India-UK collaborations and investments in the food supply chain

Marketing system and retail in agri-food sectors need to improve fast – Siraj Hussain

L-R : Anthony Cooper, first secretary (UKT&I), British High Commission; Dipankar De, partner – D&B; JK Dadoo, additional secretary, Department of Commerce, GoI; and Siraj Hussain, former agriculture secretary, GoI ( ICRIER) at the event releasing the report in New Delhi

The Indian government needs to hasten various policy and regulatory reforms like right compensation for land acquisition, liberalization of FDI in multi-brand retail, implementation of Goods and Services Tax (GST) and ‘Green Channelling’ for agri-produce to push India-UK collaborations and investments in the Food Supply sector where huge opportunities and potential need to be tapped fully, reveals a report.

The report on ‘India-UK Collaborations and Investments in Food Supply Chain: Opportunities, Concerns and the Way Forward,’ was jointly released by Siraj Hussain, former agriculture secretary, government of India; Anthony Cooper, first secretary (UKT&I), British High Commission; JK Dadoo, additional secretary, Department of Commerce, GoI; and Priyaa Gurnani, director D&B, Tangram Advisory Services. The authors of the report, Dipankar De, partner D&B; Tanu Goyal, consultant, Indian Council for Research on International Economic Relations (ICRIER); and Dr Arpita Mukherjee, professor, ICRIER were also present on the occasion.

The report, a result of extensive survey and study, has been prepared by D&B Tangram. It also draws on the earlier survey findings of D&B Tangram and the ICRIER on food parks and allied infrastructure. “For last three-four years the government is struggling hard to bring in much awaited reforms in agriculture and food processing sector. But the progress is slow because reforms in these two sectors touch majority of the population. We still do not have a unified or national market. The marketing system has to improve very fast if we want farmers, who are in distress, to get a better price,” said Siraj Hussain, while releasing the report.

“Food Processing Industries require last mile reform – that is in retail. Modern retail is very important. The government has allowed 100 % FDI in Food/Agri, however we are struggling to take it to investors. We need a unified and national market for agri-produce. With the National Agriculture Market in place, I hope things will move faster for the sector. The report is very timely and would help in attracting foreign as well as domestic investments,” he added.

The report suggests that the policy and regulatory reforms are likely to improve the business conditions. Implementation of ‘Green Channelling’ for agri-produce to reduce wastage, increasing centre-state coordination to improve investor confidence, bringing in more transparency and awareness about government policies, and simplifying customs procedures and food safety regulations are other key recommendations. It is also pointed out during the survey that along with transport infrastructure, there is a need to construct ‘truck docking stations’ in fuelling stations along the national highways and state highways.

Highlighting the key findings of the report, Dipankar De, partner, D&B Tangram says, “The logistics and supply chain performance is currently impacting India’s global competitiveness by increasing operating costs and capital expenditures, delays and unpredictability, reduction in overall business activities and restricting potential integration with global value chains.” Critical logistical infrastructural gaps, essential skill gaps across functions and inadequate research and development (R&D) in the food supply chain are a few of the specific immediate areas of attention, he added.

“Improving efficiency and unlocking potential in the food supply chain has been a key priority for the current government which is actively encouraging foreign investments in these supply chain sectors such as storage and warehousing, cold-chain, packaging, skill development and R&D,” Dadoo said.

Presenting the UK perspective about business opportunities in India, Anthony Cooper said that the UK government has a strong focus on the food and drink sector and its exports. “We excel in cold-chain and have advanced supply chain management practices, we can help reduce wastages in the supply chain and increase the shelf-life of the produce.”

“Agriculture produce, fruits, vegetables, dairy sectors are expanding in India, creating more demand for modern facilities. Our companies find huge opportunities in India. UK Trade and Invest (UKTI) is keen to make companies aware about the opportunities in India and would provide them practical support in terms of market strategies and advice. The report is extremely timely in this context,” he added.

The study focusses on five areas of the food supply chain, namely storage and warehousing, cold-chains, packaging technology, skill development and R&D.  It provides an overview of each of these segments in India and the UK, examines the regulations, identifies the areas of collaborations and identifies the barriers faced by the UK companies in India.

Food and Drink is a priority sector for the UK government in its trade and investment with India. The report charts out clear action points for UKTI and UK India Business Council (UKIBC) to increase awareness and market understanding of the UK companies and work collaboratively with the centre and state governments in India to enhance India-UK trade and investment in the food supply chain.

At the policy level, the Indian government has launched several national level schemes and initiatives to support the growth and development of the food logistics business. One such initiative is the ‘Make in India’ campaign, encouraging foreign investors to invest in manufacturing facilities in sectors such as packaging. There are other initiatives such as ‘Skill India’ that is dedicated to upgrading the existing skill levels in the country and ‘Start-up India’ which aims to support start-ups and commercialization of R&D. However, there is still low commercialization of R&D in the country due to the lack of a proper ecosystem for protection and promotion of R&D in India. Given this, it is important to understand the prevalent regulations in the sector. FDI up to 100% is allowed in R&D and foreign multinationals are encouraged to set up R&D centres in India. Further to this, as per the Foreign Direct Investment Policy of DIPP, foreign companies that foster technology transfer are encouraged to invest in India. India and the UK have bilateral R&D programmes and the companies and institutions of the two countries can participate in other multi-country programmes such as the Horizon 2020 of the EU. Among the bilateral programmes, Global Innovation and Technology Alliance (GITA) is the most prominent one.

The report observes that all these measures and initiatives are likely to attract foreign companies, including companies from the UK, to invest in India’s food supply chain. The food supply chain in India is fragmented, and is characterized by the presence of a large number of unorganized operators in each segment. As a result, transportation costs in India are very high and so are the wastages involved in food transport due to mishandling, lack of storage facilities. With a well-established food supply chain and sophisticated logistics infrastructure leading UK companies have shown interest to invest in areas like FTWZs (free trade warehousing zones) in India.

The cold-chain sector is a focus area, which is witnessing annual growth of nearly 20% and offers plenty of scope for the Indian and UK companies to collaborate, especially in green technologies such as solar run cold storages. The Indian market is not homogenous and the UK companies should explore opportunities in Indian states that offer ease of doing business.

For the food supply sector, taxation is a major concern. GST is expected to accelerate the growth of the storage and warehousing industry and creation of true hub-and-spoke model, which India currently lacks. “Rolling out of GST is further expected to drive the technology adoption since under the hub-and-spoke model, technology will be of paramount importance,” the report points out.

Despite a series of reforms related to the FDI liberalization, the presence of the UK businesses in India is limited. The study points out that the large foreign multi-brand retailers such as Wal-Mart Stores and Tesco are present in India only as wholesale cash and carry operators. None of the UK companies have entered the food retail business. This is mainly due to the restrictions on FDI in multi-brand retail. The low presence of global multinationals and domestic corporate players in food manufacturing and retailing have led to the low presence of the UK companies in the food supply chain sector of India. Most companies are waiting for FDI liberalization across the entire supply chain. A number of companies have expressed concerns about the inability of Tesco to speed up investments in India.

‘‘Most of the UK businesses are in the wait-and-watch mode and they are closely watching the success of other UK businesses that have entered or are planning to enter the Indian market,” the study reveals. Along with the tariff discrepancies, the customs procedures in India are cumbersome. The interpretation of the policy by customs varies across ports. According to the report, there are licensing, labelling and packaging conditions along with other standards laid down by FSSAI that often change without prior indication. This adversely affects international businesses.

The study is an eye-opener and examines FDI related issues with conviction. It says, “Unless FDI is allowed in multi-brand retail and the rigid conditions are removed, the food supply chain sector will not get the desired foreign investments. Global retailers play a key role in promoting agriculture exports and setting up of the food supply chain.”

“The retail policy should not impose restrictions on store and non-store retail formats.  Some of the UK food manufacturers have or are planning to set up manufacturing hubs in ASEAN countries such as Thailand and export the products to India through the ASEAN free trade agreement (FTA).” India will not get the desired investment in manufacturing unless the country allows global companies access to distribution and retail. It is important for the government to know that global retailers cannot change their business models to meet the conditions imposed on FDI in retail. As India competes with other countries to get FDI it should also have similar FDI policies.

It is also suggested that if GST does not happen due to lack of majority in the Upper House of the Parliament, the Central government can work with the states in which it has majority such as Gujarat, Rajasthan, Haryana and Maharashtra to have green channels. This will significantly benefit movement of perishable produce and reduce wastages.

Other recommendations include better centre-state coordination, infrastructural support, corruption free administrative machineries, skill development and policies should be directed towards investment in better technology, clean technology, and connecting farmers to the global markets, among others. There is also need to speed up the patent process, strengthen the IPR regulation and protection of patents and copyrights. While there are regulations in place, there has to be serious implementation of existing laws.

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