Nabard to refinance loans for warehouses

NEW DELHI: The finance ministry has eased lending norms for the warehousing sector in a preemptive move to meet the massive requirement of storage capacity for the effective implementation of the Food Security Bill.

Under the new norms, the National Bank for Agriculture and Rural Development (Nabard) can fully refinance bank loans given out for construction of warehouses at a low 8% interest rate.

"The move will help the banks to lend more freely as they are assured of getting an 8% interest on such loans," said a finance ministry official.

The rate of interest to be charged to the borrowers will be decided by the respective banks as per their existing policy, he added.

As of now there are 115 warehouses registered in the country. A government study had indicated that additional capacity of about 152.97 lakh tones is required to be created in 19 states. It is expected that private players will create a storage capacity of 52.32 lakh tonnes.

"The storage capacity will need to increase at least two folds if we have to store essential foodgrains for distribution as proposed under the Food Security Act," the finance ministry official said.

The government is debating a food security law under which about 64% of population will be eligible for foodgrains at heavily subsidised rates.

Meeting this legal entitlement would require massive procurement and storage.

The refinance availed by the banks under this scheme will be repayable in annual instalments over a period of seven years, including a moratorium period of a maximum period of two years.

"We will also provide an interest rate rebate of 1.5% to those borrowers, who repay their loans along with interest," said KR Nair, chief general manager, Nabard. The rebate would be released by Nabard on receipt of a certificate issued by the financing bank, stating the full repayment of principal along with interest, he added.

The refinancing in this fiscal will be available for 2,000 crore as proposed under the budgetary announcement.

But Nabard has indicated that by the year 2013-14, the required amount will be in the range of 10,000 crore.

"With Food Corporation of India (FCI) taking godowns on lease for 10 years, we expect more private players to participate," said an executive director with a state run bank. FCI has a total storage capacity of 333.63 lakh tonnes, 90% of which have been utilised, as on June 2011.

Nabard will also undertake on-site and off-site monitoring of the implementation of the scheme throughout the loan period in association with the banks.

Chinese agri-lessons for Indian policymakers

Saurabh Bhatt - The Hindu Businessline December 18, 2011:  

Global food security and food inflation are closely linked to economic development and agricultural production of the two Asian giants, China and India, as they comprise over 30 per cent of the world population. High GDP growth rates and rising income levels in these countries have increased the demand for high nutrition and calorie intake, putting further pressure on a sector which is critical to the livelihood of a vast majority of the citizens of these agrarian giants.

Compared to India, China's grain production is double that of India despite lesser arable land and similar area of irrigated land. China has a liberal agriculture import policy whereas India's agri-import policies are restrictive. India's fragmented land holding has led to low mechanisation. China faces different challenges. China's collective land-ownership system is a major constraint on farm borrowing, leading to poor economies of scale. China's ratio of investment in agriculture to agri-GDP is similar to India, however, since 2000, China has invested significantly in agri-parks and dairy towns, which are fully integrated models right from cultivation to processing (financed by the agri-banks). Both countries address food-security challenges using policies which are both congruent and different on multiple fronts.

WATER AVAILABILITY

China and India face periodic drought-like conditions or floods across regions. China's fresh-water storage capacity is about 1,000 cu. m per capita , five times that of India. China's depletion of ground water table is lower as compared to many parts of India (because of tube-well abuse). Compared to China, Indian agriculture would require more water by 2050, but its water footprint would deplete faster, especially in the Ganges and other major river basins.

India also continues to grapple with the river-linking project in terms of environmental impact issues. On the other hand, China is already implementing many large-scale water projects (Three Gorges Dam, north-south aqueducts using Yangtze's water). Indian policy makers approach to the fresh-water storage and sustainability issue has been mired with slow decision-making and legal opposition by environmentalists. However, India scores better on micro-irrigation with its Government subsidy schemes.

GRAIN RESERVE AND AGRI-STORAGE

India and China build significant grain reserves each year. India's grain reserve is around 50-60 million tonnes (20-22 per cent of annual production) whereas in China it is about 150-180 million tonnes (35 per cent of annual production). Due to this huge reserve, the food system is less dependent on flows from the global market and helps China contain food inflation in tough years. In terms of grain-storage infrastructure, China has the capacity to store up to 200 million tonnes of wheat and paddy, while India's capacity is 87 million tonnes.

In India, there is an erosion of value of approximately 7-8 per cent (about 18 million tonnes) of total food production worth about $6 billion annually, due to unscientific and insufficient storage and supply-chain inefficiencies. Given China's large trade surplus and foreign currency reserves, any grain imports would not have material impact on their fiscal position. India may face a sharp currency depreciation and ballooning balance of payments if it were to resort to large-scale grain imports. Hence, India needs to enhance storage capacity and increase buffer stock to at least five to six months.

PRODUCTIVITY AND POLICY MAKING

The stated objective of both countries' agricultural policy is to achieve self-sufficiency and food security. China has surged ahead on productivity through the use of high-yielding seed varieties, extensive use of fertilisers and pesticides (twice of India by per-hectare use). China has also focused significantly on cash crops, helped by stagnation of grain consumption and increasing consumption of fruits, vegetables, milk, milk products and meat. The Chinese Government has, since the 1970s, invested significantly into agricultural research and development (R&D), especially to create high-yield varieties of rice, wheat and maize.

After the first green revolution , India's agriculture R&D has been academic and localised instead of supporting productivity at national levels.. China accounts for over 70 per cent of world's fresh-water aquaculture production and its livestock production has grown over 8 per cent annually for the last decade.

During the 1990s, China encouraged import of large amounts of new genetic material for hog, beef, poultry and dairy industries from the US, Japan, Canada and New Zealand, which has improved the quality of the genetic stock in China's livestock.

While India and China have some congruency on policy front including a State-enforced minimum support price, there are notable differences in respect of wholesale agri-markets, agriculture subsidies and cooperative financing system for agriculture.

Land ownership is individual in India but collective in China. While the Chinese Government provides direct subsidies to its farmers, subsidies in India are indirect. Compared to India, China has well-developed commodity exchanges and futures markets and tighter rules for converting or selling crop land for non-agricultural use. Unlike India, China has a price ceiling to minimise the effects of food inflation.

WASTE MANAGEMENT

In India, less than 3 per cent of fruits and vegetables produced is processed while total processing in the agriculture sector is less than 8 per cent. By contrast, 40 per cent of food consumed in China is now processed (80 per cent in Western nations). Lack of economies of scale due to size restrictions on industry (under Small Scale Industries rules), supply-side constraints for agri-inputs because of rules governing large-scale corporate farming, and paucity of dry and cold storage infrastructure are the key shortcomings of the Indian food-processing industry.Since many sections of food processing were reserved for the small sector, there are hardly any large food-processing companies in India. On the other hand, over 70 of China's 500 largest companies are in the food-processing sector (in India this would be at most 15), and this industry is growing rapidly.

AGRI-TRADE

India's agri-trade with the rest of the world is limited with agri-exports of $25 billion (10 per cent of total exports) in financial year 2011 and agri-imports of $8 billion (less than 3 per cent of total imports). Restrictive agri-import policies in India partly fuelled by insecurity of domestic cultivators (political motivations) and some genuine and misguided concerns of disease import have led to inflationary pressure on key food articles.

Bulk of India's agri-exports are rice, oil meal, cotton and spices (commodities with limited value addition) and bulk of the imports are pulses, edible oils and sugar. China, on the other hand, has a liberal agricultural import policy and is among the world's largest importers of commodities, including edible-oil seeds and even cattle.

According to China's Custom statistics, agri-imports for 2010 were $65 billion and exports were over $30 billion, taking the agri-trade value to over three times that of India. China's agri-trade deficit has been growing but is balanced by exports of manufacturing and electronic goods. This has enabled it to maintain food inflation under 6 per cent as compared to the consistent 10-plus per cent for India.

CONCLUSION

India and China are similar in terms of issues and policy challenges in agriculture. Both countries, due to their strong economic growth, are also experiencing inflationary pressures on food.

However, India's total fertility rate of 2.6 (China's is 1.6) poses greater challenges as India's population will continue to grow faster and remain young longer, demanding high-nutrition food.

Like China, India needs to focus on livestock, poultry and aquaculture (all key sources of protein), focus on R&D in agriculture by increasing budgetary allocations, promote farm mechanisation through producer cooperatives, focus on replenishing aquifers through scientific water-harvesting in villages, avoid pitfalls of excess use of fertilisers and pesticides liberalise agri-trade policies to manage food prices and focus on economies of scale and integration in food processing.

The writer is President and Managing Director (Corporate Finance and Development Banking), YES Bank.

FDI in Retail May Not Always be Favourable to Local Farmers

The Economic Times - A recent analysis of Nielsen data on food prices in US done by JP Morgan has found that for every 12-week period since May 14, 2011, Wal-Mart has been raising food prices faster than its competitors. So, if the consumers are not benefitting by way of lower rate of price increase, then who is benefitting from large retail chains? Certainly not the suppliers. Contrary to popular opinion, the FDI in India is not being driven by the consumers. Nor by the producers.

The process by which capitalism has been replaced by corporatisation is being defended using the theoretical principles of competitive capitalism. However, there is no theoretical economic foundation to support the prevailing belief that a corporatised economy is capable of meeting the overall needs of society.

Corporatism is not capitalism. Corporations are designed to amass capital – to generate profit and to grow. None of the necessary conditions for competitive capitalism exists in today’s economy in India. The economy is moving away from market coordination towards a corporate version of centralised planning (supported by state-of-the-art technology). The problems of the centrally-planned economies of the communist regimes were not merely a lack of sophistication in management and planning. Central planning by government or corporation is a fundamentally wrong way to try to coordinate an economy. Had centralised planning been a result of free-market competition, it would then have been good for society. Corporatisation is not a market aligned system but a centrally-command structure with the basic flaw of growth for the sake of growth.

Corporate agriculture is fundamentally different from the agriculture we have known in India, in the past. A corporation is a legal entity and not a person. It has no family, no community, and increasingly no nationality. The corporations that increasingly control agriculture have no commitment to India and certainly not to the farming in India. The retail corporations may help the growers get loans to buy buildings and equipment but they will abandon those growers if the contractual arrangement becomes unprofitable or even troublesome. We are in the midst of a great social experiment – an experiment being carried out by non-human entities that we have created and let loose to plunder Indians.

Specialisation, standardisation, and consolidation are often cited as the keys to successful farming. In the past, the policy and practice in India had supported the industrialisation of agriculture by favouring those who have specialised in specific enterprises, standard production practices and operated on a commercial scale. Until recently, the industrialisation of agriculture meant advantages of the economies of scale but now it points to a situation of increased corporate control.

For the farmers, the most important strategy for surviving the next farm crisis may be to get to know the neighbours and turn them into customers. The concerted moves for dismantling the APMC market structure in the name of malpractices and corruption is directed to deny the opportunities of a decentralised free-market to farmers.

Farmers’ markets, or cooperative marketing in any form, will provide more opportunities to bring local farmers and community members together through their common interests in sustainably produced food. Friends don’t abandon friends in the neighbourhood when the going gets tough.

Those who eat locally won’t go hungry and those who market locally won’t go broke. Instead, they will find ways to work through their problems together and their relationships will grow stronger as a consequence. 

Shyamal Gupta Chief Business Officer NCMSL 
views are personal

Food processing ministry to set up collection, distribution centres in 12th Plan

The Hindu Businessline Bangalore, Dec. 1: 

The Union Ministry of Food Processing in the XII Five Year Plan plans to give emphasis on improving supply chain by creating large primary collection and distribution centres throughout the country involving private sector.

Addressing the ‘Bounteous Karnataka' global agri-business and food processing summit 2011 in Bangalore, Mr Rakesh Kacker, Secretary to the Ministry of Food Processing Industries, said, “During the XI Five Year Plan, we gave emphasis on creating infrastructure, now the time has come to improve supply chain efficiencies, it is here we plan to create collection and distribution centres.”

“To achieve this, we plan to make Karnataka a model State for the State has food parks, cold chains and modern abettors,” he added.

The central government is also planning to involve State governments to implement some food processing projects which benefit both the farmers and consumers.

“For effective implementation and monitoring of projects, we plan to involve State governments, here Karnataka can take advantage,” he mentioned.

Dr S. Ayyappan, Director General (ICAR) & Secretary (DARE) in his address said “For the XII Five Year Plan, we plan to focus on human resources development and already discussions are underway to make ‘Students Ready' by involving agriculture universities and ‘Farmers First', where in students as part of the course have to spend 25 per cent of their time with farmers”.

“This is being done to help farmers for they need experts to guide and equip them with timely farm technology or knowledge,” he added.

“About 10 incubators related to agriculture are planned in the country to give major push to farm level innovation. In Karnataka, University of Agricultural Sciences, Bangalore and Dharwad are being included. This is expected to give a push in developing low cost farm technologies in the State,” he added.

As skill building exercise, ICAR is planning to use ICT to create Virtual Krishi Vigyan Kendra (VKVK) network in the country. The VKVK platform expects to connect all KVKs with farmers through internet and mobile technology.

Dhanuka in talks with 2 global pesticide majors for possible JVs

The Hindubusinessline New Delhi, Dec. 1: 

Dhanuka Agritech Ltd (DAL) is in talks with two global pesticide majors to set up manufacturing facilities here for technical material or active ingredients that go into proprietary formulations being marketed by it in India.

“We are negotiating with two multinationals, one American and the other Japanese, to manufacture technical (raw) material that we are now importing from them. These could be joint ventures or production under licensing arrangements, both for our own formulation requirements and as well as for exports. It would work out much cheaper to manufacture these molecules here,” said Mr M.K. Dhanuka, Managing Director, DAL.

The Rs 500-crore company, which claims to be the fifth largest domestic branded pesticide formulation marketer after BayerCropScience, Syngenta, Rallis India and DuPont, currently has 24 products based on technical material sourced from Dupont, Chemtura Corporation, FMC Corporation, Dow AgroSciences, Sumitomo Chemical Company, Mitsui Chemicals, Hokko Chemical Industry and Nissan Chemical Industries.

REVENUE

These 24 formulations, out of DAL's total 80-plus branded pesticides portfolio, generate about 60 per cent of its total revenues. These include some Rs 160 crore from just four products – Rs 100 crore from ‘Targa Super' (a proprietary herbicide, with quizalofop-p-ethylactive ingredient, belonging to Nissan Chemical), Rs 40 crore from ‘Caldan' (a cartap hydrochloride-based insecticide of Sumitomo Chemical), Rs 15 crore from ‘Omite' (a propargite miticide of Chemtura Corporation), and ‘Dunet' (a methomyl insecticide of DuPont).

In the above four cases – besides also for Dupont's ‘Qurin' (chlorimuron-ethyl herbicide), and Chemtura's ‘Vitavax'(carboxin fungicide) and ‘Dimlin' (diflubenzuron insecticide) – even the brands are owned by the foreign firms, with DAL effectively being a distributor for these products. For the remaining products, DAL has created its own brands such as ‘Sheathmar' (validamycin), ‘Nukil' (ethofenprox) and ‘Kasu-B' (kasugamycin), though their technical material is imported from Sumitomo, Mitsui and Hokko.

“Having built up a market for these molecules here, it would make sense to go for their manufacture. We have applied for 37 acres of land at Dahej in Gujarat, which could be the right site for this purpose to supply both the domestic as well as export market,” Mr Dhanuka told Business Line.

DAL's existing facilities at Gurgaon (Haryana) and Sanand (Gujarat) only manufacture formulations. “We have no intention of going in for manufacture of bulk active ingredients, barring the new generation molecules that we are now importing through our foreign tie-ups. There is no point in manufacturing generic technical materials such as cypermethrin, monocrotophos or glyphosate, where there are hardly any margins and we can very well source them cheaper locally from United Phosphorus, Excel Industries, Gharda Chemicals or Rallis,” he added.

But how sustainable is the company's model of being essentially a local distributor for multinational crop protection majors? “We have a huge advantage of 7,000-strong dealer network, reaching 70,000 outlets and 10 million farmers. Not many multinationals – except Bayer, Syngenta, DuPont or Monsanto – have this kind of distribution infrastructure in India. The Japanese, particularly, are not keen on investing in dealer depots, branch offices, godowns and marketing teams for selling just two or three molecules,” he pointed out.

vishwa@thehindu.co.in

FDI in India: Farmer bodies throw their weight behind retail FDI

The Economic Times 1/12/11KOLKATA/NEW DELHI: Large farm lobbies are backing the government's decision to allow foreign supermarkets to set up shop in the country, saying it will shorten the supply chain and get growers a larger share of the final selling price.

Most farmers, however, want the government to go a step further and make it mandatory for retailers to buy 75% of their produce directly from farmers, bypassing the restrictive 'mandi' auction system.

"Traders and middlemen are sucking our blood. But no political party is talking about our interest because we are not organised like labour unions, nor have deep pockets like traders," said P Chengal Reddy, secretary-general of Consortium of Indian Farmers Associations ( CIFA).

"India has 600 million farmers, 1,200 million consumers and 5 million traders. Both farmers and consumers are benefited by FDI in retail," Reddy added.

Last week, the government allowed 51% foreign direct investment (FDI) in multi-brand retail and also raised FDI limit in single-brand retail to 100%. The move, however, stirred up political dissent with parties such as the BJP, CPI(M) and TMC demanding the government drop its plan as it would cost millions of jobs.

But big farmers are all for retail reforms. Bharat Krishak Samaj, a farm lobby with more than 75,000 members, said it supports FDI in retail on the condition that direct procurement from farmers is made mandatory. "Till it is a law, nobody is going to follow it. Everyone is bothered about shopkeepers," chairman Ajay Jakhar said.

Farmer leaders say the stranglehold of middlemen and traders is at the root of rural poverty and India's food inflation.

CIFA's Reddy said farmers' biggest problem is marketing. "Farmers declared a crop holiday in Andhra Pradesh because they couldn't sell. Cotton farmers in Maharashtra committed suicide because they couldn't sell," he said.

"FDI in retail will open alternative avenues of sale for us," Reddy added.

He said the mandi system does not favour farmers because they lose 5% of the value in transportation, 10% in broker commission and 10% in quality parameters. "Direct purchase by large retailers will solve this problem."

The thumb rule of price rise from a farmer to a consumer in perishables such as fruits and vegetables is 1:2:3:4, said S Baskar Reddy, joint director (agriculture & rural development) at Ficci, an industry body. What a farmer sells for 1 is sold at the mandi at 2, which becomes 3 at the mandi at the consumption centre and 4 when it reaches the consumer through a retailer.

Farmers near urban areas are already finding ways to circumvent the mandi system and reach the consumer directly. For instance, 23-year-old farmer S Chandrasekhar drives 10 km every Sunday to sell fresh vegetables to joggers and walkers on Chennai's Besant Nagar beach. Some 1,160 km away, Shriram Gadhave, president of All India Vegetable Growers Association, organises buyer-seller meets at Thane and surrounding areas to facilitate better price recovery. "FDI in retail will give us an instrument to get better prices and help consumers as well," Chandrasekhar said.