p Occasional Paper—16
Linkages Between Farm and Non Farm Sector - Role of Processing of Horticultural
Products
K.V. Subrahmanyam
P \J/
National Bank for Agriculture and Rural Development
Mumbai
2000
Occasional Paper—16
I Linkages Between Farm and Non Farm Sector - Role of Processing of Horticultural
Products
K.V. Subrahmanyam
National Bank for Agriculture and Rural Development
Mumbai
2000
I
^
Published by National Bank for Agriculture and Rural Development, Department of Economic Analysis and Research, 4th Floor, "C" Wing, Plot No. C-24, "G" Block, P.O. No. 8121, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 and Printed at Karnatak Orion Press, Fort, Mumbai -400 001.
CONTENTS
Page No.
List of Tables x
List of Figures xii
I. Impact of New Economic Policy on Growth of 1 Horticultural Sector
i) Introduction 1
ii) Measures/Govt. policies to boost Horticultural Sector 2
ill) Impact of Govt, policies/measures
a) Production of Fruits and Vegetables 5
b) Fruit and Vegetable Processing Sector 6
II. Linkages Between Producers and Processing Industry 15
i) Non avatterfaHity of rigfit processing Varieties of Fruits 15 and Vegetables
ii) High cost of raw material 15
ill) Paradoxical situation 15
iv) Earlier Attempts and Progress 16
a) Indo-Bulgarian Project in Karnataka 16
b) Pepsi experience in Punjab 17
v) Model-Factor linkages with processing 18
a) Production factors 18
b) Marketing factors 20
III. Contract Farming and its Role and Captive Farming 29 and Its Scope
i) Type of contract farming and its implications 29
ii) Methods of contract farming 29
iii) Case studies 30
a) Gherkins 30
b) Tomato 35
Page No.
Captive farming 37 a) Present Status 38
b) New Trends in Captive Farming 38
c) Future Scope 39
IV. Price Risk and Processing: Feasibility of Small 43 Scale Processing of Fruits and Vegetables
i) Economic implications of special characteristics 43
ii) Methods to overcome the price risk 44
iii) Economic feasibility of establishing the small scale units 46
a) Tomato Processing 46
b) Mango Processing 48
c) Grapes Processing 49
V. Export of Processed Horticultural Products 57
i) Share of Export of Fruits and Vegetables 57
ii) Trends in Export of Processed Fruits and Vegetables 58
a) Share of Processed Fruits and Vegetables in total 58 exports of Fruits and Vegetable
b) Share of exports in total production of Processed 58 Fruits and Vegetables
c) Trend in growth of export of Fruits and Vegetables 58
iii) Export projections 60
iv) Changes in composition of Export of Processed Fruits 60 and Vegetables
v) Destinations of Export of Processed Fruits and Vegetables 62
vi) Constraints 63
VI. Incentives to Producers in Establishing Processing Units 75 and Stepping up Processing a) Ministry of Food Processing Industries (MFPI) 75
b) National Horticulture Board (NHB) 87
c) National Co-operative Development Corporation (NCDC) 89
d) The Agricultural and Processed Food Products
Export Development Authority (APEDA) 90
IV
Page No.
VII. Future Scope and Measures for Increasing Processing 95 of Horticultural Crops
i) Strengthening of Backward linkages 96
ii) Capacity creation 97
iii) Marketing 97
iv) Buiiding up Infrastructural Facilities 98
v) Food Parks 98
vi) Government policies 99
vii) Credit flow from financial institutions 99
VIII. Summary and Conclusions 101
IX. References 105
PREFACE
"The Americans eat what they can and can what they can not" clearly brings out the importance of processing of fruits and vegetables for better health and wealth. Unfortunately this has been neglected for a long time In India and hardly 2 per cent of the total production of Fruits and Vegetables are processed as against more than 70% in countries like Malaysia, Phillipines, Brazil and USA. The post harvest losses of fruits and vegetables are estimated to be a staggering Rs. 30,000 crores. Of late, the importance of Fruit and Vegetable Processing Industry was recognised and identified as the 'Sunrise Sector' for economic growth amd attracted the 'EXTREME FOCUS' area by the Ministry of Commerce, Govt, of India.
Recently, the Fruit and Vegetable Processing Industry (FVPI) has realised the importance and need for establishing durable linkages between farm and non farm sectw-lor ensuring availability of quality raw material at a reasonable price for processing. It is in this context that the present paper assumes great significance and NABARD should be congratulated for taking a timely and very useful step in bringing out this paper.
To give an overall picture of FVPI, the occasional paper is divided into nine sections. Section I covers impact of New Economic Policy on growth of Horticultural sector. Of late. Govt, of India has taken a number of steps to help the FVPI and this section broadly covers all the measures taken such as creation of MFPI, Seed Policy etc., and their impact on growth of horticulture sector. Section H deals with the linkages between Producers and Processors, the earlier attempts and the factors to be considered for establishing sound linkages. Section I I I deals with contract farming and its role and captive farming and its scope for ensuring the supply of quality raw material to Industry. In this section case studies of contract farming are presented to give an In-depth view of the arrangements, problems etc. It also provides information on the Fruit and Vegetable Processing Industry where captive farrnihg has been successful and also its future scope. Section IV deals with price risk and feasibility of establishing small scale fruit and vegetable processing units in production areas. It covers the
VI
results of feasibility studies on crops like tomato, mango and grapes.
Section V deals with the export of Processed Fruits and Vegetables and
their growth before and after the economic reforms. It also focuses on the
emerging new products for exports like gherkins, mushrooms etc. Section VI deals with various financial assistance schemes offered by organisations
like Ministry of Food Processing Industry (MFPI), National Horticulture Board
(NHB), National Cooperative Development Corporation (NCDC) and
Agriculture and Processed Food Products Export Development Authority
(APEDA) for encouraging processing and export of Fruits and Vegetables.
Section V I I suggests measures for increasing processing of horticultural
crops followed by summary and conclusions (Section VI I I ) and list of
reference (Section IX).
I am sure that this occasional paper will prove to be very useful for
those who are interested in overall development of Fruit and Vegetable
Processing Industry and also for those who are planning to enter this
Industry.
Bangalore (K.V. Subrahmanyam)
VII
ACKNOWLEDGEMENT
I am highly grateful to National Bank for Agriculture and Rural Development (NABARD), Mumbai and specially to Dr. A.K. Bandyopadhyay, Chief General Manager, Department of Economic Analysis and Research, NABARD for recognising my expertise and giving me this opportunity to write an occasional paper on one of the most important aspects of horticultural sector.
I also wish to thank the Director, Indian Institute of Horticultural Research, Bangalore for his kind permission to undertake this assignment. I am deeply indebted to my colleague Dr. T.M. Gajanana, Scientist (SS) of Agril. Economics for his help in editing the manuscript on the computer. I also wish to thank Mr. V. Dakshinamoorthy, Technical Officer, for data collection and tabulation. The stenographical assistance provided by Mrs. N.S. Nirmala is gratefully acknowledged.
I am highly thankful to the officers of the Sterling Agro Products Processing Pvt. Ltd. and Hindusthan Lever Ltd., Bangalore, agents and cultivators in the study area for providing the necessary information on contract farming of gherkins and tomato.
I also wish to thank Dr. B.N. Kulkarni, Deputy General Manager, NABARD, Mumbai for the keen interest he has taken and for the valuable comments on the draft paper.
Bangalore (K.V. Subrahmanyam)
VIM
Author Dr. K.V. Subrahmanyam Phncipal Scientist, (Agril. Econ.) Central Research Institute for Dryland Agriculture (CRIDA) Santoshnagar, Saidabad P.O. Hyderabad - 500 059. (A.P.).
The usual disclaimer about the responsibility of the National Bank as to the facts cited and views expressed in this paper is implied.
IX
LIST OF TABLES
2. 1.2
3. 1.3
4. 1.4
5. 1.5
6. 1.6
S. No. Table No. Title Page No.
1. 1.1 Impact of Post Harvest Losses (PHL) on Per Capita 7 Availability of Fruits and Vegetables
Plan Allocations of Horticulture during Seventh and Eighth Plans 8
Tomato Hybrids/Varieties suitable for Processing 8
Countrywise Fruit Production in the World 9
Countrywise Vegetable Production in the World 9
India's Share in the World Production of different Fruits and Vegetables 10
7. 1.7 Changes in Area and Production of different Fruits in India 10 during 1991-92 and 1995-96
8. 1.8 Changes in Area and Production of different Vegetables in 11 India during 1991-92 and 1995-96
9. 1.9 Revenue Generation from Taxable Inputs of Processed Fruit 11 and Vegetable Industry
Growth of Fruits and Vegetable Processing Industry in India 12
Statewise Distribution of FVPI and Percentage Change in 13 FPO Licences in India
Growth of Fruit and Vegetable FPO Licences - By Category 14
Ratio of Raw Material to Finished Product Requirements in 22 India and abroad
Raw f\/laterial Cost in India and Abroad 22
Comparison of Contract Price with Market Price and Cost of 23 Production in Different Seasons
Cost of Cultivation of Tomato 23
Estimated Cost of Cultivation of Gherkins with Modern Technology 24
Influence of Production Factors on processing-Hybrid Vs Local 24 Tomato
19. 2.7 Cost incurred by the Cultivators for Marketing the Horticultural 25 Crops in Karnataka
Fair Price of Tomato for Processing 25
Grading of Gherkins and Price offered by Processing Industry 26
Profile of Gherkin Sample Cultivators, 1999 39
Details (opinion) of Contract by Gherkin Cultivators 40
Cost of Cultivation of Gherkins, 1999 41
Profile of Tomato Sample Cultivators, 1999 41
10. 1.10
11. 1.11
12. 1.12
13. 2.1
14. 2.2
15. 2.3
16. 2.4
17. 2.5
18. 2.6
20. 2.8
21. 2.9
22. 3.1
23. 3.2
24. 3.3
25. 3.4
S. No. Table No. Title Page No.
Details (opinion) of Contract by Tomato Cultivators 42
Capital Requirements for Establishing a Small Scale Co- 50 operative Tomato Processing Unit
Cost and Returns of Processing Tomato (ketchup) 51
Break Even Output for Running a Tomato Processing Plant - 51
Raw Material Requirement and Supply at Different Levels 52 of Utilisation/Processing
Relative Economics of Fresh Sales Vs. Processing of Tomato 52
Important Machinery and Equipment Required for a Mango 53 Pulping Unit
Costs and Returns of Processing Mango into Pulp 53
Costs and Returns of Raisin Making on Farm 54
Brandwise Consumption Pattern of Tomato Ketchup/Sauce 55
Share of Agricultural Exports in India's Total Exports 64
India's Share in World Agricultural Exports 64
Share of Fruits and Vegetables in Agricultural Exports 64
Share of Processed Products in the Total Exports of Fruits 65 and Vegetables
40. 5.5 Share of Exports in Total production of Processed Fruits and 65 Vegetables
Trend in Export of Processed Fruit and Vegetable Products 66
Trend in Export of Fresh Fruits and Vegetables 66
Export Growth Equations of Fruits and Vegetables 67
Export Projections for Fruits and Vegetables based on Trend 67 during 1991-92 to 1997-98 ,
Composition of Export of Processed Fruits and Vegetables 68
Destination of Processed Fruits and Vegetables 68
Commercial Bank Credit to Fruit and Vegetable Processing 99 Industries
XI
26. 3.5
27. 4.1
28. 4.2
29. 4.3
30. 4.4
3 1 . 4.5
32. 4.6
33. 4.7
34. 4.8
35. 4.9
36. 5.1
37. 5.2
38. 5.3
39. 5.4
41 . 5.6
42. 5.7
43. 5.8
44. 5.9
45. 5.10
46. 5.11
47. 7.1
LIST OF FIGURES
S. No. Title Page No.
Fig. 1 Model Showing linkages of Processing with Production and 27 Marketing Factors
Fig. 2 Composition of Exports of Processed Fruits and Vegetables, 69 1997-98
Fig. 3 Export of Dried and Preserved Vegetables 1991-92 to 1997-98 70
Fig. 4 Export of Mango Pulp 1991-92 to 1997-98 70
Fig. 5 Export of Pickles and Ghutneys 1991-92 to 1997-98 71
Fig. 6 Export of Other Processed Fruits and Vegetables 1991-92 to 1997-98 71
Fig. 7 Export of Processed Cucumbers and Gherkins, 1994-95 to 1997-98 72
Fig. 8 Export of Dehydrated Onions (flakes/powder) 1993-94 to 1997-98 72
Fg. 9 Export of Dried Mushroom 1990-91 to 1997-98 73
Fig. 10 Export of Processed Mushroom 1990-91 to 1997-98 73
/
XII
SECTION - I
IMPACT OF NEW ECONOMIC POLICY ON GROWTH OF HORTICULTURE SECTOR
I) Introduction
India has a great comparative advantage in growing a variety of horticultural crops viz., Fruits, Vegetables, Flowers, Spices etc., as compared to the other countries in the world. The diverse agro-climatic conditions ranging from temperate, subtropical to tropical climate along with cheap labour, can make growing these crops highly cost effective and competitive and provide vast opportunities compared to other countries in the world trade. But unfortunately these opportunities have not been exploited to our country's advantage. Besides lack of foresight in seeing their scope and developing infrastructural facilities to take care of their special characters like perishability, seasonability etc., has resulted in huge post harvest losses estimated to be around 30 percent and valued to the tune of Rs. 30,000 crores. The impact of these post harvest losses on per capita availability can be seen from Table 1.1. If we could have prevented the post harvest losses of 30 per cent, atleast in case of fruits, we could have attained the recommended level of 120 grams of fruits per capita per day by now.
Not much attention was also paid to develop the Fruit and Vegetable Processing Industry (FVPI), to properly utilise the domestic production and prevent the post harvest losses due to perishability and seasonal glut. Even today hardly 2 percent of the total fruits and vegetables are used for processing in our country as against 70 per cent in Brazil, 78 per cent in Philippines, 83 per cent in Malaysia and 60-70 percent in USA.
The Govt, of India and policy makers, of late, have realised the importance of horticultural crops i.e., fruits, vegetables and flowers in Indian economy especially as export earners with India losing its monopoly position in traditional agricultural export crops like tea, coffee, spices etc. Even in domestic agricultural economy, the need for developing sustainable agricultural systems and crop diversification was realised and the horticultural crops have been identified as most remunerative crops for replacing subsistence crops because of their high productivity per unit area, high returns and higher employment potential. The share of these crops in the total net area and gross cultivable areas is increasing in the country. The rate of coverage is expected to go from hardly seven per cent of the cropped area to around 10.5 per cent of the net cropped area in 1996-97.
1
ii) Measures/government policies to boost horticultural sector
Only during the end of seventh five year plan and more so during eighth plan period, some concrete measures were initiated by the Govt, of India to boost the horticultural sector. These measures are aimed at both strengthening the production base which is a must for increased processing, exports etc., and to encouraging the development of Fruit and Vegetable Processing Industries (FVPI). Some of the measures are discussed briefly below : [61]*
1. Increased allocation of funds for horticultural sector :
Realising the vital role of horticultural sector, the Govt, of India has substantially increased the allocation of funds during eighth plan period. From hardly Rs. 232.1 million in seventh plan period (1985-90) the allocation in the eighth five year plan has gone upto Rs. 10,000 million, a significant jump of 4208 per cent. Besides increased allocation of 2094 per cent for fruits and 742 per cent for vegetables in the ongoing programmes of the eighth plan, funds are also allocated for new horticultural products like floriculture, tuber crops, mushrooms and medicinal and aromatic crops which were hitherto neglected. A sum of Rs. 975 million has also been exclusively allotted for exports (Table 1.2) [23].
2. Liberalised seed and plant material import policy :
The Govt, of India came up with a new seed policy in 1988, which provides for liberalised import of seed/plant material by private growers by fulfilling the prescribed quarantine procedures. This has helped in overcoming the constraints of the Fruit and Vegetable Processing Industry viz., high cost of raw material due to low productivity and more raw material to finished product ratio due to lack of suitable processing varieties and also lack of quality material and varieties in demand abroad.
With this, some of the private companies have come up with hybrid seeds in crops like tomato and cabbage which has increased the productivity from 20 tonnes per hectare to 68-80 tonnes per hectare, which has not only brought down cost of production but also helped in reducing the area for supply of raw material [59]. The new tomato hybrids released are also having high brix content compared to local varieties (Table 1.3) resulting in lowering the raw material to finished product ratio. Now the processing industries are also supplying the seed of varieties which are suitable for processing.
• Figures in parenthesis are reference numbers.
Recently in 1993, the commerce ministry allowed the import of mushroom spawn culture by 100 per cent export oriented units (EOU) and dispensed with import permit which has helped to import mushroom varieties which are in demand abroad [3].
3. Creation of separate Ministry of Food Processing Industries :
Realising the need for encouraging Fruit and Vegetable Processing Industry, a separate ministry of food processing industries was created in July 1988, exclusively to regulate, control and develop the processing sector under a single roof with a single window approach. The creation of this ministry has resulted in significant growth of FVPI which will be discussed in subsequent sections. The ministry of food processing industries is also formulating and operating several plan schemes for the development of processed food sector in the country like schemes to encourage backward linkages with farmers by food processing sector, financial assistance for encouraging or upgrading fruit and vegetable processing within co-operative sector etc., [6] which will be discussed at a later stage in a separate section.
4. Establishment of the National Horticulture Board :
The National Horticulture Board (NHB) was established in 1984 for development of horticulture sector. The major objectives of the board are :
i) To encourage and promote the development of horticulture industry,
ii) To provide technological, financial and other assistance for development of horticulture.
lii) To assist and develop infrastructure for post harvest management.
iv) To promote consumption of fruit and vegetables in fresh and processed form.
v) To impart training to farmers and in-service officials.
vi) To assist in the establishment of farmers' co-operative societies to improve the economic and social status of farmers and
vii) To assist and promote udayan pandit competition, fruit/vegetable/ flower shows.
The Board has formulated various schemes to achieve the above objectives. It has also started collection and publication of statistical information on area and production of horticultural crops like fruits, vegetables, flowers and also market information on arrival and prices of fruits, vegetables and flowers from various markets in India which will help in proper planning in establishment of processing units.
5. Creation of Agricultural and Processed Food Products Export Development Authority (APEDA) :
The body was established during 1986 by an Act of Parliament and is entrusted with the responsibility of export promotion and development of fruits, vegetables'and processed products besides twelve other schedule products. It is managed by a high level body consisting of members of Parliament, Planning Commission, several ministries of Central Govt., trade and industry representatives. All exporters of fruits, vegetables, floricultural and other schedule products have to register with this authority. The APEDA has also formulated various schemes to assist exporters of fruits, vegetables and other products.
6. New Industrial Policy of 1991 :
One of the bold and major steps taken by the Govt, of India in implementing the economic reforms in India is the announcement of new Industrial Policy during 1991. The new Industrial policy announced by Govt, of India in 1991 has placed processed fruits and vegetables (F&V) in the list of high priority areas and are eligible for automatic approval of foreign technology agreements and for 51 per cent equity participation by foreign firms. This combined with some tax concessions like abolition of excise duty on processed foods to make them more competitive in the International market and general economic policy programmes like adjustment in the currency exchange rate has resulted in joint ventures with foreign collaborators in FVPI, some of them with 100 per cent export commitment. Seventy two proposals for setting up 100 percent export oriented units (EOUs) involving an investment of Rs. 800 crores have been approved since 1991. In addition, by the end of 1993, the Industrial Entrepreneur Memorandum (lEM) involving investment of about Rs. 720 crores have been filed. The Ministry of Food Processing has lined up projects worth Rs. 45000 crores for investment over the next four years. As many as 4000 MOUs have been signed and 15 per cent of the projects have already been implemented. About Rs. 4000 crores worth of projects involving food and agro processing have started commercial production [20a].
Besides, a number of domestic firms like Indo-Bhtain Agro Farms
Ltd., Agro-Dutch Foods Ltd., Jain Group of Industries, Moneshi-Agro Foods Ltd., South-Asian Mushrooms Ltd., have started 100 per cent EOUs for production, processing and export of mushrooms with technical and financial foreign collaborations with firms like Macon-Agro Ltd., U.K.; Dalsam Veciapbe Agro-Industries, Holland; South Star, Singapore; Mecon-Agri. Ltd., Northern Ireland; because of the new industrial policy.
Even state run industries like Haryana State Development Corporation, Punjab Agro-Industries Corporation etc., have signed Memorandum of Understanding in joint sector to set up 100 per cent export oriented units for production and processing of mushroom.
Hi) Impact of government policies/measures
a) Production of fruits and vegetables
i) India's position in world production :
India has become the second largest producer of fruits and vegetables next only to China accounting for 9.5 per cent of the total world fruit production and 11.4 per cent of world vegetable production during 1996. As a matter of fact, we have surpassed Brazil in the production of fruits which used to occupy first position during 1992. In 1994, we have produced 38.98 million tonnes of fruits and occupied first position beating China's production of 35.92 million tonnes, but China overtook in subsequent years (Table 1.4). In case of vegetables, we have retained our second position (Table 1.5). Among the different kinds of fruits, India is still the largest producer of mangoes accounting for 52 per cent of total world production in 1996, but its share has come down steadily from nearly 64 per cent during 1980. This is of great concern to our processing industry, as mango is the largest item of processed product which is exported from India (Table 1.6). Among the vegetables, India has accounted for nearly 38 per cent of the total world production of cauliflower during 1996 (Table 1.6).
ii) Changes in Area and Production of Fruits and Vegetables :
The thrust given by the Govt, of India for the development of horticulture during the eighth plan period has started yielding results. At present (1995-96), the total area under fruit crops is around 3.36 million hectares with a production of 41.5 million tonnes. Mango, citrus, banana are the most important crops. In case of vegetables, the total area is around 5.5 million hectares with a production of 71.6 million tonnes, potato, brinjal, tomato, onion and okra being the important vegetables. During the last five year period i.e., from 1991-92 to 1995-96, the total production of fruits and vegetables has
increased from 87 million tonnes to 113 million tonnes recording a growth of 30 per cent. The fruit crop area has increased by about 17 per cent and the production by about 45 per cent. Most of the fruit crops have registered positive growth both in area and production. Only in case of grapes the production has fallen by about 10 per cent, whereas in case of citrus, though the area has fallen marginally, there was substantial increase in production (Table 1.7). In case of vegetables, the total areas have marginally decreased by about 5 per cent and the overall production of vegetables has increased by about 22 per cent. Very few vegetables like cauliflower and onion have registered negative growth in production (Table 1.8). As a whole there has been a substantial increase in production of fruits and vegetables during the last five years.
b) Fruit and vegetable processing sector
The fruit and vegetable processing industry occupies a unique position among the different sectors of the food processing industry. This sector has been given a 'thrust area' status in recent years. Realising the vast expansion of area and production of fruits and vegetables and the concern for reducing the post harvest losses and increasing the exports, this sector has been identified as a "sunrise sector" for economic growth. This sector has a revenue generation of Rs. 945 crores through taxable inputs of processed fruit and vegetable industry (Table 1.9). The recent economic reforms also has helped the sector immensely.
Growth of Industry : Fruit and vegetable processing units require a licence under the Fruit Products Order (FPO), 1955 issued under the Essential Commodities Act. However, it does not cover fried products (such as potato chips) and sun dried products (such as banana chips and raisins). Except a few unauthorised units, the FPO licence is an indication of the total number of manufacturing units.
Table 1.10 indicates the growth of fruit and vegetablet processing industry and shows the details of number of licences, installfed capacity, production and capacity utilisation. The details are provided by covering two periods viz., before economic reforms i.e., 1980-90 and after the introduction of economic reforms i.e., 1991-97. As on 1.1.1998, there wme 4932 units licenced under F.P.O. with the installed capacity of 2Q.4Q lakh tonnes producing 9.10 lakh tonnes of processed products. The M^mteer of units licenced has grown at a compound growth rate of 3.72 per cent in the last seven years, as against 5.5 per cent during the decade 1980-9Q. The installed capacity has grown by 14.17 per cent during the period 1991-97 as against 12.5 per cent during the period 1980-90. The capacity utilisation has increased from hardly 29 per cent during the beginning of 9Q's to around 50 per cent by 1996. The sharp decrease in production during
1997, according to industry, is due to imposition of 8 per cent excise duty on F&V products in 1997. From this it is clear that the economic reforms had a positive effect on the growth of F&V processing industry. The statewise distribution of FPO licences of FVPI also clearly shows that there is a tremendous growth in registration after the introduction of reforms (Table 1.11). The F&V processing units are concentrated in commercially important states like Maharashtra (19%), U.P. (10%), Tamil Nadu (9%), Kerala (8%), Punjab (6%), Delhi (6%) and Andhra Pradesh (6%) based on the FPO licences during the year 1997.
The F&V processing industries are also classified based on the scale of operation and there are six categories viz., large scale, (>250 tonnes per annum), medium (100-250 tonnes per annum) small (50-100 tonnes per annum), cottage scale (10-50 tonnes per annum) home scale (1-10 tonnes per annum) and re-labellers (<1 tonne per annum). The re-labelling category, strictly speaking, are not manufacturers of F&V products. The licence holders of the units are authorised to market F&V products under his own brand name after purchasing the consignment from licenced manufacturers.
The small, cottage and home scale units still dominate the F&V processing industry. Though their share has come down marginally from 65 per cent during 1980 to 63 per cent by 1995, a tremendous growth of relabelling units has taken place between 1980 and 1990 and they are accounting for nearly 16 per cent of F&V industry during 1995 (Table 1.12).
From the above discussion it is clear that the economic reforms and the development programmes undertaken by Govt, of India during the eighth plan period had a tremendous impact on the production of fruits and vegetables which form the raw material for the fruit and vegetable processing sector and also on the growth of Fruit and Vegetable Processing Industry (FVPI) as evidenced by the growth of FPO licences, production and capacity utilisation.
Table 1.1 : Impact of Post-Harvest Losses (PHL) on Per Capita Availability of Fruits and Vegetables*
(grams per capita per day)
Items Based on production
Less 30% PHL
Difference compared Production
to recommended** PH Loss
Fruits Vegetables Total
121 209 330
85 146 231
+1 -91 -90
-35 -154 -189
Based on 41.5 million tonnes of fruits and 71.6 million tonnes of vegetables during 1995-96 and projected population of 937 million in 1995 based on 2.11 per cent CGR
Recommended at 120 g of fruits and 300 g of vegetables per capita per day.
Table 1.2 : Plan Allocations of Horticulture during Seventh and Eighth Plans
(Rs. millions)
Item Seventh Plan (actual) Eightti Plan
Ongoing programmes
Fruits
Vegetables
Coconut
Spices
Cashew
Cocoa
N.H.B.
38.80
17.70
77. iO
20.10
29.00
1.40
48.00
850
150
1000
1500
650
30
2000
Sub total 232.10 6180
B. New programmes
Floriculture
Tubercrops
Mushroom
Arecanut
Medicinal & Aromatic plants
Betelvine
Plastics
Exports
100
25
100
50
50
20
2500
975
Sub total 3820
Grand total 232.1 10000
Source ; Ref. No. 23.
Table 1.3 : : Tomato Hybrids/Varieties Suitable for Processing
HybridA/ariety Average yield (t/ha) T.S.S. (%)
NAVEEN
RAJANI
RUPALI
RASHMI
IAHS-88-3
ROMA
57.50
72.25
79.50
67.50
82.50
31.20
6.20
5.3—5.5
5.6—5.8
5.50
5.8—6.0
4.0-5.0
Note: Required T.S.S. for processing is 5-6 per cent.
Table 1.4 : Countrywise Fruit Production in the World
(000 M.T.)
Country 1992 1993 1994 1995 1996
China 23102 31758 35923 42016 45462
India 30037 38274 38978 39197 39197
Brazil 32279 31807 31590 33689 35928
USA 29956 29022 28908 29216 28841
Italy 19820 18980 18288 16652 17182
Spain 14524 12976 11959 10826 12095
Others 291800 225935 226501 230124 235227
Total World 369518 388752 392147 401720 413932
Source : FAO Production Year Book, 1992, 1993, 1996.
Table 1.5 : Countrywise Vegetable Production in the World
(000 M.T.)
Country 1992 1993 1994 1995 1996
China 119786 12556 189870 201825 202155
India 59194 63460 . 64614 64671 64672
USA 30438 31371 35189 34162 34393
Turkey 19054 18533 19645 21731 20796
Japan 13737 13664 13419 13589 13589
Italy 14120 14090 13883 13555 13555
Spain 10106 10158
Others 189735 309775 208395 216834 216363
Total World 456170 473607 545015 566367 565523
Source : FAO Production Year Book, 1992, 1993, 1996.
Table 1.6 India's Share in the World Production of different Fruits and Vegetables
(000 MT)
Item 1980 1996
World India India's Share (%)
World India India's Share (%)
A. Fruits Apple 3376.00 770.00 2.28 53672.00 1200F 2.24 Banana 40007.00 4830.00 12.06 55787.00 9935F 17.81 Grapes 4470.00 20.00 0.45 57410.00 600F 1.05 Grape Fruit & Pomello 5004.00 70F 1.40 Lime & Lemons 9104,00 1700F 18.67 Meingo 13091.00 8363.00 63.88 19215.00 10000F 52.04 Oranges 38463.00 1160.00 3.02 59558.00 2000F 3.36 Papaya 1862.00 265.00 14.23 5867.00 490F 8.35 Pineapple 7843.00 549.00 7.00 11757.00 820F 6.97
Total Fruits 289462.00 18462.00 6,38 413932.00 39197F 9.47 B. Vegetables
Cabbage 34539.00 470.00 1.36 46656.00 3300F 7,07 Cauliflower 4462.00 660.00 14.79 12725.00 4800F 37.72 Brinjal 4531.00 11981.00 434* 3,60 Peas 2263.00 41.00 1.81 5214.00 270F 5.18 Tomato 50998.00 750.00 1.47 84873.00 4800F 5,66 Potato 230263.00 8327.00 3.62 294834.00 17942F 6,09 Onion 20349.00 2504.00 12.31 35644.00 4058F 11.35 Garlic 10401.00 350F 3.37
Total Vegetables 565523.00 64672F 11.44
F - FAO Estimates. - Based on NHB Statistics.
Table 1.7 : Changes in Area and Production of Different Fruits in India during 1991-92 to 1995-96
Fruits
Area (ha) Production (IVI.T,)
1991-92 1995-96 % change 1991-92 1995-96 % change
Apple
Banana
(Citrus
• Grapes
CGuava
Lltchi
'Mango
iRapaya
Pineapple
Sapota
Others
194561
383938
386929
32365
93977
49277
1077621
45239
57059
27248
526194
217146
433019
454062
35620
131625
48570
1283030
60921
71275
47735
574280
11.61
.12.78
17.35
10.06
40.06
-1.43
19.06
34.66
24.91
75.19
9.03
1147743
7790030
2821740
668243
1095145
243811
8751622
805342
768513
396262
4143528
1214652
13095087
3798271
603596
1501296
364613
10810957
1329668
1071168
569651
7148052
5,83
68.10
34.61
-9.67
37.09
49.55
23.53
65.11
39.38
43.76
72.51
Total 2874408 3357283 16.80 28631975 41507011 44.97
Source : Ref. No. 29.
10
Table 1.8 : Changes in Area and Production of Different Vegetables in India during 1991-92 to 1995-96
Vegetable Area (ha) Production (M.T.)
1991-92 1995-96 % change 1991-92 1995-96 % change
Brinjal N.A. 434202 — N.A. 6443062 — •
Cabbage 177306 218381 23.17 2771204 3861684 39.35
Cauliflower 202787 220025 8.50 2998061 2473987 -17.48
Okra 221993 430525 93.94 1886486 4031811 113.72
Onion 331760 395500 19.21 4705827 4080000 -13.30
Peas 177680 223965 26.05 1296010 2341313 80.66
Potato 1135075 1109000 -2.30 18194976 18843300 3.56
Tomato 289077 355684 23.04 4243376 5441969 28.25
Others 2601051 1948165 -25.10 22436098 24077438 7.32
Total 5592632 5335447 -4.60 58532038 71594564 22.32
Source: Ref. No. 29.
Table 1.9 : Revenue Generation From Taxable Inputs of Processed Fruit and Vegetable Industry
Year Production in Average Value Average Tax Revenue
lakh tonnes (Rs./kg) on inputs generated
(Rs. Crore)
3.60 19.34 0.394 274.30
4.69 20.36 0.394 376.20
5.59 21.43 0.394 472.00
6.76 22.56 0.394 600.90
8.50 23.75 0.394 795.40
9.60 25.00 0.394 945.60
1991
1992
1993:
1994
1I9K
1996
Source : Ref. No. t2 ; p. 76.
11
Table 1.10 : Growth of Fruit and Vegetable Processing Industry in India
Year No. of units installed capacity Production 1 % Capacity utilisation
(licenced) (000 t) (000 t) change (%)
A. Before Economic I Reforms (1980-1990)
1980 2026 275 69.60 25.30
1981 2394 275 90.00 29.31 32.70
1982 2611 300 136.10 51.78 45.50
1983 2809 330 119.80 -12.30 36.30
1984 3006 379 131.61 9.43 34.60
1985 3093 405 179.20 36.69 40.80
1986 3137 447 161.50 -9.88 36.10
1987 3213 556 186.50 15.48 33.50
1988 3367 599 210.00 12.60 35.10
1989 3629 708 240.00 14.28 33.90
1990 3846 894 260.00 8.33 29.10
Compound 5.50 12.50 12.44 -0.06
Growth
Rate (%)
B. After Economic Reforms ( [1991-1997)
1991 3925 950 360 38.46 37.89
1992 4057 1108 469 23.24 42.33
1993 4132 1260 559 19.19 44.37
1994 4270 1402 676 20.93 48.22
1995 4368 1750 850 25.74 48.57
1996 4674 1910 960 12.94 50.26
1997 4932 2040 910 -5.21 44.61
Compound 3.72 14.17 18 3.83
Growth
Rate (%)
12
Table 1.11 : Statewise Distribution of FVPI and Percentage Change in FPO Licences in India
State/UT 1982 1993 1997 % change in 1993
over 1982
% change in 1997
over 1993
% change in 1997
over 1982
Andhra Pradesh
Assam
Bihar
Gujarat
Haryana
Himachal Pradesh
J & K
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Meghaiaya
Manipur
Nagaland
Orissa
Punjab
Rajasthan
Sil<l<im
Tamil Nadu
Tripura
Uttar Pradesh
West Bengal
A & N Islands
Amnachal Pradesh
Chandigarh
Dadra-Nagar Haveli
Delhi
Goa
Mizoram
Pondicherry
Total
95 252 300 165.26 19.05 215.79
12 23 25 91.67 8.70 108.33
16 53 58 231.25 9.43 262.50
109 224 260 105.50 16.07 138.53
55 143 151 160.00 5.59 174.55
45 81 90 80.00 11.11 100.00
36 80 83 122.22 3.75 130.56
117 230 253 96.58 10.00 116.24
161 327 387 103.11 18.35 140.37
40 93 104 132.50 11.83 160.00
904 817 934 -9.62 14.32 3.32
5 11 14 120.00 27.27 180.00
3 7 9 133.33 28.57 200.00
3 4 5 33.33 25.00 66.67
10 22 43 120.00 95.45 330.00
135 175 309 29.63 76.57 128.89
44 90 110 104.55 22.22 150.00
1 2 3 100.00 50.00 200.00
215 385 452 79.07 17.40 110.23
3 3 4 33.33 33.33
218 415 494 90.37 19.04 126.61
192 260 298 35.42 14.62 55.21
1 1 3 200.00 200.00
1 2 3 100.00 50.00 200.00
18 29 54 61.11 86.21 200.00
2 6 7 200.00 16.67 250.00
115 245 302 113.04 23.27 162.61
48 140 160 191.67 14,29 233.33
3 2 3 -33.37 50.00
4 10 14 150.00 40.00 250.00
2611 4132 4932 58.25 19.36 88.89
13
Table 1.12 : Growth of Fruit and Vegetable FPO Licences -By Category
Category Scale 1980 1990 % change in 1990 over 1980
1995 % 1995
change in (t/annum) No % No %
% change in 1990 over 1980 No %
% 1995 over 1990
Large (>250) 218 10.76 442 11.49 102.75 497 11.38 12.44
Medium (100-250) 236 11.65 331 8.61 40.25 343 7.85 3.63
Small (50-100) 163 8.05 323 8.4 98.16 371 8.49 14.86
Cottage (10-50) 398 19.64 768 19.97 92.96 854 19.55 11.2
Home (1-10) 763 37.66 1303 33.38 70.77 520 34.8 16.65
Re-labeller (<1) 248 12.24 676 17.65 172.58 783 17.63 15.83
Total 2026 100 3846 100 89.83 4368 100 13.57
14
SECTION - 11
LINKAGES BETWEEN PRODUCERS AND PROCESSING INDUSTRY
As early as 1974 the FAO expert Dr. Mittenndorf [25] had pointed out that one of the problems faced by the Fruit and Vegetable Processing Industry in Asia is the supply of raw material. Even at present the same problem persists. In case of Fruit and Vegetable Processing Industry (FVPI) in India, the main problems faced are :
(i) Non availability of right processing varieties of Fruits and Vegetables: According to the Industry, because of the non-availability of suitable varieties for processing, the raw material to finished product ratio is very high in India as compared to abroad. As against 4 tonnes of tomato required for one tonne of tomato paste concentrate of 28° Brix, abroad, in India, 7 tonnes of tomatoes are needed for making one tonne of tomato paste concentrate of 28° Brix, because of non-availability of suitable processing varieties of tomato. Similar is the situation in the case of fruits like orange and pineapple (Table 2.1).
(ii) High cost of raw material: The Industry also claims that the cost of raw material in India is also two to three times higher as compared to International prices, which makes them difficult to compete in International markets (Table 2.2). Besides, they also claim that the prices of other raw materials like sugar, are also increasing.
(iii) Paradoxical situation
Regarding the high cost of raw material, if one looks at the price situation of fruits and vegetables there is a very wide price fluctuation because of the seasonality of these crops. During the peak season, the prices of these commodities dips so low that the cultivators sometimes feel that it is not even worth harvesting and sending the produce to the market. For example the price of tomato in Bangalore market during the peak season is as low as Rs. 50-60 per quintal which makes harvesting and transporting the produce uneconomical. On the other hand the same tomato price goes up to as high as Rs. 1000 to 1200/- per quintal during the off season. But the processing industries are unable to take this seasonal advantage and complain of high raw material cost.
The second reason why the processing industry has to pay a high price is due to the procurement of raw material from market intermediaries
15
rather than from the producers directly. For example in case of mango, most of the crop is procured by the preharvest contractors and then sold through agents to the processing factories resulting in high price to processing industries and low price to cultivators.
To overcome the above problems of both the producers who are the suppliers of the raw material and the FVPI there is a need to develop strong industry-agriculture linkages.
(iv) Earlier attempts and progress
As early as 1970's some attempts were made by the Government of India to foster the linkages through operational projects with foreign collaboration and one of them is the Indo-Bulgarian project.
a) Indo-Bulgarian project in Karnataka : The Indo-Bulgarian project which was started as a follow-up of the protocol signed on March 7, 1974 between India and Bulgaria, was aimed at linking production, processing and marketing. Both the countries felt that there was a considerable scope for collaboration in the field of horticulture development and food processing to the mutual advantage of both the countries. Consequently, a team of the Bulgarian experts visited India from 13th January to 5th February, 1975 for assisting Indian experts in the development of project reports for the establishment of Agro-Industrial complexes. The team located two sites in the states of Bihar and Karnataka for the establishment of the proposed complexes.
Impressed by the concept and practical achievements of Agro-Industrial complexes in Bulgaria, the Indian Council of Agricultural Research (ICAR) made a modest beginning by sanctioning a scheme costing Rs. 5,03,000 for Karnataka and Rs. 5,84,100 for Bihar. The total fund of these schemes has been put under the direct disposal of the concerned state Governments and under the technical supervision of ICAR. In Karnataka the technical support was provided by the Indian Institute of Horticultural Research (IIHR) Hessaraghatta, Bangalore in close collaboration with the University of Agricultural Sciences, Hebbal, Bangalore.
The main concept behind this scheme was to follow the ideal of the integration of production, processing and marketing.
The scheme was proposed to be implemented in three phases and the important objectives of the phase I are :
i) to make the growers familiar with the concept of the Agro-Industrial complex and ii) to arrange for processing the available produce along with
16
other objectives like laying demonstration plots to get higher yields and testing of the promising varieties of Bulgaria and India for processing.
In Phase II, it is envisaged to have a main Agro Industrial Complex to cover Bangalore and Kolar districts. In phase III the scheme is to be extended to other districts in Karnataka viz.. South Kanara, North Kanara and Coorg.
The programme realised the importance of rural participation and hence proposed to involve rural communities viz., cultivators and encourage them to grow vegetables and fruits for processing purposes by establishing a processing unit.
As a beginning to fulfill the above objective, during kharif season, 1976 an arrangement was made with the Karnataka State Agro-Industries Corporation (KSAIC) to process the tomatoes grown by the cultivators in the 42 demonstration plots with the existing facilities. The growers were asked to deliver the produce at their own cost to the factory and KSAIC agreed to pay at the rate of 60 paise per kg for the produce (19).
Unfortunately, most of the cultivators failed to deliver the produce and all the arrangements made by KSAIC for processing the tomatoes resulted in wasteful expenditure. But, during the same year rabi season, the same cultivators approached the KSAIC to sell their produce but the unit was not ready to accept the same. The analysis of the main economic reasons for this behaviour of the cultivators has shown that during 1976 Kharif season, the market prices were very high compared to 60 paise for kilogram offered by KSAIC whereas the situation was reverse during 1976 rabi season (Table 2.3).
From the above it is clear that price plays an important role in influencing the decision of the cultivators and hence it needs to be taken care of.
b) Pepsi experience in Punjab: In Punjab a joint venture with Punjab Agro Industries Corporation (PAIC), Pepsico, a U.S. based multinational and Voltas, a company belonging to the Tata Group as a junior partner was started during 1988, with the aim of processing 25 per cent of fruits and vegetables grown in Punjab and help in diversification of agriculture and shifting of the area in favour of fruits and vegetables. The company has also tried to establish linkages with the cultivators by entering into contract with 107 farmers covering an area of 1600 hectares of tomato. But this arrangement has also run into troubles [17, 40].
17
The main reason for failure of the above attempts to establish linkages between Producers and Processors is lack of understanding of the importance of various factors that are involved in the linkages which will have an effect on the decision making process of the players. In view of this, a model which explicitly brings out the various factors, their interdependence and their role is discussed below.
v) Model - Factor linkages with processing
The model showing the factor linkages that exist between production, marketing and processing of Fruits and Vegetables is presented in Fig. 1.
a) Production Factors
There are six production factors which influence the processing industry:
1) Variety: One of the main complaints even today by the FVPI is the nonavailability of suitable varieties for processing purposes, which makes the ratio of raw material to finished product high and results in escalating the cost of finished product. (Table 2.1).
Though the New Seed policy of 1988 has helped the processing industry by allowing the import of germ plasm/seed of crops like tomato in overcoming the problem to certain extent, still the problem exists, as finally the cultivators have to be convinced to grow the crop and supply the produce. Hence, it is necessary to influence the cultivators to take up growing varieties suitable for processing with proper incentives. The farmers will definitely respond and grow them. In this connection, the farmers around Bangalore in Karnataka, taking up the cultivation of 'Gherkins' a cucumber variety which is an imported variety, suitable for processing as a pickle is a fine example as the crop is new and has no domestic market. At present some 20 companies, mainly export oriented units, are engaged in the 'Gherkins' trade. 'Gherkins' are cultivated in states of Karnataka, Tamil Nadu and Andhra Pradesh with an estimated area of 6000 hectares [9]. The variety of a crop also influences the cultivation practices and cost of cultivation.
ii) Cultivation practices and cost of cultivation: Depending upon the variety, some of the cultivation practices also need modification which ultimately may have a bearing on the cost of cultivation. For example take the cultivation of local and hybria tomatoes. The hybrid tomato crop requires staking which will be a major item of expenditure, which is not required in case of local varieties.
18
The cost of hybrid seed of tomato is also very high compared to local seed. Besides, for every crop season, new seed has to be purchased in case of hybrids, whereas in case of local varieties, the seed from previous crop can be used. Hence the cultivators have to spend more than three times the amount in case of hybrid seed compared to local varieties of tomato. Similarly the cultivators of hybrid seed crop need to spend more towards plant protection because of their susceptability to disease and pests and also require higher doses of fertilization. All these factors push up the cultivation cost of these varieties compared to local variety. The cost of cultivation (cost of inputs) is around Rs. 16,000/- in case of hyt>rid tomato as against around Rs. 3,500/- in case of local variety which is nearly four times the local variety cost (Table 2.4). In case of Gherkins, a cultivator needs to spend around Rs. 70,000/- per hectare, compared to the negligible amount he will be spending for local cucumbers (Table 2.5). The processing Industry needs to keep the above factors in mind while advocating the growth of new varieties suitable for processing and provide financial assistance to the cultivators for taking them up.
iii) Yield. Cost of Production and Returns :
The ultimate aim of the cultivators in growing a crop is to make profit and the cultivation of especially fruits and vegetables is for commercial purposes. The returns obtained by a cultivator depend upon i) yield, ii) price and iii) cost of cultivation/cost of production. This can be symbolically expressed as :
NR = GR - C and GR = Y. Py where NR = Net returns per unit area (Rs./ha.) GR = Gross returns per unit area (Rs./ha.) C = Cost of cultivation (Rs./ha.) Y = Yield per unit area (t/ha.) Py = Price of the produce (Rs./t)
So, for the cultivator to take up the new crop varieties, both the yield and price play an important role.
Higher the yield of the variety it is better for the cultivator as well as the Industry, as cost of Production will be less. For example, because of higher yield of 45 t/ha of hybrid tomato, the cost of Production of tomato was only Rs. 917/t as against Rs. 1032/t in case of local variety (Table 2.4).
The higher yield also will make the area requirements for the production of raw material and the number of cultivators required also less,
19
enabling the processing unit to enter into contract with less number of cultivators.
Influence of Production Factors on Processing
The influence of above production factors and its implication can be seen from Table 2.6 in case of tomato crop. The processing units can save a substantial amount not only in case of raw material but in terms of area to be cultivated for the raw material. The fact that hardly one third of the cultivators need to be contracted, itself saves a lot of time, energy and costs to the processing unit.
b) Marketing Factors
i) Marketing costs : The returns realised by the cultivator are also influenced by the expenditure he incurs towards the marketing of the produce. Hence, of late, it is felt that the marketing costs need to be treated as a part of cost of production [45]. The marketing costs are directly influenced by the marketing channels followed by the cultivators. The most popular channel of marketing followed by the cultivators in case of Vegetables is: Producer - Commission Agent - Retailer - Consumer and in case of Fruits it is : Producer - Pre-harvest contractor -Commission Agent/Wholesaler - Retailer - Consumer.
Both the cultivators and processing units will be benefited by establishing a direct link between them. In case of cultivators, among the important items of marketing cost, commission charges account for 40-60 per cent in case of fruits and vegetables followed by transport charges which account for 40 per cent (Table 2.7). By establishing a direct link, the cultivators will be able to save the commission charges and also transport cost in some cases which is a substantial amount. The processing unit also will be benefited, as they can get the produce at a cheaper rate than procuring from the market or through agents.
ii) Fair Price: Price plays an important role for both the producers as well as processing units. The price offered/prevailing will influence the decision of the cultivators regarding the place of sale as well as the agency to whom to sell. Hence, it is important that the price offered by the processing unit should be reasonable and attractive to the cultivators. The main problem faced by the processing units is how to determine the price which will take care of their interest of getting the produce at a cheaper rate as well as be sufficiently attractive for the cultivators.
20
In this context, the results of economic analysis of a case study of tomato crop is presented in Table 2.8 which has taken into account the three important factors viz., prevailing market price, the price offered by the processing units and cost of production and come up with fair price determination. Between Feb. 90 to May 90, the period when tomatoes were processed by one of the processing units studied in Bangalore, the price offered by the processing unit (P.U.) was lower by 51 to 91 per cent as compared to the prevailing wholesale price in the Bangalore market. The same when compared to the cost of production incurred by the cultivators was hardly 8 to 20 per cent higher whereas the market price was higher by 80 to 101 per cent. This clearly indicates the reason why the cultivators are not enthusiastic for supply to the processing units. Considering that the cultivators have to pay commission charges ranging from 10 to 15 per cent and also incur loading and unloading charges etc., it was felt that around 20 to 30 per cent less than the prevailing market price, which will result in around 40 per cent more than the cost of production, was considered reasonable procurement price. The earlier case study under Indo-Bulgarian project has also recommended a fair price of 40 per cent over cost of production, which will meet the profit expectation of the cultivators [43]. Thus, Rs. 129/q was considered a fair price during that period.
iii) Price fixation based on quality: The price offered by the Industry should also take into consideration the quality of produce and vary the price offered based on quality parameters required for processing like TSS, tenderness etc., as is done in case of sugar industry. This type of fixing prices seems to be working very well, as evidenced by the 'Gherkin' Industry in Bangalore. The Gherkins (the pickle cucumber for exports) are graded based on tenderness and small size. Generally cucumbers are graded into four sizes at the time of procurement at farmers' field and the processing units are offering different prices for different grades. The price ranges from Rs. 8.50/kg in case of first grade which gives more than 100 fruits/kg to Rs. 0.50/kg in case of 4th grade which contains crooks and Nibbins (Table 2.9).
This type of grading and accepting all the produce and paying them based on quality will not only satisfy the cultivators, but also make them take utmost care and produce quality material for processing purposes.
iv) Influence of price of competitive crops: It is a well established fact that the cultivators will respond to price changes and adjust the acerage of their crops. Higher prices of a commodity in one season will make more cultivators take up the crop in the next season which will result in gluts and this once again will bring down the acreage in the next season. This cobweb phenomenon is much more marked in case of
21
commercial crops like fruits and vegetables. The processing industry has to take this into consideration while offering procurement prices to the cultivators. This was very clearly observed in case of 'Gherkins' industry. According to the 'Gherkin' industry "We have observed that there is a clear cut link between the prices of other vegetables in the market and the farmers' willingness to grow gherkins. If the prices of the vegetables in the market are high, the farmer is not interested to grow gherkins for which there is hardly any local demand. If the fresh vegetable market is down the farmer is willing to grow more gherkins. In the latter, there are more, farmers to grow gherkins than we are interested to purchase. They come and que up before our agricultural extension officers' house in the village and try to win over him to get a chance to cultivate gherkins for that season" [34].
From the above it is clear that the procurement price fixation by the processing units has to be done very carefully taking into consideration all the above marketing factors.
So, the raw material supply and management which will affect the costs and returns of fruit and vegetable processing units in the short as well as long run needs to take into consideration both the production and marketing factors and come up with a procurement price policy which will establish an enduring linkage between the producers and processors and the model developed will be very useful in this regard.
Table 2.1 : Ratio of Raw Material to Finished Product Requirements in India and Abroad
(Tonnes)
Product Requirement per tonne of finished product India Abroad
Orange juice 14 10 (Brazil) Concentrate (65° brix) Pineapple juice 16 8 (Philippines, Hawaii) Concentrate (65° brix) Tomato paste 7 4 (Italy) Concentrate (28° brix)
Source : Ref. No. 21.
Table 2.2 ; ; Raw Material Cost in India and Abroad (Rs/t)
Product India Intemational
Tomato Pineapple Orange
1000 1000-1500 1500-1800
300-600 250-400
400
Source : Ref. No. 21.
22
Table 2.3 : Comparison of Contract Price with l\/larket Price and Cost of Production in Different Seasons
Season Contract Price (Rs./kg)
Market Price (Rs./kg)
Cost of production (RsVkg)
Difference between contract price market price
Kharif 1976
Rabi 1976
0.60 (+13)
0.60 (+46)
0.76 (+43)
0.47 (+15)
0.53
0.41
0.16 (30)
0.13 (32)
Note + Source
Figures in parentheses indicate differences expressed as compared to cost of production. Indicates higher than cost of production. Ref. No. 43.
Table 2.4 : Cost of Cultivation of Tomato
(Value in Rs/ha.)
Item Hybrid Local
A. MATERIAL COST
1. Seed 1848.40 511.10
2. FYIVI 2205.00 2175.00
3. Fertiliser 3994.23 396.00
4. PPC
5. Staking*
2728.00
5543.05
300.00
6. Irrigation 79.87 79.87
Sub-total 16398.55 3461.97
B. LABOUR
1. Human
a) Family 2300.30 2250.00
b) Hired 3040.70 3100.00
2. Bullock 784.69 375.00
Sub-total 3125.69 5725.00
C. INTEREST ON WORKING
©14% p.a. for 6 months
CAPITAL 1576.69 643.09
COST 1 (A+B+C) 24100.93 9830.06
D. MARKETING COST 13658.85 7325.00
COST II (COST 1 + D) 37759.78 17155.06
E. FIXED COST 3500.00 3500.00
COST III (COST II + E) 41259.78 20655.06
F. YIELD (T/HA) 45.00 20.00
G. COST OF PRODUCTION (based on Cost III) 917.00 1032.00
* One fourth of the total cost, taking four seasons as the total life of stakes. Source : Ref. No. 59.
23
Table 2.5 : Estimated Cost of Cultivation of Gherkins with l\/lodern Technology
items Quantity Rs/ha.
1. Seed (F1 Hybrid), Calpso variety
2. FYM
3. Fuiradon granules
4. Oil cakes (Neem oil cake)
5. Chemical fertiliser like CAN, MOP and Ammonium Sulphate
6. Land development and preparation of rows and furrows
7. Staking material used for 6 crops
8. Plastic wire used for 6 crops
9. PP measures
10. Harvesting commenced from 36th day aifter sowing
1250 g 5550
75 CL 10000
7.5 kg 2500
17.5 t 11250
5000
7500
5000
112.5 kg 9000
3750
13925
Total 73475
Source : Ref. No. 8.
Table 2.6 : Influence of Production Factors on Processing -Hybrid vs Local Tomato
(Per 100 t of finished product)
Item Local Hybrid
1. Raw material required (t)
2. Cost of raw material (Rs)
3. Area required (ha)
4. No. of cultivators required
600 400
)000 520000
30 9
67 20
1. The raw material to finished product ratio is 4:1 in case of hybrid Ijecause of high brix content and 6:1 in case of local varieties.
2. At the rate of Rs. 1300 per tonne
3. Hybrid tomato yield is taken as 45 t/ha and local tomato yield as 20 t/ha.
4. Based on the average area of 0.45 per cultivator under tomato.
24
Table 2.7 : Cost incurred by the Cultivators for marketing the Horticultural Crops In Karnataka
Table 2.8 : Fair Price of Tomato for Processing
• Tfie cost of production of tomato during ttiat period was Rs. 92/q based on survey worl<. " Based on around 40 per cent of cost of production Source : Ref. No. 59.
(Rs/q)
Crops Transport Loading & unloading
Commission Packing Market entry fee etc.
Grading Total
VEGETABLES
Tomato 6.87 (31.59)
1.52 (6.99)
11.71 (53.84)
1.33 (6.11)
0.32 (1.47)
21.75 (100)
French! beans 8.58 (37.81)
1.35 (5.95)
11.84 (52.18)
0.59 (2.60)
0.33 (1,46)
22.69 (100)
Brinjal 7.54 (38.10)
0.92 (4.65)
10.23 (51.69)
0.66 (3.34)
0.44 (2.22)
19.79 (100)
Cabbage 8.63 (40.21)
1.42 (6.62)
10.71 (49.91)
0.59 (2.75)
0.11 (0.51)
21.46 (100)
Bfiendi 5.66 (31.17)
0.64 (3.52)
10.82 (59.58)
0.67 (3.69)
0.37 (2.04)
18.16 (100)
Carrot 9.21 (45.24)
1.55 (7.61)
8.82 (43.32)
0.61 (3.00)
0.17 (0.83)
20.36 (100)
Cauliflower* 9.21 (38.60)
2.99 (12.53)
10.60 (44.43)
1.06 (4.44)
23.86 (100)
FRUITS
Mandarin® 11.77 (39.06)
2.42 (8.03)
13.09 (43.45)
1.31 (4.35)
1.51 (5.11)
30.13 (100)
Banana# 0.68 (51.91)
0.43 (32.82)
0.20 (15.27)
1.31 (100)
Pineapple 30.00 (52.41)
2.00 (3.49)
24.24 (42.35)
1.00 (1.75)
57.24 (100)
* : Per 100 flowers. Source : Ref. No. 51
@ : Per 1000 fruits # : Per bunch
SI. No.
Month Monthly average wholesale market price (M.P.)
(Rs/q)
Price offered by process
ing unit (P.U.) (Rs/q)
Difference between M.P. and
P.U. price
Difference between cost of
production*
Fair price"* (Rs/q)
Month Monthly average wholesale market price (M.P.)
(Rs/q)
Price offered by process
ing unit (P.U.) (Rs/q) Rs. % over
P.U. Price MP. (%)
P.U. (%)
1 February 1990 166 110 56 51 80 20
2 March 1990 167 100 67 67 82 9 129
3 April 1990 181 100 81 81 97 9
4 May 1990 185 97 88 91 101 8
25
Tabie 2.9 : Grading of Glierkins and Price Offered by Processing Industry
Grade No. of fruits per kg Price offered by the industry (Rs/kg)
Grade I >100 8.50
Grade II 60-100 6.50
Grade III <60 1.50
Grade IV* <60 0.50
* Is called C & N (crooks and nubbins) Source : Data from Case Studies, Section of Economics and Statistics.
26
PRODUCTION FACTORS
-^^
MARKETING FACTORS
PROCESSING FACTORS
Fig. 1 : iVIodel Shiowing Linl(ages of Processing witli Production and Marl(eting Factors
PRODUCER
• CROP •
VARIETY CULTIVATION PRACTICES
YIELD COST OF CULTIVATION
COST OF PRODUCTION
RETURNS
PRICE BY PROC. UNIT
MARKETING COSTS
MARKET PRICE
PRICE OF COMP. CROPS
RAW MATERIAL COST
RAW MATERIAL TO PROC.
PRODUCT RATIO
INVESTMENT/ CAPACITY
UTIL
COSTS AND RETURNS PROCESSING
RAW MATERIAL REQUIREMENT
CROP AREA REQUIRED
27
SECTION - III
CONTRACT FARMING AND ITS ROLE AND CAPTIVE FARMING AND ITS SCOPE
Of late it has been realised that it is beneficial for both the processing industries and the producers to have linkages. Out of the three types/forms of linkages viz., contract farming, captive farming and cooperative farming, most of the processing industries feel that contract growing of fruits and vegetables with farmers, needs to be promoted on a large scale with Government help. It is in this context that the contract farming has come into being as a Horti-Business proposition. The Ministry of Food Processing has also formulated a scheme to encourage contract farming. Under this scheme "a particular processing Industry should enter into a contract with a group of farmers for purchase of their produce at a specified price. The Government would provide financial assistance upto Rs. 10 lakhs as a grane in aid for each of the project of contract farming. An official release said.... 'State owned undertakings, co-operatives, joint sector and private sector enterprises engaged in contract farming at least with 25 farmers were eligible to avail the financial aid' [4].
Contract farming
I) Type of contract farming and its implications
The contract farming is a type of forward contract between producers of a commodity and processing units which involves an agreement for supply of a commodity of a type at a time and in quantity required by buyer. It basically involves three components
i) Pre agreed fixed price II) fixed quantity (minimum/maximum) ill) fixed quality
ii) Methods of contract farming
1. Oral or written: The contract arrangements in most cases of fruits and vegetables are of oral type and in some cases, from farmers the written agreement is also executed.
2. The contract arrangements may be of the following types:
i) Purchase contract for produce from the cultivators at a fixed price.
29
il) Supply of some inputs like seed and/or technical know how for cultivation of a crop besides the purchase agreement.
Both the above types of contract arrangements are practiced in India with varying degrees of success.
i) Purchase contract: This type of contract was tried in the beginning by some of the processing firms. In this type of contract the firm only agrees to purchase the produce at a pre fixed price. The risk of non-fulfillment of the agreement is very high in this type of contract as was experienced in case of Indo-Bulgarian project. The main reason for this is the large difference between the contract price and the prevailing market price at the time of supply of the produce. Similarly, as the processing units are not giving any input needed by the cultivators, there is also no moral obligation for supplying the produce.
ii) Supply of inputs: Most of the processing units which are now engaged in contract farming are following this type of contract farming. In most of the cases the processing units are supplying seed only. By supplying the seed, the processing units will be assured of the quality of produce required by them and in some cases, as in 'Gherkins', the crop itself is cultivated exclusively by the cultivators for supplying to the processing units.
iii) Case studies
To know more about the system of working of contract farming, the section of Economics and Statistics of Indian Institute of Horticulture Research, Bangalore has undertaken in-depth case studies of the two important vegetables viz., 'Gherkins' and 'tomato' for which contract farming is practiced by the Processing firms located in and around Bangalore. The cultivators growing tomato for Hindustan Lever Ltd. (Kissan) and gherkins for Sterling Agro-product Processing Pvt. Ltd. in one of the taluks near Bangalore were contracted during 1999 and brief findings of the case studies are presented below.
a) 'GHERKINS' contract farming
Background: The 'Gherkin' which was recently imported to India belongs to cucurbitacae family grown in the west for pickle purpose. Of late, because of the rising cost of cultivation due to its labour intensive nature, its cultivation has shifted to the third world. The 'Gherkin' cultivation was initiated by Oceania Penisular Pvt. Ltd. in the nineties on experimental basis. From 1992 onwards the commercial cultivation of 'Gherkin' was started. At present some 20 companies, mainly export oriented units
30
(EOU's) are engaged in cultivation of 'Gherkins'. Most of the companies are located in Bangalore. It is cultivated mainly in southern states of Karnataka, Tamil Nadu and Andhra Pradesh and the present area is estimated to be around 6000 hectares. India has emerged as the largest bulk supplier of 'Gherkins'.
Contract arrangements: To know more details about the contract arrangements, we have contacted a 'Gherkin' export company and also the cultivators growing the 'Gherkins' around Bangalore.
The activities of the company are :
1. Organising the farmers through field officers 2. Procurement of the produce 3. Processing and exporting
The contract arrangement for growing the 'Gherkins' is Processing unit - Field officers of the unit - Growers
Selection of the farmers: The field officers employed by the firm who are mostly local people contract the farmers in the villages and make them enter into contract for growing the 'Gherkins'. In the surveyed taluk viz., Bagepalli near Bangalore, 50% of the cultivators have been approached by the firm and about 43 per cent of sample cultivators themselves have approached the firm for growing 'Gherkins'. The criteria for selecting the farmers are i) Irrigation facilities ii) Suitability of the soil iii) Size of the family (generally more than 3) as it is a very labour intensive crop, the number of adult members in the household is an important criteria for selecting the cultivators.
General Profile
The general profile of the selected sample cultivators for the study is presented in table 3.1. It can be observed that nearly 65 per cent of the cultivators are illiterates and 50 per cent of them are having less than one hectare of land. But majority of the farmers are having 100 per cent irrigated area and there are none having no irrigated area. Of course this is expected as one of the criteria for selection for growing 'Gherkins' by the Processing unit is the availability of irrigation facilities.
Agreement
Both written and oral agreements seem to be prevalent with the sample cultivators, with more than 50 percent having written agreement.
31
Area under 'Gherkins'
The area to be cultivated under 'Gherkin' crop by each cultivator is decided by the processing firm itself. As it is a very labour intensive crop and right time of harvesting is of paramount importance for maintaining the quality, the processing firm is not allowing any growers to put more than one acre under the crop. The minimum area is 0.25 acres. Majority of the farmers (86%) were allotted 0.5 acres only. Each field officer arranges to grow the 'Gherkins' in about 45 to 50 acres in each season. This company above is employing around 18 field officers operating from 4 extension zones, viz., Bangalore South, Chikkaballapur, Kolar and Tumkur.
Supply of inputs
As 'Gherkin' is an imported vegetable crop, the concerned companies themselves are supplying the seed to the cultivators for growing the crop which is 200 grams per 0.5 acre. The charges towards the seed which is Rs. 270/- per 100 grams is deducted at the time of payment to the cultivators. No other inputs like fertiliser etc., nor any credit facility is extended by the company. Only technical guidance regarding Plant protection, harvesting and grading is given by the field officers. Most of the farmers who are growing the crop for two or three years are quite familiar with the crop and hence they are not even taking the technical guidance for the cultivation of the crop (Table 3.2).
The firm also supplies sieves for grading the produce on cost basis (Rs. 240/- per set) which is refunded after returning the same.
Costs and returns
The costs and returns details of gherkin cultivation is detailed in Table 3.3.
i) Cost of cultivation: A cultivator has to spend around Rs. 48,000/- per hectare towards the inputs for cultivation. Cost towards human labour itself accounts for 65% of the total input cost showing the labour intensive nature of the crop. Most of the labour is supplied by the family itself and size of family is one of the criteria employed by the firm for selecting the cultivation.
ii) Yield: The produce is separated into different grades using the sieves supplied by the company. There are four grades based on the number of fruits per kg. Higher the number of fruits, they are considered as best grade as it shows the smallness and tenderness of the fruits, which is
32
required for processing, as they are used as a whole fruit. The grades prescribed by the company are :
SI. No. Grade No. of fruits/kg
1. S-1 200 +
2. S-2 160-200
3. S-3 100-160
4. S-4 60-100
5. S-5 30-60
<30 = crooks/nubbins
At present the first two grades (S-1 and S-2) and third and fourth grades (S-3 & S-4) are combined making them into four grades including crooks/nubbins.
The average yield obtained by the sample cultivators was around 11 tons, out of this 53 percent was of first grade, 22 per cent of second grade, 19 percent of third grade and 6 per cent of last grade.
iii) Returns: The company fixes the rates for each of the above grades and pays them accordingly. The rate fixed by the company for April-May 1999 season crop are
Grade-! - Rs. 8.50/kg
Grade-ll - Rs. 6.50/kg
Grade-Ill - Rs. 1.50/kg
Grade-IV - Rs. 0.50/kg
Based on the above yields and rates, a cultivator growing 'gherkins' can expect a net return of around Rs. 23000/-, which may be less compared to the return one can expect from hybrid crops like tomato. But most of the cultivators said that they are entering into contract because of assured prices, which is not guaranteed in case of crops like tomato which may fall very low making them incur loss. Besides as only 0.5 acres is allotted to the crop, they feel that atleast some income is assured from this area and it seems to be economically sound crop diversification strategy.
Marketing
The biggest advantage the cultivators are facing in this contract is hassle free marketing. The company itself arranges transport (trucks) and
33
collects the produce from the cultivators from their fields and charges only Rs. 250/- (flat rate) per crop. The vehicle goes to all the farmers with weighing machines and collects the produce. Because of this arrangement the cultivators save major portion of marketing costs viz., transport cost and commission charges which account for more than 75 per cent of marketing costs incurred by the vegetable cultivators as revealed by many studies [46, 50, 51, 52].
Mode of payment
Each farmer is given a pass book in which date wise grade and quantity of the produce supplied is entered. The payment is made in the field officers' office on 10th, 20th and 30th of each month by the processing firm in the study area. The final payment is made after 15 days from the date of submission of the pass book.
Problems
a) Faced by the cijltivators: Most of the sample cultivators have no major problems in this contract arrangement. But 50 per cent of the farmers expressed dissatisfaction regarding the price offered by this firm. The main reason was that the earlier processing firm which stopped processing gherkins due to its closure was paying higher prices. The present firm also at present revised the prices offered for first grade and now Grade-I fetches Rs. 10.50/kg instead of Rs. 8.50/kg.
b) Processing firm: According to the Industry persons [34] problems faced by them are :
1) Mixing of low grades with higher grades: According to the Industry, the farmers try to put bigger (size) grade fruit into smaller grade lot and it is difficult to check and make sure of the grades as the quantity handled is around 16000 kg per day. But the Industry has to give a receipt to the farmer on whatever they pick up at his doorstep and that is treated as final and cannot later go back and return.
2) Red farmers: Some farmers after the firm advances seeds, chemicals, fertilizers, etc., failed to supply the produce and due to this, one firm has lost about Rs. 8 lakhs during the first year of operation. This situation was unfortunately due to the fact that not every firm in the Industry is as ethical as it should be.
3) Holding up of vehicles: Some times, the farmers held up vehicles in the villages demanding that they should be paid higher prices even though
34
the agreement does not say so and sometimes insist that whatever grade of fruits they give has to be bought.
b) TOMATO
Among the vegetables tomato is the largest processed one and also one of the important vegetables consumed in fresh form.
The contract farming for supply of tomato is practiced in Bangalore by one of the most important fruit and vegetable processing factories viz., 'Kissan' presently run by the Hindustan Lever Limited.
Method of contracting: Unlike in case of 'Gherkins' in case of tomato, the processing factory is not entering into contract directly with growers for supply of the produce. The channel followed is :
Processing firm - Agent - Cultivators
The firm identifies agents in each village for supply of the produce. The agents in-turn contact the cultivators for growing the crop and procure the produce and supply to the factory. Unlike the field officers in case of 'Gherkins' the agents are not employees of the Processing firm. Most of the agents are local people (Big cultivators) and all of them have close contact with the growers in the villages. To know the details from the cultivators who are supplying tomato to agents of the factory, a survey was conducted in Bagepalli taluk, the same taluk where gherkin cultivation is also practised.
General profile: The general profile of sample tomato cultivators is presented in Table 3.4. Most of the cultivators (73%) chosen by the agents are literate farmers, as against large number of illiterate farmers chosen in case of 'Gherkins'. Similarly most of the tomato cultivators are medium and large farmers having more than one hectare of land.
Agreement: There is no written agreement between the agent and the farmers.
Area : Majority of the sample cultivators have reported that area to be put under the tomato crop was left to their discretion and only 33 per cent of the cultivators reported that the agent had specified the area.
Supply of inputs: The factory supplies the seed to the agent who in turn supplies either seed or seedlings to some of the selected cultivators.
35
The factory also supplies wooden crates at a subsidised rate of Rs. 14/- to the agents and also sometimes plastic crates free for the produce.
Costs and Returns
In the study area, the sample cultivators were growing 'Roma' variety of tomato which is one of the oldest processing variety used by the factory. The details of costs and return is briefly discussed below.
Cost of cultivation: The cultivator has to spend around Rs. 12,000/-per hectare towards cultivation of the crop.
Yield: Around 21 tonnes/ha of tomato was obtained by the sample cultivators unlike in case of 'Gherkins' where there is no grading system. Some quality standards like borer free fruits, no white patches etc., are followed while taking the produce by the agents from the cultivators.
Returns: The cultivators are getting less price than offered by the processing firm as they have no direct dealing with firm. The agent acts as a middleman and keeps a margin and pays a lower price to the cultivators.
As against the price offered by the factory of Rs. 1.80 to 2.20/kg depending upon the season, the agent pays a uniform price of Rs. 1.40/kg to the cultivators, thus keeping a margin of Rs. 0.40 to Rs. 0.80/kg.
Marketing
The cultivators sell their produce at the field itself to the agents and hence do not incur any marketing cost. The agent himself arranges the transport and takes to the factory. Avoiding the trouble of taking to the market seems to be one of the important reasons why cultivators are preferring to sell to the agents and the other being the assured price (Table 3.5).
Problems
a) Cultivators: Most of the cultivators have expressed that there is no direct weighing and the produce is filled in crates whose actual capacity is 18 kg but the agent takes it as 16 kg and pays them.
Hence some of the sample cultivators feel that balances should be brought to the field and the produce should be weighed instead of filling them in crates.
36
b) Agents: The main problem the agents are facing with the factory is the delay in unloading at the factory which increases their costs. During the season sometimes they have to wait for 2 to 3 days to unload the produce.
The second problem faced by the agents is that at the time of taking the produce, the factory also rejects some produce which may vary from 1% to 9% also. This is the reason offered by agents for recording less weight at farmers' level.
c) Processing firm: The firm claims that they are not facing any problem with the agents in getting the Produce. The firm enters the quantity of seed given to each agent in a register and accepts the produce from only registered agents/farmers. The firm says it is operating through both agents and farmers and at present there are 28 agents and 150 farmers registered with the firm.
Conclusions
Froniilftftt'case studies the following conclusions can be drawn.
1. Only in casff <3f *Ghefkins' the real contract farming is practiced.
2. The contract;farming practiced through agents in case of tomato is resulting in creatibh of a new set of middlemen.
3. The real benefit expected through contract farming viz. savings in transport cost and commission charges will not accrue to the cultivators unless the produce is picked up at the fields by the processing firms, even if it means charging.
4. Though in case of 'Gherkins' there is no fresh market, it also faces the 'Red farmers' according to the industry. Hence the question of honouring the contract is by developing good rapport with the cultivators by creating an extension wing with officers employed by the company who can guide them.
5. The supply of other inputs besides seed like pesticides, helps to prevent the drop out of farmers due to crop failures.
Captive farming
Captive farming is a system in which the Industry itself tries to grow the raw material required by it, by acquiring (leasing) large areas of land. By this method, the Industry need not depend on others (cultivators) and can get assured supply of requisite quantity and desired quality.
37
a) Present Status
At present this type of farming is successfully practiced only in case of processing industry where (i) Uncultivated land can be made use of for erecting structures, (il) Where there is very high intensive cultivation requiring a small area of cultivated land.
Mushrooms
Among the Processed Vegetables, captive cultivation is highly successful only in case of mushroom processing industry. Most of the 100% Export Oriented Units (EOUs) which are started by big firms with foreign collaboration are following captive farming rather than contract farming for supply of mushrooms for processing. This was done mainly because the cultivation of mushroom does not require large cultivated area and even uncultivated area can be used for erecting structures required for their cultivation. With liberalisation of import of mushroom spawn during 1993 most of the mushroom processing units are importing the spawn of varieties popular in foreign markets and cultivating them on a large scale and using the produce.
Seed and Flower cultivation
The other area where captive farming is successfully followed is protected cultivation under polyhouses. The commercial poly houses are around 5 to 10 hectares in area and are mainly used for cultivation of flowers and production of seed of vegetables and flowers for export.
b) New Trends in captive farming
On late a new trend has emerged which is close to the concept of captive farming. In this type of captive farming some Plantation firms like Maxworth Orchards, Anubhav Plantations, Asra India Ltd., etc., are trying to develop large areas under fruit crops. In this, the firms.advertise and sell small areas (0.5 to 1 acre) to individuals as an investment proposal by promising good returns/value in future as raisihg the plantations, maintenance and management and disposal of produce etc., is by the company itself. These plantation companies may not be directly using for their own processing purposes but large areas are cultivated under a single management and hence they are close to captive farming.
38
c) Future scope
With the existing land ceiling laws, it is not possible for the big processing units to adopt captive farming for supply of raw material. It is also not desirable to adopt in Indian conditions, where rural areas consist of large number of small cultivators whose main occupation is cultivation. But the small scale processing units which will be discussed in detail in the next section, have a large scope for following captive farming for supply of raw material, as area required is comparatively small and can be leased without breaking the existing land ceiling laws.
The other area where modified captive farming can be tried with some success is acqutring and developing fallow land or cultivable wastes. For example Maxworth Orchards (India) is planning to develop two new fruit orchards which will have 75 acres of fallow land in Raigad district and Borda near Nagpur in Maharashtra [20b].
Table 3.1 : Profile of Gherkin Sample Cultivators, 1999 (Rs/ha)
Particulars Percentage of Cultivators
1. Educational Status
I) Illiterates 64.29
ii) Literates (5th - 9th) 35.71
2. Size of the Farm
i) < 1.00 ha 50.00
ii) 1.00 - 2.00 ha 21.43
ill) > 2.00 ha 28.57
3. Percentage of Irrigated Land of the Farmer
i) < 50% —
ii) > 50% and < 100% 35.71
ill) 100% 64.29
4. Type of Contract
i) Written 57.14
ii) Oral 42.86
5. Area Under Gherkin Crop
i) 0.40 ac (0.80) 7.14
ii) 0.50 ac (0.24) 85.72
iii) 0.75 ac (0.25) 7.14
6. Variety Grown
i) Not Known 64.29
ii) Known 35.71
Figures in parenthesis shows the % of total irrigated area of the famn.
39
Table 3.2 : Details (opinion) of Contract by Gherkin Cultivators
Particulars Percentage of Cultivators
1. Source of Contract
i) Through neighbouring fanner who is already having contract 7.14 with the processing firm
ii) Processing firm approached the farmer 50.00
ill) Farmer approached the processing firm 42.86
2. Number of Years of Association with the Processing Firm
i) Since one year 14.28
ii) Since two years 7.14
iii) Since three years 14.29
iv) Since four years 42.86
v) Since five years 21.43
3. Area Cultivated
i) Specified by the Proc. firm 100.00
4. Violation of Contract by the Cultivator
i) Not violated 100.00
5. Violation of Contract in Price by the Processing Firm
i) Not violated 100.00
6. Inputs Supplied by the Proc. firm
i) Only seed 100.00
7. Supplying Loans/Advance by the Proc. Finn
I) Nil 100.00
8. Technical Advice
i) P.P. Measures 14.29
ii) P.P. Measures, harvesting and grading 21.42
iii) Not needed 64.29
9. Price Offered by the Processing firm
i) Satisfied 42.86
ii) Not Satisfied 57.14
10. Rejection of Produce by the Firm
i) Nil 100.00
11. Farmer Stopped Supplying to Proc. Firm 100.00
12. Packing and Transport
i) Arranged by the Proc. Finn 100.00
13. Problem in Payment for the Produce
i) Nil 100.00
40
Table 3.3 : Cost of Cultivation of Gherkins, 1999
(Rs/ha)
Item Unit Quantity Cost
Inputs 1. Seed 2. FYM 3. Cfiemical fertilisers
i) N Ji) P ill) K
4. P.P. Measures 5. Staking
i) Sticks* il) Plastic wire ill) Gunny thread
6. Human labour 7. Bullock labour
Total Cost Yield Gross Returns
I @Rs. II @Rs, III @Rs IV
IV.
Grade Grade Grade Grade Total Net Returns
8.50/kg 6.50/kg 1.50/kg 0.50/kg
grams 996.50 2690.56 T. Load 12.59 5384.62
Kg 154.51 Kg 67.62 Kg 108.25 3336.57 No. 3.14 1247.20
No. 2937.00 979.00 Kg 20.98 853.15 Kg 24.48 538.11 M. days 859.39 31407.67 P. days 17.48 1486.01
47922.89 Kg 11366.08
Kg 6003.50 51029.75 Kg 2454.54 15954.51 Kg 2178.32 3267.48 kg 729.72 364.86 kg 11366.08 70616.60 Rs. 22693.71
As the life span is three seasons, the total cost is divided by 3.
Table 3.4 : Profile of Tomato Sample Cultivators, 1999
Particulars Percentage of Cultivators
1. Educational Status
i) Illiterates ii) Literates (5th - 10th)
Size of the Farm i) < 1.00 ha ii) 1.00 - 2.00 ha ill) > 2.00 ha
Percentages of Irrigated Land of the Farmer i) < 50% ii) > 50% and < 100% iii) 100%
Type of Contract i) Oral
Area I under Gherkin Crop i) 0.50 ac (100.00) ii) 1.00 ac (50.00) iii) 1.50 ac (75.00) iv) 2.00 ac (34.78) V) 3.00 ac (42.86) vi) 5.00 ac (100.00)
Variety Grown i) Known (Roma)
26.67 73.33
20.00 33.33 46.67
20.00 53.33 26.67
100.00
6.67 46.67
6.67 26.67 6.67 6.67
100.00
Figures in parenthesis shows the % of total inigated area of the fanrt.
41
Table 3.5 : Details (opinion) of Contract by Tomato Cultivators
Particulars Percentage of Cultivators
1. Source of Contract 1) The agent approached the fanner ii) The farmer approached the agent
2. Number of Years of Association with the Processing Firm i) Since two years ii) Since three years ill) Since four years iv) Since five years v) Since six years vi) Since seven years vii) Since eight years viij) Since nine years Ix) Since ten years
3. Area Cultivated I) Specified by the agent II) No specified by the agent
4. Violation of Contract by the Cultivator 1) Not violated
5. Violation of Contract In Price by the Agent 1) Not violated
6. Inputs Supplied by the agent I) Seedling II) Seed ill) Nil
7. Supplying Loans/Advance by the Agent I) Nil
8. Technical Advice i) Not needed II) Nil
9. Price Offered by the Processing firm 1) Satisfied ii) Not satisfied
10. Rejection of Produce by the Agent 1) Nil
11. Fanner Stopped Supplying to Agent I) Nil
12. Packing and Transport i) Arranged by the agent
13. Problem in Payment for the Produce i) Nil
14. Problem with the Agent I) Weighing is not proper II) Nil
15. Suggestions i) Minimum price of Rs. 2.00/kg ii) Balance should be brought to field ill) Nil
16. Advantages in having contract i) Price Is less In the market ii) Avoiding the trouble of going to the market ill) Assured price/sale of produce
60.00 40.00
6.67 6.67
33.33 1.33 6.67
13.33 6.67 6.67 6.67
33.33 66.67
100.00
100.00
13.33 53.33 33.33
100.00
46.67 53.33
86.67 13.33
100.00
100.00
100.00
100.00
26.67 73.33
13.33 6.67
80.00
6.67 46.67 46.67
42
SECTION - IV
PRICE RISK AND PROCESSING: FEASIBILITY OF SMALL SCALE PROCESSING OF FRUITS AND VEGETABLES
The price risk viz., the highly fluctuating prices associated with Fruits and Vegetables is of great concern for both the Producers and Processors. This risk mainly occurs because of the special characteristics of fruits and vegetables which distinguishes them from other agricultural commodities viz., their highly seasonal, perishable and bulky nature. These special characteristics have economic implications for both the producers and processors.
i) Economic implications of special characteristics
1) Seasonal nature
Most of the fruits and vegetables are available for a few months in a year. For example the peak period of availability of mango is hardly for a two month period i.e., May-June, oranges during November to January. Similar is the case with respect to most of the vegetables. The economic implications of this nature are :
The harvest of the crop in a short period results in glut in the market during the main season resulting in low prices, which sometimes do not cover even the harvesting and transport cost. For example the recent experience of the Karnataka tomato growers (July/August 1997) who were forced to throw their tomatoes on the roads due to the rock bottom prices offered in the market speaks volumes of the neglect of this problem [67]. During the peak season the prices of tomato are as low as 50 paise per kilogram where as during the offseason they will be as high as Rs. 11 to 12 per kilogram.
The seasonability also affects the processing industry as 1) the availability of raw material will be for a short period and ii) it cannot take advantage of the low priceis during the season. Because of this, a paradoxical situation exists with the processors complaining of high raw material cost and the producers complaining of unremunerative prices during the season.
2) Perishability
Most of the fruits and vegetables cannot be stored for long at room temperatures because of their biological activity even after harvest.
43
As the produce can not be stored for long, the producers are forced to dispose of the produce at the prevailing prices, even though the price may not be attractive.
The cultivators are also forced to use quick mode of transport to prevent the spoilage, resulting in high transport cost. The studies on marketing cost have clearly brought out that next to commission charges, the transport cost accounts for major share of the marketing cost borne by the producers [54]. Besides this, the transport and handling losses are also high due to the perishability.
Because of the perishable nature, the processors also cannot take advantage of seasonal gluts and low prices, by purchasing them when prices are low and storing them. Because of this, the processors have to purchase raw material at a high cost during the offseason to keep their supplies in the market.
3) Bulky nature
The bulHy ni ture of the produce will result in high packing and transport costs for pfoduoers and will push up the raw material cost due to high volume.
ii) Methods to overcome the price risk
Generally two methods are recommended to overcome the above problems of the perishable crops:
1) Cold storing of the produce: To extend the shelf life of fruits and vegetables and create time and space utility the cold storing of fruits and vegetables is recommended. As a matter fact, this is one of the most important infrastructural facilities which people consider highly essential and lacking for preventing post harvest loss and increasing the exports. There is also an ambitious plan by Govt, of India to set up 'Cold chains' in the country to give access to the small food processors to preserve their raw material so that they could process the food continuously round the year and store the finished product to sell at an appropriate time.
At the national level, Potato is the single largest vegetable stored In the cold stores accounting for more than 60 percent of the capacity. Very negligible quantity of other fruits and vegetables are cold stored and at regional level only a few fruits like apples and grapes/raisins are stored in cold stores in some states [26, 71].
44
The cold storage of fruits and vegetables also does not guarantee the full prevention of losses. During 1994, potatoes worth Rs. 1.5 crores grown by Karnataka growers stored in two private cold storages near the border town Punganur in Chittor district of AP got spoiled because of power cut/ technical breakdown, dashing the hopes of 20 farmers of realising higher prices by storing them in cold stores. Even otherwise, losses do occur in cold storage due to lack of proper maintenance of temperature and humidity which differs from commodity to commodity. In a DMI study on cold storage of Nagpur oranges the extent of rotting varied from 10 to 27% depending upon the number of days stored [14]. From this it is clear that cold storing of produce may not be a viable proposition as a price risk aversion strategy for most of the fruit and vegetable growers.
ii) Increasing Processing of Fruits and Vegetables: Establishing Small Scale Units in Rural Areas:
The establishment of small scale processing units in production areas is one of the best ways to strengthen the linkages between producers and processors which will also help the cultivators to overcome the price risk due to seasonal gluts. The producers can increase their income by diverting at least a part of the produce towards processing.
With the limited processing capacity and prior contract commitments the existing large scale units may not be able to absorb all the excess produce to push up the prices to a remunerative level. Besides, it was also observed from many studies that the location of fruit and vegetat)le processing units bear no relation to raw materials and there is absolutely no economic rationale in choosing the location and other factors like availability of credit, transport facilities are the factors which have influence on the location [32, 41, 74]. Hence, it is necessary to establish these processing units in production areas, which will help the cultivators in realising better returns by avoiding the sale to middlemen like preharvest contractors, and will also help reduce the cost of processing by avoiding high transport cost of raw material to the factories located far away from places of production.
The small scale units need not also manufacture the finished product but can process into semi finished/intermediate product in bulk which can be used by the large scale manufacturers in urban areas for conversion to various product types and also for export market. This will help both the cultivators as well as the processors in saving transport cost, supply and price problems of raw materials.
45
iii) Economic feasibility of establishing the small scale units
At present most of the fruit and vegetable processing Industries are in private hands and very few are in public or co-operative sector. One of the main reasons for this may be lack of detailed information on economic feasibility of starting small scale units. A few studies conducted during 1970 and 1980 [11, 16] do not provide full details regarding investment, scale of operation, raw material requirements etc. Hence, the economics section of Indian Institute of Horticultural Research (IIHR), Bangalore has undertaken detailed studies on the economic feasibility to provide all relevant information for starting small scale processing units in production areas by the cultivators [58, 60, 63, 64]. The three crops which were selected for this purpose were tomato, which is the most widely processed vegetable and mango which is the main fruit used by the fruit and vegetable processing industry and grapes which is the latest important fruit crop exported.
a) Tomato processing
Tomato is by far the most important vegetable processed in India which accounts for more than 50 per cent of the vegetables processed. Tomato at present [1995-96] is cultivated in 3.56 lakh hectares with a production of 54.42 lakh tonnes accounting for 7 per cent of area and 7.6 per cent of production of vegetables in the country. The area and production of tomato is also growing at a fast rate and it has increased by 23 percent in terms of area and 28 percent in terms of production as compared to year 1991-92 [29].
Economic feasibility
The economic feasibility of establishing a small scale tomato processing unit of 150t/annum capacity is presented below.
i) Capital requirements:
Around Rs. 10 lakhs is required towards land, buildings and machinery and equipment, as one time investment. Thereafter around Rs. one lakh is required each year towards payment for salaries, electricity, office establishment etc. So total investment of Rs. 12 lakh is required (Table 4.1).
ii) Cost of processing:
For processing one tonne of finished product around Rs. 17^900 is to be spent towards raw material, chemicals and preservatives, labour and
46
packing charges and around Rs. 8800/- net profit can be expected. The raw material cost itself accounts for 40 per cent followed by packing accounting for 30 per cent of the total cost of processing.
ill) Break even output: The minimum quantity to be processed for the unit was worked out by using the break even analysis.
AFC Q =
P-VC
Where Q = Minimum output of processed product (tonnes)
AFC = Annual fixed cost of the unit (depreciation and interest on buildings, machinery, equipments and recurring expenses for staff etc.)
P = Price of the finished product (Rs./t)
VC = Variable cost of production of the processed product (Rs/t).
Based on the above formula, 150 t/annum capacity unit, with an investment of around Rs. 12 lakhs should produce at least 33 tonnes of finished product per annum to run at no profit no loss stage (Table 4.3).
Raw material requirement and supply :
The raw material requirements based on finished product to raw material ratio of 1:4 and 1:6 at various levels of utilisation of the processing plant and the number of cultivators required to produce them is presented in Table 4.4.
From the table it can be observed that hardly around 200 tonnes of tomato are required based on the highest ratio of 1:6 for producing the break-even output of 33 tonnes of finished product. This quantity can be supplied from hardly 5 to 10 ha depending upon the variety i.e., local or hybrid and about 10 to 20 cultivators can join hands and start the processing plant very easily as a cooperative venture.
Fresh sales vs processing: To help the cultivators take a decision about whether to go in for processing or to sell the produce as a fresh vegetable, tha relative economics of fresh sale vs processing was worked out and presented in Table 4.5. It can be seen from the table that the net returns of the processing units can be increased atleast 4 times at around Rs. 3,00,000/- from processing as against Rs. 1,00,000 from fresh sales from 100 tonnes of tomatoes.
47
From the above it is clear that :
1) It is economically feasible to run a small scale tomato processing plant.
2) The processing plant can be started even at taluq level as it hardly requires 20-50 hectares to run at almost full capacity.
3) It can be started by a minimum of around 7-20 cultivators which shows that it can be started as a cooperative venture.
b) Mango processing
Mango is one of the most important fruits used for processing by the Industry. India accounts for more than 50 per cent of the world production. At present (1995-96) mango is cultivated in 12.83 lakh hectares with a production of 108.11 lakh tonnes.
The most important mango product exported from India is mango pulp and most of the processing units are engaged in making pulp.
Establishment of intermediate product (pulp) processing units in production areas in case of perishable crops like fruits and vegetables was suggested by many studies to overcome the problems of seasonal gluts and resulting low prices [54]. The establishment of these units also helps the cultivators to realise better returns by avoiding selling to pre-harvest contractors, which was found undesirable [44, 49]. Such units also save transport costs both for cultivators and processors. Though a few units manufacturing intermediate products in case of mango viz., pulp, were started in production centres like Chittor District in Andhra Pradesh and Ratnagiri District in Maharashtra [72], this idea has still not caught on in other mango production centres, and large quantities of mango are still transported from production centres in Karnataka and Tamil Nadu to distant places like Bhopal, Delhi and Mumbai.
Economic of l\/lango Pulp malting
For establishing a mango pulping unit with an annual capacity of 1200 tonnes around Rs. 8.5 lakhs is required towards machinery etc., (Table 4.6) besides the land and building which may cost another Rs. 6 lakhs.
With a net return of around Rs. 500/t for making pulp (Table 4.7), the break-even output was estimated to be around 500 tonnes of finished product i.e., pulp arid the raw material requirement would be around 1000 tonnes of mangoes.
48
Based on the All India average yield of 8.5 t/ha, hardly 118 ha would be required to supply the raw material. From this it is clear that a mango pulping unit can be established at talul</district level in mango growing areas where processing varieties like alphonso, totapuri etc., are grown.
c) Grapes processing
Raisins, the processed form of seedless grapes have high commercial value as dry fruits. India, inspite of the highest productivity level in the world at 30 t/ha for grapes, depends on imports from countries like Afganisthan and Iran for its domestic demand for raisins, as the domestic production of raisin has been negligible. It is only since last few years, that about 10% of the total production of seedless grapes is being diverted towards raisin production as against more than 86% consumed in the fresh form [10]. Though research efforts on raisin making are in progress for more than a couple of decades towards standardising techniques for their production [2], their successful adoption has been limited due to constraints like high initial capital requirement. However, the grape growers from Maharashtra have been successfully producing raisins on farm using a technique which is both easy to adopt and requires very less capital.
The information on raisin making pertains to the agricultural year 1993-94 and has been collected from grape growers from Solapur District of Maharashtra State.
Method of Raisin Production
The most commonly used methods for raisin making are i) Sun drying and ii) Solar dehydration using specially designed dehydrators. In both these methods Sulpher is used for fumigation purposes [37]. The growers from Maharashtra also follow sun drying but using Australian dipping oil, with Ethyl oleta as its main ingredient.
Costs and Returns
The costs and returns of raisin making from 10 tonnes of grapes i.e., yield from an acre is presented in Table 4.8. Around Rs. 8,500/- is required for erecting drying structures, which consists of shelves made from casurina poles and polypropylene net and sheets for spreading and covering the grapes for drying. One can expect around Rs. 80,000/-additional income per acre from raisin making as compared to fresh sales of grapes.
49
Constraints and suggestions
Marketing is the main problem faced by most of the small scale fruit and vegetable processing units. Besides the main constraints of low domestic demand, these units have to face stiff competition for marketing their produce from established big manufacturers whose brand names are familiar with common household consumers. The results of the survey conducted during 1981 and 1991 in two metropolitan cities of Mumbai and Delhi is presented in Table 4.9 which clearly shows that big brand names like Kissan, Maggi etc., are the preferred ones. The recent studies conducted in three towns/cities i.e., Pantnagar, Rudrapur and Haldwani and three villages Jawahar Nagar, Shantipuri and Haldi in U.P. also have confirmed the above findings viz., Kissan brand is most preferred for jam and squash and Maggi for sauce [36].
Hence, there is a need for a few adjoining rural processing units to manufacture a common product and sell it under a common brand name as in Lijjat papads. Alternatively they should manufacture an intermediate product like pulp/paste and supply the same to big manufacturers as was done in case of mango by some units in Chittor District of Andhra Pradesh.
The units can also take the help of government organisations like Khadi and Gramodyog Fair price shops etc., as market outlets.
Table 4.1 : Capital Requirements for Establishing a Small Scale Cooperative Tomato Processing Unit
(150t/annum)
Particulars Value (Rs.)
I. FIXED CAPITAL
1. Land and Buildings 400000
2. Machinery & Equipments 62^100
Sub Total - I 1029100
RECURRING EXPENDITURE
1. Payment to permanent staff 81000
2. Office Establisfiments 2250
3. Electricity/Diesel etc. 7500
Sub Total - II 90750
TOTAL INVESTMENT (l+ll) 1119850
Source: Ref. No. 60.
50
Table 4.2 : Cost and Returns of Processing of Tomato (Ketchup)
Items Values % to total (Rs./t)* cost
I. Variable costs :
1. Raw material cost :
a) Fresh Tomatoes
b) Chemical & Preservatives
2. Utilities (Power & Diesel electricity etc.)
3. Labour
4. Packing material cost
5. Others (Miscellaneous)
Total
II. Gross returns (Rs/t)
III. Net returns (Rs/t)
' Rs. per tonne of finished product.
Table 4.3 : Break-Even Output for Running a tomato Processing Plant
(150 t per annum)
Items Amount (Rs.)
1. Annual fixed cost (Depreciation, interest on machinary, annual 292800 recurring costs, etc.)
2. Net returns from processing 1 tonne of the product 8858
3. Breal< even output (t) (Item 1/ltem 2) 33
7200 40.16
2980 16.62
820 4.57
1250 6.97
5430 30.28
250 1..39
17930 100.00
26788 —
8858
51
Table 4.4 : Raw Material Requirements and Supply at Different Levels of Utilisation/Processing
Item Quantity produced in tonnes at different levels
1. Raw material required 1:4 (tonnes) 1:6
2, Area required (ha)
(a) Based on hybrid" 1:4 1:6
(b) Based on local 1:4 1:6
No. of cultivators required to jo in"
(a) Based on hybrid 1:4 1:6
(b) Based on local 1:4 1:6
33® 40 60 80 100 120 140
132 160 240 320 400 480 560 198 240 360 480 600 720 840
2.88 3.56 5.33 7.11 8.89 10.67 12.44 4.40 5.30 8.00 10.70 13.30 16.00 18.70
6.60 8.00 12.00 18.00 20.00 24.00 28.00 9.90 12.00 18.00 24.00 30.00 36.00 42.00
7 8 12 16 20 25 29 10 12 18 24 30 36 42
15 18 28 37 46 55 64 22 27 40 53 67 80 93
Breakeven output Hybrid tomato yield is taken as 45 t/ha and the local tomato yield as 20 t/ha Based on the average area of 0.45 ha/cultivator under tomato.
Source: Ref. No. 59.
Table 4.5 : Relative Economics of Fresh Sales vs. Processing of Tomato
(Quantity = 100 M.T.)
Items Amount (Rs)
A. FRESH SALES :
I. i) Cost of production @Rs. 536/t 53600 ii) Marketing costs like transport, packing, commissions etc. @Rs. 304/t 30400
Total Cost 84000
II. Gross returns @Rs. 2000/t 200000
III. Net returns 116000
B. PROCESSING :
I. i) Cost of processing like chemicals, labour, packing material etc. 268250 ii) Interest on working capital of processing @15% p.a. 40238 iii) Fixed cost @Rs. 2440/t* 61000
Total cost of processing 369488
II. Gross returns from sale of 25 t of finished product @Rs. 26788/t 669700
III. Net returns from processing 300212
" ; Based on annual fixed cost of Rs. 292800 towards depreciation, interest on machinery, working capital for salary etc., and on assumption of 120 tonnes of finished products per annum.
52
Table 4.6
Item
Important Machinery and Equipment Required for a Mango Pulping Unit
Quantity (Number) Value (Rs.)
A. MACHINERY
1. Boiler
2. Pulpers
3. Electric hoise with beams
4. Steam jacketted kettles with tilting capacity
5. Retards (400 cans)
6. Rotopumps (for pumping products)
7. Fruit washing tank
8. Weighing Scales & Lab. Equipment
Installation charges @10% of total cost
B. WORKING EQUIPMENT
1. Trays, Spoons, S. Steel tanks, wooden ladles etc.
TOTAL (A+B)
C. OPTIONAL
1 175000
2 130000
1 25000
3 90000
2 20000
2 50000
1 10000
20000
520000 52000
572000
25000
597000
1. Canning and refomning unil 250000
Source : Re*
"^^^le
jJo. 58.
4.7 : Costs and Returns of Processing Mango Into Pulp
Items Value (Rs/t)* % to total
A. INPUT COSTS
1. Raw materials" (fresh fruits)
2. Utilities (electricity, diesel etc.,)
3. Packing material
4. Latiour
1. upto pulping
2. canning
Total input cost
B. INTEREST ON WORKING CAPITAL
C. TOTAL COST (A+B)
D. GROSS RETURNS
E. NET RETURNS (D-C)
3790.48
245.48
82.41
5.33
SI5% p.a. per 6 months)
212.88 4.63
30.00 0.65
4278.89 93.02
320.89 6.98
4599.39 100
5095.67
496.28
Rs/t of finished product
Very rarely chemicals and preservations are used.
Supplied by the buyer
Ref. No. 58.
53
Table 4.8 : Costs and Returns of Raisin making on Farm
(10 tonnes of fresh Grapes)
Particulars Quantity/Unit Amount (Rs.)
Cost of Erection of Drying Structure (2 tonnes capacity)
1. Cost of Wooden Poles
2. Nylon net for making shelves
3. Shedding net
4. Labour and other charges
Total investment
II. Cost of Inputs (Chemical and packing material etc.)
1. Australian Dipping oil
2. Packing Material
3. Labour charges
4. Transport and Cold storage
Total cost
Total processing costs (t. cost + fixed & marketing costs)
III. Yield of raisins and returns
1. Grade A 2000 kg @ 80/kg
2. Grade B 400 kg @ 60/kg
3. Grade C 100 kg @ 25/kg
Total 2500 kg
IV. Net returns from the sale of raisins (lll-ll)
V. Income from selling as fresh grapes 10 tonnes @Rs. 8.75/kg**
VI. Additional income due to processing (IV-V)
6 No. 250 15 Kg. 2700 30 feet 500
800
2*
22 litres
ms. 200
4250
8500
4400
1200
2400
4000
12000
17750
1,60,000
24,000
2,500
1,86,500
1,68,750
87,500
81,250
A minimum of two such structures are required for making raisins from an acre or 10 tonnes of fresh grapes.
Fann gate price.
Source : Ref. No. 64.
54
Table 4.9 : Brandwise Consumption Pattern of Tomato Ketchup/Sauce
Percentage Consumption in
Mumbai Delhi
Brand Name 1989 1991 1989 1991
Kissan 54 52 55 51
Maggi 28 30 27 32
Dippys 5 2 1 —
Noga 5 4 — —
All seasons 2 — 1 —
Vol farm 1 1 4 3
NAFED — — 2 3
Others 5 11 10 11
Source : Indian Food Industry, 1992, 11(3) : 55.
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SECTION - V
EXPORT OF PROCESSED HORTICULTURAL PRODUCTS
Though agricultural sector as a whole has been an important contributor to the country's exports, of late Its contribution has come down. From nearly 31 per cent during the year 1980, the contribution of agricultural sector has come down to 20 per cent of total Indian exports by the year 1996-97 (Table 5.1). This was mainly due to its losing ground in traditional export crops like tea, cashew, spices etc., in which it used to command virtual monopoly. For example, India used to command upto 1970's more than 90 per cent share of world trade in cashew kernels, now accounts for hardly 64 per cent with the entry of Brazil [24]. Tea exports also have faired badly due to stiff competition from Sri Lanka. India's share in tea exports has come down from 33.4 per cent during the year 1970 to 13.6 per cent by the year 1994 in the world agricultural exports. Similarly the share of spices has come down from 20.5 per cent to 9.1 per cent during the same period (Table 5.2). Because of this situation along with precarious position of balance of payments during early 1990's an urgent need was felt for diversifying the agricultural produce basket for exports. In this context, the horticultural crops viz.. Fruits, Vegetables and their products are identified as the most suitable group of crops in view of our country's prime position in the world production and fast growing demand in international markets. However, India's share in total world export of fruits and vegetables has registered a declining trend. From 1.2 per cent in 1970, it has come down to 0.8 per cent by 1990 and once again increased to 1.7 per cent (Table 5.2).
It was also recognised that one of the main constraints for the low exports of fruits and vegetables is the huge post-harvest losses. Hence it was felt that value addition by processing them will not only result in prevention of post-harvest losses but also help to realise better returns through export of processed product. This was the reason why the New Industrial Policy of 1991 of Government of India has placed Processed Fruits and Vegetables (F&V) in the list of "High Priority Area" and lot of encouragement was given to FVPI by way of duty concessions. The Ministry of Commerce, Govt, of India has also identified Processed Foods for "EXTREME FOCUS" area.
i) Share of export of fruits and vegetables
The share of fruits and vegetables in the total agricultural exports is also steadily Increasing. From 3 per cent during the year 1980, it has reached more than 5 per cent, the peak being during the year 1992-93
57
with 5.85 per cent and the share at present is 4.4 per cent (Table 5.3).
Ii) Trends in export of processed fruits and vegetables
a) Share of processed Fruits and Vegetables in total exports of Fruits and Vegetables: The share of Processed Fruits and Vegetables in the export of Fruits and Vegetables was fluctuating between 27 per cent to 57 per cent during the period 1980-81 to 1997-98. The highest of 57 per cent was recorded during the year 1997-98 and the lowest of 27 per cent was during the year 1984-85. During the last five years i.e., from 1993-94 onwards it was constantly more than 40 per cent (Table 5.4).
b) Share of exports in total production of Processed fruits and vegetables: The share of exports which was around 31 per cent of total production during 1985 came down to 18 per cent by the year 1996, showing over years that there has been a decline (Table 5.5). The increase in the share during 1997-98 to 33 per cent was mainly due to decreased production, which, according to industry, was due to imposition of excise duty during 1997 which resulted in reduced installed capacity by 8.1 per cent due to closure of units. The increase in consumption of processed fruits and vegetables over the years, as evidenced by reduced share in exports in total production in the domestic market was mainly due to (i) changes in taste and preferences of the consumers who are more and more switching over to convenience foods, (ii) increase in disposal income especially of middle class people by their moving into higher income groups due to opening up of the economy to foreign Institutions and (iii) availability of increased range of products in convenient packs.
c) Trend in growth of export of Processed Fruits and Vegetables: The trend of growth of exports was worked out taking the time series data of quantity and value of exports of both processed and fresh fruits and vegetables for the last 18 years I.e., 1980-81 to 1997-98.
The period was divided into two phases.
I. Phase - I : Pre-New Industrial Policy period i.e., from 1980-81 to 1990-91.
II. Phase - II : Post-New Industrial Policy period i.e., from the year 1991-92 to 1997-98.
The growth trend was worked out by fitting the equation of the following type.
58
Y = A B '
where
Y = Quantity/value of exports
A = constant
B = Regression coefficient showing the growth rate
t = time in years
The above equation was fitted by the method of least squares by making appropriate log transformation.
The export data along with compound growth rate (CGR) for processed fruits and vegetables is presented in Table 5.6 and for fresh fruits and vegetables in Table 5.7 for the two phases.
a) Comparison of trend in Phiase i and Phase ii
During the Phase-!, i.e., Pre New Industrial Policy period, the quantity of exports of processed fruits and vegetables (F&V) has grown at a CGR of 5.13 per cent which was higher as compared to Fresh Fruits and Vegetables at 3.92 per cent. But in value terms the CGR for fresh fruits and vegetables was higher at 13.54 per cent as compared to Processed F&V at 9.32 per cent.
During Phase II i.e.. Post New Industrial Policy period, the export of Processed Fruits and Vegetables has grown at a very fast rate compared to export of fresh fruits and vegetables. The export of processed fruits and vegetables has registered a CGR of 22 and 28 per cent in terms of quantity and value respectively as against 3.33 per cent and 13 per cent. This clearly shows that the New Industrial Policy has a definite and positive impact on the export growth of Processed fruits and vegetables.
b) Overaii growth
When we take the entire period of 18 years into consideration, the growth rate was higher in case of export of processed fruits and vegetables as compared to fresh fruits and vegetables. As against CGR of 7 and 17 per cent in terms of quantity and value exported in case of fresh fruits and vegetables respectively, the CGR in case of Processed Fruits and Vegetables was 12 and 20 per cent during the period 1980-81 to 1997-98.
59
From the above it is clear that the export of processed fruits and vegetables is growing at a faster rate as compared to fresh fruits and vegetables and Phase II i.e., post New Industrial Policy period is having a definite and positive impact on processed fruits and vegetable exports.
Mi) Export projections
The growth equations fitted based on the model explained for the export data of Processed and fresh fruits and vegetables for the three periods i.e.. Phase I, Phase II and combined Phase I and Phase II is presented in table 5.8. Except in case of a few variables viz., quantity of vegetables in Phase I and II and overall quantity of fresh fruits and vegetables, in the other cases all the growth coefficients are statistically significant and the R is also high showing that time variables could explain the changes over the years.
The export projections were made based on the Phase - II growth equations, as it was felt that trend of export during this period is more relevant for projection due to changes in policy carried out during this period which are continued compared to Phase - I. The results of the projections for the year 2000 and 2005 is presented in table 5.9.
From the present level, i.e., during 1997-98, the export earnings from processed fruits and vegetables can be increased by more than 50 percent by the year 2000 and we can reach a figure of Rs. 4000 crores by the year 2005 if the same trend is continued. The export of total fruits and vegetables can reach a level of Rs. 2000 crores by the year 2000 and Rs. 5600 crores by the year 2005, which is nearly 300 per cent more than the earnings in 1997-98.
iv) Clianges in composition of export of processed fruits and vegetables
i) Growth of different products: The export of Processed Fruits and Vegetables is classified into four main categories viz.. Dried and Preserved vegetables. Mango pulp, pickles and chutneys and other processed fruits and vegetables and the share of each is presented in Fig. 2. Substantial increase in export has taken place in the Dried and Preserved category followed by mango pulp, pickles and chutneys and other processed fruits and vegetables. The value of export of Dried and preserved vegetables has increased from Rs. 64 crores during 1991-92 to Rs. 480 crores by 1997-98 registering a growth of 650 per cent whereas the export of mango pulp has registered an increase of 230 per cent from Rs. 38 crores to Rs. 125 crores during the same period. Plckl6s and chutneys increased by 192 per cent from Rs. 26 crores to Rs. 77 crores and the other processed fruits
60
and vegetables by 169 per cent from Rs. 30 crores to Rs. 80 crores (Fig. 3, 4, 5 & 6).
ii) Share of different products: During the year 1997-98, Dried and Preserved vegetables group has accounted for nearly 67 per cent of quantity and 63 per cent of value of the total processed fruits and vegetables exported as against 38 and 40 per cent during 1991-92. The share of mango pulp exports has come down from 29 per cent during 1991-92 to 15 per cent by 1997-98 in terms of quantity and 24 per cent to 16 per cent by value. Similar trend of decreasing share was noticed in case of pickles and chutneys and other fruits and vegetables (Table 5.10). The increase in share of dried and preserved vegetables was mainly due to increase in export of items like Gherkins, Dried Onions, Dried Mushrooms etc.
The changes in the individual performance of some of the processed fruits and vegetables which of late have got importance has been examined below.
(a) Gherkins: A new and imported vegetable which was introduced during 1992 and became one of the important items of export under Dried and Preserved vegetables is 'Gherkins'. The Gherkin belongs to the family cucurbitaceae and it is mainly processed into pickles in the west. The commercial cultivation of Gherkins was started in 1992 in South India and now India has emerged as the second largest exporter. The Gherkins were exported in fresh form in a small quantity of 80 metric tonnes,valued at Rs. 9.88 lakhs during 1991-92 and at present it is exported both in fresh as well as processed form. At present i.e., 1997-98 nearly 15962 tonnes of processed Gherkins are exported valued at Rs. 3179 lakhs, which is more than double the quantity and value of exports during 1994-95 (Fig. 7).
(b) Dried Mushrooms: The second important item under Dried and Preserved Vegetable category whose exports, of late, has picked up is 'Dried Mushrooms'. With the increase in the production of mushroom from hardly 100 tonnes during 1970's to around 25000 tonnes by 1995, there is a tremendous increase in export of mushrooms. With the growing of oyster and paddy straw mushrooms picking up in Southern states like Andhra Pradesh, Karnataka and Tamil Nadu, the export of dried mushrooms has picked up as they are most suited for this purpose. The export of dried mushrooms during 1997-98 was nearly 148 tonnes valued at Rs. 3512 lakhs as compared to 44.5 tonnes valued at Rs. 74.53 lakhs exported during 1990-91 (Fig. 9).
61
(c) Dehydrated onions: India, though'^the second largest producer of onion, could not fully exploit its potential for export of dehydrated onions which is in great demand in European countries. The world trade in dehydrated onion and garlic is estimated at around 100,000 tonnes per annum. The total use of dehydrated onions and garlic in Western Europe amounts upto 50,000 tonnes per year, of which 35,000 to 40,000 tonnes are imported. The demand is still increasing. During the last five years, the export of dehydrated onion has picked up and at present 4941 metric tonnes of dehydrate.d onion valued at around Rs. 24 crores is exported, which is nearly 4 times the value of exports during 1993-94 (Fig. 8).
(d) Processed mushrooms: Along with the New Industrial Policy of 1991 of Govt, of India which allowed foreign collaborations, the relaxation of rules for import of mushroom spawn culture by the Ministry of Commerce, Govt, of India for the 100% Export Oriented Units during the year 1993, a number of joint ventures have come into existence. Most of them are having more than 2000 t/annum capacity with around Rs. 20 crores investment each. At present there are about 30 EOUs with a capacity of 85000 metric tonnes. Most of these units are producing button mushrooms and exporting them in processed form [31, 39, 65]. Hence, the export of processed mushrooms has increased from hardly 126 tonnes valued at Rs. 76 lakhs in 1990-91 to 6883 tonnes valued at Rs. 2593 lakhs by 1995-96, though there is a set back in export of processed mushrooms in subsequent years (Fig. 10). The reason for drastic fall in exports of processed mushrooms during the year 1997-98 was due to the levy of anti dumping duty by USA, which is the major importer of processed mushrooms and also the increase of exports by China.
v) Destination of exports of processed fruits and vegetables
The destination of exports of processed fruits and vegetables duhng the years 1991-92 and 1997-98 is presented in Table 5.11. In case of dried and preserved vegetables, Egypt and Sri Lanka have emerged as the important importers during 1997-98 instead of UAE and Switzerland during the year 1991-92. In case of mango pulp, the USSR is no more the important importer next to Arab countries as was the situation during the year 1991-92. Instead, Germany and U.S.A. have emerged as new markets besides the Netherlands and UK. Similarly in the case of other processed fruits and vegetables, instead of USSR as the major importer during the year 1991-92, the Netherlands, Indonesia and Germany have emerged as important markets and Russia could occupy only 7th place. For pickles and chutneys, U.K. and U.S.A. remained the major importers from India.
Spain (24.26%), USA (16.25%), Belgium (15.74%), France (14.43%)
62
are the major importers of the new product produced vis., 'Gherkins' based on value of exports during the year 1997-98 from India. Germany (27.97%), U.K. (26.39%), Netherlands (8.98%) are the major markets for dehydrated orvion (flakes/powder) based on the value of exports during 1997-98. USA (84.71%) is the major importer of processed mushrooms, whereas Switzerland (47.57%), France (27.50%) and Germany (17.50%) are the important markets for dried mushrooms from India based on the value of exports during the year 1997-98.
From this it is clear that to certain extent we are able to diversify our export markets and catch new countries for exporting the processed products of fruits and vegetables.
vi) Constraints
Besides the usual constraints of lack of infrastructural facilities, high air freight charges, lack of refrigerated trucks etc., the Industry claims that the reimposition of excise duty on Processed products in 1997 has resulted in closure of some units thus reducing the installed capacity by 8.1 per cent.
The anti dumping duty levied by U.S.A. for import of mushroom products has resulted in low exports of this commodity.
The Europe levies a duty of 16.5 percent on Indian Gherkins as compared to no duty at all on the Produce of Turkey (the largest exporter of Gherkins in the world in bottled form). Similarly, the duty of 9.9 per cent on Indian Produce by USA while no duty on the Mexican Produce (the main competitor to India in the American market) have created problems for the Gherkin Industry [9].
These and other problems like lack of infrastructural facilities, high taxes etc., which are facing the processing industry of fruits and vegetables need to be solved for increasing the exports of Processed Products of Fruits and Vegetables from India.
63
Table 5.1 : Share of Agricultural Exports In India's Total Exports
(Rs. crores)
Year Total Exports Agrll Exports % share of Agri. in Total Exports
1980-81 6711.00 2057.00 30.70 1985-86 10895.00 3018.00 27.70 1990-91 32553.00 4879.00 15.00 1991-92 44042.00 8288.00 18.70 1992-93 53688.00 9457.00 17.60 1993-94 69547.00 12528.00 18.00 1994-95 82674.00 13712.00 16.60 1995-96 106353.00 21138.00 19.90 1996-97 117525.00 23988.00 20.40
Table 5.2 : India's Share in World Agricu iltural Exports
(Percentage)
Commodity group 1970 1S80 1990 1994
Tea 33.4 27.7 22.1 13.6
Spices 20.5 14.5 7.7 9.1
Coffee & Its substitutes 1 2.1 1.7 2.4
Tobacco 3.5 4.4 0.8 0.4
Cereal & Cereal Preparations 0.1 0.5 0.6 0.9
Fruits & Vegetables 1.2 1.1 0.8 1.7
Sugar & its Preparations 1 0.3 0.1 0.2
Meat & its Preparations 0.1 0.4 0.2 0.3
Fish & Fish Products 2 1.6 2.7
Source : GOI, Economic Survey, 1996-97 (New Delhi, Ministry of Finance, 1997), Ref. No. 18.
Table 5.3 : Share of Fruits and Vegetables in Agricultural Exports
(Rs. crores)
Year Agril Exports Fruit & Vegetable exports*
% share of Agri. in Total Exports
1980-81 2057 64.42 3.13
1985-86 3018 137.76 4.56
1990-91 4879 283.36 5.81
1991-92 8288 452.26 5.46
1992-93 9457 553.00 5.85
1993-94 12528 653.93 5.23
1995-96 21138 1022.74 4.84
1996-97 23988 1056.11 4.40
Includes processed fruits and vegetables.
64
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Table 5.8 : Export Growth Equations of Fruits and Vegetables
item 1980-81 to 1990-91 1nA InB R
1991-92 to 1997-98 InA InB R
1980-81 InA
1 to 1997-98 InB R '
1. Processed fruits and vegetables
Quantity Value
10.4372 3.3950
0.0500 0.0891
0.46 0.30
11.0780 4.8335
0.2016 0.2498
0.94 0.97
10.0990 2.9040
0.1141 0.1859
0.85 0.88
II. Freshi fruits and vegetables
a) Fruits
Quantity Value
10.1584 2.3598
0.0606 0.1636
0.56 0.79
11.1585 4.7115
0.0874 0.1323
0.94 0.96
9.9800 2.2200
0.0972 0.1957
0.90 0.94
b) Vegetables
Quantity Value
12.1633 6.4751
0.0339NS 0.1104
0.21 0.80
12.9057 5.0574
0.0196NS 0.1146
0.29 0.93
12.0693 3.3320
0.0579 0.1412
0.71 0.95
c) Total fresti fruits and Vegetables
Quantity Value
12.2889 3.7593
0.03842NS 0.1270
0.23 0.86
13.0605 5.5891
0.0328 0.1228
0.64 0.97
12.1725 3.6095
0.0640 0.1598
0.81 0.96
NS = Non significant and rest are significant at 1% or 5% level.
Table 5.9 : Export Projections for Fruits and Vegetables based on trend during 1991-92 to 1997-98
Quantity in M.T. Value in Rs. Crores
Item Actual in 1997-98
Projection % change 2000
over 1997-98 Actual in 1997-98 2000 2005
% change 2000 2005
1. Processed products
Quantity 298931 397281 1088597 32.90 264.16 Value 761.50 1189.99 4149.32 56.27 448.89
II. Fresh Fruits and Vegetables
a) Fruits
Quantity 135198 154060 238494 13.95 76.40 Value 268.74 365.84 708.89 36.13 163.78
b) Vegetables
Quantity 431698 480268 529718 11.25 2.71 Value 316.53 440.89 781.96 39.29 147.05
c) Total
Quantity 566896 631403 743928 11.38 31.23 Value 585.28 807.79 1492.64 38.02 155.03
III. Total Fruits and Vegetables
Quantity 865827 1028684 1832525 18.81 111.65 Value 1346.78 1997.78 5641.96 48.33 318.92
67
Table 5.10 Composition of Export of Processed Fruits and Vegetables
Quantity in M.T. Value in Rs. Crores
Items 1991-92 1997-98 % change over 1991-92
Quantity Value Quantity Value Quantity Value
Dried and Preserved Vegetables
Mango pulp
Pickles & Chutney
Other processed fruits & vegetables
Total processed fruits & vegetables
30474.83 63.98 200262.70 479.89 557.16 (38.12) (40.55) (66.99) (63.02)
650.06
23212.74 37.95 (29.03) (24.05)
11004.96 26.28 (13.76) (16.66)
15259.58 29.57 (19.09) (18.74)
45874.54 125.31 (15.35) (16.46)
24372.28 76.71 (8.15) (10.07)
28421.80 79.59 (9.51) (10.45)
97.63 230.20
121.47 191.89
86.26 169.16
79952.10 157.78 298931.29 761.50 273.89 (100) (100) (100) (100)
382.63
Note : Figures in parentheses are percentages to total. Source : APEDA.
Table 5.11 : Destination of Processed Fruits and Vegetables
Group 1991-92 1997-98
Dried and Preserved Vegetables
Mango Pulp
Pickles & Chutneys
Other processed fruits & Vegetables
UAE, Switzerland. USA, UK, Germany
S. Arabia (17.05), Yemen (16.53), USSR (11.98), Netherlands (11.16) UAE (8.86), UK (5.6), Kuwait (3.72)
UK (22.1), USA (14.41), S. Arabia (12.47), UAE (12.02) Germany (4.75), Netherlands (4.16), Canada (4.08), France (4.13)
USSR, USA, UAE, UK, S. Arabia
Egypt (21.09), Sri Lanka (20.3) UAE (10.63), USA (9.9) Turkey (5.45) UK (4.99)
S. Arabia (18.2), USA (17.27) Netherlands (9.87), Kuwait (9.29) Germany (6.76), UK (5.97), USA (4.57).
UK (17.57), USA (10.51), UAE (9.35), Spain (7.71), S. Arabia (6.71) Netherlands (5.42), Kuwait (5.34), Germany (5.33), France (4.76).
Netherlands (15.66), Indonesia (12.65), UK (10.42), USA (9.7), UAE (8.44) Germany (5.32), Russia (4.88).
Note : figures in parentheses are percentages of total value of exports. Source : APEDA (Ret. No. 1).
68
Fig: 2.Composition of Bxpot-t of ptocdssQd Ftuits ond VagQtoblaS - 1997-98
(Petcantoga bosza on Yo/UQ cf £xpofts)
63 oz'A
10.4.S
Total : Rs I61.50 coy<za
SOURCE: APBDA
69
I «?
48000-, Fig:3-Export of Dried andpraeetvea Vegetables 1991-92 to l097-9e
A T s e g
4./).000
4 / 0 0 0 0 .
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3ooo_J
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1903-9^ to 1997-X-b79
93
lies
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n
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iooo-o( to losr-99
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Fig:tO.BKpotb of proc<z&s(za Mushrooms I9SO-31 t o \92>7-S>B 29<?3-27
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-r 97-36
SECTION - VI
INCENTIVES FOR PRODUCERS IN ESTABLISHING PROCESSING UNITS AND STEPPING UP PROCESSING
With a view to developing the horticultural Industry, a number of Govt, organisations viz. The Ministry of Food Processing Industry (MFPI), National Horticulture Board (NHB), National Cooperative Development Corporation (NCDC) and Agricultural and Processed Food Products Exports Development Authority (APEDA) have formulated a number of schemes under which, financial assistance is given as a grant in aid, and in some cases as subsidy and in some cases as a soft loan. A brief outline of the schemes is presented based on the information collected from these organisations [1, 7, 28, 70].
a) Ministry of food processing industries
The Ministry of Food Processing Industries was constituted in June 1988 with a view to regulate, control and develop the processed food sector. The Ministry of Food Processing Industries had been operating several plan schemes for the development of processed food sector in the country since the inception of Eighth plan period (1992-97) taking into account the recommendations of the working group of Planning Commission, the constraints faced by Industry in order to accelerate growth of this sector and the priority status accorded to it by the Government, the Ministry of Food Processing Industries proposes to operate the following plan schemes during the Ninth Plan commencing in 1997 [7]. The schemes pertaining to Food Processing Industry are presented below.
1. Schemes for development of infrastructural facilities
The scheme aims to support creation of infrastructural facilities in various sectors of food processing industries.
(a) Establishment of post-harvest infrastructure and cold chain facilities for food processing,
(b) Infrastructure facilities for integrated projects of cultivation and processing of mushrooms, hops, gherkins and baby corn.
Establishment of post harvest infrastructure and cold-chain facilities for food processing and integrated projects of mushrooms, hops, gherkins and baby corn.
75
Objectives
(a) Provide/develop post harvest infrastructure like establishment of cold storage and cold chain facilities etc. (b) Build up efficient post harvest handling system right from the farm to retail marketing, (c) Develop setting up pre-cooling facilities, refrigerated transportation system and refrigerated retail outlets, (d) Develop cold storage system etc. (major ports and airports for food products meant for export), (e) Establishment of infrastructural facilities for mushroom cultivation and processing would consist of :
(i) Composed pasteurization units
(ii) spawn lab
(ill) Other processing facilities
(iv) marketing support etc.
(f) In the case of hops, establishment of infrastructural facilities would include setting up hops processing plants, procurement of pipes and supporting structures, support for cultivation practices etc.
Pattern of Assistance
PSUs/Joint Sector/NGOs/ 50% of the cost of capital equip- Grant Cooperatives ment and technical civil works upto
Rs. 25 lakhs in general areas and upto 50 lakhs in difficult areas.
Assisted/Private Sector 50% of the cost of capital equip- Loan ment and technical/civil works upto Rs. 50 lakhs in general areas and Rs. 75 lakhs in difficult areas.
PSUs/Joint Sector 50% of the total equity subject Loan to a maximum of Rs. 150 lakhs in general areas and Rs. 200 lakhs in difficult areas.
An organisation can avail of only one form of assistance, i.e., either grant or loan.
76
Establishment of food processing industrial estates/food parks
Objectives
To help establish Food Processing Industrial Estates/Parks by providing assistance for common facilities such as analytical and quality control laboratories, cold storages/modified atmosphere cold storages, warehousing facilities, supplementary pollution control facilities etc.
PSUs/Joint Assisted/ Private Sector/NGOs
Pattern of Assistance
Upto Rs. 4 crore for creation of common facilities
Grant
2. Scheme for setting up/expansion/modernisation of food processing industries
Setting up/expansion/modernisation of food processing units
Objectives
Provision of assistance for setting up of food processing units including those of spices, coconut, walnut and cashew nut or upgradation and expansion of such units.
PSUs
Joint Sector
Pattern of Assistance
50% of cost of capital equip- Loan ment and technical civil works, upto Rs. 150 lakhs in general areas, and Rs. 200 lakhs in difficult area
or
50% of cost of capital equipment Grant and technical civil works upto Rs. 50 lakhs in difficult areas
25% of cost of capital equip- Grant ment and technical civil works upto Rs. 25 lakhs in difficult areas
or
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50% of cost of capital equip- Loan ment and technical civil works upto Rs. 150 lakhs in general areas and upto Rs. 200 lakhs in difficult areas
An implementing agency can take either loan or grant, not both
Private/Assisted Sector
NGOs/Cooperatives
50% of the cost of capital equip- Loan ment and technical civil works, upto Rs. 50 lakhs in general areas and upto Rs. 75 lakhs in difficult areas
50% of cost of capital equipment Grant & technical civil works upto Rs. 25 lakhs in general areas and upto Rs. 50 lakhs in difficult areas.
All implementing agencies will get Loan 50% of the cost of capital equipment and technical civil works upto Rs. 75 lakhs in both general and difficult areas for innovative projects
Setting up of mobile fruit and vegetable processing unit
Objectives
To propagate the concept of mobile fruit and vegetable processing facilities which takes the facility of processing to the doorsteps of the farmers. •
All implementing Agencies
PSUs/State Nodal Agencies/NGOs/ Co-operatives
Pattern of Assistance
50% of the project cost (excluding pre-operative expenses and margin money for working capital), upto Rs. 40 lakhs in general areas and Rs. 60 lakhs in difficult areas
Grant
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Dissemination of low cost preservation technology
Objectives
To encourage setting up units using low cost preservation technology developed by National Institutions.
Pattern of Assistance
NGOs/Cooperatives/PSUs Actual cost of technology Grant (charged by CFTRI/other national R&D institutes) and plant and equipment upto Rs. 5 lakhs in both general and difficult areas
Joint/Assisted/Private Actual cost of technology Loan Sector (charged by CFTRI/other national
R&D institutes) and plant and equipment upto Rs. 5 lakhs in both general and difficult areas.
3. Scheme for research and development in food processing industries
1. Undertake specific R&D Projects on/relating to :
(i) Processing of cereals, coarse grains and millets and also for improving traditional/regional foods made from them.
(ii) Utilization of by-products of primary food processing like paddy husk, paddy straw, pulses-corn, peri carp brokens etc.
(ill) Study prevailing post-harvest technology of millets like ragi, jowar and bajra and devise improvements thereto and develop technologies for the purpose suited to our conditions.
(iv) Development of processing technology for the production of intermediate and finished food product/production including design and building or prototype equipment/pilot plants;
(v) Traditional Foods of various regions of the country.
2. Update processing, packing and storage technologies for all major processed food products so that they meet International Standards.
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3. Financial assistance would be available for setting up of Quality Control Laboratory for all processed foods. Such assistance will be limited to the entire cost of capital equipment required for setting up such laboratories. The facilities thus created will be common and may be availed of by other food processing units in and around the area. All implementing agencies would be eligible for such assistance.
Eligibility
(i) Agricultural Universities, Research Institutions including Central Food Technologies Research Institute, Veterinary Colleges, Cooperatives, National Dairy Research Institute (Karnal), Indian Institute of Packaging, Defence Food Research Laboratory and other reputed national institutions of research and development.
(ii) Industry Associations, NGOs, Voluntary Agencies and Private Entrepreneurs, where common facilities need to be established for the use of industry.
(iii) Private, Public and Joint Sector Companies taking up Research and Development projects individually or jointly with government laboratories, NTs, Universities or on the basis of a consortium of companies.
Pattern of assistance
Laboratories/MTs/Universities 100% of the project cost Grant NGOs and similar non-profit organisations
Public Sector/Joint Sector 1/3rd of the Project cost Grant Assisted Sector/Private Sector
Ownership of know-how and intellectual property and other conditions
1) It will be one of the pre-conditions for sanction of any R&D Project that
(i) where the project-executing institution is a laboratory/IIT/University, the know-how and all other aspects of Intellectual property generated as a result of the project will be owned wholly by MFPI.
(ii)" where the project-executing institution is a commercial company, the Intellectual property (in all forms) generated as a result of the project will be jointly owned by MFPI and the company(s).
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2) In cases where assistance for R&D activities is sought by commercial companies of any type - public, joint or private or by an entrepreneur, MFPI will reserve the right to license the know-how developed under the project to other companies, after a mutually negotiated period of exclusive right of product and sale by the company which undertook the project.
3) Where assistance is sought for quality control laboratories, an undertaking should be given that the facilities thus established would be allowed to be used by other industrial units also.
4. Scheme for personpower development in food processing industries
(i) Personpower development in rural areas (Food Processing and Training Centres or FPTCs).
(ii) Creations of infrastructure facilities
(iii) Training programme sponsored by MFPI.
Personpower development in rural areas (food processing and training centres or FPCTS)
Objectives
Development of rural entrepreneurship and transfer of technology for processing of food products by utilising locally grown raw materials and providing 'hands on' experience at such production cum training centres, while according priority to SC/ST/OBC and women.
Eligibility
Central or State Government Organizations, Educational and Technical Institutions, NGOs and Cooperatives, provided the implementing agency is willing to make available the required accommodation, personpower and other infrastructural facilities.
Pattern of Assistance
Grant-in-aid would be available to the FPTCs to the following extent.
Single Product Line Centre (for Rs. 2.00 lakhs for fixed Grant any one group of processing Capital Cost and Rs. 1.00 activities) lakh as revolving seed
capital.
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Mult! Product Line Centre (For more than one group of processing activities):
For training the trainers at recognised institutes such as CFTRI, Mysore
Rs. 7.50 lakhs for Fixed Grant Capital cost and Rs. 2.00 lakhs as revolving seed capital.
Upto Rs. 0.50 lakhs one Grant time assistance, subject to actuals on TA/DA etc.
Recurring expenditure needed for the revolving seed capital on raw materials and consumables (Preservative/additives/packaging) is expected to be recouped from sale proceeds products processed at the centre and the processing fees paid by the growers of raw materials.
5. Scheme for generic advertisement on processed foods and marl<eting assistance
Objectives
Build awareness among consumers about the advantages of processed foods, and their quality assurance mechanism, both through (i) Generic Advertisement and Publicity and (ii) Market Promotion Campaign for New Product Mix and Brand name support.
Central/State Govt. Organisation
NGOs/Cooperatives
Industry/Association
Pattern of Assistance
50% of the cost of campaign upto Rs. 25 lakhs.
50% of the cost of campaign upto Rs. 10 lakhs per annum for a maximum period of 2 years
Will be entitled to assistance for generic advertisement only. The assistance will be offered on a tapering basis, at 90% of the project Cost for the first two years (99/2000 & 2000/2001) and 70% of the last year of the Ninth Plan (2001/2002)
Grant
Grant
Grant
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All Agencies 50% of the cost towards Grant implementing Total Quality Management (TQM) including obtaining ISO-9000 certification HACCP etc. upto Rs. 10 lakhs.
6. Scheme for strengthening of backward linkages of food processing industries
Objectives
Increase capacity utilization of fruits and vegetables processing as well as grain and coarse grain, by ensuring regular supply of raw materials through contract farming. Ensure remunerative price to farmers by creating direct linkage between farmer and processor. Provide high quality seeds/ fertilizers/pesticides and planting materials to farmers also with technical know-how etc., through the processor.
Pattern of Assistance
Joint/Assisted/Private Incentives in the form of Grant Sector/NGOs/Cooperatives/ reim bursement will be PSUs available upto 5% of the
total purchases made by processor in a given year, limited to Rs. 10 lakhs per year, for a maximum period of three years.
Terms and Conditions
Processing companies would be required to supply high quality seeds/ fertilizers/pesticides and technology to contracted farmers, along with necessary extension work at reasonable charge. The group to contracted farmers shall not be less than 25 in number. The processing unit should enter into a contract with the farmers atleast for a period of 3 years and the units should also keep the Ministry informed in advance of such contracts.
7. Scheme for promotion of food processing industries
(i) Strengthening of the Directorate of Fruit and Vegetable Processing for information, education and quality systems.
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(ii) Participation in National/International Exhibition/Fairs.
(iii) Promoting studies, surveys, etc., in the Food Processing Sector.
(iv) Performance Awards.
Strengthening of the directorate of fruit and vegetable processing
Objectives
Strengthening the Directorate of Fruit and Vegetable Processing including computerisation. Compilation of information on different aspects of technology, machinery, packaging etc.. Preparation of short-films on these aspects.
Pattern of Assistance
100% grant to Government Organizations/Industry Associations/Private Sector
Participation in national/international exhibition/fairs
Objectives
Dissemination of information regarding Industry, familiarising the existing and prospective entrepreneurs with modern techniques of production and packaging, development of market and popularisation of products.
Pattern of Assistance
The Ministry in close association with APEDA, CFTRI, Industry Associations etc., would participate in exhibitions/fairs. Expenditure incurred in this connection would cover publication of literature, holding of seminars, space rentals and other miscellaneous items for setting up of theme pavilion etc. Quantum of financial assistance would be decided depending upon the merits of the proposal.
Promoting studies/surveys in the food processing sector
Objectives
To undertake studies and surveys for assessment of potential for food processing industries on sectoral and regional basis. Activities include organising seminars, workshops, symposia of focus attention on the development of food processing industries. The scheme envisages financial assistance for Entrepreneur Development Programmes (EDP)
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Pattern of Assistance
Assistance is extended to government or academic bodies, industry associations, non-governmental organisations etc., in the following manner.
(i) The amount provided for studies/feasibility reports/surveys etc., shall not exceed Rs. 3 lakhs.
(ii) The support for seminars/meetings/entrepreneurial development programmes etc., shall not exceed Rs. 1 lakh.
(iii) When the Ministry commissions such studies or sponsors seminars/ symposia, there would be no ceiling to financial assistance provided.
(iv) Maximum assistance of Rs. 1 lakh for EDP which should be atleast for a period of 2 weeks and the number of trainees should not be less than 15.
Performance award
Objectives
Provide encouragement/recognition to outstanding achievements of units in the food processing sector and for augmenting efficiency through a healthy competitive spirit through annual awards.
Pattern of Assistance
The National Productivity Council (NPC) has been the designated Agency for the purpose of implementation of this Scheme Component. Assistance in the form of grant-in-aid will be provided to them.
8. Scheme for strengthening of nodal agencies
Objectives
Strengthen the State level Nodal Agencies for food processing industries, designated by the State Governments, by providing financial support for installation of basic office hardware including computer system and internet for collection of detailed field information, preparation of data base, monitoring of assisted projects, coordination of agro food business etc.
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Pattern of Assistance
All Nodal Agencies Lumpsum grant of Rs. 3 lakhs Grant for purchase of hardware. Additional sum upto Rs. 50,000/- per Nodal/Agency per year for meeting the expenses on engaging personnel for preparation of data base, publication of profiles, office consumables etc.
Additional Financial assistance for collection of detailed field information, preparation of data base etc., would be considered on merits and no amount is prefixed for this purpose.
Explanations
1. General and Difficult Areas: The scheme provides for differential scale of assistance for projects to be setup in general and difficult areas of the country. It envisages enhanced rate of assistance for difficult areas, i.e., Jammu and Kashmir, Himachal Pradesh, Sikkim, North Eastern States, Andaman and Nicobar Islands, Lakshadweep and integrated Tribal Development Project (ITDP) areas.
2. Soft loan: Provision of loan, wherever indicated, envisages loan at concessional rate of 4%, where the repayment will be made in 5 years, after a moratorium of one year. Implementing Agencies availing soft loan will be required to furnish irrevocable and unconditional Bank Guarantee from any of the public sector banks in favour of the Ministry of Food Processing Industries (MFPI) for due repayment of loans and payment of interest and other money thereon in a form prescribed by NFPI. No guarantee commission shall be paid to the guarantor(s).
3. Release of Assistance : Assistance in the form of grant or soft loan would be released directly to the concerned implementing agencies, except in the case of projects in the private sector where it would be released through the concerned bank or financial institution providing the term loan to the project.
4. Recommendations : The proposals are required to be recommended by the concerned State Government or the Nodal Agency designated by them. The PSUs and R&D institutes, however, would not need such
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recommendations. In case of areas under autonomous bodies such as Gorkha Hill Development Council, Jharkhand Autonomous Area Development Council and Bodo Development/Council, such recommendations can be made by their competent Authority.
5. Joint and Assisted Sectors : A Public Sector Undertaking (PSU) would atleast hold 26% of the equity, for a company to be in the Joint Sector. If the equity is less than 26%, but more than 11%, the company would be deemed to be in Assisted Sector.
b) National Horticulture Board
The Board has formulated a number of schemes for development of infrastructure for post harvest management for improving the marketing of produce. The financial assistance under the schemes will be very helpful for the cultivators who are the suppliers of the raw material for F&V processing industry.
1. Integrated Project on Management of Post Harvest infrastructure of Horticultural crops : Under the scheme, assistance is provided to cooperatives, registered farmers/organisations engaged in marketing of horticultural produce. Initially, assistance was being provided in the form of subsidy limited to Rs. 15 lakhS/beneficiary. However, due to practical difficulties, the pattern of assistance has been changed from subsidy to soft loan during the 8th five year plan.
Soft loan upto Rs. 1.00 crore per beneficiary at a service charge of 4 per cent is given by the Board. The loan is given with a moratorium of upto 3 years and repayment in another 5 years. The main components of the scheme are :
(i) grading and packing centre, (il) retail outlets, (ill) specialised transport vehicles, (iv) pre-cooling units and cold storage, (v) auction platform, (vi) ripening/curing chamber, (vii) maturity kits, (viii) rigid plastic container (subsidy @Rs. 70/crate or 50 per cent of the actual cost whichever is less).
The 8th plan outlay is Rs. 47 crore.
Though the promoters contribution should not be less than 20 per cent, it is relaxed in case of cooperatives upto 10 per cent.
The pattern of assistance and the components under this scheme are as below:
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Description/ Component
Existing pattern of assistance
Approved pattern of assistance during 8th plan
Eligible Organisations
Pattern of assistance
Cooperatives, Regd. Far-mersA/oluntary organisations/ Public sector organisations
a) 50% subsidy subject to a limit of Rs. 15 lakh per beneficiary organisation
b) For plastic crates 50% subsidy on actual cost or Rs. 50 per crate whichever is less
No change
Interest free loan to the extent of Rs. 50% of the project cost subject to a ceiling of Rs. 1 crore per beneficiary with a moratorium upto 5 years.
50% subsidy of actual cost or Rs. 70 per crate whichever is less
Component Assistance (Rs. lakhs) Maximum NHB Assistance
Grading/packing centre 0.50 1.10
Retail outlet (Ordinary) 0.10 0.18
Transport vehicle 1.00 1.70
Short duration cool store 1.00 5.00
Retail outlet (Air-conditioned) — 0.75
Refrigerated van — • 5.00
Mechanical grading/packing/waxing line — 5.00
Auction platform — 0.50
Ripening/curing chamber —, 5.00
Maturity kits — to be decided
Quality testing equipment — on case to case
Improved packaging — basis
Plastic crates Rs. 50/- per crate Rs. 70/- per crate
2. Development of marketing of horticultural oroduce throuoh oarticioation in soft loan: The scheme was introduced in 1993-94. A financial assistance of upto 40 per cent of the project cost subject to a maximum of Rs. 1.00 crore at a service charge of 4 per cent per annum is given for integrated
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projects to cooperatives, public sector organisations, NGOs and corporate sector. The 8th plan outlay is Rs. 50 crore.
The components of the scheme are :
(i) building including land on which infrastruciure is to be created, (ii) equipment and facilities (ill) payment of technical knowhow, (iv) working capital (margin), promotional expenditure for commercial launching of the product.
3. Installation of juice vending machines: With a view to pupularising the use of processed products as also to ensure the proper utilisation of B-grade fruits which virtually brings much less returns to the producers, the Board has initiated a scheme "Alternative structure for Marketing of Fruit Juices and Fruit based beverages" during 1987-88 which is to continue through the 8th five year plan. Under the scheme, assistance is provided to cooperative/Agro-horticultural Societies for juice vending machines @Rs. 25000/- per machine with 25 per cent subsidy, 75 per cent loan @9 per cent per annum.
The 8th plan outlay is Rs. 1.35 crore. So far 20 beneficiaries have availed of the assistance and a total of 1023 machines have been installed.
c) National Cooperative Development Corporation
in 1963 NCDC was created by an act of parliament for planning, promoting and financing certain specified rural economic activities on cooperative principles. The NCDC Act was further amended in 1974 to pave the way for broadbasing its constitution, resources and for diversification in its objectives and activities on the basis of the recommendation of an expert committee of GO!. NCDC's main functions are to plan, promote and finance programmes of agricultural inputs, processing, storage and marketing of agricultural inputs, processing, storage and marketing of agricultural produce as also supply of consumer goods in rural areas. Over the years, NCDC has emerged as the developmental financing institution for cooperatives.
The NCDC has been the main agency for financing the F&V Marketing cooperatives under different schemes.
1. Strengthening the share capital base and expansion of fruit and vegetable marketing activities: The NCDC provides financial assistance upto Rs. 5 lakh for strengthening the share capital base of cooperatives and margin money is provided for improving the working capital base of the
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societies. Under the corporation sponsored scheme, the NCDC provides financial assistance for purchase of transport vehicles and construction of godowns. Under NCDC III, loan is given for expansion of F&V marketing activities.
2. Cooperative cold storage: As per the recommendation of NCA (1976) NCDC has been giving financial assistance for construction of cold storages in cooperative sector. Almost the entire cold storage capacity in the cooperative sector has been created with the financial and technical assistance of NCDC and the capacity is being utilised by the small and marginal farmers.
"The corporations have availed of the World Bank assistance under NCDC-II IDA Project for expanding the network of cooperative cold storages and marketing of potatoes. In order to make the cooperative units Viable and help the cooperatives to create additional cold storage capacity, the NCDC has liberalised the pattern of assistance. Under this pattern, 90% of the project cost is financed. This consists of 40% term loan to cooperatives and 50% investment loan to be provided by the state government as share capital and the remaining 10% to be borne by the beneficiary society. With a view to accelerate the pace of development relating to the establishment of cold storage and ice plants and their rehabilitation, modernisation and modification by the weaker sectioins in the cooperatively underdeveloped/ least developed states/UTs the pattern of assistance has further been liberalised during 1994-95. Under this pattern, cooperatives in the underdeveloped states/UTs are provided 40% loan, 35% share capital and 17.5% to 20% subsidy of the block cost of a cold storage/ice plant.
3. Cooperative processing units: Under the project 'Post Harvest Management of Horticultural Crops' NCDC provides financial assistance for setting up of the processing units. It has so far assisted the cooperatives to organise 33 processing units of which 30 are already installed. NCDC has sanctioned assistance to cooperative mostly in the North Eastern region for marketing and processing activity.
d) The Agricultural and Processed Food Products Export Development Authority (APEDA)
This organisation has been giving financial assistance for the promotion of export of horticultural products through systematic lending for the development of infrastructure and promotion of transfer laboratory. Most of the schemes are designed for promotion of export of horticultural products. As there is good scope for increasing the export of processed products some of the schemes can be taken advantage of by the processing industry.
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1. Scheme for development of infrastructure: Under this scheme financial assistance is given to cooperatives, government and private organisations for establishing infrastructural and post harvest facilities. The scheme has the following components.
(a) Financial assistance upto 25 per cent of the capital cost subject to a ceiling of Rs. 1.5 lakh per beneficiary is given for purchase of specialised transport unit for horticulture.
(b) Financial assistance upto 50 per cent of the capital cost subject to a ceiling of Rs. 5 lakh is given to exporters/cooperatives organisations and federations for (i) establishing pre-cooling facilities (ii) setting up mechanised post harvest handling facilities and sheds for grading, sorting, quality control and packaging, (iii) establishing Vapour Heat Treatment/Fumigation/Screening machines for exports, (iv) establishing cold stores at ports/sea ports for export purposes. The activity components and the pattern of assistance under the scheme are presented below :
Activity component Pattern of assistance
a) Purchase of specialised transport 25% of the capital cost subject units for meat, horticulture and to a ceiling of Rs. 1.5 lakh per floriculture sector. unit.
b) Assistance to exporters/cooperatives/ federations for :
(i) establishing pre-cooling facilities 50% of the capital cost subject with proper air handling system to a ceiling of Rs. 5 lakh.
(ii) Setting up of mechanised post -do-harvest handling facilities and sheds for grading, sorting, quality control and packaging
2. Scheme for assistance to promote quality and quality control: Upto 50 per cent of the cost subject to a ceiling of Rs. 5 lakh per beneficiary is given to exporters producers' associations etc., for settingup/strengthening of quality control activities and laboratories. An assistance of upto 50 per cent of the cost subject to a ceiling of Rs. 2 lakh per beneficiary is provided to exporters and producers for specialised consultancy services towards installing ISZO 9000 or other recognised international quality control systems and for developing quality control manuals. The actual activity components and the pattem of assistance given under the scheme are presented below:
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Activity component Pattern of assistance
a) assistance to exporters, producers, trade associations, public institutions etc., for setting up/strengthening of quality control activities and laboratories.
50% of the cost subject to a ceiling of Rs. 5 lakh per beneficiary.
b) Assistance to exporters and producers for specialised consultancy services towards installing ISO-9000 or other recognised international quality control systems and for developing quality control manuals
50% of the cost subject to a ceiling of Rs. 2 lakh per beneficiary
3. Scheme for export promotion and market development: In order to encourage planned and organised effort for export promotion and market development and hence enhanced exports of agricultural and processed products APEDA provides financial assistance to the exporter, the scope of the activities and funding under the scheme is presented below :
Activity component Pattern of assistance
a) Supply of product samples for test marketing, product information and promotion
b) Publicity and promotion through preparation of product literature, publicity material etc.
c) Brand publicity through advertisements
Cost of samples or freight or both, to be decided on case to case basis to ceiling being of Rs. 50,000 per beneficiary
40% of the cost subject to a ceiling of Rs. 1 lakh per beneficiary.
40% of the cost subject to a ceiling of Rs. 50000 per beneficiary
d) Product/market promotion by APEDA APEDA's internal scheme
e) Participation in international trade fairs abroad in which APEDA is participating directly.
Assistance on space rentals to be decided on fair to fair fair basis.
4. Scheme for organisation building and HRD: In order to upgrade the skills and managerial capabilities, and also create awareness about the
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export production and marketing techniques specialised training programmes can be organised by the exporters/grower's associations with the help of financial assistance from APEDA. The scope of activities and the funding under this scheme are as follows :
Activity Components Pattern of assistance
a) Assistance for upgradation of Upto 50% of the cost of the technical skills of supervisory, approved training programme technical and managerial personnel through training in India.
b) Assistance to recognised associa- 50% of the cost of publications tions of growers/exporters for for the purpose of information information dissemination dissemination subject to a
ceiling of Rs. 10,000 per Association.
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SECTION - VII
FUTURE SCOPE AND MEASURES FOR INCREASING PROCESSING OF HORTICULTURAL CROPS
The working group of 9th plan in the Ministry of Food Processing Industries for agro and Processed based industry projections noted that the total volume of fruits and vegetables processed by the units covered under Fruit Product Order (FPO) is still approximately 1.6% of the total production. Although there has been quantum jump from 0.5 per cent processing in 1990-91 to 1.6% in 1995 still is very insignificant compared to other countries. The factors identified for this low processing activity/high losses are [35] :
1. Inadequate policy support in the past.
2. Ndn availability of Processing varieties of raw material over a long period of time at reasonable prices to the Industry.
3. Inadequate post harvest processing infrastructure
4. Inadequate linkage between the growers and Industry.
5. High incidence of taxes and duties particularly state levies, duties on packing material etc.
6. Shortage of finance from financial institutions.
7. Inadequate marketing efforts and market expansion
8. Complicity of food laws :
In the 9th plan proposal it suggested an investment of around Rs. 10,000 crores in the areas of.
A. Processing of Fruits and Vegetables
I) Capacity creation ii) Backward linakges
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B. Infrastructure Development
1. Post harvest infrastructure 2. Food parks 3. Quality control labs
C. Man power development
D. R & D studies
Based on the discussions and material presented in the previous section on some of the areas, the following suggestions are made.
i) Strengthening of backward linkages
As this is one of the areas identified by the working group for promotion of fruit and vegetable processing industry based on the case studies, the following measures can be taken to strengthen them.
1. The processing units should have a separate extention wing (Field officers etc) as in the case of Gherkin Industry which will keep in close touch with the cultivators. The wing should also help in procurement of important inputs. It is necessary to motivate the cultivators by the firm through a combination of technology services and net working.
2. The processing firm should encourage the cultivators to form growers cooperatives/associations and can have contract with them rather than appointing agents.
3. As the price is the most important factor there is a need to declare the procurement price in advance and also keep a price adjusting clause in agreements.
4. As in case of sugarcane, the main fruits and vegetables processed by the processing factories should be identified and notified so that the cultivators can supply directly to the processing factories.
5. The processing factories should systematise the contract, through not only signied agreements, but by issuing pass books and entering the quantity, payments etc., as in case of Gherkins so that the cultivators will have moral confidence.
6. The processing units should be located in growing areas to have better linkages between processing units and growers.
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7. There is a need to institutionalisation of contract farming by bringing some accountability to the system so that the mutuality of benefits between the processor and the farmer is ensured.
8. The public sector processing units should be asked to procure the material as far as possible through contract farming.
ii) Capacity creation
To increase the utilisation of fruits and vegetables for processing purpose, there is a need to create additional capacity. In this context the location of the unit assumes great significance. Even big firms like Godrej Foods Ltd. have realised that it makes business sense to expand capacity in an area where the company could also cut down transport cost. So instead of sending mangoes procured from in and around Karnataka to their Bhopal Plant, they decided to start a Fruit (Mango) Processing unit at Bangalore itself [20 d].
It was also observed that one of the reasons for high cost of production of processed products is starting of Processed Food Plants based on foreign technology including imported Plant and equipment. There often are over capitalised because of the high cost of the foreign inputs [30].
From the above it is clear that the future Fruits and Vegetables Processing Plants should be started in growing areas and on a small scale with the minimum capital. It is in this context that the feasibility studies reported in this paper assume significance.
There is a need to encourage small scale processing plants in growing areas, as they are found to be economically viable.
This has been recognised by the State Government and they are planning to set up fruit processing plants. Recently, the Tamil Nadu Chief Minister has announced that Tamil Nadu Industrial Development Corporation (TIDC) was considering the possibility of setting up a mango pulping unit at Krishnagiri or Dharmapuri in Tamil Nadu. This district has an area under mango of around 23,270 ha and produces 2,32,530 tonnes [20c]. A number of states are also planning to set up fruit processing plants [20a].
iii) l\/larketing
As discussed in this paper, the biggest problems the small scale processing units face is stiff competition from the big firm with reputed brand names. This may be one of the reasons for the phenomenal growth of re-labellers in this industry.
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Some of the steps/suggestions to overcome this problem are :
1) The big processing firm/export units should encourage the small scale units to Produce intermediate products under this technical supervision with buy back arrangements as it is practiced in case of mango by some firms.
2) The Government organisations like State Govt. Agro-Industrial Corporations should take up the marketing of the small scale unit products.
3) The small scale units should be encouraged to form co-operative societies and sell their produce under a single brand name as in the case of Lijjat papads.
iv) Building up Infrastructural facilities
1. The utilisation of the financial assistance under various schemes offered by various Government Organisations like Ministry of Food Processing Industry (MFPI), N.H.B., APEDA and NCDC should increased through more publicity.
2. The small scale processing units/cooperative sector units should be given more preference.
3. The contract farmers should be encouraged to form growers cooperatives and assist them in availing the loans/subsidies.
4. The Processing firms should encourage the contract farmers to avail the subsidiaries offered by NKB, NCDC etc., for purchasing plastic crates, starting of grading centres, transport vehicles etc.
5. The Govt, should set up 'cold chains' in growing areas, so that more number of farmers should be able to use them.
6. The private organisations should be encouraged for creating infrastructural facilities. The expert group during the 8th Plan period has suggested an investment of Rs. 185.50 crores out of which Rs. 68.90 crores should come from private investment for development of infrastructural facilities for horticultural crops [61]. Already some foreign firms like Mitsubishi have come forward to set up cold storage chains in India [20a].
v) Food parks
The state govt., should start establishing food parks, processing
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industrial estates by availing financial assistance provided by the Ministry of Food Processing Industries in 9th Plan schemes.
vi) Government policies
The imposition of the excise duty on processed foods has adversely affected the Food Processing Industry and the Govt, itself has admitted the same [20c].
Hence, there is a need to have a comprehensive National Policy on Food Processing Industry which can be followed on a long term basis for the healthy growth of the industry.
If some of the above measures/suggestions are implemented there is a good scope for increasing the processing of fruits and vegetables. Establishing more units in Production areas also will result in healtheir and strong linkages between Producers and Processors which will be mutually beneficial to both processors and growers o* fruits and vegetables.
vii) Credit flow from financial institutions
One of the constraints identified for low processing activity by the Working Group was shortage of finance from financial institutions. Table 7.1 presents the credit advanced by the scheduled commercial banks to FVPI. The credit support has increased by 574 per cent between 1990 and 1998. The outstanding amount has increased from Rs. 41.39 crores in 1990 to Rs. 278.56 crores by 1998. The share of fruit and vegetable processing in total outstanding amount in food processing industries has gone up from 0.97 per cent in 1990 to 2.23 per cent by 1998. This clearly shows that there has been a substantial increase in the flow of credit to this sector after the economic reforms.
Table 7.1 : Commercial Bank Credit to Fruit and Vegetable Processing Industries
Year No. of Accounts Outstanding Amount Share of FVPI In total (Rs. Crores) Food Processing Credit (%)
1990 683 41.39 0.97 1991 810 71.27 1.45 1992 989 66.44 1.25 1993 1152 77.47 1.29 1994 1414 102.44 1.56 1995 1691 178.56 2.28 1996 2089 201.21 1.98 1997 2324 270.54 2.35 1998 2403 278.56 2.23
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SECTION - VIII
SUMMARY AND CONCLUSIONS
The key role the Fruit and Vegetable Processing Industry (FVPI) can play in presenting the huge post harvest losses of furits and vegetables was recognised of late by the Govt, of India. This sector has been identified as the 'Sunrise Sector' of economic growth and has attracted the "EXTREME FOCUS" area by the Ministry of Commerce, Govt, of India.
The need for establishing durable linkages between farm and non-farm sector for supply of quality raw material at reasonable prices has caught the attention of FVPI only recently. It is this context the present paper assumes great significance and the study was taken up with the following objectives which will give a comprehensive coverage of FVPI.
a) Impact of new economic policy on the growth of horticultural sector, b) Linkages between the producers and the processors, c) Contract farming, its role and captive farming, its scope, d) Risk associated with prices and feasibility of small scale processing, e) Export performance of processed horticultural products, f) Incentives to producers in establishing processing units and g) Future scope and measures for increasing processing of horticultural
crops.
Based on the above objectives, the paper has been divided into seven sections, each section covering one objective.
A number of measures aimed at both strengthening the production base which is a must for increased processing, exports etc., and also to ensure the development of FVPI were initiated by the Govt, of India during the end of Seventh Five Year Plan period and more so during the eighth five year plan period. The increased allocation of Rs. 10,000 million for horticultural development which is a wopping jump of 4208 per cent over the seventh plan allocation, the liberalised seed and plant material import policy, creation of separate Ministry of Food Processing Industry (MFPI), establishing of National Horticulture Board (NHB) and Agricultural and Processed Food Products Export Development Authority (APEDA) and the New Industrial Policy of 1991 have given a real boost to horticultural sector in general and FVPI in particular.
As many as 4000 MOUs have been signied and 15 per cent of the projects have been implemented. About Rs. 4000 crore worth of projects involving food and agro-processing have started commercial production.
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All these above measures have resulted in India becoming the second largest producer of fruits and vegetables in the world. During the last five years i.e., 1991-92 to 1995-96, the total production of fruits and vegetables has recorded a growth of 30 per cent.
The measures, especially the economic reforms, also have a positive effect on the FVPI. The analysis of data revealed that the post economic reforms period i.e., 1991 to 1997 had a definite and positive impact on FVPI compared to pre economic reforms period of 1980-90. The installed capacity taken by 14.17 per cent during the period 1991-97 as against 12.5 per cent during the period 1980-90. The capacity utilisation increased from hardly 29 per cent during the beginning of 90s to around 50 per cent by 1996.
A paradoxical situation exists in India with FVPIs claiming high cost of raw material and the producers of fruits and vegetables getting a very low price during the peak season which can not cover even the harvesting and transport cost as has happened recently during 1997 with the tomato growers in Karnataka.
One of the main reasons for this situatioin is lack of direct link between producers and the processing industries. The earlier attempts to integrate production-marketing-processing made during the 1970s under Indo-Bulgarian project in Karnataka and the recent attempts by Pepsi in Punjab have failed mainly due to the lack of proper understanding of the various factors in the linkages. In this paper a model is developed showing the factor linkages that play a crucial role in establishing direct contact between producers and processors. This model discusses the production factors like variety, cost of cultivation, yield, return, marketing factors like market price, price offered by FVPI and processing factors like raw material - finished product ratio etc., and their interlinkages.
The two alternatives envisaged for ensuring the supply of quality raw material at reasonable prices are to have contract farming with the producers or to go for captive farming by the firm itself. The contract farming and its implications as practiced by some FVPI's were discussed in this paper with the help of case studies on two processed vegetables viz.. Gherkins, which is an imported vegetable and a traditional vegetable, tomato around Bangalore. Problems faced by the cultivators and also the processing firms like 'Red Farmers', holding up of vehicles etc., were brought out from the case studies. The captive farming was found to be practiced successfully by processing industry in case of horticultural crops which have very high capital requirements with intensive farming and with less land requirements such as mushroom cultivation and hitech floricultural
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projects. The new trends in captive farming by the private companies like Maxworth orchards Ltd., Anubhav plantations etc., was also discussed.
The best way of establishing linkages between producers and processors is to encourage establishment of small scale processing units in production areas at farm/taluq or district levels. This will also help to overcome the price risk faced by the cultivators. Hence, in this paper an attempt was made to give information on feasibility of establishing small scale processing units in case of two fruits viz., mango and grapes and one vegetable viz., tomato. The analysis showed that an investment of around Rs. 12 lakhs towards machinery etc., with a production base of 5 to 10 hectares in case of tomato and around 200 hectares in case of mango is sufficient to successfully establish and run a small scale processing unit. Similarly it was observed that converting grapes into raisins at farm level was found to be more profitable compared to sale as fresh grapes.
Most of the FVPIs are able to run profitably mainly through exports rather than on domestic demand. Hence, the export performance of Processed Products in the two periods i.e., before and after Industrial Policy of 1991 i.e.. Phase I and Phase II was studied in detail by analysing the time series data to know the impact of economic reforms on the export performance. It was observed from the analysis that the volume of export of processed fruits and vegetables has grown at a higher rate with a CGR of 22 percent in Phase II as against 5.13 per cent during Phase I. The export projections made for the year 2000 and 2005 have shown that the export of processed fruits and vegetables can increase by more than 50 per cent by the year 2000 and can reach a figure of Rs. 4000 crores by the year 2005 if the same trend is continued and that of total fruits and vegetables can reach about Rs. 2000 crores by the year 2000 and Rs. 5600 crores by the year 2005 which is nearly 300 per cent more than earnings during 1997-98. A marked change was also observed in composition and destination of exports. New items like Gherkins, Dried and Processed Mushroom and Dehydrated Onion etc,, have become the important contributors to export of processed fruits and vegetables.
A number of financial assistance schemes were formulated in the 9th Plan by Govt. Organisation like Ministry of Food Processing Industries (MFPI), NHB, APEDA, NCDC etc., for encouraging processing and also for establishing linkages. These were presented in detail in this paper so that they can be utilised by the concerned people.
The factors responsible identified by the working group of 9th plan in the Ministry of Food Processing for low processing and high losses were presented and steps to overcome them were discussed.
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From the detailed discussions on various aspects, the following suggestions are made.
i) There is a need to strengthen the backward linkages with the growers by the processing units by establishing separate extention wing witti field officers etc., as in the case of Gherkin Industry.
ii) The producers should be encouraged to form growers' associations to avail the financial assistance for the schemes from organisations like APEDA, NHB and MFPI.
iii) The areas around FVPIs can be notified as in the case of sugarcane which will help to establish linkages between producers and processors.
iv) There is a need to encourage small scale processing units in growing areas at farm/taluq/district levels.
v) There is a need to disseminate the information about Govt, financial assistance schemes, especially to small scale processing units, so that they can be availed by them.
vi) The state governments should establish Food Parks, processing industrial estates by availing Central Govt. Assistance.
vii) The Govt, should relax land ceiling acts to encourage large scale plantation of perennial fruit crops like mango, ber, pomegranate on marginal lands.
viii) The Govt, should formulate a long term National Policy on Food Processing Industries to encourage their proper growth.
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SECTION - IX
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