With legislations hampering the flow of capital into the Food Processing sector, it’s time for an overarching law to save agriculture’s closest cousin. Many hurdles, one goal – make the Food Processing sector shine!
For attaining economies of scale, it is imperative to create massive warehousing and cold storage infrastructure for saving the massive value lost as wastages. In fact according to Balram Yadav, MD, Godrej Agrovet, “The subsidies should be increased for establishment of production units. Currently, the subsidies being given are very low. The reason for increasing subsidy is to lower the breakeven for these units as value-added food has long gestation period and very thin margins.”
Secondly, the food processing enterprises primarily comprise small and medium sized companies, a large proportion of which have standalone operations, with no linkages with farmers, and are thus reliant on other organisations to undertake marketing / further processing of their products. Thus with little or no control on the distribution and retail, consequently, companies in the food processing sector usually bear a steep cost, as the companies are left with little bargaining power to set their prices. Thus, they have to pay a high interest to creditors for the high risk perception associated with the nature of their operations. Dr. A.K. Bandyopadhyay, Chief General Manager, NABARD, while adding to the discussion says, “Unorganised and fragmented marketing and distribution network, long and fragmented supply chain leading to more number of intermediaries and consequently poor share of farmers in consumer price is also a constraint.” Thirdly, there is a cap on the priority sector lending limit to food processing enterprises, which at present stands at Rs.50 million ($1.08 million) – clearly a deterrent to development of large scale enterprises in the sector. On the taxation and duties front, the diktat of high excise and customs duties to enhance tax revenues still exists. The duty structure on food products in India ranges from 0%-20% for excise and 8%-25% in case of customs duties. In contrast, in most of the developed and emerging economies in the APAC region, the average duty structure stands close to 0%. Though recently, the peak customs duty has been brought down to the range of 10%, many ‘sensitive’ foods items still command exorbitant rates.
If the food processing industry has to become the next IT or pharma sector of India, then the shackles of high taxes, socialist mindset driven policies and outdated standards have to be replaced by modern state of the art systems and incentives to promote growth of existing players and high and healthy competition.
Secondly, the food processing enterprises primarily comprise small and medium sized companies, a large proportion of which have standalone operations, with no linkages with farmers, and are thus reliant on other organisations to undertake marketing / further processing of their products. Thus with little or no control on the distribution and retail, consequently, companies in the food processing sector usually bear a steep cost, as the companies are left with little bargaining power to set their prices. Thus, they have to pay a high interest to creditors for the high risk perception associated with the nature of their operations. Dr. A.K. Bandyopadhyay, Chief General Manager, NABARD, while adding to the discussion says, “Unorganised and fragmented marketing and distribution network, long and fragmented supply chain leading to more number of intermediaries and consequently poor share of farmers in consumer price is also a constraint.” Thirdly, there is a cap on the priority sector lending limit to food processing enterprises, which at present stands at Rs.50 million ($1.08 million) – clearly a deterrent to development of large scale enterprises in the sector. On the taxation and duties front, the diktat of high excise and customs duties to enhance tax revenues still exists. The duty structure on food products in India ranges from 0%-20% for excise and 8%-25% in case of customs duties. In contrast, in most of the developed and emerging economies in the APAC region, the average duty structure stands close to 0%. Though recently, the peak customs duty has been brought down to the range of 10%, many ‘sensitive’ foods items still command exorbitant rates.
If the food processing industry has to become the next IT or pharma sector of India, then the shackles of high taxes, socialist mindset driven policies and outdated standards have to be replaced by modern state of the art systems and incentives to promote growth of existing players and high and healthy competition.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
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IIPM's Management Consulting Arm-Planman Consulting
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IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
