[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 ^that’s not “the end”. Food processing topic also overlaps with

1. Ministries and Departments of the Government

GS-2 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;
GS-3
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-Meat-Fishes, Confectionary, Wine, Edible oil etc.

References used for this article series

Source Title Comment

1. A Manual for Initial chapters provide the

Entrepreneurs: Food challenges/problems with food processing
Processing Industry industry. Rest goes into actual management,
(Tata McGraw-Hill accounting, sales, marketing strategy for a food
Publication) entrepreneur=useless from UPSC point of
view.

Some chapters deal with food industries in

Books 2. Food processing:
China, Australia etc but hardly any good fodder
Opportunities and
pointsSome chapters provide details of
Challenges (ICFAI
individual food processing sector but mere
university press)
copy paste job from Vision 2015 PDF
document.

3. IGNOU MBA
booklets for theory on supply chain management,
(Coursecode: MS-55) upstream-downstream requirements

State of Indian
for agro-livestock-fish-production information
agriculture 2012-13 (By
and schemes
Agricultural Ministry)

Vision 2015 for food for opportunities and obstacles in individual

industries: part 1 and 2 sector: dairy, meat, wine etc.

Flavors of Incredible for supply chain diagrams of individual food

India: A report by Ernst & processing sector+ Additional points for
Young and FICCI opportunities, obstacles.
PDFs

plenty of fodder on
Planning commission’s
report on Encouraging  supply chain,
Investments In Supply  opportunities, obstacles
Chains and cold storages  various schemes

doesn’t have much specific fodder points for

12th FYP documents
food processing though.
 IBEF report on Food
some fancy charts, numbers.
processing industry

for government schemes, salient features,

Web pib.nic.in, Indian express
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

 Has more than 35000 registered units
size  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,
location Punjab, WBNon-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
didn’t have enough storage capacity
 Result: Wheat gets rotten @godowns and railway stations.
 On the other hand, we’ve 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 shouldn’t 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 we’ve 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

India’s
in production of
world Rank

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

rice, wheat, potato, garlic, cashew nut, groundnut, dry onion, green
2
peas, pumpkin, gourds, cauliflowers, sugarcane, tea

among top
coffee, tobacco, spices, oilseeds
five
With such a huge raw material base, we can easily become leading food supplier in the
world. (But we haven’t, 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): doesn’t 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, cream-biscuits, 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 wouldn’t 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

Since unit production cost is high, he can’t sell his products

Pricing cheap unlike a big MNC, and Indian consumers are price
sensitive.

Small players=small profit, seasonal business. In global market

Brand-
they can’t establish themselves as a long-term player – they only
Building
do opportunistic businesses, undercut each other.

 Can’t invest in R&D to develop new products (e.g. chilli

Low chewing gum or tomato cream biscuit!)
Technology  Can’t do marketing research / survey to find out what
consumers want?

 Can’t invest in advertisement campaigns to create new

demand.
 e.g. Kellogs is aggressively advertising its cornflakes in India,
highlighting ‘weightloss’ benefits.
Marketing
 but on the other hand, an Indian Halwai (sweet maker) can’t
do same level of marketing in USA to create demand for
jalebi or peda.

 can’t 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.
Un-Export  Then their products are rejected in US/EU market for not
Quality meeting the Codex/HACCP standards. (e.g. mango juice
rejected for stone weevil, buffalo meat rejected for food-n-
mouth disease, fish rejected for heavy metal contamination
and so on.)
  Can’t 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
retailing
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=can’t expand.
3. Government schemes, subsidies, grants have ‘low-ceilings’ =Individual person can’t
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:

Indian public=Low per capita income = higher price sensitivity

Price Sensitivity
and higher income elasticity in relation to food expenditure.

Preference For Indians prefer freshly cooked products as compared to

Fresh Food packaged products. Traditional mindset: fresh = nutritious.

truckload of agri-problem. We’ll see the individual problems in

later articles. for the overview:

 Agriculture/Dairy production yield levels are among the

lowest amongst the BRIC countries.
Agri Problems  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
  high cost of raw material (driven by low productivity and
poor agronomic practices)
 Presence of intermediaries thanks to Nuisance called
Supply Chain
APMC acts.
Problems
 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
Logistics 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.
Infrastructure  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-

Finance 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
Taxation
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
Schemes 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,
Laws 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.

 Market information not easily accessible

 Small players cannot buy international journals/magazines
Market to find the latest trends in demand/innovation. Most of
Information them also don’t know how to use internet for
business/marketing.

 Lack of trained manpower.

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

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

products are sold in small packages (Rs.5 noodles,
Packaging 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 6

pulses blackgram 6

oilseed groundnut 10
fruits guava 18

veggies tomato 12

spices turmeric 7

marine inland-fish 7

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 fruits, milk, veggies, meat, chicken,
etc. fish

 But in India, kirana stores don’t have cold storage facilities=> they only sell dry food
products.
 and fresh produce is sold through vendors with push-carts=>wastage because they
don’t have cold storage.
 Meat, poultry and marine products are primarily sold in separate markets but they
too don’t have cold storage=>wastage.

Thus, lack of organized retail, leads to

 4. low hygiene levels
1. low product quality
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 world-class 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
Lack Of Men 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.
Lack Of Courses  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
Outdated
to the present trends and food industry requirement.
Syllabus And
 The teaching faculty in most of the Indian academic institutions
Professors
studied has limited industry experience / exposure.

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

latest developments in food standards, new products, and
Inspectors
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
Engineering
plant & machineries in energy-efficient manner.
 There is urgent need to upgrade the syllabus accordingly.

Lack of R&D

 Indian food processing industry is mainly madeup of

small scale players= they can’t invest money in R&D=>
becomes government’s responsibility to do the R&D.
1. Sarkari Domain
 But Sarkari Research objectives are outdated, food
market requirements keep changing frequently given the
new product launches by MNCs.
  Multinational Food companies typically have an in-house
global network of R&D professionals.
2. Baba Adam’s  Although they’re willing to work with Indian institutions for
Mindset 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/market-orientation of the hardcore
professionals in food-MNCs.
3. Manpower
 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
4. Implementation
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.

6. Internationally, following research-developments are ongoing, while we are

generations behind in research:

area What foreign players are doing in R&D?

 Non-thermal food processing technologies to preserve the nutrients

processing 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

packaging
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 product’s 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, they’re yet to connect all 550,000+ villages in
India

 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)
Railway  Lack of wagons with cold storage facilities.
problems  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.

Ports  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 world’s
exports is very low despite its inherent strength in tea, spices and rice. Why?

 Fragmented base of suppliers=uniform quality not available

expensive Raw  Lot of intermediaries=raw material cost increased.
Material  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 – they’ll further
low processing
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
low quality Codex, HACCP quality standards

 yet to Build global brands on the back of India’s strengths

(Darjeeling tea, Basmati rice, Durum wheat, Alphonso mango,
Tamilnadu Banana or Kashmiri Apples)
Branding
 Developed countries view India as an unpredictable and
unreliable source of food and agro products.

 Poor cargo facilities at airports and ports are other bottlenecks

transport discussed earlier

Packaging  yet to develop packaging technologies for Indian food products to

 make them more acceptable to foreign consumers.

 Desi shrimps face Anti-dumping duties in USA.

Dumping

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

 Given these exchange rates and local prices of Basmati in India
Devaluating vs Pakistan. From an American/European’s point of view, it is
cheaper to import Basmati from Pakistan than from India.

^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.

[Food Processing] 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 doesn’t 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, can’t 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 don’t 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. Don’t 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 they’re 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 they’re 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

more than 7000 cr.
storages

more than 15000 cr. (in 11th FYP this was barely
food processing
4000 crores)
12th FYP wants following:

1. Develop the food processing sector to reduce food inflation and

overall 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
Schemes
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

Finance innovations and technology development in Food Processing.

8. Knowledge sharing and HRD via

a. National Institute of Food Technology Entrepreneurship and
Fancy
Management (NIFTEM),
Things
b. Central Food Technology Research Institute (CFTRI)

9. Harmonise Indian Food Standards with International Codex

Export 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 we’re doing the food processing, better prepare
this ministry’s 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
o Fruits and vegetable, Food grain milling industry,
o Dairy products, poultry, eggs, meat, Fish processing
o Bread, oilseeds, meals (edible), breakfast foods, biscuits, confectionery, other
ready to eat food products
o Alcoholic drinks, beer, Aerated waters / soft drinks and other processed foods
6. strengthen institutions such as
o National Institute for Food Technology and Entrepreneurship Management
(NIFTEM)
o Indian Institute of Crop Processing Technology (IICPT)
o Indian Grape Processing Board (IGPB)
o National Meat & Poultry Processing Board (NMPPB)

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

2 fancy missions 3 schemes

1. mega food parks

1. Vision 2015 for food processing 2. modernization of abattoirs
2. National Mision on food (slaughterhouses)
processing 3. cold chain infrastructure

+ some chillar schemes for HRD, R&D.

Let’s 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

India’s 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.) We’ll 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)

provide guidance to all schemes of Ministry of Food Processing

function
including above national mission on food processing.

 Chairman: Sharad Pawar, the b0$$ of both Agri and Food

processing ministries.
composition  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: you’re aware of debt vs equity. SPV = a limited company setup
with money from farmers’ associations, private players, financial institutions, state
level agencies etc. (meaning they’re 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:

Government gives grant: __ % of

Area
the project cost

General 50

North East, Hill area, areas under integrated

75
Tribal development plan

 Maximum of Rs 50 crore per project.

 Land cost not included in project cost.

Facilities @Mega Food park

 Weighing bridge, cleaning,

Core Infrastructure  grading, sorting, packing,
Facilities  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,
Non-Core Facilities
 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,
Common Facilities
 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
Basic Infrastructure  electricity, telecom-internet
 parking bays

 hiring of domain consultants for preparation of DPRs,

Services  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: What?

 A self-help Group of 10-20 farmers.

SHG  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
Field collection management= washing, fumigation.
Center  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,
Primary
packing of raw material and ensure regular supply of raw
Processing
materials to the food industries in the central processing
Center (PPC)
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

Srini Mega Food park,

Details Bhagalpur Mega food Park, Bihar
Andhra

Central
Mogili Village in Chittoor
Processing Kahalgaon in Bhagalpur district
District
Center (CPC)

Primary 1. Purnea
1. Nuzvid,
Processing 2. Katihar
2. Tirupati,
Centers 3. Khagaria
3. Madanapalle
(PPC) 4. Samastipur
4. Mogilli
5. Banka

1. Chittoor already an Agro-

export processing zone, 1. This region is second most
leading producer of productive zone in Bihar in
mangoes. terms of total production of fruit
2. only 120 kms from and vegetables
Tirupati, a pilgrim center 2. The cluster is very close to
with more than 150,000 Begusarai (about 100 kms) that
floating population per is a transport hub and provides
day=plenty of demand good support for transportation
for processed food. of products. NH-31 (Barhi to
Location
3. on the National Highway Guwahati) and NH-28
Advantages
connecting Bangalore (Lucknow to Barauni) meet at
and Chennai “Zero Mile” near Barauni in
4. equi-distant from two Begusarai district.
major metros in India, a 3. It is also the gateway to
major port (Chennai) and Northeast for goods
two international airports transportation, being a zone
(Chennai and Bengaluru) heavy surface traffic
and one domestic airport movement.
(Tirupati)
 #Epicfail. Few days back, main
Country’s first Mega food promoter company (Kevantar Ltd)
Sidenotes
parklaunched in 2012 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= It’ll reduce
o rural-urban migration,
o unplanned urbanization,
o 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 doesn’t 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 that’s 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

Government gives grant: __ % of

Area
the project cost

General 50

North East, Hill area, areas under integrated

75
Tribal development plan

Maximum grant: Rs.10 crore per project.

We’ll 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
 grant for __ % of the
area
project cost

General 50

North East, Hill area, areas under integrated Tribal

75
development plan

Maximum grant: Rs.15 crore per project.

Ten slaughterhouse projects ongoing:

6. Patna (Bihar)

1. Dimapur (Nagaland) 7. Ahmednagar (Maharashtra)

2. Kolkata (West Bengal)
3. Ranchi (Jharkhand) 8. Jammu (Jammu & Kashmir)
4. Shimla (Himachal Pradesh)
5. Hyderabad (Andhra Pradesh) 9. Srinagar (Jammu & Kashmir)

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 let’s look @some chillar schemes of this MoFPI (Ministry of food processing
industries)

MoFPI: Misc. Schemes

 Name: Technology Mission for Integrated Development of

North Horticulture in NE States + Himalayan States
East  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 InstitutesMoFPI has two institutes to offer B.Tech, M.Tech, Ph.D

level programs in food processing

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
HRD #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.

To export in developed countries, your food processing plant would

Quality require HACCP, GMP, GHP certificates. Ministry gives financial
assistance for it.

testing
scheme for Setting up/Upgradation of Food Testing Laboratories
labs
Enough of Food processing Ministry. Let’s look at the schemes by other
departments/ministries. (Here, I’m 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 they’re 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 FCI’s 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

 gives a business guarantee of ten years for assured hiring.

 meaning FCI will hire that private godown to store public-procured
FCI
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 don’t 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:

3. Babangaon, Thane, Nasik (MH)

1. Patna, Pothai (Bihar)
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

 Full name: Development of Commercial Horticulture through

Production and Post Harvest Management of Horticulture
Crops
 long name for scheme without catchy abbreviation!
Commercial  but In short, they give subsidy for setting pack house, pre-
Horti 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

1. Introduce of New Technology

2. Visit of progressive farmers to other states / abroad.
3. Technical know-how from India/Abroad
4. Technology Awareness
Tech Dvlp
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:

1. wholesale prices, arrivals and trends in various markets of the

market country for important fruits, vegetables & flowers etc.
information 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.

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
Horticulture development of horticulture,
Promotion 6. Develop primary/secondary data of various aspects on
Service 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

information on the type of goods that have arrived across the

Movement
various wholesale markets Commodity
  A comprehensive database 300 commodities and 2,000
Farmers’ varieties
Advisory  Appropriate farming practices which can be adopted by the
farmer

 All India weather conditions and weather forecasts and their

Weather impact on the agri-production levels

Commodity information on various commodity exchanges in India and

Exchange abroad along with

higher institutes for agricultural research, international agencies

Research
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

 100 per cent grants in aid for

Intensive Dairy Development  Dairy processing and marketing
Scheme (IDDS)  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
Dairy Entrepreneurship
 helps in bulk milk coolers, transportation
Development Scheme (DEDS)
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 country’s 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 1. International Development Association (IDA) of the World Bank

from 2. Central government (Department of Animal Husbandry, Dairying
and Fisheries)

to NDDB: National Dairy Development Board (a statutory body)

End Implementing Agencies (EIAs):

 State Government
ultimately to  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, we’ll 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 don’t take ownership or responsibility.
2. Villagers and field officers are unaware about the scheme and its conceptual
framework
3. The Design of AEZ itself doesn’t 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

1. Focus Product
Scheme (FPS) get duty credit for exporting food products
2. Focus Market Export to Europe, Latin America block, African block, or
Scheme (FMS) Commonwealth Independent States (CIS) block are entitled
for duty credit.

3. Market Linked duty credit for exports to countries NOT included in

Focus Product above FMS list e.g. Thailand, Taiwan and the Czech
Scheme (MLFPS) Republic. (ok then when next: another scheme for countries
not included in MLFPS list?)

duty credit for exporting following

4. Vishesh Krishi
1. Agricultural Produce and their value added products;
2. Minor Forest Produce and their value added variants;
5. And Gram Udyog
3. Gram Udyog Products;
Yojana
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, you’ve 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.
 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
MFEDA
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  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)

Boards
 Coffee
 bodies under commerce ministry
Board
 offers various schemes, services to growers and exporters
 Spices
 R&D, HRD
Board
 maintains database, runs newsletters
 Tea
 Promotes Indian products international food fairs
Board

 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.)
Grapes  Promote cooperative efforts, backward and forward linkages between
growers and wine industry in general.
 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
Nddb
 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
Meat + exporters of meat and meat products,
Poultry  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,
ICAR 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)
CFTRI
 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,
Crop
 Teaching, research, labs and extension services in food
processing
processing

 National Institute of Food Technology, Entrepreneurship and

Management (NIFTEM)
 Deemed to be University
 Under Ministry of Food Processing Industries
NIFTEM
 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
Nutrition
 for R&D on food-nutrition-toxicology studies.

 Indian Institute of Horticulture Research, Banglore

 developing new hybrids, pest-disease-nutrient management etc.
Horticulture
for fruits, vegetables, ornamentals, medicinal and aromatic
research
plants and mushrooms

Next article, we see the nuisance of middlemen, APMC Acts, direct cooperative markets
(Rythu bazar etc).

[Food Processing] Nuisance of APMC Acts,

Commission Agents; Marketing of agricultural
produce: issues and constrains for GS Mains

Prologue
In the previous two articles on [Food Processing], we saw

1. Intro to food processing industry: Awesomeness and Obstacles

2. Truckload of Government Schemes and bodies

In this third article, we see the APMC, FSSAI Act and few other topics.

Although UPSC Syllabus nowhere mentions APMC Act but it needs to be prepared with
respect to

1. GS3: Marketing of agricultural produce and issues and related constraints (GS3)
2. GS3: Food processing Supply chain management (SCM): upstream issues
(Because outdated APMC Acts permit commission agents=lengthen and fragment
the supply chain=increase raw material cost.)
3. Even for food inflation, FDI in Multibrand retail= APMC angle needs to be discussed.

APMC Acts: What and Why?

In news columns, and TV Debates surrounding food inflation and FDI in multibrand
retail, you’ve 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. They’ve to get it through the Mandi.

Old APMC Acts: Problems?

 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
Membership 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  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 don’t 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
 =double commission=final consumer has to pay even
Commission
more!

Middlemen donot pass the benefit to either side

1. during peak season, when they buy from farmer @low

Hurting Both prices, they don’t drastically reduce the prices to final
Sides 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 that’ll increase transparency or
reduce transaction cost and time.
Resistance To  Even when electronic auction centres were established
Reform like the Safal National Exchange in Bangalore, the
existing markets did not allow the transition to a
transparent system.

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

do is pass the produce from farmer to final consumer and
No Value charge truckload of commission in between.
Addition  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
Price Discovery advance, what the price of their produce.
 But for most perishables fruits/veggies, government
doesn’t 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 can’t 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
No auction 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-
Cess
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 can’t find a shop/warehouse, then you’ll 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, India’s Agro-production has increased but number of intermediaries in
APMC remained constant= their cartel controls the supply= hoarding, opportunistic
profiteering. But how? Let’s 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, you’ll
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 what’s 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 doesn’t 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.

After years of badass thuggary and inefficiency, suddenly Union agriculture

ministry woke up, drafted a new Model APMC act, and asked the State
2003
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.

So far only 16 states have adopted the model APMC act. (as per the reply
2012
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 doesn’t need to bring his produce to APMC Mandi.

He can directly sell it to whomever he wants. (Although, if he farmers must bring all
doesn’t bring his produce to Mandi, then he cant run for produce to the Mandi.
election in that APMC marketing committee.)

Noone can purchase

Farmers Processors, exporters, graders, packers, etc. can
farm-produce from
buy agricultural produce directly from farmers.
farmer outside Mandi.

Permits Private market yards, Direct Purchase Centers, Only State managed
farmers’ market for doing trade in agriculture produce. APMC Mandi can to
(monopoly of Mandis=destroyed) the trade. (monopoly)
Public Private Partnership in the management and
development of agricultural markets in the country for post-
lolz
harvest handling, cold storage, pre-cooling facilities, pack
houses etc.

 A separate Chapter to regulate and promote contract-

farming arrangements in the country.
lolz
 Dispute resolution mechanism for contract farming.

 Prohibits commission agents in any transection. commission agents

permitted.

 establish State Agricultural Produce Marketing Standards

Bureau
 for Grading, Standardization and Quality Certification of
lolz
agricultural produce (so they can fetch higher prices in
desi-foreign markets)

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; maha-lolz
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.

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 Pradesh permitted private markets but they’ve to pay a license
fee of Rs 50,000 and project must be min.10 crores =discourages
Andhra
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 Madhya Pradesh abolished commission agent system but some other
agent states didn’t adopt this provision of model APMC.

 Repealed its APMC act in 2006.

Bihar  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
WB
that it could jeopardise farmers’ interests.

Additional suggestions to reform APMC

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

Remove  Horticulture should be specifically excluded from definitions of

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

 All APMCs Mandis should introduce electronic auction platform

E-Auction

Membership  Open membership of APMC’s 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
No License
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.

No Cess/Tax

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

 Agrees to buy produce from farmer @predetermined price.

buyer  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

farmer 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.

Area under contract

State Farm produce Buyer company
farming (acres)

Potato, Tomato, Pepsico (for their

6000
Chilli potato chips)
Punjab
Mahindra
Basmati, Maize 400
Shubhlabh
 Soyabean 1200 ITC

Himalaya
Karnataka Ashwagandha 700
Healthcare

Madhya
Wheat 15,000 Hindustan Unilever
Pradesh

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 Farmer’s
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 >4000

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.

 Setup an e-mandi (online wholesale market).

NCDEX  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
MCX
languages to help non-English speaking farmers.

an allied topic is negotiable warehouse receipts, but we’ll see it in the next article under
finance-taxation-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 ITC’s e-Choupal, farmers’ income increased by 10-15% (compared to earlier

when they relied on middlemen @mandi)

Anyways we’ll see more about these intermediate market, supply chains in individual
articles for fruit-veggies etc. Now moving to the next law topic
Single Food Regulator
USA  Single regulator: Food and Drug Administration (FDA).

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

 Australia and New Zealand have a common single regulator known

Aus+NZ as “Food Standards – Australia New Zealand (FSANZ)”

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

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)
India
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.
o Prevention of Food Adulteration Act (PFA)
o 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.
Guidelines  Make Guidelines for accreditation of food laboratories, food
safety management bodies.
 International technical standards for food, sanitary and phyto-
sanitary standards (SPS)

 Scientific advice and technical support to Central Government

and State Governments food safety and nutrition related
Advisory
policies and rules.

 Collect Data on food consumption, food

Survey 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
Networking
 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

HRD
In the next article, we see the finance-taxation-FDI-export matters related to food
processing industry. Then we’ll dig into Supply chain management, upstream-
downstream requirements for individual sectors: dairy, confectionary, fruit-veggies
meat-fish, etc.

[Food Processing] Export, Dumping, FDI, Finance,

Taxation, Budget Provisions, CODEX, NWR, BRGF,
RKVY

Prologue
In the previous articles we saw

1. Food processing industry: Awesomeness and Obstacles

2. Food processing industry: ruckload of Government Schemes and bodies
3. Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts and
Commission Agents

Moving on:

New GS-Mains Syllabus of UPSC Topic touched in this article

 Effect of policies of developed and

developing countries on India’s Agriculture export: Anti-dumping, tariff-non
interests tariff barriers, Codex and HACCP standards.

 Devolution of finances up to local

levels and challenges therein. Backward regions grant fund (BRGF)

 Regulatory bodies Warehousing Development and Regulatory

Authority.

 Government policies in various sectors

 Effects of liberalization on the FDI policy for agriculture, food processing and
economy retail

 Government Budgeting Budget 2013 for Agriculture and Food

industries
 issues relating to growth, development The finance/credit problems faced by
and employment.
farmers+ food-entrepreneurs.

By the way, regarding some earlier comments about what happened to my geography
location factor article series? Ans. I got bored writing geography hence shifted to
agro/food processing topic for a while, but rest assured [Geography] location factors
article series will be finished before Mains 2013.

Agriculture Export
World Trade Organization (WTO) aims to improve international-trade by reducing the
tariff and non-tariff barriers. Let’s 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- it’s 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 USA’s local shrimp businessmen.
(or atleast that’s what America claims).
 Anyways, Indian shrimps are not the only items subjected to anti-dumping duty in USA.

Shrimps
Why subjected to anti-dumping duty in USA?
from

Thailand government buys shrimp from farmers and sells it to processors at low price
 government gave finance to build the world’s largest shrimp-processing and
China
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. We’ve slapped anti-dumping duty on steel wheels imported from China used in
commercial vehicles.
2. Under probe: US, China, Malaysia and Taiwan: Because They’re 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
 Under Gold control Acts of 1960s, An Indian Gold Smith was not
Quantitative restrictions allowed to possess a stock of more than 300 gms of primary
gold at any time.

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

Import prohibitions
explosives etc.

When Murthy started Infosys, he had to make 50 trips to Delhi

Import licensing
for three years just to get a license to import computers.

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

Export Subsidies
the second article. click me

Labour/Environment e.g. some developed country banning import from third world
standards 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

1. Groundnut
Aflatoxin

2. Mangos
stone weevil, fungus

3. Indian Buffalo Meat

foot-and-mouth disease

4. Indian Shrimp
Antibiotic residues

5. Fish
Heavy metals and antibiotics

6. poultry
bird flu/Avian influenza

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

 We’ve to invite their food inspectors/specialists to India, let them check our premises
 We’ve to bear all the cost of their accommodation, travel expenses etc.

=expensive game, small Indian players/companies can’t 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 doesn’t mean we haven’t 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 EIC approved units have to implement following

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.

 Agricultural and Processed Food Products Export Development Authority

(APEDA)
 Statutory body under commerce ministry
APEDA  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)
BIS and food hygiene standards
 helps Food processing units to adopt these systems on a voluntary basis

We’re collaborating with USA, UK, Netherlands, Switzerland and Germany for
collaboration Agri-technology 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
MoFPI and GHP.

General Area: max 15 lakh assistance

NE, difficult area: max. 20 lakh

Additional Suggestions

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

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

Offices offices in India for certification of export consignments

APEDA already supports the cost of quality certification programs such as

Certification 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  FSSAI needs to harmonize the differences between Codex standards and
Indian food standards.

 Encourage food testing laboratories in India to obtain accreditation from

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

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

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

 Food exporters to US/EU are first required to their samples to the

importing country to get trade-approval. Government should provide
Sample Cost
financial assistance to small/medium exporters for this.

FDI: Agro, Food Processing, Retail

Foreign Direct Investment: Agriculture

100% FDI with automatic approval in following sectors:

Seeds Seeds and planting material, their development and productionConditions

 1. Genetically Modified seeds/plants= have to comply with
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
Livestock 4. Pisciculture (breeding, rearing, and transplantation of fish by artificial
means aka fish farming)
5. Apiculture (bee keeping)

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

 In Tea sector:
Plantation o 49% FDI via automatic route
o 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. don’t 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?
  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.
Fragmented
 Cottage and small units do well ^in such product segments because
Demand vs of their local traditional knowledge.
Economies of  But Bigger enterprises may find it difficult to enter into such
Scale fragmented and price conscious consumer base. Their large scale
of economies may not be optimized for it.
 MNC’s economies of scale to be effective, they’ve 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.
Cheapness  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.
Pace of life  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.

Thus, MNC-food Giant doesn’t 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

E-commerce  but only in Business to Business (B2B) e-commerce and
not in retail trading.

Cash and Carry wholesale  100% via automatic route

trading
  upto 49% via automatic route
Single Brand Retail.  upto 100% with government approval

List of Single Brand retail who’ll 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-clichéd topic, you probably have read/heard/seen it dozen times already. Hence
not going into all details.

Permitted limit of FDI in Multibrand

Country
Retail

India  51% with government approval

China, Thailand, Russia, Indonesia, Brazil, Argentina,  100%
Singapore

Difference In Single Vs Multibrand Retail?

Single Brand Retail Multi-Brand Retail

 Multi-brand retail store like

Walmart sell products from more
 they sell only their own products.
than one brand
 Example in IKEA store you can buy sofa, bed,
 e.g. mouse-keyboard from Dell,
chair, table, cupboard etc- but they all belong to
HP, Logitech and Microsoft.
IKEA brand only.
 While Printer from HP, Cannon,
Epson and so on…

 FDI upto 51% with government

FDI upto 100% with government approval approval

 Similar condition on 30%

Need to procure of 30% of the goods from Indian procurement
MSMEs, village and cottage industries, artisans and  +additional conditions on location
craftsmen, in all sectors. and backend infra.

 can be setup only the states that

can be setup in any city, any state. agreed. (list given below)

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 8. Maharashtra
2. Assam
3. Delhi 9. Manipur
4. Haryana
5. HP 10. Rajsthan
6. JK
7. Karnataka 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 don’t have the money to invest in backend infrastructure.
 Government made FDI condition that Retail giant needs to invest part
less Wastage of his FDI investment into backend infrastructure (=processing,
manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce
infrastructure etc.)

 These retail giants have deep pockets = large economies of scale =

they use direct purchase / contract farming to get the fruits-veggies.
Better Income
Thus middleman eliminated=farmer gets more price.

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

 Increases direct/indirect employment opportunities in the supply chain,

employment 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
Tech- etc)=Indian managers/workers in those desi companies also learn new
knowledge things
upgrades  Later some of thm might setup their own firms utilizing the work-
experience=Thus foreign business knowledge, technology trickles
down and benefits Indian economy.

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
 Walmarts can be opened only in cities
CITIES with more than 10 lakh population (as
per 2011 census)
 Walmarts will need to buy 30% of its
goods from small vendors.
 *Small vendor= an Indian micro
MSME
medium small enterprises (MSMEs)
with total investment of $1 million.
 Walmarts needs to invest 50% of its
FDI investment into backend
infrastructure.
 example of backend
infrastructure=processing,
manufacturing, distribution, design
improvement, quality control,
BACKEND
packaging, logistics, storage, ware-
house, agriculture market produce
infrastructure etc.
 Expenditure on land cost and rentals,
will not be counted as backend
infrastructure.
Finance
Diluted After July 2013 Reform
 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.
 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 don’t need to invest
any part of that money in
backend infrastructure in India.
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

offers refinance facilities for food processing, agri infrastructure,

NABARD
development

 Small Industries Development Bank of India

 gives loan to Micro Small and Medium Enterprises (MSMEs)
SIDBI 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,
EXIM
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
NCDC
 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
APEDA international market
 financial assistance for market development, infrastructure
etc.

 Agricultural ministry
 runs many schemes for specific crops, seeds, irrigation, farm
Sharad Pawar
implements, inputs, infrastructure and training

 National Horticultural Board

NHB  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.

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

MFPI slaughter houses, cold storage etc.

venture
 Non-existent for food processing sector.
funds/angel
investors

But both farmers + food processing entrepreneur have trouble getting loans/financing.
Why?

Why can’t 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 I’m not going to repay the loan because I know that government will launch another debt-
farmer waiver scheme just before election and my loan will be forgiven!

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

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

 Even when banks give loan, agriculture is a risky business because of

NPA pests, vagaries of monsoon=crop failure
 Government doesn’t immediately disburse insurance money to
farmers=loan default=NPA.

 Rural bank branches have shortage of manpower to process loan papers

Manpower 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
cost of work=>additional salary burden= cost of giving loan increases.
 Banks find it more lucrative to use the manpower in urban branches where
credit
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.
Stamp duty  Some states (Andhra, UP, TN, Gujarat, HP) have relaxed rules in this
regard, other state governments need to take similar steps.

 many small-marginal farmers don’t have documentary proofs for their

documents 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

States
farmers

High Southern

Medium Northern and Western

Eastern (Bihar, Jharkhand, odisha and West Bengal)

Low
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. National Agricultural  available to all farmers, irrespective of their farm size.

 Insurance Scheme  Practically all risks covered (drought, excess rainfall, flood,
(NAIS) hail, pest infestation, etc.)

 Agro-insurance from incidence of adverse conditions of

weather parameters like rainfall, temperature, frost, humidity
2. Weather Based Crop
etc.
Insurance Scheme
 Challenge: Need lot of automatic weather stations for
(WBCIS)
successful implementation/assessment . (Right now barely
~3000, while we need atleast 10000)

3. Coconut Palm
 To provide insurance to coconut growers against natural
Insurance Scheme
calamities.
(CPIS)

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 don’t 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 couldn’t easily get loans because they didn’t 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 they’re 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 can’t food entrepreneurs get loans easily?

From a Bank managers’ point of view: again the fear of NPA

 Most of the Mango processing units in Andra run for barely 70 days
1. Seasonality per year. This type of ‘seasonal-businessmen’ are
considered risky from banker’s point of view.

 Most of the food processing units hide actual sales in the account
books (to evade taxes
2. Strength
 Banker never gets ‘true’ picture of a firm’s 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).
3. Credit
 But CIBIL doesn’t maintain such data/record for the food processing
Rating
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
4. Excess
enough raw material to run each plant @full capacity (e.g.
Capacity
Groundnut oil refining)
 Sooner or later ^these small players fall sick because of heavy
competition=> loan defaults.

 To improve yields: farmer/entrepreneur will need money for starting

high density farming, greenhouse floriculture, controlled
environment livestock farming, bio-technology, tissue culture,
5. New
embryo transfer technology, bio-pesticides and bio-fertilizer, etc.
Tech=Risky
 But from Banker’s 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. Can’t do any timely up gradation of technology, can’t improve quality of products /
advertisement / marketing.
3. Don’t 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.

4. 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

Let’s 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 Farmers’Agri 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  Assam, Bihar, Chhattisgarh and West Bengal have increased their
Revolution contribution to rice production.

 Interest subvention scheme for short-term crop loans

Interest  Borrowers from private sector scheduled commercial banks also
Subvention eligible.

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

such as iron-rich bajra, protein-rich maize and zinc-rich wheat.
Nutri Farms
 Pilot projects in districts most affected by malnutrition.

 National Institute of Biotic Stress Management @Raipur to addressing

plant protection issues.
Institutes
 setup Indian Institute of Agricultural Bio-technology@ Ranchi
  Scheme to replant and rejuvenate coconut gardens in Kerala +
Coconut Andaman & Nicobar.

 To support poultry, dairy farming and fisheries.

 It’ll have sub-missions for
National o increasing availability of feed + fodder
Livestock o Improving animal breeds to raise milk yields.
Mission
(Don’t you think this overlaps with the national dairy mission that we
saw in last article!)

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

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

Infrastructure Debt Funds (IDF) already discussed earlier. Goto

IDF Mrunal.org/economy

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

Skill million in 2013-14.
 (^food processing sector will benefit)

 Backward Regions Grant Fund

 New criteria for determining backwardness to be evolved.
BRGF
 more details on BRGF at bottom of the article.

Budget 2013: Taxation

That will directly/indirectly help agriculture/food processing sector

Agricultural commodities will be exempted from the proposed Commodity Transaction

CTT
Tax (CTT).

Chindu introduced 1% TDS on transfer of immovable property but exempted agricultural

TDS
land from this.

GST Work in progress.

Income tax deduction
If you setup business in following category, you’ll 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 1. Hazelnuts

duty on 2. De-hulled oat grain

1. raw sugar, white or refined sugar will not attract any export duty. But, in
Exempted future, exemption may be withdrawn to regulate its export in case of
shortage within India.
from duty
2. De-oiled rice bran oil cake

Excise Duty

item excise duty (2013)

milk, milk products 0

nuts-fruits (Fresh and dried) 0

veggies 0

Sabudana (Tapioca Sago) 0

processed fruits and vegetables, Soya Milk, Flavored 2% (classified under merit goods)else
milk 6%

Service tax: Negative list

Chindu put following services in ‘negative-list’ (meaning they’re exempted from service
tax).

Area What is exempted from Service tax?

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

Cultivation  supply of farm labor
 Agro-machinery: renting/leasing

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

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

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

Supply Chain  Services of Agro-commission agent

 transport of chemical fertilizer and oilcakes;

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

R&D/Support  Testing activities for agriculture and agricultural produce. (this is new
serviced added in the negative list)
  agricultural extension services

Misc.
Although unrelated to the main title of this article, but let’s 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:

1. District- More than 270 backward districts in 27 statesNote: At least prepare overview
Component 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. State- 1. Bihar
Component 2. Odisha: the Kalahandi-Bolangir-Koraput (KBK) districts
3. West Bengal
4. UP: Bundelkhand Package

How does it work?

Ca$h 1. from Union to State Consolidated Funds

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

Panchayats will prepare plans for

Planning  improving infrastructure: water, sanitation, schools, street lights

 agrarian reforms
 can use money to fill gap/add value to other programs

Implementation Through people’s participation.

Rashtriya Krishi Vikas Yojana (RKVY)

When 2007, under 11th Five year plan (FYP)

to achieve 4% annual growth in the agriculture sectorto encourage States

Why?
government to allocate more cash to agro and allied sectors

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

Sub-Schemes

1. Green In Eastern India: Assam, West Bengal, Orissa, Bihar, Jharkhand,

Revolution eastern Uttar Pradesh and Chhattisgarh to improve in their rice
cultivation

2. Pulses
Promote Pulses Villages in Rainfed Areas.

3. Edible Oil
Oil Palms=increase area under cultivation

4. Veggies Initiative on Vegetable Clusters to increase in the productivity and

market linkage of vegetables.
5. Nutri- bajra, jowar, ragi and other millets: create awareness regarding their
Cereals
health benefits.

6. Protein National Mission for Protein Supplements: to promote animal based

protein production: milk, pigs, goats, fisheries.

7. Fodder
Accelerated Fodder Development Programme

8. Rainfed Rainfed Area Development Programme to improving productivity of

crops in rainfed areas.

9. Saffron
Mission In Jammu & Kashmir.

10. Vidarbha
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

1. projects on piggery,
Sikkim, Arunachal Pradesh and 2. wayside market sheds,
other North East States 3. area expansion through land terracing
4. promotion of off-season vegetable cultivation,

5. low cost onion storage structures

Maharashtra
6. farm ponds to tackle water stress

Tamil Nadu, West Bengal, Bihar, 7. System of Rice Intensification (SRI)

Jharkhand and tripura

8. vegetable cultivation through pandals and trellises.

Andhra Pradesh
 9. underground pipe lines for irrigation

10. Promoting elite breed of murrah buffaloes

Haryana and Punjab
11. Community animal housing

12. check salinity ingress in coastal areas

Gujarat

13. Custom hiring centers providing farm machinery

Kerala (to solve labour shortage problem.)

RKVY challenges:

1. More than 80% of farmers have small/marginal landholdings= poor economies of scale.
RKVY hasn’t 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).

Next Time: we’ll see with the supply chain management, upstream-downstream for
food processing industries dealing with F&V (fruit and vegetables)

[Food Processing] Supply Chain Management,

Upstream Downstream requirements for Fruit &
Vegetables, Confectionery industries
Prologue
In the previous articles we saw

1. Food processing industry: Awesomeness and Obstacles

2. Food processing industry: Truckload of Government Schemes and bodies
3. Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts
and Commission Agents
4. Agro/Food Processing: Export, Dumping, FDI, Finance, Taxation, Budget
Provisions, CODEX, NWR, BRGF, RKVY

Moving on, in this article we see topics

 Topics touched in this
UPSC General studies Mains Paper 3 Syllabus Topic
article

Food processing upstream and downstream requirements,  Fruit-Vegetable

supply chain management.  Confectionary

1. Infrastructure: Energy, Ports, Roads, Airports,

Railways etc.
2. transport of agricultural produce and issues and Horticulture trains
related constraints;

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
Upstream Downstream
reference

Traders of seeds, fertilizer, pesticides and 1. middlemen @Mandi

farmer 2. Food company (if
agro-machinery.
he has contract
farming agreement)
 3. households (if he is
directly selling to
final customers)

1. Farmers,
1. distributors
2. Mandi-agents
food 2. wholesalers
3. Suppliers of food-preservatives,
processing 3. retailers
edible-colors, plastic-aluminum
company 4. final-customers
packaging etc.

Kirana shop Wholesaler Aam-admi

 Book publishers
 Mobile/electronics/computer
companies
Flipkart.com Online buyers
 Suppliers of packaging boxes,
bubblewrap plastic etc.

In short,

Upstream downstream

towards suppliers to your company (+ towards consumers (+intermediaries

intermediaries if any) if any)

What is Forward-Backward Integration?

Integration Backward Forward

Company expands
Company expands its activities to
What its activities
downstream areas
to upstream areas
 Company aims to
get raw material
@cheap rates, Company aims to get more control over sales,
Why? uniform quality, consumer-contact and eliminate any
steady supply and middlemen/kiranawalla/wholesellers/retailers.
eliminate any
middlemen.

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 1. Amul has its own pizza outlets and ice
made from cream parlors.
petrochemicals, 2. Raymond opened an outlet in Karachi this
so he entered in year.
Petrochemical 3. Nike, Adidas, Apple have their own retail
business. But outlets in big cities.
Examples petrochemical is 4. Flipkart has its own courier “Ekart logistics”
derived from so they don’t have to rely on Bluedart, DHL
Petroleum and other courier companies to deliver
refining, so he packages.
moved into 5. And of course, if some Desi-liquor mafia
Petroleum opens dance-bars and gambling dens, that
refining as well. is also an example of Forward integration.
3. Andrew
Carnegie’s 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.

Vertical integration

 When company’s 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 product’s manufacture from raw materials to
distribution.
 For Indian food processing industry, Vertical integration is extremely difficult
because like we saw earlier:
o Indian food entrepreneurs are small sized and loan starved, while Vertical
integration requires deep pockets and truckload of cash.
o FDI permitted only in a few specific sectors of Agriculture. Many states have
outdated APMC laws. = backward integration is difficult.
o FDI in Multibrand retail is permitted but with many conditions.= Forward
integration also difficult.

So, what we can have is “linkage”. For example

Setup promotes ____ linkage from ____’s point of view

 Backward food industry’s
Mega Food parks

Rythu Bazar forward farmers’

Food Industry: Supply Chain

Indian Food processing supply chain has two type of Stakeholders

stakeholder Who?

1. Creators: Farmers, Food Entrepreneurs

those included in Supply 2. Contributors: Middlemen, Retailers, Commodity
Chain Exchange
3. Consumers: Domestic And Foreign

4. Government: Laws, Taxation, Incentives

those influencing supply
chain 5. Infrastructure: Transport, Storage, Power

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

Processed
What?
Products

Products consumed in the original state. Don’t have any no

Primary value addition. (e.g. just chop apple from the tree, pack it in
wooden-boxes and send to market)

Basic level of processing: grading, sorting, cleaning, cutting,

Secondary drying, grinding etc. before they are consumed. (e.g. dried
fish, turmeric powder, chili powder, wheat flour.)
 Combining multiple primary, secondary products from above
Tertiary 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 FHEL’s.
FHEL’s 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

FHEL’s Apple Upstream

 FHEL directly procures Apples from Shimla & Kinnaur districts of

Raw Himachal Pradesh and transports them to Sonepat for sorting,
Material 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.
Uniform
 FHEL also arranges all inputs required by the farmers like nutrient
Quality
packages, pesticides/ fungicides, packing materials, farm
implements, etc.

FHEL was among the first companies to procure apples directly from
Middlemen 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.
Price
 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,
Storage
packaging facilities.

FHEL’s 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 FHEL’s apples but most of the Indian food processing industries
don’t 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 entrepreneur’s point of view)

Upstream requirement solution

1. Need backward linkage

with farmer: via contract
farming 1. Amend State APMC laws.
2. Need to eliminate middle-
men.

2. R&D and exertion services in agro

3. introduce new fruit/veggie hybrid varieties

4. farm mechanization
3. need uniform high quality
raw material 5. land reforms

6. farmers should easily get loans

7. FDI only permitted in a few specific agro-

sectors. Relax this policy.

4. Need steady supply of
inputs @reasonable prices
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.

5. quick transport 10. railroad connectivity

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

Downstream-Requirement solution

 Organized retail stores, for

 FDI in Multibrand retail
efficient distribution of products

 compliance with CODEX, HACCCP

 Reaching the costumers in foreign
countries
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 let’s 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

Saudi Arabia, Kuwait, UAE, Netherlands and

Mango Pulp
Hong Kong

Pickles, Chutney Saudi Arabia and UAE, USA, UK and Germany

Tomato Paste, Jams, Jellies And

USA, Russia, UK, UAE and Netherlands.
Juices

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:
o Exotic flavors: cranberry, lychee and pomegranate,
o 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 Famous and highly valued. But due to its thin skin, it can only remain
Mango fresh for 20 days (even in cold storage) = low shelf life.

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

Similar problem for other fruits/veggies:

Raw
quality problem
material

Potato  Most Indian potato varieties = don’t have uniform size and length=>
can’t make good chips/French fries.

 Very old variety grown in India= high bitterness level and pip
content.
Orange
 Pepsi and Dabur import orange juice concentrate for their juices

 India grows “red delicious” variety = very cheap and hence preferred
by Desi costumers
Apple
 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.

Nuisance of Middlemen

 For most fruits, the cultivation/gestation period at least 3-4 years. But banks don’t
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. India’s 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
What to do? Where to focus?
Material

Develop varieties with low-bitterness, suitable Maharashtra, Andhra

Orange
for juice-processing Pradesh

Develop varieties suitable for processing into

UP , West Bengal,
Potato French fries, Chips (low sugar content, uniform
Gujarat
length)

Encourage cultivation of foreign Varieties from Jammu & Kashmir,

Apple
NZ, S.Africa etc. Himachal Pradesh
 Identify other varieties for processing, and UP , AP , TN,
Mango
reduce dependence on Totapuri, Alphonso Maharashtra

Focus on cultivation of uniform size, firm fruits Karnataka,

Sapota
with longer shelf-life Maharashtra,

Cultivate varieties with higher shelf life, and

Litchi Bihar, West Bengal
smaller seed size

Cultivate sweet and white onions- they have

Onions Maharahstra
export demand

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
Example Does it attract investment?
Storage

Most investment comes here.

Long (6-8
A Potato, Apple, Chilies Especially for potato- for hoarding
moths)
during lean season.

Moderate(8-10 Grapes, Pomegranates, not much investment coming here,

B
weeks) Banana, Tomatoes Except few export oriented chains.

Papaya, Melons, Gourds,

small (few
C Cabbage, Cauliflower, Leafy hardly
days)
Vegetables.

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

 There has been a relative neglect of the non-horticulture cold chains

Non especially those relating to meat, poultry and fishing.
Horti  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

1. Use of Global positioning system (GPS),

2. better electronic weighing systems,
New
3. local language billing machines
tech
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 doesn’t buy efficient (and expensive) equipment on
Engineer’s advice. Instead, they buy cheap quality equipment on CA’s advice. Why?
 Because we saw earlier, government schemes have ‘low-ceilings’ + if project cost
increases too much food-entrepreneur won’t get loans under Priority sector lending
of Bank and won’t 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
agro-regions.

Horticulture trains

Who? 1. National Horticulture Board (NHB)

2. Container Corporation Limited (Concor), under Rail Ministry

Because conventional goods trains have following problems

1. have no ventilation => fruit/veggie gets rotten

Why? 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
When?
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.

Let’s see an example, “Banana Train”= connects Maharahstra to Delhi. Lauched in

Sept.2012
core
direction
cargo

Jalgaon (MH) to the rail yard of the Azadpur mandi in Delhi.by the
Banana way, Azadpur Mandi @Delhi= Asia’s 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? Mamta’s rail budget 2009*

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

Why?
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 Minister’s 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. You’ve 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.
 India’s 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 don’t have such facilities=wastage. Hence FDI multi-
brand=necessary for the growth of fruit-veggie industry and to contain food inflation.

let’s 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:
o Youth= Those ads involving romance/valentine day angle.
 o 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

(^doesn’t 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
 UP’s yields are much lower than TamilNadu.
 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 you’ll 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  We’ve to import most of the basegum (for chewing gum) from Europe
Gum 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 nee
Innovation fruit based gum, vitamin-enriched products, breath strips etc. like the Americans are
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
Packaging
 smaller/Individual package=need more plastic=Operation cost increased

ChocoSCM@Downstream

 Unorganized/non-branded toffee makers= evade taxes.

Taxation  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
Reach
 But cost of distribution is high particularly to rural outlets

 In Toffee business you’ve to lure kids by offering free tattoos, stickers,

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

Export  Currently, African countries= dominated by Brazilian confectionary

Potential 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 don’t 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

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

Pickles
Foods

Sauce / Ketchup Hindustan Unilever, Nestle, Heinz

Juices / Fruit based

Pepsi, Dabur , Parle, Godrej, Mother Dairy
drinks

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.

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

Perfetti
Cofitos

Parry’s/ Coffy Bite, Lacto king, Coconut punch, Caramilk, Madras Cafe, Soft-
Lotte Spot, Flavoured Candy, Mango, Sunshine, Shakti, Pineapple

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

Parle’s
Rosemint

GDC/
Boomer, Bonkers, Donalds,PimPom, Mickey,Bonkers
Joyco

Minto, After smoke, Candy king, Americano, Orange-tutti frutti, Drum

Candico Beat, Vanilla Roll, Elaichi roll, Big Freedom, Jumbo-Gumbo, LocoPoco,
Minto-Fresh

Ravalgaon Pan pasand, Mango mood, Coffee breakSupreme,

Nestle Polo, Allen’s Splash, Soothers, Toffo Butter, Fruit Rings, Fox’s

Cadbury’s 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.

[Food Processing] Milk Dairy Sector, Supply

Chain, upstream downstream issues, Amul
Model, Operation Flood
Prologue
First, regarding “Write Articles, Win Books” competition: so far 34 entries received.
And last date to submit is 25th Sept 2013. Click me for more details.

For UPSC General Studies Mains Paper III, we were looking at the Food processing
and related industries in India. So far we saw following topics

1. Food processing industry: Awesomeness and Obstacles

2. Food processing industry: Truckload of Government Schemes and bodies
 3. Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts
and Commission Agents
4. Agro/Food Processing: Export, Dumping, FDI, Finance, Taxation, Budget
Provisions, CODEX, NWR, BRGF, RKVY
5. Supply Chain Management, Upstream Downstream requirements for Fruit &
Vegetables, Confectionery industries

Then I got bored with food processing, hence made three compilations on Hindu Sci-
tech (and some posts about results, answer keys etc.) Anyways, back to where we had
left in [Food processing]: fruits veggies SCM-updream downstream. Now time for Dairy
& Milk Supply Chain Management SCM-upstream downstream issues.

UPSC syllabus topic in this article

 Chemistry:
components of
prelims Paper I synthetic milk
 Agro-tech: azolla fern.
 Biology: Food and
Mouth disease

(GS1) location of primary, secondary, and tertiary sector

Dairy industry in India.
industries in various parts of the world (including India)

(GS2) Effect of policies and politics of developed and How the Fonterra crisis
developing countries on India’s interests, will help Indian dairy biz.

(GS3) economics of animal-rearing Lot fodder material.

(GS3) Food processing and related industries in India-scope

and significance, location, upstream and downstream for Milk/Dairy business.
requirements, supply chain management.
Next time we’ll see [Food processing] meat, poultry and fisheries.

Scope-Significance of Dairy Sector

Top five Milk producers (World)
HIGHEST
1. India
2. United States of America
PRODUCTION 3. China
4. Pakistan (as per NDDB, but I’m baffled nonetheless.)
 5. Russian Federation

 India has the world’s largest livestock population

LARGEST  half the world population of buffaloes
POPULATION  1/6th of the world goat population

CONTRIBUTION TO Livestock sector (milk, meat, eggs) contributes 3.6% of

GDP GDP. (2010’s data)

 Per capita milk availability All India: ~290 gm; Punjab

(highest): >900gm.
Availability  still per capita milk availability in India less than world
average

 To Farmers, Women And Consumers

EMPOWERMENT  more details under “operation flood”

India has proximity to milk deficit countries e.g.

5. South
1. Bangladesh
6. Korea
2. Indonesia
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 Cooperative Milk Marketing

GUJARAT Amul
Federation (GCMMF)

Andhra Pradesh Dairy Development

ANDHRA Vijaya
Cooperative Federation (APDDCF)

Karnataka Cooperative Milk Producers’

KARNATAKA Nandini
Federation (KMF)

Mahanand, Gokul, Maharashtra Rajya Sahakari Maryadit

MAHARASHTRA
Dhawal, Dudh Pandri Dugdh Mahasangh (Mahasangh)

Punjab State Cooperative Milk

PUNJAB Verka
Producers’ Federation (MILKFED)

Tamilnadu Cooperative Milk Producers’

TN Aavain
Federation Ltd (TCMPF)

Issue: there is a regional imbalance in production and processing capabilities. e.g. UP

contributes over 17 percent of India’s total milk production. Ironically, only one percent
is procured by co-operatives, remaining milk goes to private-dairy players, who exploit
farmers, and do adulteration.

Ranking: Top Five 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 doesn’t figure in top-5 in milk production due to fodder shortage. (Rankings
taken from NDDB website)

Milk Supply Chain: 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 world’s 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

Let’s see them one by one:

#1: Veterinary problems

  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)
1. Manpower
 Need to strengthen the mobile veterinary services to ensure
door-step 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)
2. information
 It’ll 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

3. Inadequate availability of vaccines vs. High prevalence of FMD, theileriosis and

brucellosis amongst cattle

4. FMD alone causes economic loss of ~Rs.20,000 crore per year to India. let’s 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 :
o Becomes lame and unable to walk to feed or water.
o 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.
o 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

 The cattle from temperate region have higher milk production.

(e.g. Denmark)
CLIMATE  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.

 Present breeding strategy focuses on high yielding cows/buffalos

rather than developing breeds that are tolerant to adverse
climate/fodder conditions.
BREEDING  Crossbred animals are sent to areas poor in feed
RESEARCH resources=they don’t survive/don’t produce optimum amount of
milk.
 Limited availability of quality breeding bulls and semen.

 Cow: Sahiwal, Gir, Rathi and Kankrej

Notable breeds  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
o Real-estate mafias and National Son-in-law encroaching on such land
o 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?

 to procure surplus fodder from the farmers in areas with good

FODDER rainfall / irrigation.
BANKS  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,
FOREST legumes, and trees under area-specific silvi-pastoral systems.
 Dovetail the ongoing schemes like MGNREGA and RKVY for
^this purpose.

 to improve quality of nutrition for the livestock

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

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.

Benefits of Azolla fern?

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

FOR CROPPING  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
FOR
 Livestock easily digest it.
LIVESTOCK
 Dry Azolla can be mixed with other fodder, or can be given
FEED
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:

Factors affecting quality of Milk Supply

1. lack of all-weather roads in many villages

1. BOGUS
2. Electrical problems in rural areas= cooling centers don’t
INFRASTRUCTUR
work 24/7 basis.
E
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.
2. BOGUS 3. Careless attitude of cooperative-staff. They don’t keep
HANDLING 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 don’t comply
with the standards.
6. Less manual handling, use more machines: Bucket Milking machines, Feed racks,
water bowls and partitions etc.
Milk Supply Chain: Processing Issues
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

 Sardar Patel encourage the farmers of Anand region in Gujarat, to form their own milk
1946
cooperative, to protect themselves from exploitation from private milk traders

National Dairy development board setup @Anand, to replicate the dairy cooperative
1965 model throughout country.

(PM Lal Bahadur Shashtri)

1971 Gujarat Cooperative Milk marketing federation setup (GCMMF)

 GCMMF starts maketing milk products under single brand name Amul (Anand Milk
1974
Union Limited)

Amul Supply Chain

 In the given village, a dairy Cooperative Society (DCS) is

formed.
 Every dairy cooperative society has ~110 farmers.
VILLAGE  Combined, all DCS together handle more than 18 million kg
milk / day.
 they’re 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
DISTRICT products sent to other states.
MARKETING  similarly Gandhinagar District Co-operative Milk Producers’
COOP.UNION 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

STATE MILK federation (GCMMF).
COOP.  All of above district cooperative unions (Banas, Madhur,
FEDERATION 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.
RETAIL
 2012: Amul planned to setup 10000 retail outlets across
India.
 Other than that, even private shops, hotels, restaurants etc.
 too sell Amul products.

 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

 While dairy Cooperatives have played an important role in Indian

Reach milk industry’s 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
Competition 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
Management 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.

Milk Supply Chain: 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, you’ve seen reports about this, particularly in Delhi-UP
region.
 Such fake milk products are extremely hazardous to health.
 In long term, they’ll destroy India’s 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.

Ingredients of Synethic/artificial milk

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
DETERGENT 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 don’t thoroughly wash them.

CAUSTIC To neutralize the acidic PH of other ingredients and thus prevents

SODA 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.
UREA
 it also increases viscosity (thickness) of the liquid so you feel
you’ve bought ‘premium’ quality milk .

STARCH 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 Puducherry’s milk passed all the test.
 ~70% of Indian milk doesn’t 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 government’s responsibility to act on milk
adulteration problem. Later SC asked state governments to file affidavit about what
action they’ve 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 SOLUTION

1. Most of the ethnic milk products are

made by local halwaii / sweet shop=
1. Train small manufacturers of ethic
unbranded, unorganized. Can’t
dairy products, such as halwaiis: make
compete in foreign market. You need
them to adopt hygienic practices, use
to create a brand first to earn the
state / district level bodies,
respect and trust of foreign
cooperatives, ITI’s can be involved in
customers.
such efforts
2. Since this is done on small scale =
2. Catalyze R & D for commercialization
they use cheap quality packaging
of ethnic dairy products
material, even harmful colors and
3. The Ministry of Food Processing, in
preservatives used, =Doesn’t meet
conjunction with the NDDB, needs to
quality norm in US/EU market.
undertake generic promotional
3. To make Indian ethnic milk products
campaigns to enhance the image of
famous like cakes, pastries, pastas
Indian ethnic dairy-based products in
and noodles => have to invest a lot in
US/EU markets.
marketing promotions abroad. Small
scale firms can’t 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 hasn’t
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

Export of milk powders (Skimmed Milk Powders, Whole Milk Powders, Dairy
2011
Whitener, Infant Milk Foods etc.), Casein and Casein Derivative was prohibited

ban lifted, these milk/casein products export given under Vishesh Krishi and
2012
Gram Udyog Yojana(VKGUY)

Fonterra crisis

 New Zealand = one of the biggest dairy exporter of the world.

 Fonterra= New Zealand’s biggest dairy company
 2013: News report came that Fonterra’s milk powder could have been contaminated
with the Clostridium bacteria. It can cause fatal botulism.
 After this news report, China and Sri Lanka banned Fonterra’s 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 don’t 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 non-level 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, let’s 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

 NDDB has Won Indira Gandhi Rajbhasha Award for the financial
year 2011-12. (But declared in 2013).
AWARD  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
CHAIRMAN
continue).
(PERSON IN
 After Vergese Kurien, the father of white revolution, she has
NEWS)
been managing NDDB.

Operation Flood
Timeline of 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:

 Setup dairy cooperatives in 10 states and link them with four

PHASE- metropolitan cities: Mumbai, Delhi, Kolkata and Chennai.
1  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
PHASE-
dairy cooperative umbrella.
2
 finance: by World bank loan

 To consolidate the gains made from previous phases.

 Vaccination, Breeding research, artificial insemination, farmers’
PHASE-
training etc.
3
 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 rupee’s downfall!)
 How Dairy cooperatives lead to “EMPOWERMENT”?

CONSUMER 1. Per capita milk availability increased.

EMPOWERMENT 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.
ECONOMIC
EMPOWERMENT 5. Village dairy cooperatives= less nuisance than APMC /
food grain middlemen.

6. Milk production doesn’t require much land. Even landless

poor can participate.

7. Village Milk Cooperatives bypassed the feudal power

SOCIAL structure associated with cropping/foodgrains in villages. It
EMPOWERMENT 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. Many women dairy cooperatives were setup. (Particularly

during and after phase III)

10. Women became direct members and office bearers of

WOMEN such cooperatives and started earning.
EMPOWERMENT
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 reading-revision)

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

 100 per cent grants in aid given to provided to

Intensive Dairy Development
Scheme (IDDS)
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
Dairy Entrepreneurship
 helps in bulk milk coolers, transportation
Development Scheme (DEDS)
facilities including refrigerated vans, cold
storage facility

 Centrally Sponsored Fodder and Feed

Development Scheme (CSFFDS)
fodder
 with help of state governments

 Official name: “Strengthening Infrastructure for

Quality & Clean Milk Production”
 trains of farmers on good milking practices
clean milk  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 country’s 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 1. International Development Association (IDA) of the World Bank

from 2. Central government (Department of Animal Husbandry, Dairying
and Fisheries)

to NDDB: National Dairy Development Board (a statutory body)

End Implementing Agencies (EIAs):

 State Government
ultimately to  Cooperative dairy federations
 Milk Producers Unions
 ICAR institutes, and veterinary/dairy institutes and universities

Mock Questions on Milk Supply Chain Management

MCQs

1. Correct Statements about Foot and mouth disease(FMD)

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
2. 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
3. Find odd term
a. Sahiwal
b. Murrah
 c. Gir
d. Kankrej
4. 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
5. 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
6. Correct statements about National Dairy plan
a. It’ll 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

Descriptive

 2m
1. NDDB
2. Intensive Dairy Development Scheme (IDDS)
3. Dairy Entrepreneurship Development Scheme (DEDS)
 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 India’s village system was the greatest of England’s 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 Milk Supply Chain: 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.
[Food Processing] 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

just a brief table on EEZ
and India

(GS2) Government policies and interventions for development Comprehensive Marine

in various sectors Fishing Policy, 2004

(GS2) Welfare schemes for vulnerable sections of the Fishermen Welfare

population Scheme

(GS3) Food processing and related industries in India-scope

Related to freshwater,
and significance, location, upstream and downstream
saltwater and shrimps.
requirements, supply chain management.

later: we’ll 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

 ~5% within GDP from agri-allied sector.

GDP contribution  ~0.8% within total GDP.
  Indian Fish export >$3500 million dollar
 Indian meat export ~$3000 million dollar
Export (2011-12 data)  still, India’s share in world export Is barely 0.1% (for each
fish and meat individually)

 3000 fishermen villages

Gives employment to  8 lakh fishermen families
more than  40 lakh fishermen

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 export (approx. Million India’s share in world trade

data) dollar) (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
Gujarat & Maharashtra
West
WEST COAST=42% OF
EEZ
South
Goa, Karnataka & Kerala
West

Lower Tamil Nadu, Andhra Pradesh &

East Pondicherry
EAST COAST=28% OF
EEZ
Upper
Orissa & West Bengal
East

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

Fish Supply chain Management

 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 don’t fetch good prices in market= resource lost.
4. During breeding season, fishing is banned in coastal waters. But the authorities
don’t 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 don’t 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 don’t have special equipment to do deep water fishing beyond depth of
400m. Example yellow fin tuna found around Lakshadweep islands. They’re almost
unexploited since the technology for deep long lining is not prevalent in the Islands.

Fish Supply: 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
EMPIRES  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
MNREGA
potential is largely ignored.

 Fish feed not available at reasonable prices.

 Most farmers are small/marginal, don’t know best practices in
cultivation, post-harvest management for fish farming.
AQUACULTURE
 waste disposal done in hygienic manner= environmental
implications

Shrimp-farming@Upstream
 Nellor District, AP= Shrimp Capital of India.
 Pink revolution=Shrimp/prawns. (as per some books/ PDF reports.)
 Pink revolution also means meat + poultry. (as per food processing ministry, FAO
etc)
 anyways, let’s check the issues.
  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
PARENTS 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.
ANTIBIOTICS  Farmer unknowingly uses such input= antibiotic traces found in
Indian shrimps=>they’re rejected in US/EU market.

 feed cost accounts for 50% of the total cost

 Government investment in research for low cost feed and
FEED COST
technology required.

 Need to educate farmers on modern techniques of shrimp

farming so they can enhance the quality and body weight of
shrimps.
TRAINING
 but there is shortage of extension staff for fisheries in state
departments.

@Processing

Fish Supply:NOTABLE  Adani Exports, Hindustan Lever Ltd, Ruchi Worldwide,

Indian PLAYERS 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
WATER QUALITY
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
PACKAGING
market.

 Even for exports, our fish-processing is primary/basic

level
 We merely freeze/mince the fishes/shrimps and export
them to China/Thailand/Japan.
LOW VALUE ADDITION
 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

Fish Supply Chain
capital investments to upgrade our processing units.
INVESTMENT

Fish Supply: @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

 Fish prices more than doubled during the Eleventh Plan, a

INFLATION 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-
MARKETING
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

Fish Supply: products because they don’t have due to cooling storage
RETAILERS facilities + electricity problems.
  We don’t export Ready to eat marine products in significant
volumes, because we are not aware of varied tastes and
Fish Supply:
cuisines in different regions of the world
MARKETING
 need investment in marketing research in foreign
RESEARCH
consumers’ food preferences.

 US Department of Commerce has imposed an anti-

dumping duty on Indian Shrimp. more on dumping, already
DUMPING
discussed click me

 US/EU/foreign countries often reject our fish/shrimp cargos

REJECTIONS 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

Fisheries beyond this limit within the EEZ fall in the jurisdiction of Central
Centre
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 protection + welfare

2. SMALL-SCALE technology transfer to small scale sector

 FISHING

 work out strategy for fishing in Antarctic waters by

Indian owned vessels
3. INDUSTRIAL  infrastructure support, Joint Venture for fish
FISHING processing and export
 PPP: Build-Operate-Own and Build- Operate-
Transfer systems.

Salient Features of this policy

1. ATTENTION TO CONSUMERS
o increase per capita (fish) protein intake
o Attention to consumer rights. Ensuring food safety, mandatory bar coding and
packaging for sale of fish products.
o Ensure international quality and food safety in fish and fishery products.
o Ensure Hygiene in fishing harbor and processing centers.
o Protect consumers from fish contaminated with heavy metals and other
hazardous chemicals discharged from industrial establishments.
o eco labeling of marine products
2. ATTENTION TO FISHERMEN
o Each fisherman household would be given a card for easy identification.
o Strengthen Cooperative movement of fishermen
o Uniformity in central-state welfare schemes for fisherman.
o Greater participation of cooperatives, NGOs and local self-Governments
o Government to contribute towards Insurance scheme for only those fishermen
who do not own a boat.
o Fishermen Housing Schemes will unified and implemented as a master plan
through a national agency.
3. ATTENTION TO ENVIRONMENT
o responsible and sustainable fishing practices to Preserve environment and
biodiversity
o Strict ban on all types of destructive methods of fishing.
o Regulate Mesh sizes in different parts of the fishing gear. Penalties for violations
of mesh regulations.
o Prohibit Catching of juveniles and non- targeted species=prohibited
o greater liaison between Central and State Pollution Control Board to control all
industrial establishments discharging effluents in to the sea
o Hazard Analysis and Critical Control Points (HACCP) in effluent discharge
systems will be made mandatory.
o Mangrove plantation in Coastal areas.
4. 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.
National Mission for Protein  to promote production of animal based protein
Supplement (NMPS) through livestock development, dairy farming,
pig and goat rearing and fisheries

 fish farmers were provided assistance for

Development of Inland fisheries & freshwater aquaculture. ~30000 already
Aquaculture benefitted under 11th FYP.

 development of 13 fishing harbors and 4 fish

Development of Marine Fisheries, landing centres, 4 fishing harbors were
Infrastructure Post Harvest repaired and renovated. (11th FYP)
Operations.  safety appliances provided

 Under the scheme, inland water bodies are

Strengthening of Database &
surveyed and mapped in the States.
Geographic Information System
 Work already finished in W.Bengal.
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 under you know who’s party.)

anyways, this scheme has:

Two pronged approach

PROTECTIVE  To prevent any short term decline in the standard of living. (via
insurance + savings)

 To enhance the long term general living standard of the entire

PROMOTIONAL community. (via model village + training)

four broad components

 fishermen (both inland and marine) will be given basic

1. MODEL civic amenities like houses, drinking water, tube-well and
FISHERMEN commonplace for recreation and work.
VILLAGES  for housing- Preference will be given to fishermen below
poverty line and to landless fishermen.

 Group Accident Insurance for Active Fishermen.

 Rs 50,000/- against death or permanent total disability and
2. INSURANCE
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.
3. SAVINGS CUM
(total 1200)= this plus bank-interest will be given to
RELIEF
fisherman during lean season (remaining 4 months of the
year)

 self explanatory
4. TRAINING  to update knowledge and improving skills of fishers in
regard to modern fishing technology.

Misc.

CIBA An immunodot blot test for early detection of WSS virus in shrimp.
IMMUNoDot Patent pending.

Silver pompano  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. Don’t
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. 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
2. 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

Descriptive

 2m
1. Obstacles to Pink Revolution in India
2. MODEL FISHERMEN VILLAGES
3. National Mission for Protein Supplement (NMPS)
4. National Fisheries Development Board (NFDB)
 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. Define Aquaculture and Mariculture. Discuss their significance in rural
development in coastal areas.
 25m
1. Although India is the second largest fish producer of the world, the share of
fisheries sector in India’s 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.

[Food Processing] Poultry, Meat, Supply Chain,

Upstream, Downstream, Avian influenza,
government schemes

Prologue
Previous article was on fisheries, now comes meat/poultry.

UPSC syllabus topics in this article

prelims  avian influenza related MCQ under sci-tech

GS2: Statutory, regulatory

and various quasi-judicial Veterinary council of India
bodies.
 fodder points that
GS2: Government policies
1. lack of clear policy on buffalo meat hampers the
and interventions for
growth of meat industries..
development in various
2. Non implementation of GST hurts Kerala’s poultry
sectors
sector.

GS2: Bilateral agreements fodder point that China has agreed to allow meat
involving India and/or import from India. (earlier it was banned because of
affecting India’s interests. diseases)

GS2: Effect of policies and

fodder point that Oman’s ban on Indian poultry has
politics of developing
badly affected our business.
countries on India’s interests

GS3: economics of animal-

Plenty of fodder points on poultry and buffalo meat.
rearing

fodder point that Meat processing industry was de-

GS3: Changes in industrial
licensed in the 90s and as a result, now India is
policy and their effects on
6th largest exporter of bovine meat, produces meat
industrial growth.
worth >Rs.60,000 crores.

GS3: Food processing and

for poultry and buffalo meat
related industries in India
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
non-vegetarianism, 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

 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.
NORTH  No concentration of production.
 No full integrators.

 No concentration of production
 Only 1 integrated player- Arambagh
EAST  High cost of maize feed, transport problems =hampered the growth of
organized poultry farming.

 Production concentrated around Pune. E.g Venky’s

WEST  few integrated and semi – integrated players

Poultry Supply chain & Backward Integration

 CLICK TO ENLARGE

Big poultry companies have backward integration. Let’s 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-
1. MEDICINE bacterial, antibiotics, vitamins, mineral supplements etc. to those contract
farmers.

 Company has India’s largest feedmill near Bangalore. They supply their
2. FEED
own scientifically manufactured feed to those contract farmers.

 Saguna’s experts make regular field trips and train the farmers on how to
3. TRAINING
raise poultry in a scientific-efficient manner.

As a result of 1+2+3, all chicken/eggs are uniform in size, shape and quality.

 HACCP certified, Good Manufacturing Practice (GMP) certified

processing plant at Coimbatore.
4. PROCESSING
 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 Venky’s (Pune based
company): supplies Chicken to Indian outlets of McDonalds, KFC, Pizza Hut, and
Domino’s.
 But just two Cinderella stories doesn’t mean everything is well and good with Indian
Poultry business. Let’s observe the constrains-

Poultry@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 don’t 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 Protein found on the surface of influenza viruses.which is

(H) responsible for binding the virus to the victim-cell

Neuraminidase
Enzyme found on the surface of influenza viruses.
(N)

 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 causes disease very easily (highly
(low pathogenic avian influenza or pathogenic avian influenza or
LPAI) HPAI)

Species affected
 One type of wild ducks – constitute the natural reservoir of
Migratory water
the virus. Wild birds may carry H5N1 from one area to
fowl
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 =
Poultry flocks mixing of sick and healthy birds=disease transfer.
(chickens, ducks,  this virus causes a high mortality rate. Even healthy birds
turkeys, geese) 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, found to be affected by Avian influenza, after eating raw

leopards infected birds

Disease can also affect humans but only after eating poultry
meat that has not been cooked properly or after very close
Human
contact between a person and an affected animal.first
outbreak: Hongkong’97
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 Venky’s.
 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= Venky’s, 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 WHO confirms bird flu outbreak in government-run turkey farm at Hesaraghatta,
12 Karnataka,

NOV Oman, the biggest egg export market for India, bans import of eggs and chicken
12 from India because of bird flu news.

Oman has lifted the ban on importing poultry products from India, but with
condition that an Indian company must get its premises and husbandry
JUN procedures verified by Omani officials first.But in during this ‘ban’ time, the Omani
13 hotels, businessmen made import-contracts with Brazil and Holland for supply of
eggs and chicken. So, even after the ban is lifted, 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

One time assistance is provided to strengthen poultry

1. Assistance to
farms.e.g. for buying/upgrading hatchery, brooding
State Poultry
and rearing houses, laying houses for birds, in-house
Farms
disease diagnostic facilities and feed analysis
laboratory.

2. Rural
Backyard
Poultry given to BPL families= supplementary income
Poultry
+ nutritional support.
Development
3. Poultry In these poultry estates, entrepreneurship skills given
Estates to educated, unemployed youth and small farmers, so
they start poultry related business-activities.

#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.
 It’ll have sub-missions for
 increasing availability of feed + fodder
 Improving animal breeds to raise milk yields.

Misc.

 Heat tolerant hen breed by ICAR, Kerala.

Athulya chick  Gives larger sized eggs
 Bird is heat tolerant=mortality rate is low.

Kalamasi Fowls Already covered under Hindu Sci-tech compilation. click me

Enough of eggs, chicken and poultry. Let’s 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).

India’s world ranking in

1 livestock

2 goats
3 sheep

5 Bovine meat export.

We’ve 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. They’re 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 = doesn’t commend high
prices abroad.
5. inadequate veterinary care = various diseases= export rejected from US/EU

 Jafarabadi breed in Gujarat and Maharashtra = known to be one

of the heaviest buffalo breeds in the world but its meat yield is
Meat yield 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
Disease
 Lack infrastructure/facilities for disease diagnosis, reporting,
epidemiology, surveillance and forecasting.

veterinary
same like previous article on milk/dairy business.
services

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 Fast Prax (fast

Buffalo, sheep and goat meats
Industries Ltd food outlets)

Allana sons Ltd Premier, Saffa Premier (fruits and vegetables) Saffa (meat)

Vegetables and fruits, snacks, meat and

Al Kabeer Al Kabeer
poultry, ready meals and sea food
@Downstream
Indian consumer = price sensitive. Chicken and Buffalo meat are
PRICE
more consumed than other varieties.

 Currently , there are no taxes levied on wet market sales (i.e.

fresh meat)
 But branded/sealed meat attracts VAT/sales tax.
TAXATION  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.

Even non-vegetarian refrain from consuming meat on certain

SELF-BAN
religious festivals

REGIONAL Eastern India and Coastal regions prefer marine products over
PREFERENCE poultry/animal.

Indian consumers prefer to buy freshly cut meat from the wet
FRESH 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 that’ll 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 WHY DECLINING?

AUSTRALIA
 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
USA
conscious elite customers from US/EU prefer Indian buffalo
meat for its ‘organic’ nature.

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

grant for __ % of the

area
project cost

General 50

North East, Hill area, areas under integrated Tribal

75
development plan

Maximum grant: Rs.15 crore per project.

Ten slaughterhouse projects ongoing:

 7. Patna (Bihar)
1. Dimapur (Nagaland)
2. Kolkata (West Bengal) 8. Ahmednagar (Maharashtra)
3. Ranchi (Jharkhand)
4. Shimla (Himachal Pradesh) 9. Jammu (Jammu & Kashmir)
5. Hyderabad (Andhra Pradesh) 10. Srinagar (Jammu & Kashmir)
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

 Rinderpest: viral disease, regularly devastated buffalo

and cattle herds in Asia and Europe.
National Project on  Recovery from rinderpest disease confers lifelong
Rinderpest immunity, but only a few animals are known to survive.
Eradication Most animals collapse and die within a few days after
this viral fever.
 2011 FAO conference declared that Rinderpest
eradicated from the world.

Foot & Mouth  viral disease, already covered under previous [Food
Disease Control processing] Article on milk/dairy.
Programme

National Control
 is a viral disease, causes mortality in sheep and goats.
Programme of Peste
des Petits

National Control  Brucellosis, bacterial disease, causes abortions and

Programme on infertility in animals=decline in milk production
Brucellosis

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
Integrated Development of Small Ruminants & RabbitsNABARD.
rabbits The scheme is aimed for women beneficiaries, poor and marginal
farmers

 To protect farmers against eventual loss of their animals due to

Livestock death.
Insurance  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
Livestock Census
 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
Animal Quarantine livestock and livestock products which are exported from India.
and Certification  Quarantine stations in the country out of which four located at
Service New Delhi, Chennai, Mumbai and Kolkata
 The scheme helped to prevent the entry of exotic diseases like
Mad-cow disease (BSE), African swine fever and contagious
equine metritis.

Livestock Health & supports the state Governments for animal immunization,
Disease Control strengthening of existing Laboratories and in-service training to
program Veterinarians

 Particularly in North-Eastern States by rearing pigs

 Encourage commercial rearing of pigs by adopting scientific
Pig Development 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 at Baghpat, Uttar Pradesh to undertake the testing of

Health animal vaccines and drugs.

Central Sheep Breeding Hissar (Haryana). as the name suggests: sheep

Farm breeding research.

Izatnagar is functioning as Central Laboratory for

Central/Regional Disease
surveillance and diagnosis of various livestock and
Diagnostic Laboratories
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. None of above
2. 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
3. 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
4. Find odd term
a. Rinder pest
b. Brucellosis
c. Foot and mouth disease
d. Peste des Petits
5. 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.

[Food Processing] Tea, Coffee Supply Chain,

Upstream, Downstream for UPSC General
Studies Mains
Prologue
 Although I had planned this to be the last article under [Food processing] but heavy-
rainfall in Gujarat randomly shutting down my landline internet and electricity, hence
couldn’t work on edible oil, bread-biscuit etc. topics. They’ll be published later on.
 This one covers only tea and coffee. Meaning one more article to go before ‘The
end’ of [Food Processing] series.

Tea: Scope Significance

India’s rank in world (2012, as per Teaboard)

production 2
consumption 2

export 4

 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.

 Single biggest reason for the slow growth in area under tea
cultivation in India.
Land Ceiling  Under this Act, the Government acquired large tracts of then
Act 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, can’t invest in high yielding tea
bushes/replanting etc.
 Therefore, such small farmers should be organized under a
Collectivization 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

implication for the tea estate owner
Act

Maintain a minimum number of Salaries alone account for ~55% of

employees pay certain minimum operation cost (way higher than Vietnam /
wages Argentina)

Provide other amenities to workers High cost of labour welfare. (compared to

(housing, school etc) Sri lanka, Kenya)

Thus plantation labor act increases cost of production. Hence, tea estate can’t afford
replantation/cloning=lower yields every year.

let’s look at some more negative factors

 Erratic rainfall pattern causes frequent landslides in the hilly terrain,

RAINFALL 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
FERTILITY
environment and long term yields of tea.

 over the years, urbanization + deforestation + vehicular traffic=air

POLLUTION 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
ROADS
time-consuming 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
LAND  Some mafia-type elements took advantage of the situation,
MAFIA unlawfully and forcibly occupying a portion of land on each
estate=>area under tea-cultivation declined.

Taxation
TAX tea plantation is subjected to

CENTER  corporate tax

 tea cess, excise duty.

 Agricultural tax. Varying from 30% or even more.

 Purchase tax, employment & production cess.
STATE  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, can’t
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 doesn’t
get fair share.

Tea Supply Chain: Downstream

 ~90 of tea manufactured in India is of the CTC variety

DESI  local demand for green tea= negligible
CONSUMER  But in foreign countries, the demand for green tea and
non-CTC orthodox variety=high.
 Therefore, India’s export potential not fully utilized.

 Among the Youth coffee and fruit juices perceived to be

YOUTH more contemporary and tea is regarded as an old
DEMAND fashioned drink= slight decline in demand.
 The premium tea (Expensive brands) = very small demand in
PREMIUM
India, not even 10% of total tea sales.

Export related

leading exporters importers

India, Sri Lanka, Kenya, Indonesia and Russian Federation, UAE, Iraq, UK and
China. Kazakhstan

let’s check the issues

 A significant proportion of India’s exports are in bulk form to UK,

LOW VALUE Netherlands.
ADDITION  They blend our tea varieties, repack and re-export it to other
countries @higher price.

 Kenya is emerging as a significant competitor

KENYAN  it has ~65 % market share in Pakistan
COMPETITION  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.
Fall of USSR  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
TRADE
unbranded tea @Domestic level 2)Kenya, China @foreign level.
AGREEMENTS
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:

India’s % share in world export 1970 2011

tea 33% 10%

another table:

export in Rs. tea’s share in India’s India’s % share in world tea-

2011
cr. export export

tea 4000 less than 0.5% 10%

Meaning: despite favorable agro-climatic conditions and cheap manpower, tea doesn’t
fetch us much export earnings.

Foreign consumer Preference

BLACK 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.
GREEN TEA
 both Green tea and black tea are made from
the same tea plant, Camellia sinensis

 Small demand, but much potential in

fruit/herbal tea, oolong tea, white US/Western Europe and other non-tea drinker
tea, mint, chamomile, organic tea 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 India’s export India’s % 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  Southern states of Karnataka, Kerala and Tamil Nadu.

areas  Bababudangiris in Karnataka, known as the birthplace of
coffee in India.

Non-traditional Andhra Pradesh and Orissa in the Eastern Ghats.

North Eastern ’Seven Sister’ states of Assam, Manipur, Meghalaya, Mizoram,

region 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 soil-climatic 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 coffee’s organic nature.

Taxation
Coffee growers are subjected to dual taxes

 Income tax.
 Coffee retains better quality if cured immediately.
union  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.
state
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.

no. of Annual Revenue in Rs. from EACH outlet

coffee chains in India
outlets (approx.)

Tata-Starbucks 11 1.5 crore

Coffee Bean and Tea

32 3.5 crore
Leaf

Costa Coffee 100 60 lakh

Cafe Coffee Day 1200 40 lakh

No, UPSC is not going to ask ^this, but I’m 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 Board’s 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, Nescafé 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, won’t 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:

India’s % 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.

 During monsoon season, Coffee beans swell because of the

air-moisture. It gets a mellow yet unique taste. This is called
Monsooned Monsooned coffee.
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, India’s 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, India’s 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.
5.

[Food Processing] Edible Oil: Supply-Chain, Upstream, Downstream, Onion-

Crisis and ofcourse Desi-liquor

Prologue
UPSC GS MAINS SYLLABUS TOPICS IN THIS ARTICLE

fodder point on how Government

Government policies and
interventions for development in
various sectors and issues arising
out of their design and
implementation.
tax sops are hurting edible oil
sector and how MSP for wheat-
rice hurts oil seed cultivation.
How Government’s SSI
reservation has prevented growth
of edible oil sector

cropping patterns in various parts of

for onion
the country

storage, transport and marketing of

for onion
agricultural produce

For edible oil.+Some passing

Food processing and related reference to bread-butter and
industries in India- liquor industry (because they too
use agriculture inputs!)

This article marks ‘the end’ of food processing series from my part but shouldn’t 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 you’ll
get lucky.
Edible oil: Scope-Significance
1. India is the world’s 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 they’re 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 it’ll 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
world’s 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. It’ll 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’.
 We’re 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 hasn’t 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?
 5. Karanja 8. Kokum
1. Sal
2. Mango Kernel
6. Jojoba 9. Kusum
3. Mahua
4. Neem
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

as cocoa butter in the chocolate industry
kernel, kokum, dhupa etc

soaps, lubricants, paints, varnishes, bio-diesel,

oils and fats from all of these TBO
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= shorter-compact 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 are small traditional (cottage industry) crushers, mainly

Ghanis
in rural areas.Covered by SSI policies.

Small scale
relatively modern facilities than Ghanis.
expellers
 They crush and process “hard” oilseeds with low-oil content
Solvent such as soybeans and extractors cotton seed as well as
extractors chemically extract residual oil from the oilcake processed by
above SSI players

These plants refine solvent-extracted oil. However, oil refiners

Oil Refiners
are usually not integrated because of the SSI problem.

NOTABLE PLAYERS

National Dairy Development Board (Anand), ITC Agro- Tech

Edible Oils
(Secunderabad), Marico Industries (Mumbai), Ahmed Mills (Mumbai)

HindustanLever (Mumbai), Wipro (Bangalore), Rasoi (Calcutta), Avi

Vanaspathi
Industries (Mumbai)

Oil brands Sundrop, Dhara, Saffola, Sweekar, Postman

1. Wilmar, the largest palm oil conglomerate in the region, already owns one of India’s
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?

MNC players source oils/oilseeds from other countries where they

RAW
have a sizeable presence.This reduces the cost of raw materials
MATERIAL
and improves their competitiveness.

TRANSPORT
Port location= can import crude edible oil/oilseeds, refine and
 distribute it.Refined oil is then transported by rail.

duty differential between crude and refined oils makes it

advantageous to import crudeoil and refine it in India.
TAX
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
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
BLENDED
 Some of the leading blended oils include: Soybean + Sunflower,
OIL
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
o consumer health
o 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 don’t 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= we’ve 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 clichéd-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  They needs instant cash repaying earlier loans, family

DISTRESS 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.
ASYMMETRY OF  But traders compare rates of all markets, including major
INFORMATION 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.
OLIGOPOLY
 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
o commission agent cum wholesalers
o order suppliers,
o forwarders cum store owners
Middlemen
o 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.
STRIKES
 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
Storage 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 can’t 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 don’t have the trading expertise, market knowledge and risk bearing
capacity- hence their cooperatives haven’t been successful in onion business
3. Onion traders with deep pockets, can maintain yearlong expenses even in lean
season- farmers’ cooperatives can’t.
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. Government’s 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 (Sep’13) is blamed on following:

1. Much of the stored onions of last year’s 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 (Asia’s 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?
1. Under 11th Schedule of constitution: the markets and fairs
PANCHAYATI fall under the purview of Panchayats. State governments
RAJ 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.

DESTROY 5. Weed out market intermediaries that are engaging in unfair

OLIGOPOLY 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
EXPORT
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
INFRA
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 India’s 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.

 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  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
BISCUIT 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

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

less
cultivation

soft to medium very hard

less high protein and high gluten strength

Indian durum varieties have a high level of resistance to leaf

less
rust and other diseases

Middle East, South Africa and Mediterranean countries are

not much
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

Crude palm oil from Malaysia and

EDIBLE OIL Indonesia=> Kandla port ->refined ->sent
to Britannia plants.
UPSTREAM
Sugarmills in Maharashtra and Bangalore-
SUGAR prepare specialized syrup and sucrose for
biscuits.
  From UP, Punjab, Haryana, Raj.,MP,
Gujarat and Bihar=>goes to organized
flour mills such as Krishna floormill in
WHEAT Bangalore.
 These mills make flour for Britannia as
per the requirements of bread and
biscuits.

Has units in WB, Delhi, Uttaranchal and

PROCESSING TN. Almost 1/5th of its output is generated
by factories in Tamilnadu.

Distributors=> Kirana, Provision stores,

GENERAL
DOWNSTREAM shopping malls
(RETAIL)
INSTITUTIONAL via hotels, airlines, canteens, hospitals.

MSP problem
(Although highly debatable if you don’t believe in free market economy.)

From Government’s point of view:

 Announce high MSP (minimum support price) for

FARMERS 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.

POORS

 Collect taxes from them to run this MSP-PDS

MIDDLECLASS AND RICH
structure.
PEOPLE

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 is made from malt. But good quality malt not available easily.
BEER  Need APFC reforms to promote direct purchase arrangements with farmers
growing barley vs beer manufacturer.

 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.
WINE
 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

Through merger acquisitions, small players are gone, and the top 2 beer
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
WINE non-availability 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

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)

 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
Open Market / Free and retailers.
Market  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
AUCTION MARKET distributors have freedom to pick companies.)
 Pricing is determined by syndicates.
 This model leads to a high degree
of cartelization and liquor-mafia 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.
GOVERNMENT
 State agencies purchase directly from liquor
CONTROLLED
companies.
(“Communist”
 Excise is paid either by the manufacturer or the
model? lolz)
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.

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

 Wine is mainly consumed in urban India, with a high proportion

being in the large metros.
PREFERENCE  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.
EXPORT  The success of New World wine makers in Chile and South Africa
should be an excellent example to the Indian industry.

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.