Events & Issues

New Delhi, 14 March 2018

Food Processing

FUNDS NO LONGER ELUSIVE?

By Dhurjati Mukherjee

The country’s food processing sector is set to attract an investment of $14 billion over the next two-three years. This is an estimate by Union Food Processing Minister Harsimrat Kaur Badal at last month’s ‘One Globe Forum 2018’ held in the Capital. Not only is the investment committed by both domestic and foreign investors, but the Government too has doubled the budget outlay for the Ministry to Rs 1400 crores for the next fiscal. The funds, it is said would be utilised to improve the processing infrastructure and setting up of cold chain grids, which are badly needed.         

Blessed with a wide range of climate and soil conditions in different parts of the country, India produces a large volume and variety of fruits and vegetables. As such, it is one of the largest producers of such products globally. However, unfortunately it has not been able to exploit its full potential in the area of processing of fruits and vegetables and has remained an insignificant player on the global scene.          

Worse, the farmers have been seen throwing their produce of tomatoes and potatoes on the road, as not only have they not been getting the right MRP, but do not have the facilities to store their produce. And thus at present, the country is estimated to lose fruits and vegetables worth millions of dollars in the absence of adequate food processing infrastructure and cold storages. This situation is expected to change in the coming few years, assures Badal as her Ministry is getting geared to set up the much-needed cold chain grids across the country for ‘seamless transfer’ of agricultural items from production centres to consumption points.     

At the same time, the Centre through the Ministry of Food Processing Industries (MoFPI) has been making efforts to encourage investments in this business and has approved proposals for joint ventures (JV), foreign collaborations, industrial licenses, and 100 per cent export oriented units. Apparently, some improvements have been manifest for quite a few years.

The farmers would confirm that these improvements have not been in tune with the requirement and even global developments. This is evident from the fact that India processes around seven to eight of its total fruit production into juice, pulp or concentrate and other fruit derivatives compared to almost 60 per cent of the fruit production processed in the US. On the other hand, fruit processing facilities in the country are grossly under-utilised and most small units are not quite profitable. Should there now be hope that fresh efforts and expectations from the recent Budget may improve the situation to some extent and provide relief?

The food processing industry accounts for 32 per cent of the country’s total food market, one of the largest industries in India and ranked fifth in terms of production, consumption, export and expected growth. It contributes around 14 per cent of manufacturing Gross Domestic Product (GDP), 13 per cent of India’s exports and six per cent of total industrial investment. According to estimates, the Indian food service industry is expected to reach $78 billion by 2018-end.         

The Government’s focus on agro-based industry is to help not only in employment generation but also have a multiplier effect through forward and backward linkages. An estimate made a decade ago revealed that this sector accounted for over 20 per cent of the country’s industrial production and 17 per cent of labour force utilisation.         

It is no secret that the horticulture sector in the country, which provides raw materials, is largely unplanned and highly fragmented. As farmland is small, it suffers from the economy of large-scale farming that is essential for the application of modern horticultural techniques in improving productivity. Horticultural yields have improved in the last decade or so but are much less than that of other rapidly developing countries such as Brazil, China etc.       

The other area of difficulty in processing is that the type and quality of fruits and vegetables produced are suitable for cooking and, in most cases, unsuitable for economic mechanical processing. For example, out of the large varieties of mango produced in the country, only two or three are processed economically in large scale. Added to all this is the fact that around Rs 2500 crores of fruits and vegetables are lost every year due to poor harvesting, storage and transportation in the country. 

There are indications that the food industry is poised for huge growth and may emerge as a high-profit sector due to its immense potential for value addition, particularly within the food processing industry. The industry, which is currently valued at $39.71 billion, is expected to grow at a compounded annual growth rate (CAGR) of 11 per cent to US$ 65.4 billion by 2018. It is to be noted that food and grocery account for around 31 per cent of India’s consumption basket.          

According to data provided by the Department of Industrial Policies and Promotion (DIPP), the food processing sector received around $7.47 billion worth of foreign direct investment (FDI) during the period April 2000-December 2016, which may have increased to around $8 billion presently. The Confederation of Indian Industry (CII) found great potential in this sector and aptly estimated that the sector has the potential to attract as much as $33 billion of investment over the next 10 years and also to generate employment of nine million person-days.         

It is a well-known fact that the food processing sector is basically export oriented and the country’s geographical situation gives it the unique advantage of connectivity to Europe, Middle East, Japan, Singapore, Thailand, Malaysia and Korea. One such example indicating India's location advantage is the value of trade in agriculture and processed food between India and the Gulf region and many other countries.       

Thus, keeping in view the above as apart from the need for diversification of the agricultural economy and value addition to products, the food processing sector can play a significant role and help in boosting farmers’ much-needed income. However, post harvest technology needs upgradation so that processed foods become more popular in the semi-urban and rural areas of the country.

Considering the vast potential this sector has, specially the generation of employment that has emerged a big challenge for the present Modi Government and also the need to boost up rural incomes, a greater push is critical. The Government would do well to seriously consider allocating extra resources, apart from the enhanced budgetary allotment in 2018-18, if needed in the coming months. And ensure that the food processing units are set up in the right earnest and without any further delay.---INFA

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