Sunday, September 1, 2013

[Agro/Food Processing] Export, Dumping, FDI, Finance, Taxation, Budget Provisions, CODEX, NWR, BRGF, RKVY

[Agro/Food Processing] Export, Dumping, FDI, Finance, Taxation, Budget Provisions, CODEX, NWR, BRGF, RKVY

  1. Prologue
  2. Agriculture Export
    1. Tariff Barrier
    2. Dumping
    3. Non-Tariff Barrier
    4. CODEX standards
    5. HACCP
  3. FDI: Agro, Food Processing, Retail
    1. FDI: Agriculture
    2. FDI: Food processing
    3. FDI: Retail
    4. FDI: Multibrand Retail
      1. Difference In Single Vs Multibrand Retail?
      2. The Diluted Conditions
  4. Finance
    1. Why can't Farmer get loans easily?
      1. Negotiable Warehousing Receipts (NWR)
      2. WDRA
      3. Benefits of NWR receipts
    2. Why can't food entrepreneurs get loans easily?
    3. Permission-raj
  5. Taxation
    1. Budget 2013: Agro and Food processing
    2. Budget 2013: Taxation
      1. Income tax deduction
      2. Custom Duty
      3. Excise Duty
      4. Service tax: Negative list 
  6. Misc.
    1. Backward Regions Grant Fund (BRGF)
    2. Rashtriya Krishi Vikas Yojana (RKVY)


In the previous articles we saw
  1. Food processing industry: Awesomeness and Obstacles
  2. Food processing industry: ruckload of Government Schemes and bodies
  3. Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts and Commission Agents
Moving on:
New GS-Mains Syllabus of UPSCTopic touched in this article
  • Effect of policies of developed and developing countries on India's interests
Agriculture export: Anti-dumping, tariff-non tariff barriers, Codex and HACCP standards.
  • Devolution of finances up to local levels and challenges therein.
Backward regions grant fund (BRGF)
  • Regulatory bodies
Warehousing Development and Regulatory Authority.
  • Government policies in various sectors
  • Effects of liberalization on the economy
FDI policy for agriculture, food processing and retail
  • Government Budgeting
Budget 2013 for Agriculture and Food industries
  • issues relating to growth, development and employment.
The finance/credit problems faced by farmers+ food-entrepreneurs.
By the way, regarding some earlier comments about what happened to my geography location factor article series? Ans. I got bored writing geography hence shifted to agro/food processing topic for a while, but rest assured [Geography] location factors article series will be finished before Mains 2013.

Agriculture Export

World Trade Organization (WTO) aims to improve international-trade by reducing the tariff and non-tariff barriers. Let's refresh the concept:

Tariff Barrier

Taxation tools that affect import / export: Examples
  1. In the Colonization-era, British had imposed heavy taxes on Indian textile coming to London, in order to protect their local industries from competition.
  2. Before the LPG reforms of 1991, India too had imposed heavy taxes on most of the imported items: be it wristwatches, goggles, cars or radios.
  3. Aug 2013, Union Government increased the import duty on gold to 8 per cent to reduce the gold consumption (and to provide sustainable livelihood to desi-smugglers who were not given 100 days in work under MNREGA.)


  • When businessmen export goods at a price that is less than the price charged in the domestic market- it's called dumping.
  • WTO system=> Agreement on Subsidies and Countervailing Measures (SCM)=if a country finds evidence of dumping, it can extra impose duty (known as countervailing duty, CVD) on such dumped products. (=meaning this type of tariff barrier is permitted in WTO)
  • USA has imposed a countervailing duty (~6%) on Indian frozen shrimps, because Indian shrimp gets plenty of subsidies from Indian government for shrimp farming and export and hence Indians are able to dump shrimps to USA and hurt USA's local shrimp businessmen. (or atleast that's what America claims).
  • Anyways, Indian shrimps are not the only items subjected to anti-dumping duty in USA.
Shrimps fromWhy subjected to anti-dumping duty in USA?
Thailandgovernment buys shrimp from farmers and sells it to processors at low price
Chinagovernment gave finance to build the world's largest shrimp-processing and export plant
Malaysiagovernment gave finance to build shrimp farms.

Dumping by India

List not exhaustive (but in recent news)
CountryWhich Indian export was slapped Anti-Dumping duty
ChinaRecently China also started Anti-dumping investigation on Indian exports such as
  1. food preservative chemical from India (known as TBHQ)- widely used in Chinese food industry.
  2. Optical fiber imports from India after allegations from the local Chinese industry that they were being sold at artificially low prices.
ThailandIndian steel
Indonesia Against two leading Indian steel firms: Jindal and Essar.

Dumping to India (by foreigners)

List not exhaustive (but in recent news)
  1. We've slapped anti-dumping duty on steel wheels imported from China used in commercial vehicles.
  2. Under probe: US, China, Malaysia and Taiwan: Because They're exporting solar equipment to India at ridiculously low prices and was bleeding the desi industry. Similar issue with glassmakers and electric cable manufacturers from those countries.

Non-Tariff Barrier

Non-tariff barriers affect import/export, without using taxation tools. For example
Quantitative restrictionsUnder Gold control Acts of 1960s, An Indian Gold Smith was not allowed to possess a stock of more than 300 gms of primary gold at any time.
Import prohibitionsOn ivory, fur, tiger skin/bones, narcotics, illegal weapons, explosives etc.
Import licensingWhen Murthy started Infosys, he had to make 50 trips to Delhi for three years just to get a license to import computers.
Export SubsidiesWe already saw some duty credit schemes for Agri-exports in the second article. click me
Labour/Environment standardse.g. some developed country banning import from third world country saying child labour was used etc.
Health Standards Codex, HACCP- given below.

CODEX standards

  • In the 60s, FAO+WHO setup Codex Alimentarius Commission.
  • To develop harmonised international food standards, guidelines and codes.
  • In WTO system => Sanitary and Phytosanitary measures (SPS Agreement) – a country can impose ban on imported food products, if they do not meet the Codex standards. (=meaning this type of non-tariff barrier is permitted in WTO).
  • and as you can guess, Indian food products get banned/restricted in developed countries for not meeting those quality standards
  • This is a two-way street though, India also banned import of American Chicken to 'prevent Avian influenza' among Indian poultry. (Although USA has dragged India to WTO saying India has not provided any scientific evidence in line with international standards to justify this ban.)
  • Anyways, here are some of the Indian food export, there were banned in US/EU/China/Japan in past.
Indian food itembanned/restricted abroad thanks to
  1. Groundnut
  1. Mangos
stone weevil, fungus
  1. Indian Buffalo Meat
foot-and-mouth disease
  1. Indian Shrimp
Antibiotic residues
  1. Fish
Heavy metals and antibiotics
  1. poultry
bird flu/Avian influenza
Adding insult to the injury, once the ban is imposed and IF we want to get the ban revoked, then
  • We've to invite their food inspectors/specialists to India, let them check our premises
  • We've to bear all the cost of their accommodation, travel expenses etc.
=expensive game, small Indian players/companies can't survive in the international food business.


  • HACCP (Hazard Analysis Critical Control Point)
  • This certification system is adopted by the Codex Alimentarius Commission.
  • For preventing microbiological, chemical and physical contamination along the food supply chain.
  • So, if you want to safely export food products to US/EU, then first you need to get certificate that your plant meets the HACCP standards. (certificate system similar to ISO standards)
It doesn't mean we haven't anything. Here are some of the steps taken:
EIC Export Inspection Council of India (EIC)
  • statutory body under Commerce Ministry
  • for inspection- certification for marine, milk, meat, poultry, marine and egg products, and honey for export units.
EIC approved units have to implement following
  1. international standards of CODEX laid down by FAO and WHO,
  2. Good Management Practices (GMP)
  3. Good Hygiene Practices (GHP)
EIC certificate is recognized in European Commission (EC) for marine products and basmati rice and by the US for black pepper.
  • Agricultural and Processed Food Products Export Development Authority (APEDA)
  • Statutory body under commerce ministry
  • Provides financial assistance to food exporters.
  • Bears the cost for doing analysis of peanuts, grapes for meeting HACCP/Codex standards.
  • Bureau of Indian standards
  • has adopted the CODEX, hazard analysis and critical control point (HACCP) and food hygiene standards
  • helps Food processing units to adopt these systems on a voluntary basis
collaborationWe're collaborating with USA, UK, Netherlands, Switzerland and Germany for Agri-technology transfer, financial and marketing tieup and quality control.
  • Ministry of food processing industries
  • Gives financial assistance for fee charged by Certification Agency, plant and machinery, technical civil works, and other expenditure towards implementation of Total Quality Management System, ISO, HACCP, GMP and GHP.
General Area: max 15 lakh assistance
NE, difficult area: max. 20 lakh

Additional Suggestions

NegotiationGovernment needs to expedite the negotiations with US, EU, China and Japan, to lift restrictions on Indian fruit/food/marine exports into these countries.
Foreign Offices
  • Encourage importing countries (primarily USA, EU, Japan) to set up offices in India for certification of export consignments
Certification APEDA already supports the cost of quality certification programs such as HACCP and Eurepgap for grapes and peanuts. More food-items should be included in this scheme.
  • Food Safety and Standards Authority of India. We already saw its salient features in previous article, click me
  • FSSAI needs to harmonize the differences between Codex standards and Indian food standards.
Desi Labs
  • Encourage food testing laboratories in India to obtain accreditation from international agencies.  Given high cost of international accreditation, Government can incentivize laboratories by part funding these costs.
  • Government should introduce certification zoning systems: e.g. pesticide free zones, organic production zones, disease free zones to facilitate high value exports from India
Sample Cost
  • Food exporters to US/EU are first required to their samples to the importing country to get trade-approval. Government should provide financial assistance to small/medium exporters for this.

FDI: Agro, Food Processing, Retail

Foreign Direct Investment: Agriculture

100% FDI with automatic approval in following sectors:
SeedsSeeds and planting material, their development and production
  1. Genetically Modified seeds/plants= have to comply with
    1. Environment (Protection) Act
    2. Genetic Engineering Approval Committee (GEAC)
  2. If seeds are imported then have to comply with National Seeds Policy
  1. Animal rearing + dog breeding
  2. Poultry breeding farms
  3. Aquariums
  4. Pisciculture (breeding, rearing, and transplantation of fish by artificial means  aka fish farming)
  5. Apiculture  (bee keeping)
  • No FDI is not allowed in any other plantation except Tea.
  • In Tea sector:
    • 49% FDI via automatic route
    • 100% FDI with government approval.
Note: Besides ^above, FDI is not allowed in any other agricultural sector/activity
for more details please visit

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