By Veera Lokesh Ayireddy – Consultant, KPMG
Introduction
India is world's second largest producer of food and has the potential
to be the largest with the current demand levels and government push.
Rapid urbanization, changing demographics and lifestyle, rise in
organized retail are contributing to the fast rise in the sector. The
sector contributes about 4% of the GDP and is a strong focus area for
the government to further the GDP growth. According to an India Food
Report 2008, released by Research and Markets, India's Food Processing
Market is estimated at over $182 Bn and is projected to reach $300 Bn
by 2015.
The Food Processing industry consists of segments like Dairy, Fruits
and Vegetables, Meat and Poultry, Fisheries, Grains and cereals,
Beverages, Confectionary and others. India is a strong producer being
the largest producer of milk, livestock, cereals, second largest in
fruits and vegetables, third largest in fisheries and top five in
rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and
oilseeds. With such strong supply base, India has the potential to be
the one of the largest exporters, yet India's share in global food
processing trade is just 1.5%. The government has recognized the
potential of the industry and has given the sector a high priority.
Also, the low share of global processed food trade indicates that
there is a lot for the exporters and investors to gain.
Constraints hindering the growth of the sector
The tremendous potential of Indian Food Processing Industry is
constrained by several factors ranging from policy, lack of
high-technology agri-equipment, fragmented supply chain to poor level
of processing. The wastage levels across the value chain are very
high, resulting in lower level of processing. Infrastructure
bottlenecks also are responsible for higher wastage and lower export
share. The equipment used for farming/processing is mostly obsolete or
is not customised for the Indian context. There are too many
intermediaries in the supply chain raising the cost of inputs for the
processors and lower price realisation for the farmers. Also, Indian
quality and safety standards do not comply to the export requirements,
leading to FDA cracking down on the Indian exports.
Further drivers required for growth
To achieve the targeted growth significant investments need to be made
to strengthen the business across the value chain. Farmers should be
equipped with latest equipment customised for use in the Indian
context, provided with technical & commercial knowledge and market
intelligence through feasible means like SMS, Kiosks etc.
Infrastructure along the value chain needs to be strengthened by means
of an integrated supply chain and warehousing. Focus on Quality and
Safety management should be high. To enable all this, government
should provide easy financing, fiscal incentives for development of
training and R&D facilities.
Government Initiatives for the drivers
Indian government approved several food parks with an objective to
make the country's farm sector market-driven rather than
supply-driven. This would also help eliminate the intermediaries.
Also, integrated cold chain facilities are planned to be set up across
the country so that there is no missing link from farm to the
retailer/consumer. National Institute of Food Technology,
Entrepreneurship and Management (NIFTEM) is proposed to be set up with
an investment of Rs 245 crores. This institute will function as a
knowledge centre for food processing. Government has come up with
plans and mechanisms for financing support, strengthening of
institutes at central and state level and improvement of R&D in the
sector.
The Road ahead
Government has taken credible and strong steps forward in improving
the growth potential of the sector. However, there are still some
issues that need urgent focus:
Financing and Fiscal Incentives
Most of the incentives focus on small scale industries,
depriving the sector of scale advantages and hence exports
uncompetitive. Financing to Food Processing sector should be a
priority and should be made easier, probably by having a dedicated
bank for food processing and also systemically developing the
infrastructure for micro finance activity.
Hard Infrastructure
The government should speed up the implementation of Integrated
Cold Chain and supporting infrastructure like warehouses, rural roads,
etc. Also, the government needs to go the extra mile in making Food
Parks a success. The food parks have not taken off yet and the reason
quoted by many players is the consolidated nature of the parks as they
stand today. Industry feels that instead of few large Food Parks where
an investor makes one huge investment, there should be many food parks
distributed across the country with each player investing in setting
up a large number of smaller units.
Soft Infrastructure
The focus on R&D though is recognized, is still not implemented
and supported at a policy level. There should be universities having
research wings supported by the government and fiscal incentives
should be extended to companies setting up R&D centres in India.
The government should also come up with ways to increase market
intelligence of the farmers. The case of 'Kenya Agricultural Commodity
Exchange' which facilitates trade by communicating the prices of more
than 42 commodities in 10 local markets through various channels like
kiosks, SMS on mobiles and an online platform for trading. This helps
remove the barriers to farmers and get a better price for their
produce by allowing them to sell even in the international market.
As demanded by the industry, the government should speed up
building the national reference data on nutrition parameters of all
agricultural and horticultural produce before implementation of the
mandatory nutritional labelling (Notification GSR 664E) for the
packaged food products.
Marketing Support
The state governments need to be more empowered to attract
investments in food processing sector by promoting the state as a
destination for agribusiness through targeted schemes and
communication in relevant global markets. They should also be provided
access to diplomatic mission in respective countries.
India needs to be strongly promoted as a destination for food
and culinary experience by conducting road show in the Middle East,
South East Asia and the OECD countries on the lines of incredible
India campaign to help promote and increase the consumption of Indian
cuisine in large export markets.
Policy and Regulation
Regulations governing Contract Farming should be extended to
Land Ceiling also. The land ceiling for contract farming should be
removed. Health and wellness is a major policy concern and the
government should specifically look at tax rebates for food products
positioned on nutrition and well being platform.
With the opening up of economy and the implementation of the WTO
regime, it is imperative for India promoters to streamline their
standards and overall food quality programmes for avoiding on tariff
barriers in OECD markets. Hence policy needs to enable training on
HACCP, GMP and GHP requirements. Separate community boards promoting
the interest of specific commercial crops on the lines of tea or
coffee or spice boards need to be further strengthen in specific areas
of growth such as floriculture, medicinal and aromatic plants, etc.
In a nutshell, the government should take quick steps in encouraging
the Food Processing Industry by providing incentives across the value
chain and help players reap benefits of consumption-led Indian demand
and growing export possibilities.
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