The Hindu : Opinion / Editorials : ADDING VALUE TO THE FOOD CHAIN

Online edition of India's National Newspaper
Friday, Feb 04, 2005

Opinion

Opinion - Editorials

ADDING VALUE TO THE FOOD CHAIN

THE DRAFT FOOD processing policy 2005, on which the Government has invited comments, takes stock of several constraints that have stood in the way of growth of the industry in India. However, it is not very original in its policy prescriptions. Neither the relevance nor the potential of this industry is in doubt. Once beset with shortages, the country has not only attained self-sufficiency in food but has, at least in a few agricultural sectors, generated surpluses. With economic growth and a rise in disposable incomes, the consumption pattern has changed. The food basket is more varied today, with fruits and vegetables, milk, and poultry products taking their place along with cereals, which were once consumed largely. Without a vibrant food processing industry, the surpluses in food production have often gone waste with a consequent deleterious impact on income and nutrition in rural areas. Besides, food processing is an important step in value addition to the food chain. Despite being a very significant producer of a large number of agricultural items, India lags behind Philippines and China, not to mention developed countries, in this area. The food processing sector, although in the nascent stage, constitutes 14 per cent of the manufacturing GDP and employs 13 million people directly and more than double that number indirectly. Processed foods account for almost 70 per cent of agricultural exports and the export market is opening up. The policy aims at doubling the output value of the food processing industry in the next five years, which seems achievable despite the constraints.

For food processing to take off, its high cost structure needs urgent tackling. In the supermarkets of Europe and North America processed foods are very often priced below fresh agricultural produce, but in India the reverse is true. The high cost of packaging — going anywhere up to 64 per cent of the production costs in specific cases — is one important factor that admits of no easy solutions. Other factors such as the long and fragmented supply chain (farmer to the consumer), the high transaction costs, the multiplicity of regulators, the lack of adequate and timely finance, inadequate infrastructure including cold storage facility, and negligible expenditure on research and development have pushed up costs and stunted the industry's growth. However, while the litany of woes is easily recognisable, the policy prescriptions are mediocre, probably because the framework of such a policy has to straddle several Ministries at the Centre and in the States.

Contract farming, which the food processing policy recommends, has already been popularised to help farmers scale up and overcome the problem of uneconomic holdings. Experience so far indicates that the concept has taken root only in Maharashtra and Punjab and there too almost entirely in horticulture. To spread to other areas and other crops, it needs sustained institutional support. But it goes without saying that farmers' rights will have to be protected along with those of food processors. The case for tax concessions on processed foods looks strong, as also the necessity for timely bank credit. The ongoing initiatives to popularise commodities exchanges as a means to even out price fluctuations have great significance for the processing industry. Unless farmers are assured of a fair and stable price throughout the year, they might be loath to produce for the processing industry. The policy has done well to emphasise the relevance of food processing as a means to even out consumption. That in turn will depend upon a more equitable distribution of incomes.

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