Food processing sector

Food processing sector gets 576-crore FDI

The food processing sector attracted Rs 576 crore of foreign direct investment (FDI) in the first eight months of the fiscal as compared to total FDI of Rs 5,344.22 crore.

In the thick of the recent food inflation, the government had also widened the scope of service tax exemption to include foodgrains and pulses in addition to fruits, vegetable, eggs and milk. The Centre is keen on projecting FDI in the food processing industries, where 100% FDI is already allowed.

Besides attracting FDI through schemes like mega food park, the government has also extended several fiscal incentives during this financial year to enhance FDI in food processing sector, including full exemption from excise duty for specified equipments to preserve, store or transport apiary , horticultural, dairy, poultry, aquatic and marine produce and meat and its processing products.

Project imports status, with concessional rate of basic customs duty of 5%, has been granted for the initial setting up or substantial expansion of a cold storage , cold room (including farm pre-coolers ) for preservation or storage or an industrial unit for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat.

While truck refrigeration units manufacturing refrigerated vans/trucks have been fully exempted from basic customs duty, exemption from service tax has been provided to a host of services. These include ‘erection, commission or installation’ of mechanised foodgrains handling equipment for setting up or substantial expansion of cold storage and machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, dairy, poultry , aquatic, marine or meat products.

Food Inflation

CII suggests a 10 Point Actionable Agenda to Curb Food Inflation:

The Confederation of India Industry (CII) is concerned about the current situation the country is facing with regard to “Rising Food Prices” again in a short time span of one year.   The brunt of the same is being felt across India and across all sections of society. In fact the food inflation stood at a higher peak of 19.9% over the same period last year when the failure of monsoon affected prices of cereals and pulses. However its recurrence now even in a good Monsoon year shows the prevalence of a deeper structural problem in the way we are managing our Food security

CII said that the Food inflation for the week ended January 1, 2011 is reported to be 16.91%.  The price of onions was a major contributor which continued to push food inflation as prices went up by 70.7% while the individual items such as egg, meat and fish became costly by 16.7%, milk by 13.2% and fruits by 17.7% annually.

Fortunately, price of pulses declined by 14.84%, wheat by 4.87%, potatoes by 1.67% and cereals by 0.12% on an annual basis. This is in contrast to the situation last year as when these commodities were the major contributors to the food inflation.   CII has been working very closely with the Ministry of Agriculture and the Planning Commission in suggesting ways for tackling inflation with regard to the food items.

However, this year with the exception of onions, there was adequate production of other vegetables, fruits and milk. The issue of wastage due to lack of cold storage and other infrastructure issues have worsened the existing inflation. The country has enough wheat, rice and sugar, but the issue is in tackling the perishables like vegetables, fruits and milk.

the CII’s 10 Point Measures – both short term and long term to tackle the inflating prices ;

1.In Short Term, Lower import duty, especially on fruit & vegetables and allow imports: Looking at the rising prices of fruit and vegetables, the Government should react fast on lowering the existing tariffs (hovering around 30% to 50%) and allow import of these commodities.

2.State Governments should take stern enforcement measures to curb hoarding and speculations.

3.The Government should invite and Incentivise private sector (both domestic and foreign), cooperatives and NGOs to come up with business models that directly link the growers with processors and retailers.

4.In Medium to Long Term, all the fruits, vegetables and other perishables including fisheries having very short shelf-life should be fully exempted from the provisions of the APMC Act. Processors and organized retailers should be incentivised to procure directly from the farmer groups (growers’ companies or cooperatives) for building infrastructure in rural areas for aggregating the fresh produce, cleaning it, grading, packaging, and storing in cold storages before bringing it for retail distribution. This will create not only employment in rural areas but also build much needed infrastructure.

5. The Centre should also encourage the States to help build this infrastructure, especially cold storages, to save on wastages which will boost supply side and help in price moderation.

6.The Government should move towards a unified national market and allow free movement of fresh produce across the country without any taxes whatsoever.

7.Most importantly, it is time to usher in market reforms by compressing the value chain of Agri-commodities. The model of creating a marketing platform at the village level needs to be promoted where the buyers will come to the producer groups directly rather than farmers going outside to sell their produce.

8.Investments in organized retail (both domestic can foreign) to shore up the entire supply chain and ensure good prices to farmers as well as consumers.

9. Strong and urgent focus is needed to enhance farm productivity by way of adequate inputs usage and by extension for enhancement of the supply side to meet the growing demand on a sustainable basis.

10. A special agreement should be signed between India and the neighbouring countries – for import – export of perishables.  This will be a confidence building measure and will ease demand supply challenges of similar commodities between India and the neighbouring countries.

Agro Industry: Last Decade

Indian Agro: Farm output bounces back

Has Indian agriculture turned the corner? Official data on crop production as well as consumption of key farm inputs suggest so.

The accompanying table shows output trends for major crops over three periods: 1995-2000, 2000-2005 and 2005-2010 (April-March). For each of these five-year periods, the average production has been taken, in order to minimise the impact of unusual year-to-year fluctuations arising from the vagaries of weather.

A clear picture emerges. The early half of this decade was pretty bleak for agriculture, with output stagnating or rising only marginally in most crops, and declining in the case of oilseeds and pulses.

Turnaround time

However, the subsequent five-year period – roughly coinciding with the United Progressive Alliance (UPA) in office – has witnessed a reversal of fortunes in foodgrains, oilseeds and sugarcane. In some crops – cotton, maize, potato and onions – the production increases have been quite significant. Even milk has posted a bigger jump relative to the preceding period.

The evidence of a turnaround is further borne out when one looks at the ‘input' side. There has been a robust rebound, for instance, in tractor sales and consumption of fertilisers, reflective of higher demand originating from farms.

Part of the overall improved agricultural performance is explained by higher yields. This is particularly apparent in cotton and maize, where Bt technology and increased penetration of hybrids have made a difference.

But equally, if not more, important has been the role of prices. During 2005-06 to 2009-10, the average wholesale price index (WPI) for ‘food articles' went up by 40.76 per cent, which was more than the 24.14 per cent for ‘all commodities'.

It was the other way round in the previous five years, where the cumulative general WPI inflation of 20.30 per cent exceeded the 9.27 per cent of food.

Twin bonanza

The more favourable terms of trade for agriculture in the recent period are likely to have induced farmers to ramp up output, just as the earlier lower relative prices may have discouraged expansion of cultivation. The combination of higher production and better price realisations has, in turn, helped boost rural incomes.

That still begs the question: Why have food prices spiralled so much despite the farm sector staging a revival of sorts during the UPA regime (unlike the earlier period when prices ruled soft even in face of stagnant production)?

The answer could lie in the increased purchasing power accompanying higher economic growth rates over the last 5-6 years. This has led to a situation where food production is now having to keep pace not just with rising population (as in the past), but also rising incomes.

Demand-pull

The growth in the purchasing power base may have made prices more volatile than before – with the result that even a 10 per cent production shortfall nowadays translates into a 100 per cent price increase. Onions are a live example of this.