Agribusiness PDF

8/4/2019 Agribusiness PDF

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INDO-US COLLABORATION: THE AGRIBUSINESS OPPORTUNITYby

Kalyan Chakravarthy1

Acronyms Used

AEZ Agri Export ZoneAPEDA Agricultural and Processed Food Products Export Development AuthorityCDB Coconut Development BoardCEPC Cashew Export Promotion CouncilCFTRI Central Food Technological Research InstituteCIFT Central Institute of Fisheries TechnologyCIPHET Central Institute of Post Harvest Engineering & TechnologyEIC Export Inspection CouncilFTL Food Testing Laboratory

GoI Government of IndiaICAR Indian Council of Agricultural ResearchIIP Indian Institute of PackagingIIPR Indian Institute of Pulses ResearchMPEDA Marine Products Export Development AuthorityNDDB National Dairy Development BoardNDRI National Dairy Research InstituteNHB National Horticulture BoardNIN National Institute of NutritionNRCM National Research Centre for MushroomPFA Prevention of Food AdulterationPPRC Paddy Processing Research CentreSFAC Small Farmers Agribusiness Consortium

1 Kalyan is the Country Head, Food and Agribusiness Strategic Advisory & Research at YES Bank


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1 INDIAN FOOD & AGRICULTURE SECTOR1.1 OverviewIndian agriculture contributes to approximately 20 per cent of the countrys GDP andprovides livelihood to almost 67 per cent of the population, thus evidencing the agrariannature of the economy. The positive demographic trends driving increased consumer demandfor high value food products, recent government sponsored schemes and initiatives primarily

aimed at attracting private sector participation and investment have enabled the infusion ofmuch-needed vibrancy and a positive perception of the sector.

Industry estimates indicate that the total turnover of the food market is around INR 2500billion out of which, value-added food products comprise INR 800 billion. Among theemerging business avenues and growth options in the diverse Indian agribusiness sector, thefood processing sector is particularly promising. The importance of the food processingsector can be gauged from the fact that it contributes to nearly 6.3 per cent of the country'sGDP, directly employs approximately 13 million people and has the propensity to generate2.4 times more indirect employment than the direct employment generated. The high growthrate (7 per cent p.a.) witnessed by the sector in the last decade and further improvement ingrowth rate expected in the years to come, present innumerable opportunities for investment

across the entire agri-value chain.

1.2 Recent Developments in the Indian Food & Agriculture SectorThe Economic Reforms introduced since 1991 have radically changed the course of theIndian economy and led to its gradual integration with the global economy. The innumerablechanges initiated by the Government of India are expected to pave the way for the evolutionof a globally competitive Indian agribusiness landscape. Significant among these are, thesimplification of the existing food laws (to reduce redundancies and multiplicities in the

certification of foods) and the Amendment of the Agriculture Produce Marketing(Development and Regulation) Act (APMC Act) by several State Governments which permitthe farmers to sell their produce directly to the buyers outside regulated market yards. Suchinitiatives are expected to rationalize costs across the supply chain by facilitating organizedfarmer-processor relationships apart from infusing the much needed corporate investment inthe sector.

Position of Indian Agriculture in Global Food Basket Due to the varied agro climatic zones, India has the potential to become the worlds

food basket India is the worlds largest producer of Wheat, accounting for nearly 15% of global

Wheat production India is the worlds largest producer of Milk (90 million tonnes) India ranks 2nd in Rice production in the world and is the largest exporter of worlds

best Rice -Basmati India is one of the largest Edible Oil economies and produces about 1/10th of the world

Oil seeds

India is the largest producer & exporter of Spices India is the worlds largest producer of Tea and accounts for 1/3 rd of the global Tea

production India is the second largest producer of Fruits (50 million tonnes) & Vegetables (100

million tonnes)


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The recent Government initiative of developing Modern Terminal Markets, for which INR1.5 billion has been earmarked in FY 2006-07 under the National Horticulture Mission isanother significant developmental measure. These modern terminal markets are aimed atproviding professionally managed competitive and alternate marketing formats for farmers.The aggregation of sorted & graded material at these centers is expected to enhance the

procurement by exporters and processors by meeting their quality as well as quantityrequirements.

A number of fiscal incentives have also been provided by the Government in the recent pastso as to encourage value addition to agricultural produce (refer table 1).

Table 1: Schemes launched by GoI in the Food & Agriculture Sector

GoverningMinistry

Bodies/ Boards Schemes Institutions

Ministry ofAgriculture (MoA)

NHB, TMOP, TMH(NE), SFAC, CDB,NDDB

Post harvest development, Coldstorage capital investment subsidy,Technology development, MIS for

horticulture, etc

NDRI,IIPR,NRCM

Ministry of FoodProcessingIndustries

Technology upgradation/modernization, HR, Quality assurance(FPO) and Codex, Strengtheningnodal agencies, Backward andforward integration, Infrastructuredevelopment (Food parks)

PPRC

Ministry ofCommerce

APEDA, MPEDA,Spices Board, TeaBoard, Coffee Board,EIC, CEPC

Export market development,Infrastructure, (AEZs) Quality, R &D, Transport assistance Etc

IIP

Ministry of Science

and Technology

CFTRI

Ministry of CA andPD

Directorate ofVanaspati,Directorate of Sugar

Ministry of Healthand Family Welfare

Food safety (PFA) FTLs, NIN

Ministry of HRD Food and NutritionBoard

National Nutrition Mission

Measures Undertaken by GoI which led to a Greater Private Investment in the F&A Sector Initiation of public private partnership in contract farming and direct marketing of farm

produce Setting up of terminal markets and modernization of agricultural marketing infrastructure

through private investment Amendments in the Essential Commodities Act and APMC Act to upgrade and reform

agriculture markets Setting up of Futures Market for trade in agricultural products Tabling of Integrated Food Law and Warehouse Receipt bill in the Parliament Opening up of a separate window for self-help groups or joint liability groups of tenant

farmers by the banks


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While these schemes are aimed at infusing increased investment and scale of operations inthe sector, budgetary provisions as per the Union Budget 2007-08 such as reduced duty onfood processing machinery (7.5% to 5%) and the total excise duty exemption on ready-to-eatpackaged foods and instant food mixes are expected to increase affordability andconsumption of processed foods. The Ministry of Food Processing Industries also plans toprovide an INR 10 billion subsidy for setting-up of over six Mega Food Processing Parks

around the country.

The Indian Government has adopted a liberal stance on foreign participation in the foodprocessing industries. Foreign Direct Investment has been encouraged and the approvalprocess has been streamlined for greater convenience.

The retail sector in India is rapidly transforming. India is the 4 th largest retail market in theworld with annual retail sales of more than $ 280 billion contributing to more than 10 percent of the GDP and growing at a rate of 10 per cent pa. The recent past has witnessed thedevelopment of multiple retail formats (hypermarkets, department stores, supermarkets andconvenience stores), a pan India expansion of retail chains, emergence of sub-urban retailingand an increasing preference for multi-brand outlets to single-brand stores. The sector has

attracted the interest of some leading corporates (RPG, Pantaloons, Mother Dairy, ITC,Reliance and Aditya Birla Group). The emergence of organized retailing in the country hasresulted in the creation of quality retail space, increased availability and demand for a varietyof quality packaged fresh and processed produce. Growth of food retail chains such as FoodWorld, Food Bazaar and Reliance Fresh is likely to yield a robust and efficient supplychain with elimination of redundant intermediaries.

Although most of the present investments seem to be on the front end, corporate aspirationsto match global standards of quality, cost and productivity shall drive qualitative changesacross the supply chain and in the adopted farming practices. A number of investments ininfrastructural support along the agri value chain have been initiated. Companies such asSnowman Frozen Foods (a Joint Venture between the Mitsubishi Group, Amalgam Foodsand HLL) have stepped up their investments in the cold chain significantly. Snowman offerscomprehensive transportation and storage facilities and handles retail distribution services offrozen and chilled foods. Its network covers 12 cold stores and 120 cities within India.

To summarize, the several measures undertaken by the GoI have opened up newopportunities and have made the Indian agribusiness sector an investment destination forseveral large corporates in India and abroad. The huge business potential that lies untapped inthe Indian agribusiness sector has attracted large global retailers like Wal-Mart and Carrefourto evince interest in spreading their wings in India. This is likely to transform the agribusinesslandscape of the country which would witness huge investments, intense competition and abetter choice for the consumer.


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2 US FOOD & AGRICULTURE SECTOR2.1 OverviewThe US agricultural scenario has changed dramatically over the last 200 years. Thepercentage of population engaged in farming has come down drastically to less than 2 as ondate from 95 at the time of American Revolution. Only around 64 per cent of the farm land inUS is owned by individuals and families and the rest 36 per cent is owned by several large

and small corporations engaged in agriculture, making farming and its related industries a bigbusiness Agribusiness. Despite these changes, the nation produces safe, abundant andaffordable food. US agriculture actually prospered as the settlements advanced from East toWest. The western part of the US is endowed with good rainfall, rivers and undergroundwater which promote irrigated agriculture. Also, large stretches of level or gently rolling landprovide ideal conditions for large scale agriculture. Apart from these natural factors, othersthat contributed to the rapid increase in the agricultural productivity in US were the largescale adoption of latest technologies in farming and the rapid flow of settlers across theMississippi River in the late 19th century.

As per the 2002 Census of Agriculture, out of the total land area of 2264 million acres, totalfarmland was 938 million acres (41 per cent). Out of the total farmland, cropland occupied

434 million acres (46 per cent), woodland occupied 76 million acres (8 per cent) andpastureland occupied 395 million acres (42 per cent). Around 11.6 per cent of the cropland isirrigated. Out of the total water usage in US, 41 per cent is used for agriculture. In 2004, theratio of agricultural GDP to agricultural population was $ 27, 651.

Table 2: Production of Major Commodities in US

Commodity 2003 2004 2005

Value($

million)

Qty(000MT)

Value($

million)

Qty(000MT)

Value($

million)

Qty(000MT)

1. Maize 29,852 256,905 34,850 299,917 32,563 280,228

2. Indigenous Cattle Meat 24,313 11,755 22,958 11,100 23,041 11,140

3. Cow Milk, Whole,Fresh

20,554 77,289 20,604 77,475 21,315 80,150

4. Indigenous ChickenMeat

17,411 14,927 18,098 15,516 18.698 16.030

5. Soybeans 14,550 66,778 18,523 85,013 18,046 82,820

6. Indigenous Pig Meat 8,866 8,755 9,073 8,960 9,180 9,065

7. Wheat 9,954 63,814 9,162 58,738 8,907 57,106

8. Hen Eggs 4,498 5,180 4,583 5,278 4.628 5.330

9. Tomatoes 2,493 10,522 3,025 12,766 3,025 12,766

10. Grapes 2,796 6,027 2,623 5,653 2,976 6,415

11. Potatoes 3,012 20,766 3,000 20,686 2,772 19,111

12. Indigenous TurkeyMeat

2,764 2,529 2,668 2,441 2,689 2,460

13. Rice, Paddy 1,924 9,034 2,230 10,470 2,133 10,102


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14. Lettuce 1,617 4,755 1,692 4,977 1,692 4,977

15. Oranges 1,841 10,473 2,052 11,677 1,453 8,266

16. Apples 1,146 3,989 1,358 4,726 1,222 4,254

17. Sorghum 1,274 10,446 1,410 11,555 1,201 9,848

18. Sugar Beets 1,277 27,744 1,251 27,176 1,138 24,724

19. Strawberries 1,038 978 1,065 1,004 1,034 975

20. Groundnut 908 1,880 940 1,945 1,021 2,113

Source: FAO

Agriculture in US is both a federal and a local responsibility with the United StatesDepartment of Agriculture (USDA) being the federal department responsible for thedevelopment of agriculture. The agricultural lobby is an extremely powerful interest group inAmerican politics and has been since the founding of the USA. Government aid to agricultureincludes research into crop types and regional suitability as well as many kinds of subsidies,

some price supports and loan programs. The concerted efforts made by the USDA in terms ofresearch and extension have placed US at the top in the production of many commodities.

2.2 US Trade in Food & AgricultureU.S. and global trade are greatly affected by the growth and stability of world markets.Changes in world population, economic growth, and income are most likely to alter globalfood demand. Other factors affecting trade are global supplies and prices, changes inexchange rates, government support of agriculture, and trade protection policies. With theproductivity of U.S. agriculture growing faster than domestic food and fiber demand, U.S.farmers and agricultural firms rely heavily on export markets to sustain prices and revenues.

According to an estimate, nearly one-third of the cropland in the United States producescrops destined for export. Exports have exceeded imports by a large margin since 1960, butthis surplus has been narrowing. Historically, U.S. imports have increased steadily, asdemand for diversification in food expanded. U.S. consumers benefit from imports becauseimports expand food variety, stabilize year-round supplies of fresh fruits and vegetables, andtemper increases in food prices.

Position of US Agriculture in Global Food Basket US is the worlds largest producer of Almonds, Blueberries, Cow milk, Cranberries,

Grapefruit & Pomelos, Maize, Indigenous cattle, chicken, pig & turkey meat, Sorghum,Soybean, Strawberries and String Beans

US is the worlds 2nd largest producer of Apples, Cherries, Game Meat, Hen eggs,Honey, Hops, Lettuce, Mushrooms, Oranges, Pistachios, Spinach, Tomatoes andWalnuts

US is the worlds 3rd largest producer of Asparagus, Avocados, Carrots, Grapes,Hazelnuts, Linseed, Oats, Dry Onions, Peaches & Nectarines, Pears, Raspberries,Safflower seed, Sugar beets and Wheat

US is the worlds 4th largest producer of Chillies & Green Peppers, Garlic, Groundnuts,Pumpkins & Gourds, Tobacco and Water Melon


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Table 3: US Agricultural Trade

US $ billion

2003 2004 2005 2006

Agricultural Exports 56.187 62.401 62.516 68.721

Agricultural Imports 45.679 52.656 57.736 64.025

Trade Balance 10.508 9.745 4.780 4.696

Source: US Department of Agriculture

Agricultural ExportsIn 2004, the percentage of agricultural exports in total exports was 8.

Table 4: US Exports by Major Commodity Group

US $ millions

Item Jan Nov 2004 Jan Nov 2005

Soybean 5720 5761

Fruits, nuts & products 4914 5756Vegetables & products 4837 5232

Corn 5405 4310

Wheat 4728 3928

Red meat & Products 2920 3884

Animal feeds & Oil meal 3447 3671

Cotton & linters 3910 3634

Poultry meats & products 2278 2797

Other grain products 2212 2472

Sugar & tropical products 1765 1984

Juice, wine & beverages 1975 1949

Hides & skins 1626 1640Dairy products 1318 1545

Vegetable Oils 1505 1491

Rice 1076 1185

Other oilseeds 849 973

Tobacco unmanufactured 960 885

Animal fats & other products 853 764

Other feed grains 526 532

Live animals 389 519

Other 2473 2480

Total exports 55,686 57,391

Source: USDA


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Agricultural ImportsIn 2004, the percentage of agricultural imports in total imports was 4.

Table 5: US Imports (Customs Value) by Major Commodity Group

US $ millions

Item Jan Nov 2004 Jan Nov 2005Fruits, juices & nuts 6298 7247

Vegetables & preparations 6394 6850

Red meat & products 5175 5111

Grains, feeds & oil meal 4260 4328

Wine 3116 3457

Malt beverages 2551 2878

Coffee 2059 2728

Cocoa 2287 2488

Dairy products 2187 2430

Vegetable oils 2162 2270

Live animals 1198 1693

Sugar products 1420 1483

Rubber, natural 1339 1390

Sugar, cane & beet 522 783

Other animal products 749 777

Tobacco, unmanufactured 630 591

Oilseeds 320 328

Poultry meats & products 342 322

Other 6109 6765

Total imports 49,119 53,920

Source: USDA

3 INDO US COLLABORATION3.1 Historical Evolution of Indo-US CollaborationIndia and the US have multi faceted relations ranging from political, strategic to economicand commercial. India being the second fastest growing economy in the world and USA thelargest economy, the economic relations between the two countries in the form of bilateralinvestments and trade constitute important elements in Indo-US collaboration. The economicreforms introduced in India since 1991 have integrated the Indian economy with the globaleconomy, opening up a vast opportunity for foreign investment and trade. USA is the largestinvesting country in India in terms of FDI approvals, actual inflows, and portfolio investment.The stock of actual FDI increased from US $ 11.3 million in 1991 to US $ 4132.8 million ason August 2004. FDI inflows from the U.S. constitute about 11 per cent of total actual FDIinflows into India. US investments cover almost every sector in India, which is open forprivate participants. On the other hand, Indias investments in USA are picking up. Between1996 and September 2004, Indian companies invested US $ 2080.36 million in the U.S.accounting for 18.7 per cent of total approvals. These investments were made largely inmanufacturing and non-financial services.


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USA is also Indias largest trading partner. By 2003, India became the 24th largest exportdestination for the US. In terms of exports to the US, India now ranks eighteenth largestcountry.

Since 2000, the two countries have been making efforts to strengthen institutional structure ofbilateral economic relations by means of the India-US Economic Dialogue that aims at

deepening the Indo-American collaboration through regular dialogue and engagement.

Indo-US Collaboration in Food & AgricultureThere is a long history of cooperation between India and the US in the field of food &agriculture. Apart from the State tie-ups, US multinationals like Monsanto, PepsicoInternational, Cargill, Blue Diamond and Wal-Mart are venturing into different segmentssuch as food processing, diversified agri-business like contract farming, grain business, seeds,almonds and retailing.

In July 2005, Prime Minister Manmohan Singh and President Bush established a US India Agricultural Alliance to focus on promoting teaching, research, service and commerciallinkages. In March 2006, during the visit to India by President Bush the two countries

launched the bilateral Knowledge Initiative on Agriculture with a three-year financialcommitment to link universities, technical institutions and businesses to support agricultureeducation, joint research and capacity building projects including in the area ofbiotechnology.

After the launch of the Indo-US Knowledge Initiative on Agriculture, in a short period of 5months, 19 scientists in the field of agriculture from India have received training in leadingUS laboratories in the areas of biotechnology, water management and food processing. Forthe year 2007, about 12 additional Indo-US Borlaug Fellowships are planned. The knowledgeshared between India and US in agriculture will be put in practice through joint collaborativeprojects comprising cool chain development for food and vegetables involving CIPHET(ICAR), Ludhiana, CIFT (ICAR), Kochi for fish and marine produce, during 2007. A projecton pea genomics has been initiated at National Research Centre consequent to the workshopon Genomics-enabled Molecular Breeding in Legume organized by University of California,Davis. Four projects have been identified under Indo-US workshop on water management.

Several agricultural universities in India have made strategic tie-ups with their counterparts inUS. For eg. the Acharya NG Ranga Agricultural University (ANGRAU), Andhra Pradesh hasestablished tie-ups with:

1. Tuskegee University, USA for technical collaboration in Research and Teachingactivities of Veterinary Science

2. USDA Washington DC, USA in support of the development of decision supportsystems for sustainable agriculture

3.

International Food Policy Research Institute, Washington DC, USA4. Texas A & M University, College Station, USA5. College of Agriculture and Life Sciences, Cornell University, U.S.

ANGRAU also entered into MoUs with the following Universities/ Organizations of USAduring April and May, 2006 for capacity building in faculty and students of ANGRAU andcollaboration in extension and research activities in the fields of Biotechnology,Agribusiness, Agricultural Water Management, Post Harvest Technology, Environmental


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Science, Food Science & Nutrition, Food Processing & Value Addition, Gender & EquityIssues, Crops, Soils, Rural Development, etc:

1. Kansas State University2. University of California, Davis3. Auburn University, Auburn, Alabama4. International Fertilizer Development Centre, Muscle Shoals, Alabama5. University of Florida, Gainesville, FL6. IOWA State University of Science & Technology, Ames, Iowa7. North Carolina Agricultural & Technical State University, Greensboro, North

Carolina.

Apart from agricultural research, another thrust area that has been identified was agriculturalmarketing. For adopting the best of international practices in this sector and strengthening theagricultural marketing system of the country, a collaborative project has been initiatedbetween USAID and the National Institute of Agricultural Management (NIAM). Followingdiscussions between the Joint Secretary (Marketing), Ministry of Agriculture, Govt. of India,Director General, NIAM and the Representative of US Embassy, USAID, New Delhi, a teamof experts from USDA and USAID office in New Delhi visited NIAM in April 2005 to

explore the possibility of collaboration for Strengthening of Agricultural Marketing Systemin India. After detailed discussions during the visit of the team, several areas were identifiedfor possible collaboration viz., Marketing Infrastructure Design & Planning, Food Safety &Quality, Marketing Extension, Grading & Standards, Market News & InformationDissemination with Capacity Building through Training of Trainers and TechnicalAssistance. Three states namely Himachal Pradesh, Rajasthan and Karnataka have beenselected as pilot states.

In order to make situation specific Training Needs Assessment (TNA), four teams of USagricultural experts visited India between December 2005 and May 2006. In December,2005, a team of experts from USAID on Food Safety and Quality visited the country. Theexperts from USAID along with the faculty members of NIAM visited the three project statesand had interaction with different stakeholders. On that basis the team of USAID experts hassubmitted its report on Food Safety Needs Assessment. A USAID team on MarketingExtension visited the country in January, 2006. These experts along with the NIAM facultymembers visited all the three states and had a series of meetings with different stakeholderssuch as farmers, KVKs, APMCs, market functionaries, government officials, Universities,etc. The team has also submitted its report identifying the major areas of interventions andtraining needs on marketing extension.

An MOU was signed between USAID and NIAM on 11th of July 2006 providing forcollaboration in various fields for strengthening the agricultural marketing system asapproved by the Ministry of Agriculture in consultation with the Ministry of External Affairs,

Government of India and by the US Department of Agriculture. The period of collaborationunder the MOU is three years. A National Level Workshop was organized at NIAM fromJuly to August, 2006. The reports of the visits and the draft training outlines were presentedand discussed in the workshop at Jaipur with participants from the pilot states, universities,central and state agencies and other stakeholders to finalize the training modules as well asthe mode of implementation of the training for NIAM and state government trainers. USAIDhave suggested a Work Plan for the implementation of the program during the current year.The work plan has been prepared in consultation with the USAID officials and otherconcerned agencies including the participants from the state governments of the pilot states.


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The above collaborations are likely to lead to enhanced transfer of knowledge and technologybetween US and India which is expected to transform the Indian agribusiness landscape.

3.2 Indo-US Trade

Trade and commerce form a crucial component in the rapidly expanding relations betweenIndia and US. From a modest $ 5.6 billions in 1990, the bilateral trade in merchandise goodshas increased to $ 31.92 billion in 2006 representing an impressive growth of 470 per cent ina span of 16 years. Indias merchandise exports to the U.S.A. grew at 16.07 per cent from US$ 18.80 billion in 2005 to US $ 21.83 billion in 2006. US exports of merchandise to Indiaincreased from US $ 7.96 billion in 2005 to US $ 10.09 billion in 2006, an increase of 26.31per cent. Indias major export products include gems & jewellery, textiles, organic chemicalsand engineering goods. Its main imports from the U.S. are machinery, precious stones &metals, organic chemicals, optical & medical instruments and aircraft & aviation machinery.

Table 6: Indo-US Bilateral Merchandise Trade

US $ millionsParticulars 2003 2004 2005 2006 Jan 2007

Indias export to US 13055 15572 18808 21826 1999

US exports to India 4980 6109 7958 10091 1032

Total Bilateral Trade 18,035 21,681 26,766 31,917 3,031

Source: US Department of Commerce

Agriculture is beginning to play a bigger role in the Indo-US trade. Indias exports ofagricultural products to US were to the tune of $ 1.3 billion occupying a share of only 1.4 percent in USs total imports of agricultural products in 2005. On an average, Indias agricultural

exports have grown by only 3 per cent per annum for the period 2000 to 2005, which is farbelow the potential. Likewise, there is potential to enhance US farm exports to India. Weneed to look at the rapid growth in Indias farm trade in Asia and draw appropriate pointerson how to accelerate bilateral trade. It is therefore, important to work on exploring thepotential of partnership and bilateral collaboration in agriculture.

3.3 Opportunities for Collaboration in the Food & Agriculture SectorBased on the strengths and opportunities in both the countries the following areas have beenidentified for collaboration in the Food & Agriculture Sector: Food processing Dairy Cold Chain Infrastructure Agri-Biotechnology Bio-fuels

3.3.1 Food ProcessingIndia is one of the largest food producers of the world. It is the largest producer of fruits,vegetables, milk and livestock in the world (India has 53 per cent of the world's buffaloes, 23per cent of sheep and 842 million poultry - sixth largest in the world). Though India accountsfor almost 10-12 per cent of the global production of fruits and vegetables, yet less than 2 percent of the production is processed. The national policy aims to increase the level of food


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Policy Initiatives by the GoI The Indian government has abolished licensing for almost all food and agro-processing

industries except for some items like beer, potable alcohol & wines, cane sugar,hydrogenated animal fats & oils etc., and items reserved for the exclusive manufacturein the Small Scale Industry (SSI) sector

Automatic investment approval (including foreign technology agreements withinspecified norms), up to 51 per cent foreign equity or 100 per cent for NRI and OverseasCorporate Bodies (OCBs) investment, is allowed for most of the food processing sectorexcept malted food, alcoholic beverages, including beer, and those reserved for SSIs

Use of foreign brand names is now freely permitted Most of the items can be freely imported and exported except for items in the negative

lists for imports and exports. Capital goods are also freely importable, including second

hand ones in the food-processing sector Wide-ranging fiscal policy changes have been introduced progressively. Excise andImport duty rates have been reduced substantially. Many processed food items aretotally exempt from excise duty

Customs duties have been substantially reduced on plant and equipment, as well as onraw materials and intermediates, especially for export production

Corporate taxes have been reduced and there is a shift towards market related interestrates. There are tax incentives for new manufacturing units for certain years, except forindustries like beer, wine, aerated water using flavoring concentrates, confectionery andchocolates

processing from the present 2 per cent to 10 per cent by 2010 and 25 per cent by 2025. Aninvestment of around US $ 28 billion is required in the areas of infrastructure, packaging andmarketing to raise the food processing levels by 8 to 10 per cent.

Rapid urbanization, increased literacy, changing lifestyles, more women in the workforce andrising per capita income have led to rapid growth and changes in the demand patternscreating new opportunities in the food processing sector. An average Indian spends about 50per cent of household expenditure on food items. With a population of over 1 billion and a350 million strong urban middle class and changing food habits, the processed food market inthe country is expected to grow significantly. The potential for processed foods is estimatedto grow from INR 5300 billion in 2003-04 to INR 7800 billion in 2009-10 to INR 11,500billion in 2014-15. The potential for primary processed foods is estimated to grow at a rate of7 per cent while the potential for value-added foods is estimated to grow at a rate of 15 percent. The share of value added products in the processed food consumption is expected togrow from 38 per cent in 2003-04 to 58 per cent in 2014-15.

Table 7: Market Potential for Processed FoodsINR billion

2003-04 2009-10 2014-15

Fruits and Vegetables 49 155 345

Organized 29 118 288

Unorganized 20 36 56

Dairy 1160 1730 2450




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Edible Oil 500 692 925

Organized 50 88 156


Meat and Poultry 27 64 129

Meat 20 40 67

Poultry 7 24 62

Non-Alcoholic Beverages 101 151 198

Tea 78 122 157

Coffee 22 30 41

Grains 1802 2227 2668



Marine 18 30 51

Sugar and Sugar basedproducts

285 383 492

Sugar 265 349 424

Confectionery 12 18 30

Chocolates 8 16 37

Alcoholic Beverages 232 513 1106

Beer 41 73 117

Spirits 190 420 930

Wine 3 20 60

Pulses 402 605 809

Aerated Beverages 80 21 43

Malted Beverages 12 19 27

Total (Approx) 5,300 7,800 11,500

Source: Ministry of Food Processing Industries

Indias relatively inexpensive but skilled workforce can be effectively utilized to set up large,low cost production bases for domestic and export markets. Key investment opportunities,both for catering to the domestic market as well as for exports, exist in many areas of foodprocessing in India. Egg & egg products, meat & poultry, fruits & vegetables and beer &alcoholic drinks are some of the areas with huge potential. The scope for investment in Indianhorticulture is vast and encompasses areas such as Technology tie-ups for post harvesttechnology, bulk storage (including temperature controlled warehousing), bulk handling(including packaging) and cold chain facilities. In addition, the inadequate availability ofsophisticated production protocols for intermediate products in India also presents anopportunity for US entrepreneurs.

A) Egg & Egg ProductsIndia ranks fifth in the world with an annual egg production of almost 1.61 million tonnes.Presently there are only five egg powder plants in India. These plants are not adequatelyequipped to scale up and meet the increased world demand. Modern production facilities andtechnology tie-ups can be secured to meet the increasing demand of the domestic as well asthat of key importing countries such as Japan and Europe.

B) Poultry & Meat Products


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Poultry meat is the fastest growing animal protein segment in India (CAGR of 11 per centthrough 1991-2003). The sector is characterized by the following: Prevalence of small and unorganized players with only a few organized players selling

branded, processed products (Eg. Godrej Real Good Chicken, Venky's Chicken) High feed and labor costs (which account for almost 60-70 per cent and 20 per cent

respectively of the total production cost). Despite the low labor cost, competitiveness of

the Indian poultry industry has been adversely affected due to the high feed costs (priceof Indian poultry products is almost 50 per cent higher than global price levels)

Indian poultry are exported mainly to the Middle East and the Maldives and more recentlyJapan. Thailand's competitiveness in the international market has been adversely affected oflate due to increase in labor costs, thereby providing an opportunity for India to tread into thehighly attractive Japanese market.

Investment in better poultry breeds, adoption of improved management practices, effectiveand efficient feed formulations are expected to bring success in both the domestic as well asinternational markets and present an attractive investment option. Investments in modernabattoirs, processing, packaging and distribution systems are also the need of the hour and

merit investments.

India has the world's largest cattle population (1/2 of the total buffalo population and 1/6th ofthe total goat population of the world). Most meat production is undertaken by theunorganized sector. Increased emphasis on quality and changing consumer tastes requiregreater investments in modern slaughter facilities and development of cold chains. Changingconsumer lifestyles has meant increased willingness to explore ready-to-eat and semi-processed meat products, thus creating greater opportunities within the segment.

C) Marine and Aqua ProductsWith a 7500 km coastline, 3 million hectares of reservoirs and 1.4 million hectares ofbrackish water, India offers a huge potential for marine and aqua products. However, it rankssecond in terms of inland fisheries. India's production is only 1/6th that of China (the worldleader). Almost, 60 per cent of the fish production is from marine sources and shrimp is themajor component of marine exports.

The existing post-harvest, processing and packaging technologies in the Indian fishingindustry are grossly inadequate. While Individual Quick Freezing (IQF) plants have recentlybeen established, their capacity is still largely insufficient. Since, processed IQF marineproducts fetch better prices than conventional block frozen materials in the foreign markets,investment in this segment is an attractive option. Also, the deep sea fishing industry todaystands on a very weak footing. Investment in deep sea fishing vessels for prawns, shrimp,squid, tuna, cuttlefish, octopus, red snappers, ribbon fish, mackerel, lobster, cat fish etc. is

required. Other aspects requiring greater attention are quality improvement, technologyupgradation, development of value added products, development of infrastructure andimproved methods of handling and preservation. There is a significant opportunity for USplayers for re-exports of these marine products to EU countries.

D) Fruits, Vegetables & Packaged Convenience FoodsIndia accounts for almost 10 per cent of the global production of fruits and vegetables, yetless than 2 per cent of the production is processed. This in itself is indicative of the vast


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potential that the Indian food processing industry holds. The scope for investment in Indianhorticulture is vast and encompasses the following key areas: Identification and development of varieties that are amenable to specific processing

requirements Technology tie-ups in areas of post harvest technology, bulk storage (including

temperature controlled warehousing), bulk handling (including packaging) and cold

chain facilities Availability of sophisticated production protocols for intermediate products is also

largely inadequate Development of cost efficient packaging equipment and materialsE) Alcoholic & Non-Alcoholic Beverages

The deep-routed social aversion to alcohol consumption in the Indian society is fast changing.The mushrooming pubs and night clubs are evidence to the changing mindset of the urbanconsumer. Increased overseas travel and media exposure has also led the change in consumerattitudes towards alcohol. A number of foreign brands such as Bacardi, Seagrams and UDV,are now bottled in India. Presently, the production of alcoholic drinks from non-molassessources is very small and offers a huge opportunity for investment. The wine industry,

although in a nascent stage, is poised for growth. Approximately 38 wineries are presentlyoperating in the country with a total production of 6.2 million liters annually. Currentconsumption is 7,62,000 cases per year with a very low per capita consumption of 0.07 liters.Availability of raw material, modern wineries and competitive labor costs make the Indianwine competitive.

Inspite of a fast expanding market for alcohol, almost 65 per cent of the Indian populationstill prefers non-alcoholic beverages. The Indian consumer has traditionally had a highpreference for Cola, Orange and Lemon flavored beverages. However, with increased healthconsciousness, consumers are now turning to other options such as fruit juices and drinks.While a few well established companies have forayed into this very attractive segment whichis growing at more than 30 per cent, the potential is largely untapped and the consumer islargely starved for choice. Tremendous scope exists for investments in packaged healthdrinks, fresh fruit drinks, juices, smoothies, energy drinks, flavored tea and ethnic Indiandrinks (such as thandai, sharbat, nimbu-pani, aam panna, etc.).

F) FoodRetailThe Indian food retail industry is fast changing. The annual food & grocery sales are aboutUS $ 154 billion constituting about 77 per cent of the total retail sales. The organized foodretail is expected to grow by 30 per cent in the next 5 years. India ranks first in terms ofemerging markets in retail and is deemed as a Priority 1 market for retail. Further, India hasthe highest density of retail outlets of any country in the world. This rapidly growing sectorprovides ample opportunity for foreign investment. These investments could be in the areas

of backward integration and supply chain management which offer immense scope forcollaboration. The recent JV between Wal-Mart and Bharti is one such example.


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Case Study: The Bharti Wal-Mart Retail Venture In November 2006, Bharti Enterprises Ltd, a leading business group in India has signedan MoU with the $316 billion Wal-Mart Stores Inc, the worlds largest retailer, to explorebusiness opportunities in the Indian retail industry. The 50:50 JV will operate in areaswhere the government allows foreign investment in retail such as cash-and-carry andlogistics. The company is looking at 10 million square feet of retail space, which wouldinclude hypermarkets, supermarkets and convenience stores. The retail shops will beowned by Bharti Enterprises under the Wal-Mart franchise paying a royalty of 2 to 3 percent of sales to Wal-Mart for using its brand name. While Bharti would manage front-endof the retail venture on its own, the proposed JV with Wal-Mart would be for back-endchains, including logistics, supply chain and cash-and-carry.

The Bharti-Wal-Mart venture would make an initial investment of US$ 100 million,which could further increase to US$ 1.46 billion. Wal-Mart already sources goods worth$1.5 billion from India. This is expected to rise to $10 billion over the next few years. Thedeal will give Wal-Mart access to Bhartis domestic network, while Bharti, in turn, willget access to Wal-Marts overseas network. The venture is expected to generateemployment for about 60,000 people.

3.4.2 DairyThe Indian dairy sector is another attractive area for foreign investment. The basicinfrastructural elements for a successful enterprise like key elements of free market system,availability of raw material (milk), an established infrastructure of technology and supportingmanpower are in place in India. The dairy food processing has an immense potential for highreturns and shows good growth prospects. With a fast growing domestic market and apotential for export in the Middle East, Singapore, Malaysia, Indonesia, Korea, Thailand,Hong Kong, etc., Indian dairy food processing is likely to provide attractive returns on theinvestment. The various areas for possible collaboration are:

A) Milk & Milk productsOnly 15 per cent of the milk produced in India (annual production of approx 90.0 MT) isprocessed through the organized sector. The per capita availability of milk (229 g per day) ismuch lower than the world average (285g per day) and its consumption is highly skewedtowards the urban consumer. Presently, over 46 per cent of the total milk is consumed in theform of liquid milk, 47 per cent as Indian dairy products and 7 per cent as western dairyproducts. Interestingly, while the cost of milk production is amongst the lowest in the world,the prices of dairy products are amongst the highest. The dairy sector is expected to witness agrowth rate of over 5 per cent per annum, largely on account of the following factors: High income elasticity of demand for dairy products in India Changing dietary patterns of the Indian consumer are expected to cause a dramatic

increase in the demand for packaged, homogenized & pasteurized milk, flavored milk,cheese varieties and ethnic Indian dairy products. Reform of the EU Dairy Policy - in 2003 (in line with the WTO) has opened significant

trade opportunities for dairy producers. Low farm gate prices and proximity to milk deficit markets provide India with an edge

over other producers

Increased organized private sector participation in dairy production and processing is likely tooccur due to the following reasons:


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High profitability of the dairy products business (18-20 per cent per annum) Prevalence of small-scale or cottage industries which bring out products which are

usually of inconsistent quality & hygiene standards and unable to cater to market needs Entry of organized players can help enhance product shelf life without compromising on

food safety and hygiene Poor management of most cooperative dairies - though cooperatives have played a major

role in the evolution of the Indian dairy sector, today most cooperatives (with theexception of a few in North and West India) are poorly managed and are financiallyailing

Lack of scale in small family run businessesLow cattle productivity and the absence of adequate quality controls are major causes ofconcern in the Indian dairy industry. The poor quality of Indian milk is due to the lack ofadequate temperature controlled storage & transport infrastructure and contamination throughequipment. Thus, investment in both bulk cooling equipment (to preserve and improve milkquality) and high-end processing facilities for high quality milk & value-added products isrequired.

Ethnic products are largely produced by the unorganized sector (halwais) wherein productquality, hygiene standards, storage and packaging norms are sub-standard. Increasedpenetration by large scale organized players in this highly attractive segment would enablethe much needed traceability and quality check. Whey and whey products are an attractiveoption given the growing importance of whey products in high-end food and non-foodapplications in the international markets. Increased imports of intermediate food productssuch as cheese powder, casein and lactose are indicative of the market potential for theseproducts and investments for manufacturing the same domestically will be viable investmentoptions.

B) Dairy/ Food Processing Equipment

There is a huge potential for manufacturing and marketing of cost competitive world-classfood processing machinery.

C) Food packaging equipment

There are also opportunities in the manufacturing of both machinery and packaging materialsthat help develop brand loyalty and a clear edge in the marketing of dairy foods.

D) Small dairy units

There are a number of small dairy units which cannot justify capital investment in specializedtechnology like cheese slicing, dicing line, cheese packaging, butter printing and asepticpackaged fluid products. Investment could be made in establishing centralized andspecialized state-of-the-art facilities which could be utilized on a contractual basis by such

smaller units.

3.4.3 Cold Chain InfrastructureWith a production of around 160 million tonnes of fruits and vegetables, India accounts foralmost 10 per cent of the global production of F&V. Most of the F&V produce is perishablein nature and requires controlled atmosphere in terms of temperature and humidity for longerstorage. The absence of adequate cold chain infrastructure in the country causes enormouswastages of the F&V produce. According to an estimate by the National Council forEconomic Research, the post harvest losses of commercial F&V are around 30 per cent


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which translates to about INR 230 billion pa. This necessitates the establishment of coldchain infrastructure for reducing the post harvest losses in the F&V. The cold chaininfrastructure maintains the temperature of the produce throughout the supply chain from thepoint of harvest to the consumer. There is an immediate requirement for captive cold storagesclose to the F&V production centers and auction houses. Also, there is a growing demand forpre-cooling systems, large cold storages for warehouses attached to food and beverage plants.

Currently there are very few organized players in the refrigeration and cold chainmanagement sector in India such as Snowman Frozen Food, Voltas, Blue Star, Carrier, Frick,Kirloskar, Rinac, etc. and a large number of unorganized players. Recently, Snowman FrozenFoods set up a pre-cooling center at Hiriyur in Chitradurga, a pomegranate growing zone inKarnataka. A cooling outlet has been set up for export where the cold chain is managed fromharvesting to shipment. It has also associated itself with growers in Nashik, a grape growingregion. It is also planning to set up cold stores for mangoes in Tamil Nadu and Karnataka.APEDA (Agricultural and Processed Food Products Export Development Authority) isspearheading the export of fresh food and vegetables and as a result of this drive, modernperishable cargo centers have emerged at all major airports in the country.

The cold chain infrastructure consists of 2 segments viz., Stationery and Transport

refrigeration. Though the stationery refrigeration systems are coming close to meeting worldclass standards with increases in the level of automation, the transport refrigeration will haveto rapidly develop in order to meet the growing demand. Currently, the transport refrigerationis largely fragmented and unorganized, with a few organized players like Snowman FrozenFood, Crystal Roadways, etc. and the transport refrigeration equipment is being provided byIngersol Rand and Carrier refrigeration. With the changing life styles, the increasing demandfor quality foods and the booming retail industry, the demand for the transport refrigeration isbound to grow a lot.

The stationery refrigeration segment is also highly unorganized with more than 90 per cent ofthe cold storages owned by individuals. As a result, most of the current cold storages are out-dated and are not up to the international standards. The new cold storages are being set upusing the latest technology and the old ones are being revamped on a large scale.

The entry of organized players is expected to transform the Indian transport refrigeration intoan Integrated Logistics Management wherein the logistics provider would take care ofStorage, Transportation and Distribution. Currently, in India Snowman Frozen Foods is theonly player offering complete integrated logistics management services, thus showing a hugepotential for investment by foreign companies in this high demand sector.

The Golden Quadrilateral: A Shot in the Arm for Road TransportationThe GoI launched the largest express highway project in India viz, the Golden Quadrilateral,under the management of the National Highways Authority of India (NHAI) under the Ministry of

Road, Transport and Highways. It is the first phase of the National Highways DevelopmentProject (NHDP), and consists of building 5,846 Km of four/ six lane express highways connectingDelhi, Mumbai, Kolkata and Chennai at a cost of INR 580 billion (US$ 12.317 billion at 1999prices). More than 90 per cent of the work under the project has been completed. The GoIconstituted a Committee on Infrastructure which has taken a decision for developing nearly50,000 Km of national highways under NHDP Phase 1 to 7 at an estimated cost of INR 1720billion by 2012


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3.4.4 Agri-BiotechnologyOver the last two decades, biotechnology has made rapid strides in India and emerged as adriving force of radical innovation. India has recently been identified as one of the fiveemerging biotech leaders in Asia-Pacific by the analyst firm Ernst & Young. A host ofincentives have been provided by the Indian government for attracting investments in thebiotechnology industry.

Offlate, Agri-biotechnology is gaining prominence in India with a focus on transgenic rice,

corn, chickpea and several other food crops, in addition to developing different varieties of BtCotton. According to an estimate the Agri-biotechnology sector registered a growth of over150 per cent in 2004-05 with a value of US$ 73.3 million. A majority of this (around 77 percent) was accounted by the Bt Cotton seeds sales and the rest came from bio-pesticides, bio-fertilizers, etc. According to an estimate, after the introduction of Bt cotton in India in 2002,the cotton production has increased from 140 lakh bales to 270 lakh bales in a span of 5years. India was one of the early movers in the matter of bio-safety laws and policies andadopted bio-safety rules in 1989. Bt cotton was approved in India in 2002 after rigorous riskassessment studies conducted by different committees. To strengthen India's capacity as alsoto implement the Cartagena Protocol on Bio-safety, the country is implementing a GEF-World Bank Capacity Building Project on Bio-safety. Under this project, training workshopsare carried out for all stakeholders and it is an incremental factor for India's national capacity

to implement the Cartagena Protocol.

It is estimated that by 2010, India has the potential to become a major grower of transgenicrice and several genetically engineered vegetables. According to some estimates, the cost ofdeveloping a technology in India is quite low. The total cost including development of genetransformation, screening and regulatory approvals which works out to about US$ 43 millionin the US, can be as low as US$ 2.2 million in India.

Government Incentives for Investments in the Biotechnology Industry A single window processing mechanism for all mega biotechnology projects involving

FDI of US$ 22 million or more under the Foreign Investment Implementation Authority(FIIA) with its Fast Track Committee (FTC)

100 per cent foreign equity investment is possible in manufacturing of all drugs exceptrecombinant DNA products and cell targeted therapies

Customs duty exemption on goods imported in certain cases 50 per cent weighted tax deduction & 100 per cent rebate on R&D expenditure 125 per cent rebate if research is contracted to public funded R&D institutions 3 year excise duty waiver on patented products Joint R&D projects are provided with special fiscal benefits Custom & excise exemption on all drugs and materials imported or produceddomestically for clinical trials Removal of the restriction of minimum export obligation of approximately US$ 4

million to enable organizations to avail exemption from customs duty on certainequipments

R&D units with manufacturing facilities can avail of full customs duty exemption forcertain equipment, up to 25 per cent of the previous years export receipts

Incentive of 100 per cent exemption from tax on profits for first 5 years and 25 per centafter that, for agro-processing industries

Setting up of bioclusters i.e. biotech parks on the lines of software tech. parks


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Several research institutes in India are working in the area of Agri-biotechnology. Forexample, the Indian Agricultural Research Institute (IARI) and the National Centre for PlantGenome Research (NCPGR) are jointly working on development of molecular marker basedlinkage map for chickpea. NCPGR has also developed nutritionally enriched potato lines bytransfer of Ama1 gene of Amaranthus. The Delhi University is pursuing studies onproduction and characterization of osmotic stress tolerant transgenic plants of Brassica

juncea. Meanwhile, the University of Delhi, South campus, and IARI have spearheaded theIndian initiative on Rice Genome Sequencing. The Indian government has already started aUS$ 8 million functional genomics project, which will help to identify the useful genes. Thisproject has created a critical pool of trained scientists, infrastructure and capability to conductgenome wide research on a range of agronomically important crops.

Bio-fertilizers & bio-pesticides

The total market for the bio-pesticides and bio-fertilizers in India is estimated at US$ 17.8million. The bio-pesticides market is growing at a rate of 25-30 per cent.. Conservativeestimates show that a 10 per cent saving through the use of bio-fertilizers will result in anannual saving of 1.094 million tonnes of nitrogenous fertilizers costing around US$ 119

million. There are several types of bio-fertilizers being marketed in India. Some of the prominent ones areRhizobium, AzotobacterandAzospirillum.

A number of universities and institutes are working in the area of bio-fertilizers. TheUniversity of Hyderabad, National Research Centre for Plant Biotechnology, IARI; BARCMumbai and TERI are working on development of transgenic microorganisms with highefficiency for nitrogen fixation, and phosphate solubilization. Scientists at the New Delhibased International Centre for Genetic Engineering and Biotechnology (ICGEB) havedeveloped a microbe-based bio-pesticidal formulation for the control of a range ofagricultural pests. The formulation has been found effective in controlling diamond-backmoth in cabbage and cauliflower; white woolly aphids in sugarcane; mealy bugs in grapes,citrus & mango; and white ants in teak plantations. The formulation is being commerciallylaunched by its industry partner in 2005.

Indian and US companies and institutes can collaborate in the field of Agri-biotechnology inseveral ways such as: US companies can form JVs with Indian companies, enter into partnerships or establish

technology transfer agreements or strategic research partnerships with key researchinstitutions

US companies can collaborate with Indian companies and sell products and services inthe biotechnology sub-sectors like bio-pesticides.

3.4.5 Bio Fuels

Around 70 per cent of Indias fuel oil requirement is met through imports. It was estimatedthat even if 1/10th of the oil import could be substituted with bio-diesel, it is worth US$ 3billion pa at 2004 oil prices. Worlds depleting oil reserves, increasing cost of crude oil, andemphasis on sustainable agro-industrial development demand for an alternative renewablesource of energy. Crop residues, bio mass and non-edible oils can be used as sources forproduction of bio fuels. The National Mission Bio-diesel Programme envisages achieving 5per cent bio-diesel blend in diesel in nine states followed by a pan-India rollout. Later, thebio-diesel blend percentage will be increased to 10 per cent across the country and furthertowards more than 10 per cent blend in the entire country. Many states have formed nodal


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agencies for bio-diesel development. For instance, the Uttaranchal Bio-fuel Board has plantedJatropha in over 10,000 hectares in 2005. Trial runs on 5 per cent bio-diesel blend with dieselare being undertaken by Indian Railways, Haryana Roadways (IOCL) and BEST Buses(HPCL). The role of the private sector in this area is at a relatively nascent stage. Automobilecompanies such as Daimler-Chrysler and Tata Motors Ltd. (TML) have been conducting trialruns with bio-diesel, in addition to doing R&D on process technology, etc. Some private

companies have taken initiative in planting Jatropha and setting up bio-diesel productionfacilities. Southern Online BioTechnologies, a Hyderabad-based company is setting up10,000 tons per year bio-diesel project in Chautupal, Nalgonda district, Andhra Pradesh. TheUK-based diesel manufacturing company, D1 Oils, will be investing US$ 2 million in Indiafor setting up a 8,000 ton per annum capacity refinery at Chennai, which is likely to becommissioned by 2007. D1 Oils has formed a joint venture with Mohan Breweries anddistilleries and has begun large-scale Jatropha cultivation in Tamil Nadu, Andhra Pradesh andChattisgarh. The company plans to have five million hectares of land under Jatrophacultivation and to produce 2.7 metric tons of oil per hectare within five years.

The method for obtaining oil from Jatropha through trans-esterification process has beendeveloped and there is need to setup a pilot plant for production of biofuels. The expertise

available with US counterparts would be utilized to strengthen this activity for obtaining biofuels from non edible oils and for setting up of power generation plants using part of the 700million tonnes biomass available.

3.4 Collaboration ModelsThere is a scope for increased cross border interaction between India and US with increasinglevels of interaction as complex collaboration models emerge. Collaboration models couldrange from1. Setting up a Joint Venture between participating companies driven by factors like expectedbusiness volumes and Indian manufacturing advantages2. A simple agreement between two parties for certain research initiative or a contractservices agreement3. An agreement to co-develop certain molecules/ seeds through a licensing model, whereparticipating companies could enter different licensing models4. Financing of innovative business models tapping into a relatively niche space of high valueresearch.

On a broader level, most of the partnerships can be clubbed under two broad sections, viz.,milestone based (project based) partnership and long-term continuing. Given below is ageneric collaborative model which would render itself to customization based on the exactnature of particular partnership. The term Joint Venture is used very broadly in this modeland this model does not purely cover financial partnerships.


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Source : YES BANK Research

Public Private Partnerships as a Strategic Tool

Private Sector ParticipationIt is our strong belief that Public Private Partnerships (PPP) can be one of the strategic toolsfor harnessing the potential between India and US. Successful Agri-infrastructure projectscan be implemented with the active participation of knowledge banks and the financialcommunity in structuring and financing quality projects in the sector. Indian and US playerscan participate in Agri-infrastructure projects through various models of Public Private

Partnerships. We give below an overview of the PPP process as is used successfully todevelop commercially viable Agri-infrastructure projects. Governments all over the worldand in India have changed their approach for the development of infrastructure and otherprojects. The present approach is to invite private sector participation to leverage publicsector funds and resources. A wide variety of Private Sector Participation Options areavailable to the government for the development of infrastructure and other projects throughPublic-Private Partnerships. Various such options are presented in the following table. ThesePublic-Private Partnerships are usually classified in the roles, responsibilities and risksassumed by parties involved viz. the private sector participant and the government agency.

IndianPartner

USPartner

Joint Venture

Objective

Milestones

Responsibilities

Profit Sharing

IntermediateDecision Points

Prematuretermination of

contract

Modify /continue with

contract

Final DecisionPoint

Negative results / Dispute between

partners etc. at any stage

Contract Extension

Split as per profitsharing agreement

Monitoring ofCollaboration

ContractRenewal

Long term collaborations

Result oriented collaborations


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OptionAsset

ownership

Operationsand

maintenance

Capitalinvestment

Commercialrisk

Duration

ServiceContract

PublicPublic and

privatePublic Public 1-2 years

ManagementContract

Public Private Public Public 3-5 years

Lease Public Private Public Shared 8-15 years

Concession Public Private Private Private25-30years

BuildOperateTransfer

Private andthen

publicPrivate Private Private

20-30years

DivestiturePrivate or

private andpublic

Private Private Private

Indefinite(may be

limited by

license)

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