Farm laws scrapped: India’s food processing sector may get hit badly

The abrupt change in the government’s stance on the three controversial farm laws may have far-reaching implications for the country’s food processing sector that involves leading fast moving consumer goods (FMCG) majors and a market larger than Rs 2.6 lakh crore.

With the farm laws are now set to get revoked, a slew of aspects directly related to the packaged food and beverages industry is now under scanner. From the sourcing plans of fast moving consumer goods majors to recently introduced production linked incentive (PLI) scheme on food processing, the latest development has forced industry stakeholders back on the drawing board.

As per industry association Confederation of Indian Industries (CII), the three farm laws had the potential to “enable better price discovery for farmers while creating a National Market for agriculture” in the country. 

Suresh Narayanan, Chairman, CII National Committee on Food Processing and Chairman & Managing Director, Nestle India had earlier said that the measures will lead to “reduction in wastage, increase in investment in extension services to improve productivity and returns as well as creation of on farm post-harvest infrastructure. The reform process will also give a boost to food processing sector with enhanced opportunities for strengthening and scaling micro food processing enterprises, an integral part of the agriculture sector.”

According to sources, leading F&B players like Nestle India, PepsiCo, Coca-Cola, Hindustan Unilever, ITC, Marico and Britannia, among others, were ready with their own blue prints to leverage the benefits in sourcing directly from the farmers under the law. 

According F&B industry veteran Piruz Khambatta, Chairman and Managing Director, Rasna, with enhanced sourcing opportunities, primary processing opportunities will be created closer to the production clusters, thus, helping reengineering the entire supply chain into a more efficient and integrated system. “This will also help in doubling the farmers income in the shortest possible manner,” Khambatta had said earlier about the three laws.

As per CII’s estimates, implementation of the three farms laws last year had created a lot of traction from industry in procurement from farm gate. In states like Karnataka and Maharashtra, collection centres were formed. “Companies are also evaluating scaling and expanding sourcing from FPOs (Food Products Orders)”, CII had said.

Federation of Indian Chamber of Commerce and Industry (FICCI), another major industry advocacy body in the country, had lauded the farm laws as “much-awaited reforms for the food processing sector”. According to its president, Uday Shankar, the reforms would have raised productivity, incomes and generated employment, which in turn requires fresh capital, technology and creating of new markets so as to reduce volatility and bring in more transparency.

However, with the three laws now set to be repealed, the industry’s hope of doubling its revenue within the decade is under threat. As per estimates, the food processing sector would have doubled to US$ 70 billion (Rs 5.25 lakh crore) from the current levels of US$ 34 billion (Rs 2.6 lakh crore).

Further, the newly introduced PLI scheme for the food processing sector that aimed to grow farmers’ income, reduce agri-waste, expand India’s packaged F&B manufacturing base and exports, may get impacted too. 

Currently, less than 10 per cent of agri-commodities grown in India is processed compared to 40 per cent in South East Asian countries. To boost the extent of food processing in the country, the government last month had approved the Rs 10,500 crore PLI scheme, welcoming leading FMCG players to invest in the sector.