Food Parks in India - How Good Idea but Poor Policy Conceptualisation leads to failure?

"Food Park in India"
How Good Idea but Poor Policy Conceptualization leads to Failure?

Greetings from Washington DC. 

Just getting ready to reach Atlantic Council for the meeting on investments and financing Agribusinesses in Africa.

I came to know that there will be discussions on Food Parks and how to make them better. I thought let me share few factual situation behind these concepts so that we can learn from past mistakes while we are planning to move ahead.

Disclaimer: Views express are purely personal based on first-hand experience on food parks in India and its history..

Background of Food Parks in India

It all started somewhere in 1997-98. Soon after IIM, Ahmedabad, when I was heading CIFTI, undersigned had privilege to design First Food Park in India for Goa in 1998-99 and also concept note for Food Park in Rai for HSIDC just before CII Agrotech in Chandigarh around 2003 for HSIDC (I don’t remember the exact year). This concept was published and distributed in CII Agrotech and full page article also appeared in Tribune, Chandigarh edition on the day of inauguration of CII Agrotech, on the proposed Rai Food Park.

Goa Food Park was conceived after Thapar-Dupont JV failed due to protests by local population on environmental reasons. Sh. Rakesh Mehta, then Industry Commission Goa and later retired as Chief Secretary, Delhi always wanted only eco-friendly industries in Goa. Undersigned was asked to think about utilization of land acquired by Goa Government for Thapar-Dupont project considering ecological sensitivity and local area development. 

After many rounds of detailed discussions, site visits and meeting with local stake holders, the report was submitted to MFPI and Government of Goa few months before elections in the states in the year 1998-99. In fact there was presentation to CM and Leader of Opposition in Goa at Panjim and both appreciated the concept and suggested we must do it for the local economic development. This is what Goa needs. 

The main pillars on which Goa Food Park was conceived were:

• Minimize Transaction Costs, 
• Focus on Value Addition
• Efficient By-product utilization
• Promote Innovation 
• Ensure Global Competitiveness
• Quality Assurance
• Skill development 

Idea was these parks should become center of excellence for food industries and entrepreneurs those who are not able to establish their bases here, can take benefit of services of these food parks.

Unfortunately, even after best efforts of Sh. Rakesh Mehta ji, after the election there as political instability and project could not take off due to change of government and administrative structures in the state.  

The idea of Food Parks became very attractive and then Secretary MFPI, Mr. Ashok Parthasarthy and Joint secretaries Sh. Devdas Chottray and Mrs. Vibha Puri Das decided to support this concept for India. At that time it was decided to push this concept for every state to promote agro-processing industries. 

MFPI was having budget of about INR 600 million for the whole year,  less than any department in any ministry. That is why no politician wanted to become Minister for Food Processing Industries. There was also demand from Minister to seek more budget allocation for MFPI. In order get more budget and  to give push to this concept, Minister for MFPI brought in the subsidy angle to it and then onwards the whole concept was considered as Subsidy package for State in the name of Food parks. None of the state understood the logic behind food parks and all of them treated food parks as either real estate business or any other industrial park and started allocating land to build infrastructure from the money given to them by central government, without understand the business and significance of location in food processing businesses. The sole attraction was Rs. 40 Million from MFPI. 

This is why I always says, "Subsidies to Industries masks professionalism". Sooner we stop the better it will be for nation Building. Subsidies prevent weeding out of the inefficiencies from system. 

How subsidies are allocated, how criteria were framed and how subsidy cuts were shared is another story.

When money for 72 Food Parks was allocated, after two years there was review meeting. I was called to know what is the reason for failure of food parks.

Undersigned made the presentations to MFPI titled, “Why Food Parks will not take off?” I will try to dig out that presentation and will place on Blog.

In fact, in one of the exhibition UP Government also announced 5 food parks in UP state. Literature and brochures were circulated. The most shocking thing was, irrespective of location cost of production was same for the product. Example Mango Pulp, etc.  The documents were saying, it does not matter what you produce where, the cost of production will remain same. Is this possible. Please take out all project reports submitted to MFPI for sanction of grants to state governments and see the facts with your own eyes. 

In case of Sikkim, the largest fruit growing in the state was missing from project report. In another report, data of Karnataka was used to design food park in the state of Sikkim.

During this time, MFPI was without Minister. Mr. Pramod Mahajan was given additional charge. There were elections and Mr. Pramod Mahajan was given additional Charge for MFPI by then PM Mr. Vajpaee and due to political reasons Late Mr. Mahajan was busy in election related activities and nothing moved forward at MFPI. In fact he recommended to Government to merge this MFPI with Ministry of Agriculture as department.

After the election, Congress Government came to power and new Minister took charge and Food Parks became the “political gift” to states and MPs of various consistencies. This ministry was initiated by Rajeev Gandhi ji, congress government extended support to this ministry but failure of existing Food Park was becoming serious issues in Planning Commission, Commerce Ministry and Finance Ministry.

In order to cover the failures it was decided to raise the support and justification was that Rs. 4 crore is less in today’s context we should increase to Rs. 10 crores but this was not enough to justify the role of MFPI and it was later raised to Rs. 50 Crores. 

Planning Commission and Finance Ministry was always apprehensive about success of Food parks because the way they were allocated to various “bidders.” To minimize he losses and to put pressure on MFPI to ensure success, the cap on allocation was placed and whole subsidy delivery regime was restructured to minimize the leakages. 

In order to minimize the political pressure on MFPI officers it was made, from front ended subsidy it was made back ended, banks were 
involved and it was divided into stage was disbursement with the involvement of state government.  In order to move away from allegations of favoritism and corruption, it was decided let the states decide and MFPI will release the funds. The screening process was made tough. but, Highest Subsidy Scheme of MFPI Mega Food Park remained with MFPI for obvious reasons.

During this time the minimum required of land and SPV was introduced. Unfortunately, the food processing cluster or food parks or mega food parks are views as real estate project both by central and state government departments.

During my interactions will officials, I mentioned that this approach will never work. Policy makers were open to new ideas and they understood the logic and started losing interest in promoting Food Parks unless new approach is adopted.  

But it was popular project for Minister’s Office because this was the only thing which Minister for Food Processing can offer to visiting Chief Minister of the State or friendly industrial house in case they wanted any favor from Minister.

When this scheme was conceived, as always, purpose was serious players should come but due to various reasons no professional management or food MNC or large food company came forward. 

In fact, in one-on-one meeting with Chairman of USD 10 billion infrastructure company when I asked him he can consider this Mega Food Park for his diversification into food business, he said NO. He aid, "I don't want to answer every stupid query about my business operations to junior government officers. The time and efforts involved in dealing with government departments and chasing them all the time for approvals is too much cost for us, we will prefer to invest our own money, in place of seeking subsidies."

The reason was simple and logical. The way food park schemes are designed in such a way that they don’t bring any benefit to large players. Small players don’t have capacity to manage these infrastructures.

Concept of SPV doesn’t work in food business world, because food business organizations are not a development agency, they are hard core commercial organizations. Have you ever seen this concept anywhere that private sectors are making SPVs to run businesses?

In order to justify the success of the scheme and to seek more funds in the next budget, these food parks were allocated to certain groups. None of them had any background in food businesses to handle this type of scheme. Except Baba Ramdev's Patanjali Trust, who invested through his donations to create Herbal and Food park. For Baba Ramdev, there was no cost of capital because donations and subsides don't attract interest cost, but what about other private investors?

It will be useful to take out the details of the people those who got food parks and answer the following questions:

1. Who all got the food parks and in which year?
2. What is the background and existing businesses of the people those who got subsidies under food park scheme and mega food parks schemes?
3. Who all were the consultants and what was their area of “expertise”? Pl. also see their technical qualifications.
4. How much money food parks promotors got from MFPI and what is the status of the food parks at the site.
5. Should MFPI issue recovery order for the money given in the name of Food Parks which never came up? In fact, one senior official in Finance Ministry said if CAG will start auditing these projects there will be another headline news.
6. In fact, all those who got Mega Food Parks subsidies were viewed as “people with good connect.”

Learning from Past:

It is important to appreciate that subsidies given for any project very often mask the true market logic and role of market forces.

Most of the food parks and mega food parks were created without any market logic of business.

The biggest driver was huge subsidy from the MFPI. Many people started look at these subsides are free money and in place to executing the project, how this money should be divided between various “stakeholders” because the talk of the town.

Food Parks were and good concepts but how to kill a good concept due to various political and administrative compulsions, Food parks and Mega Food Parks are classic examples.

The biggest learning is “Wrong approach to influence the market forces and will continue to be wrong approach forever”, no amount of political and financial support can make wrong things right in market place.

The Way Forward:

The focus of any food cluster should be based on basics of Food Business.

1. Can food parks reduce the operating cost (not just fixed cost by giving subsidy)?
2. Can food parks become center of excellence for commercial innovations.
3. Can food parks become globally competitive?

If the policy interventions can’t ensure positive answer to these questions, any amount of money given to so called “Food Park or Mega Food Parks” will end up becoming parks for people to walk and play.

No sensible and honest businessman is willing to spend time and money to make any government scheme a success, unless it is not adding to his or her business growth.

As of today and under present scheme, according to business calculations, these schemes will add to “liabilities”.

Food Industry has huge and very bright future in India. Unless MFPI is willing to go back to the drawing board and willing to learn from past mistakes, I can’t see the future.

Sorry to be direct and harsh but in national interest, I am willing to accept criticism from my friends and well-wishers.

Let India prosper, all will be happy one day, few of us may not exist till then. So what…

Lesson: Good Concept, poor understand of operating issues and bad execution leads to failure.

Answer: We need business leadership to can deliver with least dependency on Subsidies, political agenda and administrative bottlenecks.  

Time to stop "Old Wine in New Bottle" concepts and schemes. Think afresh.

Have a great time. 

DO write your comments below..