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

Presented By: Mukul Sarkar, Exim Bank

Mumbai, March 16, 2007

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Exim India

Presentation Structure

India’s agri exports potential and constraints. Brief background of AEZ. How AEZ helps in establishing a value chain. Financing needs in AEZ and Integrated Finance. Performance of AEZs. A word on Exim Bank.

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Exim India

India’s Agri Exports: Potential

The size of the global food trade is about USD 650 bn. Value of India’s agri exports is about USD 10 bn i.e. less than 1.50%. India has one tenth of world’s arable land (size is more than China’s). It has rich and diverse agro climatic zones with more than 50 major

crops. One fifth of world’s irrigated land. 2nd largest producer of fruits and vegetables. 3rd largest producer of agri commodities (largest in food grains).

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Exim India

Agri Exports – India’s Potential

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.

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Exim India

Agri Exports: What Constrains Us?

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.

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Exim India

AEZ: Concept

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.

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Exim India

AEZs in Various States

State No. of AEZ Agri Products

Maharashtra 8 Grape, wine, mango, flowers, onions, pomegranate, banana & orange.

Punjab 3 Vegetables, potatoes, Basmati rice.

West Bengal 6 Pineapple, lychee, potatoes, mango, vegetables and tea.

Karnataka 4 Gherkins, rose onion, flowers, vanilla.

Uttar Pradesh 4 Potatoes, mangoes, vegetables, Basmati rice.

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Exim India

AEZs in India……

State No. of AEZ Agri Products

Uttaranchal 4 Lychee, flowers, Basmati rice.

AP 5 Mango pulp, vegetables, mango, gherkins, chilli

MP 4 Potatoes, wheat, lentil, orange, seed.

Other States 22 Coriander, cumin, Ginger, medicinal plant etc.

Total 60

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Exim India

Gap Between Farmers and Exporters

Farmers Exporters

Inputs

Infrastructure

Storage

Transportation

Technology

Finance

Quality Assurance

Training

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Exim India

Broken Agri Chain in India

Production

•Poor extension•Supply of inputs•Low productivity•Outdated farming practices

Supply Chain Processing Marketing

• High wastage •Lack of storage• Poor transportn.• Many intermediaries

• No assured supply of inputs• Lack of processing facility•Technology

•Poor infrastructure•Lack of grading• No market linkages

Broken chain increases credit risk and limits credit flow

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Exim India

What AEZ Offers to Improve Value Chain?

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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Exim India

What AEZ Offers to Improve Value Chain?

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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Exim India

Financing Needs in AEZ

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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Exim India

Integrated Finance through Contract Farming

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

Farmers

Processors Exporters/ Retailers

ContractFarming

Buyback

Finance

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Exim India

Advantages of Integrated Finance?

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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Exim India

PERFORMANCE OF AEZs

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 India

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

Exim Bank of IndiaExim Bank of India

THE GENESIS

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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 country’s international trade…” (Export-Import Bank of India Act, 1981)

ObjectivesObjectives

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Exim India

Range of Products & ServicesRange of Products & Services

Pre-Shipment

Export Marketing

Export Production

Export Product

Development

Import Finance

Advisory Services

Investment Abroad

Post-Shipment

Presence Across All Stages of Business Cycle

INFORMATION

Advisory Services

Knowledge Building

SUPPLEMENTS FINANCING PROGRAMMES

Value Based Services

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Exim India

Head Office

Domestic Offices

9 Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Guwahati

Overseas Rep. Offices

5 Washington D.C., Singapore, Budapest, London, Johannesburg

Mumbai

Customer-centric organisation

Inter-Office connectivity

OrganisationOrganisation

OFFICES

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Exim India

Exim Bank’s Loan Products 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. Buyer’s Credit. Supplier’s Credit. Equity investments in overseas ventures. Factoring through Global Trade Finance

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Exim India

Exim Bank Lines of Credit (LOCs)Exim Bank Lines of Credit (LOCs)

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

A Catalyst for Trade Promotion

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Exim India

Advance Payment: 10% of FOB/ CIF value

Credit offered: 90% of FOB/ CIF value

Credit Period: 5 years for capital and

engineering goods

2 years for other goods

Availability period: 18 months for opening L/c

24 months for disbursement

Basic Terms of Exim Bank’s LOCs

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Exim India

Developing countries who lack forex can buy Indian goods on credit.

Entry mechanism for new markets/development of new market.

Exporters receive cash payment for exports under LOC.

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

Benefits of LOCs

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Exim India

Research ActivitiesResearch Activities

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 India

Exim Bank : Exim Bank : Partner in GlobalisationPartner in Globalisation

Technology

Capital

(Foreign Investment)

Raw Materials

Capital Goods

Final Products

Capital Goods

Capital

(Overseas Ventures)

Product

Development

Production

Marketing

Pre shipment

Post shipmentVALUEVALUE ADDITIO

N

ADDITION

EXPORT

EXPORT

MMII

TTRR

OOPP

EXIM BANK

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