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Food processing sector has potential to attract $33 billion investment
Tuesday, 22 October, 2013, 08 : 00 AM [IST]
Anurag More, Mumbai
India is one of the leading producers of food in the world and is believed to be having tremendous potential to develop the food processing sector in view of the robust growth in its agricultural sector.
In fact, the Confederation of Indian Industry (CII) in its recent report has estimated that the food processing sector has the potential of attracting US$33 billion of investment in the coming 10 years.
The growth in India's food processing sector in India is buoyed by the rapid expansion of segments such as agriculture, horticulture, plantation, animal husbandry and fisheries. The allied segments include industries that use agriculture inputs for manufacturing of edible products.
It is against this background that the sector has scope to grow multifold in coming years. Nilesh Lele, director, Enel Advisors, explained, "The food processing industry has been dubbed as the sunrise industry, since it's still in nascent stages as far as India is concerned. In India, we see a huge scope in fruit and vegetable processing, which will also help decrease post-harvest losses."
Echoing a similar view, Ashok Ruhil, CMD, Indian Foodtech Ltd, stated, "There is good future for food processing in India, but the government should support the industry. The government should give various facilities like waving off certain taxes and giving subsidies to the sector."
According to data compiled by the Agricultural and Processed Food Products Export Development Authority (APEDA), the food processing industry in India is primarily export-oriented. India’s agri and processed foods exports stood at Rs 116,331.68 crore (US$18.65 billion) during April-March, 2012-13, as compared to Rs 82,480.25 crore (US$13.22 billion) in the corresponding period last year.
While the scope of growth is huge in the country, India lacks suitable infrastructure in terms of cold chain, packaging centres, value-added centre, modernised abattoirs and so on. Improvement in general infrastructure will help the overall sector.
Lele of Enel stated, "Supply chain costs in India are one of the highest in the world, 23% of overall costs are due to supply chain. India lacks good warehousing, transportation and overall supply chain systems." Whereas Ruhil of Indian said, "We should go for ISO certification, everything will get covered in it."
Like many other growing industries, the food processing industry faces many challenges like lack of infrastructure in the shape of cold chain, packaging centres, value added centre, modernised abattoirs etc. As per the FICCI report, challenges faced by the sector are inadequate infrastructural facilities, comprehensive national level policy on food processing sector, food safety laws, inconsistency in central and state policies and availability of trained manpower.
Lele of Enel comments, "Securing raw material is the key to the success of food processing sector in India. Most of the raw material is seasonal and dependent on rainfall, so having a continuous supply at a constant price is key to the success of this industry. Inflation has also been a huge concern of late and more steps need to be taken towards food security."
Ruhil of Indian observed, "Challenge is condition of roads is very pathetic here, there is no proper transportation and it creates lot of problem for the sector. If the infrastructure and transportation is not developed, then it will affect the sector very badly. Few MNCs have visited us and rejected us because they are not very happy with the overall infrastructure as the found lot of dust everywhere."
He added, "We had ordered world-class machineries from MNCs, but they refused to give stating how the machines would come as the roads here were in very bad condition and the machineries could be damaged during transportation. Other challenge - people want good quality product at very low cost. Excise duty is also one of the problems that increases the cost of products and people tend to move towards China and it becomes difficult to survive. In China, they have many tax exemptions, so it is difficult to compete with them. Quality-wise, we are better than China, but we cannot compete price-wise."
FICCI (Federation of Indian Chambers of Commerce & Ministry) in its report recommended certain steps to overcome the challenges such as addressing infrastructure bottlenecks to give further impetus to the sector; formulating comprehensive national level policy on food processing; stressing on need for second green revolution in agriculture; going in for inter-ministerial working group to address issues; undertaking appropriate measures to address the skill gap issue in the sector; and promoting agri-food parks by involving industry participation for better functioning of these parks. Also to make concerted efforts to enhance private sector investment in infrastructure development, increasing farm productivity and upgrading quality.
Ruhil of Indian informed, “The industry is just surviving and we are trying our best to remain in the market. Manufacturers who do not have good plants for their products will be able to sell products at less cost and may be able to survive in the market.” Improving the general infrastructure is also a must requirement for the industry to progress.
The government has come up with several schemes to provide financial assistance for setting up and modernising food processing units, creating infrastructure, and promoting measures to encourage the growth of the processed food sector. The Central government allows 100% FDI in this sector and there are incentives for setting up processing plants either in agri-exports' zones or outside of them. The Central government in co-operation with state governments will be starting schemes under National Mission on Food Processing (NMFP) and taking steps to create additional food grain storage capacity in the country.
During the12th Five Year Plan, the government has made a plan allocation of Rs 5,990 crore (US$959.73 million), to implement various schemes for promotion and development of the food processing sector. The Cabinet Committee on Economic Affairs (CCEA) has approved the continuation of the NMFP for the remainder of 12th Five Year Plan (2013-17). The NMFP outlay for 2012-17 has been kept at Rs 1,600 crore (US$256.34 million) consisting of Rs 1,250 crore (US$200.26 million) provided by the Government of India and corresponding states' share of Rs 350 crore (US$56.09 million).
Lele of Enel points out, "Initiatives suggested are good, but implementation has not happened at the required speed. The government has a scheme on warehousing, but the implementation has been slow. Similar schemes on cold-storage were implemented with limited success. We need solutions which cater to the unique situation in India and not necessarily copy the Western model. In India there are many farmers with small land-holdings, whereas in a country like USA, there are small number of farmers but with huge land-holding. Central warehousing, cold storage will work in USA's case, but for it to be effective in a country like India, we need the warehouses to be small and located at various locations closer to the produce."
The government has set up National Institute for Food Technology Entrepreneurship & Management (NIFTEM) to offer high quality educational research and management programme specific to the food industry, provide referral advice on food standards, disseminate knowledge on the food sector and provide business incubation facility. Further, the government has approved 'up-gradation' of Indian Institute of Crop Processing Technology (IICPT) to a national level institute at a cost of Rs 102.13 crore (US$16.36 million).
Ruhil of Indian said, “To make supply chain better, infrastructure needs to be developed first. If the infrastructure is improved then most of the problems faced by the supply chain will be solved.”
The food processing industry in India is growing but is facing various challenges and hence steps should be taken to overcome them both by the government and food processing companies, so that the sector could progress in the coming years.
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