Why mega food parks are failing to attract corporate interest
Promoters have faced difficulties in selling the new concept to banks and, as a result, have failed to secure loans to build the parks.
- Jun 24, 2015,
- Updated Jun 25, 2015 12:46 PM IST
Rajesh Mehta has seen his business grow fourfold in the past two years since he started operating the 3,000-sq-ft snacks manufacturing unit at Patanjali Food and Herbal Park in Haridwar. This, in spite of the fact that he is paying five times the rental, from Rs 5,000 for a 800-sq-ft unit, to a whopping Rs 24,000 for the present facility. "The food park has been great for my business and it certainly gives us an edge. Earlier, we could only produce 400 kg of moong dal mixture a day. Now, we produce two tonnes per day. There is uninterrupted water and electricity supply, storage facilities and 24x7 security. All this has made a difference," says Mehta, the owner of Raghuraj Udyog, one of the seven external food processing units at the food park run by Patanjali.
Mehta has been adding new products to his snacks portfolio to expand his business. "Now I get the feeling of being a big player and not a small one anymore." Out of the two tonnes of snacks Mehta produces, one tonne is procured by Patanjali Ayurved and marketed under its brand. He sells the rest in the open market.
Out of the 42 parks allocated in the first four phases, work has started only on 25. The Centre cancelled allocations of 17 projects, including the much-talked about Shaktiman Mega Food Park at Jagdishpur, in Uttar Pradesh's Amethi district. Interes-tingly, the inter-ministerial approval committee meeting held on February 11, 2014, under the UPA regime, had granted an extension to the project till March 31, 2014, failing which the approval stood cancelled without any further notice. However, the final announcement of the cancellation came during the NDA regime when the inter-ministerial committee met on June 30, 2014, as Shaktiman failed to meet the conditions in spite of many extensions.
In March 2015, fresh allocations were made for the 17 MFPs by the Ministry. While 10 private players, including Adani Ports and Special Economic Zone, Jain Agro Trading Company, and Ruchi Acroni Industries, were allocated rights to develop MFPs, the rest were allocated to state government agencies such as Andhra Pradesh Infrastructure Corporation, Haryana State Industrial and Infrastructure Deve-lopment Corporation and Kerala State Industrial Development Corporation, among others.
The government's move to allocate MFPs to state-run public sector companies is also being questioned by industry observers. They argue that most of the 56 food parks, commissioned along the lines of the initial scheme for food parks during the 8th to 10th Plan Periods to state industrial development agencies, fell far short of expectations. According to industry insiders, the ministry had commissioned external agencies, such as Entrepreneurship Develop-ment Institute of India (EDII), Ahme-dabad, and Consulting Engineers, to evaluate the inherent flaws in the scheme and its implementation. The reports submitted to the ministry said the food park projects were conceptualised in the traditional industrial estate mode with no forward and backward linkages and, therefore, resulted in valuable real estate being acquired but utilised at low levels of efficiency. The reports said there were delays in providing basic infrastructure facilities, such as power, water and road, and the state-run PSUs did not have capabilities to implement the projects due to poor management.
In fact, based on extensive consultations with stakeholders, the earlier food park scheme was done away with to come up with the MFPS during the 11th Five Year Plan. Since state-developed food parks were non performers, it was decided to bring in private players. Most experts feel that since land acquisition and change in land use are central to setting up of mega food parks, state government agencies have been given approvals because they have the requisite land bank. However, insiders feel to run food parks successfully, vision and management will be more important in the long run, and state-run PSUs may be wanting on that front.
Industry observers say private players, who have enough resources to hold on to a project for a longer period of time before it breaks even and starts making profits, could be the answer to bring about the much-needed growth of the sector. However, big players are weighing their options. Says Sanjiv Puri, President, FMCG Business, ITC: "We looked at the scheme and evaluated it. The MFPS envisages multiple manufacturers with shared facilities and, hence, it is suited for small and medium enterprises, as the combined investment required is Rs 100 crore. Large investments, such as the ones we are considering, should also be given an MFP status. This will encourage more investment in food processing and would in turn bring in greater efficiency as well as reduction of wastage in the agriculture segment."
Even as the existing mega food parks are trying to figure out the right business model, many players are showing interest in the scheme. Says Girish Aivalli, Managing Director and CEO, Rural Agri Ventures: "The scheme has a large-scale appeal and is probably the most important government scheme for the food processing industry. We shall surely apply for an MFP licence next time, when the government invites expression of interest."
The Keventer Group, in the meanwhile, has been able to acquire 55 acres of land through direct purchase from land owners, and is waiting to go ahead with its plan to set up the food park in Bhagalpur. However, the company will have to wait for a nod from the ministry as it is in the MoFPI's waiting list.
The idea of shared infrastructure to boost the food processing sector may appear sound, but questions around the economic viability of these projects and a host of preconditions set by the government, seemed to have raised doubts in the minds of entrepreneurs, big and small. Unless these issues are looked into, the scheme for mega food parks may not realise its full potential.
(WITH INPUTS FROM CHITRA NARAYANAN)
Rajesh Mehta has seen his business grow fourfold in the past two years since he started operating the 3,000-sq-ft snacks manufacturing unit at Patanjali Food and Herbal Park in Haridwar. This, in spite of the fact that he is paying five times the rental, from Rs 5,000 for a 800-sq-ft unit, to a whopping Rs 24,000 for the present facility. "The food park has been great for my business and it certainly gives us an edge. Earlier, we could only produce 400 kg of moong dal mixture a day. Now, we produce two tonnes per day. There is uninterrupted water and electricity supply, storage facilities and 24x7 security. All this has made a difference," says Mehta, the owner of Raghuraj Udyog, one of the seven external food processing units at the food park run by Patanjali.
Mehta has been adding new products to his snacks portfolio to expand his business. "Now I get the feeling of being a big player and not a small one anymore." Out of the two tonnes of snacks Mehta produces, one tonne is procured by Patanjali Ayurved and marketed under its brand. He sells the rest in the open market.
Out of the 42 parks allocated in the first four phases, work has started only on 25. The Centre cancelled allocations of 17 projects, including the much-talked about Shaktiman Mega Food Park at Jagdishpur, in Uttar Pradesh's Amethi district. Interes-tingly, the inter-ministerial approval committee meeting held on February 11, 2014, under the UPA regime, had granted an extension to the project till March 31, 2014, failing which the approval stood cancelled without any further notice. However, the final announcement of the cancellation came during the NDA regime when the inter-ministerial committee met on June 30, 2014, as Shaktiman failed to meet the conditions in spite of many extensions.
In March 2015, fresh allocations were made for the 17 MFPs by the Ministry. While 10 private players, including Adani Ports and Special Economic Zone, Jain Agro Trading Company, and Ruchi Acroni Industries, were allocated rights to develop MFPs, the rest were allocated to state government agencies such as Andhra Pradesh Infrastructure Corporation, Haryana State Industrial and Infrastructure Deve-lopment Corporation and Kerala State Industrial Development Corporation, among others.
The government's move to allocate MFPs to state-run public sector companies is also being questioned by industry observers. They argue that most of the 56 food parks, commissioned along the lines of the initial scheme for food parks during the 8th to 10th Plan Periods to state industrial development agencies, fell far short of expectations. According to industry insiders, the ministry had commissioned external agencies, such as Entrepreneurship Develop-ment Institute of India (EDII), Ahme-dabad, and Consulting Engineers, to evaluate the inherent flaws in the scheme and its implementation. The reports submitted to the ministry said the food park projects were conceptualised in the traditional industrial estate mode with no forward and backward linkages and, therefore, resulted in valuable real estate being acquired but utilised at low levels of efficiency. The reports said there were delays in providing basic infrastructure facilities, such as power, water and road, and the state-run PSUs did not have capabilities to implement the projects due to poor management.
In fact, based on extensive consultations with stakeholders, the earlier food park scheme was done away with to come up with the MFPS during the 11th Five Year Plan. Since state-developed food parks were non performers, it was decided to bring in private players. Most experts feel that since land acquisition and change in land use are central to setting up of mega food parks, state government agencies have been given approvals because they have the requisite land bank. However, insiders feel to run food parks successfully, vision and management will be more important in the long run, and state-run PSUs may be wanting on that front.
Industry observers say private players, who have enough resources to hold on to a project for a longer period of time before it breaks even and starts making profits, could be the answer to bring about the much-needed growth of the sector. However, big players are weighing their options. Says Sanjiv Puri, President, FMCG Business, ITC: "We looked at the scheme and evaluated it. The MFPS envisages multiple manufacturers with shared facilities and, hence, it is suited for small and medium enterprises, as the combined investment required is Rs 100 crore. Large investments, such as the ones we are considering, should also be given an MFP status. This will encourage more investment in food processing and would in turn bring in greater efficiency as well as reduction of wastage in the agriculture segment."
Even as the existing mega food parks are trying to figure out the right business model, many players are showing interest in the scheme. Says Girish Aivalli, Managing Director and CEO, Rural Agri Ventures: "The scheme has a large-scale appeal and is probably the most important government scheme for the food processing industry. We shall surely apply for an MFP licence next time, when the government invites expression of interest."
The Keventer Group, in the meanwhile, has been able to acquire 55 acres of land through direct purchase from land owners, and is waiting to go ahead with its plan to set up the food park in Bhagalpur. However, the company will have to wait for a nod from the ministry as it is in the MoFPI's waiting list.
The idea of shared infrastructure to boost the food processing sector may appear sound, but questions around the economic viability of these projects and a host of preconditions set by the government, seemed to have raised doubts in the minds of entrepreneurs, big and small. Unless these issues are looked into, the scheme for mega food parks may not realise its full potential.
(WITH INPUTS FROM CHITRA NARAYANAN)