When the food processing industry began sprouting in the late 1980s, nobody could imagine that it would soon outpace agriculture in growth and leave behind fancied sectors like pharmaceuticals and infotech in business generation. | Going by the reckoning of the CII-McKinsey report on food and agriculture integrated development action (FAIDA), the revenue increase in food manufacturing between 1993 and 2000 was Rs 90,000 crore, perceptibly higher that in infotech and pharma. |
| Besides, the annual growth in food manufacturing has been 2.5 times that of agriculture, indicating a positive trend towards greater processing and value-addition of food. |
| This is borne out also by the spurt in the food processing sector's share of overall agricultural income, from 28 per cent to 37 per cent during this period. |
| Despite such a spectacular track record, only a fraction of the real potential of this sector has been gainfully harnessed. |
| The investment in this industry in the whole of the 1990s has been just 15 per cent of the planned mark. Consequently, almost 85 per cent of the committed projects remained unimplemented. |
| Also, not many of the food companies have grown into big businesses even though many leading business houses have entered the agro-processing sector. |
| Furthermore, the profit margins in this sector have tended to remain low (less than 5 per cent in fields like poultry and dairy). |
| The sub-optimal expansion of the food sector can be attributed largely to growth-inhibitors outnumbering growth-drivers. |
| Policies like minimum support prices and mandatory raw material procurement through regular marketing channels have impeded companies' efforts to deliver processed foods at low cost. |
| Organising the production of raw material of the desired variety and quality, and procuring the same from growers, has posed problems in the absence of legally sanctioned contract farming and land leasing. |
| Moreover, the supportive infrastructure has been poor. The rural and semi-urban areas, where processing plants should ideally be located, lack basic necessities like power and road connectivity, let alone the much-needed cold chain. |
| Import duties on processing and refrigerating equipment have remained high, till recently. Excise and local taxes on processed foods and packaging material and equipment, too, have been quite high. |
| Consequently, most companies have been enmeshed in a cycle of high costs and high prices, leading to inadequate scale to cover the high fixed costs. |
| This apart, competition from the unorganised sector, the ingrained preference of the Indian consumer for fresh and domestically processed food, and the multiplicity of authorities and laws governing this sector have together constrained its expansion. |
| What is needed is rationalisation of import duties and taxation, provision of easy access to the desired raw material and enactment of the long pending integrated food law, bringing all foods under one umbrella Act and authority. Otherwise, the sun will not shine on this sunrise industry. |
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