Agriculture Export

World Trade Organization (WTO) aims to improve international-trade by reducing the tariff and
non-tariff barriers. Lets refresh the concept:

Tariff Barrier
Taxation tools that affect import / export: Examples

1. In the Colonization-era, British had imposed heavy taxes on Indian textile coming to
London, in order to protect their local industries from competition.
2. Before the LPG reforms of 1991, India too had imposed heavy taxes on most of the
imported items: be it wristwatches, goggles, cars or radios.
3. Aug 2013, Union Government increased the import duty on gold to 8 per cent to
reduce the gold consumption (and to provide sustainable livelihood to desi-
smugglers who were not given 100 days in work under MNREGA.)

Dumping
When businessmen export goods at a price that is less than the price charged in the
domestic market- its called dumping.
WTO system=> Agreement on Subsidies and Countervailing Measures (SCM)=if a
country finds evidence of dumping, it can extra impose duty (known as countervailing
duty, CVD) on such dumped products. (=meaning this type of tariff barrier is permitted
in WTO)
USA has imposed a countervailing duty (~6%) on Indian frozen shrimps, because Indian
shrimp gets plenty of subsidies from Indian government for shrimp farming and export
and hence Indians are able to dump shrimps to USA and hurt USAs local shrimp
businessmen. (or atleast thats what America claims).
Anyways, Indian shrimps are not the only items subjected to anti-dumping duty in USA.

Shrimps
Why subjected to anti-dumping duty in USA?
from
Thailand government buys shrimp from farmers and sells it to processors at low price
government gave finance to build the worlds largest shrimp-processing and export
China
plant
Malaysia government gave finance to build shrimp farms.

Dumping by India
List not exhaustive (but in recent news)

Country Which Indian export was slapped Anti-Dumping duty

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

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

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

Thailand Indian steel

Indonesia Against two leading Indian steel firms: Jindal and Essar.

Dumping to India (by foreigners)

List not exhaustive (but in recent news)

1. Weve slapped anti-dumping duty on steel wheels imported from China used in
commercial vehicles.
2. Under probe: US, China, Malaysia and Taiwan: Because Theyre exporting solar
equipment to India at ridiculously low prices and was bleeding the desi industry. Similar
issue with glassmakers and electric cable manufacturers from those countries.

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

Under Gold control Acts of 1960s, An Indian Gold Smith was not
Quantitative restrictions allowed to possess a stock of more than 300 gms of primary gold at
any time.
On ivory, fur, tiger skin/bones, narcotics, illegal weapons, explosives
Import prohibitions
etc.
When Murthy started Infosys, he had to make 50 trips to Delhi for
Import licensing
three years just to get a license to import computers.
We already saw some duty credit schemes for Agri-exports in the
Export Subsidies
second article. click me
Labour/Environment e.g. some developed country banning import from third world
standards country saying child labour was used etc.
Health Standards Codex, HACCP- given below.

CODEX standards
In the 60s, FAO+WHO setup Codex Alimentarius Commission.
To develop harmonised international food standards, guidelines and codes.
 In WTO system => Sanitary and Phytosanitary measures (SPS Agreement) a country
can impose ban on imported food products, if they do not meet the Codex standards.
(=meaning this type of non-tariff barrier is permitted in WTO).
and as you can guess, Indian food products get banned/restricted in developed countries
for not meeting those quality standards
This is a two-way street though, India also banned import of American Chicken to
prevent Avian influenza among Indian poultry. (Although USA has dragged India to
WTO saying India has not provided any scientific evidence in line with international
standards to justify this ban.)
Anyways, here are some of the Indian food export, there were banned in
US/EU/China/Japan in past.

Indian food item banned/restricted abroad thanks to

1. Groundnut
Aflatoxin
2. Mangos
stone weevil, fungus
3. Indian Buffalo Meat
foot-and-mouth disease
4. Indian Shrimp
Antibiotic residues
5. Fish
Heavy metals and antibiotics
6. poultry
bird flu/Avian influenza

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

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

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

HACCP
HACCP (Hazard Analysis Critical Control Point)
This certification system is adopted by the Codex Alimentarius Commission.
For preventing microbiological, chemical and physical contamination along the food
supply chain.
So, if you want to safely export food products to US/EU, then first you need to get
certificate that your plant meets the HACCP standards. (certificate system similar to ISO
standards)
It doesnt mean we havent anything. Here are some of the steps taken:

Export Inspection Council of India (EIC)

statutory body under Commerce Ministry

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

EIC approved units have to implement following

EIC
1. international standards of CODEX laid down by FAO and WHO,
2. Good Management Practices (GMP)
3. Good Hygiene Practices (GHP)

EIC certificate is recognized in European Commission (EC) for marine products

and basmati rice and by the US for black pepper.
Agricultural and Processed Food Products Export Development Authority
(APEDA)
Statutory body under commerce ministry
APEDA Provides financial assistance to food exporters.
Bears the cost for doing analysis of peanuts, grapes for meeting
HACCP/Codex standards.

Bureau of Indian standards

has adopted the CODEX, hazard analysis and critical control point
BIS (HACCP) and food hygiene standards
helps Food processing units to adopt these systems on a voluntary basis

Were collaborating with USA, UK, Netherlands, Switzerland and Germany for
collaboration
Agri-technology transfer, financial and marketing tieup and quality control.
Ministry of food processing industries
Gives financial assistance for fee charged by Certification Agency, plant
and machinery, technical civil works, and other expenditure towards
implementation of Total Quality Management System, ISO, HACCP,
MoFPI GMP and GHP.

General Area: max 15 lakh assistance

NE, difficult area: max. 20 lakh

Additional Suggestions

Government needs to expedite the negotiations with US, EU, China and Japan, to
Negotiation
lift restrictions on Indian fruit/food/marine exports into these countries.
Foreign Encourage importing countries (primarily USA, EU, Japan) to set up
Offices offices in India for certification of export consignments

APEDA already supports the cost of quality certification programs such as

Certification HACCP and Eurepgap for grapes and peanuts. More food-items should be
included in this scheme.
Food Safety and Standards Authority of India. We already saw its salient
features in previous article, click me
Fssai FSSAI needs to harmonize the differences between Codex standards and
Indian food standards.

Encourage food testing laboratories in India to obtain accreditation from

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

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

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

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

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

FDI: Agro, Food Processing, Retail

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

Seeds and planting material, their development and production

Conditions

Seeds 1. Genetically Modified seeds/plants= have to comply with

a. Environment (Protection) Act
b. Genetic Engineering Approval Committee (GEAC)
2. If seeds are imported then have to comply with National Seeds Policy

1. Animal rearing + dog breeding

2. Poultry breeding farms
Livestock 3. Aquariums
4. Pisciculture (breeding, rearing, and transplantation of fish by artificial
means aka fish farming)
 5. Apiculture (bee keeping)

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

In Tea sector:
Plantation o 49% FDI via automatic route
o 100% FDI with government approval.

Note: Besides ^above, FDI is not allowed in any other agricultural sector/activity

In July 2013, Government changed FDI limits in 12 sectors, here is a fancy graphic courtesy of
Indiatoday
FDI: Food processing
India allows 100% FDI in food processing sector.
Foreign firms
1. dont need government-approval to start business in India.
2. Are eligible for grants, subsidies, benefits offered by various government
schemes.
Our food industry got FDI >Rs.6000 crore in last three years (2009 to 12)
 When talking about FDI in food processing, a doubt comes in mind: if foreign giants are
permitted in India, will there be no place for small players, will they be wiped out?

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

cuisine, while in New Delhi and Mumbai, barely 4-5 spices.
Different communities in each state prefer different blending of
spices, color/pungency in chilli-powder.

Cottage and small units do well ^in such product segments because
Fragmented of their local traditional knowledge.
Demand vs But Bigger enterprises may find it difficult to enter into such
Economies of Scale fragmented and price conscious consumer base. Their large scale of
economies may not be optimized for it.
MNCs economies of scale to be effective, theyve to make
something with large demand e.g. cream-biscuits, ice-cream or
chocolates because kids from Kashmir to Kanyakumari like it
irrespective location, community or religion.

Wheat flour has daily and universal demand in India. But most
Indians prefer to get wheat grains and get it milled in Local flour
mills.
Cheapness MNCs are not likely to enter into such products, as it is difficult to
charge premium prices for their brand image, advertisement costs
and a narrow consumer base for readymade packaged flour.

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

big demand for processed/ready to eat food among working
professionals/couples.
Pace of life But cities like Ahmedabad, Jaipur or Indore but pace of life is not
that fast. Hence processed foods has not made as much an
entry/demand.

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

FDI: Retail
100% via automatic route
but only in Business to Business (B2B) e-commerce and not
E-commerce
in retail trading.

Cash and Carry wholesale 100% via automatic route

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

List of Single Brand retail wholl setup shops in India:

Single-Brand Retail What do they sell?

IKEA Furniture
Pavers England British Footwear
Brooks Brothers American Luxury Clothing
Damiani Italian Jewelry
Promod French Fashion
Le Creuset Crockery
Decathlon Sporting Goods

FDI: Multibrand Retail

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

Permitted limit of FDI in Multibrand

Country
Retail
51% with government approval
India
China, Thailand, Russia, Indonesia, Brazil, Argentina, 100%
Singapore

Difference In Single Vs Multibrand Retail?

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

FDI upto 51% with government

FDI upto 100% with government approval approval

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

can be setup only the states that

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

States/UT that permitted Multibrand Retail

As per the official FDI circular, State Governments/Union Territories would be free to
take their own decisions in regard to implementation of FDI in Multibrand Retail.
As of June 2013, Following states/UT permitted foreign giants to open multi-brand retail
outlets in their area.

8. Maharashtra
1. Andhra
9. Manipur
2. Assam
3. Delhi
10. Rajsthan
4. Haryana
5. HP
11. Uttarakhand
6. JK
7. Karnataka
12. Diu-Daman-Nagar Haveli (UT)

(As of June 2013)

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

view?

desi food players are mostly small scale = poor economies of scale =
they dont have the money to invest in backend infrastructure.
Government made FDI condition that Retail giant needs to invest part of
his FDI investment into backend infrastructure (=processing,
less Wastage
manufacturing, distribution, design improvement, quality control,
packaging, logistics, storage, ware-house, agriculture market produce
infrastructure etc.)

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

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

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

 logistics, retail and wholesale.

The Foreign giants bring their own IT technology, best management

practices for running the business at extreme efficiency.
Foreign giants will tie up with a local player (e.g. Bharti, Tata
Tech- etc)=Indian managers/workers in those desi companies also learn new
knowledge things
upgrades Later some of thm might setup their own firms utilizing the work-
experience=Thus foreign business knowledge, technology trickles down
and benefits Indian economy.

The Diluted Conditions

No investors came forward, even after Government permitted 51 per cent foreign direct
investment in multi-brand retail (henceforth referred as Walmarts to save the typing
headache).
so recently government decided to relax the conditions to attract them (+to bring more
dollars to calm down the rupee fall)

Tight Conditions before
Walmarts can be opened only in cities
with more than 10 lakh population (as
CITIES
per 2011 census)
Diluted After July 2013 Reform
Matter left to the discretion of
the state governments.
Meaning Walmart can open
retail stores even in cities with
less than 10 lakh population
(e.g. Gurgaon and
Aurangabad), with the
permission of the States or
Union Territories.

Walmart still needs to buy

Walmarts will need to buy 30% of its
goods from small vendors.
*Small vendor= an Indian micro
MSME
medium small enterprises (MSMEs)
with total investment of $1 million.
30% of its goods from small
vendors but Definition of
small vendor relaxed.
Small vendor now includes
even a medium scale industry
upto $2 million.
And, during the course of this
relationship, if that small
supplier outgrows the
investment of $2 million, even
then such dealing/procurement
 is allowed.

Walmarts needs to invest 50% of its
FDI investment into backend
infrastructure.
example of backend
infrastructure=processing,
manufacturing, distribution, design
improvement, quality control,
BACKEND
packaging, logistics, storage, ware-
house, agriculture market produce
infrastructure etc.
Expenditure on land cost and rentals,
will not be counted as backend
infrastructure.
The 50% only for the first
tranche of $100 million.
In other words, if WalMart is
bringing $100 million FDI in
first go, then, 50%=$50
million will have to be spend
in backend infrastructure.
But after that, If WalMart
brings another $50-100-200
million FDI, they dont need
to invest any part of that
money in backend
infrastructure in India.

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

Banks regional rural banks, cooperative banks, commercial banks

offers refinance facilities for food processing, agri infrastructure,
NABARD
development
Small Industries Development Bank of India
gives loan to Micro Small and Medium Enterprises (MSMEs) in the
country
SIDBI
although Food processing sector forms very small part of its loan
portfolio

Export Import Bank

Helps in financing and facilitating foreign trade/export, including
EXIM
for food processing companies.

National Cooperative Development Corporation

helps in promoting, planning and financing the agricultural supply
chain from production, processing, storage and trade
NCDC
also helps in marketing fertilizers, pesticides and agricultural
machinery etc.

Agricultural and Processed Foods Products Export Development

APEDA Authority (APEDA):
helps to form market linkages between desi producers vs
 international market
financial assistance for market development, infrastructure etc.

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

National Horticultural Board

gives financial assistance for post-harvest management
infrastructure, R&D, soft loans etc.
NHB
with most of the schemes directed to specific horticulture subsector
of the food processing industry.

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

MFPI houses, cold storage etc.

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

investors

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

Why cant Farmer get loans easily?

Bank manager hates NPA in their branch. Because it affects his reputation and further career
growth/promotions. On the other hand.

shrewd Im not going to repay the loan because I know that government will launch another
farmer debt-waiver scheme just before election and my loan will be forgiven!
good
Why the hell should I pay the loan diligently while ^others can get away scot-free?
farmer

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

Even when banks give loan, agriculture is a risky business because of pests,
vagaries of monsoon=crop failure
NPA Government doesnt immediately disburse insurance money to farmers=loan
default=NPA.

Rural bank branches have shortage of manpower to process loan papers

Manpower quickly

Farmers need small loans e.g. 10-20-50,000 rupees. =>banks need to employ
cost of
a large staff to look after all the documents and processing work=>additional
credit
salary burden= cost of giving loan increases.
 Banks find it more lucrative to use the manpower in urban branches where
individuals need loan in larger amount (e.g 12-15 lakhs or more in each
homeloan)

If farmer mortgages his land to get loan, he has to pay stamp duty
=additional burden on the farmer.
Stamp
Some states (Andhra, UP, TN, Gujarat, HP) have relaxed rules in this regard,
duty
other state governments need to take similar steps.

many small-marginal farmers dont have documentary proofs for their

documents land/cattle ownership= problem while filling up the loans-application forms.

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

Regional imbalance
Loan/Credit distribution among
States
farmers
High Southern
Medium Northern and Western
Eastern (Bihar, Jharkhand, odisha and West Bengal) and
Low
NE

Nearly three quarters of the farmer households still do not have access to the formal credit or
insurance system= have to rely on informal borrowing/credit from evil moneylender @very high
interest=always in debt.

Talking of insurance: three main agro-insurance schemes run by Agriculture Insurance Company
(AIC):

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

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

Agro-insurance from incidence of adverse conditions of

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

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

Negotiable Warehousing Receipts (NWR)

WE know that prices of potatoes, onions vary significantly between peak harvesting
season and lean season. The middlemen @APMC control this storage and supply and
make a killing business.
Then why dont farmers themselves store their produce for the lean season? Because a
farmer cannot afford to wait selling his potatoes for such long time in hope of getting
better money. He needs quick cash so he can buy seeds, fertilizer, pesticides for the next
round of cropping cycle. (and to settle the loans he took for the previous cycle)
The negotiable warehousing receipts can help him here. How?

To put this without getting into all technical details:

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

He Deposits his produce, gets a piece of paper called Warehouse receipt.
He deposits this Warehouse receipt to bank, as collateral and gets short-term loan for
next cropping.
The farmer can decide to sell his warehouse-produce when prices are favorable (during
lean season) and use it to settle the loan.
WDRA
Warehousing Development and Regulatory Authority.

Statutory body under Ministry of Consumer Affairs, Food & Public Distribution (2010). Main
functions:

1. Regulate, certify, and develop warehouses in the country.

2. dispute resolution between warehouses and warehouse receipt holders;
3. HRD, training warehouse personnel.

Benefits of NWR receipts

1. Bank faces lower risks because collateral for the loan is a liquid asset (agro-produce
recipient, backed by a central act).
2. Previously, Small/marginal farmers couldnt easily get loans because they didnt have
conventional loan collateral (land, gold, cattle etc.) But now they can get it easily using
Kisan Credit Card +Negotiable warehouse receipt.
3. Protects farmers against distress sale of their produce and exploitation by middlemen.
4. Minimizes Wastage perishable produce. (Because theyre stored in certified
warehouses/cold chains).
5. Reduces hoarding and food inflation (because farmers less cartelized than APMC
Middlemen.)
6. Provides alternate employment opportunity for those APMC middlemen- they can form a
group, setup warehouse and get certificate from WDRA.
7. Warehouse receipts are a proven tool for financing, already successful in Brazil,
Indonesia, Singapore and Argentina

Enough of Farmers finance, time to move on:

Why cant food entrepreneurs get loans

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

Most of the Mango processing units in Andra run for barely 70

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

Most of the food processing units hide actual sales in the

2. Strength account books (to evade taxes
Banker never gets true picture of a firms financial strength.
He is not sure whether the given entrepreneur is loan worthy or
 not?

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

bank can always check his credit-history from the Credit
Information Bureau of India Ltd. (CIBIL).
3. Credit Rating But CIBIL doesnt maintain such data/record for the food
processing sector=> difficult for bank to find out whether given
food entrepreneur has diligently paid his previous loans in from
other banks or is he a scamster doing iski topi uske sir pe?

In many food processing sectors, Government gives grants/tax

exemption for first few years.
As a result plenty of new small players emerge=>There is not
4. Excess
enough raw material to run each plant @full capacity (e.g.
Capacity
Groundnut oil refining)
Sooner or later ^these small players fall sick because of heavy
competition=> loan defaults.

To improve yields: farmer/entrepreneur will need money for

starting high density farming, greenhouse floriculture, controlled
environment livestock farming, bio-technology, tissue culture,
5. New embryo transfer technology, bio-pesticides and bio-fertilizer, etc.
Tech=Risky But from Bankers point of view, the success of new technology
= not been tested in actual situations / widely popular in India.
So he fears high chances of business failure= loan
defaults=NPA.

Therefore,

1. Bank manager will either refuse to give loan OR

2. He will give loan but charge higher interest rate for the additional risk.
3. He might give loan for the initial capital for buying plant, machinery, vehicle (for which
government provides grants/subsidies) but not for the working capital requirements.

By the way what is working capital requirement?

1. Raw Materials, Consumables & Packing Materials

2. Electricity, phone, internet, utility bills
3. Administrative and Selling Exposes
4. Repairs and maintenance
5. salaries of workers
6. monthly bribes to food inspector

For Small sized food processing unit, the working capital requirement is quite high because high
cost of raw material, many middlemen= low profits. Result?
 1. Poor Economies of scale that we already saw in first article. (click me)
2. Cant do any timely up gradation of technology, cant improve quality of products /
advertisement / marketing.
3. Dont have spare money for backward linkages with farmers. (e.g. contract farming,
supplying farmer with seeds/fertilizer to get quality agro produce.)

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

1. Approval from district collector for change of land usage and land conversion.
2. NOC from Gram Panchayat, if the land falls under Gram Panchayat.
3. Approval of building plan
4. Fire safety approval, If the building is taller than 15 metres.
5. Approval under Factories Act. (has to be renewed periodically)
6. NOC from Pollution Control Board. (has to renewed from time to time)
7. SSI registration in case of Small Scale enterprises.
8. Approval from local Excise Department for getting CENVAT exemption for Cold
Storage equipment
9. Truckload of forms/formalities if you want to get grants/subsidies under government
schemes.

Thus, it takes lot of time (and bribes) to get so many permissions=> food-entrepreneur gets
demotivated. Not just Food entrepreneur- any small entrepreneur has to go through same ragging
by banks and government departments and as a result: low IIP + low GDP + low export + High
CAD + High inflation and so many other problems to Indian economy.
License Raj
Today, Industrial license is not required for most food processing enterprises, except for
alcohol and beer and those food items reserved for small scale sector (=Pickles, chutney,
bread, mustard oil, ground nut oil.)
But for long, food items were reserved for SSI=hampered the growth of this industry.

Taxation
1. Agriculture produces have long been subject to numerous taxes, charges: market fees,
market cess, commission charges, Octroi entry tax, sales tax, weighing charges, labour
charges for handling, loading and unloading, purchase tax, Rural Development cess etc.
2. For example, In Punjab, the total market charges on transactions of foodgrains are more
than 15% of the final value (2011 data)

Punjab tax%
market fee 2%
Purchase Tax 4%
VAT 4%
rural development fund (RDF) cess 3%
Punjab infrastructure development fund (PIDF) 3%

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

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

4. Previously plastic packaging, aluminum packaging had been subjected to high excise
duty (~16%)= high input cost for food industry.

Budget 2013: Agro and Food processing

Lets look@how Budget 2013 will directly/indirectly help agriculture/food processing sector

$pending
Numbers not important, the point is truckload of cash allotted to help farmers (or atleast to
pretend)
Agro Ministry 25000 cr
Agro Research 3000 cr
Green Revolution To Eastern India 1000 cr
Crop Diversification Program 500 cr
Ago-Credit Target 7 lakh crores
Rashtriya Krishi Vikas Yojana 9000 cr
Integrated Watershed Program 5000 cr
Small FarmersAgri Business Corporation 100 crores for Credit Guarantee Fund
Farmer Producer Organization (FPO) lakhs per FPO
Rural Infrastructure Development Fund (RIDF) 20000 cr.
NABARD 5000 cr. to construct warehouse

Budget 2013: Schemes/initiatives

That will directly/indirectly help agriculture/food processing sector

Assam, Bihar, Chhattisgarh and West Bengal have increased their

Green
contribution to rice production.
Revolution
Interest subvention scheme for short-term crop loans
Interest Borrowers from private sector scheduled commercial banks also
Subvention eligible.

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

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

National Institute of Biotic Stress Management @Raipur to addressing

plant protection issues.
Institutes
setup Indian Institute of Agricultural Bio-technology@ Ranchi

Scheme to replant and rejuvenate coconut gardens in Kerala +

Coconut Andaman & Nicobar.

To support poultry, dairy farming and fisheries.

Itll have sub-missions for
National o increasing availability of feed + fodder
Livestock o Improving animal breeds to raise milk yields.
Mission
(Dont you think this overlaps with the national dairy mission that we saw in
last article!)
NABARD to finance construction of warehouses, godowns, silos and
cold storage units designed to store agricultural produce, both in the
Storage
public and the private sectors.

IDF Infrastructure Debt Funds (IDF) already discussed earlier. Goto

 Mrunal.org/economy
Target of skilling 50 million people in the 12th Plan period, including 9
million in 2013-14.
Skill
(^food processing sector will benefit)

Backward Regions Grant Fund

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

Budget 2013: Taxation

That will directly/indirectly help agriculture/food processing sector

Agricultural commodities will be exempted from the proposed Commodity Transaction Tax
CTT
(CTT).
Chindu introduced 1% TDS on transfer of immovable property but exempted agricultural
TDS
land from this.
GST Work in progress.

Income tax deduction

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

category income tax deduction

cold chain facility 150%
warehousing facility for storage of agricultural produce 150%
warehousing facility for storage of sugar 100%
Bee-keeping and production of honey and beeswax 100%

Custom Duty
1. Hazelnuts
reduced the
2. De-hulled oat grain
duty on
1. raw sugar, white or refined sugar will not attract any export duty. But, in
future, exemption may be withdrawn to regulate its export in case of
Exempted
shortage within India.
from duty
2. De-oiled rice bran oil cake
Excise Duty
item excise duty (2013)
milk, milk products 0
nuts-fruits (Fresh and dried) 0
veggies 0
Sabudana (Tapioca Sago) 0
2% (classified under merit goods)
processed fruits and vegetables, Soya Milk, Flavored milk
else 6%

Service tax: Negative list

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

Area What is exempted from Service tax?

Agro operations: cultivation, harvesting, threshing, seed testing etc.
supply of farm labor
Cultivation
Agro-machinery: renting/leasing

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

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

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

Supply Chain Services of Agro-commission agent

transport of chemical fertilizer and oilcakes;

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

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

serviced added in the negative list)
R&D/Support
agricultural extension services

Misc.
Although unrelated to the main title of this article, but lets get overview of following, since they
found mention in the Budget 2013:

Backward Regions Grant Fund (BRGF)

Who? Ministry of Panchayati Raj Institutions + Planning commission
When? 2007
Why? To reduce regional imbalance in development.
What? gives additional Ca$h to backward regions

Has two components:

More than 270 backward districts in 27 states

1. District-
Component Note: At least prepare overview of backward districts in your home-
state for the profile based Interview questions @UPSC + for State PSC
class 1-2 exams.
Gives special funding to

2. State- 1. Bihar
Component 2. Odisha: the Kalahandi-Bolangir-Koraput (KBK) districts
3. West Bengal
4. UP: Bundelkhand Package

How does it work?

1. from Union to State Consolidated Funds
Ca$h 2. from state to Panchayats.
Movement 3. Each district given min.1 crore.

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

Panchayat without delay or diversion.
Transparency
(jholachhap) NGOs to help in account-keeping and social audit.

Panchayats will prepare plans for

improving infrastructure: water, sanitation, schools, street lights

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

Implementation Through peoples participation.

Rashtriya Krishi Vikas Yojana (RKVY)

When 2007, under 11th Five year plan (FYP)
to achieve 4% annual growth in the agriculture sector
Why?
to encourage States government to allocate more cash to agro and allied sectors
How much? More than 60,000 crores allotted in 12th FYP.

Sub-Schemes

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

Revolution eastern Uttar Pradesh and Chhattisgarh to improve in their rice
cultivation
2. Pulses
Promote Pulses Villages in Rainfed Areas.
3. Edible Oil
Oil Palms=increase area under cultivation
4. Veggies Initiative on Vegetable Clusters to increase in the productivity and
market linkage of vegetables.
5. Nutri-Cereals bajra, jowar, ragi and other millets: create awareness regarding their
health benefits.
6. Protein National Mission for Protein Supplements: to promote animal based
protein production: milk, pigs, goats, fisheries.
7. Fodder
Accelerated Fodder Development Programme
8. Rainfed Rainfed Area Development Programme to improving productivity of
crops in rainfed areas.
9. Saffron
Mission In Jammu & Kashmir.
10. Vidarbha
Intensified Irrigation project in Vidarbha, Maharashtra.
11. PPP
PPP for Integrated Agriculture Development

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

States projects undertaken

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

5. low cost onion storage structures

Maharashtra
6. farm ponds to tackle water stress

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

Jharkhand and tripura
 8. vegetable cultivation through pandals and trellises.
Andhra Pradesh
9. underground pipe lines for irrigation

10. Promoting elite breed of murrah buffaloes

Haryana and Punjab
11. Community animal housing

12. check salinity ingress in coastal areas

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

RKVY challenges:

1. More than 80% of farmers have small/marginal landholdings= poor economies of scale.
RKVY hasnt not effectively addressed the issue of land consolidation / land reforms.
2. Less than 10% of the plan outlet spent on Marketing / Post Harvest Management.
3. Often the projects proposed under RKVY are not in tune with priorities and
developmental gaps identified in State Agricultural Plan (SAP).

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

Scope-Significance of Dairy Sector

Top five Milk producers (World)

1. India
HIGHEST
2. United States of America
3. China
PRODUCTION
4. Pakistan (as per NDDB, but Im baffled nonetheless.)
5. Russian Federation

LARGEST India has the worlds largest livestock population

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

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

GDP (2010s data)
Per capita milk availability All India: ~290 gm; Punjab
(highest): >900gm.
Availability still per capita milk availability in India less than world
average

To Farmers, Women And Consumers

EMPOWERMENT more details under operation flood

India has proximity to milk deficit countries e.g.

5. South
1. Bangladesh
6. Korea
2. Indonesia
3. Malaysia
7. Sri-Lanka
4. Philippines
8. Thailand

Hence Indian dairy production could be utilized to earn good foreign exchange by targeting those
markets. More under Downstream=>Export.

SOME STUPID NUMBERS FROM ECONOMIC SURVEY:

Year Milk (Million Tonnes) Eggs(Million Nos.) Fish(Million Tonnes)

2011-12 >120 >60,000 >8500

Location: Dairy cooperatives

STATE Brand Name official name
Gujarat Cooperative Milk Marketing
GUJARAT Amul
Federation (GCMMF)
Andhra Pradesh Dairy Development
ANDHRA Vijaya
Cooperative Federation (APDDCF)
Karnataka Cooperative Milk Producers
KARNATAKA Nandini
Federation (KMF)
Mahanand, Gokul, Dhawal, Maharashtra Rajya Sahakari Maryadit Dugdh
MAHARASHTRA
Dudh Pandri Mahasangh (Mahasangh)
 Punjab State Cooperative Milk Producers
PUNJAB Verka
Federation (MILKFED)
Tamilnadu Cooperative Milk Producers
TN Aavain
Federation Ltd (TCMPF)

Issue: there is a regional imbalance in production and processing capabilities. e.g. UP contributes
over 17 percent of Indias total milk production. Ironically, only one percent is procured by co-
operatives, remaining milk goes to private-dairy players, who exploit farmers, and do
adulteration.

Top 5 states
NO. COWS N BUFFALOS MILK PRODUCTION PER CAPITA MILK AVAILABILITY
1. Uttar Pradesh 1. Uttar Pradesh 1. Punjab
2. Madhya Pradesh 2. Rajasthan 2. Haryana
3. Rajasthan 3. Andhra Pradesh 3. Rajasthan
4. Andhra Pradesh 4. Punjab 4. Himachal Pradesh
5. Maharashtra 5. Gujarat 5. Gujarat

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

Milk production =directly related to fodder availability.

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

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

@Upstream Issues
Low productivity of milch animals
Country Avg. Cow Milk Kg Per Year
Australia >4000
EU >5500
USA >8000
World Average 3100
India 800

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

1. Veterinary service problems

2. Breeding problems
3. Fodder problems

Lets see them one by one:

#1: Veterinary problems

To support health programmes for the massive livestock
1. Manpower
population, we need more than 60000 veterinary doctors in the
rural areas. (right now we only have ~25000)
 Need to strengthen the mobile veterinary services to ensure door-
step veterinary support, particularly in inaccessible areas.
Veterinary hospitals, dispensaries are inadequate in rural areas.

The disease reporting is neither timely nor complete which delays

proper interventions.
NIC developing software for computerized National Animal
Disease Reporting System (NADRS)
2. information
Itll link taluka, Block, District and State Headquarters to a
Central Disease Reporting and Monitoring Unit at the Department
of Animal Husbandry, Dairying & Fisheries (DADF)
This will ensure faster and reliable disease reporting

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

brucellosis amongst cattle

4. FMD alone causes economic loss of ~Rs.20,000 crore per year to India. lets check more
details about FMD for MCQs.

Foot and mouth Disease (FMD)

FMD is a viral disease that spreads rapidly between animals.
high prevalence in Africa, the Middle East and Asia
FMD affects cloven-hoofed animals (those with divided hoofs), including cattle, buffalo,
camels, sheep, goats, deer and pigs.
It can even affect wild animals e.g. Deer, wild pigs and buffalos.
Pigs are regarded as amplifying hosts because they can excrete very large quantities of
the virus in their exhaled breath.
Cattle are very susceptible to FMD. They get infected by breathing even small quantities
of the virus.
FMD spreads rapidly from one animal to another, especially in cool, damp climates
and/or when animals are housed closely together.
Although FMD is not very lethal in adult animals, it can kill young animals and cause
serious production losses.
Animal suffering from FMD :
o Becomes lame and unable to walk to feed or water.
o Stops eating because its tongue and mouth gets blister- very painful to chew
anything. =Adult animal can survive a few days of starvation but young animal
will die.
o Its mammary glands are damaged=milk production loss.
FMD has serious ramifications in international trade of milk and meat. Because countries
that are free of the FMD disease= they ban or restricting imports from FMD affected
countries.
There is no cure for FMD. The Affected animals will recover with time. Although
Vaccines can protect against the disease.
Department of Animal Husbandry, Dairying & Fisheries (DADF) has initiated National
Programmes for prevention and control of FMD, with help of State government.

#2: Breeding issues

The cattle from temperate region have higher milk production. (e.g.
Denmark)
But India: tropical, sub-tropical, hot-humid type climate
CLIMATE
So even when we import foreign cattle breeds, they give less milk
because of climatic factor.

Present breeding strategy focuses on high yielding cows/buffalos

rather than developing breeds that are tolerant to adverse
climate/fodder conditions.
BREEDING
Crossbred animals are sent to areas poor in feed resources=they dont
RESEARCH
survive/dont produce optimum amount of milk.
Limited availability of quality breeding bulls and semen.

Cow: Sahiwal, Gir, Rathi and Kankrej

Notable breeds Buffalo: Murrah, Mehsana and Jaffarbadi

Solution?

BREED promote in ___ area

HOLSTEIN FRIESIAN in feed-fodder rich states
JERSEY in states poor in feed/fodder resources.

Government started National Project for Cattle and Buffalo Breeding (NPCBB) is to
promote genetic upgradation of Indian cattle livestock through Artificial Insemination.
NGOs like BAIF and JK trust are operating about 6,000 mobile artificial insemination
centres.

#3: Fodder problems

1. Rich farmers=irrigation /tubewell =can grow fodder=>higher milk yields
2. But majority are poor farmers= rely on common pastures =>underfed cattle= less milk
yields.
3. For the same reason: MP is in top 5 for cattle population but not in top 5 for milk
production
4. While the number of livestock is increasing, the grazing lands are diminishing, because
o Real-estate mafias and National Son-in-law encroaching on such land
o Farmers prefer growing food grains, oil seeds, and pulses hence fodder production
generally gets lower priority.
 5. At present, fodder is being cultivated only on 4% of gross cropped area= insufficient to
meet requirement.
6. High quality fodder seeds =not available.
7. Agriculture crop residues are sold to paper industry, packaging, etc. rather than using as
animal feed.
8. We dont have specific extension machinery with specialized manpower for
popularization of good fodder varieties.

Solutions?

to procure surplus fodder from the farmers in areas with good rainfall
/ irrigation.
FODDER BANKS Convert this fodder into silage or fodder blocks for storage
Supply this packed fodder to the deficient areas.

the degraded forest areas, mostly under the Joint Forest Management
Committees (JFMCs), can be used for assisting growth of indigenous
improved fodder varieties of grasses, legumes, and trees under area-
FOREST specific silvi-pastoral systems.
Dovetail the ongoing schemes like MGNREGA and RKVY for ^this
purpose.

to improve quality of nutrition for the livestock

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

Azolla fern
Azolla is a floating fern. It resembles algae, Multiplies very rapidly.
widely distributed in tropical belt of India.
Grows in paddy fields or shallow water bodies.

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

Azolla reduces evaporation from water surface and increases water
FOR CROPPING use efficiency in rice.
Suppresses the weed growth.

Azolla has 50-60% protein on dry weight basis, rich in almost all
FOR essential amino acids, vitamin A, vitamin B-complex and minerals
LIVESTOCK Livestock easily digest it.
FEED Dry Azolla can be mixed with other fodder, or can be given directly
to cattle, poultry, sheep, goats, pigs and rabbits.
 Green Azolla is also a good feed for fishes.

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

1. lack of all-weather roads in many villages

2. Electrical problems in rural areas= cooling centers dont
1. BOGUS
work 24/7 basis.
INFRASTRUCTUR
E
3. Lack of potable water and supply sewage disposal =>
animals kept in unhygienic condition=milk gets
contaminated.

1. Contamination through equipment. Because lack of potable

water=> milk-cans, buckets, tankers are not regularly
washed.
2. Bad roads=more transport time=more bacterial growth in
milk.
2. BOGUS 3. Careless attitude of cooperative-staff. They dont keep the
HANDLING prescribed low-temperature during collection and transport
of milk.
4. ^Why careless attitude? Because Dairy cooperative elections
won through money power and then such office-bearers
recruit any swinging dude in dairy as long as he is paying
bribes for getting the job.

Result: following properties of milk get affected

SENSORY PROPERTIES color, taste, odour

COMPOSITION fat, protein etc.
HYGIENE bacteriological growth

Solution?

1. Currently, when farmer supplies milk @dairy cooperative society (DCS) of his village,
they only test one thing: fat content. Therefore, farmer has no incentive to maintain any
other qualities of milk.
2. Setup quality testing facilities @collection center to test bacteria count, acidity,
smell/taste, bacterial count, heavy metals, pesticides residue etc. and not just fat-content
alone.
3. Train farmers on hygiene habits for milk collection.
4. Pay farmers more money if they supply quality milk
 5. Supply of Hygiene Kits+ Training to DCS staff. Impose penalty if they dont comply
with the standards.
6. Less manual handling, use more machines: Bucket Milking machines, Feed racks, water
bowls and partitions etc.

@Processing Level
A typical supply chain of milk sector:

Regional imbalance
Bulk of new capacity in the period in last decade, has been established in the Northern
states, Maharashtra and Tamil Nadu. Remaining states are lagging in dairy growth.
Capacity utilization of dairy plants is about 60% (assuming 300 working days in a year).
Due to Lack of milk availability in the lean season.
For e.g. Rajasthan has 8% share in milk production and 11% share in consumption of
milk products, however the share in dairy processing capacity is 4%. Meaning much of
the milk escapes from the value-addition in dairy supply chain. A similar situation
prevails in Bihar.

Anand/Amul Model/dairy cooperative model

 Sardar Patel encourage the farmers of Anand region in Gujarat, to form their own milk
1946
cooperative, to protect themselves from exploitation from private milk traders
National Dairy development board setup @Anand, to replicate the dairy cooperative model
throughout country.
1965
(PM Lal Bahadur Shashtri)
1971 Gujarat Cooperative Milk marketing federation setup (GCMMF)
GCMMF starts maketing milk products under single brand name Amul (Anand Milk Union
1974
Limited)

Amul Supply Chain

 In the given village, a dairy Cooperative Society (DCS) is formed.
Every dairy cooperative society has ~110 farmers.
Combined, all DCS together handle more than 18 million kg milk /
day.
VILLAGE
theyre equipped with Automatic milk collection unit (AMCUS):
computer analyses fat content of milk, automatic printing of receipts
etc.

they process milk=> butter, ghee, milk powder, cheese, ice cream
etc.
E.g. Banaskantha District Cooperative Milk Producers Union
Limited known as Banas Dairy. They manufacture a large number
of dairy products under AMUL, SAGAR and BANAS brands.
Usually Banas products sold locally, and Amul products sent to
DISTRICT other states.
MARKETING similarly Gandhinagar District Co-operative Milk Producers Union
COOP.UNION Ltd.=Madhur dairy.
Surat= Sumul Dairy
Surendranagar District Co =Sursagar Dairy.
They can sell their products under the brand name Amul as long
as they meet the requirements of GCMMF. (e.g. must collect 30,000
litres milk daily for a period of three years)

The main boss is Gujarat Cooperative Milk marketing federation

STATE MILK (GCMMF).
COOP. All of above district cooperative unions (Banas, Madhur, Sumul
FEDERATION Sursagar) etc. fall under GCMMF umbrella.

Amul has more than 5000 outlets of own- at high streets, residential
areas, Railway Stations, Bus Stations, Educational Institutions,
across India.
RETAIL 2012: Amul planned to setup 10000 retail outlets across India.
Other than that, even private shops, hotels, restaurants etc. too sell
Amul products.

this Amul Model eliminates middlemen and directly engages farmer with the processor
(dairy)
These cooperatives form part of a national milk grid which links the milk producers
throughout India with consumers in more than 700 towns and cities

here is one more supply chain diagram: click to enlarge

Cooperative sector limitations
While dairy Cooperatives have played an important role in Indian milk
industrys development, but still dairy cooperatives reach barely ~20% of
Reach
the Indian farmers.

Dairy cooperatives face increasing competition from private dairies: both

in procurement + retailing of milk.
Private players are more agile, offering better incentives to farmers
Competition compared to the cooperative.
Even the largest Indian dairy player (Amul)s annual turnover is quite
lower than a large MNC dairy company like Nestle.

Dairy cooperatives are subject to state laws /regulations. But often, the
elections in dairy cooperatives are won using money and caste equations.
When such fraudsters get key positions in the dairy board, all they care is
how to recover their investment by taking bribes in appoint of dairy
Management
staff=> inefficiency + lack of new initiatives.
Hence, State governments need to make these dairy cooperatives more
accountable, democratic and professional in their functioning.
Downstream issues
#1: MRP and adulteration
WPI for Milk product= more than 190 (for 2012)
Meaning there is 90% increase in the wholesale price of Milk, compared to base year
2004.
This type of killer price rise=> has led to adulteration, fake milk from urea, Nakli-
Maawaa etc. once in a while, youve seen reports about this, particularly in Delhi-UP
region.
Such fake milk products are extremely hazardous to health.
In long term, theyll destroy Indias name in foreign market, just like Chinese milk
products lost business internationally, after news reports of Melamine adulteration in
2008.

Synthetic Milk
Synthetic milk is prepared by mixing urea, caustic soda, refined oil (cheap cooking oil) and
common detergents.

INGREDIENT Why added in synthetic milk?

REFINED OIL As a substitute for milk fat.
Detergent acts as an emulsifying agent. Meaning it helps above
refined oil to get mixed in water and give a frothy white solution that
looks like milk.
DETERGENT Even in legit (real) milk, the traces of detergent are found because
farmers and dairy staff use cheap detergents to clean vessels, buckets
etc. but dont thoroughly wash them.

CAUSTIC To neutralize the acidic PH of other ingredients and thus prevents fake-milk
SODA from turning sour during transport.
To increase solid-not-fat (SNF) content.
Higher the SNF=better the milk-quality, fetches more price when sold
to dairy.
UREA
it also increases viscosity (thickness) of the liquid so you feel youve
bought premium quality milk .

STARCH Prevents curdling in fake-milk.

Heath hazards of Synthetic milk: damages kidney, heart problems, cancer and even death

National Survey on Milk Adulteration 2011

Was conducted by FSSAI. click me to learn more about FSSAI

 Bihar, Chhattisgarh, Odisha, West Bengal, Mizoram, Jharkhand and Daman & Diu= their
milk failed in all tests.
Only Goa and Puducherrys milk passed the entire test.
~70% of Indian milk doesnt meet the standards set by set by the Food Safety and
Standards Authority of India (FSSAI)

Last year, Union government quoted ^this report, while filling affidavit in SC about milk
adulteration. Union also said that it Is state governments responsibility to act on milk
adulteration problem. Later SC asked state governments to file affidavit about what action
theyve taken.

#2: Ethnic products: untapped potential

Examples of ethnic milk products: Paneer, Rasogolla, Sandesh, Pantua, Rasomalai,
Cham, Rajbhog, Kulfi, Rabri, Basundi, Burfi, peda, Gulabjamun, Kalakand, Dahi, Mishti
Doi, Lassi, Chhach / Mattha, Srikhand etc.
Scope: For ethnic milk products, profit level is ~12-38% of the input cost.

PROBLEM
1. Most of the ethnic milk products are
made by local halwaii / sweet shop=
unbranded, unorganized. Cant compete
in foreign market. You need to create a
brand first to earn the respect and trust
of foreign customers.
2. Since this is done on small scale = they
use cheap quality packaging material,
even harmful colors and preservatives
used, =Doesnt meet quality norm in
US/EU market.
3. To make Indian ethnic milk products
famous like cakes, pastries, pastas and
noodles => have to invest a lot in
marketing promotions abroad. Small
scale firms cant do that.
SOLUTION
1. Train small manufacturers of ethic dairy
products, such as halwaiis: make them to
adopt hygienic practices, use state /
district level bodies, cooperatives, ITIs
can be involved in such efforts
2. Catalyze R & D for commercialization of
ethnic dairy products
3. The Ministry of Food Processing, in
conjunction with the NDDB, needs to
undertake generic promotional campaigns
to enhance the image of Indian ethnic
dairy-based products in US/EU markets.

#3: Export issues

Import export of milk products (2012-13) in crore Rs.

export import
>700 >100
Earlier we saw India is located close to the milk deficit countries, but still India hasnt
capitalized on this location advantage due to the following reasons:

1. Low quality and hygiene standards.

2. Only ~35% of milk produced in India is processed. Rest is sold by local doodhwalla= not
enough milk available for export.
3. Domestic consumption of milk has increased => less surplus left for exports
4. Lack of experience in marketing products in international markets, particularly for ethnic
milk products.
5. Low productivity and quality are the key reasons due to which processors in India, are
not able to achieve the scale of operations of their counterparts in New Zealand or
Australia.

Ban
Export of milk powders (Skimmed Milk Powders, Whole Milk Powders, Dairy Whitener,
2011
Infant Milk Foods etc.), Casein and Casein Derivative was prohibited
ban lifted, these milk/casein products export given under Vishesh Krishi and Gram Udyog
2012
Yojana(VKGUY)

Fonterra crisis
New Zealand = one of the biggest dairy exporter of the world.
Fonterra= New Zealands biggest dairy company
2013: News report came that Fonterras milk powder could have been contaminated with
the Clostridium bacteria. It can cause fatal botulism.
After this news report, China and Sri Lanka banned Fonterras products.
Fonterra CEO says: it was a false alarm, the bacteria variety found in our milk powder is
not capable of causing botulism, but nonetheless we have recalled all the batches
exported. So dont worry

Anyways, all this negative publicity and banning of New Zealand dairy products= gives
opportunity for Amul to tap those export markets.

#4: Tax on inputs

In earlier times, dairy industry had been subjected to octroi and sales tax etc. creating a
non-level playing field with the unorganized sector.
There had been high level of taxation on dairy equipment and machinery (excise, sales
tax, octroi) Even the excise duty on polyethylene film, aseptic packaging machines, milk
vending machines, pouch filling machines, used in packing and distribution.
This has hampered the growth of dairy industry. Although nowadays, taxes on most of
these items have been reduced / abolished.
Necessary Reform: Speedy implementation of GST.
Enough of supply chain, lets look at some allied topics: NDDB, Operation Flood, Government
schemes related to dairy sector.

NDDB
National Dairy Development Board
Statutory body (1965)
apex organization of dairy cooperatives in the country
Chairman: Amrita Patel
HQ: Anand, Gujarat

2013: NDDB been in news because

NDDB has Won Indira Gandhi Rajbhasha Award for the financial
year 2011-12. (But declared in 2013).
Rajbhasha awards are presented to institutions for outstanding
AWARD achievements in the use of Hindi language to ministries/departments,
banks and financial institutions, public sector undertakings and
employees.

Dr. Amrita Patel: Chairman National Dairy Development Board.

Recently decided to resign.(although Mohan wanted her to
CHAIRMAN
continue).
(PERSON IN
After Vergese Kurien, the father of white revolution, she has been
NEWS)
managing NDDB.

Operation Flood
1965 NDDB setup.
1970 NDDB launches Operation flood.
1996 The End of Operation flood.

Operation flood had three objectives:

1. Increase milk production (a flood of milk)

2. Increase farmers income.
3. Reasonable milk prices for consumers

Op.Flood setup following hierarchy of dairy cooperatives

LEVEL Org.
VILLAGE Primary Village Cooperative Society
 DISTRICT District Union
STATE State Federations
NATIONAL NDDB

Operation flood worked in three phases from 1970 to 1996:

Setup dairy cooperatives in 10 states and link them with four metropolitan cities: Mumbai, Delhi,
PHASE- Kolkata and Chennai.
1 Finance: by the sale of skimmed milk powder and butter oil gifted by the European Union

Karnataka, Rajasthan, MP
PHASE- Connected more than 40,000 villages and 4 million farmers in the dairy cooperative umbrella.
2 finance: by World bank loan

To consolidate the gains made from previous phases.

PHASE- Vaccination, Breeding research, artificial insemination, farmers training etc.
3 The end: 1996

Result of Operation Flood

Made India the largest Milk producer of the world.

Imports of milk solids ended. Our milk requirements now met through desi-dairies.
(Otherwise imagine, if we were still relying on imported milk, like imported crude oil
than what will be the current account deficit and rupees downfall!)

1. Per capita milk availability increased.

CONSUMER 2. Reduced the regional imbalance in milk availability.
EMPOWERMENT 3. Reduced the seasonal variation in milk prices.

4. Farmers connected in cooperative dairy grid=no exploitation,

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

6. Milk production doesnt require much land. Even landless poor

can participate.

SOCIAL 7. Village Milk Cooperatives bypassed the feudal power structure

EMPOWERMENT associated with cropping/foodgrains in villages. It covered
farmers from all castes and religion.

8. In that way, operation flood was more successful in Social

 empowerment than land reforms and Panchayati raj.

9. Many women dairy cooperatives were setup. (Particularly

during and after phase III)

10. Women became direct members and office bearers of such

WOMEN cooperatives and started earning.
EMPOWERMENT
11. You may have seen in the latest Amul ad Maari bairi sethani
thai gayi che: translated my wife has become a Sethani
(thanks to dairy income from Amul.)

Government Schemes
(Although given in previous article, but copy pasting again for the sake of continuity during
reading-revision)

Department of Animal Husbandry, Dairying & Fisheries

They run following schemes:

1. install Bulk Milk Coolers at village level close to the area of milk production
2. for installation of bulk milk cooler

100 per cent grants in aid given to provided to Dairy

Milk Unions/Federations:
for Dairy processing and marketing
Intensive Dairy Development for milk equipment for bulk milk coolers, chilling
Scheme (IDDS) centers, refrigerated tankers and cold storage
for developing dairy infrastructure at the village and
district level.

to encourage entrepreneurs in setting up modern

dairy infrastructure for clean milk production
Dairy Entrepreneurship
helps in bulk milk coolers, transportation facilities
Development Scheme (DEDS)
including refrigerated vans, cold storage facility

Centrally Sponsored Fodder and Feed Development

Scheme (CSFFDS)
fodder
with help of state governments

Official name: Strengthening Infrastructure for

clean milk
Quality & Clean Milk Production
 trains of farmers on good milking practices
Fund to setup Bulk Milk Cooler (BMC) @village
level.
fund to setup laboratories for testing of milk

National Dairy Plan (NDP)

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

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

Scheme will run in 14 states Uttar Pradesh, Punjab, Haryana, Gujarat, Rajasthan,
Madhya Pradesh, Bihar, West Bengal, Maharashtra, Karnataka, Tamil Nadu, Andhra
Pradesh, Orissa and Kerala.
^These states collectively account for over 90% of countrys milk production.

National Dairy plan will do following:

1. Breed improvement + animal nutrition=> increase milk production, reduce methane
emission.
2. Strengthen of village based milk procurement system= Rural milk producers to get
greater access to the organized dairy sector.
3. Use of ICT technology: Internet Based Dairy Information System (i-DIS), Data
warehousing System along with Business Intelligence tool etc.
4. HRD, management, knowledge sharing, R&D and other fancy stuff

Funding pattern

1. International Development Association (IDA) of the World Bank

ca$h comes 2. Central government (Department of Animal Husbandry, Dairying and
from Fisheries)

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

End Implementing Agencies (EIAs):

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