There has been diversification of Indian diets away from foodgrains to high value products like milk, meat products, vegetables and fruits. Food-processing industry has been registering good growth since the past few decades and particularly after nineties. The conditions are now ideal for the growth of this industry. The central government has taken some steps to deregulate and encourage the sector after 1991. However, the role of states is vital. The government of Andhra Pradesh released a policy in November 2003. There are no major initiatives in the policy and still can be called a good beginning. As against the robust growth at the All-India level, the growth rate in net value - added in the nineties was almost the same as that in the eighties in the state. Against this background, the study is taken up in the state of Andhra Pradesh with the following objectives 1. To study the opportunities and challenges in processing of rice, fruits and vegetables, oilseeds and livestock products 2. To study the working of contracts between processors and farmers 3. To identify the future areas 4. To recommend suitable policy options The contracts are working, on the whole, well in both oil palm in West Godavari and gherkin in Chittoor district of the state. The firms try to attract with favourable conditions initially, but later tighten them as a part of agribusiness normalization. Therefore caution is needed before a final conclusion can be drawn on the usefulness of contract farming in the state for the farming community. The contracts in oil palm 3 are widespread, covering many farmers and stabilized. The total extent under gherkin is very low. The contracts work through facilitator in gherkin. There are some signs of some mistrust between the facilitator-company and local farmers. The contracts are also evolving gradually to accommodate both parties. The participation of small farmers in oil palm cultivation is almost negligible. On the other hand, in gherkin, participation of small farmers was considerable. The contracts are oral and price is not assured in oil palm. In oil palm gardens, the depletion of ground water level is faster compared to other crops. In the case of gherkin, the processing industry is totally dependent on exports for sustenance, which may not be ideal. The establishment of an independent ministry of food processing and department, enacting of contract farming laws and providing for an efficient arbitration in cases of contract violation, encouraging NGOs participation in food processing sector, formation of product-wise farmers' associations, changing the animal slaughter laws and formation of some more agri-export zones for livestock products are some of the recommendations under institutional aspects. In the case of taxes and subsidies, the recommendations are - exemption from sales tax and market cess and relaxation of duties and taxes on packing material industry. Under research and training, large scale publicity to promote processed foods, undertaking demand driven research by developing processable varieties and required equipment, establishing food processing training centers, developing technology for the tiny food processing units, evolving marketing plan covering the recently emerging super markets, DWCRA bazaars, international markets etc., are some of the suggestions. In case of infrastructure, encouraging some large aseptic packaging units, establishment of a radiation technology plant, encouraging private sector in cold storages, precooling units, pack houses etc., establishment of training courses for service and repair of food processing machinery, formation of expert consultant committee and provision of one incubator are the major suggestions. Other major recommendations are provision of insurance facilities to all horticultural crops and livestock products, taking steps to ensure participation of small farmers in the contract farming, launching of a common brand of mango juice and enactment to regulate the feed industry and nurseries in the state.
