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Kurukshetra- December 2019 Agro-Based Industries

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  • Published
    9th Jan, 2020


Agro- based industries are being promoted by the government through several schemes as they play a crucial role in boosting the country’s economy. These industries are full of high potential as employment generators especially in the rural India and also perform a number of crucial functions that support development and poverty alleviation. Agro-based industries consist of the processing, preservation and preparation of agricultural production for intermediate and final consumption.

Ways to increase farmer’s income:

  • As per the 68th Round of NSSO survey on employment, 48.9% workers’ major livelihood support comes from agriculture.
  • While price led growth of agriculture, the major rural employer, as a means of enhancing income is not sustainable; the only way is to infuse agro-industrialization in the urban-rural continuum following the cluster approach.
  • Development of agro processing industries should be viewed as industrialization of agriculture and a joint process leading to a new industrial sector.
  • The Economic Survey has recommended to bring a new paradigm in the approach towards agriculture for getting from less.
  • One of the critical areas that can enhance the income of the rural households is to provide higher opportunity in agro-based food and non-food activities.
  • Agro-food processing industries have the potential to generate directly significant employment in production activities and also indirect employment through its forward and backward linkages. This employment will be in rural areas where these industries have to be located near the source of raw materials, especially perishable agricultural products.
  • These industries would help in reducing post-harvest losses and wastes as well as in using by-products more efficiently. This can increase rural income by fetching better prices to producers and also consumer welfare by increasing the availability of agricultural consumer goods.

The available vast potential of India could be potentially exploited through:

1)      Selection of appropriate scale and technology of production

2)       Up gradation of technology of existing units

3)      Establishment of suitable linkages between products and consumers at home and abroad

4)      Establishment of suitable institutional arrangements.

  • In 2018, The Ministry of Food Processing Industries brought out Food Processing Policy of India. Through this govt emphasizes to make India Global Food Factory and Global Food Market and thus opens up immense opportunities for food processing sector.
  • Initiatives have also been announced for ushering into zero post-harvest wastage by creating a national food grid and national cold chain grid.
  • Other initiatives to attract incentives include capital subsidies, tax rebates, and reduced custom and excise duties, etc that will help in attracting more investment in this sector.
  • Also, the States have to create an ecosystem to allow single window clearances and other statutory clearances.

Major Issues-

  • Indian farmers are largely unorganised.
  • They rely on external agencies for disposal of their marketable surplus.
  • Lack of capital asset endowments in rural areas compels them to sell their produce at throwaway prices to the middlemen.
  • Low income from the primary farm produce and lack of investments in the processing and agri-value chain has caused rapid reduction in farm profits.

Types of Agro-based Industries-

Based on the input-output  linkages and the interdependence between agriculture and industry, agro-industries can be of two types-

(a)   Processing industries or agro-based industries-  the agencies supporting agriculture by way of designing and manufacturing inputs for production and productivity growth of the primary sector are termed as agro industries.

(b)   Input supply industries or agro-industries- these are the agro-based industries which process and add value to such agri-resources which contain ground and tree crops, fruits and vegetables, etc., as  well as livestock for their day-to-day operations.

As per the International Standard Industrial Classification (ISIC) framework, agro-based industry consists of the manufacturing/processing of food and beverages, textile, footwear and apparel, leather, rubber, paper and wood and tobacco products.

  • India has the world’s 10th largest arable land, 20 agro-climatic regions and 15 major climates.
  • Census data indicates that the total number of cultivators in the country has decreased from 127.3 million in 2001 to 118.8 million in 2011.
  • This may be due to excessive product orientation of Indian agriculture with inadequate focus on value addition, wastage reduction and incremental income through agri-processing and manufacturing.
  • Thus to reduce the extent of losses, promoting and adopting modern agro-processing technology and setting up of more numbers of agro-industries in rural areas are the need of the hour.
  • There is opportunity of an overall growth of agricultural economy as only 2 to 3 per cent of agri-commodities are processed.
  • It is also necessary to amply investment in rural areas so as to develop suitable processing and manufacturing infrastructure and to attract private public partnerships for setting up of modern agro-based industries in and around rural areas.

Categories of Agro-based industries:

In India, the agro-based industries can be grouped under three categories-

(a)   Agri-processing units covering fruit and vegetable processing units, dairy plants, rice mills, dal mills, etc.

(b)   Agri-manufacturing units covering sugar, dairy, bakery, textile units, etc

(c)    Agri-input manufacturing units covering mechanization of agriculture, agriculture implements, seed industries, irrigation equipment, fertilizer, pesticides, etc.

  • Food Processing and Beverages
  • The Ministry of Food Processing Industries has restructured its schemes under the new Central Sector Scheme- Pradhan Mantri Kisan Sampada Yojana (PMKSY), which includes: setting up of Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, Food Safety and Quality Assurance Infrastructure, Human Resources Development and Institutions.
  • PMKSY is crucial in reducing the harvest and post-harvest losses of the agricultural produces and ensuring remunerative income and adequate employment in rural non-farm sector.
  • Textile Industry
  • To make Textile Industry globally competitive, boost exports and facilitate modernization, Govt has rolled out many initiatives such as: Scheme for Integrated Textile Park, Integrated Processing Development Scheme, Group Workshed Scheme, Up-gradation Fund Scheme, Comprehensive Handloom Cluster Development Scheme (CHCDS), Common Facility Centre, Rebate of State and Centre Taxes and Levies (ROSCTL), etc.
  • Jute Industry
  • The Govt has attempted to modernize the Jute mills by increasing their productivity and bringing in modern technology and equipment.
  • National Jute Board’s schematic interventions, inter alia, provide capital subsidy to jute mills to address their issues and challenges at hand.
  • Khadi & Village Industry
  • KVIC promotes setting up of various post-harvest agro and food based micro industries like processing of pulses & cereals, fruits and vegetables, village oil industry, etc.
  • KVIC tries to generate self-employment opportunities through establishment of micro- enterprises in the non-farm sector which, inter alia covers- Agro-based and Food Processing Industry, Forest based industry, Handmade Paper and Fibre/Textiles industry.
  • Animal Husbandry, Dairying and Fisheries
  • Govt implements various schemes such as- Dairy Entrepreneurship Development Scheme, Dairy Processing and Infrastructure Development Fund, Supporting Dairy Cooperatives and Farmer Producer Organizations engaged in dairy activities and Aquaculture Infrastructure
              Development fund.

Agro-based industries lose their competitive edge due to unfair trade practices adopted by exporters of other countries. Such practices manifest in two forms-

  • Dumping- It is observed that exporters from other countries often dump their products in Indian Markets at rates cheaper than those at which they sell their products in their domestic markets.
  • Subsidies- Govt of those countries from where imports are sourced by India, are observed to be providing subsidies to their exporters.

Trade Remedies-

  • India’s Customs Tariff Act, 1975 and related Anti-Dumping Rules and CVD Rules, 1995 provide the legal backing for Govt of India to protect the domestic manufacturer against unfair trade practices of exports of other countries.
  • The DGTR under the Department of Commerce is a quasi judicial body. It recommends ADD or CVD when investigations point out that the domestic industry has indeed suffered because of unfair trade practices. On the recommendation of DGTR, the enhanced duties are put into place by Govt’s Department of Revenue.
  • Thus, the Agro-based industries can approach DGTR to redress their grievances in cases where exports of other countries have materially injured them or likely to injure them in the absence of any trade remedial measure.
  • Another trade remedial measure from ADD or CVD, is a safeguard measure which may be resorted by government when there is a surge in imports of any commodity due to which serious injury is caused to the domestic industry.
  • Around two-third of the population depends on agriculture and agro-based industries.
  • The story of Indian agriculture is mixed in ‘green reaction’ (characterized by mediocre growth, the stagnation of yields and persistent instability of output) whereas agro-based industries can be looked upon to provide a mass of livelihoods.
  • Agro-forestry in Indian Farming system is practiced as complementary and supplementary enterprise to enhance well being of farmers, since it causes diversification and commercialization of agriculture, it not only enhances the incomes of farmers but also creates food surplus.
  • It should be emphasized that food is not just produce but also encompasses a wide variety of processed products. It is in this sense that agro-industry is an important and vital part of the manufacturing sector in developing countries and the means for building industrial capacities.
  • The liberalized food manufacturing sectors, as well as other forms of agribusinesses, could play an important role in stimulating agricultural growth.
  • Amongst various agro-industries, food manufacturing is more material-intensive, and thus possessed a greater potential to revitalize agricultural growth by strengthening forward and backward linkages with farmers, and speed up the process of commercialization and diversification of agricultural production.
  • Also, food processing industries, to reduce their own transaction costs, often tend to be located nearer to the source of raw material, and thus can create income opportunities for the rural people.
  • Hence, accelerating agricultural growth through diversification and development of agro-processing is a major policy challenge.

    Farmer Producer Organization-

    The FPOs have emerged as an interface between small farmers and the external world by providing forward and backward linkages, giving them required voice, market access, bargaining power, economy of scale and better prices.

    Structure and organization of FPOs vary from country to country depending upon the legal and policy framework of the country.

  • The agro-industries have a larger scope for acceleration in future given the thrust on doubling farmer’s income. It demands for a vibrant and robust response from agro-based food and agro-based non-food industries and other stakeholders involved in the cold chain management.
  • The cold storage facilities need to be developed in the major production catchments so that the farmer has the option to store the produce and may hold it back when the market is saturated and sell it when shortages occur.
  • Turning agro and food-processing industry into a major export industry can also create vast employment opportunities for workers since it is a labour intensive industry.
  • Agri-based industries conform to the notion of competitive advantage both within and outside the country. They can play a role of a safety valve to absorb surplus rural labour and can address the problem of large scale unemployment/disguised employment in rural areas.
  • To reduce waste and cut back on transport and handling costs, primary processing of all foods and processing of perishable foods needs to be undertaken in, or adjacent to, the point of production.
  • It is high time that the national plan for improvement and extension of agro-processing technology at farm, traditional small industry and modern industry levels is prepared, while taking into account tge diversity in resources and needs of different regions in the country.
  • Thrust areas for research and development need to be identified and met with. More financial incentives and support need to be provided to promote the modernization of agro-processing industry and for establishing new such industries in production catchments.
  • The govt. needs to ensure a level playing field to agro-based industries vis-à-vis unfair trade practices adopted by exporters of other countries. Awareness generation amongst agro-based industries becomes a key ingredient in successful utilization of available trade remedies and to protect them from unfair trade practices of exporters of other countries.

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