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Food Parks in India: A Critical Assessment of Scenario
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Monday, 16 January, 2017, 08 : 00 AM [IST]
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Aradhna Aggarwal
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Food and agri business is the backbone of sustainable development with its massive economic, social and environmental footprint. The $5-trillion industry represents 10% of global consumer spending, 40% of employment, and 30% of greenhouse gas emissions (Pradhan, 2016).
The growing attention on sustainable development in recent years has prompted the Government of India to recast its efforts of promoting the industry on a much wider scale and in an integrated manner. In this context, the ‘food park’ initiative is an important new direction in economic policy.
A food park is a business park for agricultural and food companies providing common facilities such as analytical, testing and quality control laboratories, cold storages / modified atmosphere cold storages, warehousing facilities, and supplementary pollution control facilities. This article provides a brief overview of this policy and its evolution, analyses its performance and draws some policy implications.
Evolution
The ‘Food Park Scheme’ (FPS), introduced in 1992-93 has evolved through three phases over the past 24 years. In the first phase (1992-93 to 2007-08), state governments had been entrusted with the responsibility of promoting food processing industrial estates/ parks. The common facilities were funded by the Central government subject to a maximum of Rs 40 million for each park. However, these food parks were conceptualised in a traditional ‘industrial estate’ mode with no forward and backward linkages.
In order to provide a major thrust to food processing a paradigm shift was introduced in the approach towards food parks when a ‘Mega Food Parks Scheme’ (MFPS) was introduced in 2007 08. While the FPS focussed on the role of state governments in setting up these parks, the new scheme (MFPS) is designed to lay thrust on attracting private investment in creating state-of-the-art infrastructure for food processing in the country. Another salient feature of the new scheme is that it operates in “hub and spoke model,” comprising Collection Centres (CCs), Primary Processing Centres (PPCs) and a Central Processing Centre (CPC). The CPC is promoted as a hub. It has food processing units with industry-specific common infrastructure, packaging, environmental protection systems, quality control labs, testing facilities, and trade facilitation centres. This is connected with PPCs which offer cleaning, grading, sorting and packing facilities; dry warehouses; and specialised cold stores including pre-cooling chambers, ripening chambers, mobile pre-coolers and mobile collection vans.
These PPCs in turn are connected with CCs which are managed by farmers, self- help groups or local entrepreneurs as farm level aggregation points for adjoining areas. The CPC, PPCs and CCs may be located in a radius of 100-120 km from the hub. The objective is to promote efficient supply chain management from farm gate to retail outlets. The CPC spreads over 50-100 acre of land for Central processing. In addition, 2-5 acre of land is required in surrounding region for setting up PPCs. These parks are implemented by Special Purpose Vehicles (SPVs). The Central government offers financial assistance up to a maximum of Rs 500 million for common infrastructure and facilities for backward and forward linkages.
Under the 12th Plan, in 2012, the scheme entered the third phase when a scheme for ‘Mini Food Parks’ was also proposed to cater to the need for smaller states. The private developers of mini parks are proposed to be entitled to a maximum grant of Rs 200 million from the Central government.
Rationale
A well-designed agro-industrial park with all the requisite facilities has considerable potential for success. Services such as management, information, transport, storage and packaging can be shared across a range of different crops and livestock products. There may be opportunities for recycling wastes and/or using rejected products from the one processing stream as raw material for the next. Significant economies are associated with common infrastructure specific for the industry: testing labs, warehouses and cold storage facilities, quality inspection and quarantine facilities, waste management, and effluent treatment infrastructure and marketing infrastructure.
In addition, MFPs also offer regular infrastructure required for running successful business such as road network, drainage, power supplies, and telecommunications. While all food parks offer agglomeration economies, the MFPS introduced in 2007- 08 envisages a comprehensive backward linkage by tying up with farmers and traders to procure quality raw material from the farms. It also offers opportunity to tie up with MNCs and large retailers for marketing by controlling the entire process from raw material procurement to preservation, testing and transportation facilities. In this ecosystem, food parks are integrated backwards with producers and forward with the consumer markets. Thus, the shift from traditional industrial food park to mega food parks has been a paradigm shift in policy making to develop the industry.
Performance
The erstwhile ‘Food Park Scheme’ failed to take off. Between 1992-93 and 2010-11, 56 parks were approved. Of them, 35 were operational. However, only 475 units were commissioned. Of them, 140 units were in Rai (Haryana) Food Park alone. The scheme thus failed to create critical mass of activity. Among many other factors, failure to identify the various components of the supply chain and integrate them with the parks was found to be a major bottleneck and it was proposed to revise and integrate the Food Park Scheme (FPS) with Mega Food Parks to address these concerns. It was discontinued after the 11th Plan (Committee on Agriculture, 2010). Contrary to the expectations, however, the performance of MFPS also remains far from satisfactory. Until now, 37 proposals have been accorded final approval. Of them, only eight are operational. The rest have been in very initial stages or are yet to be initiated. In seven operational parks, only about 34 units are functioning providing employment to around 12,100 people (directly and indirectly). In addition, approximately 4 lakh people are getting employment through franchises, dealership/distributorship etc. (Committee on Agricultural, 2015). Almost half of the direct employment is in ‘Patanjali’ food park. None of the parks is fully operational.
Finally, most units are captive or partially captive. External companies have not yet been attracted to these parks.
Reasons
The scheme has been subjected to several independent evaluations over the past few years and several reasons have been offered for unsatisfactory performance. In what follows these reasons are categorised into five broad categories using the Porter’s diamond.
Factor conditions
At the core of their poor performance is a lack of the availability of three key factors: land, capital and labour. Land is the basic requirement for such parks. At least 50 acre of land for the project is to be arranged by the SPV in which the anchor investor holding majority holding is required to set up at least one food processing unit with an investment of not less than Rs 10 crore. Land acquisition of at least 50 acre has been a challenge for a company that is not in real estate business. Further, projects have also been languishing in the absence of flow of funds due to inability of companies to contribute and challenges in obtaining term loans from banks. As a matter of fact, many developers did not find these projects viable. They were found to be interested in the Rs 500 million grant and in getting the change in land use from agricultural to industrial and wait for land prices to appreciate. In all 17 such cases were identified and their approvals were cancelled by the government. It has now been made mandatory for the SPVs to get the term loan sanctioned before the final approval. However, this has further complicated the issue for the developers. Finally, most of these projects are implemented outside the city, in rural areas in particular with little social infrastructure. In the absence of connecting infrastructure, they face severe constraints in the availability of labour and materials. The cost of production goes up further making the projects unviable.
Competition and rivalry
The initial policy of allocating one project to each state has led to some very good proposals not being selected in larger states. Under the current policy, one district can have only one food park. These conditions curtail competition and tend to create inertia. Further, the conditions of developing PPCs and CCs is also posing issues as many large companies have already developed their own value chains and find it costly to develop new chains around the food parks.
Supporting institutions
These are large projects that require constant government support and incentives throughout their implementation. The ministry has drawn up a panel of Project Management Consultants (PMC) to support implementation of the projects but their role is limited in the issues pertaining to land, statutory clearances and bank loan. Further, there are tenuous delays in bureaucratic decisions and procedure of obtaining various types of statutory clearances from state government departments/ agencies are complex and time taking. This being a Central government scheme “lack of ownership” from state governments adversely affects its implementation. The state officials look for greater involvement in the selection and implementation of the project (Aggarwal, 2014; ICRIER, 2015).
Supporting infrastructure
Successful clusters include supporting actors such as universities, standards-setting agencies, vocational training institutions, research community, and financial institutions. The success of Patanjali could partly be explained in terms of its location, which is the world’s largest centre of Ayurveda and Yoga and includes facilities for treatment, research and teaching. Patanjali Ayurved college, medical facility, herbal botanical garden, and an organic agricultural farm are some of the institutions successfully run by the developer in the same area. In contrast, most other parks are located in isolated areas with no such ecosystem.
Demand conditions (demand for MFPs)
This industry is fragmented and has been dominated by a large number of small manufacturers. In 2011, the 5-firm concentration ratio was 34%. The share of informal sector in 2006 was as high as 35%. The small units normally look for cheap land. The rentals are high in parks due to improved infrastructure. Further, the land is available only on lease which cannot be used as collaterals for bank loans. These costs are not offset by fiscal incentives for units to locate inside the MFP. Promoters are not able to attract units to their MFPs as there are no direct benefits/incentives available for units to enter them resulting in under-utilisation of infrastructure created there.
Policy reforms
The ministry has been making changes in the scheme continuously to address bottlenecks. Some of the major steps taken by the ministry are as under:
First, state government’s involvement is being ensured at all levels of project sanctioning and implementation process. State/Central government agencies are being allowed to play lead role in the scheme by removing restriction on the equity holding. Under the new rules, their representative is also to be nominated in the board of SPVs (Special Purpose Vehicles) to facilitate administrative procedures.
Second, a fund of Rs 2,000 crore has been created with NABARD for making available affordable credit to the MFP projects and units.
Third, investment in food parks has been covered under the Harmonized List of Infrastructure Sub-sectors to enable the developers to get access to infrastructure lending on easier terms.
Finally, each Mega Food Park is being monitored closely at the highest level in the ministry and a provision of imposing penalty on the SPVs for delay has been incorporated in the scheme guidelines.
It is expected that all these steps will help accelerate the process of MFPS promotion.
Policy recommendation
The performance of MFPs cannot be insulated from the broader institutional and economic context of the country. The primary reason for their not attracting sufficient investments lies in the overall poor business conditions. Poor quality of transport infrastructure across all modes including port, surface roads, railways, airports and waterway; high cost of capital; lack of appropriate institutions, and bureaucratic delays in getting approvals. The government must focus on addressing these bottlenecks. There are several attractive initiatives underway including ‘Make in India,’ industrial corridors, smart cities, simplification of business regulations and tax administration. However, most are yet to take off. It requires long-run vision, strong commitment, patience, an imaginative incentive structure, and institution building to implement policies to promote industrialisation.
References
https://www.linkedin.com/pulse/report-indias-food-processing-sector-sisir-kumar-
Committee on Agriculture (2010) Ministry of Food Processing Industries, Demands for
Grants, Government of India (2010-2011)
Committee on Agriculture (2016) Ministry of Food Processing Industries, Demands for
Grants, Government of India (2016-2017)
Aggarwal, A (2014) Performance evaluation of food parks in India in Ralph D.D.Christy, Carlos A.
Da Silva N. Mhalanga, Krisztina Tihanyi and E.Mabaya (eds) Innovative Institutions, Public Policies, and Private Strategies for Agro-Enterprise Development, World Publishing Inc. Singapore; ICRIER (2015) Report on Evaluation of the Impact of the Scheme for Mega Food Park of the Ministry of Food Processing Industries, 2015.
(The author is professor, Indian studies, department of international economics and management, Copenhagen Business School. She can be contacted at aa.int@cbs.dk)
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