Agriculture-Industry Interface:

Value Added Farm Products

Agriculture-Industry Interface:
Value-Added Farm Products

Introduction
India is today the second largest producer of food in the world and has all the
potential of becoming number one if the emerging problems after the green, white and blue
revolution are properly addressed. Agriculture production has shown a growth of about
three per cent per annum, and today, India is the number one producer of milk, and second
largest producer of fruits and vegetables in the world, with a buffer stock of over 60 million
tonnes of wheat and rice. Due to poor handling of the produce, post-harvest losses have
been high, resulting in a significant gap between gross production and the net availability to
the consumer. The profits on agricultural commodities have greatly diminished. Since
nineties, the cost of agricultural inputs has increased faster than the market price of the
outputs. As a result, farmers are about 15-20 per cent worse off, even after taking into
account the gains in productivity.
The problem of improvement in agriculture needs to be tackled from two different
angles, First, to increase productivity of agriculture and delivery system and Second, to
increase the farmers earning through efficient and effective value addition.
Value addition to raw food material in India is only 7 per cent while it is 23, 45 and
188 per cent in China, Philippines and UK, respectively (as per National Food Processing
Policy, Draft Document, 2000). Studies also reveal that more than four dozen value-added
products are produced from derivatives of paddy in a small country like Japan, which
produces only 2 per cent of the total world production of paddy. We process less than 2 per
cent of fruits and vegetables as compared to 30 per cent in Thailand and 80 per cent in
Malaysia (PIS Feature, 2001).
In India, the difference between price paid by consumers for valueadded products
and farmers realisation has been increasing rapidly. Further, the food processing industry
is plagued by high-risk profile, poor infrastructure and outdated technologies and taxation
laws. There is also a lack of backward linkage between farmers and processors. This leads
to non-uniformity and inconsistent supply of raw material, longer chain of intermediaries
and lack of adequate economic benefits to farmers.
Value addition is often understood in the context of adding value to the product. A new
dimension from the consumer point of view is added to the existing understanding of value
i.e. how a consumer perceives the value delivered to him through a bundle of product
services. This new approach of value addition through the consumers mind needs special
attention. All the activities now must be seen from the consumer point of view. In other
words, consumer orientation is required in all spheres of agricultural sector. Keeping this
approach in mind, there are three ways in which value addition to farm produce is possible:
Level 1 - Post-harvest level/primary processing: proper cleaning, grading and
packaging e.g. vegetables, potatoes, fruits, etc.
Level 2 - Secondary processing: basic processing, packaging and branding e.g.
packed atta, suji, rice, etc.
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Level 3 - High end processing: supply chain management, modem processing

technology, packaging of processed foods, branding, marketing e.g.
potato chips, breakfast food, noodles, macaroni, etc.
Need for a Change
The slow down in the Indian economy is of serious concern to every one, in the
government, in industry, and in all the sectors of the economy. Today, we are at less than
6 per cent growth level, which is below the planned target. Even more worrying is the fact,
that the growth rate has been tending down for the last three years. Agricultural growth has
dropped to 0.9 per cent from the average of 3.9 per cent in 1980s and 3.3 per cent in the
nineties. In the Indian context, agricultural growth has a strong multiplier effect across the
economy. Many of the models show that the modest incremental growth of 3 per cent in
agriculture would lead to another 2.6 per cent growth for manufacturing taking the overall
GDP growth up by 1.7 per centcloser to 8 per cent mark and above 10th Plan ambitions.
Time has come when agriculture has to be run as an agribusiness rather than
subsistence agriculture. The concepts of profit and loss are getting extended to the farms.
Profits have to be achieved through judicious selection and application of inputs, higher
productivity and improved quality.
Creation of a food chain starting from the farm gate to retail outlets is inevitable. In
fact, the chain should start from agricultural research institutions and laboratories to help
farmers in scientific cultivation, particularly to produce quality raw material for specific enduse, proper post-harvest management, storage, transportation and marketing. There is
also need for application of more and more mechanisation and automation in post-harvest
management and processing operations; utilisation of agriwastes generated during onfarm
processing; agro-industrial systems development; and bio-process technology for
conversion of raw agricultural produce to useful products.
World markets are undergoing a major transformation. Today, major markets are
product-driven and less commodity-driven. To boost economic returns from farming, we
must find ways for farmers to earn a greater share of the product sale revenue after adding
value to their own produce. Strategies and organisational models to be adopted will vary
from crop to crop and region to region and for meeting different technological and social
needs. In order to discuss these issues, the National Academy of Agricultural Sciences
*
organised a Round Table on September 14, 2002.
The Round Table focussed upon discussion on a few selected commodities where (i)
we have abundant production and consequently, the storage problems, (ii) technologies for
processing and/or value addition are available readily or can be generated with little
modification on existing ones and (iii) national or international demand for such products
exists. The group debated and identified some suitable working models for backward
linkage with farmers and forward linkage with marketing groups so as to benefit all the
partners.
*

A Round Table organised on September 14, 2002, at New Delhi under the Convenership of Prof.
Akshey Kumar Gupta. The Round Table was attended by about 25 participants representing
scientific institutions, planning bodies, state agricultural universities, industry and farmers.

The value chain, as existing in India was studied and compared to those existing in
some other countries. Goals were identified, and strategies were suggested for creating a
favourable environment to achieve development of value-added products. To prepare a
model for initial action, the discussion was restricted to the following commodity chains only:
1. Wheat and rice
2. Fruits and vegetablesMango, Citrus and Potato
3. Milk and dairy products
4. River and marine products
Closer farmer-processor relationship was the core of discussion. It was emphasised
that this relationship needs to be a win-win type of relationship, with reduction of
intermediaries. The producer should also be permitted to trade and the laws need to be
amended for this.
Action needed for providing effective financial support, favourable government
policies and laws, and linkages among producers, industry, R&D institutions and other
partners, were broadly suggested.
Recommendations
1. General
To meet the emerging challenges, agriculture must diversify in favour of high-value
enterprises. The emphasis should be on production of high value commodities e.g.,
fruits, vegetables and fish with enhanced quality and specific nutritional and
processing characteristics, than increasing production per se as in the past. Pricing
policies also need to be changed, linking it with the quality of the produce or a
product is the basis for fixing per unit price, just as fat content in milk; higher protein
quality/quantity in wheat; better aroma or cooking quality in rice and shelf life of fruits
and vegetables.
Since marketing of products is more remunerative than raw commodities, farmerprocessor linkages are needed to add value as per demands of the consumers.
There is a great scope of developing some of our traditional food items from cereals,
fruits, milk and fish. Appropriate and cost-effective packaging technology for these
items is needed to ensure safety and prolonged shelf life.
Agriculture is fast becoming demand driven from the earlier supply driven situation.
For the foodgrains like wheat and rice, government support in the form of assured
purchase as done in past will not be the same in years to come. Farmers will have to
grow specific varieties needed for processing or add value to their produce. Policy
and legislation must be reformed to allow processors to purchase their produce
requirement directly from the farmers.
Intermediaries in the food chain, lock value and add to cost of the raw materials
sometimes by even 80 to 100 per cent. Effective linkages need to be built between
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farmers and processors on a mutually beneficial contractual agreement, particularly

when a large number of small farmers are to be involved in contract farming.
Self-help or common interest groups on the model of cooperatives should be
encouraged to enhance the bargaining power of the farmers and negotiate
effectively with the industry, just as is being done in Kerala and Punjab.
*

Model of the Town and Village Enterprises (TVEs ) of China is excellent for involving
surplus rural labour in industrial activity by providing them alternative work at their
doorstep. This should be adopted with suitable modifications, for primary processing
of the agricultural produce and effectively linked to urban units for secondary
processing, product development and marketing.
Location of food-processing units should be strategically placed depending upon the
raw material availability, labour, product utilisation and domestic and/or export
marketing. It should be nurtured to evolve on a natural course after initial nucleation,
as done for IT industry.
Many times indigenous technologies are better suited for application than the
imported ones. There is an urgent need to have a scientific database of these
technologies so that one can compare the ones that are offered to us by other
countries. There are nearly 200 major indigenous technologies for food processing
which have been listed by CFTRI. NABARD or other financial institutions should
finance this activity.
There is an urgent need to have commodity-based management systems to advise
the governments and R&D institutions to take steps proactively, based on
continuous tracking of the demand, supply, consumer needs and prices both in
domestic and international markets. The intelligent information collecting system
should be networked with all user agencies and farmers in the country, using latest
IT technologies and infrastructure.
Processing of agricultural raw material, generates a sizable amount of utilisable byproducts, commonly termed as waste. Experimental protocols for converting these
into usable coproducts are available. These need to be developed into commercially
viable technologies. These ventures would be a success if main product
*

The Town and Village Enterprises (TVEs) of China represent a middle ground between private
ownership and the state ownership. It has led to the emergence of rural entrepreneurs and
enterprises at such a large scale and a rapid rate, which has not been experienced by any other
country. TVEs are today a vehicle to increase rural income, absorb a large amount of surplus rural
labour and check their migration to urban areas. Their growth has been critical to the success of
transforming China to a market economy.
TVEs are industrial enterprises owned by local governments and citizens and generally produce
consumer goods for domestic and foreign markets. They operate on a competitive-cooperative
basis. Because the local governments can retain the revenues from TVEs, they have been
managed efficiently and the loss-making ones are closed down. This created a domestic
competitive environment. The TVEs are financed by local financial institutions and some even by
foreign investors (World Bank, 1996).

manufacturing is undertaken in consonance with the by-product processing.

Government regulations and policies must be suitably amended to facilitate this.
2. Commodity-based Recommendations
2.1 Wheat and Rice
The varieties of wheat and rice grown, now have been developed primarily for
increased yield and lack the quality characters required for making products other
than chapatis. R&D programmes should focus on developing varieties for specific
end-use and processing qualities.
The varieties grown at present, however, are more suited for making some
traditional food items. The technologies for making these products are available with
SAUs and labs of CSIR and ICAR. Their marketing potential should be explored and
efforts made to make them into commercially viable propositions.
Processing units should be linked to areas/zones that should grow specific varieties
for specific products. Contract/Contact farming can meet this end. FAQ laws must
be amended and production/procurement policies must provide economic incentives
to farmers to produce quality grain.
Current post-harvest handling of grains results in high losses and leads to
deterioration of quality. Storage and handling technologies and infrastructure should
be designed in a manner that losses are minimised and the produce retains its
original quality. Post-harvest care involving grading, storage and phyto-sanitation of
the produce should meet the needs for export market.
Comprehensive processing units for developing products as well as by-products
should be set up. For example, wheat flour mills can earn added benefits by
undertaking wheat germ and oil production in consonance. Rice processing units
should simultaneously handle de-husking and processing of bran for food, feed, oil
and biochemicals, as is being done in many other countries. One such unit has
recently come up in Punjab.
Separate boards for wheat and rice should be established which should focus on all
the activities from R&D to the production centres for quality grain, and from postharvest handling to processing and marketing including image building in the
national and international markets. Strategy formulation at the state and national
level, development of infrastructure and facility for micro-level operators and
intervention, wherein needed, should also be the role of these boards.
2.2 Fruits and Vegetables (Mango, Citrus and Potato)
R&D programmes should focus on end-use of the produce, both for international
market and the processing needs. For example, mangos of attractive skin colour
and size are needed for export and potato varieties with large uniform tubers, and
those with delayed sprouting will be preferred for processing and reduced storage
losses.
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Mango pulp units should be set up in villages or clusters, and should ensure packing
under SPS conditions. Processing units to make useful co-products like oil from
mango kernels and beta carotenoids form peel should be set up alongside the pulp
making units.
Protocols for making traditional mango products e.g. chutney, achar, aampapar,
murabba need to be standardised for manufacturing under SPS conditions and
promoted to produce quality products. These must also be packed appropriately and
attractively.
In cases where debittering of citrus juice is not feasible, it should be blended with
other juices after appropriate R&D to meet the taste of consumers and prolong the
shelf life.
Potato varieties Chipsona-I and Chopsona-II match, or are even better than
presently used international varieties for making chips and fries. These should be
promoted among farmers and farmer-linked processing units.
Since MH is known to inhibit sprouting of potato in storage, its import should be
made easy.
Technology for converting potato powder to high fructose syrup should be exploited
at a commercially viable scale.
Peel, pulp and seed from different fruits are invariably discarded as waste. These
can be converted into valuable coproducts. Technologies for production of oil and
natural colour from citrus peel; fibre from banana leaves; oil and a rare protein from
mango kernel, have been developed. These have to be made as economically
viable propositions.
2.3 Milk and Dairy Products
Even though over 80 region-specific dairy products are known yet no scientific
documentation of these products is available. Agencies and institutions concerned,
must urgently take up this work. Some of these traditional products, backed by R&D
support for processing and packaging could be elevated to commercially viable
ventures for national and international markets (just as is being done for Shrikhand
and Rasogulla).
Attention must be paid to develop nutritive foods using whey that is rich in protein.
One possibility is to supplement it with nutra-ceuticals, followed by gelling and
suitably packaging to enhance its shelf life.
Milk quality suffers from high levels of pesticide residues and heavy metals (which
come through feed and fodder) and antibiotics mixed in feed or given for treating
mastitis. This should be checked and monitored at the time of procurement to
develop internationally competitive and pesticide-free products.

There is an urgent need to develop low cost technologies for mechanisation to

hermetically pack milk products as per needs of end users and involving the
manufacturers of packaging material and equipment in an integrated manner.
There are natural anti-bacterial agents in milk of camel/goat/sheep, which has a
shelf life of 8-10 days. R&D efforts should be initiated for blending cowl buffalo milk
with these milks, wherever possible. This will enhance shelf life and reduce handling
costs.
2.4 Fish and Marine Products
Traditional preparations like fish/prawn pickle, fish papad and fish curry, battered
and breaded products, fish mince (Surimi) based products like sausages, cutlets,
patties, balls, pastes etc., need to be promoted in ready-to-eat packs. The
packaging should be such that ensures quality and hygiene as per international
standards, with proper certification.
Since India has a higher fish processing capacity than the total catch capacity, the
idle workforce could be effectively engaged in making products based on Surimi
from low value/by-catch fish which otherwise fetch poor returns to the farmers.
Sea-weed farming should be commercialised and sea weeds used for preparation of
nutritive foods and feed items.
Post-harvest handling of fish and prawn catches must be done as per international
standards of sanitation. This is essential if we are to compete in the global trade. It
will require extensive cold-chain and appropriate storage infrastructure till the catch
is processed or consumed.
Fisheries waste generated by the processing industry should be used for developing
usable co-products like chitin and chitosan from prawn shells, sutures from fish guts,
the technology for which is available.
2.5 Public Policies
Policy and legislation must be amended to enable the processors to procure cereals
like wheat and rice directly from the farmers. This will be cost saving and also
ensure the authenticity and traceability of material.
Policy reforms should be made so that cooperative units work as competitive units,
self-supporting on their own strength, after a one-time initial financial support, on the
lines of the TVEs of China. State government should act as a facilitator of
cooperatives and not as controller, as is the practice now. These should be selfmanaged units, with appropriately defined independent dispute-handling
procedures.
Multiple taxation on value-added products hinders development. The taxation laws
should be simplified soon, as also envisaged in the draft National Food Processing
Policy.
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Special laboratories must be established in public and private sector for export
certification of food consignments for the levels of antibiotics, pesticide residues,
pathogenic organisms, heavy metals, impurities etc. as per Codex standards.
There should be time-bound commitment from the central and state governments to
develop much needed infrastructure like cold storages, warehouses, sorting, grading
and packing at the farm level. Proper incentives should be provided for these
ventures.
2.6 Banking Support
Technology generating institutions must help in developing the techno-economic
project profiles, leading to bankable proposals for the prospective entrepreneurs.
Self-help women groups have successfully taken up some parttime activities with
support from NABARD and other institutions. These groups should be assisted in
making traditional foods as per Codex standards, with proper training and financial
back up.
Simplified credit facility should be provided to farmers and their cooperatives that
wish to undertake value addition to their produce. First-loss-risk-cover should be
provided to these farmer-entrepreneurs.
2.7 Management Models
Processing units, adding value to agricultural produce, should lay emphasis on
developing effective backward linkages with farmers, to procure quality raw material.
Contract farming should be promoted in a manner that processing firms are not able
to exploit an unequal relationship with growers. Most contracts in the past have been
tilted against farmers and also some farmers have diverted the produce to open
markets.
The New Generation Cooperatives (NGC) model is ideal since it binds both farmers
and processors to honour commitments and agreements. This should be applied in
our cooperative enterprises. Contract farming involving small farmers should be
promoted rather than involving a few big farmers.
Small cooperative processing units should be promoted in rural areas. These could
undertake primary processing, grading and cleaning of produce for adding value.
The pattern of Town and Village Enterprises (TVEs) of China, could be used, with
necessary modifications.
Rural processing and value-addition groups should be promoted. This will allow
small and marginal farmers to be part-time farmers and work in rural enterprises for
enhanced income and returns on their produce.