Current General Studies Magazine: "General Studies - III (Economy Based Article)" September 2014

Current General Studies Magazine (September 2014)

General Studies - III (Economy Based Article)

FOOD PROCESSING INDUSTRIES - A SUNRISE SECTOR

Food has a very wide connotation but it can be summed up as any plant or animal material, which is consumed for nutrition and sustenance. The collection, preparation and distribution of food constitute the very basis of civilization, culture and home. Humanity has always recognized that preservation of food to ensure availability according to need is central to its concerns. Pickling, salting, drying and other methods of food processing are almost as old as mankind itself. Food processing is a multi-faceted endeavor and its further complexity lies in terms of the enabling environment, the status of the production of the basic plant and animal material, the industry and then consumer or the market.

Significance

Food processing industry is of enormous significance for India's development because of the vital linkages and synergies that it promotes between the two pillars of our economy, industry and agriculture. Fast growth in the food processing sector and progressive improvement in the value addition chain are also of great importance for achieving favourable terms of trade for Indian agriculture both in the domestic and international markets. Even more important is the crucial contribution that an efficient food processing industry could make in the nation's food security. The simple fact that the post-harvest losses are about 25 to 30 per cent in our country should serve as an eye opener for all of us. Even marginal reductions in these losses are bound to give us great relief on the food security front as well as improve the income levels of the farmers.

It is in this context that the Government of India has given utmost priority to developing the food processing sector. The Government has taken a number of initiatives. The entire sector has been deregulated and no licence is required except in the case of alcoholic beverages. Automatic approval for foreign investment up to 51 per cent is allowed. Even where investment is more than 51 per cent, approval is given on a case-to-case basis by the Foreign Investment Promotion Board (FIPB). Cent per cent export-oriented units are permitted to import raw materials and capital goods free of duty. Zero duty import is also permitted, for capital goods. Export earnings are exempted from corporate tax. A number of State Governments have also announced liberal fiscal benefits for the food processing industries.

In line with this policy the Department of Food Processing Industries has launched concessional finance schemes. The schemes cover the entire spectrum of activities involved with food processing such as post-harvest infrastructure including cold chain, food quality and safety, packaging, research and development and promotion of processed food. During the 8th Plan (1992-97), the Department provided an assistance of Rs.177 crore for various food processing projects. During the first two years of the 9th Plan (1997-2002) the amount of assistance provided is Rs.48 crore. These figures may seem small. But what is important is that this seed money has generated projects of the value of an estimated Rs.1100 crore.

Investments

The various initiatives taken by the government have attracted large investments in the food processing sector. From July 1991 when the liberalisation process started, until September 1999, 1,111 approvals (which include 100 per cent joint ventures, foreign collaborations and industrial approvals) involving a total investment of Rs.19086 crore. This is an investment of Rs.9125 crore which had already been approved. As many as 5,718 industrial entrepreneurs, memoranda involving an investment of Rs.53,697 crore were filed during this period.

The environment for this industry has substantially changed since 1991. As a result of these steps, the cumulative investment by the financial institutions in the food industry sector increased from about Rs.6500 crore in 92-93 to Rs.18500 crore at the end of 97-98, an increase of almost 200 per cent. Further, foreign investments of Rs.8886 crore have been approved of which Rs.2032 crore has been implemented. However, the share of the food industry in the total sanctions by the financial institutions has decreased from about 4 per cent to about 2.5 per cent.

In line with the market orientation of the financial market, there has been a significant relaxation in the regulatory regime. The Cold Storage Regulatory Order and the Rice Milling Regulations have been abolished. The Government is committed to the removal of quantitative restrictions on imports.

Export Potential

The Indian processed food industry has shown a tremendous potential for exports. During 1998-99 the total export from the country was with Rs. 1,41,603 crore which included Rs.25224 crore of agricultural, plantation and processed food products. This was 18 per cent of the total exports. The export of processed foods, viz., processed fruits and vegetables, animal products, rice, marine products and other processed foods was valued at Rs.12915 crore during 1998-99 which was 9.2 per cent of the total exports. Globalization has led to an increase in trade across the borders of different countries and annually about 460 million tons of food valued at US $3 billion is traded. India has, thus, a great potential for global trade in agricultural and processed food products.

Food processing has the largest employment generation potential. It generates 54,000 persons per Rs.1000 crore investment whereas in textiles and in paper industries it is 45,000 and 25,000 persons respectively. Altogether 12.73 lakh job opportunities are likely to arise in the food processing sector with the implementation of the approvals given and industrial entrepreneurial memoranda filed so far.

Despite these initiatives and advantages, the processing of raw material for value addition is still at a very low level - less than 2 per cent as compared to 25-60 per cent in the developed countries. To boost the growth, the Government and the industry have to work in close unison.

The industry needs to adopt the latest technologies to inject greater efficiency which could provide economies of scale and cost effectiveness. We need to introduce technologies that can add value at a reasonable cost as the premium of processed foods over fresh fruits and vegetables cannot be very high if a large demand is to be generated. Some of the new technologies in cold storage system include changing the cooling system, use of prefab sandwich insulated panels, spraying potatoes with sprout suppressants and then storing them to save power and use vapor absorption refrigeration, based on solar and bio-gas energy which has been adopted in the advanced countries. Similar inovations have already been applied in several other areas.

The other issue is the absence of linkages between the industry and the farmers for the raw materials. Currently, most agro industries depend on the normal trade channel for their raw material which often results in the industry getting only the left overs of the market. This is very acute in the horticulture-based industry. In order to ensure that the industry gets the right quality and quantity of raw material at the appropriate time, the most suitable method in the Indian context appears is to procure raw material directly from the farmers through contract product. Experiments made by some leading companies in this regard have been eminently successful.
India has large prospects for exports of agro-products. The key to India's success, however, shall be quality. In our endeavor to boost exports, India may been confronted with two issues, viz., genuine quality issues and pseudo quality issues. We need to gear up to meet both the challenges. The concept of quality assurance has been alluded to the Indian exporters so far. Total quality management begins not only from the first stage of manufacturing of the end product but from stage one of production of the raw material. Most of the processed food manufactured in the country is not of a very good quality, largely because of the use of poor raw material. Therefore, the processors need to enter into contracted arrangements with the farmers for providing processable varieties of raw materials and also help them to improve productivity by using the latest agricultural technologies.

The growth potential of India's food industry is enormous. With food being a national priority and food habits changing rapidly towards value-added foods, the Indian food processing industry is on the brink of a revolution that will modernize the entire food chain.