Proposal for Agro-produce Cluster Development

Maple

Mandarin Orange
Millets

Source: Ministry of Food Processing Industries, Government of India

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Overview

With rising demands for foods and grains, development of food processing industry in the country is
accorded top priority by the Government of India as it is one of the most critical links in agricultural value
chains and securing food security. Cluster-based development approach involves collaborative actions by
groups of companies, governments, and other related institutions to improve the competitiveness of a
group of interlinked economic activities in a specific geographic region. More specifically, the stakeholders
target the development of clusters for agro-based products or non-farm products and interlinking them
with markets for exports at domestic and global levels.

The clusters-based approach enables the small agro-producers and agro-processors to engage in high-
value agriculture by sustained value chains that not only enhance the productivity per unit of land and
effort, but also enable the stakeholders to earn and employ more. Corroborating to the success of these
clusters, there have been many examples across various states within India where the stakeholders have
been successful enough to interlink horizontal and vertical value chains and thus reap in the benefits of
geography, climate, manpower.

Worldwide, India is the largest producer of milk, bananas, mangoes, guavas, papaya, ginger, okra; second-
largest producer of wheat, rice, fruits, vegetables, tea, sugarcane and cashew nuts and the third-largest
producer of cereals, coconut, lettuce, chicory, nutmeg, mace, cardamom and pepper. The food processing
industry forms a major part of India’s economy owing to the variety of food products that the country
harvests and further processes for consumption. Rising incomes and a growing demand for healthy,
packaged food ensure that this industry is likely to sustain all seasons and never fear a recession.

 India’s food processing sector output expected to reach US $535 billion by year 2025-26.
 Additionally, this sector is expected to generate 9 million jobs by the year 2024.
 The Indian food industry is expanding at a Compound Annual Growth Rate (CAGR) of 11%.
 The food processing sector accounts for 32% of the total food industry.
 India’s food sector attracted FDI of US $4.18 billion from April 2014 to March 2020.
 By 2030, India’s annual household consumption is expected to triple, making India the 5 th
largest consumer in the world.

The above expectations are justified by the data showcased in the graph below.

Gross Value Added (GVA) by Food Processing Industries at Constant 2011-12 Prices
(Rs. in Lakh Crores)

S. Economic 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-

N. Activity 13 14 15 16 17 18 19 20
1 GVA- All India 85.46 90.64 97.12 104.92 113.28 120.34 127.44 132.71

2 GVA- FPI 1.3 1.3 1.34 1.61 1.79 1.93 2.32 2.24
3 GVA- Manufacturing 14.87 15.61 16.84 19.04 20.55 22.09 23.26 22.69
4 GVA- Agriculture, 15.24 16.09 16.06 16.16 17.26 18.4 18.87 19.69
Forestry and Fishing

Source: Economic Review 2021-22, Government of Rajasthan

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 Number of units and persons engaged in registered FPI sector in India

Source: Annual Report 2021-22 of Ministry of Food Processing Industry, Government of India

Existing Issues

An individual agricultural producer, standalone, faces numerous

days to days challenges that hinders her path to prosperity and
agricultural success. Every day, an individual farmer come across
problems like; inability to procure quality seeds and inputs,
inability to gain access to formal sources of credit, zero
bargaining powers, inadequate quantity and sub-standard
quality of the produce, higher transportation and storage costs,
etc.

In addition to this, the farmer is harassed by the middlemen and

traders via routes such as lending credit on informal terms and
conditions, buying the produce from farmer at a bare minimum
price, storing the agricultural produce and pushing this produce
in the market at peak seasons, unnecessary rise in the cost of
the produce as the produce arrives in the market. These issues in
turn affect all the stakeholders of the value chain and at last,
effect the consumers in the market.

With fragmented land holdings due to partition of joint families

and inadequate investments in capital infrastructure and asset
generation, an individual farmer is unable to reap in the benefits
of natural resources of the area. Further, she is unable to link
herself to the value addition chain and misses out on a lot of
market related interventions.

The micro food processing sector faces several challenges

including the high cost of institutional credit, lack of access to
modern technology and value addition opportunities. Other
challenges being faced by this segment are lack of awareness
about FPOs and FPIs, lack of market knowledge, lack of branding

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and marketing for their produce. Unskilled manpower also poses
challenges to the micro-enterprises.

Way Forward

To solve these issues arising at an individual farmer level, on-site clusters of farm producers must be set up
to aggregate the producers and leverage the scale of economies. Keeping in mind both the current
situation and the challenges faced by the State, our team of social sector specialists including agricultural
and marketing professionals along with on panel advisory team, propose to build Agro-based cluster for
increased farm productivity, income enhancement and upscale of exports. Broadly, the objectives are:

 Identifying potential crops for clusters

 Setting up clusters for potential crops
 Developing and handholding small entrepreneurs
 Formalising the institution of farmers
 Setting up processing units
 Setting up packaging units
 Branding and marketing support
 Logistics and marketing channels
 Formalisation of the aggregation of producers
 Establishment of food processing units
 Collaboration with Central and State Governments
 Sourcing grants from Government schemes
 Developing state owned brand for agro-products
 Credit linkage with NBFCs
 Employment generation
 Social development through all walks of life
Source: Ministry of Agriculture, Govt. of India

Stakeholders

Any agro-based cluster along with its value addition chains, include a variety of stakeholders:
 farmers as the producers,
 suppliers as input providers,
 processers as value enhancers,
 packagers and transporters as handlers of the produce,
 local entrepreneurs as capital inducers,
 bankers as credit givers,
 traders and exporters as the market suppliers,
 consultant firms for handholding supports,
 government as the guardian of open economy.

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 Entrepreneu Processor
r s

Government

Approach and Methodology

An agro-based cluster is a concentration of producers, agribusinesses and institutions that are engaged in
same agricultural or agro-industrial subsector. They interconnect and build value networks while
addressing common challenges and pursuing common opportunities.

The focus of the intervention would be to leverage the existing strength of FPOs to promote agro-
processing clusters across the state. New FPOs, wherever necessary, can be setup to complement the
existing structure. The focus of these clusters would be to provide sustainability for agricultural
interventions along with an eye for exports to various part of the world. The agro-processing clusters
would allow a focussed approach on the quality, quantity, and production processes. The intervention
designed would be leveraging on the existing strength of the organizations ranging from capacity building,
financial inclusion, improving value chain and aggregation of the produce.

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To attain formality, the growers first take the shape of a cooperative, producer companies, producer
groups, self-help groups. Broadly, the methodology to be followed includes:

Undertake base line socio economic survey of the cluster and rapid analysis of the commodities
producedUnderstand the commodities that have the potential for value chain developmentUndertake
water, soil, climate and natural resources assessment to get hold of the demand and supply of the
resourcesStudy the existing methods of cultivation, irrigation, harvesting, etc.Undertake detailed
participatory analysis in the project cluster by bringing together all value chain stakeholdersIdentify
commodities to be supported for value chain developmentCommodity that offers competitive
advantage for the cluster and meets criteria to be identifiedUndertake gap analysis about production of
the commodityIdentify present constraints and solutions to those constraintsFocus on products that
are less sensitive over changes in climate and moistureUndertake detailed analysis for input
management, harvesting and collections, producer processing, packaging and logistics, marketing
channels, future production, etc.Understand the demand and supply of the produce, price information,
trading margins, transport and storage costs, market efficiency, etc.Identify key bottlenecks like
finances, market, production capacity, capacity building and training, manpower, etc.Establishment of
monetary costs of interventions, proposed activities and investmentsAnalysis of the impact and
outcomes of the interventionsUndertake feasibility of diversifications for increased incomeUndertake
assessment and suggest production improvementsDocument case studies and success showcase.

It shall also include, but not limited to, the creation of enterprises, promotion of local co-operatives,
employing a constitution and mechanism for governance, executing collaborations with NBFCs, promote
the culture of nutri-consumption through State PDS, develop a state owned-state led brand for agri-
products, etc.

Schemes

1. Prime Minister Formalisation of Micro Food Processing Enterprises Scheme (MoFPI)

With a vision to formalise the unorganised and informal agricultural sector, the scheme adopts One
District One Product (to be identified by the State Government) approach to reap the benefit of
economies of scale in terms of procurement of inputs, availing common services and marketing of
products. Micro-enterprises to get Credit-Linked Subsidy at 35% of the total eligible project cost with
ceiling of Rs. 10 Lakhs for upgradation of infrastructure and capacity building. Similarly, SHGs to get Seed
Capital for giving loans to members. The scheme also includes on site skill development and handholding
with special focus on women entrepreneurs and aspirational districts.

2. Production Linked Incentive Scheme for Food Processing Industries (MoFPI)

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With an outlay of Rs.10,900 crore and implementation plan of six-year period from 2021-22 to 2026-27,
the first component of this Central Sector Scheme incentivises manufacturing of 4 major food product
segments viz. Ready to Cook/ Ready to Eat (RTC/ RTE) foods including Millets based products, Processed
Fruits & Vegetables, Marine Products, Mozzarella Cheese. The second component relates to support for
branding and marketing abroad, to incentivise emergence of strong Indian brands by giving grants to
entities for - in store branding, shelf space renting and marketing.

3. Agro Processing Cluster Scheme of Ministry of Food Processing Industries (MoFPI)

Each agro processing cluster under the scheme have few basic components i.e., Basic Enabling
Infrastructure, Core Infrastructure/Common facilities and at least 5 food processing units with a minimum
investment of Rs. 25 Crores. The Scheme envisages grants-in-aid @ 35% of eligible project cost in general
areas and @50% of eligible project cost in the Northeast States including Sikkim, difficult areas namely
Himalayan States, State notified ITDP areas, Islands and SC/ST entrepreneurs subject to max. of Rs. 10.00
crore per project.

4. Scheme for Creation of Backward and Forward Linkages (MoFPI)

To provide seamless backward and forward integration for processed food industry by plugging the gaps
in supply chain, the scheme provides up to Rs. 5 Crore per project as grant. It is applicable to perishable
horticulture and non-horticulture produces. The grant is provided only in respect of technical civil work
and eligible plant & machinery.

5. Financial Assistance Scheme of APEDA (2021-22 to 2025-26)

An export promotion scheme run by APEDA with a spectrum of grants up to Rs. 6 Crores, it aims to
facilitate the export of agri-products by aiding exporters through:

i. Development of export infrastructure- pack house facilities, packing/grading lines, cold storages
and refrigerated transportation, cable system, common infrastructure facilities, etc.
ii. Quality Development- adherence to the food safety requirements of importing countries,
example: stringent Maximum Residue Level (MRL) norms, etc.
iii. Market Development-Participation in international trade fairs, exchange of trade delegations,
organizing buyer seller meets, developing packaging standards, etc.

6. NABARD Funds for Food Processing Units in Food Parks

With a special fund of Rs. 2,000 Crores, the objectives of the fund are to provide impetus to development
of the food processing sectors on a cluster basis in the country. The following entities are eligible for term
loan at affordable rates:

State Governments, Entities promoted by State Governments or Government of India, Joint Ventures,
Special Purpose Vehicles (SPVs), Cooperatives, Federations of Cooperatives, Farmers’ Producer
Organizations (FPOs), Corporates, Companies, Entrepreneurs etc.

7. Mega Food Park Scheme of Ministry of Food Processing Industries (MoFPI)

A Mega Food Park typically consists of supply chain infrastructure including collection centres, primary
processing centres, central processing centres, cold chains and around 25-30 fully developed plots for
entrepreneurs to set up food processing units.

The scheme shall provide a capital grant at the rate of 50 % of the eligible project cost, subject to a
maximum of Rs. 50 crore per project, excluding cost of land, pre-operative expenses and margin money
for working capital. 22 Mega Food Parks are operational in states of Andhra Pradesh, Assam, Chattisgarh,
Gujarat, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Mizoram, Odisha, Punjab,
Rajasthan, Telangana, Tripura, Uttarakhand, West Bengal.

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 Trend of Fixed Capital Investments in the FPIs of India

Source: Annual Report 2021-22 of Ministry of Food Processing Industry, Government of India

Outcomes
A well-developed agro-based cluster, over time, would induce following outcomes for all stakeholders:

i. Increased productivity through specialized inputs

ii. Access to information, synergies, and access to public goods
iii. More rapid innovation through cooperative research and competition
iv. New business formation because of competition, demand for services, and attraction of investors
v. Technological innovations
vi. Improvement in productivity as well as farmer income
vii. Spill over effects in the form of increased farm employment
viii. Increase in exports from the state and rise of the State GDP
ix. Expansion of India’s export basket and contribution to the National GDP
x. Shift in cultivation from annual to cash crops
xi. Investments by national and multinational agricultural input suppliers and companies
xii. Variety improvement program for the region
xiii. Enhanced credibility of the firms and products
xiv. Economic benefits to buying intermediate goods from other firms
xv. Finding new customers in new markets
xvi. Achieve scale of economies
xvii. Cost sharing related to training, info sharing, certification and technology application
xviii. Better environmental practices
xix. Spill over benefits on local and rural development
xx. Creation of national/regional brand identity

Our Unique Value Proposition

We, at Nangia Anderson LLP, provide end-to-end consultancy solutions for the development of Agro-
based clusters. Founded in 1984 and with an expertise of years, the group provides a wide gamut of
services in consulting space which ranges from broad range of government agencies, private sector
participants, civil society stakeholders and citizen groups to help create more efficient and effective social
sector services.

We have extensively worked on strategic assignments across priority sectors of different State
Governments of India, that have yielded positive results for all the stakeholders. We are sure that with
this approach of cluster-based development in the agricultural sector, we will be able to benefit the
farmers as producers and address all their issues on end-to-end basis i.e., from seed to production
technologies to marketing and value chain. This approach shall not only insulate them from extremities of
rainfall and temperature but also provide them with alternative sustainable livelihoods opportunities.

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With an expert team of professionals from the fields of agriculture, marketing and social development,
Nangia Anderson strives to deliver a wholesome solution for end-to-end agri-cluster formation with value
addition support at each level.

We would like to propose the following as part of our solution offerings:

 Development of Agro-based clusters in potential regions of the state
 Organise training and skill development of the farmer groups for capacity building
 Cooperative farming and Collective farming
 Collaborative group marketing by the farmers
 Backwards and forwards linkages
 Leveraging big brands for contract farming with a pool of producers
 Develop retail chain linkages for supplying the produce to mass markets
 Promoting domestic as well as international exports
Contact Us

Suraj Nangia Poonam Kaura

Managing Partner Partner - Govt. & Public Sector Advisory
suraj.nangia@nangia-andersen.com poonam.kaura@nangia-andersen.com
+91 9811238144 +91 9810893909

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