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FDI in food retail will draw global giants

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Food

As we keep repeating, India is the second largest producer of fruit and vegetables globally and the largest producer of milk.It is said only 7% of the farm produce is processed and about10% of the milk is processed. Fifteen years ago, an international consulting firm predicted that US$ 40 billion foreign direct investment (FDI) would come to India in the food processing industry within five years. Of course that hasn’t happened al-though some progress has been made on research labs, standardization and food processing industrial parks

In the Budget 2016, finance minister Arun Jaitley said that the FDI policy has to address the requirements of farmers and the food processing industry as much of the fruit and vegetables grown by farmers either does not fetch the right price or fails to reach the market. “The food processing industry and trade should be more efficient. 100% FDI will be allowed through the Foreign Investment Promotion Board (FIPB) route in the marketing of food products produced and manufactured in India,” he said.

The government’s move to allow 100% FDI in multi-brand retail of food and food products produced and manufactured in India may find takers among global retail giants such as Walmart, Tesco, and Marks & Spencer. It may also attract other global niche and speciality players such as Mueller and Shortbread House, and could prompt the food multinationals such as Nestle and Heinz, already present in the country, to invest in retail channels or to increase their food processing range, according to experts.

“The objective of the proposal is to enable big multinational retail chains in the food and food processing sectors to create back-end infrastructure and bring in the latest technology to the farm sector. This would increase the level of food processing in the country, reduce wastage, control food inflation, create employment opportunities and increase income of farmers,” said minister for food processing Harsimrat Kaur Badal in a written reply to parliament on 1 March 2016.

The food processing industry in India has gained traction in recent years. Availability of raw materials, changing lifestyles, eCommerce and expanded retail formats coupled with appropriate fiscal policies have given a considerable push to the industry’s growth. This sector serves as a vital link between the agriculture and industrial segments of the economy, which needs to be strengthened in the future in order to prevent the
wastage of valuable resources and to increase exports. Adequate focus on this sector could greatly alleviate our concerns on food wastage and food security in the coming years.

Analysts say more clarity needs to come from the Department of Industrial Policy and Promotion (DIPP) on the issue. “We will need more clarity on this from the DIPP. Going by the announcement, besides international companies, 100% FDI will also help Indian retailers who are in multi-brand retailing of food products to tap into foreign capital,” said Arvind Singhal, chairman and managing director at management consulting firm Technopak.

Technology transfers
When the foreign players start opening shop in India, tech transfers are very likely to happen, as new technologies brought by them will be transferred to Indian partners. This will help in the rapid growth of the sector. Along with tech transfers, harmonization of the standard operating procedures of indigenous companies with those of the global standards will also likely take place. This will possibly streamline the entire food processing and marketing industry.

Mergers, acquisitions, public-private partnerships
Mergers and acquisitions will go hand-in-hand with tech transfer. Many of the indigenous companies will merge with the foreign players. Some will be acquired also. More publicprivate-partnerships are very likely to take place. The government says it will partner with private players in many aspects of the food processing industry.

Expansion of other segments and employment generation
Other segments, such as the food packaging industry, storage industry, and transportation industry amongst others, may also see growth and expansion with the expansion of the food processing industry. Employment generation is one of the key issues for any Indian government and foreign investment should lead to the setting up of more food processing units, which should generate more technical and high skill employment opportunities.

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