FNB News - Pune - Maharashtra’s rapidly growing processing hub

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Pune - Maharashtra’s rapidly growing processing hub

Saturday, 01 February, 2014, 08 : 00 AM [IST]

Manjari Desai

Introduction
Pune is an emerging market for the food processing industry. Big names like Weikfield Products Company Pvt. Ltd, Gits Food Products Pvt. Ltd, Rasoi Magic Foods India Ltd, Pravin Masalewale (Suhana), Parampara Food Products, S V Foods, Tasty Bite Eatables Ltd, Venky’s India Ltd, Universal Spices, Chordia Food Products and so on, all have their origin in Pune. Food processing plays an important role in establishing farm sector’ formal linkages that result in high income and employment generation while minimising the wastages. This industry is one of the major sectors in Maharashtra as it contributes 9.7% of the states GDP (2007-08).

It is realised that a dynamic rural economy requires establishing general linkages in the form of food processing industries so that income levels of the producers could be improved and wastages avoided.

Already food products and beverages industry has emerged as one of the major industries in Maharashtra, and has contributed 9.7% in terms of total value of output in 2007-08. More so the industry has attracted Rs 1,039 crore worth of Foreign Direct Investment (FDI) through 173 projects that is 4.1% of the total proposals since 1991. According to the statistics of the ministry of food processing Industries (MoFPI), Maharashtra has 16,512 small- and medium- and 322 large-scale food processing units. An investment amount of Rs 1,039 crore is expected, which is 1.2% of the total investment.

There are around 13 mega projects (not including textiles), which have also been approved under the Package Scheme of Incentives since 2005. These projects have an investment of nearly Rs 2,600 crore. In fact, Maharashtra has more than 45,000 agro processing cooperatives. This makes the state as one of the country’s leaders in agro-industry in general, and in food processing industries in particular. (Source: NHM, NHB agriculture department, Government of Maharashtra)

The economic survey, Government of India 2012 page 220 says, “Food Processing is one of the most heterogeneous sectors of manufacturing covering marine products, dairy products, grain, meat products, fruits and vegetables, sugar, edible oils and beverages.” This sector has been one of the fastest growing segments in manufacturing that contributes 27% average industrial growth more than three times its weight in the IIP. In view of this sector generating employment and income, particularly for the poor, Indian government has introduced several schemes.

According to the National Mission on Food Processing (NMFP), there is a Centrally- sponsored scheme to create additional food grain storage capacity in the country. For this, subsidies are given for effective administration of the processed food security legislation. Also the government gives incentives to investment-linked tax incentive of 100% deduction of capital expenditure for setting up and operating cold chain facilities and operating warehousing facilities.

Incentives are given to export-oriented units to increase exports. Hundred per cent export-oriented units are allowed to sell up to 50% of their produce in the domestic market and export earnings are exempted from corporate taxes. Import duties are scrapped on capital goods and raw materials for 100% export-oriented units. There is a 100% tax exemption for 5 years followed by 25% tax exemption for the next 5 years for new agro processing industries. Also there is full excise duty exemption for goods that are used in installation of cold storage facilities.

Besides, MIDC has set up various food parks and wine parks. Eight specialised food parks with facilities as cold storage, warehousing, advanced packaging and tetra packaging and food testing laboratory have been set up at the following locations;

Pune Scenario
The Central government and state governments have introduced several schemes and incentives to encourage the food processing industry. However the benefits of these schemes have not reached the end-user. These initiatives cover almost all facets of the food processing industry. The knowledge about various official efforts needs extensive publicity. Also various schemes would gain if these schemes are simplified in a manner that reduces paper work and delays. Instead of abundant schemes, the emphasis should shift to core schemes relating to infrastructure (cold chains), skills availability and technology updates.

This industry can be divided largely into 12 segments -

Sweet Products; n Milk, Milk Products, Ice Cream; n Farsan & Namkeen; n Bakery Products; n Dry Fruits; n Fruits & Vegetables; n Pulses, Flour, Dal, Cereals; n Spices, Papad, Chutney, Pickles; n RTE & RTC; n Mineral Water & Beverages; n Edible Oil; and n Others.

The food processing industry even in large size cities like Pune is predominantly small size-oriented. Information on investment by units is either unavailable or imprecise. Hence to study the size of the food processing industry one can use annual turnover as the size variable. The industry comprises a large number of small- and medium-sized businesses in terms of their production and operations. The industry is largely concentrated in the unorganised segment.

Nature of Ownership
In Pune most of the firms are proprietary firms. From the sample survey carried out by MCCIA, (Reference - Facets of Food Processing Industry: An Empirical Study of Pune), the ownership pattern of the food processing units, reveals that 68% of the firms are proprietary firms, 17% firms are private limited companies, 10% firms are held in partnership and the remaining 5% exist as public limited companies. Given the nature and the size of the business, two-third units prefer proprietary form of ownership.

In Pune, most of the food processing units sell their products directly to the consumers. A marginal size of such establishments sell their products through indirect channels.

Most establishments here i.e. 92% of the Pune establishments cater to the local market only. Only 8% of such establishments export their products. Yet it is seen that the Pune market is very dynamic. Most current establishments have expansion plans, modernisation and diversification are on the anvil. However there is very low dependence on the government policies and incentives, both because of low level of awareness and also because of the huge paper work involved in it.

Tech, Human Resources
Quality ‘upgradation,’ particularly in the wake of globalisation that improves the quality with zero wastage is the need of the hour in the food processing industry. Unfortunately very low level of current establishments have acquired new technology and taken steps towards modernisation. Prominent segments are RTE and RTC (29%), mineral water and beverages (22%), fruits and vegetables (21%), food grain processing (20%), spices (17%) and so on have adopted for technology ‘upgradation’ in Pune.

However technology acquisition or ‘upgradation’ seems to be tempered by inadequate supply of skilled manpower at the going wage rate and lack of commitment of workers to function as per the industry requirement.

Raw Materials
The food processing industry is highly material-intensive. Most establishments (66%) prefer to procure directly from the market. Only about 20% establishments prefer to take advantage of various suppliers. Even in procurement of raw materials, price, quality, and inadequate choice of suppliers are the main problems faced by the food processing units. There is an absence of adequate cold storage facilities in Pune. Yet this does not seem to pose as a major threat to the existing businesses.

Quality Certification
In the Pune scenario, we have noticed different levels of seriousness in companies adopting the quality certifications. It has been noticed that the highest level of certification is seen in the edible oil segments, wherein 100% of the establishments have one form or other of certification. The same is true for mineral water and beverages sector. RTC and RTE sectors also go in for compulsory certification, as is the case of branded companies who are in the papad, chutney, and pickles segments. Not all existing firms have applied for quality certification. Yet with FDA (Food and Drug Administration) norms tightening, more and more segments are going in for compulsory certification of their products.

Finance
The food processing industry relies less on the institutional source of financing. Only about 1% of the firms availed government assistance. Among the institutional sources, 18% of Pune establishments used nationalised banks and 15% used cooperative banks to meet their loan requirement. It is seen personal funds rate the highest at 61% in this sector. (Reference - Facets of Food Processing Industry: An Empirical Study of Pune)

According to MoFPI, the following items within the food and agro-based processing sector would be eligible for priority sector lending by banks; Fruit and vegetable processing industry; Food grain milling industry; Dairy products; Processing of poultry and eggs, meat products; Fish processing; Aerated water/soft drinks and other processed foods; Special packaging for food processing industries; and Technical assistance and advice to food processing industries.

This detailed accounting of items include bread, oilseeds, meals (edible), breakfast foods, biscuits, confectionery (including cocoa processing and chocolate), malt extract, protein isolate, high protein food, weaning food and extruded/other ready-to-eat food products as well.

Based on the recommendations of an Internal Working Group, the Reserve Bank of India (RBI) has come out with revised guidelines on priority sector lending which take into account the revised definition of small and micro enterprises as per the Micro, Small and Medium Enterprises Development Act, 2006. As per the revised guidelines, RBI will allow banks to include direct finance to companies for agriculture and allied activity of up to Rs 1 crore as priority sector lending (PSL) exposure as against the earlier exposure of Rs 20 lakh.

(The author is associate director, head, corporate relations and communications, economic environment committee, tourism & hospitality, Mahratta Chamber of Commerce, Industries and Agriculture, Pune. She can be contacted at manjarid@mcciapune.com)