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Constraints Affecting the Growth of Food Processing Industry

Constraints Affecting the Growth of Food Processing Industry

While the food-processing sector offers several opportunities it faces several constraints which impede its growth, as well, such as:

Low Level of Government Outlay for Development of Food Processing Industries :

  • During 11th Plan an outlay of Rs. 4031.00 crores was envisaged but in last 4 years only Rs. 1132.00 crores have been spent.                          Constraints Affecting the Growth of Food Processing Industry
  • The Vision 2015 envisages public expenditure of Rs. 10,000 cores by 2015.

APMC Acts of State Governments :

  • discourage direct marketing arrangement between farmer and processor.
  • The processor is required to obtain license from the respective state government as well as liable to pay market fees without even using mandi infrastructure.

Essential Commodities Act, Stock Order etc:

  • The Essential Commodities Act (ECA) 1955 was put in place after independence to control production, supply and distribution of essential agricultural commodities and was put in place to ensure availability of food products.
  • In the current context of liberalization, controlling the movement of products by licensing of dealers, limits on stocks and control on movements only hamper the growth of the agricultural sector and promotion of food processing industries.

Food Quality Regulation:

  • Government has enacted an Integrated Food law, but the mechanism envisaged is yet to become operational.

Taxes on processed food items :

  • Incidence of taxation in processed agricultural products not only acts as a disincentive for investment in the sector but also affects the competitiveness of the food products in the country.
  • Though primary agricultural commodities including fruits and vegetables are mostly exempted from tax, processed food commodities are subject to a variety of taxes.
  • In most of the states, low value added food products are exempted from VAT. However, certain high value added food products like biscuits, confectionary, snack items are levied VAT at the rate of 12.5% in many states.
  • Apart from VAT, other taxes such as purchase tax, entry tax, octroi etc are also levied on food products. Also, packaging material (OTS cans, aseptic packaging paper and aseptic bags) which constitutes around 35-50% of the production cost of packaged food attracts excise duty.
  • In case of snack food items, import tariffs are as high as 30-65% which escalates its market price manifold. Also, it is mandatory for imported processed products to have at least two-thirds of their shelf life remaining on reaching the port.                    Constraints Affecting the Growth of Food Processing Industry
  • Non-tariff barriers like food labelling requirements for packaged goods and compulsory detention and laboratory testing of samples of each imported item, which boosts overhead costs.
  • Lack of infrastructure for post harvest handling and storage, absence of cold chain facilities and fragmented supply chain of food products are some of the critical reasons holding back the growth of food processing industry in the country.
  • No institutional mechanism to mitigate the small and fragmented size of farm holdings and to facilitate linkage between the farmer and the processors/market.

The Mega Food Park Scheme and the Cold Chain Scheme of the Govt. of India envisage addressing these to a great extent.

  • Reliable database for food processing industry does not exist currently in the country, which affects the planning process.                              Constraints Affecting the Growth of Food Processing Industry
  • Considering the high risk involved in food processing, a supportive insurance policy is critical to the growth of the sector, which does not exist currently.
  • R&D in the food processing sector in the country is largely governed by universities and institutions with very little involvement of industry.
  • The research is also on traditional lines with less emphasis to market preferences. There is a need to involve industry for product development setting up of food development centres/incubation centres on a regional basis in various prominent agro-climatic zones.
  • The current Indian crop production system largely continues to be traditional and subsistence agriculture. As a result, crop varieties being grown are not in tune with market and processing requirements.
  • There are problems like adherence to food quality standards by most of the players in the industry, lack of skilled manpower, absence of market driven farming, high cost of transportation and lack of credit facilities.

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