Agri Business

Food processing - Key challenges and deliverables for success

Rana Kapoor | Updated on October 02, 2011


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.

(The writer is Founder, Managing Director & CEO of YES Bank)

Published on October 02, 2011

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