Need
of the hour
To
exploit the existing potential of the food processing industry in India,
the focus has to shift from need-based planning to oppurtunity-based
planning, finds TFPJ
India
possesses a number of outstanding competitive advantages in agriculture,
which by natural association affect the food processing industry. The
country already has the largest acreage of irrigated land in the world.
In spite of that 40 per cent of the potential is still untapped.
We have an abundance of manpower in all categories – skilled, unskilled,
technical, scientific and managerial – as compared to any other
nation. India is already the third largest producer of food products
in the world in terms of aggregate volume of production.
Propelled by unprecedented opportunity, the country is poised to exceed
even the most optimistic estimates of the experts. The essential requirement
at the moment is a shift in perspective from need-based to opportunity-based
planning.
Industry structure
The food chain in India differs from those in the
developed economies in a number of crucial ways. The Indian food industry
is full of small players at each level of the food chain. Large supply
integrators, commodity players, chain retailers and co-operatives that
have actively driven the development of food chains in developed economies
are missing or are at a nascent stage in India.
Indian companies tend to focus on processing activities, largely ignoring
the growing and sourcing of raw material. The reason is not that companies
shun the advantages of backward integration but the regulatory structure
that prevents them from doing so. Hurdles such as the Agricultural Produce
Marketing Committees (APMC) Act for free movement of goods and the lacunae
in contract farming laws can be cited as the main cause.
In developed economies, successful food companies are very large in
size. The largest food company in US, Cargill, reported revenues of
$59.9 billion for the financial year 2003. The average size of top 20
companies in US is $10 billion, whereas in UK it is $3.4 billion. In
contrast, the average size of food operators in India is very small,
in spite of the country being the second largest producer of food in
the world.
Farm level
There are a large number of fragmented land holdings
which lead to lower economies of scale. This can be attributed to low
allocated efficiency, low investment, high wastage levels during post
harvest and mechanisation. In many cases, this has led to subsistence
farming in the country.
Supply chain intermediaries
The food supply chain is particularly inefficient.
This is more evident in case of perishable and non-perishable food items.
Internationally, there are two or three intermediaries in the fresh
procurement system, whereas in India there are up to six or seven intermediaries.
This affects the complete supply chain in a number of ways:
• Owing to the fragmented nature of the players and their small
size, the capability to invest capital in technology, development and
research is negligible. Till date, most of the initiatives in the agro
sector have been driven by investments from the public sector
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