Tuesday, January 03, 2012: 11:59:30 AM

Food Processing Guest Column

FDI in food processing industry - Kamal Meattle, Paharpur Business Centre and Software Technology Incubator Park

Foreign investment to unlock massive potential in the food processing sector by strengthening supply chain infrastructure and benefiting farmers

With a huge population of 1.08 billion and population growth of about 1.6% per annum, India is a large and growing market for food products. Its 350-million strong urban middle class with its changing food habits pose a huge market for agricultural products and processed food. For instance, according to report of ICRA, the proportionate expenditure on staples like cereals, grams and pulses declined from 45% to 44% in rural India while the figure settled at 32% of the total expenditure on food in urban India. This highlights the current trend of Indian consumer exploring new packaged processed food for appetite in satiation.

The national policy on food processing aims at increasing the level of food processing from the present 2% to 10% by 2010 and 25% by 2025. With government allowing 100% FDI in processing sector, the processed food industry is poised to reap considerable benefits.
The processed food market accounts for 32% of the total food market. It accounts for US$29.4 billion, in a total estimated market of US$91.66 billion. The food processing industry is one of the largest industries in India, ranked fifth in terms of production, consumption, export and expected growth. According to the Ministry of Food Processing Industries, foreign direct investment (FDI) in the country's food sector is sure to hit the US$3-billion mark in coming years, as FDI approvals in food processing have doubled in the last 1 year alone.
With FDI, the graph of the food processing industry is expected to rise up. As the inflow of funds brings with it transfer of technology and expertise. For long, agriculture has been viewed as a traditional method of growing crops, vegetables, fruits and sale in wholesale markets. However, the trend has changed over a period of time. The inflow of funds from FDI would reduce the gap between the farm gate price of agro-produce and the final price paid by the consumer. It would further boost the employment generation and large number of jobs expected to be generated, especially in the food packaging industry.
This can also be judged of the fact that large number of such operations are carried out from rural or suburban areas. Meanwhile, local resources are expected to be used efficiently. Vast rural areas in India have resources in abundance, like farmers know very well how to yield crops and sell it in the wholesale market. However, introduction of technology, skills and expertise would certainly make a lot of difference in the already thriving economy.
Improvement in supply chains and refrigeration of packaged food is supposed to improve a lot. Infrastructure like storage house for food and proper distribution channel would ultimately lead to efficient food supply chain to the end consumer, which will result in cost reduction.
In an effort to boost the food sector, the government is working on agri zones and the concept of mega food parks. Twenty such mega parks are proposed to to be set up across the country in various cities to attract FDI in the food processing sector. Development of futures market in the best interest of both, the farmers and the processors, ensures minimum price stability to the farmer and a sustained supply of raw material to the processor.

Kamal Meattle is the CEO of Paharpur Business Centre and Software Technology Incubator Park

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