Because all of the major FMCG companies are betting big on these reforms, their sourcing and expansion plans may suddenly be jeopardised.
With the farm restrictions on the verge of being abolished, a variety of sectors of the packaged food and beverage industry are being scrutinised.
The government’s rapid shift of stance on three contentious farm legislation might have far-reaching consequences for the country’s food processing sector, which includes big fast-moving consumer goods (FMCG) companies and a market worth more than Rs 2.6 lakh crores.
With the farm restrictions on the verge of being repealed, a variety of sectors of the packaged food and beverage industry are being scrutinised. The current development has caused industry players to go back to the drawing board, from fast-moving consumer goods companies’ sourcing plans to the recently launched production linked incentive (PLI) system for food processing.
The three farm laws have the potential, according to the Confederation of Indian Industries (CII), to “allow improved price discovery for farmers while creating a national market for agriculture” in the country.
The measures will result in “a reduction in wastage, an increase in investment in extension services to improve productivity and returns, as well as the creation of on-farm post-harvest infrastructure,” according to Suresh Narayanan, Chairman, CII National Committee on Food Processing and Chairman & Managing Director, Nestle India. The reform process will also benefit the food processing sector, with more potential to strengthen and scale micro-food processing businesses, which are an important part of the agriculture sector.
According to sources, major food and beverage companies such as Nestle India, PepsiCo, Coca-Cola, Hindustan Unilever, ITC, Marico, and Britannia were ready with their own blueprints to take advantage of the law’s benefits of procuring directly from farmers.
According to F&B industry veteran Piruz Khambatta, Chairman and Managing Director of Rasna, expanded sourcing opportunities will help reengineer the entire supply chain into a more efficient and connected system by bringing primary processing closer to the production clusters. Khambatta has previously stated that the three rules will help farmers increase their revenue in the shortest time feasible.
According to the CII, the introduction of the three farm rules last year resulted in a lot of traction from industry in terms of farm gate procurement. Collection centres have been established in areas such as Karnataka and Maharashtra. “Companies are also looking at scaling and expanding their sourcing via FPOs (Food Products Orders),” according to the CII.
Another major industry advocacy group in India, the Federation of Indian Chambers of Commerce and Industry (FICCI), praised the farm rules as “much-awaited improvements for the food processing sector.”
The changes, according to its president, Uday Shankar, would have increased productivity, earnings, and employment, which would necessitate new capital, technology, and the formation of new markets in order to minimise volatility and increase transparency.
With the three laws expected to be abolished, the industry’s hopes of doubling income within a decade are in jeopardy. According to projections, the food processing sector would have doubled in size from its current level of USD 34 billion (Rs. 5.25 lakh crores) to USD 70 billion (Rs. 5.25 lakh crores) (Rs. 2.6 lakh crores).
Furthermore, the newly implemented PLI scheme for the food processing sector, which intends to increase farmers’ income, minimise agri-waste, and expand India’s packaged food and beverage manufacturing base and exports, could be impacted.In India, less than ten percent of agricultural goods are processed, compared to forty percent in Southeast Asian countries. The government authorised the Rs. 10,500 crores PLI programme last month to encourage prominent FMCG companies to invest in the country’s food processing industry.