In the COVID-hit economy of Bangladesh, the agriculture sector is an unsung hero that continues helping the economy and its people. This sector has been acting as the shock absorber for returnees from urban areas and foreign countries to the rural areas due to the COVID19 pandemic. Within agriculture, the agro-processing industry is now seen as a vital sector for helping the economy recover quickly in the post-pandemic era.  Despite having a lot of potential in both the domestic and the global market, this sector stays largely ignored by local entrepreneurs.
Currently, the agro-processing sector contributes about 20 percent of the manufacturing GDP. In terms of output, 8 percent of the total manufacturing output in the country’s GDP comes from the agro-processing industry.   The sector’s contribution to total GDP is more than 1 percent, according to Bangladesh Agro-Processors’ Association (BAPA).  This sector also employs 2.2 percent of the total workforce of the country. 
The export of agro-processed products has been increasing rapidly over the last few years. The major exports of the industry are frozen shrimp, frozen fish, other frozen and processed food, spices, tea, biscuits, pickles, potato chips & flakes, processed nuts, fruit juice, and dried fruits.   At present, 145 countries import agro-processed goods from Bangladesh.  According to the Export Promotion Bureau of Bangladesh, in the latest fiscal year, 2020-2021, exports amounted to 283.38 million USD.  The top importers of frozen shrimp were the Netherlands, Great Britain, Belgium, Germany, and the United States. Top fish importers were Great Britain, Saudi Arabia, the United States, China, and United Arab Emirates. As for spice, the United States, Italy, Japan, Saudi Arabia, and Portugal were the major importers. The top importers of nuts and seeds were Saudi Arabia, United Arab Emirates, Malaysia, Oman, and Qatar. The top five juice importers were the Philippines, Malaysia, Somalia, Qatar, and Oman. For tea, the largest importers were Pakistan, the United Arab Emirates, Kuwait, and Saudi Arabia. 
Despite the substantial export potentials, this industry has a few significant barriers. The biggest obstacle is the food safety concerns of the products caused by unchecked use of chemical fertilizers, pesticides, and fungicides, poor handling & packaging practices, exposure to harmful substances during storage and transportations, etc. 
The market size of agro-processed foods is about 3.2 billion USD. Local consumption of agro-processed products is growing.  The last decade’s average growth is 8%.  The lockdowns prompted by COVID-19 have boosted this growth of processed food consumption, as these foods were more convenient to buy and store.
In terms of export, this sector has tremendous potential. The country has favorable conditions for making and exporting agro-processed food, including fertile soil, inexpensive labor, tax breaks and incentives, capital assistance, and favorable weather conditions.  Exports have been growing rapidly over the last few years, as can be seen in the following graph –
The 700 million USD export in 2018-19 is the highest amount the country has been able to export in a year, accounting for 81 percent of the total export earnings from agriculture. However, the international COVID-19 pandemic shock has slowed down the growth in exports, falling by 11 percent in the first seven months of 2020-21.  Despite that, the total export volume of agro-processed food has crossed the 1 billion USD milestone set by BAPA in 2020.  This was possible due to increased dependency on processed food, especially dry food, in light of COVID-19. The major export destinations of processed agro products are the Middle East and Gulf countries, the United States, and the European Union. In these countries, South Asian migrants, including Bangladeshis, are the main consumers of these products.  Amongst the middle easter nations, the largest export destinations are United Arab Emirates, Saudi Arabia, and Qatar. In 2020-21, United Arab Emirates’ largest imports were dry food, seeds and fruits, tea, coffee, spices, and fish. Saudi Arabia’s largest imports were dry food, coffee, tea, spices, vegetables, roots, fruits, nuts, and fish & shrimp. Qatar’s biggest imports were vegetables, cereals, coffee, tea, spices, and fish & shrimp. The United States’ top imported products were fish & shrimp, dry food, and vegetables & fruits. Among European countries, the top export destinations for 2020-21 were Germany, Great Britain, Spain, and France. Germany’s top imports were fish & shrimp, vegetables, coffee, tea, and spices. Great Britain’s top imports were the same as Germany’s. Spain’s top imports were fish & shrimp and dairy produce. France’s top imports were fish & shrimp, dry food, and vegetables.
In recent years, the export of dry food such as cakes, biscuits, noodles, chanachur, cereals, nuts, potato crackers, etc., saw a boost in growth. The export value of this category has grown almost ten times, going from 29.37 million USD in 2010-11 to 283.38 million USD in 2020-21. In light of COVID-19, dry food exports grew 49 percent in 2020-2021 compared to the previous year. The growth trend of dry food exports is shown in the following graph –
The major importers of dry foods are Nepal, India, Bhutan, Saudi Arabia, Malaysia, Singapore, the UAE, Bahrain, Qatar, Hong Kong, Oman, the United Kingdoms, France, and Italy.   Spices have also become a popular export item, going from 9 million USD in 2010-11 to 43.39 million USD in 2020-21. This has been possible due to the high quality of Bangladeshi spices. Amongst the 145 countries Bangladesh exports to, India is the largest export destination of agro-processed foods. Exports to some countries in Africa, Europe, and the Middle East are also on the rise. In Africa, confectionery products and tomato-based products, such as tomato ketchup, are getting more popular. Pran Group, a large player in the industry, has sent these products worth 200 thousand BDT (2.3 thousand USD) to Somalia to gradually increase the amount to 2 million USD. 
Processed fruits remain a rather unexplored sector with a lot of export potential in the industry. The top three markets for processed mangoes include Eastern Asia (40 percent market share), the Middle East (20 percent), and North America (10 percent). Many countries, including the neighbor India, process ripe mangoes as dried fruits, frozen & canned slices, etc., to export and to sell domestically throughout the year. Even though Bangladesh produces over 2 million tonnes of mangoes every year, no major agro-processing companies market mango by processing it. Mango is only available as fresh fruits to the consumers for around three months during the harvest season. Because no major processing factory is available, a surplus of demand occurs, which leads to the producers and farmers getting unfair prices for mangoes. Mango processing is limited to juice production by some companies, despite having a huge domestic and international demand. The production of the national fruit, jackfruit, faces similar difficulties. The absence of processing facilities for jackfruit pulps creates an abundance, and sometimes farmers have to throw away excess harvests due to low demand. 
Recently, a draft of the Agro-Food Processing Industry Policy 2021 has been made by the Ministry of Industries in an effort to attract investments. As per the policy, the government will provide various incentives, including interest subsidies, capital assistance, tax exemption on imports of machinery, income tax waiver, laboratory grants, and research incentives.  A few specifics of the policy, as well as steps already taken by the government to help the sector, are discussed below –
The policy proposes to provide loans of up to 500 million BDT (5.9 million USD) or 50 percent of the total capital at a nominal rate of interest to entrepreneurs investing in the industry within the stipulated time. To avail of this assistance, an SME has to start producing within a year or 12 months of getting the loan; larger industrial units get a time limit of 2 years or 24 months. This same assistance will also be available for people setting up primary supply centers (PSCs) and primary processing centers (PPCs) in the agro-processing industry. 
Investors in the modernization and technological development of existing agro-food processing units will be able to avail of a loan of a maximum of 500 million BDT (5.9 million USD) or 25 percent of the project’s total cost. This facility will also be available for the people setting up cold chains of dairy & meat products, agriculture, and horticulture. Nominal interest rates will apply to all capital assistance provided by the government.  
A cash incentive of 20 percent is currently available on exports of agro-processed foods, which contributed remarkably to boost the agro product exports of the country. 
In the budget for the fiscal year 2021-2022, following the Industrial Policy 2005 & 2010, the government has declared tax exemption facilities to organizations and entrepreneurs working in agro-based industries to help agriculture thrive and generate employment. Agro-processing is included in this, as well as entrepreneurs producing agriculture machinery. This tax-exemption facility, called the tax holiday, will be effective for the next ten years.  
According to the draft policy, duties on the purchase of air-conditioned vehicles meant for processing manufacturing units will be lessened by 50 percent, with a maximum 1 million BDT (11.7 thousand USD) limit. Cash incentives will also be provided at high rates for industrial units meant for exporting perishable items, with the maximum limit being 5 million BDT (58.9 thousand USD). Corporate income tax for organizations within the industry will also be waived for two years. 
The draft policy places a lot of importance on research, as the export potential cannot be truly realized without modernizing and upgrading the industry. As such, research by a government institute will be waived up to 50 percent or a maximum of 250 million BDT (3 million USD); laboratory development costs will be waived by 50 million BDT (0.6 million USD) or up to 50 percent. 
As per the draft policy, on a condition of fixed capital investment for cold chain infrastructure and industrial units, 5 percent or a maximum amount of 200 million BDT (2.4 million USD) interest subsidy will be given annually. This subsidy will only be available for seven years from the factory’s date of commission. 
Subsidies for primary supply centers (PSCs) and primary processing centers (PPCs) will also be available. In this case, the proposed amount is 5 percent or a maximum amount of 100 million BDT (1.2 million USD). 
Apart from these, duty cuts and interest subsidies will also be available for imports of capital machinery, transport purchases, exports, stall allotment for participating in fairs abroad, and cash aid in research. 
To help the industry maintain international production standards, preserve labor rights and a safe working environment, and drive up efficiency, 100 special economic zones are currently being set up in different places of the country. 
As foreign and domestic investment proposals are being made in the agro-processing sector, the industry requires a governing body to represent its interests and formalize the procedure.  The government plans to set up appropriate institutions in collaboration with the Food and Agriculture Organization of the United Nations (FAO). Additionally, organizations aimed to teach relevant subjects and develop technical human resources for the industry will also be set up, as the growing industry will create employment opportunities that require skilled labor. The Agro-Food ISC (AFISC) has already been established under the National Skills Development Authority (NSDA). The government will fund AFISC to provide vocational training to the population. The creation of an agricultural food processing board is also on the talks by the government. 
The draft Agro-food Processing Industry Policy 2021 calls for the government to ensure 5 billion USD foreign investment over the next 5 years.  To ensure that, the government has already started to invite other countries to help in this sector. The setting up of special economic zones has already garnered the attention of many countries – including Korea, Japan, China, and India – who have expressed an interest in investing in this.  According to the private industry & investment affairs adviser to the prime minister of Bangladesh, many domestic and foreign entrepreneurs are also coming up with numerous investment proposals for the agro-processing industry. 
The commerce minister of Bangladesh has invited Spanish investors to invest in the agro-processing sector, stating that Bangladesh has enough skilled human resources for the industry, which makes it a lucrative industry for investing in. Spain is the 4th biggest export destination of Bangladesh, and this is another potential sector for the countries to increase trade-in. 
The government has also sought technical assistance from Canada because the agro-processing sector is lagging in technological advancement. In reply, Canada has assured to assist the country in mechanizing this sector. 
The United States Agency for International Development (USAID) is currently assisting in running cool chain & cold storage facilities to help the local agro-processing industry. USAID has also undertaken an initiative called “Farmer to Farmer Food Safety and Quality (F2F FSQ) Programme” in 2018 to increase market access, sales, and food safety of small to medium agro entrepreneurs. The goal of this project was to help Bangladesh with agriculture capacity building, cooperative development, and food safety development. Expert volunteers have invested 42,000 USD towards helping local entrepreneurs under this program.  To get more foreign investors on board, the government should give intellectual property rights as such issues are important to foreign investors. 
A Chinese firm plans to invest 33 million USD in the sector among the neighboring countries, and Indian machinery manufacturers have been selling agro-processing machinery to Bangladeshi firms.  
If the government interventions are fruitful, the agro-processing industry has the potential to grow exponentially, creating a sizable number of employment opportunities and becoming one of the largest contributors to Bangladesh’s GDP. However, the international market should be captured properly, which remains a challenge due to the lack of proper food certifications. If the quality can be ensured, this industry will undoubtedly become an integral part of the country’s export earnings in the future.
Mariam Bint A. Mannan, Content Writer and Dipa Sultana, Business Consultant, at LightCastle Partners, have prepared the write-up. For further clarifications, contact here: [email protected]
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