Food clusters: A viable option for industry development

Shivani Mody

The development of food clusters is now gaining momentum in the country. As a viable route, these have the ability to boost the growth of Indian food processing industry and increase its export potential. But challenges are abound when it comes to successful development of food clusters. Here are some interesting views from various industry experts.

Dr Arpita Mukherjee

Professor, Indian Council for Research on International Economic Relations (ICRIER)

In the Indian context, the performance of food clusters has been varied across the country. The central government has given a thrust to the development of food clusters, but still these clusters have not taken off as expected. One of the reasons for this situation can be the selection of location and the concerned state government’s policies and incentive schemes. Considering the emerging opportunities, several companies and small and medium enterprises moved in to cluster development. However, some attained success, while others are still struggling for survival. For instance, in Pune, the horticulture cluster has performed well, while in some places the potato cluster has no takers.

Before developing a particular cluster, one needs to conduct a comprehensive study to understand what will actually work in the field. The development of the ecosystem, logistics system, the right choice of crops et al are other important aspects to be considered. The food clusters will boost the growth of the agro-processing industry.

The main benefit of food clusters is access to land for development. In India, logistics and transportation costs are high and the location of the food cluster in majority of the cases does not factor in this issue. The country also lacks proper cold chain facilities, which is a must for successful development of food clusters.

The modernisation of food clusters will go a long way in the growth of food processing industry. The Goods and Services Tax (GST) that is set to be implemented in the near future will not include agricultural goods movement, and this might prevent the faster growth of food clusters. The SMEs in these clusters are faced with the problems of high operating costs and lack of advanced technology.

Several countries including Canada and Italy have implemented the concept of food clusters and reaped enormous benefits. Similarly, Thailand has developed a horticulture park, which has contributed greatly to the growth of the food processing industry there. But to ensure that this concept becomes successful in India, this sector needs to evaluate the pros & cons, besides creating customer awareness about it. There is a need to identify the specific areas where it can be developed and integrate it with the ecosystem.

Dr Arun Singh
Senior Economist, Dun & Bradstreet India

In spite of the rich and diverse resource base in the country for the development of food processing clusters, there is a lack of adequate infrastructural facilities in the supply chain such as cold storage and transportation facilities, packaging and grading centres and adequate quality control and testing infrastructure. Besides, inadequate power supply poses a major impediment to the operations of the small industries within the clusters. Hence, necessary investments on infrastructure are required from central and state governments for the successful development of the food clusters.

As mentioned earlier, India has a wide-ranging raw material base for the food processing industry and most of the production of agricultural commodities takes place in the rural areas. As the agricultural commodities are perishable, most food processing firms are situated in close proximity to the source of raw materials, which in turn has led to the creation of many natural food clusters in India. Thus, development of food clusters becomes an important channel for the Indian food processing industry to grow successfully. However, this calls for requirements like well-developed core infrastructure such as rural roads, farm connectivity with the market, cold chain and storage facilities and uninterrupted power supply.

A cluster development strategy for the food industry would be effective in addressing problem areas, especially related to the infrastructure development. In this regard, public-private partnerships can help in creating the required integrated supply chain infrastructure, garnering necessary institutional finances and providing access to technology for the firms operating in the food clusters.

Dr K G Karmakar
Managing Director, National Bank for Agriculture and Rural Development (Nabard)

Food clusters have a great potential to ensure remunerative prices to farmers, value addition to farm produce, food habit transformation of urban/rural population and employment creation in secondary and tertiary sectors. India accounts for the production of 15 percent of fruits and 11 percent of vegetables in the world. Yet, the country processes only 1.3 percent of its fruits and vegetables as against 80 percent in the US, 70 percent in France and 30 percent in Thailand.

A review of the supply chain management issues in the country reveals a retail mark-up of 350 percent of fruits and vegetables. The major constraints faced by this sector include highly decentralised production (average holding size much below the world averages); absence of primary aggregation, collection and grading centres; and lack of quality warehousing facilities and cold storages. Besides, the absence of a quality certification system and highly government-controlled agri-markets add to the problems.

A large share of the food processing industry is also in the unorganised sector, without having any advantage of economies of scale of operations, or any access to modern technology. Organised retailing is confined to a few urban centres only. Although many agencies are engaged in developing industrial clusters, those actually setting up food processing clusters are just handful.

The development of food processing clusters can be successful only if the following conditions are met:

·         The small producers to be organised into groups like self-help groups (SHGs), producer co-operatives, etc.

·         Necessary infrastructure for storage and processing facilities to be provided near the farm gate.

·         Marketing of agri-commodities should be totally deregulated.
High levels of taxation (VAT/excise duty) for processed food to be abolished for 10 years.

·         High quality standards to be set for processed food and quality marking systems to be made available in all food processing clusters.

·         Providing training to farmers on proper handling & storage of agri-commodities and processing of raw farm products.

·         Domestic markets for processed food to be expanded with suitable fiscal/monetary concessions.

·         Private sector investments (internal/external) need to be encouraged to develop this sector

·         As most food processing units are in the micro, small and medium enterprises (MSME) sector, steps are needed to enhance credit flow to food processing sector with preferential treatment.

Uday N Borwake
Member, Maharashtra Economic Development Council

Food cluster aids various stakeholders to come under one umbrella. This is important to enable a synergy for creating a seamless food value chain in a country characterised with agricultural diversity. Farmers will be a major beneficiary, thereby facilitating rural development, which is the need of the hour.

Food clusters can offer multiple support as vendors in the form of the much needed pre-processing facilitators to the large food processing industrial units. Individual product clusters like bakery clusters, chikki clusters etc. can also be developed.

The clusters can also get access to manpower and create localised training centres with help from Central Food Technology Research Institute (CFTRI), Defence Food Research Laboratory (DFRL) and Food Craft Institutes, alongwith technology inputs. Although the concept of food cluster is relatively new, it has slowly started growing due to the government support. Many food cluster programmes have been launched recently in various states.

 According to a Nabard study five years back, India had 21 million tonne of food processing capacity–but only 9 million tonne were processed, which led to a deficit of produce in the food processing sector. This imbalance could have been avoided, if these food processing units were integrated with farmer groups for seamless supplies from the fields in the relevant production zones of agri and horticultural produce then.

Considering the challenges faced in developing food clusters, the investment challenges are addressed through various government schemes. But the major challenge is creation of techno-commercial manpower. In rural India, there is a need to create awareness regarding the various technologies available to access information and decide a fair price for farm produce.

The missing link that needs to be addressed is establishment of post-harvest facilitation centres in the villages. This will result in reduced wastage of the harvest. Also, there is a need to develop cold storage facilities for increasing the shelf-life of the perishable farm produce. As a result, the exporters will be able to access fresh, unadulterated agri and horticultural produce from the village post-harvest facilitation centres. It is said that India can become the ‘food basket of the world’, and hence, the food clusters in India are poised for growth.

Vinay Oswal
Director, National Agriculture and Food Analysis and Research Institute (Nafari)

The food industry is growing rapidly, and this in turn, is supporting the cluster formation. For providing support to the food industry, Nafari was established by Nabard and Small Industries Development Bank of India (Sidbi) to look at business opportunities, competitiveness of the industry and provide analytical services. As a non-profit organisation, since last two years, we have been contributing immensely to the cluster development activity by Sidbi in Pune to develop the fruits and vegetables cluster. In the Pune cluster, Nafari has been providing services related to product development, analysis and market research.

Despite the advantages of cluster development, we see many challenges and the industry has a long way to go. One major problem is the mindset of those involved in the domestic food industry. Many companies work on a low-cost approach and spend minimally on technology aspects and research. The industry needs to play a more active role and take advantage of the services. For instance, the companies need to understand the certification and legal requirements for different countries for which institutions such as Nafari can guide them.

The food industry is currently facing challenges pertaining to food safety and meeting international quality standards, which need to be resolved. Food clusters based on a well-developed ecosystem has the capability to boost the growth of the food processing industry. The clusters can help in product development, analysis with regard to product failure and corrective actions, along with a variety of consultancy services. A food cluster approach is desirable for growth of exports and it can help in tapping the global opportunities as well. But for this approach to show results, we need to have a better financial strategy and infrastructure support.