Stock limits on food processors lifted; ‘contract farming’ legal

Many food processors and other investors in the allied sectors may now be prompted to enter contract farming, as the government has virtually given legal backing to such ventures.

Players in the food processing value chain got a shot in the arm as the government on Friday allowed them to keep stocks sans any limits subject to their capacities  and export orders. It also unveiled a clutch of schemes aimed at boosting the infrastructure facilities and logistics chains across the value chain from farm-gate to retailing and exports.

With the proposed easing of inter-state trade in farm goods, food processors, aggregators and retailers can now buy directly from the farmers without being hamstrung by the intransigent APMCs and cut costs as they won’t have to pay the assorted mandi taxes and arhatiyas’ commissions.

Many food processors and other investors in the allied sectors may now be prompted to enter contract farming, as the government has virtually given legal backing to such ventures.

Government-assisted investments to promote food clusters, processing development assistance at farm-gate and supporting FPOs for post-harvest infrastructure will all help reduce wastage and improve the overall productivity of the food supply chains, industry participants said. The move will be of particular benefit to the horticulture sector, consisting of fruits and vegetables.

“Amendments to the EC Act, reforms in agricultural marketing and risk mitigation through predictable prices will empower farmers, strengthen agri-food processing linkages and enable demand-driven value added agriculture. The reforms will encourage investments in food processing and together with the infrastructure outlays will contribute in shaping a competitive agri value chain, reduce wastages and raise farmer incomes,” ITC chairman Sanjiv Puri said.

According to Sagar Kurade, former president of All India Food Processors’ Association, considering the seasonality of agriculture produce, the food processors will now be able to stock the adequate quantity required for processing without fear of breaching stock-holding limits. “Unlike Europe or Australia, most of the processing units in India have lower capacities in agri and horticulture produce and they would not like to block working capital by stocking more than their actual requirement,” he said.

Having scaled a peak of almost $43 billion in FY14, India’s farm exports, including that of processed items, have remained under pressure in recent years and stood at $38.5 billion in FY19, according to data compiled by the agriXchange portal of APEDA. In the April-January period of FY20, such exports witnessed an 8% slide to almost $29 billion, far exceeding the contraction on overall merchandise exports. The fall in exports will only accentuate in this fiscal due to the Covid-19 outbreak.

Yogesh Thorat, MD, Maharashtra Federation of Food Producer Companies (MahaFPC), said: “The steps taken by the finance minister will help food processing units address the issue of inventory. Earlier inventory was stocked by the units as per needs. These units may enter the warehousing space as well. Earlier players in warehousing were different and now there could be more players in this space.”

Until now, onion, tomato and potato were the three top commodities and most traders focused on these. However the transport subsidy for other vegetables will be a boost to the processing sector. “We look forward to an announcement regarding reduction in tax on consumption and GST rate that will in-turn drive consumption. Also, we hope that input tax credit is restored as this will help ensure the success of the finance minister’s initiative in streamlining and supporting the development of infrastructure in the food supply chain,” Elior India CEO & MD Sanjay Kumar said.

AgriBazaar co-founder & CEO Amith Agarwal said: “The focus on aggregation points will help young Indian start-ups, private players and agri-preneurs to build digital and agri-tech driven platforms and solutions so that the small farmer can sell his produce with minimum hassle and maximum profits. Alongside farmgate infrastructure, which will be the hardware, aggregators will provide the software to drive efficiency both in terms of price and wastage losses.”

P Chandrashekhara Reddy, V-P, sales & marketing, Gemini Edibles & Fats India, said, “We source all our raw materials from foreign countries. For many years, imported oils are exempted from essential commodities stock limits. However, for industries dependent on domestic edible oils, this is a good move, it liberates our industry from essential commodities licence and stock limits. Companies would be able to keep adequate stocks as per the market demand. Consumers, industry and farmers should benefit with this legislation change.”