Creating Viable Export Agriculture Through Integrated Finance: Experience with Agri-Export Zones

Presented By: Mukul Sarkar, Exim Bank

Mumbai, March 16, 2007

Presentation Structure
Indias Brief How

Exim India

agri exports potential and constraints.

background of AEZ. AEZ helps in establishing a value chain. needs in AEZ and Integrated Finance.

Financing

Performance
A

of AEZs.

word on Exim Bank.

Indias Agri Exports: Potential

Exim India

The size of the global food trade is about USD 650 bn. Value of Indias agri exports is about USD 10 bn i.e. less than 1.50%.

India has one tenth of worlds arable land (size is more than Chinas).
It has rich and diverse agro climatic zones with more than 50 major crops.

One fifth of worlds irrigated land.

2nd largest producer of fruits and vegetables. 3rd largest producer of agri commodities (largest in food grains).

Agri Exports Indias Potential

Exim India

No. 1 Producer of Tea, Mango, Banana, Cashew, Cauliflower, Okra, Pulses, Milk etc.

Largest producer, consumer and exporter of spices.

The country is a treasure house of medicinal aromatic plant species. Exports are mainly confined to commodities. Tremendous scope for value addition. In horticulture products, India has certain competitive advantages. WTO regime provides great opportunity for exports. Farmers can benefit from exports of high value products.

Agri Exports: What Constrains Us?

Exim India

Low productivity due to inappropriate cultivation practices and improper harvest methods. This affects international competitiveness. Inadequate infrastructure. Too many middlemen in the procurement chain. Lack of contract farming practices. Quality problems due to poor post-harvest management. Inadequacy of domestic quality standards. Not able to meet stringent SPS/Codex requirements of developed countries. No clear focus on exports due to vast domestic market with low quality standards.

AEZ: Concept

Exim India

It was announced in the Budget 2001-02. Identifying geographically contiguous areas with similar agro climatic conditions with potential for one or few agri products for exports. End-to-end development of exports across the entire value chain. Integration of various assistance programmes of both State and Central Governments. Incentives under EXIM Policy. APEDA is the Nodal Agency. Other stakeholders are MOFPI, NABARD, NHB, State Govt. Agencies, Agricultural Universities, R&D organisations, Banks/FIs etc. Aim is to induce private sector investments.

AEZs in Various States

State Maharashtra No. of AEZ 8 Agri Products

Exim India

Grape, wine, mango, flowers, onions, pomegranate, banana & orange. Vegetables, potatoes, Basmati rice. Pineapple, lychee, potatoes, mango, vegetables and tea. Gherkins, rose onion, flowers, vanilla. Potatoes, mangoes, vegetables, Basmati rice.
7

Punjab West Bengal

3 6

Karnataka Uttar Pradesh

4 4

AEZs in India
State Uttaranchal No. of AEZ 4 Agri Products

Exim India

Lychee, flowers, Basmati rice.

AP
MP Other States

5
4 22

Mango pulp, vegetables, mango, gherkins, chilli

Potatoes, wheat, lentil, orange, seed. Coriander, cumin, Ginger, medicinal plant etc.

Total

60

Gap Between Farmers and Exporters

Inputs Infrastructure Farmers Storage Transportation Technology

Exim India

Exporters

Finance
Quality Assurance

Training
9

Broken Agri Chain in India

Production Supply Chain Processing

Exim India

Marketing

Poor extension Supply of inputs Low productivity Outdated farming practices

High wastage Lack of storage Poor transportn. Many intermediaries

No assured Poor infrastructure supply of inputs Lack of grading Lack of No market processing facility linkages Technology

Broken chain increases credit risk and limits credit flow

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What AEZ Offers to Improve Value Chain?

Exim India

Training of farmers and strengthening of extension services. Soil testing laboratories.

Supply of quality seeds/plants.

Setting up pack houses with sorting/ grading facilities. Greenhouses

Pre-cooling units, cold storage.

Refrigerated vans Irradiation units/ vapour and heat treatment units Perishable cargo handling facilities at airports

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What AEZ Offers to Improve Value Chain?

Exim India

Waiver of electricity duties for processing units. Transport subsidies. Waiver of sales tax on packing materials. International certifying agencies. Encouraging private investments. Promoting Contract Farming.

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Financing Needs in AEZ

Exim India

Farmers need finance for purchase of quality seeds, fertilizers, pesticides, harvesting equipment etc.

Service providers like cold storage, pack house, refrigerated vans, testing facilities need finance to create infrastructure.
Processors need finance to set up processing facilities and working capital.

Exporters will need trade finance for exports.

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Integrated Finance through Contract Farming

Exim India

In Agri Exports, assured supply of the quality agri products is critical. Price stability can also be achieved through contract farming.

Farmers
Contract Farming Processors Buyback

Finance
Exporters/ Retailers

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Advantages of Integrated Finance?

Exim India

Risk to stakeholders is minimized. Unknown risks to calculated risks.

Risks are shared among stakeholders.

Enhances credit flow to agri sector Makes agriculture more sustainable.

Overall efficiency and productivity of the chain improves.

Reduction of losses and wastage. Improves traceability and better control on quality.

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PERFORMANCE OF AEZs

Exim India

Total investments are about Rs.810 crores in 60 AEZs. Exports of USD 1.10 bn during the last 5 years. Both investments and exports are less than half of the originally projected levels. More needs to be done in the area of infrastructure. AEZs for gherkins, basmati rice, mango, mango pulp, grape, walnuts, onions in different states have done well in terms of exports. Products with no ready local market have a better chance of success.

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Exim Bank of India

Exim India

THE GENESIS

SET UP BY AN ACT OF PARLIAMENT IN SEPTEMBER 1981 WHOLLY OWNED BY GOVERNMENT OF INDIA COMMENCED OPERATIONS IN MARCH 1982

APEX FINANCIAL INSTITUTION TO PROVIDE MEDIUM AND

LONG TERM EXPORT FINANCE

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Objectives

Exim India

Established for providing financial assistance to exporters

and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys
international trade

(Export-Import Bank of India Act, 1981)

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Range of Products & Services

Exim India

Presence Across All Stages of Business Cycle

Value Based Services

Export Marketing Export Production

PreShipment PostShipment

Advisory Services

Knowledge Building

Export Product Development

Investment Abroad

INFORMATION
Import Finance Advisory Services SUPPLEMENTS FINANCING PROGRAMMES

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Organisation
OFFICES

Exim India

Head Office Domestic Offices Overseas Rep. Offices

Mumbai 9 Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Guwahati 5 Washington D.C., Singapore, Budapest, London, Johannesburg

Customer-centric organisation Inter-Office connectivity

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Exim Banks Loan Products

Exim India

Exim Bank finances only exporter or importer. Term Loan for setting up new project, expansion, modernisation, import of machinery, technology. Term loan for setting up JV/WOS abroad. Financing overseas acquisition. Pre-shipment/Post-shipment finance.

Working Capital Term Loan.

Buyers Credit. Suppliers Credit. Equity investments in overseas ventures. Factoring through Global Trade Finance

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Exim Bank Lines of Credit (LOCs)

Exim India

A Catalyst for Trade Promotion

Enables import of Indian equipment and technology on deferred credit terms Direct exposure on overseas borrowers No recourse to Indian exporters Exporters get payment on shipment Particularly relevant for small and medium sectors Extended to Overseas Governments, Government agencies overseas, National or regional development banks abroad, Commercial banks abroad GOI Lines of Credit also extended through Exim Bank More than 60 Operative LOCs amounting to approx. US$ 2 billion in over 60 countries in Asia, Africa, CIS and Latin America
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Basic Terms of Exim Banks LOCs

Exim India

Advance Payment:
Credit offered: Credit Period:

10% of FOB/ CIF value

90% of FOB/ CIF value 5 years for capital and engineering goods 2 years for other goods

Availability period:

18 months for opening L/c

24 months for disbursement

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Benefits of LOCs
Developing countries who lack forex can buy Indian goods on credit. Entry mechanism for new markets/development of new market.

Exim India

Exporters receive cash payment for exports under LOC.

An arrangement for financing a number of export contracts under one umbrella.

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Research Activities
Exim India

Occasional & Working Papers on Agri and Agro based sectors Floriculture

Herbal medicinal plants

Agro & Processed foods Fresh Fruits and Vegetables and Dairy Organic Products Biotechnology Vanilla

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Exim Bank : Partner in Globalisation

Technology Capital

EXIM India Exim BANK

Final Products Capital Goods Capital

(Foreign Investment)
Raw Materials Capital Goods

(Overseas Ventures)

Product
Development Production Marketing Pre shipment Post shipment
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EXIM BANK

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