Saturday, August 11, 2012

THE FOOD PROCESSING IMBROGLIO

There is an urgent need for reforms in the food processing sector, the poor, fragmented and often ignored cousin of agriculture. Such transformations would not only create hundreds of thousands of new jobs, but prove to be the catalyst for the much needed second Green Revolution in Indian agriculture.

As a result, the critical link in the chain, marketing and distribution, is muddled with middlemen and small kirana stores with poor storage and packaging facilities. Thus, massive wastages occur, proving to be a deterrent to processors acquiring larger scales. In fact, according to estimates from the Ministry of Food Processing, food worth $12.7 billion (7% of total food industry value) was wasted in 2008, courtesy lack of adequate post-harvest management infrastructure. The second factor that incentivises only small-scale operations is the controversial APMC Act, which prohibits direct contract of processors with farmers, which therefore forces the processors to pay higher mandi rates. There is clear lack of integration amongst various entities in the sector at present, as Richard F. Stier, Consulting Food Scientist, Institute of Food Technologists, says, “Perhaps the greatest challenges faced by nations like India are government, transportation and the lack of an integrated agri-business sector.”

To further sour the pudding, India has one of the highest tax and duty rates for this industry. High tax and excise duties, coupled with high import tariffs for unprocessed food are a sure-shot deterrent. Although peak customs duty rate has been reduced progressively to 10%, several agricultural commodities (perceived as ‘sensitive’ for our masses) pay higher rates. Thus unit costs continue to escalate. Despite the fact that archaic food laws (The Prevention of Food Adulteration Act, 1954 and PFA Rules, 1955) have been replaced by a new one – The Food Safety and Standards Act, 2006 – that is aimed at establish an overarching authority to lay down latest scientific standards for food articles on the lines of the FDA in USA, such efforts will prove useless until streamlined markets and easier credit don’t exist. High cost is also a killer, as Dr. A. Bandyopadhyay, Chief General Manager, NABARD, says, “The food processing industry seems to suffer from a vicious cycle of high unit cost – low demand – low capacity utilisation – high unit cost.” Thus much is left to be done in this regard.

However, at first glance, it seems that when it comes to the export potential of the sector, the elephant trudges along at its own agonizingly slow pace. But some interesting facts twist this tale. Indian food processing industry caters mainly to the domestic market (quite unlike the IT industry) which is growing at a substancial pace. India’s processed food products made for the domestic market are still largely unacceptable in the global markets while western cousine has satiated the Indian palate comparatively well. Still, the potential of the sector to bring in foreign exchange and generate huge export oreinted jobs is huge yet almost ignored.

Not just in terms of newer policies and legislations that will bring about overarching changes in the way the industry is tructured and functions, there is a need for some fast paced steps to immediately untangle the various ropes binding the sector. In fact, according to C. K. Basu, former President, All India Food Processor’s Association, “For entrepreneurs who wish to establish or expand their projects without any financial support from the government, quick clearance of their proposals will be essential for rapid growth of food industry. For this purpose effective and efficient one window system need to be established at both national and state levels.”

Thus for the moment, despite a few green patches here and there, the food processing landscape in India remains dry and cracking, craving for the panacea of right policy, credit and technology to successfully feed the millions being added every year to the populace.




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posted by Editorial at 3:54 PM