Adapting to survive the coronavirus crisis and Food Processing Industries

The rampant spread of COVID-19 pandemic, across borders and geographies, has put global economy in recession with global economy projected to shrink by 3.2% (UN DESA). The disruptions caused by the outbreak and containment measures have left deep impacts on supply chains of manufacturing sector.  Companies across the globe have been scrambling to streamline their supply chains to secure immediate operations.  The economy of India is not an exception and the Indian industries including the food processing industries and MSME are severely affected. MSMEs are an important part of larger supply chains and their health has a bearing on the supply chains overall and indeed ability to supply major consumer product categories. Therefore, substantive support measures are required to see MSMEs through this crisis.

It is important to note that the food processing sector is recognised as a sunrise sector in India. The $600 billion industry currently employs close to 70 lakh workers, including around 15 lakh women. Furthermore, it has a massive potential to unlock the economic value of agricultural produce, thus facilitating the national agenda of doubling farmers’ income by 2022.

The ministry of food processing Industries recently announced the setting up of a task force to address some of the pressing concerns faced by the units. A closer look at some of these challenges highlights the need to understand the structural nature of the issues affecting the sector. It is evident that COVID-19 Crisis offers an urgent and much needed reset point for India’s Food Processing Industry.

The current Government is appeared to be committed to support the food processing industries and MSME in general for reviving their businesses and it is pertinent to highlight here the recently announced Financial and regulatory supports by Honourable Prime Minister and Finance Minister as part of the clarion call on ‘Atmanirbhar Bharat”. It is expected that industries will tide over the huge blow caused by the lockdown and able to provide more and creating more employment in coming years.

COVID-19 has revealed the weaknesses of a globalized manufacturing system and in order to respond, companies need to fundamentally rethink supply chains. In a post-lockdown world, supply chain stress tests will become a new norm.

It has moved from playing a “behind the scenes” organizational role to being a prime driver of the company business. Companies must have now appropriate ‘re-calibration’ strategies for modifying their supply chains as a key business driver and putting back the human asset as the most important factor for an agile business to succeed.

There are huge opportunities for Indian companies and would encourage them to attract international capitals and investment for creating a new manufacturing hub in India. This is possible, as many international manufacturers now looking into India considering its pro-business and FDI environment.   It is believed that our Industries need to strengthen on three fronts: cost (cheaper labour), quality (high skilled workforce), and supply chain (robust infrastructure), India can call itself the next global factory in future. We shall promote a ‘culture of manufacturing’ in India which is prevalent in a few countries such as Germany and South Korea, and closer home in South East Asia. We need to attract our best brains and encourage them to join the manufacturing sector. We need to establish manufacturing linkages. The lack of infrastructure pushes up the logistics cost, which at 14 per cent of GDP is one of the highest globally.  Our industries shall be able to present to the world the enormous opportunities that India offers as a base for manufacturing, innovation, design, research and development.

Keshav C Das

New Delhi, 31st May, 2020

Make In India needs to work

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India has followed a peculiar growth story over the years. India has seen high growth in the services sector. The government has been focusing on right from creating a single window facility for addressing investor concerns, identifying key manufacturing sectors, to creating a common platform to unite state governments, bureaucracy and corporate leaders.

India is blessed with a large labour pool and admirable levels of judicial transparency. We can leverage our territorial position to play a critical role in the global supply chains. Doubling up as a potential high consumption market can keep demand fluctuations in check as well as save up on the logistics costs.

I trust that our Industries need to strengthen on three fronts: cost (cheaper labour), quality (high skilled workforce), and supply chain (robust infrastructure), India can call itself the next global factory in future.

We shall emulate a ‘culture of manufacturing’ in India which is prevalent in a few countries such as Germany and South Korea. We need to attract our best brains and encourage them to join the manufacturing sector. We need to establish manufacturing linkages. The lack of infrastructure pushes up the logistics cost, which at 14 per cent of GDP is one of the highest globally.

The idea of promoting manufacturing is to ensure our demographic dividend finds meaningful employment. We launched the Make in India campaign to create employment and self-employment opportunities for our youth.  We are working aggressively towards making India a Global Manufacturing Hub.  We want the share of manufacturing in our GDP to go up to 25 per cent in the near future.

We are also aware that under the pressure of this campaign, the government machinery will be required to make a number of corrections on the policy front.  There is an increasing need to stress on zero defect and zero effect manufacturing.  We shall place high emphasis on energy efficiency, water re-cycling, waste to energy, clean India and river cleaning.  These initiatives are directed at improving quality of life in cities and villages.  These initiatives provide you additional avenues for investment in technologies, services and human resources.

Keshav C Das

Sectoral Strategies for Transforming the Food Processing Industries in India

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In the context of India’s vision of becoming the ‘Global Manufacturing Hub’; food processing is the ‘SUNRISE SECTOR’. The Food & Grocery market in India is the sixth largest in the world. Food & Grocery retail market in India further constitutes almost 65% of the total retail market in India. The Government of India through the Ministry of Food Processing Industries (MoFPI) is taking all necessary steps to boost investments in the food processing industry. The government has sanctioned 42 Mega Food Parks (MFPs) to be set up in the country under the Mega Food Park Scheme. Currently, 17 Mega Food Parks have become functional. Our food and retail markets are all set to touch $ 828.92 billion investment by 2020. The Processed food market is expected to grow to $ 543 bn by 2020 from $ 322 bn in 2016.

By 2024, the Food Processing industry will potentially attract $ 33 bn investments and generate employment for 9 million people. These are all remarkable targets and asipiration for us. The Government has been working to linking Indian farmers to consumers in the domestic and international markets. The Ministry of Food Processing Industries (MoFPI) is making all efforts to encourage investments across the value chain.

The potentiality of the food processing sector is huge. We shall acknowledge that India offers the largest diversified production base and has a growing food industry. We are the largest milk producing nation. We are the largest producer, consumer and exporter of spices. We are world’s second largest producer of food grains, fruits, and vegetables. Hence, we have a glorious legacy, excellent track records and necessary skills-technologies and know-how to become a ‘manufacturing Hub in the food processing sector.

To make this aspiration we need only three things: firstly promoting profitable farm production with appropriate agronomical practices, secondly, linking farmers with market and thirdly attracting investment for transforming this important sector.

The government has been already working to secure these ‘development triangle’. For instance, under the Nivesh Bandhu program, which is an investor facilitation portal to assist investors on the investment decisions. A special fund of $285 Mn has been set up in National Bank for Agriculture and Rural Development (NABARD) for affordable credit.

The government has also 100% FDI in the food processing sector. Sector-specific Skill Development Initiatives are also being taken up, with National Institute of Food Technology, Entrepreneurship and Management (NIFTEM) and Indian Institute of Food Processing Technology (IIFPT) being recognized as Centres of Excellence.

Apart from growing population and burgeoning purchasing power, rising urbanization, rising retail trade due to initiatives such as Digital India, together with the presence of global players of the industry can be considered as the major growth drivers for the segment.  We have a population base of 1.3 bn offering a large demand-driven market, with the retail sector expected to treble by 2020. Hence, this is our time now to make India Better! This is our time to make India a leader in the food processing Industry’.

ENERGY SMART FOOD – LINKING FOOD AND CLEAN ENERGY

If energy prices continue to rise, the global food sector will face increased risks and lower profits. The efforts from low-GDP countries to emulate high-GDP countries in achieving increases in productivity and efficiencies in both small and large-scale food systems may be constrained by high energy costs. Lowering the energy inputs in essential areas, such as farm mechanization, transport, heat, electricity and fertilizer production, can help the food sector mitigate the risks from its reliance on fossil fuels. Hence, a major focus of food processing industries should be to reduce energy demand and/or promoting efficient energy management as well as introducing renewable energy technologies (RETs) to reduce the food sector’s dependence on fossil fuels. Indeed, introduction of RETs should happen from field to factory (processing) and up to the retail-outlet.  Energy.Smart

The encouraging development is that there is increasing consensus on the necessity on energy smart food and very recently in a study on energy-smart food, the Food and Agriculture Organization of the UN (FAO) stresses that agriculture’s dependence on fossil fuels is undermining efforts to build a more sustainable world economy. The paper, which is titled “Energy-Smart Food at FAO: An Overview[1],” notes that world food production consumes 30% of all available energy, most of which occurs after the food leaves the farm. The paper calls for: increasing the efficiency of direct and indirect energy use in agri-food systems; using more renewable energy as a substitute for fossil fuels; and improving access to energy services for poor households. It outlines numerous approaches to adapt practices to become less energy intensive.

However, to promote the campaign on energy smart food, we need affordable technologies at farm-level and food processing level. Unfortunately, most of the ‘energy efficient’ technologies in the agriculture sector of developing countries are expensive and not within the reach of poor farmers. Similarly, financing is also pivotal. Most farmers do not have upfront investment for introducing energy efficient devices in to their farm operations. Can we think of introducing a concessional loan systems into the farm system to meet this requirement as well as provide a really doable and practical contract farming model to the farmers, where, farmers will receive advance market commitments from global retailers and big MNCs in food market chain, and therefore, farmers will be in a comfortable situation to produce more and trade more? Indeed, agriculture insurance is also a key and obligatory intervention in the current context; particularly to reduce the risk of damage and loss due to climate change related adverse effects.

We also need enabling policies: strong and long-term supporting policies and innovative multi-stakeholder institutional arrangements are required if the food sector is to become energy-smart for both households and large corporations. Financial policies to support the deployment of energy efficiency and renewable energy will also be necessary to facilitate the development of energy-smart food systems. Examples exist of cost-effective policy instruments and inclusive business schemes that have successfully supported the development of the food sector. These exemplary policy instruments will need to be significantly scaled up if a cross-sectoral landscape approach is to be achieved at the international level.

Indeed, development organisations like SNV Netherlands Development Organisation has a major role to play in this domain so that the agriculture sector of developing countries are ready for the deployment of appropriate technologies; introduction, sharing and adaptation of energy-smart technologies; and carrying out capacity building, support services, and education and training on energy smart food production supply chain. Nevertheless, addressing the energy-water-food-climate nexus is a crucial and complex challenge. It demands significant and sustained efforts at all levels of governance: local, national and international.

 

Keshav C Das

Senior Advisor, Renewable Energy and Climate Finance

SNV Netherlands Development Organisation

 

[1] http://www.fao.org/docrep/014/i2454e/i2454e00.pdf