Why mega food parks are failing to attract corporate interest
Sarika Malhotra June 24, 2015
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.
Mehta is one of the very few who have benefited from a grand central government scheme to promote small and medium and enterprises (SMEs) in the food processing and farm products sectors, by providing them with state-of-the-art infrastructure along the value chain - from the farm to the market. The Mega Food Parks Scheme (MFPS) launched by the Ministry of Food Processing Industries was developed under the 11th Five Year Plan and was implemented in 2008 by the then UPA government. Since its inception, 42 mega parks were given in-principle approvals. However, only five projects have started operations, including the North East Mega Food Park in Assam, India Food Park in Tumkur, Karnataka, International Mega Food Park in Fazilka, Punjab, Srini Food Park in Chittoor, Andhra Pradesh, and Patanjali Food and Herbal Park in Uttarakhand.
"Practically no work has started for 50 per cent of the projects. I had one-on-one discussions with 40 mega park owners and officers, and there seems to be certain inherent flaws which had not been looked into," says Union Minister of Food Processing Harsimrat Kaur Badal. In fact, even MFPs that are operational have not yet received the final instalment of Rs 5 crore. So, technically, none of the projects have so far been completed.
Under MFPS, the government had announced a maximum grant of Rs 50 crore (excluding land cost) to food park developers to help them set up a cluster-based facility that would include collection centres, primary processing centres and basic infrastructure such as cold chains, packaging, quality control labs, bottling units and pulping lines. The money would be sanctioned in four instalments. "It seemed that most developers were interested in the Rs 50 crore grant and in getting the change in land use from agricultural to industrial and wait for land prices to appreciate. They never seemed to have the intention to put up an MFP," says Badal. The ministry identified 17 such developers and cancelled their approvals. "We are now allotting projects to people who seem to have the intention to build these parks," she adds.
The government's plan was to have 30-35 food processing units in each park with a collective investment of Rs 250 crore, which would eventually lead to an annual turnover of Rs 450 crore to Rs 500 crore and provide direct and indirect employment to around 30,000 people. The revenue model was also simple: The external units would pay a rental to the MFP in addition to the charges for using the common infrastructure at the central processing centres. "There have been delays, but my goal is to create the infrastructure within the given time frame. The food processing sector can bring in a lot of investment and once we create the infrastructure, it will be a huge step in the direction of Make in India," says Badal.
Despite its huge potential, MFPS has failed to gain momentum due to several reasons. One, promoters have faced difficulties in selling the new concept to banks and, as a result, have failed to secure loans to build the parks. Two, acquiring the 50 acres of land, which is mandatory under MFPS, has been another challenge that most developers have failed to address. Three, convincing small enterprises to set up shop at these facilities has not been easy. And four, the overall economic slowdown, globally, and in India, did not help either.According to Raveendra Nalluri, Executive Director, Srini Food Park, land was never a problem because they bought it from Andhra Pradesh Industrial Infrastructure Corporation (APIIC), a state government agency, but funding the project was a big ask. "It was a constant struggle to convince banks about food parks, because it was a new business model. They were not flexible and charged high interest rates that are usually associated with infrastructure projects. We started with 12.5 per cent; it went up to 16 per cent and, currently, we are paying 14 per cent. Usually, food processing units are offered loans at 9 per cent," he says.
Srini is spread across 142 acres. But only eight small enterprises have set up shop in the park so far, occupying just 22 acres. Clearly, attracting entrepreneurs and companies has not been easy. Says Nalluri: "They had apprehensions about relocating in food parks. Some felt that a lease agreement would impact their freedom of operations. Some wanted the developed land cheap and did not consider the cost of infrastructure. Also, they did not have any specific incentive for relocating in MFPs."
Nalluri says that MNCs, who were interested in starting operations in the food park, wanted very large tracts of land and Srini lost out to Sri City SEZ. According to sources, Pepsico was one such company that was looking for a 50-acre plot in the MFP, but finally settled for the SEZ. Srini had started leasing at Rs 17 lakh per acre for a 99-year lease in 2010. Cur-rently, the lease amount has gone up from Rs 35 lakh to Rs 50 lakh.
Patanjali also experienced a similar problem with only seven of the 22 units operating in the Haridwar food park being external establishments. The MFP is spread over 83 acres and employs 7,000 people directly and indirectly. However, most of the seven units supply products and services to Patanjali, be it the packaging unit of corrugation box, PET packaging unit for jars and bottles, or the breakfast food unit.
Experts says the government must increase the Rs 50 lakh grant to Rs 2 crore for small enterprises to encourage entrepreneurs to set up food processing units in MFPs. With manufacturing at a low, such incentives will go a long way to boost the food processing industry and populate these parks faster.
Alarmed by the slow pace of external units moving to MFPs, the ministry in its revised guidelines of 2014 has made it mandatory for food parks to submit documentary proof of allotment of at least 25 per cent of the area for the release of the third instalment of 20 per cent grant. "This was done because once promoters had put up the core infrastructure, some of them did not seem interested in sub leasing to other units and, instead, use it as a real estate proposition," says Badal. However, experts feel that linking the grant to leases will be an impediment for smooth completion of projects. Also, some observers feel that by bringing in such clauses the government is trying to insulate and completely derisk itself.Says Sukhinder Singh, promoter of International Mega Food Park in Punjab: "How can any small or medium entrepreneur commit that he will set up a facility in a food park when it is still under construction? Only when it is ready can the entrepreneur weigh the pros and cons, check the park and facilities it offers, and only then decide to move in. Such models will only force the promoters to become real estate agents." Singh says that he is in talks with six food processors for lease agreements and gets 2-3 enquiries every month. "We are constantly in talks with units. However, there is no guarantee that they will seal the deals."
Promoters are, however, devising their own plans to get things moving. Praveen Dwivedi, CEO, India Food Park, says the park's promoter company, Future Consumer Enterprise (a Future Group company), has set up various operations to process products at the MFP. Says Balkrishna: "Food parks should not just be a facilitator of infrastructure. They should also be involved in production and marketing. A small entrepreneur will find it difficult to sell the product on his own, but the presence of an anchor brand will give impetus to the food processing industry and encourage smaller players to move into these parks."
Some are also trying to generate revenues by offering the existing facilities to third-party units to gain traction. For instance, Srini Food Park has tied up with Mother Dairy, and a couple of other exporters, who use the facilities at the MFP and pay on the basis of volumes. Srini charges Rs 6.50 per kg of finished product for pulping, Rs 0.50 per kg of products stored at the cold storage facility per month, Rs 2 per kg per month for freezer rooms, and Rs 1.75 per 200 ml of Tetrapak.
Experts say the biggest issue in implementing the scheme has been the availability of land and the long-drawn process to change its use from agriculture to industrial land. Some states have also strict land ceiling and sub leasing laws, which makes the role of the state government critical for the project to get started. A food park promoter can either acquire industrial land from the state, or approach the state government to acquire land on its behalf, or buy land directly from land owners.
For example, India Food Park promoted by the Future Group suffered a delay of 18 months on land acquisition issues. After the project received an in-principle sanction in March 2011, it had to seek extensions to meet the September 2014 deadline. In fact, the promoters were fortunate that a special high level cabinet committee, chaired by Karnataka Chief Minister Siddara-maiah, gave a single window clearance to allot land to India Food Park through the Karnataka Industrial Areas Development Board (KIADB). Even then, there were issues that the Future Group had to deal with. "Against the allotment we made the full payment in March 2011, but approximately 84 acres of land was handed over to us in March 2012. Considering the land allotted to us was undeveloped, all possible clearances, including environmental and electricity, had to be secured by us. Usually, in an industrial area these approvals are the responsibility of the developer (KIADB in this case). Since no application can be made for any clearance without possession of the land in favour of a special purpose vehicle (SPV), we could start this process only in April 2012," says Dwivedi. Finally, the SPV had to seek an extension of another six months after the mega park was inaugurated in September 2014 to formally complete the 110-acre project with an investment of Rs 200 crore.
"If the intent of the promoter is right and land is acquired within the timelines, the project can easily take off," adds Dwivedi. However, in most cases land acquisition remains the biggest hurdle. For instance, the Rs 1,150 crore, Kolkata-based Keven-ter Group, which is primarily into agro and food processing, got the final approval from MoFPI in Novem-ber 2011 for the Keventer Food Park in Bhagalpur, Bihar, but could not ensure the 50 acres of contiguous land for the food park within the time. Subsequently, its in-principle approval was cancelled in June 2014.
Mayank Jalan, Managing Direc-tor, Keventer Agro, says the ministry was more than fair in cancelling their approval. However, he believes that Bhagalpur was a bad experience for the group because the state government did nothing to facilitate the project. "We had bought 50 acres of land from the Bihar government by making full payment for the land within seven days. When we wanted to start work we could not get possession of the land due to protests. There was no willingness on the part of the state government to see the project through," says Jalan.
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)