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A SURGE IN farm incomes this season, combined with the Centre's focus on agricultural development in the last two Budgets, has created a favourable climate for the nascent food processing industry to make a rich harvest. The economic advantages of value addition to agricultural crops, including cereals, through processing is well recognised. Food processing provides vital linkages and synergies between agriculture and industry. Growth in food processing activities will benefit not only the consumer but also the primary producer through higher production, assured marketing, remunerative prices and, of course, jobs for a large mass of rural population.

While corporates and others look for opportunities to establish new facilities or expand existing ones, the policy-makers — both at the Centre and in the States — need to create an enabling environment to attract a large dose of investment. Thankfully, food processing has already been identified as a thrust area and is covered by priority sector. Most food processing activities have been exempt from industrial licensing save a small number of specified items such as beer and alcoholic drinks as also items reserved for the small-scale sector. For a majority of processed food items, automatic approval for even 100 per cent equity in the form of foreign investment is available. So, what is worrying investors?

Several structural issues that stymie the growth of food processing industries have to be addressed: Low level of processing, high wastage, low value addition to the raw produce (mere 7 per cent), highly fragmented processing capacities, limited access to technology, poor marketing network, unusually long supply chain, multiplicity of laws and regulations, lack of infrastructure and, not the least, high levels of taxes. Pressure on the Government to reduce taxes on the food processing industry is growing; but it would be naïve to assume that tax reduction alone will do the trick. As the market's growth potential is huge, competition alone can force the processing industry to become cost-efficient and learn to work on reasonable margins.

While the Government will have to take the lead in creating a favourable policy framework, it cannot be expected to address all the issues. The food-processing sector presents a fine opportunity for fostering public-private partnership. It should be possible to establish a sustained and lasting linkage between primary producers and processors using the existing institutional infrastructure of cooperatives, village panchayats and similar institutions. Training programmes for primary producers on the virtues of primary cleaning and grading are necessary. The agriculture produce market system needs to be revamped even as farmers are allowed the freedom to sell as they like. Importantly, public investment in agriculture and rural infrastructure — access roads, storage facilities, dissemination of market information, and so on — needs to be stepped up. Entrepreneurs have to establish backward linkages by adopting contract farming as an assured method of sourcing inputs for processing.

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