Question – Integrated marketing infrastructure with contract farming can provide a practical solution to the long and fragmented supply chain problems to the Indian food processing industries. – 13 August 2021
The food processing industry is of utmost importance as it provides the vital linkage and synergy that it fosters between the two pillars of the economy, i.e. agriculture and industry. The manufacturing and agriculture sector accounted for 8.83 per cent and 10.66 per cent of GVA, respectively, in 2017-18.
India is the second largest producer of food items after China. Along with this, India also ranks first in the production of items like banana, mango, milk, which are important from the point of view of food processing globally.Along with this, due to the large population and increasing economic prosperity, there is a huge market available for food processing industries in India. The demand for ‘ready to eat’ items is increasing continuously in India due to increase in urbanization.
Problems of Food Processing Industries
- Logistics: Logistics cost is high for transportation, warehousing, material handling etc. In India, logistics accounts for about 13% of the GDP, which is over USD 130 billion. This cost is quite high compared to most developed countries.
- Lack of adequate infrastructure: Although the government has initiated several measures for the development of infrastructure related to the food processing industry, they are not sufficient to meet the growing needs of the sector. Lack of cold storage, road and rail connectivity is still a major concern.
- Credit facilities: Despite the creation of a Food Processing Fund a few years back, the sector is facing resource constraints. Although foreign investment still does not match the requirements of this industry.
- Lack of comprehensive policy: The food processing industry is an emerging sector. Lack of a comprehensive policy catering to the diverse needs of the food processing industry is hindering its growth. MoFPI should announce National Food Processing Policy at the earliest to address the policy gap.
Integrated marketing infrastructure and contract farming as a viable solution
- Integrated marketing infrastructure will help in effective management of marketable surplus in addition to agriculture including horticulture and allied sectors including dairy.
- It will promote direct marketing, so as to increase the efficiency of the market through reduction of middlemen and handling channels, thereby increasing the income of the farmers.
- It will provide infrastructure facilities for grading, standardization and quality certification of agricultural produce.
- Contract farming can emerge as an important opportunity for companies to create direct agricultural linkages to source appropriate quality, quantity and varieties of inputs.
- As per the Model Contract Farming Act, 2018, the contract shall specify the quantity, quality and price of the products to be supplied. This will protect the farmers.
- As per the Model Contract Farming Act, 2018, the contract shall specify the quantity, quality and price of the products to be supplied. This will save farmers from price fluctuations subject to quality commitments.
- Contract farming can help the food process industry encourage and support farmers to increase the quality of crops. Thus ensuring enhanced quality of inputs.
The government has initiated the following measures for the development of the food processing sector-
- Integrated Scheme for Agricultural Marketing to enhance creation of agricultural marketing infrastructure by providing back end support to state, cooperative and private sector investments.
- In Budget announcement 2018-19, Government of India has announced to develop and upgrade existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs). In these GrAMs, physical infrastructure will be strengthened using MGNREGS and other Government Schemes.
- The Model Contract Farming Act 2018 which covers the entire value and supply chain from pre-production to post-harvest marketing, including service contracts for agricultural produce and livestock.
The development of the food processing industry is essential as it will lead to changes in food habits due to increased disposable income of the middle class and rapid urbanization, changing food preferences towards processed and packaged food and in addition a higher level of processing. The well-known food processing sector aims to reduce wastage, improve value addition, promote crop diversification, ensure better returns to farmers, boost employment as well as increase export earnings. The sector has been able to address the serious issues of food security, food inflation and provide nutritious food to the masses.