Finding Foreign Finance

Biz@India

September-October 2017

India has been aggressively scouting for global finance to revolutionise its food-processing sector.

A mid global slowdown, the Indian economy remains resilient, accentuated by volatile financial markets and the transient impact of demonetisation. What has driven this resilience is its backbone— farm output.

According to estimates issued by the Agriculture Ministry, India’s food grain production for 2016-17 crop year is estimated at a record 275.68 Million Tonnes (MT). This is significantly higher by 24.12 MT or 9.59 pc than the output of 2015-16, which was a drought year.

Similarly, it was good news from oil seeds and pulses due to a significant increase in the sown area and productivity. Total production of pulses during 2016-17 is estimated at 22.95 MT. This is higher by 3.70 MT achieved during 2013-14.

Horticulture production too rose by five pc to touch an all-time high of 300 MT during 2016-17 on the back of record output of fruits, vegetables, spices and plantation crops due to increase in cultivation area.

The prospect of floriculture and plantation crops is quite promising. The production of flowers is estimated to be around 2.3 MT, while plantation crop (areca nut, cashew nut, cocoa and coconut) output is estimated at record 18.3 MT. Both the sectors grew by 4.3 pc and 10.2 pc respectively.

This is where India stands today in terms of agriculture production, six decades after it embarked on the Green Revolution in the 1960s. Though India is amongst the top producers of many food products, it is yet to realise its true potential in agriculture and food processing, as it is subjected to the vagaries of monsoon and poor irrigation, lack of cold chain, and unavailability of farming, among other factors.

The FDI sector in India has been seeing a push, with it having attracted USD 121.19 million in 2016, and USD 183 million in the first two months of the current financial year

Despite the large farm produce, post harvest losses are of major concern.

A nation-wide study on quantitative assessment of harvest and postharvest losses – for 46 agricultural products in 106 randomly selected districts – conducted by the Central Institute of Post-Harvest Engineering and Technology, Ludhiana (north India) has estimated the losses of major agricultural produce at the national level to the tune of USD 6.8 billion per annum at 2009 wholesale prices.

In spite of a large production base, the level of processing in India is less than 10 pc. Approximately two pc of fruits and vegetables, eight pc marine, 35 pc milk, six pc poultry are processed.

To scale and replicate the small success, the Indian government is undertaking several initiatives in the food-processing sector. One such effort undertaken by the current government is to attract global attention and the much-needed foreign investment in the sector.

Global investors eyeing India

Indian Prime Minister Narendra Modi is all set to inaugurate a three-day World Food India summit taking place during November 3-5. Organised by the Ministry of Food Processing, the event is being branded as a mega international event both in India and abroad, with a view to making India the investment destination.

The first-of-its-kind mega-scale event will showcase the large agricultural or horticultural produce base of India and its huge young population, providing a ready market and immense investment opportunities for the entire food processing and food-retail sector.

Harsimrat Kaur Badal, the union food processing minister of India, is busy doing roadshows across the country, travelling abroad to attract foreign investment and technology and formulating friendly food processing sector framework.

Badal asserted in an interview to Biz@India how the government has taken many initiatives, not just to bring the focus on the food processing sector, but also to create an environment for it to flourish.

One of the major decisions of 2016 has been the allowing of 100 pc foreign direct investment (FDI) in multi-brand food retail that is processed and manufactured in India. This has created a lot of buzz among the big retailers. With the fastest growing economy in the world, India has the highest amount of FDI that has come into any country in the world. India has also ushered the ambitious Goods and Service Tax (GST) reforms from July 1.

To cut down the red-tapism, the Modi government also abolished the Foreign Investment Promotion Board (FIPB ) in May this year.

Chaired by the economic affairs secretary, FIPB was an interministerial body housed in the Department of Economic Affairs in the Finance Ministry responsible for processing FDI proposals and recommending for approval to the finance minister and subsequently, the Cabinet Committee on Economic Affairs, if the investment amount exceeded USD 460 million.

Individual departments of the government have been empowered to clear FDI proposals in consultation with the Department of Industrial Policy and Promotion (DIPP), which will also issue the standard operating procedures for processing applications.

FDI inflows

Efforts to reform the FDI is paying off in the sector. “In this financial year, in the first two months, the country has already attracted USD 183 million FDI in the sector,” Badal asserted recently while participating in the World Food India roadshow in the south Indian city, Hyderabad.

India attracted foreign investment of USD 233.23 million in 2014, USD 505.88 million in 2015, and USD 121.19 million in 2016.

Buoyed by this success, Badal is scouting for more foreign investment in the sector by pointing out how the retail sector in India is pegged at USD 600 billion and in the next three years is expected to touch USD 1.3 trillion, 70 pc of which will come from the food sector alone.

Further, Badal asserts that with growing interest in the sector the government has set a target of USD 10 billion investment in the foodprocessing sector in the next five years.

According to the Food Processing Ministry, there have been a lot of enquiries from overseas for joint ventures and investment partnership in the food processing industry, especially from the European countries—Netherlands, Denmark, Italy, as well as United Arab Emirates (UAE), Japan, and the Middle East.

Now, Australia, which has been exporting large volumes of food grains to India, is considering entering into the Indian food processing market.

During 2016-17 Australia exported more than USD 921 million worth of chickpeas and pulses and USD 525.38 million worth of wheat. Australian multinational corporations, such as GrainCorp and Olam Australia are looking to scale up business in India and nearby markets.

However, many countries are pushing for tariff reduction in dairy, fresh fruit, pharmaceuticals, meat and wines without giving access to India in sectors, such as automobile parts, textiles, and fresh fruit, including mangoes, and greater access in the services sector.

To translate these inquiries into investments inflow, Badal is knocking the door of these potential investors who can help India unleash Make in India in the food-processing sector. During her recent trip to Europe, Badal saw very successful outcomes with three major announcements— Germany and Netherlands coming on board as focus countries, and Denmark announcing its intent to come on board as partner country to World Food India, 2017- the mega international event of the Ministry of Food Processing to attract investment and trade in food processing industry. More than 100 global firms from more than 20 countries have already registered to participate in World Food India 2017.

The mega event will be spread over 22,000 sqm with Indian and international food companies showcasing their offerings and services along the food value chain — production, processing, packaging, technology, equipment, storage, logistics or retail.

Badal’s colleague and minister of state for food processing industries, Sadhvi Niranjan Jyoti, also toured the Middle East and south-east Asia inviting businesses for the event.

Mega approvals

Ahead of the event in November, India is making the right moves. For instance, in July this year, DIPP approved e-commerce giant Amazon’s proposal to invest about USD 500 million to build a food retail business.

In 2016, the online grocery store Bigbasket got an approval for FDI worth USD 56 million.

In its disclosure statement on September 1, International Finance Corporation, the private-sector investment arm of the World Bank, announced it plans to invest up to USD 20 million in organic food exporter, Suminter India Organics Pvt Ltd for an equity stake Suminter will use the proceeds for its working capital needs in the states of Madhya Pradesh (central India), Rajasthan (west India), Odisha (east India), Maharashtra (west India) and Karnataka (south India). It will also use the funds for expansion of its existing processing facilities in Madhya Pradesh.

Low hanging fruits

Over the last five years, horticultural production consistently has outpaced India’s food grain production. These multinationals are now seeking to exploit the new potential.

An AT Kearney report in 2011 pointed out that only about two pc of India’s fruits and vegetables were processed against 35 pc of food grain and pulses. If this farm produce could be processed, the money could return to the agricultural ecosystem.

Eyeing the vast opportunity, James Quincey, the 52-year-old newly appointed president and CEO of The Coca-Cola Company who visited India in August has devised a new strategy to push its way up in India by participating in more categories beyond carbonated drinks. According to Quincey, the giant cola maker is working on a “fruit-circular economy” that endeavours to cover activities from the farm to the bottle. The head honcho of the multinational beverage corporation announced that it aims to invest USD 5 billion in India by 2020.

Road ahead

Are global multinationals and their investments the way ahead for the Indian food processing sector? Not really, feel many experts. Sagar Anand Kurade, ex president of All India Food Processors Association, wonders whether any global player can ignore India as it is one of the fastest growing economies, especially its expanding middle-class with growing purchase power. “Every global multinational corporation is looking at India and wants to be here. It is time for steps to boost thousands of small and medium enterprises, which form 75 pc of the Indian food sector”.

No doubt the growing interest of foreign investors in the Indian food processing sector will not only forge a strong growth partnership bond between the foreign and domestic players in the market, but also boost technology, economy, consumers and employment.