MSP problem
(Although highly debatable if you dont believe in free market economy.)
From Governments point of view:

FARMERS

POORS
MIDDLECLASS AND RICH
PEOPLE

Announce high MSP (minimum support price) for them

Procure wheat/rice from them via FCI and distribute it to


poors via PDS shops.

Give them cheap / free rice and wheat via PDS.

Collect taxes from them to run this MSP-PDS structure.

This MSP-PDS structure is bad, because:

1.

FCI is becoming the first and often the only buyer of wheat. But FCI godowns= small-scale,
low-quality structures=> grain rotting. Food Corporation of India should be the buyer of last
resort.

2.

Farmers shifting to wheat. Cultivation of sugarcane, oilseeds, and pulses declined. Sugar and
edible oil prices increased=food inflation=middleclass suffers.

3.

In global commodity business, the wheat prices go up and down significantly but Indian wheat
price remains always high (because of high MSP). Hence, price-wise India wheat is not
competitive in exports (compared to Americans and Canadians.)

4.

Desi Bread-Biscuit industry also suffers because outdated APMC act=they have to procure
wheat through APMC mandis=nuisance of middleman=high cost of raw material.

Therefore, MSP-PDS system should be removed. Instead government should do following:

1.

Instead of MSP, give Income support system to farmer through Kisan Credit Cards.

2.

Remove APMC middleman. Encourage direct linkage between farmers and food
entrepreneurs.

3.

Remove PDS shops. Just give them direct cash transfer to poor families so they can buy from
normal shops.
Taxation

Bread-Biscuit Industry subjected to variety of indirect taxes.

Via GST, there is need to streamline all indirect taxes (Centre as well as State) across the
supply chain for grain and grain based products.=benefit to both consumer and producer.

Essential Commodities Act (ECA) leads to several hindrances including easy inter-state
movement of food grains and essential food items.

90s: central government announced its policy to treat the entire country as a single food zone.
However, there is ambiguity with respect to the government policies as State Governments
continue to impose restrictions on movement and storage of agricultural produce.
Need for innovation

Most companies in India produce bread or biscuits of a single variety; such as white bread
and sweet glucose biscuits respectively.

But a variety of products can be made by changing the shape, recipe, and by incorporating
other ingredients or processing conditions.

In countries such as West Germany as many as 200 varieties of breads are made, both in
large and small scale bakeries.

Similar product innovation is necessary in India, to become export competitive.


Liquor Industry

Although this is not really a food processing industry and there is low chance UPSC will ask
something about liquor industry supply chain management given its taboo nature. But just for
timepass and educational purpose, here it goes:
Upstream issues

BEER

Beer is made from malt. But good quality malt not available easily.

Need APFC reforms to promote direct purchase arrangements with farmers growing
barley vs beer manufacturer.

WINE

All wine manufacturers have faced capacity constraints, largely on account of lack of
availability of raw material (grapes)

For every lakh liter of wine produced 35 acres of vineyard is required.

Although 75,000 acres of land is under grape cultivation, wine grapes account for
under 2000 acres currently.

Maharashtra is the largest producer of wine grapes in India, and Karnataka second.

Need to have direct farmer vs wine processor linkages be facilitated through


amendment of the APMC Act, to encourage farmers to cultivate wine grapes.
Processing

BEER

Through merger acquisitions, small players are gone, and the top 2 beer players in India
account for about 75% of beer sales=>economies of scale achieved.

1.

The cost of wine-production in India is comparatively high since economies of scale


have not been achieved yet

2.

Wine bottles, corks and shrink caps are usually imported, either because of nonavailability or cost.

3.

Therefore, the cost of bulk wine of average quality from India works is much higher
than Australia, Chile, Italy and France.

4.

There are no institutes which offer training/educational programmes for wine


manufacturing

WINE

Taxation

The duty structure on beer is complex and varies across states

Beer is subjected to excise duty, interstate transportation: Import taxes, charged by the
destination state and export tax (levies) charged by the producing state.

Mahrashtra and UP= all these taxes raise beer MRP by 40% =>leads to smuggling, illegal
sales, mafia-police-politician nexus to evade taxes.

SOLUTION: need to rationalize taxation structure for wine and beer. Experiences from other
countries reveal that lower taxes can result in greater compliance and therefore higher tax
revenues
Downstream: Liquor Retail- 3 models

(Common for wine and beer)

Open Market / Free


Market

State Government decides on the number of wholesalers and


retailers and gives licenses for a pre-defined price and time
period.

Liquor companies can appoint their distributors and retailers.

Pricing is market-determined

Excise is payable when the goods leave the manufacturing unit


or warehouse.

Example: U.P., Maharashtra, Goa, J & K, Madhya Pradesh,


Assam, West Bengal

Private distributors participate in an auction to win license.

Distributors establish their own retail network and source


products directly from liquor companies. (Notice the difference:
in first model, Liquor Company can appoint its distributors, here
distributors have freedom to pick companies.)

Pricing is determined by syndicates.

This model leads to a high degree of cartelization and liquormafia elements.

Example: Punjab, Rajasthan, Bihar, H.P., Haryana

State Government controls the wholesale segment, through its


agencies.

In certain states, even retail segment is also controlled by the


Government.

State agencies purchase directly from liquor companies.

Excise is paid either by the manufacturer or the State agency

Pricing is fixed by the state.

This model restricts entry of new brands.

Example: Tamil Nadu, Andhra Pradesh, Kerala, Delhi,


Chandigarh, Karnataka, Orissa.

AUCTION MARKET

GOVERNMENT
CONTROLLED
(Communist model?
lolz)

Export: Beer

Chinese beer market has about 400 brewers, of which the top 10 account for only 45% of the
market. This has resulted in low profit margins for Chinese beer companies.

In contrast, the top 2 beer players in India account for about 75% of beer sales in India and
the industry will undergo further merger-acquisition in the near future=economies of scale for
Indian beer makers.

Thus, there is an opportunity to capture Chinese market though cheap Indian beer.

Export: Wine

PREFERENCE

Wine is mainly consumed in urban India, with a high proportion being in the
large metros.

Red wine is the single largest type of wine consumed, followed by white
wine

Goa, being a favorite tourist destination, also account for a significant


proportion

The willingness of western aficionados to try out different types of wine is


likely to be the major driver.

The success of New World wine makers in Chile and South Africa should
be an excellent example to the Indian industry.

EXPORT

Mock Questions
5marks

1.

NAFED

2.

Tree borne oilseeds

3.

Rice bran oil

15marks

1.

The recent Onion crisis is the result of market inefficiencies, weak supply chains and
monopolies in the market. Examine this statement and suggest remedies

2.

The hike in minimum support prices of certain crops is blamed for the food inflation and
declining area under cultivation of pulses and oilseeds. Should government do away with
MSP-regime? Yes/No/Why?

3.

Despite favorable agro-climatic factors, a significant demand of edible oil is met through
imports. Examine the upstream factors responsible and suggest remedies.

4.

(GS4) Article 47 of the constitution says: The state shall endeavor to bring about prohibition
of the use except for medicinal purposes of intoxicating drinks and of drugs which are
injurious to health. then is it unethical for the state agencies to sell liquor? Yes/No/Why?

Essay
1.

A politician thinks of the next election. A statesman, of the next generation.

2.

Democracy is a form of government that substitutes election by the incompetent many for
appointment by the corrupt few.