Aptly recognised as the ‘sunrise industry', providing
vital linkages between the two pillars of our economy – manufacturing
and agriculture – the Food Processing industry in India is undergoing a
significant transformation. With a turnover of $110 billion, it accounts
for 35 per cent of the Indian food market, and has been growing at a
better rate of 14 per cent in the last few years.
This can be attributed to the improving policy environment and
increasing thrust on public-private partnership and improvement of rural
infrastructure, to leverage India's strengths on the supply and demand
frontiers.
The Government has made commendable
efforts to promote investment in the industry by way of channelling
resources through various schemes as subsidies and grants. The schemes
included development of integrated cold chains, Mega Food Parks (MFP),
Modern Terminal Markets (MTM) and bulk storage facilities as well as
modernization of markets, quality control laboratories and abattoirs.
These efforts have placed the food processing industry on a high growth
trajectory as reflected by the increase in food processing from 6 per
cent in 2005 to 11 per cent in 2009.
Though low
levels of processing and market share in the global arena suggest an
untapped opportunity to capitalise on India's enormous raw material base
and propel exports, they also indicate critical challenges to be
trounced to sustain continual growth of the industry.
Supply side bottlenecks:
Small and dispersed marketable surplus due to fragmented holdings, low
farm productivity, high seasonality, perishability and intermediation
result in lack of distribution on supply and quality, and in turn,
impede processing and exports.
Infrastructure bottlenecks:
More than 30 per cent of the produce from farm gate is lost due to
inadequate cold chain infrastructure (covering only 1 per cent of total
F&Vs production) and inadequate logistics. About 80 per cent of the
217 lakh tonnes cold storage capacity is engaged by potatoes while other
F&Vs account for only 0.2 per cent.
Likewise,
instead of using specialised transportation for perishables like reefer
vans, their logistics predominantly rely on traditional modes, commonly
used for grains. Yet, development of cold chains and logistics
infrastructure remains an unviable investment option, on account of,
lack of critical scale and high operating costs (twice than in the
West).
The food processing industry has a high
concentration of unorganised segments, representing almost 75 per cent
across all product categories. Thus, explaining the inefficiencies in
the existing production system, ascribed to the debility of small
regional players to invest in technology up gradation and diversify into
alternate product categories.
Deficiencies in the regulatory environment:
Lack of integration & clarity: Numerous laws, under the
jurisdiction of different ministries and departments, govern food safety
and packaging. The multiplicity of legislation leads to contradictions
in specifications, conflicting approach, lack of co-ordination and
administrative delays.
For instance, manufacturers
of packaged food products such as jams and squashes are obligated to
comply with quality standards and label declarations prescribed under
multiple legislations such as The Standards of Weights & Measures
(Packaged Commodities) Rules, Prevention of Food Adulteration (PFA) and
Fruit Products Order (FPO). Correspondingly, FPO allows usage of Class
II sweeteners in Fruit Products, whereas PFA does not.
Lack of Holistic Approach
Despite
conferring numerous incentives for establishing new processing units,
proportionate results have not been achieved. This can be credited to
the absence of vital peripheral infrastructural linkages and legislation
for contract and corporate farming, inadequate implementation of the
APMC Act and cumbersome procedures to avail grants. Also, unlike for
small scale industries, fewer schemes have been designed to promote
scale by incentivising large scale investors.
Besides
these, inherent anomalies such as mounting cost of finance, lack of
skilled and trained manpower, inadequate quality control and packaging
units and high taxes and duties, thwart development of FPI.
Solution Themes
The
need of the hour is to adopt an integrated approach to address the
abovementioned tailbacks with a clear-cut focus on improving the quality
and value of the output, reducing the cost of raw material for the
processors, while improving the farmers' income levels. In addition, to
the host of path breaking interventions introduced by the government,
particularly Ministry of Food Processing Industry (MFPI), following are a
few recommendations to realize the fullest potential of FPI:
1. Policy initiatives to plug supply side and infrastructure bottlenecks
Foster
development of backward linkages crucial for securing scale and
economic viability by evolving conducive regulatory framework for
contract and corporate farming and encouraging commodity clusters and
intensive livestock rearing.
Promote holistic
development through private sector participation while expounding a
robust supporting framework (as in case of MFP and MTM) with well
defined roles of the participants, risk sharing mechanisms, fiscal
incentives and partnership models for creation of infrastructure for
logistics, storage and processing.
Encourage
technology up gradation of existing facilities and investment in
development of ancillary industries like research and development,
packaging, food processing equipment manufacturing, food safety
certifying agencies by extending fiscal incentives to investors.
Enable
better access to credit by augmenting current cap of Rs 10 crore
investments in plant and machinery to qualify as Priority Sector Credit
to accommodate the high cost technology adoption and scale enhancement.
2. Streamlining the regulatory structure
Remove
impediments of multiple departments and laws in seeking approvals by
bringing them under a single window thereby providing clarity in roles
and channels of operational and service delivery.
Ensure uniform implementation of the APMC act to encourage private sector investment in infrastructure development.
Hasten
harmonization of indirect taxes by implementation of Goods &
Services Tax, as aimed in the current budget, to warrant uniform tax
structures across the country and reduce vast price differences in
products.
3. Change in mindset-Orienting stakeholders towards ‘demand and profit driven production'
Participants
across the agri value- chain need to shift their focus from trying to
market ‘what is produced' to producing ‘processable varieties and
marketable products' meeting global quality standards and traceability
requirements, duly adopting need based viable technologies and quality
controls.
4. Human resource development-to meet increasing demand for skilled manpower
Stimulate
industry, academia and government to put in combined efforts for
development of specialized institutes and courses for providing training
on managerial, safety and enforcements, technology and production,
warehousing and distribution aspects.
Encourage State
Agricultural Universities to commence courses in food packaging,
processing, bio-technology, information technology in agriculture and
such allied fields.
By Rana Kapoor (The writer is Founder, Managing Director & CEO of YES Bank).
Originally appeared on 3.10.2011 at http://www.thehindubusinessline.com/industry-and-economy/agri-biz/article2506269.ece
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