Agriculture

Harnessing Food Processing Sector

If India develops good market linkage, supply chain, packaging and mitigate global standards, the country can become the powerhouse of the food processing sector. MOHD MUSTAQUIM analyses the recent industry developments, challenges and opportunities.
Harnessing Food Processing Sector

Food processing industry has emerged as a sunrise sector of the Indian economy. The sector is growing at an annual average growth rate (AAGR) of around 8.4 percent as compared to 3.3 percent in agriculture and 6.6 percent in manufacturing.

The sector has tremendous potential in employment generation. It is expected to generate employment for 9.5 million people by 2024-25 if it grows at a compound annual growth rate (CAGR) of 8.8 percent as per the plan laid out in the 12th Five Year Plan. According to a recent CII-Rabo Equity Report, the value of exports in food processing sector has touched US$ 37.8 billion and growing at a CAGR of 26.4 percent over the last four years.

Special Task Force

The sector is gaining attention of policymakers as well as industry players. The Ministry of Food Processing Industries in collaboration with Confederation of Indian Industry (CII) has announced the setting up of a special task force to facilitate the sector. It would aim to prepare a roadmap for the states, strengthen farm–market linkages and leverage the potential of the sector.

Commenting on the recent developments, Harsimrat Kaur Badal, Minister for Food Processing Industries, Government of India, says, “The special task force would analyse various existing impediments and bottlenecks and provide expert directions and guidance on key policy interventions not only to the states but also on issues where the ministry can help. I would even create a special committee within my ministry, with the representatives of CII and the respective state heads in this task force as the members, in order to resolve the issues and help the food processing industry realise its desired potential.”

Rajesh Srivastava, CMD, Rabo Equity Advisors, says, “Considering India’s strong production base as well as huge consumption market, this sector has an incredible capital and technology investment opportunity. The potential task force should primarily shortlist key product segments with specific growth opportunity based on production strengths and competitive advantages.” He further adds, “It should also push the state governments to amend their food processing policies or provide separate schemes and incentives to encourage the sector.”

The food processing industry will prosper only if the farmers prosper because farm produce is ultimately the raw material of the industry. Hence, the industry can strengthen the backward and forward supply chain integration. India is the leading exporter of various cereals, dairy products, marine foods and various other food products. Thus, the country has vast potential to tap the world’s processed food markets. The country only needs to focus on the sector.

Roadblocks

Food processing industry has the potential to enhance the earnings of the farmers, but it lacks key infrastructure like cold chains and efficient logistics management systems. Today, there is a shortage of 29 lakh metric tonne (MT) of cold storage in India. To overcome the challenge, the Ministry of Food Processing Industries has plans to set up 138 new cold chain plants to tackle this shortage in the next four years.

Lack of scalability, investment, distribution, supply chain and advertising are considered big challenges in front of the food processing sector in India.

Arjun Gadre, Managing Director, Gadre Marine Export, says, “Distribution is the biggest challenge in India. It is easy to distribute the packaged dry food items while for perishable foods, there has to be a good infrastructure of cold chain.”

Commenting on not matching the global standards, S Venkatraman, Partner and Head of Mumbai Office, Rabo Equity Advisors, says, “Once upon a time India was the largest producer and exporter of tea which largely produces CTC variety while the global market demands the other varieties. Sri Lanka succeeded in producing as per the global demand. Toady, one-time largest exporter, India is lagging behind in the global tea market. Same happened with the coffee.”

Echoing similar views, Gadre says, “The supermarkets in the USA are retailing Indian traditional foods like samosas, pakodas and other finger foods. But, when we see where are they coming from? It is shocking to know that they are coming from China and Thailand.”

According to Scott S Sindelar, Minister Counsellor (Agriculture Affairs), Embassy of USA, New Delhi, reliability, consistency and safety are the major concerns in the global processed food markets. “To cater to the world market, India has to focus on these concerns,” she opines.

The Agricultural Produce Market Committee (APMC) Act has been a major roadblock in front of the free movement, procurement, better market linkage to farm produce and fetching better prices for the farmers.

Financing

The cluster approach is one of the keys of rapid growth of this sector. The Central Government has recently sanctioned 17 new Mega Food Parks (MFPs) and 42 more are in the pipeline with an estimated direct and indirect investment of Rs 10,000 crore. “We have also allocated Rs 2,000 crore to NABARD to give low interest credit and encourage more MFPs and quality circle clusters of food processing units at district level,” the Minster says.

Last year the Ministry of Finance had allocated Rs 5,000 crore to NABARD for financing cold chains on low interest rate under a dedicated warehousing finance scheme.

In April this year, the Reserve Bank of India has amended the priority sector lending regulations and now food processing industry is made a part of agriculture sector. It would ease the availability of credit from the public as well as private sector commercial banks.

However, the amendments are being criticised by the experts from the agriculture sector. According to the erstwhile RBI regulations, the bankers were bound to give at least 18 percent credit to the agriculture sector. During the old regime, in the wake of low return and bad credit woos, banks were hesitate to finance the farmers. There have been allegations that the banks do not fulfill the 18 percent mandatory financing to the farm sector. Maximum number of farm credit they do during January to March, a non-farm season, only to achieve the annual target. The experts alleges that now the banks are free to divert the agriculture credit to the food processing sector which was earlier meant for farmers.

Regulatory Issues

Piruz Khambatta, CMD, Rasna Pvt. Ltd, says, “For India to achieve its desired position in food processing, there is a need for massive market access fund, income tax deduction for market development as well as superior infrastructure and IT system to hasten exports. The government, institutes and industry need to collaborate and put huge emphasis on quality with voluntary compliance to Indian and International standards.”
 
Connecting the food processing with national food security, Shreekant Somany, CMD, Somany Ceramics, says, “A flourishing food processing sector is crucial to ensure national food security. Proper farm linkages with the manufacturing are critical to leverage the potential of the sector and broad basing of the sector.”

Untapped opportunities

Talking about the opportunities, Venkatraman says, “There is a huge demand of flavoured food across the world. India can tap this market as it is the largest producer of spices. Moreover, the Middle East has big demand of buffalo meat which can be tapped by rearing buffaloes for slaughter only.”

India produces surplus food, has all raw material for processed food and sufficient manpower. “Thus, the country just need to focus on meeting standards and quality the global market demands,” Gadre says.

Despite the fact, Indian food is globally considered high in taste, but a large quantity of food get wasted here. If the country develops good market linkage, supply chain, packaging and mitigate global requirements, it can become the powerhouse of food processing sector.

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