Time to review the growth model of food processing sector

| Updated on January 13, 2020 Published on January 13, 2020

The growth of the industry needs to translate into farmers’ incomes

The mismatch between the growth and promise of the food processing sector on the one hand and stagnating farm incomes on the other cannot easily be brushed aside. The sector is estimated to account for 14 per cent of GDP and is expected to grow at a CAGR of 20 per cent, thanks to a rising population and lifestyle changes. Yet, weak ‘farm to fork’ linkages persist despite the entry of large food chains, as investments in backward linkages have not evolved at the expected pace. This has not helped either farmers or industry. According to the Dalwai committee report on doubling farm incomes, there was a staggering gap of 80-90 per cent between the availability and requirement of cold chain infrastructure about four years back, and this is unlikely to have improved dramatically. This is despite concerted efforts to promote investment. The Modi government has launched the Pradhan Mantri Kisan Sampada Yojana in an effort to create mega food parks and other infrastructure. The scheme launched in May 2017 offers a capital grant of 50 per cent of the project cost to this end. The Centre informed the Lok Sabha last January that the PMKSY would generate an investment of ₹31,400 crore, benefit 20 lakh farmers and generate 5.3 lakh direct/indirect jobs by the end of the current fiscal. The outcome Budget for this fiscal should shed some light on the progress in these areas. As the Annual Report (2018-19) of the Ministry of Food Processing Industries observes, “Every unit of capital invested in food products industry employs largest number of persons as compared to other industries.” For a country hit by depressed rural incomes and unemployment, this sector deserves some emphasis.

In doing so, existing approaches and assumptions should be reviewed. Mega food parks have been on the policy menu since 2008, with over 40 having been cleared so far. According to reports, only about a quarter of them are working. The progress on setting up integrated cold chains and testing laboratories is more impressive. It may be worthwhile to shift focus to decentralised small units, leveraging traditional skills. The FPO model needs to be furthered, with States encouraging local brand-building and marketing as well. This is also because centralised horticulture facilities require a level of product standardisation, such as in the case of tomatoes and potatoes for making paste and chips, respectively, which cannot easily be achieved. Large-scale operations involving meat and milk would, however, require infrastructure development. Contract farming models need to be revisited to iron out frictions that have cropped up from time to time.

Food processing also needs to contend with a growing sense of health awareness and raise its quality and certification levels. The industry’s standards should inspire consumer confidence, for both domestic and export markets to prosper.

Published on January 13, 2020
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