In a written reply to the Lok Sabha, Minister of State for Food Processing Industries Prahlad Singh Patel on 27th July this year said, Foreign Direct Investment (FDI) in food processing sector has declined 57% to $393.4 million (around Rs. 2926 crore) in 2020-21 as compared to $904.7 million in the previous year. Pertinently, during 2018-19, FDI in food processing industries sector was at $628.24 million. Further, as much as 90% of the foreign direct investment made in the food processing sector has gone into five Indian states only i.e. Maharashtra (48%), Rajasthan (21%), Delhi (8%), Telangana and Karnataka (6%) in the year 2020-21.
Isn’t it ironical that on one hand, central government is hell bent to implement three farm laws to prove that private sector is ready to invest in Indian farm sector, and on the other, foreign investors are shying away from investing in farm sector? As per extant Policy, FDI up to 100%, under the automatic route, is allowed in food processing industries. Further, 100% FDI under Government route for retail trading, including through e-commerce, is permitted in respect of food products manufactured and/or produced in India. Decrease in foreign direct investment despite these concessions is going to negatively affect the food processing industries in general, and agro industrial sector in particular.
Noted farm economists have endorsed that of the various form of linkages between the agricultural and industrial sectors, principal linkages between the two sectors can be traced through the role of agriculture as a supplier of wage goods (food) to the industrial sector, a provider of raw material for the agro-processing industries, and a generator of agricultural incomes which create final demand for outputs of the industrial sector. The first two constitute supply side linkages while the third one is the demand side linkage between agriculture and industry. Strengthening of these linkages has turned out to be a decisive factor in establishing the supremacy of few economies over others in terms agribusiness development. In the following paragraphs we have enumerated the strategies followed by the different countries in developing their food processing or agro processing sector.
DEVELOPMENT EXPERIENCE OF DIFFERENT COUNTRIES
In 1990s, Government of Vietnam strategized to eliminate food threat and to form a symbiotic relationship between agricultural growth and economic development. Land reforms were made in the support of small scale agriculturists that vastly enhanced agricultural growth, which ultimately contributed towards higher rural incomes and eventually to the movement of labor into non-agricultural sectors. In 1996, food processing alongwith manufacturing consumer goods, export goods, electronics and information technology was placed as a key industry. In 2001, Vietnam singled out 11 sectors as leading industries considered to be vital for boosting the country’s industrialization process. Over the years 2001 to 2005, Vietnamese government approved a number of strategies on sector development based on the prioritized industries. Miraculous changes were accordingly observed in the structure of the economy. The proportion of agriculture in GDP sharply declined from 46.3% (1988) to 20.9% (2005), while the share of industry increased from 21.6% to 41%, and services from 33.1% to 38.1% during the same time period. The government simultaneously increased investment in nutrition and health programs to weed out hunger and malnutrition from the country. In the year 2010, Public-Private Task Force on Sustainable Agricultural Growth in Vietnam was also established to pursue the goals of the Government of Vietnam’s agriculture plan. The task force worked to develop and test agricultural models in priority crops with the potential for rapid scaling. Today, Vietnam is one of the top exporters of fisheries, livestock, tea and coffee etc. around the world.
Rwanda has seen continuous economic growth after its civil war and genocide since the beginning of 1990s. However, in the recent years, Rwanda has developed and implemented several legislations and policies to create an enabling environment for investment, improvement in the business environment and to reduce the cost of doing business. As a result, this Sub-Saharan African country is currently ranked second easiest country to do business. Government of Rwanda identified agro-processing industry as one of the key drivers to transforming Rwanda’s economy. To achieve this end, the country focused on specialization by district/province (industrial clusters), by trade destination and by industry. By analyzing its agricultural resources and prioritizing them, high level of specialization was achieved. A master plan was also drafted in 2013-14 based on eight pillars. These pillars comprised of boosting agricultural productivity, upgradation of agro-industrial value chains, enhancement of capacity for market access, strengthening of technological efforts and innovative capabilities, promotion of effective and innovative financing, promotion of private sector participation, improvement of infrastructure and access to energy and development of institutional capacities. Rwandan government initially focused on increasing agricultural productivity to reverse the perennially low productivity in subsistence farming (low yields/output) by promoting the use of fertilizers, agricultural machinery, water & irrigation, and reducing post-harvest losses. Later, for enhancing the entrepreneurial skills, appropriate programs were conducted so that transformation of agricultural raw materials into industrial products could match specific standards.
Today Brazil is the world’s largest producer and exporter of coffee, sugar, and orange juice, and is highly positioned in the production and export of soyabean, corn, ethanol, and livestock etc. Agribusiness constitutes 22% of Brazil’s GDP, 1/3rd of total employment and approximately 40% of exports. Three policies played a pivotal role in the making up of agri business i.e. availability of subsidized financial credit, mainly for capital financing and for purchasing modern inputs; rural extension; and provision of support for agricultural research. Resurrection of the logistics and infrastructure from roads to ports, from milk collection to grain storage, from animal health to traceability systems and strategically planned and synchronized Federal, state and city policies laid the foundation of sound agri-business sector. Besides, finance and insurance options, adequate skilling of human resources, redressal of complex taxation laws, bureaucratic hurdles, environmental legislations, property rights and foreign land ownership also led to the success of agri-business sector in Brazil. There are other examples also like Indonesia, Thailand, Netherlands etc. which exhibit how self sustaining models for the development of agro processing industries cropped up strategically.
India too need to emulate the development model adopted by other countries of the world which hinges from increasing the internal demand for high value products to export to other countries of the world. At present, we are processing even less than 10% of our agricultural output (around 2% of fruits and vegetables, 6% of poultry, 21% of meat, 23% of marine and 35% of milk) and most of the processing is primary in nature i.e. done through rice, sugar, edible oil and flour mills etc. Since the estimates project a food inflation of around 5% in next two financial years amid recovery from this ongoing pandemic, it calls for an urgent pro-processing policy that can benefit both the consumers as well as producers.