1.1

Economic reform process has provided a boost to the efforts of the State towards rapid industrialisation. In terms of new investments, Gujarat is amongst the top States in the country. The State has so far attracted major investments in sectors like Chemical and Petro Chemicals, Engineering, Pharmaceuticals, Dyes & Chemicals, etc. Investment in agro industrial sector, however, has remained at less than the national average (in percentage terms), despite the State having several advantages such as seven agro climatic zones, with wide variation in soil type, water availability and climate, abundant natural resources suitable for a variety of commercial crops like oil seeds, cotton seeds, spices and cereals. The State has very high level of production and productivity in several agri and horticulture crops in the country. The State has an established network of market yards besides industrial peace, responsive farming community and above all, its unique geographical location, proximity to national and international markets through its fairly well developed ports, airports and roads.

1.2

Gujarat stands fourth in the country in terms of per capita agricultural out put. The State Government has also identified Agro and Food Processing Industries as one of the Thrust Industries in the new Industrial Policy 1995-2000. However, substantial investments have not come to this sector. Further, actual implementation of such projects has been poor, and less than in States like Maharashtra, Tamilnadu, Andhra Pradesh, Karnataka and Punjab.

1.3

Despite excellent potential for growth, a critical constraint in development of agro and food processing industry, is the lack of supply chain infrastructure across the entire food chain. While Gujarat possesses competitive advantages in several crops like castor, cotton and horticultural crops such as bananas, mangoes, this advantage is often frittered away due to lack of farmer education in adopting best practices and understanding needs of focussed end users. Numerous middlemen add to wastages from the farm to the consumer, retail, processor or exporter. This leads to 30-35% wastages from the farm gate to the final consumer leading to price trade-up. Farmers realise a mere 25-30% of the final consumer price as opposed to 65-70% in well developed agricultural markets.

1.4

A long supply chain also means that each level of the supply chain is oblivious of the requirements of the next level. As a result, there is no premium for good quality produce or for superior handling practices. Hence, there is no incentive or choice for the farmer to invest in high quality inputs and in adopting the best agronomic practices.

1.5

High prices of processed foods deter increase in consumer demand for such foods. Processors find it difficult to procure adequate quantity and appropriate quality of raw materials at the right price. This has a cascading effect on their business, as they are unable to honour their marketing commitments. Subsequently capital for day-to-day running of the business becomes scarce, vitiating the viability of the business itself.

1.6

Raw materials used by Agro Industries have some fundamental differences vis-a-vis traditional manufacturing industries leading to uncertainty in projections and high risk perception.

Seasonality : The ground and tree crops, fisheries and live stocks undergo a reproduction cycle. Therefore, agro industries have to procure the required raw materials only in the season, while the processing operations and demand for their products are round the year.

Perishability : The agro industries process perishable raw materials and so require greater speed and higher cost in handling and storage.

Variability : Unlike non agro industries, agro industries have to face variability in the quality of raw materials. This occurs because of changes in weather conditions and/or damage to crops and livestock from pests and diseases. There are also cyclic variations in availability of raw material.

These unique features of agro industries necessitate the industries' integration with farmers to secure raw material supply. Despite these constraints it is necessary that the Agro Industrial Sector delivers adequate return on invested capital by operating throughout the year to achieve acceptable rate of capacity utilization.

1.7

Price competitiveness alone will not suffice as a tool of competitive advantage in an increasingly global market place. Processors and exporters of fresh produce to developed markets will have to deliver taste and quality demanded by those consumers. Hence, a twin pronged strategy of improving agricultural yields coupled with delivering the right quality to different markets will be necessary.

1.8

Agro sector displays such characteristics, where only 'Process & Manufacture' cannot be taken as 'Industry', because agro processing industry can not be defined without backward linkage of food chain right upto the farm. The present definition of 'Industry' requires change in form by use of mechanical/chemical or any such process as is synonymous with 'Manufacturing'. Such definition may be appropriate for industries other than 'agro industries'. Agro Industries, may require certain quality of raw material and sometime, they have to effect modification in the raw material and/or increase its shelf life. Therefore, there is need to separately define 'agro industries' so that agro industries can get benefit of incentives available to thrust industries and accelerate investments in the sector. Various organizations such as World Bank, FAO (Food and Agriculture Organization), UNIDO , have defined agro industries keeping in view the value addition aspect. The definition of agro industries is thus defined as under:

a)

Agro Industries :

'Agro Industry' means units which add value to agricultural products/intermediates/residues, both food and non-food, by processing into products, which are marketable or usable or edible or by improving storability or by providing the link from farm to the market or part thereof. Agro industry also includes hitech and biotechnology based agriculture.

b)

Agricultural product :

'Agricultural Product' means produce of Agriculture -Horticulture - Sericulture - Floriculture - Fisheries and includes minor forest produce and live stock based products, except dairy and dairy based products.

c)

Hi-tech and Bio-technology based Agriculture :

'Hi-tech and Biotechnology based Agriculture' means and includes projects, which involve any one of the processes such as Tissue Culture, Production of Transgenic Plant, Mass Multiplication of parasites/ predators, Fermentation Plant for bio-fertilizers, Gene Mapping, Cloning, Genetic Engineering, Green House, Aquaculture or any other frontier technology having agro industrial application.

d)

Other categories of units, products and processes as may be notified by Government from time to time, would also be eligible.