Food Processing Industries in India: Opportunities

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Terminal Markets and Special Economic Zones
for Agricultural Produce
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Increasing Farm Income

• More production with better marketing

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Production stagnating, big scope for better
marketing

• Double the income through more efficient marketing

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But the present day markets are not efficient

• Infrastructure for marketing of perishables
• Primary grading/ collection centers - non
  existent
• Warehousing and cold storage - inadequate
• Cold chain - non existent
• Quality certification system - non existent
• Transportation for perishables - non existent
• Rural markets - complete lack of infrastructure
• Wholesale markets - in government control, lack
  modern facilities
• Private / direct markets - not permitted
• Post harvest losses 25 to 30 in perishables

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Present Scenario in Value Chain

• Cost Build Up For One Kg. Basket Of Fruit

11.6
2.5
1.7
4.1
3.3
FARMER
TRADER
WHOLESALER
RETAILER
CONSUMER PRICE
Retail Markups
350
220
160
100
FARM GATE PRICES
MILK
FISH
FRUITS VEGETABLES
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Terminal markets

• Catalysts for transformation

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Concept

• Modern terminal markets
• A professionally managed competitive structure
• To provide market services
• to farmers at their door step
• Comprehensive solution to meet needs of
  stakeholders
• Auction
• Processing industry
• Exports
• Retail chain and Consumers
• Requiring high investment and efficient
  management skills
• Can be infused by private enterprise

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Structure of Terminal market

• Hub-and-Spoke Format Terminal Market (the hub)
  to be linked to number of collection centres (the
  spokes)
• Collection centres (Spokes) to be conveniently
  located at key production centres to allow easy
  access to farmers
• Provide state of art facilities for
• electronic auction,
• grading, washing and packing lines,
• processing and exports,
• banking etc.
• Commodities to be covered include
• Fruits and vegetables, Flowers, aromatics and
  herbs
• Meat Poultry

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Salient Features of the Terminal Markets
Feature Mumbai Nasik Chandigarh Rai Patna Bhopal Kolkata Nagpur
Area of market (in acre) 200 100 100 88 75 59 55 100
Yearly handling capacity (lac MT) 6 3 2.25 3 2 2 5.47 2.4
No. of collection centres 60 20 20 30 26 25 12 25
Peak throughput (MT/day) 3000 1500 800 1000 800 1000 1500 800
Cold Store Capacity (in MT) 15000 5000 3000 5000 2550 2000 10000 2000
Total cost of project (Rs. crore) 120 60 53.6 65.6 59 49.6 93.4 54.5
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Financial Parameters of Nasik Project

• Total Cost of Project ( in Rs. Crore) 60.00
• Debt Equity Ratio 1.60
• Debt Service Coverage Ratio 1.82
• Pay Back Period ( years) 10.00
• Break Even Point( ) 46.68
• Cash Break Even Point() 28.79
• IRR ( ) 17.25

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Key expectation from the private enterprise

• Provide envisaged infrastructure at the TM and
  the CC in the hub- and- spoke format
• Establish backward linkage with growers in the
  catchment area of the TM through establishing the
  collection centers.
• Progressively involve farmers and their
  organizations in the operation and management of
  the collection centers
• Facilitate direct supply to processing units,
  retail chains and exporters, in addition to
  auction facility via the collection centers and
  terminal market

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Key expectation from the private enterprise

• Provide advisory services to farmers on inputs,
  prices, quality, multi modal transport and
  exports
• Project DPR only illustrative. Project should,
  however, be designed to handle the minimum
  quantity of peak throughput (MT/day) and yearly
  handling capacity as prescribed.
• Private enterprise at liberty to
• Prepare own business model with regard to Size of
  market and Scale of operation
• Set up additional facilities to provide
  complimentary services (input supply,
  processing, consumer goods etc.)
• Collect user charges for the infrastructure and
  services provided
• For basic services of aggregation at CC and
  auction at TM
• User charge not to exceed 2 of the produce value

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Expectation from the State Government

• Reforms in APMC Act
• To allow the private enterprise
• Establish collection centres in the catchment
  area of the TM
• Source material from farmers field directly in
  the catchment area of the TM
• Organize supply to traders, retail chain,
  processing industry and to institutional buyers
  throughout the country
• Cold storage/ warehouses of TM to act as delivery
  point for trading in perishables on the commodity
  exchanges
• Pack house of the TM to act as exit point for
  exports

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Expectation from the State Government

• Regulatory clearances
• Single license to operate in the entire
  State/adjoining States
• Single point levy collection of market fee
• Autonomy in commercial operations of TM
• Clearance of land use for the TM/CCs
• Provision of Civic amenities (including drinking
  water, municipal waste disposal, police
  security, post office etc)
• Statutory clearance from
• Local authority
• Town planning Urban development
• Revenue department

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Expectation from the State Government

• Play a pro-active role
• Appointment of a Nodal Officer/Empowered
  Committee
• to facilitate securing regulatory compliance
• to remove difficulty in operation of the project
• Identification of land for the TM/CC
• Provision of Government land on long term lease,
  subject to availability and suitability
• Infrastructure support to TM/CC
• road connectivity, power and water supply etc.
• States free to participate in the equity of
  Project
• Direct funding
• Land/infrastructure support

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Role of the Central Government

• Support the project through participation in its
  equity capital
• Terms for financing
• Up to 49 of project equity, including
  contribution from State
• NHM/State will have the option to allocate its
  equity to farmers organisations actively
  participating in the business of the project
• Private enterprise to be selected through an
  open, transparent competitive bidding process.
• Project to be awarded to bidder with the request
  for minimum Government equity participation.

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Outlay in 2006-07

• Approved outlay for NHM
• X Five Year Plan Rs.2300 crore
• During 2006-07 Rs.1000 crore
• Outlay for Terminal Markets
• Participation in Equity Capital Rs.148.00
  crore
• Project Development Assistance Rs. 1.00
  crore
• General Awareness Publicity Rs. 1.00
  crore
• Total Rs. 150.00 crore

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Parameter Baseline status Expected outcome
Trade transparency Non-existing Transparent auctions through electronic auction system
Cold chain infrastructure poor Setting up of cold storage at each market ranging from 2000 to 15000 MT capacity
Backward-forward linkages poor Minimum of 20 collection centers nearer to the farmers field will be set up. The farmer will have alternative options to supply to the supply chains, processing, export of commodities etc.
Monopoly of APMC Markets prevalent Farmer is provided with alternative option of taking his produce to terminal markets.
Multiple intermediaries prevalent Length of the chain of commission agents will substantially be reduced with an ideal situation of eliminating the commission agents completely.
Beneficiary farmers -- 16000 to 20000 farmers under each terminal market.
Share of the farmer in the consumer price Varies from 30 to 60 for perishables depending on the location, season, demand and supply etc. Farmers share is expected to increase to 50 to 70 of the consumer price.
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Risk Factors

• Attractiveness to Private Enterprises
• Availability of Suitable Land
• Success in establishing backward linkages with
  farmers

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Process so far

• General Council of the NHM approved the concept
  on 14.12.05
• Honble FM announced in the Budget Speech of
  2006-07 for setting up of Terminal Markets with
  an outlay of Rs.150 crore
• National Conference on Terminal Markets held on
  20.02.2006 discussed with States and Private
  Enterprises
• There is adequate enthusiasm among Private
  Enterprises on the proposal as seen in the
  responses to Expression of Interest

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Way Forward

• Approval of the proposal by October end
• Finalization of Bid Process/ Bid documents by
  NIAM
• Inviting the bids by States and selecting the
  private enterprise
• National Executive Committee of NHM approves
  releases the equity
• Project Execution
• General Council of NHM monitors the progress

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Agri Export Zones
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India is the front ranking producer of many
perishable commodities
Cattle / buffaloes Largest in the world 283
million
Milk Largest Producer 91 Mn T
F V 2 in the world 151 Mn T
Fisheries Marine 2.7 Mn T Inland 3.1 Mn T
Food Grains 2 in the world (220 Mn T)
Tea Largest Producer (0.85 Mn T)
Sugarcane 2 in the world (245 Mn T)
Goat Sheep 182 million
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Indias competitiveness in global markets
Source UN COMTRADE Statistics, World Bank Staff
Estimates
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Exports of Agricultural Products, Why ?

• Inherent Indian strength in Agriculture
• Opportunities emerging out of WTO Regime

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How did the concept of AEZ come
about ?

• Analysis of existing export promotion
  measures for agri exports
• Inability to address the entire value chain
• Hence, the policy of Agri Export Zones announced
  on 31st March, 2001 under Exim Policy

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What is Agri Export Zone ?
Agri export Zone attempts to take a look at
an identified produce/ product or a group or a
group of produce/ products sourced from a
geographically contiguous area with a view to
comprehensively addressing all the issues
relating to each stage of the entire value
chain, from farm to the ultimate consumer
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Agri Exports activities
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What does AEZ entail ?

• Utilise existing interventions in a coordinated
  manner to promote exports (Convergence)
• Partnership of farmers, processors, exporters,
  State Government agencies and Central Government
  agencies.
• Focus on important issues.

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What does AEZ entail ?
Fiscal Financial Monetary Administrative Lega
l Tariff Non tariff Related issues
Excise, Custom, Sales Tax, Mandi Tax etc. rebate
by central and State agencies Schemes of
APEDA, NHB, MFPI, MOA etc. Reduction in
interest on credit by banks Manpower
requirement for research extension related
activities Amendment of regulations with
regard to movement of goods, institutional
arrangement for consistent supply of produce
etc. Import of duties, product standards,
pesticide residues, Codex, etc.
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Stages for setting up of AEZ ?

• Preparation of proposal by the State Governments.
• Clearance by the Steering Committee chaired by
  Commerce Secretary.
• Signing of MoU between Central (APEDA) and State
  Govt. undertaking commitments
• Nodal Officers appointed
• Detailed action plan for each activity and
  monitoring by the inter departmental Coordination
  Committee.
• Notification by DGFT
• Advertisement by State Govt./Agencies inviting
  private investment
• DPR and the execution of the detailed action
  plan.

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Conclusion
AEZs on a MAP

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Monitoring System

• A web based monitoring system has been evolved
  wherein
• Each activity as a part of detailed action plan
  is clearly defined
• The agency responsible for undertaking such
  activity is identified
• The time within which such activity has to be
  performed is clearly indicated.
• State governments have committed a nodal agency
  for the purpose of coordination and the progress
  is monitored at the level of Chief / Addl Chief
  Secretary.

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SOME SUGGESTIONS

• Restructuring of Project Monitoring System
  (Single Window Concept for disbursement)
• Blue Print Project Reports for attracting
  Investments
• Market Intelligence Reports
• Funding Mechanism to give liberty to state nodal
  agencies
• Income Tax Incentive
• Higher scale of Financial Assistance
• Direct Finance by NABARD on concessional terms
• Rebate on premium for crop insurance

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Thanks for your attention!
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