Friday, March 31, 2006

The Food Processing Industry:The Next Growth Sector

The food processing industry is badly in need of infrastructure and the government is offering several incentives and tax breaks for foreign investment. Currently, 100% FDI is permitted in the food processing sector and the Union Government is likely to allow 51% FDI in food retailing, covering the sectors of dairy, marine, poultry, fruits and vegetables by end 2006, it is estimated.

According to the McKinsey FAIDA report, India produces 146 million tonnes of fruit and vegetables, second only to China. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) estimates that the food processing industry, which is currently worth USD 325.4 billion, is likely to grow at 8% per year till 2007 and 10% per year by 2010. It is estimated that USD 108.4 billion was annually lost to wastage due to outdated technology, gaps in the distribution chain and widespread use of commission agents.

Only 6% of fruit and vegetable production in India is currently processed while the target is 20%. To increase the country’s share in the global market to 3% from its current 1%, the government is opening the industry to international companies to improve infrastructure, cold storages, packing and transportation.

It was due to this lack of an efficient supply chain as well as a continuous cold chain that India’s first international food retailer, Nanz which was backed by Delhi-based Escorts Group, US-based Marsh Supermarket and Nanz AG from Germany went out of business.

An empowered group of ministers have already given the go-ahead to the proposal of FDI in food retailing. This move will allow foreign investment in food retailing, grant infrastructure status to the food processing industry, access to priority sector lending and reform taxation laws.

The main push behind opening up the agri-business sector is to reduce wastage, which amounts Rs. 50,000 crores annually. Minister for Food Processing Subodh Kant Sahai said that the food-processing and agri-business industries should get an “infrastructure category” status that has been given to airports, to attract investment to set up cold chains and other supply chain components.

On a related note, there’s a great article, This brigade will charge India into glory! in The Indian Express by Vivek Bharati, an advisor to the Federation of Indian Chambers of Commerce and Industry (FICCI) about how the food processing industry can bring about changes in rural India the same way that IT has changed urban India.
India has potential to grow most crops and become the food bowl of the world. Aggressive forays into the global market through export of processed food, organic food and fresh produce can unleash linkages that can redefine India’s countryside by ushering in a second green revolution.

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