By Sachidanand Madan
While talk of doubling farmers income has died down, the goal of the Government has not wavered. Multiple measures to improve crop yields, market linkages, finance, insurance, irrigation, food processing etc have been taken and considerable investments made, but this goal is still eluding. By now it should be clear to all that there is no “quick fix or one fix” to achieve this.
What’s interesting is the example that our Prime Minister and his team set in Gujarat where besides improving farming they promoted investment in food processing and it has given amazing results. Just take the example of Potato processing where from one French Fry plant the state now has three, each one of them has more than doubled capacity and three more are being build. The state has become the number one source of potatoes for processing and every potato farmer has not doubled but trebled his income and it continues to grow every year. The state also has the most modern cold stores; farm equipment, high quality seeds and agri inputs, drip irrigation etc creating multiple rural jobs and an environment that is attracting rural youth to take up farming. From an importer of French fries India is now a leading exporter. Another interesting example is Mango pulp specially of Totapuri Mango in AP and TN where every year demand continues to grow driving farm incomes and investment in modern farming/processing.
This does not mean that just by setting up food processing units’ farm income will increase. What’s of greatest importance is to have profitable food processing units as that alone will drive consistent improvement in agriculture. Let me explain how and why.
Food processing industries need to create strong backward linkages with farmers to ensure that the right variety and quality is grown. This requires intensive interaction, training, supply chain creation and a long term approach. Having setup, a large factory, the processor has to ensure a steady supply of quality raw material and this can be done only if they ensure remunerative prices for farmers.
But what has held back the growth of Food processing in India?
i. Consumer Resistance: Indian consumers have been slow to adopt processed foods as most of middle class India has house help as well as a belief that fresh is better and cheaper. The high GST on processed foods has only increased the value gap though the Pandemic has helped change the negative mind-set to some extent. Unlike a mobile phone or TV the consumer can make food at home and thus a high tax rate acts as a financial deterrent to shift.
ii. Slow uptake by HORECA (Hotels, Restaurants, Caterers)/Food Service: Adoption of processed food by HORECA is slow as they have to pay 12 to 18% GST without any Input Tax Credit while fresh F&V or meat has Zero GST. In the west HORECA/Food service have driven the growth of processed foods, specially frozen, as they do not have any tax disadvantage. Indian food operators have been badly hurt by the pandemic and continue to face challenges of labour and higher input costs including cooking oils, gas etc and are keen to switch to processed food specially frozen where freshness and taste is preserved.
The current environment is most conducive to change this paradigm and make India the food factory of the world. This can be done by just dropping GST on all processed foods to 5% and allowing a GST set off to HORECA.
The immediate revenue loss will get made up very quickly by the jump in the overall size of the industry, a reduction in Agri and food processing subsidies, improved tax compliance etc. Net GST collection from processed food is still relatively small, while the benefits of promoting processed foods in both, consumer and food service segments are immense in terms of doubling farm incomes, creating rural jobs, adding value to grain/F&V exports, reducing food waste and actually enhancing GST and IT collections in the longer term. Smaller farmers who grow Tomatoes, Onions, Peas, Beans etc will benefit greatly.
While it may be more fashionable to promote electric mobility and silicone chips its equally important to strengthen and support India’s food security, its rural economy and the farmers who have so loyally fed our growing population.
Sachidanand Madan was the Chairman of FICCI’s National Agriculture Committee and the Chief Executive of ITCs Fresh F&V, Frozen and Seed Potato Business. He has retired but continues to be on the Board of several companies and is an Advisor to start ups in food and agri.
(The author was the Chairman of FICCI’s National Agriculture Committee and the Chief Executive of ITCs Fresh F&V, Frozen and Seed Potato Business. He has retired but continues to be on the Board of several companies and is an Advisor to start-ups in food and agri. Views are personal and not necessarily that of FinancialExpress.com)
