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Chennai , Dec. 15

THE food processing industry has to be low on cost and high on quality to tap the global markets. But Indian companies have a long way to go and a supportive policy regime is needed, according to a report by international consultants, McKinsey.

The report, presented at Foodpro 2003, a conference on food processing that was inaugurated on Monday, suggested a uniform tax structure on branded and unbranded products, support for contract farming and strengthening infrastructure.

The company's Principal, Mr Michael Fernandes, said that the Government has to act as a facilitator for the industry.

Though the industry is estimated at Rs 90,000 crore, it consists of a large number of small players who cannot take on global competition. This is because the environment is not favourable for the organised sector.

Encouraging contract farming will help farmers' income grow while increasing industry's access to agriculture produce.

Co-ordination between the farmers and industry will help them to react faster to market opportunities and develop products.

Brazil, Mexico and Thailand have emerged major exporters for processed foods by adopting such strategy, according to the report.

For instance, in India there is increased branding of commodities such as wheat flour and rice. But without a proper link between farmers and processors the efficiency is low, with poor control of costs.

The poultry industry in the South, where 90 per cent of the industry is in the organised sector, is a case in point where such integration has helped.

Poultry product prices have been low, farmers have an assured market and the industry has benefited with increased consumption.

Higher taxes on branded products put the organised sector at a disadvantage against competing unbranded products.

These constraints discouraged investors from putting money in infrastructure such as cold chain for food processing industries. Government support would help the food processing industry change in tune with the trends.

Organised retailing is expected to grow as also consumer preference for convenience foods like ready-to-cook and ready-to-eat products, and India is likely to be a source for processed foods to worldwide markets.

The report is an update of the Food and Agriculture Integrated Development Action, a food processing industry survey done by agency for the Confederation of Indian Industry (CII) in 1997.

Foodpro is a biennial event organised by the CII.

Addressing the inaugural through a video conferencing facility from Delhi, Mr N.T. Shanmugam, Union Minister of State for Food Processing, said that the Government would consider suggestions from the industry to help it emerge as a global player.

Though the total size of the industry is about Rs 1,44,000 crore, 75 per cent of the output and 50 per cent of value are accounted for by small players. India's share of the global trade is less than one per cent.

The Government is looking at steps to popularise contract farming, streamlining legislations and simplifying process to encourage the industry, he said.

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