Strategy for gross national happiness (sgnh) Annexures to the Main Document
Amendment of laws and land policy
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- Revitalization of Agro Based Industries Situation Analysis
- 2. Need for Revitalization
- 3. Revitalization Strategy 3.1 Technology upgradation
- 3.2 Vertical Integration - contract farming
- 3.3 Formation of farmers groups and IFPPs
- 3.4 Infrastructure Provision
- 3.7 Enabling environment 3.7.1 Labor Mobility
- 3.7.2 Foreign Investment
- Revitalization of Wood-Based Industries Introduction
- Issues and Constraints Non-availability of preferred raw materials
- Lack of appropriate technology
- Lack of skilled/affordable labor
- Lack of incentive for quality
- High cost of transportation
- Creation of an enabling policy environment
- Training and skills development
3.5 Amendment of laws and land policy A full range of legal tools is needed to ensure the proper implementation of the National Spatial Policy. The planning process must be amended to realign with the new philosophy of governance. Other existing Acts must come under the purview of this single overarching policy framework. Various investment schemes needs to be in place to contribute to the realization of the objectives of the NSP. Revitalization of Agro Based Industries Situation Analysis The natural resource based manufacturing sector in Bhutan is limited to a few agro-processing units that have been set up mainly to meet the growing demands for processed products and to serve as an outlet for surplus agricultural produce. However the informal sector is also on the increase which is mostly confined to the backyard of homes. The informal sector mainly caters to the domestic market and despite the competition from the imported products which are comparatively better in quality, the informal sector is growing. Agro-industrial development even at the small and cottage industry levels is deemed critically important to the expansion and diversification of the agriculture sector. It is a recognized fact that vibrant agro-industrial activities can expand the markets for primary agricultural products and add value by vertically integrating primary production and food processing systems. This will not only ensure the availability of the product throughout the season but would also reduce the marketing risks on the part of the farmers, increase their incomes and provide rural employment.
There is potential for agro-zones to be set up for processing of: Agro Potato snacks Ara/Bangchang/Singchang Fruit Juices/Squash Pickles Canned vegetables/fruits Fried Tegma Putta Aezey/Chilly powder Tofu/Soya products Ginger
Fruit Roll Livestock Cheese Butter
Yoghurt Sha-Kam Yak Meat
Fish-Dotsem Milk
Ice cream Forestry Incense Cosmetics Herbal medicines Cordyceps Silajit Star anise 2. Need for Revitalization The key objective of any organization in the current context should be that of profit maximization without which the processing industries may not be able to meet the social responsibility. The growing consumerism in the world has spiked the demand for processed products and as such the processing industries will have to depend on the farmers for their supply of raw materials, a two way process of symbiotic relationship. Moreover, the growing competition in the domestic market from cheap imported products as well as in the global market necessitates the processing industries to redefine their goals and objectives, and structurally adjust themselves through various measures and means to re-position them in the market as a brand to be reckoned with. The growth of the informal sector is a positive trend in the development of the agriculture sector. Though they operate on a very small scale, their contribution to the economy cannot be underestimated. There is a need for the sector to formalize their set up so that necessary training could be imparted to enhance entrepreneurial and managerial skills. Necessary technical assistance could also be given especially on the quality and quality control aspects. Slowly this sector could be upgraded into a small scale industry depending on the size of its operations. The informal sector should be encouraged to get itself registered in order to avail of the training and R&D services offered by the Government. 3. Revitalization Strategy 3.1 Technology upgradation Up gradation of technology is seen necessary in the face of growing competition not only in the global market but in the domestic market as well. Appropriate household technologies should also be made available to the farmers not only for drying but for value addition of the products to enhance shelf life and to facilitate marketing. 3.2 Vertical Integration - contract farming The agro-processing sector should go into contract farming with the farmers. Such type of integration will ensure consistent supply of raw materials, provide extension services to the farmers and make available credit facilities and other support. The farmers would have an assured market and rural cash incomes would be enhanced while on the other hand, the agro-processing industries would have the required quality and quantity of raw materials. The agreement could also be to supply intermediate products like pulp and other products. Since the intermediate products would be processed at the production sites, it will be cheaper for the agro-processing firms than having to transport the fresh produce at the factory site and processing it into intermediate products. 3.3 Formation of farmers groups and IFPPs The formation of farmers groups should be mainly to engage in marketing activities collectively. Since most of the farmers operate on small scale, it is necessary for them to work in groups. As examples, there are currently two integrated fruit processing plants (IFPP) – one at Dagapela and the other at Goling, Zhemgang, which supply orange pulp during the season. More such units need to be set up across the country – such as in Nganglam and Panbang as well which are also major orange producing regions. The IFPPs should be set up in the rural areas near the production area. The farmers groups should manage the IFPPs given the fact that most of the farmers operate on small-scale and to enable distribution of the benefits more evenly. The farmers groups should also undertake marketing of the produce in order to fetch better prices than processing into pulp. Infrastructural facilities such as processing plants and permanent structures for grading and packaging need to be put in place. Other support facilities also need to be made available to attract services like shops, restaurants, etc. 3.4 Infrastructure Provision Speedy development of infrastructure and provision of facilities is seen necessary for the promotion of food processing sector especially in a developing country like Bhutan. Provision of such facilities will be critical for the informal sector and this is necessary to attract the informal sector, not only to get them formalized but also in further developing their capabilities. The Government should charge a certain fee for the facilities being rendered 3.5 Extension services The main problem with the farmers is their lack of knowledge on the management of orchards as well as on the cultivation aspects. As such, necessary extension services have to be provided on a regular basis. Such assistance can be extended by the processing units and this will ensure that the processing units get the right type and quality of raw materials. 3.6 Marketing Currently, processed products are exported only to India and Bangladesh. While Druk products have established their markets in India and Bangladesh, the inconsistent supply is an impeding factor which forces the consumer to look for substitutes. Druk fruit products are also produced in Kolkata that caters to other parts of India. For small food processing companies, a common brand may be used to market its products that can be possible only through the establishment of a common marketing agency. 3.7 Enabling environment 3.7.1 Labor Mobility The labor policy would have to be reviewed to allow movement of skilled labor on a contract basis so as to give hands-on-training to the employees. Technological transfer necessitates technological know-how which needs to be imported. If restrictions are imposed on the same, the processing industries will continue to use the current equipment/machines which may have become obsolete that would render the company uncompetitive in the domestic as well as international market. 3.7.2 Foreign Investment The FDI Policy stipulates investment of US$ 1 million in the agriculture sector. Considering the size of the economy and other aspects, no foreign firm will be willing to make investments of such scale. As such, the investment required to be made should be reduced to a reasonable scale to facilitate investments as most of the operations are small. 3.7.3 Foreign Exchange Access to forex is a major impediment that restricts the companies in importing essential raw materials. Therefore the government should support initially in making available the foreign exchange requirements till such time the company is well established. Revitalization of Wood-Based Industries Introduction Forests are a source of tangible economic and intangible ecological benefits. Out of the total forest area, 29% is earmarked as protected areas for environmental conservation. A preliminary assessment of forest resources in the country indicate that 54% of the total forest (excluding protected areas) is unsuitable for commercial forestry due to the steepness, 8% holds potential for commercial forests and 9% is being used by the rural communities. The most tangible economic use of forest is for timber. The timber is supplied from the Forest Management Units (FMUs) which are operated under a scientific plan. There are 15 FMUs in operation covering 4.4% of the total forest area. Most of the harvested timber from the FMUs is supplied to the urban consumers and part of it to rural consumers at subsidized rates. Economic activities related to forestry are undertaken collectively by private sector, corporations and rural communities, while the government regulates and provides support in terms of planning and implementing forest resource utilization plans and conservation management. Prior to July 1979, logging for commercial purposes was undertaken by private contractors. However, the 50th session of the National Assembly resolved that all logging will be done by the Government and logging in Southern Bhutan was banned. Accordingly, forest logging operations were allowed for commercial purposes (export and industries), internal Government needs and rural and urban timber requirements. The timber required to meet the urban demand are harvested by the Natural Resources Development Corporation (NRDC) according to the management plans prepared by the DoF and sold to the private sawmills. A Management Plan is prepared every 10 years and an Operation Plan every year. The NRDC is responsible for implementing the plans. Generally, timber for rural communities is also supplied by NRDC but where it cannot operate, the rural population is allowed to harvest their requirements with approval of the Government. As a new initiative, community groups have been formed to create community forests and manage them for their own sustainable use in accordance with the rules for community forests and the approved management plan. The wood-based manufacturing sector is dependent on processing primary products with low value addition. Most of the establishments are engaged in sawmills and furniture making in the wood based industry. Until 1998, there were four different price categories for logs (i.e. rural, urban, industrial and export). Both rural and urban timber were subsidized. Industrial timber had a fixed price that was based on the most recent export prices. Under the new Timber Marketing and Pricing Policy implemented in January 1999, only two prices remained: (i) a rural price for supplying rural timber for genuine uses; and (ii) the urban category, which includes all timber for commercial, construction and industrial purposes - wood prices under this category are determined by the market. Generally, there has been little development in the logging, saw milling and furniture producing sectors in relation to technology and the manufacturing process of cutting and storage of timber and the wastage during production has not lessened. The Wood Craft Center however, has played an important role in setting a standard for quality furniture and providing advice to private firms on modern techniques for storing wood, etc. Today, there are about 4 to 5 firms producing high quality furniture the demand for which is increasing especially in the urban areas.
Firms do not have access to the right grade, size, quality and quantity of timber required. The firms buy the timber in lots of mixed species through open auctions out of which only about 1/3 can be used for the core business. This makes it necessary for the firms to start other processing units to process the unwanted timber into other subsidiary products, which takes the focus away from the core product line and prevents workers to specialize in one particular area. The hoarding of timber for long periods of time by NRDC renders most of the timber as not usable for the furniture production. Only upto 1/3 of the timber can be used and the firm has no choice but to add the cost of the unwanted timber to the cost of their core product thereby increasing the cost of the finished product. As a result, the firm loses competitive edge in the international market. Due to the high wastage while using local timber, some companies have resorted to importing timber boards from India and other third countries which have increased their profitability. Some firms have also started sawmilling to get the required quality and size of timber, thereby diverting the focus from the core business.
The technology used by the wood based firms is out-dated, resulting in low quality products and high wastage. Technology use is lacking in the areas of production, marketing, management and product design. Most of the firms lack innovativeness and incentives for technology promotion are largely absent. The sharing of information, technology and know-how amongst the firms is also rarely practiced.
The availability of skilled and affordable labor is a critical factor for enhancing productivity and efficiency. However, most of the wood based firms cited the shortage of skilled Bhutanese laborers as a major constraint. Moreover, specialization and building of expertise is not possible since laborers have to undertake several tasks besides the core product line due to the unavailability of the required quality of timber. Firms find the workers trained and provided by the Wood Craft Center (WCC) too costly and in short supply, further, they are not available as and when the firms require them. Sometimes, there is also a mismatch between the skills possessed by the WCC trainees and the skills required by the industry where most of the firms use out-dated and obsolete machinery. Non-national day workers from across the border are found to be more affordable and flexible to employ particularly by the firms located in Phuentsholing and other southern towns. The furniture industry’s focus is on the domestic market where government and the corporations are the main buyers. However, the policy of awarding of tenders to the lowest bidder provides no incentive for these firms to focus on quality. As such, firms are compelled to lower the quality of their products in order to compete.
The cost of transporting timber from the harvesting site to the auction yard and again to the processing sites/locations proves higher than the cost of timber itself resulting in high cost of production. Recommendations for revitalization
a. Improving the existing institutional set up
b. Decentralization of logging activities
In order to create an enabling environment the following strategies should be pursued:
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