Why Food Park Approach in India needs serious relook?

Why Food Park Approach in India needs serious relook?

Lately, have you heard anything about Agri-export Zones, Food Parks, Special Economic Zones and something similar in newspapers. What happened to them? Why they all vanished? This must be studied.

Now you hear Mega Food Parks, but nothing about food parks for which Rs. 4 crores were given from public taxes. Now, Mega Food Parks are in discussion with Rs. 50 Crores subsdiy fro tax payers money. Will they exist? Time will tell. Keep close watch on developments. 

Concern is now in open:
In order to make mega food parks a success, now government is forcing all new investments in Food processing must come in mega food parks in case promoter want subsidy from MFPI.  in my view, this is a wrong approach this will hurt effciency of Indian food industry and imports will increase. This condition clearly shows that investors are not keen to go to food parks for various reasons. What is more important survival of badly located mega food parks from new investors point of view or effcient food industry? All mega food parks can't be ideal for every thing and why investor move to a mega food park where he is not comfortable and he can operate better outside mega food park. After all he has to survive in market place. Such restriction defy free market logic. 

No doubt food wastage must stop, farmers must get good price, but without fundamental policy reforms and without improving farm productivity and extension services can we do this? Are we trying to put cart in front of the horse? This I will discuss some other time, today let us focus on Rs. 50 Crore incentive for Mega Food Parks and their future.

Food business is a game of logistics management, not just investment like real estate, which many think. There are claims that many are operational, one must study the objective given in the project reports and what actually is happening, to derive confidence. Industry feedback is not very encouraging, except where these funds are used for captive purpose only as industrial complex by one group. This was not the purpose of these food parks. Purpose was to support large number of SMEs to come and set-up their base in Food Parks. Is this happening? If yes, where, study the logic and if not, why not, study this logic as well?

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 situations behind these concepts so that we can learn from past mistakes while we are planning to move ahead.

Disclaimer: Views express are purely personal and 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, I was heading Confederation of Indian Food Trade and Industries. 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.

How all this started?

There was social unrest in Goa over Thaper-Dupont Nylon 6-6 project, that was the first civil unrest of industrial pollution in India. Unfortunately, due to police firing there were some casualties as well. There was 133 acre land which was acquired for the project and unfinished office building. After the unrest and protest from people not to creating polluting industry in Goa, it was decided to create eco-friendly industries.

Sh. Rakesh Mehta ji, IAS then forward looking Industry Commission of Goa and later retired as Chief Secretary, Delhi always wanted only eco-friendly industries in Goa. One afternoon he landed in my office and asked how I can help Goa state. Undersigned was asked to think about utilisation of land acquired by Goa Government for Thapar-Dupont project considering ecological sensitivity and local area development. I proposed that without site visit it is difficult to say anything. I was invited to visit the site and had meeting with various stakeholders.

After many rounds of detailed discussions, site visits and meeting with local stake holders, there was presentation to Chief Minister and Leader of Opposition at Panjim, Goa and my approach & proposal was very much appreciated by all. This is what Goa needs. In fact, this was quoted in Portugal newspapers as well.

I was asked to submit the detailed report to MFPI. It was done while negotiation was going on between Goa and MFPI, there were elections and change in leadership and Mr. Mehta came to Delhi on his transfer. We all know what happens when leadership changes.

What was the basis of Goa Food Park?

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

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

Idea was these parks should become centre 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.

The idea of Food Parks became very attractive and then Secretary and Joint Secretaries decided to support this concept for other states in India. At that time it was decided to push this concept for every state to promote agro-processing industries. All started with good motive but when it took political colour every thing became messy.

Food Parks were promoted as central government scheme and Rs. 4 crore per Food Park was allocated.

In fact this is for the first time there was something which MFPI can offer to states as financial support. I was told by ministry official’s that Food Parks became like parting gift from Minister MFPI to MPs. “Take one”. You may not believe me, isn’t it.

What you should do:

Under RTI ask for all the reports. Investigate when all the Food Parks were announced. Identify when project reports were submitted and who all drafted the reports and moreover, read those reports. The cost of production of the product from the factory is same in most of the reports irrespective of the location. It means location has no significance in factories location and businesses. In many project reports, there are recommendations for products where there is no raw materials at all. I am surprised why CAG never looked at these Food Parks and what happened to the funds given by MFPI.

In the entire process, I was told that there was demand for my Goa Project Report by many leading consultants. But, 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

When MFPI brought subsidy angle to Food Parks it lost the logic of business.

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.. The sole attraction was Rs. 40 Million from MFPI.

Therefore 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.

Why Food Parks were not taking off?

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

Undersigned was asked to make the presentation to MFPI based on my assessment. I designed the presentation after reading about 30 project reports, titled, “Why Food Parks will not take off?” After the presentation I was told, what is the way forward. The answer was the approach adopted by states is wrong, so please stop this scheme.

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. There was no one in MFPI to point of these glaring blunders because of obvious reasons, not even CAG looked at it.

In fact there was no minister for MFPI for a long time and it was managed by PMO. Later late Sh. Mr. Pramod Mahajan ji was given additional charge. After reviewing the MFPI functioning, he recommended, it should be merged with Minister of agriculture as Department of Food Processing. In fact, it was done for some time and Government merged MFPI with Ministry of Agriculture as department.

After the election, Congress lead UPA Government came to power and they decided to keep it separate Ministry because it was legacy of Rajiv Gandhi. New Minister took charge and Food Parks again became the “political gift” to states and MPs of various consistencies.

Meanwhile, failures of existing Food Park was becoming serious issues in Planning Commission, Commerce Ministry and Finance Ministry. The justification given was funding is less than required. 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 in the name Mega Food Parks. This was again a classic blunder by planners with lack of understanding of issues in food businesses with the support of consultants with no practical experience of running food businesses mainly bankers and retired officers. If you take out all the files you will get names of all the people involved.

Planning Commission and Finance Ministry was always apprehensive about success of Food parks because the way they were allocated to various “bidders.” To minimise 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 minimise the leakages, but it was too late.

To minimise 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 wise disbursement with the involvement of state government. In order to move away from allegations of favouritism and corruption, it was decided let the states decide and MFPI will release the funds to states. The screening process was made tough. but, Highest Subsidy Scheme of MFPI Mega Food Park remained with MFPI for obvious reasons. Who all got these funding, please do the background check of these projects many things will come out.

One blunder after another followed:

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 innovative 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 favour from Minister.

When this scheme was conceived, as always, purpose was serious players should come but due to several reasons and SPV criteria 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, keen on investing in food sector, when I asked him he can consider this Mega Food Park for his diversification into food business, he said NO. He said, "I don't want to answer every 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."

What went wrong?

The reason was simple and logical. Lack of business logic and benchmarking for the projects. The way food park schemes are designed, 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 organisations are not a development agency, they are hard core commercial organisations. Have you ever seen this concept anywhere that private sectors are making SPVs to run businesses?

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.

Who can make Food Parks success?

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?

Another success model can be by big retailers for captive use only, they will create SPV by pooling friends and vendors.

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 and what is the status? What happened to the funds given?

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 promoters got from MFPI and what is the status of the food parks at the site? Seek photographs of the site and search on Google maps.

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.

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. Study the location of food parks and identify what can be done there. Don’t push every project in food parks, this can be counter productive.

2. Can proposed food parks reduce the operating cost (not just fixed cost by giving subsidy)? Please develop benchmarking for all projects based on operating cost. Let entrepreneurs do their own calculations. They will realise the facts.

3.Can food parks become globally competitive and better than existing units in India? If not, who will buy their produce? IF these units cannot compete, they will become sick soon.

4. If project reports do not address any of the following in comparison to the benchmarks, that report should be rejected.

a) Minimise Transaction Costs compare to existing projects

b) Outsourcing of common utilities and infrastructure

c) Focus on Substantial Value Addition

d) Efficient By-product utilization means no wastage concept

e) Promote Innovation in product development

f)  Ensure Global Competitiveness in all aspects

g) Quality Assurance and benchmarking

h) Skill development arrangement with a good institution

i)  Location on National or State highway

j)  Near water body

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 concrete parks for people where they can’t even walk and play.

Big Question:

No sensible and honest businessman will chase government subsidy funding if he is not sure of the profits after investments. Please study and see how many reputed food companies have applied for these funding and in which sector and in which location. If they have not done why they are shying away from government support?

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 and NITI Aayog are willing to go back to the drawing board and willing to learn from past mistakes, I can’t see the future. CAG can help them in identifying the mistakes in planning.

New scheme is giving lot of money, but what will happen to it, we all will observe how it is allocated and to whom. 

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 planning leads to failure.

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

Time to stop "Old Wine in New Bottle" concepts.  Think new and sensible schemes in national interest otherwise all those gave approval for food parks, they don’t exist in system now. Who will be accountable? Time to think.

I am sure various journalists will also study food parks in their area and report factual position. It will be good learning for all of us.