Overview of the XI th Plan Schemes relating to Processing of F & V:

There are two general schemes implemented by the Ministry of Food Processing Industries for infrastructure development of food processing industries as given below which includes F & V processing. In addition there is a scheme of Mini Mission-

IV under Horticulture Mission for NR and hilly areas Technology which applies

exclusively for F & V processing. Similarly, scheme of cold chain targets providing backward linkage for F & V processing. Salient features of these schemes are discussed below-

a. Scheme for Technology Up-gradation/Setting up/Modernization/Expansion of Food Processing Industries for small and medium food processing units- Under the scheme for Technology Up-gradation / Setting up / Modernization/Expansion of Food Processing Industries, grant assistance to the tune of 25% of the cost of plant & machinery and technical civil works subject to a maximum of Rs.50 lakhs in general areas and 33% up to Rs.75 lakh in difficult areas (Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Sikkim, North- Eastern States, Andaman & Nicobar Islands, Lakshadweep and Integrated Tribal Development Project (ITDP) areas) is provided. Only new Plant & Machinery shall be eligible. Technical civil works include civil works for functional purposes and shall exclude boundary wall, office buildings, guest house, canteen and roads. As a very limited data pertaining to this scheme implementation during 11th Plan Period, in the form of year wise allocation has been available, it has not been possible to get idea about releases and expenditure for projects relating to F & V Sectors. The Working Group was generally informed that during the first four years of 11th Plan Period financial assistance of Rs. 94.11 Crore has been extended to over 300 F & V processing units.

Table 8.1

Allocation for the Scheme during 11th Plan Period Year Budgetary Allocation (Rs Crores) Remarks

2007-08 119.30 15% of allocation is reserved for oilseeds products, rice milling, flour milling and pulse processing units

2008-09 96.87

2009-10 82.49

2010-11 105.67

2011-12 98.00

ii. Though the scheme deals with “Technology Up-gradation/Setting up/ Modernization /Expansion of Food Processing Industries”, no bench-marking of existing technology level has been done. Similarly, the technology level proposed to be introduced / brought about is also not enunciated from time to time, leaving the industry at the mercy of consultants. It is also noticed that a modern fruit & vegetable processing units may require various components such as pre-cooling / IQF, aseptic packing / tetra packing; deep freezing / blast freezing etc in addition to sorting & grading line, cutter, pulper etc. depending on business plan. Accordingly, the minimum viable size of project would vary for F & V to be processed and other aspect of business details. For effective implementation of the existing scheme, it would have been handy to work out minimum viable size of processing unit in terms of TPH for say, two shifts of working of processing unit for about 240 working days in a year. This would work as a ready-reckoner for investors. In absence of any such study, it is felt that the assistance available under the scheme is not adequate to promote capital investment in setting up of a modern fruit & vegetable processing unit with facility to store raw materials and semi finished and finished products.

b. Scheme for Mega Food Parks- The scheme envisages a onetime capital grant of

50% of the project cost (excluding land cost) subject to a maximum of Rs. 50 crores in general areas and 75% of the project cost (excluding land cost) subject to a ceiling of Rs. 50 crores in difficult and hilly areas i.e. North East Region including Sikkim, J&K, Himachal Pradesh, Uttarakhand and ITDP notified areas of the States. The scheme aims to facilitate the establishment of a strong food processing industry backed by an efficient supply chain, which would include collection centres, primary processing centers and cold chain infrastructure. The food processing units, under the scheme, would be located at a Central Processing Centre (CPC) with need based common infrastructure required for processing, packaging, environmental protection systems, quality control labs, trade facilitation centres, etc.

The Working Group has examined the reasons for poor off-take of this scheme too. On structural side, firstly the success of the scheme depends on right selection

of project site and accordingly making investment decision. It is felt that a credit linked, back-ended subsidy scheme would have been a better model compared to the present one. In addition, the success of the scheme depends on scheme “Technology Up-gradation/Setting up/ Modernization /Expansion of Food Processing Industries” which has not been suitably modified on above mentioned lines in order to meet the investors’ needs. Thirdly, the concept of the scheme puts existing clusters of processing units at a disadvantaged position.

c. Scheme of Mini Mission IV under Horticulture Mission for NR and hilly areas- Under this scheme, financial assistance @ 50% of fixed capital up to Rs. Two crores is extended as subsidy for F & V processing units. Subsidy is routed through SFAC and MoFPI. The working group has noted that assistance at higher scale under the component of MM IV under HMNEHA compared to that available under the Scheme of “Technology Up-gradation/Setting up/Modernization/Expansion of Food Processing Industries” makes the later redundant and superfluous in hilly and NE regions. There is, therefore, a need for convergence of the two schemes.

d. Scheme for Cold Chain, Value addition and Preservation Infrastructure

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The Integrated Cold Chain infrastructure scheme of 11th Plan consolidates the Scheme for Integrated Cold Chain, Value added Centers, Packaging Center and irradiation Facilities of the Tenth Five Year Plan, based on extensive feedback and consultations with stakeholders. The present proposal is to revise the scale and quantum of financial assistance besides inducting flexibility to cover components like pre-cooling, mobile cooling, reefer vans etc. to cover the whole range of food items including horticulture crops. The objective of the scheme is to provide integrated and complete cold chain and preservation infrastructure facilities without any break, from the farm gate to the consumer. Pre-cooling facilities at production sites, reefer vans, and mobile cooling units also need to be assisted under the Integrated Cold Chain projects. Integrated cold chain and preservation infrastructure can be set up by individuals or groups of entrepreneurs with business interest in cold chain solutions and also by those who manage supply chain. They will enable linking groups of producers to the processors and market through well equipped supply chain and cold chain. Financial assistance (grant-in-aid) of 50% the total cost of plant and machinery and technical civil works in General areas and 75% for NE region and difficult areas (North East including Sikkim and J&K, Himachal Pradesh and Uttarakhand) subject to a maximum of Rs 10 Crore. The Working Group is of the view that Projects sanctioned under scheme for Cold Chain, Value addition and Preservation Infrastructure, more often than not, have no organic linkage with processing of perishable F & V and it generally ends up in providing ordinary cold chain and fruit ripening solutions for consumption of fresh F & V.; therefore, it may be restructured during XIIth Plan period.

8.3 Issues To be Addressed During 12th Plan Period

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In spite of various incentives offered

to the industry by the Central and State govt. agencies, the growth of fruits and vegetables processing industry in the country has been sluggish because of several

seasons. Some of the issues affecting the development of fruit and vegetable processing sector in the country are outlined below:

a. Issues relating to supply chain / availability of F & V as raw material:-

APMC Act: Some of the key areas of concern regarding the APMC act are; Market

Sector Reforms, Abolition of APMC Act, Permitting Contract Farming and transactions outside the regulated mandis, Private Sector Investment in Marketing Infrastructures, Setting Up of Modern Markets like Safal’s Wholesale Market in Bangaluru, Safal Exchange for F & V, Modern Flower Auction Houses in Metros etc have not been able to provide a viable solution to sourcing of quality raw materials for processing, especially for fresh F & V.

iii. Other Operational Issues Affecting Processing of F &V-

iv. Contract farming for processing varieties and volatility of market of processed item- issues of aggregation and traceability of a number of processing varieties of F & V can be resolved by adoption of contract farming. But, it is also noted that the processors too are not always keen to enter into contract production due to high volatility of market of processed product. For example- case of white onion.

v. Working capital for storage of raw material- In a number of cases, the raw material supply is seasonal and is required to be procured in a short time frame. Working capital requirement in such cases is quite high, which is generally not available at a reasonable cost of capital.

vi. Credit Market and Sales Return- Market of process food items is, by and large, a credit market on sales return basis. Even the institutional buyers like five star hotels, air lines etc do purchase these items on credit. Due to demand constraints the manufacturers do not get dealers for sole dealership and one dealer stocks products of more than one manufacturer which ultimately results into sales return for a number of manufacturers. This puts additional financial burden of working capital on manufacturers of processed food items.

vii. Cost of transaction and advertisement- it is noteworthy that transaction cost in case of

processed food items is too high and in several instances 40% to 50% of MRP goes in commission to be paid to distributor- dealer network leaving very thin margin for the manufacturer. In addition, small and medium players find it difficult due to tough competition with multinational companies whose advertisement budget is many times larger than turnover of domestic companies.

viii. Other Policy Issues Influencing Fruits & Vegetable Processing-

ix. PVR and import of processing varieties- There are a number of open pollinated processing varieties of fruits & vegetables such as in potato which can be sourced

from other Countries. However, in absence of PVR related regulation in place in our Country in respect of F & V, breeders are not keen to share the seeds and planting materials with us.

1. Quality Control and Consumer’s Confidence in Processed Food- Consumer

confidence about quality of processed food items is must for increased consumption of these items. On one hand, quality control in respect of processed food through government machinery falls short in winning consumers’ confidence, on the other the industry association has also not taken concrete measure in this regard in terms of self certification as has happened in case of European retail chain outlets for fresh horticulture produce Eurep GAP.

C. Recommendations for 12th Plan Period

Suggested Interventions for Fruits and Vegetables and Consumer Industries

There is a need to prepare a multi-pronged strategy to address all the concerns and challenges identified in the previous section and the following interventions are suggested:

a. Cataloguing of process-able F & V and validated processing technologies- A number of F & V processing projects are not viable ab initio but shown to be viable based on unrealistic presumptions. For example- a project based on processing of such F & V as raw materials which may not be available for processing in estimated quantity due to price premium for table purpose use except during periods of over-production or; a project based on such F & V which may not be process worthy or for processing of which appropriate technology is not within the reach of the entrepreneur. Therefore, rather than promoting investment on projects relating to processing of entire range of F & V produced in a particular area, focus fruits and vegetables with potential for processing, marketable surplus available, and consumer demand in the domestic as well as export markets should be identified. Thus, there is a need that catalogues of F & V which are process-worthy and which is generally available at economically viable price range for processing. Such list of F & V may be termed as “Focus Crops for Processing during 12th Plan Period. Similarly, cataloguing of validated processing technologies may prove to be handy for the entrepreneurs and the same may be named as “Validated

Technologies”.

b. Bench-marking of Technology level- It will go handy if the present level of technology

adopted by processing units for F & V is bench-marked and targeted technology level for 12th plan may also be enunciated. This will help in assisting the right kind of projects.

d. Estimation of economically viable minimum size of processing units and cost norms – Based on several factors like scale of operations, fixed and variable cost and minimum size of plant and machineries available a basic minimum size of

economically viable project of processing of F & V may be determined. The dimensioning of minimum viable size of processing units may vary based on packaging system such as canning & bottling or tetra-packing or storage of semi- finished products such as frozen storage for semi finished products or storage in aseptic packing; it may also be influenced by sizes of various components of P & M required to be set up in integration.

e. Identification of new processing varieties- this may enhance performance of

processing units and the same be notified for introduction in production system or imports. For example introduction of grape varieties for wine making, potato variety with higher dry matter and low starch for French-fries etc, fig and apricot with higher TSS etc may be required to be introduced.

f. Site Selection and other critical business decisions- Site selection and other critical business decisions need to be left to the judgment of investor. However, in order to secure stakes for entrepreneur, schemes relating to fixed capital investment subsidies need to be made credit linked and should be strictly operated as back-ended subsidy without any advance subsidy. Term loan component from FIs with minimum 20% above eligible project cost may be made mandatory and a suitable locking in period may be as per project appraisal may be enforced.

g. Redesigning the Scheme of Technology Up-gradation / Setting up / Modernization / Expansion of Food Processing Industries- In view of above, the scheme in respect

of F & V and consumer industries needs to be redesigned taking into account the following-

i. Technology level for processing and P & M

ii. Infrastructure needs at back-end for PHM, transport, integrated cold chain and raw material storage

iii. Minimum and optimum size of economically viable processing unit taking into account various factor involved

iv. Storage requirement of semi-finished and finished products v. Packaging type

vi. Capital investment required for in-house transport arrangement for raw materials and or finished products, if any.

Accordingly, the cost norm for scheme for processing of F & V needs to be modified and upward revision up to Rs. five crores and may be allowed along with technical specifications and cost norms for various sub components. Similarly, the existing scheme of MM-IV under HM-NEH may be discontinued. Scale of

admissible capital investment subsidy in NE and HA may be enhanced to 50% of project cost and in rest of the areas the same may continue to be 40% of project cost to bring it at par with the assistance available under schemes relating to

primary processing implemented by Horticulture Division of DAC.

h. Restructuring of Scheme of Cold Chain- Present scheme of Cold Chain with subsidy @ 50% of eligible project cost with upper ceiling of Rs. 10 crores may be modified and cold chain required for handling and storage of raw material for processing, treatments like irradiation if recommended, aseptic or frozen storage with IQF or blast freezing for storage of raw materials or finished / semi finished products as per requirement of processing units and setting up of tetra-packing facility may be covered when set up for captive use or as common facility for existing F & V processing units with organic linkage with them.

In document Working Group Report (Page 120-127)