Introduction
India annually produces 205 million tonne of fruits and vegetables and is the second-largest country in farm production in the world but unfortunately the processing percentage is poor - only 4.6%. In contrast, countries like USA (65%), China (23%) and the Philippines (78%) are far ahead of India in reducing wastage and enhancing the value addition and shelf life of farm products. This is an alarming signal for India as a large volume of the agricultural produce is wasted. About 35% of the fruits and vegetables are wasted annually due to poor storage facilities, amounting to a revenue loss of Rs 500 billion. Also, 80% of the vegetables rot due to high water content and lack of processing facilities, resulting in a revenue loss of Rs 125 billion.
The agriculture sector is vital for any nation and in India it is the principal source of livelihood for more than 58% of the population and I consider the food processing sector to be just an extension of the agriculture sector. The progress of each sector is dependent on the other. In developed countries, because of a developed food processing sector, demand is created in the agriculture sector. India will follow the same path.
Indian Food Industry
The Indian food industry is projected to grow from US$100 billion to US$300 billion by 2017, according to a report by a leading industry body and Technopak. During this period, the share of processed food in terms of value is expected to increase from 43% to 50% of total food production.
The food processing industry is of enormous significance for India's development as it has efficiently and effectively linked the nation’s economy, industry and agriculture. The linking of these three pillars has synergised the development process and promoted the growth of the nation to a great extent.
The food processing industry is one of the largest industries operating in India and is divided into several segments.
The food processing industry operates across various segments that include: Fruits and vegetables; Meat and poultry; Dairy; Grain processing; Marine products; and Consumer foods (including packaged food, beverages and packaged drinking water).
India is witnessing a paradigm shift and the following sectors have a huge potential to fuel the growth of food processing in India due to FDI in food sector. These will be the game-changers: Nutraceuticals industry; Wine processing; Pre/Probiotic industry; Packaged water industry; Ready-to-eat industry; Traditional food processing; Cut fruit and vegetable industry; Post-harvest treatment for fruits; Export –Brand India; Food additives; and Food equipment manufacturing.
FDI In Food Sector
India allows 100 per cent FDI in food processing sector. Foreign firms do not require government's approval to start business here. Moreover, they can take advantage of the development schemes offered by the government.
Foreign Direct Investment (FDI) is an international financial flow with the intention of controlling or participating in the management of an enterprise in a foreign country. FDI plays an important role in India’s growth dynamics. There are several examples of the benefits of FDI in India. FDI in the food retail sector can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain and benefit consumers and suppliers i.e. the farmers. India being the second-most populous country in the world, has immense scope for retail expansion as along with time, urbanisation and consumerism have also been increasing.
Foreign funding has already been approved in India’s food processing industry since 1991. Changing lifestyles, breakdown of the joint-family system, increasing number of working women and Western influence in the urban areas are fuelling a demand for packaged foods. India already has all the requirements for a headstart in the food processing industry. Basic materials such as food grains, pulses, vegetables, meat and fish can be sourced locally or easily imported if local availability is inadequate. Foreign investors can own 100 per cent equity in plants they set up, or take on a local partner. Many Indian firms are eagerly seeking foreign partners for joint ventures to avail of their technological advantage.
Total FDI in food processing sector during April 2009 to December 2012 is Rs 6,197.63 crore, and it is estimated that over Rs 20,000 crore have been invested till 2015.
Benefit of FDI in Food Sector
Advanced Technology
Foreign players brings new technologies to India and this will help in the rapid growth of the sector. Already we have seen this happening in beverage/dairy and bakery sector.
Development of Infrastructure
FDI will increase the basic infrastructure of food sector, not only in manufacturing but also in R&D and logistics.
Expansion of Other Segments
Other segments, such as the food packaging industry, storage industry, and transportation industry amongst others, will see a rapid growth and expansion, which will go hand-in-hand with the expansion of food processing industry.
Employment Generation
Employment generation will be a major plus point of FDI. More foreign investments will mean setting up of more food processing units, which will generate more employment opportunities.
Capability Development
FDI investment will increase basic capability development since most of the foreign players invest in skill development and manpower development. The government has already initiated a number of schemes that will run parallel with other programmes in the food processing industry.
Focus on Food Safety and Quality
FDI brings the focus on food safety and quality since most of the companies have their own stringent standards, which are based on international guidelines.
Linkage to Farmer
Since foreign players focus more on quality, they invest on backward integration and they would like to source the raw material directly from farmers. Even local big companies are also following this approach. This brings quality focus amongst farmers and scientific farm practices.
Expansion of Overall Market
FDI helps in expanding the overall market. Today most of the food processing sectors are in small- and medium-scale, this helps to convert food processing of unorganised sector to organised sector.
Multinational giants like Coke, Pepsi, Mars, Kraft (USA), Nestle (Switzerland), McCain (Canada), Danone (France), Ferrero (Italy), Kagome (Japan), to name just a few in the long list of investors in India.
Impact of FSSAI on Foreign Direct Investment
The Food Safety and Standards Act 2006 was formulated with a threefold objective of framing an integrated food law, prioritising consumer safety and harmonising food standards with international regulations. The Food Safety and Standards Act 2006 is a new legislation that integrates eight different existing food laws and is a comprehensive enactment aimed at ensuring public health & safety. The implementation of this Act will be a major transformation that promises to bring paradigm shift in the food regulatory scenario of India. The Food Safety and Standards Rules and Regulations, 2011, have been enacted from August 5, 2011. This analysis presents the highlights of the regulations and discusses the impact of the regulations for palm oil industry.
Impact
The new Food Safety Act has salient features different from the earlier food regulatory regime and therefore is a very revolutionary regulation. The Act advocates transparency in the process of rule/regulation making and the involvement of stakeholders in decision-making. The Food Safety & Standards Authority of India (FSSAI) has a wider representation of food technologists and scientists, state governments, ministries, consumer organisations, food industry, farmers and retailers. The regulation provides for formulating science-based standards that distinguish between substandard and unsafe food. Risk assessment is integral to the process of setting standards. A new regulatory structure that envisages a large network of food laboratories is enforced. Provisions have been made for improvement notices and graded penalties as per the severity of offences. Food import is regulated and the trend will shift from regulation to self-compliance by food business operators. Justice dispensation will be fast with the new procedures of adjudication and fast-track disposal of cases through tribunals. The Act also promotes innovations by way of provision of Section 22 for including nutraceuticals, functional foods, GM foods and so on. Codex harmonisation will bring many new additives in line with Codex. Product approval simplification is must and clarity should be ensured to support industry.
This new Act has also posed new challenges to the food industry, especially, in following areas: Product Approval; Import regulations and control; Stick adherence to labelling regulation; Analytical compliances; Focus on food safety; FSMS/Schedule 4 implementation; and Licensing requirements.
Like any new regulations, there are initial challenges but once the system is set, the sector starts adopting the regulations as laid by government and confirms to the standards. Serious players will upgrade the system to adopt the newer things and due to strict implementation, overall awareness about FSSAI has improved.
How these challenges will be overcome?
FDI players who are investing in India are long-term players and that too they are investing in food sector, which has long gestation period. I don’t see there would be any negative impact of FSSAI on industry. The sector will grow and it continues to grow. There might be few initial problems which will resolve once the policy decisions are clear.
All foreign players through their consulates need to understand the FSS regulations and need to study the impact of these regulation to their respective sector. Once the homework is done, there is level paying field. FSSAI has given level playing field for everyone.
Considering the size of food industry, it will take time to penetrate the new food law and lots of awareness needs to be created by FSSAI authorities. Features such as single-window for licences and special courts to settle disputes have been welcomed. It is expected that innovation will gain impetus with the new provisions enacted under FSSA/R. The industry anticipates that stronger implementation, involvement of stakeholders in rule framing, single authority and law, and sound scientific standards aligned with international regulations to be the important benefits of FSSA implementation. The Indian food industry along with multinationals appreciates the new law and looks forward to its implementation. While the industry welcomes the regulatory changes that will be enacted by the Authority, the Authority also must consider that the industry will require time and support to adopt new practices and implement them. The most important thing is consumer safety which is prime motto of FSSA/R. Thus I see huge potential for FDI in food processing sector and investments will increase in times to come. The sector will undergo an upgrade and more wealth will be created. Thus to sum up, the ‘Make in India’ slogan will come true when FDI will start pouring in India and this will certainly help local farming community since value addition will increase.
