23 STAKEHOLDER CONSULTATIONSOPERATIONALISING THE AGRIBUSINESS INFRASTRUCTURE DEVELOPMENT INVESTMENT...

OPERATIONALISING THE AGRIBUSINESS INFRASTRUCTURE DEVELOPMENT INVESTMENT PROGRAM- PHASE II FINAL REPORT

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23 STAKEHOLDER CONSULTATIONS

During the course of the preparation of the Detailed Project Reports, various stakeholder consultations were carried out in both the states of Maharashtra and Bihar. Consultations with various stakeholders were conducted mainly during the phases II (during detailed field surveys and analysis and consultations were held mainly with farmers, traders, cold store/warehouse/packhouse owners and other intermediaries in the value chains) and III (which mainly consisted of stakeholders’ consultations with food processors, organized retailers, exporters, and others) of the study.

During the field surveys, in-depth interviews and Focus Group Discussions (FGDs) with farmers, traders/wholesalers, cold store/warehouse/packhouse owners etc were held in most of the important locations of the value chains. The stakeholders were asked about the details of the value/supply chains of the identified crops in the regions, trade practices, constraints faced by them as crucial members of the chains, gaps and market dynamics. Through such meetings and discussions, validation of data was also done at all major locations along with identifications of major clusters in the regions.

In case of the consultations with food processing and agri-business industries, exporters, organized retail chains, potential investors, government representatives, etc, interviews, group meetings and brain storming sessions were held in Delhi, Mumbai, Patna and some other major cities in the states of Maharashtra and Bihar.

23.1 IVCS IN BIHAR

As discussed earlier, the focus of the project in the context of Bihar will be modernization/upgradation of erstwhile APMC markets. Many of these markets are still operational with traders/wholesalers, etc operating markets with very wide network of backward linkages with farmers, Post Harvest Contractors (PHCs) etc. who are vital to the functioning of the present value chains. Keeping these in view, the present traders/wholesalers (and even retailers as well) in these markets, traders’ organizations, etc have been given due importance during stakeholders consultations in Bihar and their views, concerns and feedback about the project and its implications have been noted and considered during the designing the implementation framework for the project in Bihar. Apart of that, other stakeholders such as farmers, local processors, cold chain and packhouse owners and industry players have also been consulted for their valuable inputs in the course of the study.

The summary of the stakeholder consultations (per major stakeholder groups) in Bihar are given below:

23.1.1 Farmers

During the detailed field surveys, several interviews and FGDs with farmers were organized with the objective of gathering information on the farming practices, trading practices, constraints, gaps and other details of the value chains of the identified crops for both the regions. Availability and status of post harvest and marketing infrastructure were also assessed through the consultations. Both orchard owners/cultivators and farm


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owners/cultivators were consulted for understanding the dynamics of fruit, vegetable and grain value chains in the identified regions.

During the consultations, extensive farm and orchard visits were also conducted. The farming technologies used in the state are out-dated and there is a lack of knowledge of modern technologies and their benefits in agriculture. It was learnt from the farmers that agricultural loans are not easily received for the financial institutions and in most of the cases the famers depend on the traders/wholesaler of PHCs for informal credit. Moreover, farm proximate infrastructures are almost negligible and hence there is high wastages and low storage capacities in the state.

The Post Harvest Contractors (PHCs) were also consulted at different stages of the study with the objective of understanding their role in the value chain along with their modes of operations. Their relationship with the farmers and traders were also studied.

The major concerns which came out of the consultations with farmers and PHCs are as follows:

Lack of quality inputs such as seeds, fertilizers, pesticides, equipments, etc affects the productivity and the quality of the produce.

Absence/negligible presence of farm farm-proximate/post harvest and proper storage infrastructure which leads to higher wastages and distress sales

Lack of access to formal credit leads to dependency on traders/wholesalers/cold store owners which reduces the profit margin of the farmers in many cases due to high interest rates (many times which are hidden as lower than market rates offered to farmers, etc.)

Asymmetry in market intelligence about price and demand of produce in the markets which does not allow the farmers/PHCs to gain on temporal/locational arbitrage.

23.1.2 Traders/Wholesalers/Local processors/Cold Chain Owners

Several FGDs (mostly with traders/wholesalers) and interviews with traders/wholesalers/local processors/cold chain owners were conducted in different markets in the identified districts of Bihar. The consultations were helpful in capturing the details of their role, trade practices and other aspects of the value chains. As mentioned, the present traders/wholesalers operating out of the erstwhile APMC market yards are a very important group of stakeholders and hence the AIDP project was explained to them in details to get their views, feedback and concerns regarding the same. One of the main issues which came out of the discussions is their concern about the continuation of their rights of operations and shop ownerships in the markets after the development under the project. The potential role of the traders/wholesalers in SPV formation was also discussed. Other major concerns of this group of stakeholders include lack of scientific storage facilities for perishables which reduces the holding period and hence the traders/wholesalers are unable to capitalize on the time arbitrage of the produces. Moreover, although they are willing to invest in modern post-harvest infrastructure with the support of government however, the knowledge of modern technologies available for the same is absent. The traders/wholesalers are also concerned about the common services and maintenance (such as garbage removal, etc.) of the market yards in Bihar as after the repeal of APMC Act in Bihar, such services have not been provided by the APMC/state government. The other issues flagged by the traders/wholesalers are security concerns and difficulty in truck


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movement to the market yards due to congestion in the city roads (most of the erstwhile APMC markets are situated within the city limits).

The cold store owners have very limited knowledge of the modern cold technologies. The cold store operations/technologies are also not efficient which increases the cost significantly. The details have been discussed in the value chain chapters. Capacity building measures are required in this regard.

23.1.3 Industry Players Several food processing and agri-business industry players, exporters and organized retail chains were interviewed in the course of the project. Their perceptions about business opportunities and experiences of doing business in Bihar were discussed in details. The project concept was placed with them and their feedbacks were noted. The major feedback received from the industry players are as follows:

The market infrastructure should be developed in the PPP mode for better efficiency

The land transfer issue should be carefully considered as it is sensitive in nature

Since the local traders may lack technical expertise in the managing the market professionally, role of a technical partner should be considered

Time bound subsidy and grant announcement is desirable for private sector.

Clarity on the disbursement of loan with state government guarantee is desirable

23.1.4 Some Major Stakeholder Consultations in Bihar:

Stakeholder’s Consultation Meet at Patna

A stakeholder consultation meet for AIDP was organized by IL&FS Clusters on 22nd December, 2009 at Patna. The participants of the meet included the following:

Director, Horticulture, Department of Agriculture, Government of Bihar

Director, Bihar Agriculture Management & Training Institute (BAMETI)

IL&FS Clusters representatives

Representatives of Traders Association from APMC markets

Food Processors

President, The Confederation of Indian Industry (CII)

Farmers groups

The meet started with an introduction of the project by Director, Horticulture and he presented the background of the stakeholders’ meeting as an important step in moving forward in modernization of the APMC markets. He also explained the three probable models of implementation of the project:

1) Design Build Operate and Transfer (DBOT) Model where a large private developer enters into a contract with the state government by which the mandi is transferred to it for an mutually agreed period of 25-30 years. The facilities would be built and operated by the private developer and it would transfer it back to the government after the contract period.


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2) A company would be formed by state government with traders/wholesalers as equity partners for developing the market as well as its operation and management

3) Government would develop the markets by making the capital investments. However, the O&M would be taken care of by the traders’ associations present in the markets.

The pros and cons of each model were discussed and feedbacks were received from each of the stakeholder groups. During the course of the discussion several concerns and views came up. Continuation of the rights of the traders/wholesalers to operate from the market was discussed. Ownership issues of their shops were also discussed. Traders/Wholesalers were also concerned about the modalities of formation of the SPV, their capacity to invest, fate of temporary traders, etc. The feedback from the industry partners were mainly about careful handling of land transfer issues, need of technical partners, etc.

Stakeholder’s Meeting at Musallahpur, Patna

A stakeholder consultation was conducted at Musallahpur APMC Market, Patna on 21st January, 2010 for AIDP. The participants of the meet included the following:

Representatives of Asian Development Bank (ADB)

Representatives of the State Government

Farmers

Traders from different Markets

Representatives of Traders’ Associations from APMC markets

IL&FS Clusters representatives

AIDP was discussed with the participants with a focus on the following:

The existing APMC markets would be the locations for the Integrated Value Chains (IVCs)

There will be a mother SPV at state level and SPV for each IVC.

State-promoted SPV will be responsible for the renovation, upgrading and construction works of the marketing and support infrastructure along the value chain.

GoB will retain 51% of the SPV shares and 49% will be bid out to private sector players which would include the existing traders as partners. This would be one of the bidding parameters. The share of GoB will be diluted over a period of time

The above points were well received by the stakeholders and a positive response was witnessed.

23.2 BIHAR: PERSONS CONTACTED

The potential investors who have been contacted/ consulted during the AIDP study are given below:

• Mr. Bhadri Narayan, General Secretary, Fruit Merchant Association, Musallapur Market, Patna

• President, Potato Traders Association, Mussllahpur Market, Patna

• Sri. S Balaji, Managing Director


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GreenPort Corporation Pvt. Ltd.

• Mr. Munna Khan, Fruit Merchant Association, Hajipur Market

• Mr. Sanjay Nandrajog, Chief Executive FieldFresh Foods Pvt. Ltd.

• Mr. Mayank Jalan, Managing Director Keventer Agro Ltd.

• Mr. Vinit Kumar, Chairman and Mr. Shyam Mahale Temptation Foods Ltd.

• Director Bengal Salarpuria Eden Infrastructure Development Company (P) Limited

• Mr. Sunil Kumar Pandey, Rice Miller, Sasaram

• Mr. A. Kumar Rice Miller, Sasaram

• Mr. Manish Kumar Rice Miller, Sasaram

Other Contacts

Apart from the above list, the organizations with whom IL&FS Clusters have been in touch for other projects such as Modern Terminal Market, Mega Food Park, etc and who may also considered as potential investors for the AIDP projects in both the states are:

• Mr. A. Srinivasa Ramanujam, AVP - Operations Adani Agrifresh Ltd.

• Mr. B.B. Pattanaik, Chairman & Managing Director Central Warehousing Corporation

• Mr. M C Goyal, Chief Executive Officer Deepak Fertilisers & Petrochemicals Corp. Ltd.

• Mr. Kishore Biyani, Chairman Future Group

• Mr. Mayank Jalan, Managing Director Keventer Agro Ltd.

• Sri Arvind Jhamb, CEO Ruchi Infrastructure Ltd

• Mr. Vinit Kumar, Chairman Temptation Foods Ltd.

• Mr. Arun Uppal, Head – New Businesses Hariyali Kisaan Bazaar

• Mr. Mike Cockrell, Chief Merchandising Officer Bharti Wal-Mart Pvt. Ltd.

• Mr. Thomas Varghese, CEO Aditya Birla Centre

• Mr. R. Sreeram, Vice President-Manufacturing Dabur India Ltd.

• Mr. Shrijeet Mishra, Hindustan Unilever Ltd.


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Hindustan Unilever House • Mr. S Sivakumar, Chief Executive-Agri Businesses

ITC Limited • Mr. Sumantra Banerjee, President

Spencer’s Retail Ltd • Mr. Anil K Choudhary, Managing Director & CEO

National Bulk Handling Corporation • Mr. Sanjeev Asthana, President & CE, Agri Business & Food Supply Chain

Reliance Industries Limited • Dr. J. S. Yadav

Premium Farm Fresh Produce Ltd. • Sri S K Jain

LMJ International Limited • Mr. Vimal Mody, General Manager

Usha Breco Realty Pvt. Ltd.

• Sri Sushil Kumar Agarwal, Director Haldiram’s Mega Food Parks Private Limited

• Sri Raja Mehta Indiabulls Real Estate Limited

• Mr. Vipin Jain, Vice President (Finance) Negolice India Ltd

• Mr. Makarand Khanolkar, Vice President Unity Infra Projects Limited

• Mr. Avinash Rangnekar, Ace Agro Industries Private Limited

• Mr. Malamma B Bidari, Chairman & Managing Director FOREMMS Industries Limited

• Director Bengal Salarpuria Eden Infrastructure Development Company (P) Limited

• Pantaloon Retail (India) Limited

• Ruchi Soya Industries Limited


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24 ASSESSMENT OF MARKET DEMAND

India is the world 4th largest economy on purchasing power parity basis. India is also the second fastest growing major economy in the world, with a GDP growth rate of 6.7 percent in 2008-09. India’s economic growth has accelerated significantly over the past two decades. Real average household disposable income has almost doubled since 1985. With rising income levels, household consumption has increased manifold with the emergence of a re-defined middle class. The country is on the brink of becoming an economic powerhouse and it is gaining huge attention from global players as an excellent investment destination.

Indians with an ability to spend over US$ 30, 000 per annum on PPP basis account for around 3 percent of the country’s total population. With a population base of 1.07 billion, this segment amounts to 20 million people. High economic growth has led to increased disposable income for the booming Indian middle class, which is estimated to reach a size of 582 million from its current size of 50 million by 20151. Accordingly, the disposable incomes are set to rise at an average rate of 8.5 percent by 2015.2

Maharashtra is the largest economy in the country with a high per capita income of US $ 6213. It is also among the most industrialized states, which is coupled with availability of skilled manpower, enabling infrastructure and a strong institutional framework. Maharashtra is the second most populous state in the country with a population of 96.9 million4. It is also the second most urbanized state in the country, with 42 per cent of the people living in urban areas.

Bihar, on the other hand, has a per capita income of US $ 1395, which is much below the national average of US $512. The total population of Bihar is 82.88 million. Unregistered units dominate the industrial sector of the state and the major industries are Tea and dairy.

24.1 ASSESSMENT OF FOOD MARKET IN INDIA

The size of the Global Food Industry is estimated at around US $3.6 trillion and India accounts for less than 1.5 percent of the international food trade. India currently produces about 50 million MT of fruits, which is about 9 percent of the world’s total production of fruits and 90 million MT of vegetables, which accounts for 11 percent of the world’s total vegetable production. Despite its large size, only 6 percent of the processed foods are traded across India’s borders as compared to 16 percent of major bulk commodities. Hence there is huge scope for export of value added food products in the international market.

1 NACER Research 2 Ernst & Young Research, 2008 3 Data: 2004‐05 4 2001 census 5 IBEF


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The Indian food market in 2007 has been estimated at around US$ 200 billion6 and is slated to reach US$ 310 billion7 in 2015. Food products are the single largest component of household consumption expenditure. Food and beverages (including tobacco) accounts for one third of the household expenditure. A survey done by NCAER reveals that food and beverages accounts for 35 percent and 32 percent of household expenditure in mega cities and boomtowns. It is estimated that by 2025, food and beverages segment will still be the biggest category in terms of consumer spends, though its share would drop from existing 35-40% to 25%. Food and Grocery contributes to around 41 percent of private consumption expenditure and about 74 percent of total retail revenue. Broad category-wise expenditure for each category of cities is shown in the table below.

It is evident from above that more than one third of the monthly household expenditure is on Food and beverages segment. There is also an increasing shift from price consideration to quality, branded and hygienic products. The number of working women, as a percentage of the total female population, has risen from 15 percent in 1991 to close to 25 percent in 2005. This has resulted in growing disposable income, which in turn, leads to increasing spend on convenience food, value added food products and grocery items.

24.2 GROWTH DRIVERS OF VALUE ADDED FOOD PRODUCTS

India possesses the advantage of having a large young population. It is estimated that around 35 percent of India’s population is under 14 years of age and more than 50 percent of the population is estimated to constitute the working age group. The large population of working age group forms a wide consumer base. Rapidly changing demographic profiles and increased disposable income are changing the face of Indian consumers. The swelling middle class is redefining the consuming pattern with a shift towards branded and value added food products. With the country’s income pyramid changing rapidly, a definite shift is observed from saving to spending attitude. Discretionary spending has seen 16 percent rise for the urban upper and middle classes and the number of high income households has grown by 20 percent year-on-

6 Food Processing: Market and opportunities by KPMG 7 McKinsey & Company

Source: NCAER Research, 2008


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year since 1995-96.8 The self employed segment of the population has also grown significantly.

Growth drivers for emerging markets of value added food products are summarized below:

Food and grocery dominates total retail spend: While rural consumers spend around 53%9 of their total consumption expenditure on food, urban India spends 40% of their retail spend on food items thus offering huge opportunity for value added food products.

Higher disposable income: High economic growth has led to increased disposable income for the Indian middle class, which is switching over to healthy and value added food products. It is estimated that disposable income is set to rise at an average rate of 8.5 % by 201510. Also, the middle class is estimated to reach a size of 582 million from its current size of 50 million by 201511.

Shift in demographic profile: The median age of Indian population is 24 years and approximately 65% of Indian population is below 35 years of age. The large population of working age group forms a wider consumer base for food products.

Emergence of organized food retail: It is estimated that the total food and grocery retail space will grow at a CAGR of 6% over 2006-2011, with the organized share likely to increase from less than 1% currently to 6-6.5%12. This will translate into more business opportunity for value added food products.

24.3 ASSESSMENT OF FOOD RETAIL INDUSTRY

Traditionally, the Indian retail sector has been dominated by large number of small and medium sized retailers, who account for more than 95 percent of the total retail business. In categories like food & grocery, fresh fruits and vegetables, their share is as high as 98 percent. Over twelve million small and medium retail outlets exist in India, the highest across the world. More than eighty percent of them are run as family owned businesses and the exemplary mom-and-pop retail outlets constitute a major part of country’s retail store formats. Modern retailing in India is evolving rapidly, with consumer spending growing by unprecedented rates and with increasing number of domestic and global companies investing in this sector.

8 Ernst & Young Research, 2008 9 NSS 62nd round 10 E&Y Research, 2008 11 NCAER Research 12 Retail Edelweiss report, 2008


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The size of Indian retail Industry was estimated at US$ 385 billion13 in 2007–08. In 2006-07, the retail market size was US$ 337.3 billion. In 2007, organized retail stood at US$ 16.5 billion, implying a share of 4% of the total retail revenue. Organized retail revenues are expected to increase from US$ 12.9 billion in 2005-06 to more than US$ 43.8 billion by 2010-11. Today, top eight cities (four metros, Pune, Ahmedabad, Bangalore and Hyderabad) together account for almost 80 percent of the total organized retail.

Food retail, dominated by around 5 million retail outlets in India, is currently estimated at US$ 160 billion. Within this, organized food retail grew from US$ 391 million in 2002 to US$ 1624 million in 2007 with a CAGR of about 33 percent.

India tops the AT Kearney's annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. Furthermore, a report by Price Waterhouse Coopers foresees India and China to continue as the top sourcing hubs in retail and consumer sector in the coming years.

Driven by the huge potential in the sector a number of large corporations, both domestic and global, have forayed in to the market recently. It includes Reliance, AV Birla, RPG, Bharti-Walmart, Future Group, Big Apple, Godrej, Heritage and Wadhan Group (Spinach) to name a few. A few more global players like TESCO, Carrefour and Landmark are also expected to enter in the market.

The growth in organized retail sector has been spearheaded by the food & beverages segment and they are also likely to see a higher growth rate in future. The figure below depicts the responses of retailers about the fastest growing retail segments in India. This clearly shows that food and grocery is by far the

13 IBEF

311.7

337.3

460.6

12.9

16.5

43.8

0 50 100 150 200 250 300 350 400 450 500

2005-06

2006-07

2010-11

Org. RetailTotal Retail

Source: Data Monitor, 2007, Sales in US $ Billion, Exchange Rate: US $ 1: INR 41

Source: KPMG


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Source: NSSO 5th round, KPMG and Cygnus Research

fastest growing segment in the Indian retail sector.

India has one of the largest numbers of retail outlets in the world.

Of the 12 million retail outlets, nearly 5 million sell food and related products. Nearly two third of the food retail outlets in India are located in rural areas, which is also being reflected in the graph below:

Figure: Category wise Distribution of Retail Outlets

The retail sector in India is primarily characterized by different SKUs rather than different retail formats in operation. It is envisaged that modern retail will adapt and absorb some of the traditional retail formats in subsequent years. Also, with the rural retail constituting the largest share of total retail revenues, the existing players are now looking at rural markets to tap the opportunity. A few players like ITC Limited, Godrej and DSCL have already started the venture under the brand name of Choupal Sagaar, Aadhaar and Hariyali Kisaan Bazaar respectively.

24.4 MAJOR PLAYERS IN ORGANIZED FOOD AND GROCERY SEGMENT

Major players in organized food and grocery segment are Pantaloon Retail, Reliance Retail, RPG, Aditya Birla Retail etc. None of the organized retailers have presence in Bihar. However, Maharashtra is one of the leading states in terms of growth of retail space. Besides Mumbai, organized retailers are also present in tier I and tier II cities of Maharashtra.

The table below shows the food and grocery sales (2008) as well as no of stores of major players in organized retail segment:

Sl No. Name of retailer Food and grocery sales ($ million) No of stores 1. Pantaloon Retail 1593 456 2. Reliance Retail 432 688 3. RPG 427 420 4. Aditya Birla Retail 251 645 5. Dairy Farm 100 67

Source: IGD, excludes cash and carry formats

A brief profile of the major retailers is given below:

• Pantaloon Retail (India) Limited: Pantaloon has established strong presence across multiple consumption categories in a bid to capture maximum consumer wallet share. It has widened its format offerings from a single format to over 15 formats, which captures almost 75% of the consumption basket. Food Bazar, Big Bazar and KB’s Fairprice are the various banners under which Pantaloon Retail operates in the food and grocery segment. Out of these three, Food Bazar mainly caters to fruit and vegetable, staples, dairy


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products etc. Pantaloon often combines its Food Bazaar (food supermarket) and Big Bazaar (Grocery and other items) formats to create a hypermarket format.

Name of retailer Area in sqm No of stores Food Bazar 102,752 152 Big Bazar 380,695 149 KB’s Fairprice 17,980 155 Source: IGD

• Reliance Retail: Reliance Retail is part of Reliance Industries Limited, which is one of the India’s largest conglomerates. It ventured into organized retailing in November 2006. Reliance Fresh (Supermarket) and Reliance Mart (Hypermarket) are the two banners under which reliance operates in retailing business. The company invested heavily to build a nationwide network of procurement centers, cold storages and distribution hubs to improve supply chain efficiency of perishables. In 2008, 678 stores of Reliance Fresh and 10 stores of Reliance Mart were operating in the country.

• RPG: Spencer’s (Supermarket) and Spencer’s Hyper (Hypermarket) are the two formats of RPG group involved into food and grocery retailing. Around 60% items in a RPG store comprises of fresh and dry groceries. Around 370 stores of Spencer’s and 50 stores of Spencer’s Hyper are functional in the country.

• Aditya Birla retail: It is part of Aditya Birla group. The company forayed into retailing business in 2006 via the acquisition of Trinethra Super Retail. more. for you and more. MEGASTORES are the two banners. more. for you is a superstore format and the other one is hypermarket format. Both of them together account for presence of around 645 stores in the country. Out of this, 639 stores are in superstore format. The company focuses on private labels with presence of around 350 labels in food and non-food category.

24.5 ASSESSMENT OF MAJOR CONSUMPTION MARKETS

As mentioned earlier, the major consumption markets for fruits and vegetables grown in Bihar are Patna, neighbouring states of Jharkhand, Orissa and West Bengal. For certain fruit crops such as Litchi and Mango, the state has established linkages with major metros like New Delhi, Mumbai, Hyderabad, Bangalore, Lucknow and Nagpur.

In case of Maharashtra, Mumbai itself is a huge consumption market for fresh fruits and vegetables. The table below shows the crop wise major consumption markets of fruits and vegetables grown in Maharashtra:

Sl No Fruits/Vegetables Major consumption markets 1. Pomegranate Delhi, Kolkata, Jaipur 2. Grapes Delhi, Kolkata, Hyderabad 3. Banana Delhi, Chandigarh, Amritsar, Lucknow 4. Tomato Delhi, Kolkata, Surat, Ahmedabad 5. Sweet lime Delhi, Jaipur 6 Kesar mango Delhi Orange Delhi, Kolkata, Bangalore Lemon Delhi


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As evident from table above, Delhi, Kolkata and Mumbai are the major consumption markets for fresh fruit and vegetables grown in Maharashtra; however, in case of Bihar, Delhi, Kolkata and Patna are the major consumption markets.

Azadpur APMC, which is located in Delhi, is one of the largest fresh produce wholesale markets in South East Asia Region. It is also an important distribution hub for various markets of North India such as Chandigarh, Jaipur and Jalandhar etc. It witnesses huge arrivals from various parts of country on a daily basis. Azadpur Mandi is spread over in an area of around 40 hectares, which includes both fruit and vegetable market yards.

A detailed analysis of the above mentioned cities (Delhi, Kolkata, Mumbai and Patna) have been undertaken to assess the consumer demand. Various parameters such as demography, income and expenditure pattern, penetration of organized retail, economic indices of respective cities have been taken into account to understand the market demand of food products.

24.5.1 Delhi With a population base of 19.73 million and median age of 22.8 years, Delhi has a young population with a high propensity to consume. Around 15% of the female population is working, which means a higher number of double income families, which have higher income and propensity to spend.

Demography ‐ Delhi Population 19.73 million Median age 22.8 years Per cent of working women 14.7 %

Per capita income of Delhi has been estimated to be Rs 43,155. Around 54% of the households generate income from monthly salaries and the average HH income is Rs 183,000, which is higher than any other metros except Mumbai.

Distribution of Income in Delhi Per Capita Income Rs 43155 Per cent of salaried household (HH) 53.8 % Average HH income from salary in Rs ‘000 per annum 183 Per cent of business and professional HH 32.3 % Average HH income from business in Rs ‘000 per annum 299 Source: How India Earns, Spends and Saves, The Max New York Life‐ NCAER India Financial Protection Survey, 2007 (Estimated data for 2004‐05)

As there is no detailed data on the market size (especially of the food and beverages segment) of different cities, hence market size has been estimated using data from different sources. In terms of growth of organized retail, Delhi has an estimated retail space of 6.5 million sq ft which shows that retail boom has come up in big way in Delhi among all the Indian cities.

The average monthly per capita expenditure (MPCE) in Delhi is Rs 1803.8614. Out of this, Rs 673.73 is spent on food items i.e. around 37% of the consumer spending is on food products and around 6% is spent on perishables.

Estimation of Market size of food products in Delhi Estimated retail space in million Sq ft15 6.5 million sq ft

14 NSS report (2006‐07)


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Unit retail space (Sq Ft/HH) 4 Annual expenditure on food in Rs billion Rs 159.5 billion Monthly per capita expenditure on food in Rs Rs 673.73

The table below shows the distribution of MPCE on broad category of food items.

Per cent distribution of MPCE on Food items in Urban Delhi Cereals 7% Milk & milk products 10% Vegetables 5% Fresh fruits 1% Other food items 14% Total 37% Source: NSS report (2006‐07)

For the purpose of estimating the market size of food in Delhi, estimation of the total annual expenditure on food items was done using data on per capita expenditures on food items. It was found that NCR16’s annual expenditure on food is about Rs. 159.5 billion. As 6 % of monthly per capita consumption expenditure (MPCE) is spent on fruits and vegetables, the estimated annual expenditure on fruits and vegetables in Delhi comes out to Rs 9.6 billion. This clearly shows that Delhi is a large consumer market of food products.

24.5.2 Mumbai

The total population of Mumbai is 19.23 million and the median age of population is 25.7 years, which clearly shows that city has a relatively young population that falls in the working age group.

Demography ‐ Mumbai Population 19.23 million Median age 25.7 years Per cent of working women 10.9 %

Per capita income of Mumbai is Rs 40,768 and the monthly per capita consumption expenditure of urban Maharashtra is Rs 1673.48. Out of this, Rs 587.95 is spent on food items, which constitutes 35% of MPCE.

Distribution of Income in Mumbai Per Capita Income Rs 40,768 Per cent of salaried household (HH) 57.8% Average HH income from salary in Rs ‘000 per annum 205 Per cent of business and professional HH 31.7% Average HH income from business in Rs ‘000 / annum 204 Source: How India Earns, Spends and Saves, The Max New York Life‐ NCAER India Financial Protection Survey, 2007 (Estimated data for 2004‐05)

Mumbai is leading the retail revolution in the country with an estimated retail space of 6.6 million sq ft. All the major food and grocery retailers of the country such as Pantaloon, Reliance and AV Birla are present in the city. The annual expenditure on food is around Rs 135.6 billion.

15 Images retail 2005 16 NCR means Delhi, Noida, Gaziabad, Gurgaon and Faridabad


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Estimation of Market size of food products in Mumbai Estimated retail space in million Sq ft 6.6 million sq ft Unit retail space (Sq Ft/HH) 1.4 Annual expenditure on food in Rs billion Rs 135.6 billion Monthly per capita expenditure on food in urban Maharashtra Rs 587.95 Source: DES, Govt of Maharashtra

Out of 35% of MPCE spent on food products, cereals and milk products constitute 13% of the total consumer spending. Fresh fruits and vegetables constitute around 6% of MPCE, which is almost similar to Delhi.

Per cent distribution of MPCE on Food items in Urban Maharashtra Cereals 7% Milk & milk products 6% Vegetables 4% Fresh fruits 2% Other items 16.% Total 35%

The estimated annual expenditure on fresh fruits and vegetables in Mumbai comes to around Rs 8.1 billion. In comparison to Delhi, Mumbai is a smaller market for perishables.

24.5.3 Kolkata Kolkata is a major market of eastern India and a large market for fruits and vegetables of Bihar. The total population of the city is 13.1 million. Around 10.6% of the female population is working and hence contribute in household income.

Demography ‐ Kolkata Population 13.1million Per cent of working women 10.6 %

Per capita income of urban west Bengal has been estimated to be Rs 27,868 and the monthly per capita consumption expenditure of urban West Bengal is Rs 1371.26. Out of this, Rs 551.40 is spent on food items, which constitutes 40% of MPCE.

Distribution of Income in Kolkata Per Capita Income Rs 27,868 Per cent of salaried household (HH) 37.7 % Average HH income from salary in Rs ‘000 per annum 135 Per cent of business and professional HH 41.6 % Average HH income from business in Rs ‘000 / annum 146

As per images retail report, Kolkata has an estimated retail space of 0.7 million sq ft. It is much less in comparison to Delhi and Mumbai.

Estimation of Market size of food products in Kolkata Estimated retail space in million Sq ft 0.7 million sq ft Unit retail space (Sq Ft/HH) 0.4 Annual expenditure on food in Rs billion Rs 86.6 billion Monthly per capita expenditure on food in Rs Rs 551.40

Fresh fruits and vegetables constitute around 7% of MPCE.

Per cent distribution of MPCE on Food items in Urban West Bengal Cereals 10% Milk & milk products 4% Vegetables 6% Fresh fruits 1% Other items 19% Total 40%


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The annual expenditure on food in Kolkata is around Rs 86.6 billion. Hence the annual expenditure on fresh fruits and vegetables in Kolkata comes to around Rs 6 billion. Though the market size is relatively less in comparison to Mumbai and Delhi markets, still if offers huge scope for fruits and vegetables grown in Bihar and Maharashtra.

24.5.4 Patna Patna is the largest town and capital of Bihar. Total population of the district is 47.18 Lakh as per 2001 census with an urban population of approximately 30 lakhs. Patna, being the capital of the state and the largest town, offers a big market for fresh vegetable and fruits. Per capita income of Patna is Rs 6958, which is highest in the state. As per NSS report 2006-07, monthly per capita expenditure of urban areas in Bihar is Rs 864.96, which is lowest in the country. Out of this, Rs 435.56 is spent on food items, which constitutes 50% of the total consumer spending. The share of vegetables and fruits in total consumer expenditure of urban consumers of Bihar is around 7.8%.

On the basis of above facts and figures, the estimated annual market size for fresh fruits and vegetables in Patna (urban) is estimated to be 2.5 Lakh MT.

It can be assumed based on the overall assessment here that the market size of fruits and vegetables, as also milk, milk products and cereals, in the metro cities, is a growing one and has scope for greater absobtion from organised supply centres. Other large metros and tier two metro cities are also markets ripe for tapping, given the needed organisation at the supply side.


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25.3 OTHER IMPACT ASSESSMENTS

The following impact assessment reports are annexed:

Environmental assessment and review framework

Social and poverty assessment and mitigation

Poverty and Social Assessment

Public consultation and participation framework

Resettlement framework with entitlement matrix


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26 CAPACITY BUILDING

Capacity building inputs are envisaged to be an integral part of the implementation strategy for the Agri-business Infrastructure Development Investment Program in Bihar. As mentioned in the approach, an assessment of the need for building capacity and raising awareness levels regarding the issues involved were woven into the analysis stage at the grassroots and implementation levels. As a result, the details regarding these aspects emerge from this assessment and have been developed to the appropriate scale, keeping in mind their viability and appropriateness to the local context.

26.1 CAPACITY BUILDING: NEEDS ASSESSMENT

26.2 FARM/PRODUCTION CLUSTER LEVEL

The need for building existing capacities at farm level, was brought out in the early stages of the value chain analysis of focus crops in the identified regions: Muzaffarpur region and Patna-Nalanda region.

The weaknesses in the system included lack of proper aggregation, absence of efficient and scientific systems of farming. Small holding sizes, traditional farming practises and lack of field level organisation were among the reasons identified for the weaknesses.

In addition, several issues pertaining to lack of awareness at the level of the farm and production cluster, lack of farmer-organisation, no interventions to build soft/technical skills, limited or no exposure to new and efficient techniques and systems and other good practices etc.. The social assessment has flagged the problems faced by women farmers in particular.

Given the interventions envisaged under AIDP, these gaps are required to be addressed for the successful implementation of the projects.

The focus of this level of capacity building will address the following aspects:

Farmer organisation: This is the first step towards facilitating extension services at farm level; this may be undertaken by strengthening existing channels and putting into place alternate services. Capacity building of farmers will be the necessary first step for these and further interventions. Formation of farmer groups as Self Help Groups (including micro-finance activities) with special women’s groups is proposed. These groups will be further linked to various institutions and systems for further development and support activities. Group Leaders will be provided special trainings to become Trainers themselves, to ensure continuity and scaling up the activities, over the years. Farmer Groups may, over the years, become federated along the value chain to form producer companies.

Awareness building: Once the organisation is in place at the farmer level, awareness building activities will be undertaken to address all involved groups: farmers, functionaries from concerned government departments (state agriculture department) and institutions, traders, elected representatives (at PRI/ULB level). This will include


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subjects like understanding the Integrated Value Chain approach, good farm-level practises, the Agri-infrastructure Development Project, institutional linkages and available schemes, aspects pertaining to environment, economics, and social issues including gender sensitisation. Exposure visits to good examples by selected groups and further dissemination of learnings will also be undertaken.

Resource strengthening: Identification of relevant resources for each production cluster and linking them is also included

These proposed interventions are detailed in the following sub-section.

Further to the ones proposed, other interventions may also be included as the project progresses:

Input and farm-machinery modernisation

Scientific management of resources (inputs)

Farm mechanisation as a process to link to the value chain to ensure improved productivity and value realisation. This will lead to increased farm-level incomes and also help farmers become more responsive to market needs

26.2.1 Capacity Building at Farm/Production cluster‐level

It is envisaged that this initiative, in its 4-5 years of running, will cover about 18,000 farmers (including focusing on women farmers as well), through the formation and support of Self Help Groups to spread awareness, build capacity and disseminate information.

The number of farmers to be covered is based on an estimation that takes into account the following:

Average land holding size in the project districts

Reported productivity per unit of land (also, based on focus crops)

Designed capacity for the Integrated value chains and the associated hub and spokes

Taking these into account, it was assessed that during the project implementation period (4-5 yrs) , about 18,000 farmers would be targeted to be covered for capacity building inputs.

Based on this assessment, workable/viable sizes of SHGs and farmer groups have been estimated. It is also envisaged that in time and with experience, some of these groups would become more professional and may transform into producer companies or cooperatives.

The train-the-trainer approach has also been included with the trainer being selected from within the farmer groups to ensure greater outreach, local inclusion and the training exercise being embedded in the area for continuity beyond the project implementation period

The outline is described below, along with envisaged costs.

Training Input Focus Group Details Costs Rs '000

Farmers, organised into farmer groups (SHGs)

1o spokes and 2 Hubs: 12 x 15 groups x 100 persons per grp = 18000 farmers

4800 1 Formation of Farmer Groups

[Including Spl Women SHGs]

180 groups in 6 months across both value chains

2 Farmer Group Training

Group Leaders: 2 leaders/group

2leaders x 180 groups= 360 persons 20 persons per session= 18 tr sessions Rs2000/day x 5 dys x 360 persons

3600


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One more refresher training of 2 days 1800

3 Training of Trainers Key persons from NGOs/Govt)

10 persons for 2 wks at NIRD/IRMA 1000

Awareness Program for dissemination of information regarding the project and good practises (across 3 yrs)

Use of multimedia awareness in first 6 months

‐ About Project objectives ‐Value chain approach ‐ Agri‐bus supply chains ‐Env issues

‐ Social/gender sensitisation

4

‐ Inst linkages, govt schemes, MFIs

5o officers chosen from project areas only, across the state (from PRIs, ULBs, dist offices state agri dept) Representatives from Farmer associations, NGOs, cooperatives Traders awareness

[Coordinate with dissemination of information from exposure visits‐ see next point]

1000

5 Exposure visits by identified stakeholder groups

Selected farmers and officers from applicable cluster

30 farmers +10 officers 4 locations overseas over 3 yrs

7000

6 Resource strengthening through trading of experts/practitioners

Across clusters, as applicable

As req

TOTAL (in Rs mn) 19.2

26.3 CAPACITY BUILDING AT HUB‐SPOKE LEVEL

Even as the proposed capacity building initiative seeks to address farm level capacity building, it also includes another essential facet: technical training at the level of the proposed facilities. Indeed, without the appropriate capacity building inputs the program will not be able to realise its objectives.

26.3.1 Capacity Building at hub and spoke‐level Thorough training support, of a more technical nature, is envisaged at the facility level to handle the produce passing through and adhere to the strict quality standards demanded by the process, according to each produce type.

The facility level training will start with preparation of training modules specific to each product type. The training will cater to different target groups, focussing more on skills development and exposure to working with new technologies, including material handling systems. It is envisaged that workers at the facilities will not only be trained once but will require to be trained periodically to keep up quality standards, update technologies, remain current and efficient.

This applies more specifically to all players along the cold chain as it has highly specialised needs and standards, to maintain and deliver quality. Variations by product type will b addressed through the specialised and different training modules proposed.

The following table captures the details of the training support by product category, over a 3-4yr period. It is assumed that the facilities will become functional in the second year.


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All Focus Crops No of Days of Training

For one std spoke (daily) No of facilities No of days

Frequency of training (3 yr period) Costs (based on 2k per person per day per

training*)

Days of training

Litchi 50 workers, 4 supervisors, 1 manager per facility

2 One full training followed by annual refresher/on demand

1

5 55 550 3

3300000

30 Mango 30 workers, 4 supervisors, 1 manager per

facility 5 One full training followed by annual

refresher/on demand 2

5 35 875 3

5250000

75 Banana 10 workers, 2 supervisors, 1 manager per

facility 4 One full training followed by annual

refresher 3

7 13 364 3

2184000

84 Potato 3 persons, 1 supervisor, 1 manager 1 One full training 4

3 5 15 1

30000

3 Onion 3 persons, 1 supervisor, 1 manager Aggregation pt 4

per spoke, 3 spokes= 12

One full training 5

2 5 120 1

240000

6 Training days 396000 198 Module prep 2000000

TOTAL (in Rs mn) 13.40


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26.4 CAPACITY BUILDING COVERAGE

Through the formed farmer groups and facilities set up, the following aspects are envisaged to be covered, in terms of issues over the project period, across the entire integrated value chain.

Capacity Building Input Focus Group

1 Product aggregation and pre‐sorting Farmer, unskilled worker

2 Product loading –unloading, transfer to facility Farmer, unskilled worker, (at farm and aggregation level)

3 Receipt, sorting, grading (QA/QC) Facility level‐ Unskilled labour, skilled labour, supervisor, manager

4 Packaging Facility level‐ skilled labour‐‐(packaging team), supervisor, manager

5 Cold Chain Operations: operations, resource optimisation‐energy management, decision‐making on product flow, demand‐side link,

Facility level‐ skilled labour‐‐(packaging team), supervisor, manager

6 Compliances‐ HACCP, EHS, other regulatory compliances

Facility and logistics teams‐ all levels, as applicable

7 Logistics (transport, ventilation) Supply chain management‐ tracking, optimisation

Transport team Managers/owners

8 Warehouse‐ compliances and std operation, stacking stowage and ventilation systems, material management

Supervisor, manager

9 Traceability issues along value chain‐eg. EuroGAP, All along value chain

26.5 IMPLEMENTATION ARRANGEMENTS

The proposed capacity building initiative is proposed to be undertaken at the State level in Bihar to cover both Integrated Value Chains: Muzaffarpur and Patna-Nalanda, by the State Level SPV. The State Level SPV may:

outsource this aspect, based on competitive selection of a qualified entity, with relevant experience and expertise-- this may be an institute or NGO

identify and appoint internally, through the relevant government department, a cell to undertake the tasks.

26.6 SUMMARY FINANCIALS FOR BIHAR BIHAR Training Coverage Cost (Rs mn) Soft Skills and awareness training

Farmers, officers, NGOs, Cooperatives and Farmer organisations

19.20

Product Specific (at spoke and hub level)

Employees, supervisors and managers at Spokes and Hubs (at Aggregation pt level for Onion)

Training Module Preparation and Trainer fee

Lump sum Rs2mn for module prep. Training days 198@Rs 2000 per day

13.40

TOTAL (In Rs mn) 32.60


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27 POLICY AND REGULATORY ASPECTS

27.1 ISSUES RELATING TO POLICY‐ AGRI‐BUSINESS INFRASTRUCTURE

Investments in agri-business marketing infrastructure in the country continue to be public sector driven, and have resulted in a large network of markets created across the country. New developments have not kept pace with the rate of growth in production of agricultural commodities, especially perishables like horticulture and floricultural commodities.

As a result, most of these markets do not have adequate infrastructure provision, capacities and capabilities to handle perishables. The lack of appropriate post-harvest management facilities including storage and effective evacuation mechanism- well developed and organized distribution systems; this has negated the advantages gained in production resulting in high wastage of fresh produce in India. Wastage is estimated to be around 35-40 per cent of the production equivalent to Rs 350-400 billion in value terms.

The lack of private investment in agribusiness infrastructure and post harvest handling infrastructure are due to several reasons, but significant among these is existing policies and regulatory frameworks for agricultural marketing. This is long standing legacy is set to change slowly as in recent years, the government has noted these drawbacks and taken steps to bring about positive changes. These are discussed later in this section.

27.1.1 Regulatory Issues In addition to the overarching policy, specific regulatory issues affecting the development of agri-business and post harvest infrastructure in the country are outlined below:

Low Level of Government Financial Assistance for Development of Agribusiness Infrastructure

Multiple schemes exist under various departments and ministries which support the development of agribusiness infrastructure in the country (Details in Annexure). The Ministry of Agriculture provides for financial assistance in the form of back-ended credit linked subsidy for establishment if packhouses, cold storages, Controlled Atmosphere Storage, refrigerated vans, mobile processing units, wholesale markets, rural markets, functional infrastructure for collection and grading etc., through the schemes of the NHM, NHB, DMI and APEDA for export related infrastructure. However, the levels of assistance and calculation of project cost needs thorough revamping.

The Working Group of the Planning Commission (agricultural marketing infrastructure for the XI Plan) has observed “that though the various schemes differ in-terms of scale of subsidy, mode of administration, and channel of fund flow, most of the schemes are back

The Task Force on Cold Chain development in India notes that “high wastages occur due to a multi‐layered marketing channel, lack of infrastructure, absence of suitable cold stores and associated logistics as well as the lack of an organized distribution system. These are further aggravated by the poor road connectivity and lack of proper storage, handling and transportation between production areas and consumption centres located far‐off from each other”.


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ended subsidy schemes and are credit linked with 25 percent grant”. The Working Group further mentions that agriculture being a disadvantaged area for private investment, (as has been observed in practice), for promoting infrastructure in this sector, the scale of grant/incentives has to be much more attractive. Business in agriculture is risky due to small holdings, resource-poor farmers, technological backwardness, weather dependence, and the dispersed nature of raw-material sourcing. To provide adequate protection for meeting these risk factors, the incentives for investment have to be much more attractive in this sector. The present level of subsidy of 25 percent covers primarily the interest cost and hardly subsidizes the capital cost of the project, even though the incentive is called “capital subsidy”. If an enterprise has set up a project of Rs 1 million, he is eligible for Rs 0.25 million back-ended subsidy which exactly equals the interest cost. There is virtually no capital subsidy.”

Multiplicity of taxes

Indirect Taxes

Multiple taxes affect all aspects of marketing – starting from the levy of VAT (which even today varies among states) on even basic agriculture produce or elements of minimal value addition like rudimentary milling etc, Central Sales Tax, entry tax, octroi, purchase tax, excise tax etc. if further value addition including processing is undertaken. It is also ironic that in most of the states, while there is exemption or no VAT levied on liquor, large number of food items continue to be taxed at varying categories of rates of 1%, 4% and 12.5% (mainly on processed and packaged food products).

With the recent rulings of the many high courts that entry tax levied by states are not constitutional, it still continues to be in effect in many states thereby reducing the competitiveness of the industry.

Direct Taxes

Unlike other infrastructure sectors, investments in agribusiness/post harvest infrastructure are not considered as “Infrastructure” and hence no incentives are provided under the Income Tax Act.

Essential Commodities Act, Stock Order etc.

The Essential Commodities Act (ECA) 1955 was put in place after India’s Independence to control production, supply and distribution of essential agricultural commodities and to ensure availability of food products. In the current context of liberalizations, controlling the movement of products by licensing of dealers, limits on stocks and control on movements only hamper the growth of the agricultural sector and curtails promotion of food processing industries.

Fragmentation and Licensing

The vast Indian market is broken up into smaller local /regional markets resulting in high costs involved in transporting agricultural commodities and processed food from one part of the country to another. Secondly, even within the states, a trader /operator has to take multiple licenses for operating in more than one APMC regulated markets, which is a deterrent and in many cases acts like a trade/entry barrier.


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Convergence of Operations and Schemes:

A World Bank study has found that multiple government agencies are involved in the agricultural marketing system. Functions and schemes overlap significantly. To quote the study “at least 39 central government agencies promote agricultural marketing development, either broadly or with respect to specific commodities. Most of these agencies offer investment grants to the private sector, but weak coordination o f these efforts prevents greater synergies in development impact and in some instances leads to duplication. For example, three government ministries offer grants to invest in cold storage facilities; each grant scheme has different terms and conditions. Clearly, these schemes should be rationalized. Greater coordination should be fostered among the agencies that implement them to promote greater consistency, minimize duplication, more effectively track the level of support, and document the impact of these investments.

Administered Prices

The country has administered prices for the major food grains including cereals, oilseeds, cotton and sugarcane. These at times severely limit the private investors.

Apart from these, the National Horticulture Mission has provision for buy back intervention for the state governments which can put the private players at a disadvantage.

27.1.2 Credit While Agriculture has been classified by the Government as priority sector for lending, investments in agribusiness remain a grey area. Given the intensive capital nature of some of the investments particularly in cold chain infrastructure, availability of credit, particularly for greenfield projects or for first generation investors become a stumbling block many a times. Secondly availability of venture capital funds in the country for agriculture and agribusiness investments is almost non-existent.

27.1.3 Technology Induction While some efforts have been made by the APMC markets to induct mechanised equipments for sorting, grading etc, the technology in use needs a revisit. Similar is the case with storages – both ambient and controlled environment. A Study by Directorate of Marketing & Inspection (DMI), GoI mentions that only two percent of the cold storages had PUF insulation and about 18 percent of the cold storages offered deep freeze facilities. Very few cold stores (about 9 percent) had some mechanized handling systems. About 54 per cent of cold storages offered manual grading facilities.

Negligible cold storages had advanced facilities like humidity control or controlled atmosphere. Only a few cold store units in the consumption centres with capacities in the range of 2,000 to 4,000 MT have installed modified and controlled atmosphere systems

The structure of the presently applicable schemes to such infrastructure have promoted traditional technologies and not the modern technologies that are better suited to the needs and cover connected functions and operations.


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27.1.4 Capacity Building At the current levels of operations itself, there is shortage of skilled manpower at various levels right from the farm to processing. A survey by FICCI on estimating the skill shortage in Indian Industry, estimates that shortage of refrigeration mechanics, electricians and fitters exists to the tune of 65%. In addition, shortage of agricultural scientists exists to the tune of 60% and shortage of food safety professionals exists to the tune of 70%17. There are no specialized institutes for R&D and for imparting specialized skills in bakery and confectionery. Besides CFTRI, there are very few institutions, which provide qualified manpower for food processing sector.

Similar is the case at the farm level. There is pressing need to undertake precision farming and train farmers in harvest and post harvest management of crops, especially perishable. The extension delivery mechanism is traditional and fully driven by the government. Considering the large number of small and marginal farmers in the production chain, attention paid to human resource development including development of grass root level institutions with a view to mainstreaming these farmers has received less attention. The public extension delivery system was never market oriented allowing private sector to play any significant role.

Govt policies/schemes do not provide adequate assistance to support this essential aspect to operationalise new technology use through private initiatives. Private investors are also reluctant to invest in capacity building on their own.

27.2 RECENT POLICY INITIATIVES TAKEN BY THE GOVERNMENT

Policymakers in India have taken cognizance of the changing requirement of agricultural business infrastructure as well as the importance of well-functioning markets to agricultural growth, food security, and broad-based rural development. In this regard, the Prime Minister of India, Dr. Manmohan Singh, noted during the Agriculture Summit 2005 in New Delhi that “an important commitment of the government is to integrate the domestic market to all goods and services. The time has come for us to consider the entire country as a common or single market for agricultural products. We have to systematically remove all controls and restrictions.”18

Recognising the need, there have been several policy changes that have taken place in the country, even though much needs to be still done. The Government has developed a model APMC Act 2003 and is vigorously promoting it. The modifications allow the direct marketing, establishment of private markets, single license for operating in the entire state, contract farming etc. even though there are still limitations that will need to be overcome. However, it is understood that these are the first steps and will evolve with time and experience gained from implementation.

Some additional initiatives that have been taken up are:

17 Source: FICCI Industry Survey 18 India: Taking Agriculture to the Market – World Bank


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Removal of restrictions on investments in bulk handling and storage by domestic and foreign investors (up to 100%).

Repeal of the Cold Storage Order, 1980 (promulgated under Section 3 of the Essential Commodity Act 1995) with a view to remove administrative control in licensing, rent control and requisitioning cold store space. However, the Government of West Bengal has not yet amended it and the Government of Uttar Pradesh has partially amended the same.

In 2002, GoI lifted licensing requirements, stocking limits and movement restrictions for wheat, paddy/ rice, coarse grains, edible oilseeds, edible oils and removed restrictions on access to credit under the selective credit control policy.

Enactment of plant variety protection legislation protecting intellectual property rights with respect to crop research and development

Removal of ban on future trading of 54 commodities in 2003.

Liberalised norms for Foreign Direct Investment (FDI) through automatic route by including agriculture and allied activities like horticulture, and setting up infrastructure such as cold storage and warehousing facilities

27.2.1 State Level APMC

Agriculture marketing, till recently was governed by the Agriculture Produce Marketing Committee (Act), 1963 enacted by different states. There are 2,170 Agricultural Produce Marketing Committees (APMCs) at present in the country with about 7,500 markets being regulated under the respective State APMC Acts. This was enacted to facilitate the establishment of an efficient system of buying and selling of agricultural commodities as well as regulate trade practices detrimental to farmers’ interest. The basic objective of setting up of network of physical markets was to ensure farmers obtaining fair and reasonable price for their produce by creating environment in markets for fair play of supply and demand forces, regulate market practices and attain transparency in transactions.

Under this Act, a state was divided in various marketing zones and declared as a market area wherein the markets are managed by the Market Committees constituted by the State Governments. Under the Act, once a particular area is declared a market area and falls under the jurisdiction of a Market Committee, no person or agency is allowed freely to carry on wholesale marketing activities. However, due to the State monopoly, no private markets and large scale supply chains could come up in the past and these regulated markets typically suffered from inadequate infrastructure and trade practices inimical to farmers’ interest. The monopoly of Government regulated wholesale markets has prevented development of a competitive marketing system in the country, providing no help to farmers in direct marketing, organizing retailing, a smooth raw material supply to agro-processing industries and adoption of innovative marketing system and technologies.

The state of Bihar has repealed the APMC Act in 2006 and is in the process of considering options for new regulations in the sector.


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27.3 INITIATIVES TAKEN TO PROMOTE AGRIBUSINESS INVESTMENT IN BIHAR

The following are some initiatives taken up by Bihar in the agri-business area:

The state provides an incentive of 35% with a maximum limit of Rs 5 crore to set up agro processing, food processing and agribusiness infrastructure such as cold storages, Rural Agri Business Centers, storage for agricultural commodities

Incentive Grant for capital investment on Captive Power Generation/ Diesel Generating Set - 50% (Fifty percent) of the amount Spent on plant and machinery in the establishment of Captive Power Generation/Diesel Generating set will be granted to the industry. No upper limit for this amount has been fixed. This facility will be made available after the unit comes into production.

Stamp duty and Registration fee - Tiny, small, medium and large scale industries which are to be established in the industrial area / shed and outside the area of the Authority will enjoy the full (100%) exemption in stamp duty and registration fee in lease / sale / transfer.

New industrial units will be granted relief from payment of electricity duty under the Bihar Electricity Duty Act, 1948 for the generation and for own consumption of electricity from D.G. Set and Captive Power Units.

100% exemption for seven years in luxury tax for seven years

100% exemption in electricity duty for seven years.

100% exemption in conversion charge.

Only 1% CST will be payable on the items produced by the registered small and medium units in Bihar.

Incentive on quality certification - 75% of cost incurred in obtaining certificate of I.S.O. standard (or equivalent) from reputed national/ international level organizations, would be reimbursed by the State Government.

27.4 EXISTING SCHEMES PERTAINING TO AGRI‐BUSINESS INFRASTRUCTURE

27.4.1 Impact of Schemes on Development of Agribusiness Infrastructure

Nearly all the currently operational schemes do not promote convergence. Firstly, this has resulted in investors or infrastructure developers not being able to take advantage of dovetailing/convergence of scheme funds and provisions.

Second, the quantum of assistance and the level of assistance (in terms of percentage and project cost) do not reflect the current prices and need. For example, the project cost of cold stores taken by all the schemes of the Ministry of Agriculture are based on the cost of the projects around 1999 or 2001 and for the creation of RCC infrastructure with glass wool insulation and the like, not in accordance with more recent developments like PUF panels thereby restricting the induction/adoption of advancements in technology.

Third, the administered prices or the provision for market intervention within the state’s ambit of functioning further restricts actual players and promotes intermediation.

Fourth, the schemes actually support the fragmentation of the value chain as they support one or the other individual components and not the complete chain.


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Fifth, most of the Schemes do not promote creation of backward linkages in terms of development of grassroots institution framework by private investors as also don not support the investor undertaking market driven farming.

The level of assistance (in terms of % of project cost) has been captured well by the Working Group of the Planning Commission (agricultural marketing infrastructure for the XI Plan). However, nearly two thirds of the eleventh plan period has already passed and no developments have taken place (Except 1-2 schemes of the Ministry of Food Processing Industries)

27.5 POLICY INITIATIVES CRITICAL TO SUCCESSFUL IMPLEMENTATION OF AIDP

27.5.1 Applying the Integrated Value Chain approach The limited and inadequate facilities of existing markets are major constraints to efficient operations in terms of agri-business infrastructure and services.

However, fragmented and component wise development (as observed from past experiences) are not going to be effective. Efforts over the longer term, however, have to be framed within a holistic agricultural market development strategy integrating all components and elements.

The current initiative promotes the Integrated Value Chain approach for Agri-business infrastructure and services. This approach is envisaged to address the discussed infirmities and create awareness along the chain on the value erosion due to different actions taken at different points of supply chain. It is also expected that the support to be provided under the proposed project, will address the presently low level of assistance available and attract larger investments. This will allow improving the operations and facilities and address the criticality of ensuring that more resources are used to improve agribusiness infrastructure development and link farm to the market effectively.

27.5.2 Suggested Policy Interventions In the context of Integrated value chains and the existing issues in this area, the following set of suggestions are presented for consideration and coordinated action towards the operational climate for the project:

Single uniform license to enable procurement in any district or market without hindrance or , single unified license for buying, procuring, selling of inputs, storage, and processing of all agriculture commodities for the State as whole be introduced.

Abolition of mandi market fees charged by APMCs on private market developers and investors19

Relaxation of restriction on storage

19 This should be taken into account in any new policies on agri-marketing that may be formulated in Bihar


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Including agri infrastructure eligible for viability gap funding

Investment in agri infrastructure to be considered for tax exemptions – Investment in agri business infrastructure to be accorded 100% depreciation in first year similar to that for cold storages to be carried forward for at least three years of operations


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28 IMPLEMENTATION FRAME WORK

28.1 PROPOSED MODELS UNDER PUBLIC‐PRIVATE PARTNERSHIP

28.1.1 Approach to Public–Private Partnership (PPP) in India “The approach to PPPs must remain firmly grounded in principles which ensure that PPPs are formulated and executed in public interest with a view to achieving additional capacity and delivery of public services at reasonable cost. These partnerships must ensure the supplementing of scarce public resources for investment in infrastructure sectors, while improving efficiencies and reducing costs. As noted in the Approach to the Eleventh Plan, PPPs must aim at bringing private resources into public projects, not public resources into private projects.”

‐11th Five Year Plan (2007‐12), Volume I, Planning Commission, Government of India

After the unprecedented success of the 10th Five Year Plan, which achieved average annual growth rate of 7.7 per cent, the growth target for 11th Five Year Plan has been further enhanced to 9 per cent with acceleration projected to reach 10 per cent by the end of the Plan. To achieve these growth targets, it is believed that India needs to step up its infrastructure investments from the present level of around 5 per cent to about 8 per cent of GDP which may amount to almost USD 400 billion of investments.

While acknowledging the dominant role of the public sector in building infrastructure, the 11th Plan also appreciates limitations of the public sector in mobilizing the total requisite resources. The share of the private sector in infrastructure investment is, therefore, projected to rise substantially from about 20% estimated in the Tenth Plan to around 30% in the Eleventh Plan. It has, therefore, suggested attracting private investment through “appropriate forms” of public private partnerships to meet the overall investment requirements.

28.1.2 Experience of PPP in India PPP approach in India, as elsewhere in the world, has been guided by the belief that it not only brings much needed financial resources from private sector but also ensures greater efficiency in provision of public services. The database of PPP in India, prepared by Department of Economic Affairs, Ministry of Finance, reveals that as on November 15, 2009, there have been around 450 PPP projects in focus sectors where a contract has been awarded and projects are under implementation/near implementation. The total project cost is estimated to be about Rs. 225,000 Crore or USD 48 billion.

The road sector clearly dominates PPP experience in India and accounts for about 60 per cent of total number of PPP projects so far. Other significant sectors, in terms of numbers, are urban development (16 per cent), ports (10 per cent), tourism (6 per cent) and energy (5 per cent).

Roads61%Urban Dev

16%

Por ts1 0%

T ourism6%

Energy5%

Others2%

Number of PPP Projects in India – Sector‐ wise distribution


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In terms of value, though, while road remains leading sector, accounting for 45 per cent of total value of projects, port and airport sectors are next accounting for 30 per cent and 9 per cent of total value of PPP projects in the country so far.

Further, Karnataka, Andhra Pradesh and Rajasthan are leading states and National Highway Authority of India is the leading central agency involved in PPP projects in the country. Finally, in terms of main types of PPP contracts, almost all contracts have been of the BOT/BOOT type (either toll or annuity payment models) or close variants.

A study of World Bank regarding experience of developing countries reveals that Telecom (54 per cent) and Electricity (23 per cent) together account for more than 75 per cent of investment commitments to infrastructure projects with private participation. Also, cumulative investment in PPP projects near/under implementation in India at around USD 48 billion accounts for merely 5 % of investment commitments in such projects in developing countries during 2000-2008. Of course, it may not be entirely fair to compare investment “commitments” to projects near/under implementation where contract has already been awarded. More so, as PPP projects have truly gained momentum in India only during last 4-5 years.

This is also corroborated by another set of data which has put India at 2nd position behind Brazil amongst top 10 countries by investment commitments in infrastructure with private sector participation. In fact, India accounted for as much as USD 110.2 billion (13.1 per cent) of such investment commitments, marginally behind Brazil which attracted USD 111.9 billion.

28.1.3 PPP in Agribusiness Infrastructure: AIDP has envisaged PPP model for implementation of proposed integrated value chains. The key rationale for introduction of PPP model in infrastructure projects has been a combination of private sector efficiency and public budget constraint. It is being argued similarly here that scale of investment needs for agribusiness infrastructure are too huge to be adequately met by public sector alone. Moreover, it is agreed that most of the projects in agribusiness suffer from large inefficiencies and a PPP structure may therefore bring in much needed efficiency in both construction and operation ofproposed agribusiness infrastructure.

However, the proposed financial structure for AIDP would be one of the first such efforts in the country to create Agribusiness infrastructure under PPP model. As can be seen from sector-wise distribution of PPP projects in the country, Agribusiness has not yet been covered as a sector under PPP projects under/near implementation. To be sure, this would be true of PPP experience worldwide too as this model has been preferred mostly for creation of public

Total investment commitments to infrastructure projects with private participation in developing countries, by subsector, 2000–2008 : USD 843.3 billion (2008 USD)

Roads45%

Urban Dev7%

Ports29%

Airpo rts9%

Energy8%

Others2%

Value of PPP Projects in India – Sector‐ wise distribution

Electricity23%

Natural gas3%

Telecoms54%

Airports3%

Railways2%

Roads8%

Seaports4%

Water treatment plants

1%

Water utilities2%

Combined water and electricity

utilities0%


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utilities and basic infrastructure, specially for projects which involve large scale upfront investments even as natural ownership of assets may lie with the Government.

28.1.4 Viability Gap Funding Scheme (VGF)

It was earlier envisaged to provide funding to proposed projects for integrated value chains under Viability Gap Funding Scheme. The financial assistance available under VGF of Ministry of Finance, Government of India is normally in the form of a capital grant at the stage of project construction. The financial assistance is equivalent to the lowest bid for capital subsidy, but subject to a maximum of 20 per cent of the total project cost. In addition, the sponsoring Ministry/ State Government/ statutory entity may propose to provide assistance up to a further 20 per cent of the total project cost.

To be eligible for consideration under VGF, a project needs to be a PPP project and should meet the following criteria:

1. The PPP project has to be implemented, i.e. developed, financed, constructed, maintained and operated for the project term by a private sector company to be selected by the Government or a statutory entity through a transparent and open competitive bidding process.

2. The criterion for bidding shall be the amount of viability gap funding required by the private sector company for implementing the project where all other parameters are comparable.

3. The PPP project should be from one of the following sectors: Roads and bridges, railways, seaports, airports, inland waterways, power, urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas, infrastructure projects in Special Economic Zones, international convention centers and other tourism infrastructure projects. However, it has been provided that the Empowered Committee may, with approval of the Finance Minister, add or delete sectors/sub-sectors from the aforesaid list.

4. The project should provide a service against payment of a pre-determined tariff or user charge.

5. The concerned sponsoring entity has to certify with reasons the following: The tariff /user charge cannot be increased to eliminate or reduce the viability gap of the PPP project. The project term cannot be increased for reducing the viability gap. The capital costs are reasonable and are based on standards and specifications normally applicable to such projects where the capital cost cannot be further restricted for reducing the viability gap.

6. Finally, the Scheme will apply only if the contract/concession is awarded in favour of a private sector company in which 51 percent or more of the subscribed and paid up equity is owned and controlled by a private entity.


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28.2 CHALLENGES OF VGF MODEL FOR AGRIBUSINESS INFRASTRUCTURE UNDER AIDP

28.2.1 Under VGF, ownership of project assets has to remain with the Government

To satisfy this core condition of VGF, land would need to be arranged by the concerned state governments. In case of AIDP, this would require a relatively large parcel of land (say, around 25-30 acres) to be provided for building Hubs and smaller parcels of land (say, around 5-10 acres) to be provided for setting up various Spokes of each Integrated Value Chain. Also, such land need to be at locations suitable for setting up such facilities in terms of basic infrastructure and market connectivity.

The detailed field surveys done in Maharashtra for proposed value chains have brought out difficulties in this regard. There are no such land parcels available with the Government of Maharashtra which can be offered for proposed value chains. The State Government representatives have also expressed their inability to provide land for setting up these value chains and have clearly advised their preference for a model which allows private entrepreneurs to bring in their own land for the projects. However, such an arrangement may not then quality the projects for positioning under VGF.

28.2.2 Private sector is given a contract/concession for the project term to recover its investments

It may be appreciated here that typically PPP projects like roads, ports, airports etc. provide certain captive market to interested developers and therefore may not require large efforts at market development. In fact, many PPP facilities evolve as monopolies which ensure certain traffic (market) to private sector bidder selected for building and operating these facilities. In case of roads and bridges under PPP, most of these projects have little competition and get assured traffic. In case of modernisation of airports under PPP in India, no new or existing airport is permitted by Government of India to be developed as, or improved or upgraded into, an International/Domestic Airport within an aerial distance of 150 kilometers of the Airport before the twenty-fifth anniversary of the airport opening date. Thus, the project operators in all these cases are assured a captive market and “market risk” to a large extent is taken care of under PPP model. The only market risk in such cases is accuracy of traffic projections.

This may though not be applicable to proposed integrated value chains under AIDP. The facilities created under these projects, though need based, would require to compete with similar existing and future facilities both in the public and private sector. Considering the effort/investment required in building forward and backward linkages for proposed projects, the condition of transferring ownership of the projects back to the government/sponsoring entity may discourage promoters/private enterprises from bidding for these projects under VGF.


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28.2.3 User charges need to be determined before implementation of the project

This would be another challenge for integrated value chain projects. User charges need to be determined in advance for projecting “viability gap” for these projects, which may be a difficult exercise in agribusiness projects. This is due to greater market uncertainties in this sector. While user-charges at the level of Hubs (large storage, trading and value added facilities) may be possible to be determined, this may not be practical at the level of Spokes (Agri-business centres) considering the range and scale of services. Moreover, any private enterprise operating in dynamic market conditions needs to have flexibility in pricing its services. The absence of such flexibility may come in the way of success of these projects.

Thus, the above requirements of VGF viz. state ownership of land, transfer of assets, pre-determination of tariff may come in the way of smooth implementation of the integrated value chain projects. These requirements would be mostly alien to agribusiness entrepreneurs in the country and may not therefore attract sufficient interest from private investors. Moreover, as mentioned above, even in case of investor interest, it would be extremely difficult to ensure compliance of the IVC projects with eligibility conditions of VGF.

28.2.4 Need for a flexible PPP structure for AIDP

The above challenges, however, may be met by providing the required flexibility in project structure. It needs to be appreciated that the PPP offers a range of options and is much more than a BOT model. The PPP options range from concessions and joint ventures to service contracts and O&M contracts. In fact, service contracts and O&M contracts are considered to be first steps in involving private sector as these may be implemented quickly. In a sector like Agribusiness, where PPP models have not been tried earlier, flexibility in choosing an appropriate model may be essential to success of the program.

28.2.5 BOT vs BOT –Annuity models

BOT model has got two main approaches to handle traffic/market risk. Under the toll-based Build-Operate-Transfer (BOT) projects, traffic/market risk is borne by the private operators. Under this model, capital subsidy may be provided to selected bidder for meeting the projected “viability gap” during construction phase. An important variant of this approach is “shadow tolling”, wherein private partners do not collect tolls from the road users but are exposed totraffic risks, as they are paid on the basis of the volume of actual traffic. This model has been found attractive due to provision of subsidy during construction phase. In fact, as mentioned earlier, VGF which is the main scheme providing government support to PPP projects has provision for providing capital subsidy normally during construction phase. On the other hand, the private bidder remains exposed to traffic/market risk under this model which may make it unattractive for projects which are seen to have large market risks.

Under BOT- Annuity Model though, the sponsoring entity (government or its agency) absorbs the traffic risk and the private operator is paid for making the specified level of road service available regardless of the extent of traffic, these are also known as “availability-based” projects. This model has thus been found acceptable for NHAI projects for highways which assures private operators regular “annuity” payments over project period. Of course, in this case, private operators may need to arrange for large capital funds for completing the project which has its own cost implications.


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28.2.6 SPV Model

Large sized and complex PPP projects are often developed through an SPV route, wherein a project SPV is incorporated and it takes the responsibilities of acquiring land and other statutory and environmental clearances. The SPV – along with the project – is then bid out through a transparent process.

There are other variants possible of this model which may though vary from traditional PPP approach. For example, it may be envisaged to invite private operators for participation in the equity structure of the SPV along with the government agency. The equity being offered to private operator may be either majority share (51 % or more) or minority share (49 % or less), depending on the nature of the project and decision of the concerned government agency in this regard. The selected private operator shall also be given responsibility of O&M of the project under this model.

28.3 PREFERRED OPERATIONAL MODEL FOR AIDP

It may be noted here that the draft Detailed Project Report had given three operational models as options for project implementation. It would be useful to mention suggested options once again.

Option 1 assumed entire value chain to be funded under existing guidelines of Viability Gap Funding Scheme which therefore assumed a BOT model with maximum 40 % of project cost as grant support, as mentioned above.

Option 2 suggested unbundling of value chain components in such a manner that some components (in particular “Hubs” ) may be eligible for funding by VGF even as rest of the components would be required to be funded by other grant support schemes like NHM, RKVY etc.

Finally, Option 3 provided for a separate scheme to be launched by state governments (particularly by Government of Maharashtra) which would provide for maximum 40 % of the project cost as grant support to private entrepreneurs setting up value chain projects.

The provision of alternative options revolved around a major concern: Whether State ownership of assets and thus provision of land by the government should be a pre-requisite for PPP approach as suggested by BOT Model It also emanated from the uncertainty surrounding the willingness and ability for state governments to provide suitable land for the value chain projects.

All the above models were discussed in detail and it was finally decided to recommend an operational model which would adhere to the essentials of PPP approach in terms of public ownership of proposed agribusiness infrastructure so as to ensure benefits to all stakeholders in a transparent manner. The model selected for implementation of AIDP is based on a series of discussions with representatives of Asian Development Bank, Department of Economic Affairs, Government of India and State Governments of Bihar and Maharashtra.

The recommended model requires the concerned state governments to provide land for Hub and Spokes so that project meets the requirement of ownership by a government or statutory entity. Thus, a large land parcel close to a large market centre which is owned by government needs to be identified for creating the Hub (Distribution Centre). Further, smaller land


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parcels, close to producing areas, which are owned by government, may need to be identified for setting up various spokes (Agri Business Centres etc.) for the Hub. Based on availability of land, proposals would be invited from investors for creating infrastructure along the value chain at these project sites on Build--Operate-Transfer model. The recommended concession period under this model is 20 years.

While the essential operational structure of the model remain same for both Bihar and Maharashtra, it has been recommended that project grant support available may be different in case of these two states. Thus, minimum equity contribution required from a private operator, as percentage of project cost, may be 30 % in case of Maharashtra compared to 10 % in case of Bihar. This has been recommended based largely on two counts. First, as argued earlier, too, Maharashtra and Bihar are at different stages of development process at present and therefore it is believed that in Maharashtra, potential bidders may be willing to put in larger equity contributions considering larger market size. Second, while projects in Bihar would require renovation of erstwhile market yards and rather limited value chain infrastructure, those in Maharashtra would be entirely value add infrastructure providing greater revenue options for a private operator.

However, as the private operators would be selected through a bidding process, actual project grant required may depend on the response of the potential bidders.

The salient points of the selected operational model are as follows:

1. A state promoted mother Special Purpose Vehicle (SPV) would be the main implementing agency for the project which would facilitate core infrastructure convergence and provisioning for the IVC. The mother SPV will be 100% owned by the state government and will channel the funds for the IVC investments to the private sector developer and for the link infrastructure to the government departments as needed.

2. This government-led mother SPV would act as the concessioning authority and will invite bids from private developers to design, construct, operate and maintain (O&M) the IVCs and will contract them on Build-Operate-Transfer [BOT] basis at value chain level.

3. AIDP will be designed as a State level scheme. ADB funds can be used for the development of link infrastructure deemed necessary for the success of the IVC project, for meeting the need for public funding as capital expenditure through the private sector for the IVC project and also for the grant component to be disbursed as viability gap funding (which is not to be treated as subsidy in view of the fact that it is a grant to the project to build infrastructure that will be transferred back to the government after the concession period is over, as per the BOT model).

4. The IVC will include mandatory infrastructure, i.e. the basic (such as internal roads, power and water supply system, waste management etc.) and Agribusiness (such as trading platforms and shops, CA chambers, warehouses etc. ) infrastructure within the project sites as suggested in Detailed Project Reports (DPRs). On top of the mandatory infrastructure, the private developer can also invest in more commercial/add on infrastructure using its own funds as applicable on a case by case, subject to approval by the state government. The link infrastructure, also part of the program, would include linking public services such as bulk water, power and connecting external roads from the existing supply points to the market yards, as needed.


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5. The works for link infrastructure would though not be a precondition for the IVC investments to start but they could be run in parallel.

6. The private developer will invest at least 10% of the total project cost of the mandatory components of the IVC in Bihar which would be 30% in case of Maharashtra.

7. The grant for the IVC mandatory infrastructure will be released to the private developer into installments based on the achievement of predefined milestones. The grant will be the bidding parameter, while the technical parameters will be the eligibility parameters.

8. The concession period could be increased up to 20 years to make it more attractive to the private developer.

9. The service charges for the market yards infrastructure will be capped and indexed to inflation to be determined by a committee .appointed by the state governments and subject to regular revision.

10. For the infrastructure, standards incorporating both the quality and the quantity of outcomes will be fixed. Also for the O&M, service level standards will be fixed and private developer will have to meet them throughout the concession period. There would be provision for the oversight and periodic certification by an independent engineer throughout the concession period.

11. The revenue collection will be done by the private operator and shall be shared with the mother SPV as per contract conditions given in the Model Concession Agreement. (See Annex).

A diagram of the model is shown below:

12. Finally, in the case of Maharashtra, it is recommended to allow additional flexibility in view of foreseen difficulties in providing land for projects by the state government. As the state government may not be in a position to provide land for the entire IVC and the private sector is willing to bring its own land for some components, such

Gov-led SPV

Pvt. SPV

Commercial/other

facilities(business centers,

cantines, etc)

On site and Marketing facilities

(warehouse, cold chain, waste management, etc)

GOB / GOI / ADB

Services to users

• Overall management of IVC components• Provide funds for the IVC components• Aggregate the unbundled IVC components• Bid out to private developers for design, construct, O&M• Manage capacity development activities

•Provide funds for the link infrastructure to Gov Depts

User charges(capped)

grants/GOB budget

design, finance, construct, and O&M

Leverage of private sector funds

design, construct and O&M

VGFVGF, Other

schemes

Link Infrastructuregrants/GOB budget

User charges (market based)


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components of IVC may be owned and operated by private sector with the support of existing schemes and government funding.

13. Further, a Project Management Unit (PMU) or a state level SPV could be authorized to purchase the land for the IVC's hubs/spokes for other IVCs if government land is not available. Once the land is owned by the government, the above mentioned model can be applied in Maharashtra as well.

28.3.1 Proposed Project Grant, O&M Framework and Recovery of Charges

1. The private developer and operator, selected through a bidding process, would be responsible for detailed design, engineering, building and O &M of the project assets including the common infrastructure and facilities.

2. The mother SPV (the Concessioning Authority) would, as consideration for design, building and managing the project assets and facilities, pay to the private developer and operator (the Concessionaire) project grant as specified in the bid documents submitted by the successful bidder. Such Project Grant amount shall be paid by the Concessioning Authority based on milestones on progress of the Project as per following schedule:

a. 20 % of the Project Grant after completion of 25 % of Project Construction as per the project requirements and so certified by the Independent Engineer

b. 20 % of the Project Grant after completion of 50 % of Project Construction as per the project requirements and so certified by the Independent Engineer

c. 20 % of the Project Grant after completion of 75 % of Project Construction as per the project requirements and so certified by the Independent Engineer

d. 20 % of the Project Grant after issue of Completion Certificate by the Independent Engineer as per the project agreement

e. Balance 20 % of the Project Grant after satisfactory operation of Project Services and Facilities for one year as to be decided by the Concessioning Authority

3. Further, the private developer and operator, after commencement of operations, may be required to pay the Concessioning Authority Royalty per Month equivalent to 30 per cent of the Gross Revenue chargeable by the Concessionaire .

4. Private developer and operator may recover the O & M charges from the traders and other entrepreneurs by way of following monthly charges:

a. Charge I - Monthly Fixed Lease Charges apportioned to all traders on the basis of allocable area (shops) to each of them

b. Charge II - Monthly Variable Utility Charges will be based on monthly consumption of utilities such as power, water, effluent treatment and other O & M cost apportioned on the basis of allocable area to each of the traders

c. Charge III - User Fee would be charged for use of warehouses, sorting/grading lines, CA chambers and other value added facilities which may be aligned with existing market rates


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5. Private developer may enter into a Lease Agreement with the traders. The Lease Agreement shall provide rights to the traders for carrying out trading operations and also using common facilities in the Market yards. The Lease Agreement shall also contractually bind the traders to pay all such charges as may be levied by SPV for the allotment, development and maintenance of infrastructure assets and provide recourse by way of right to replace traders who have defaulted in respect of payments to the private operator SPV or follow practices which inhibit project operations.


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29 PROJECT IMPLEMENTATION STRUCTURE

As the value chain projects are expected to roll out over next one year or so, it may be advisable to constitute an Empowered Committee initially which would be responsible for overall project implementation. This may be called Empowered Committee on Agricultural Marketing (ECAM) which may be chaired by the Principal Secretary (Agriculture) and comprise of the following members:

Principal Secretary (Agriculture) - Chairperson

Director (Agricultural)

Director (Horticulture)

Representatives of Department of Industries, Department of Co-operatives, Department of Planning and Department of Finance

Additional representatives and experts may be invited to join the consultations as required.

The Empowered Committee may be responsible for taking decision on all matters related to projects being set up under AIDP. Once the projects are under implementation stage, ECAM may be responsible for regular monitoring and evaluation of the projects. Further, the final decision on project matters like tariff, service standards, amount of royalty etc would also be taken by this Committee.

In addition, a Project Management Unit (PMU) would be required to be set up in the Department of Horticulture which may be headed by Director (Horticulture) and have 2-3 officers from the state government. The PMU would work under the supervision of the Empowered Committee and oversee the process of incorporation of mother SPV, transfer of selected project sites (along with assets) to this SPV and ensuring overall preparedness for the project. The PMU shall not be required once mother SPV gets incorporated.

The successful implementation of these projects is likely to throw up some serious challenges. In particular, it would be critical to get existing traders in erstwhile APMC market yards to agree to the proposed implementation plan through a process of capacity and trust building efforts. Also, the projects are to be structured with care (components bundled/unbundled suitably) so that there is sufficient private sector interest in bidding process. It would be desirable therefore for the mother SPV at the state level to appoint a Project Management Agency (PMA) which may assist it in getting requisite project approvals, managing bid process and supervision and implementation of the Project

The mother Special Purpose Vehicle (SPV) would be key to successful implementation of the project. It is, therefore, recommended that SPV should be incorporated under the Companies Act, 1956 which would allow it to have required financial autonomy and flexibility in decision making. The SPV may be headed by a Chief Executive Officer/Managing Director with at least level of Director in the state government. The SPV may additionally hire 4-5 experts from various fields like Agriculture extension, Agriculture marketing, Agribusiness Infrastructure Development, Legal documentation and Financial management. While CEO/MD along with some support staff may be deputed from the state government, other experts may be hired from market on need based contracts through a transparent process.


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It is envisaged that the SPV would be using a PMA for effective marketing of the projects and selection of private developers and operators through transparent bidding process. Further, PMA should be able to assist mother SPV in effective monitoring of the projects during construction and operation of the projects. Finally, PMA may assist SPV on “soft” issues i.e. farmers’ group formation, strengthening of existing PACs and other farmers’ associations, providing training and quality inputs, forge marketing linkages etc aimed at providing requisite institutional linkages along the value chains.

The diagram presents the recommended implementation structure for AIDP in Bihar

29.1 ROLE AND RESPONSIBILITIES OF PROJECT IMPLEMENTING AGENCY

(MOTHER SPV)

Mother SPV in case of Bihar is required to be sufficiently empowered to undertake implementation of AIDP. Responsibilities of Implementing Agency will include:

• Implementation of AIDP as approved by DEA/ADB in consultation with the State Government

• Mobilising requisite state government contribution (30 %) and receiving Project Funds from ADB as required for the programme

• Reporting progress regularly to the State Level Committee/Board

• Make and ensure approval of all follow-up plans required as part of the programme roll out and implement them

• Co-ordinate with other departments of state government for getting requisite clearances (power and water connections, access roads etc.) and ensuring link infrastructure development including social infrastructure

The suggested organisational structure of the Implementing Agency is shown in the diagram.

MD/CEO

Agri Extension Services

Program manager (assisted by 2 support staff)

Agri Marketing

Agribusiness Infrastructure

Legal & Financial Management

need based Domain Experts

PMA

PMA

Link Infrastructure (Access roads, power and water linkages, waste disposal etc)

Bid Process Management Monitoring

and Evaluation

Capacity Bldg Interventions

‐Consortium/federations ‐Training ‐Technology Inputs ‐Exposure visits ‐Market linkages

100% State Govt owned

Prog Implementation through SPV

Prog Management

Empowered Committee on Agricultural Marketing Headed by Principal Secy (Agriculture)

Mother SPV

Design, Build & Operate Core & Agribusiness Infrastructure

(Renovation/refurbishment of shops, Value added Infrastructure)

Prvt Developer/Operator

PMU (Transitional structure)

23 STAKEHOLDER CONSULTATIONSOPERATIONALISING THE AGRIBUSINESS INFRASTRUCTURE DEVELOPMENT INVESTMENT...

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