COMMENTARY
The Food Industry in India
and Its Logic
Rahul Goswami
In 2010, the links between the
financial markets and agricultural
trade flows have become both
stronger and more visible. This
has happened through (a) the
growth of agricultural commodity
markets, and (b) the expansion
in size and reach of powerful
transnational and national
food conglomerates, which are
investing heavily in deep
forward and backward
integration of the crop, food
trade, storage, processing and
retail businesses. These are the
conditions that India faces, and
which provide the background
to steady inflation in our staple
food baskets.
Rahul Goswami (makanaka@pobox.com) is an
agriculture systems researcher based in Goa.
Economic & Political Weekly  EPW   october 9, 2010  vol xlv no 41
T
he number of derivative contracts
in commodities were estimated to
have increased more than fivefold
between 2002 and mid-2008, and in the
aftermath of the 2008 price spikes it came
to be known that speculators had domi-
nated long positions (in which the holder
owns the contract, and therefore profits
from its price rising) in food commodities.
At the time the United Nations Confer-
ence on Trade and Development (Unctad)
concluded in a study: “Part of the commo­
dity price boom between 2002 and
mid-2008, as well as the subsequent decline
in commodity prices, were due to the
f­inancialisation of commodity markets”
(Unctad 2009: 72). Unctad’s view was
that financial investors accelerated and
a­mplified price movements driven by
funda­mental supply and demand factors.
These price movements turned into a set of
opportunities in India for a fast-growing
i­ndustry (food production, processing
and distribution) which is quickly gaining
c­entral and state governmental support.
For 2010-11, therefore, the commodities-­
plus-financial speculation activity which is
blamed for the 2007-08 food price spike is
now part of a worryingly larger a­rmoury
being deployed by the global food mer-
chants and their powerful regional opera-
tors. India's relatively low rate of food
p­rocessing, its low index of food logistics
i­nfrastructure and its apparently suitable
economic growth rate have combined to
provide financial and commodities specu-
lators real test beds in which to play out
scenarios of consolidation and dominance.
A government which supplies the regula-
tions pipeline with enough business-
friendly legislation is the underwriting
partner. The picture that emerges from this
pattern is one that is vast in i­ndustrial scale
and scope, and in which India's smallhold-
er farmer is further r­educed to a negligible
factor or to a disenfranchised migrant.
On multiple fronts, the union govern-
ment is proceeding to forge new compacts
with the private sector food industry,
whether global, regional or national.
There is a new set of investors whose
claims in the emerging food industry are
being staked, and which are being encour-
aged by state governments eager to dis-
play their foreign direct investment (FDI)-
friendliness. These are investors, promot-
ers, asset management professionals who
have learnt the patterns of the 2007-08
commodities (food included) boom and
who are now well equipped to take posi-
tions, both financial and real, in the
emerging food industry. An indication of
the size and scale of the national market
for food (production, collection, process-
ing, distribution, retail) being envisaged
can be gauged from a “discussion paper”
circulated by the Department of Industrial
Policy and Promotion (DIPP) in July 2010.
The paper, “Foreign Direct Investment
(FDI) in Multi-brand Retail Trading”, has
been circulated to “generate informed dis-
cussion on the subject” which will “enable
the Government to take an appropriate
policy decision at the appropriate time”.
As this article shows, these decisions have
already been taken and investment in the
direction revealed by the paper has been
r­olling out for months.
Supported by the Ministry of Agri­
culture, the top echelons of India's
national agricultural research system
and dedicated agricultural trade and
­investment b­odies, the union govern-
ment has tackled the a­rguments against
FDI in retail by des­cribing the “limita-
tions” of current conditions in the Indian
retail sector:
(1) That there has been a lack of invest-
ment in the logistics of the retail chain,
leading to “an inefficient market mecha-
nism”. The point is made that India is the
second largest producer of fruit and vege-
tables in the world (about 180 million
tonnes or mt) but has “very limited inte-
grated cold-chain infrastructure” with
only 5,386 stand-alone cold storages
which together have a capacity of 23.6 mt.
It points out that post-harvest losses of
farm produce – especially fruits, vegeta-
bles and other perishables – have been
e­stimated to be over Rs 1,00,000 crore per
annum, 57% of which is due to “avoidable
wastage and the rest due to avoidable
costs of storage and commissions”.
15
COMMENTARY

(2) That “intermediaries dominate the value
chain”, often flouting mandi norms and
their pricing lacks transparency. According
to the union government, wholesale regu-
lated markets governed by state Agricul-
tural Produce Marketing Committee (APMC)
Acts “have developed a m­ono­polistic and
non-transparent character”. Indian farmers
are said to realise only one-third of the total
price paid by the f­inal consumer, as against
two-thirds by farmers in nations with a higher
share of organised retail.
(3) That “there is a big question mark on
the efficacy of the public procurement and
PDS set-up and the bill on food subsidies is
rising”. The DIPP has said that despite
heavy subsidies, “overall food-based infla-
tion has been a matter of great concern”. It
blames the “absence of a ‘farm-to-fork’
r­etail supply system” as being responsible
for forcing consumers to “pay a premium
for shortages and a charge for wastage”.
From 2009, the Ministry of Agriculture’s
approach to its subject has shifted percepti-
bly – from its stated protection of the inter-
ests of the farming household and the rural
and urban consumer – towards the food
­industry. Employing the reasons listed
above, all of which contain some ref­
lection of actual conditions, the massive
apparatus of the ministry and its
a­ppurtenant ­research system is now
usher­ing in private participation and con-
trol of areas that were hitherto in the pub-
lic d­omain. When read with the rapid
movement of finance between the money
markets and the commodity markets,
with the extension of ­infrastructure and
Pawar said that the ministry recognises
the role of the private sector in critical
a­reas of agricultural research and human
resource development. The conventional
approach of public sector agricultural R&D
has been to take responsibility for priority
setting, resource mobilisation, research,
development and dissemination. He then
explained that agricultural extension,
which has been neglected for several years
now, is “no longer appropriate”. It is here
that the impact of the Indo-US Agricultural
Knowledge Initiative, now in its fifth year,
can be recognised. The alternative, Pawar
advised, is public-private partnerships
through which public sector institutes
(such as those in the ICAR network) can
“leverage valuable private resources, ex-
pertise, or marketing networks that they
otherwise lack”. This is the undisguised
merchant reasoning behind the creation
of “Business Planning and Development
units” in five ICAR institutes (Indian Agri-
cultural Research Institute, Indian Veteri-
nary Research Institute, Central Institute
for Research on Cotton Technology,
N­ational Institute of Research on Jute and
Allied Fibre Technology, Central Institute
of Fisheries Technology). These units will
tackle intellectual property management,
commercialisation of research, find inves-
tors and begin businesses. India’s national
agricultural research system, therefore,
Director of OPM’s India Office
has decided to now become a broker of its
own output (publicly funded) and a
­speculator seeking profits from the coun-
try's agricultural and food price crises.
Modern Terminal Markets
To better judge the extent of activity in the
food processing sector and its linkages
with consumer retail and regional trade,
this is an indicative but in no way ex­
haustive list of current and recently com-
pleted projects:
(1) The Government of Rajasthan is devel-
oping a “Modern Terminal Market” (MTM)
in Jaipur, it has also conducted an assess-
ment of infrastructure of existing APMCs
to plan their “modernisation”; (2) the Gov-
ernment of Orissa has selected a raft of
companies to build and operate the MTM
in Sambalpur, it has also planned MTMs in
Cuttack and Berhampur; (3) the Govern-
ment of Gujarat is building a “modern”
fruit and vegetable market (MTM) in S­urat,
it has also framed guidelines for the build-
ing and operation of an “integrated agro-
food park on PPP basis”; (4) the Govern-
ment of Punjab is selecting companies to
build and operate an MTM; (5) the Gov-
ernment of Maharashtra is selecting com-
panies to build and operate an MTM for
Greater Mumbai; (6) Chandigarh is select-
ing companies to build and operate an
MTM; (7) the Government of Andhra
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Policy
Management

property conglomerates into the pro-

cessed food “value chain” ­domain, and
with new alliances between agricultural
research institutes and market entrepre-
neurs, the outlook for India's small and
marginal farming households is bleak.
The concentration of funds, food han-
dling and transport systems and growing
corporate control from farm to fork can
clearly be seen in an address by the Union
Agriculture Minister, Sharad Pawar, at the
Indian Council of Agricultural Research
(ICAR) – Industry Meet on 28-29 July 2010.
The meet focused on four theme areas:
seed and planting material; diagnostics,
vaccines and biotechnological products;
farm implements and machinery; and post-
harvest engineering and value addition.
16
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october 9, 2010  vol xlv no 41  EPW   Economic & Political Weekly

Pradesh is assessing the infrastructure
of existing APMCs, also to plan their
­“modernisation”; (8) the Government of
West Bengal has prepared an “Agricultural
Marketing Vision 2011” document; (9) the
Government of Uttaranchal is studying
the development of floriculture “on PPP
basis”; (10) the Ministry of Agriculture
has developed a “framework for selection
of private enterprises for setting up of
MTMs”, it is also with the World Bank stud-
ying the “role of centre and state systems
in agriculture” under the National Agri-
culture Innovation Programme (NAIP);
(11) the National Institute of Agricultural
Marketing has developed an “optimal op-
erational and ownership model of MTMs”;
(12) the Agricultural and Processed Food
Products Export Development Authority
(APEDA) has “streamlined existing proce-
dures and documentation for agricultural
produce exports”, it is also pursuing the
“fast track development of agricultural
e­xport zones (AEZs) through PPP (public
private partnership) in India”; (13) the
IFFCO-Greenport joint venture is building
an “integrated agro food park” in Nellore,
Andhra Pradesh; and more.
If the Ministry of Agriculture has its
way, rural India will be a patchwork not of
villages and hamlets but of “intelligent
agrologistic networks combining consoli-
dation centres, agroparks (agroproduction
and processing park) and rural transfor-
mation centres”, which is how the MTMs
and their typical built-up footprints have
been described by one enthusiastic bank.
The techno-industrial idiom cannot con-
ceal the union government's intention to
encourage a dangerous new dimension to
urbanisation, by provisioning infrastruc-
ture to support an internal trade in agricul-
tural products, and doing so by a­llocating a
greater share of scarce funds to support
favoured business and trading constitu-
ents rather than to the rural constituents
who need it most, the smallholder farmer
and local agro-ecosystems. Supported by
the vast and powerful machinery of the
Ministry of Agriculture, emboldened by
the global trading successes of commodity
cartels which learned their tactics in the
Multi Commodity Exchange of India
(Mumbai), the National Commodity and
Derivatives Exchange (Mumbai), and the
National Multi Commodity Exchange of
Economic & Political Weekly  EPW   october 9, 2010  vol xlv no 41
India (Ahmedabad), the new entrepre-
neurs in India’s agribusiness s­ector are
promoting MTMs as potentially attracting
“leading foreign retail chains to anchor
and plan their supply chain at and through
the agrofood parks” and exploiting the
MTMs’ “township model approach to at-
tract Indian MNCs and foreign food pro-
cessing companies”.
Such a typical “modern terminal
m­arket” is the one designed for Sam-
balpur, Orissa, which was estimated to
cost Rs 80 crore in October 2008, with a
handling c­apacity of 1.03 million tonnes a
year. The 110-acre market is to feature an
auction centre, wholesale section for per-
ishables (fruit and vegetables), one for
non-perishables (cereals) which includes a
warehouse, food processing units, weigh-
ing f­acilities, a cleaning sorting and grad-
ing centre, and a cold storage. The project
assumes a first year income of Rs 10.04
crore and gross profit of Rs 5.48 crore
(Rs 12.93 crore and Rs 6.86 crore in the
third year; Rs 26.15 crore and Rs 17.39
crore in the fifth year). A terminal market
of this size is said by the promoters to
need 20 collection centres in the “catch-
ment area” – Sambalpur and 10 surround-
ing blocks of Orissa – ranging from 40 to
290 km away. The model for such a termi-
nal market has been bluntly described as
requiring the formation of a shell company
to obtain the statutory approvals from the
state government to set up the market and
collection centres after the private pro-
moter is selected; the shell company then
outsourcing the operations and mainte-
nance of all activities and utilities to a sin-
gle firm or a cluster of companies. There is
no mention of the inhabitants of the
“catchment area” having any role to play
in the MTM other than contributing to the
throughput of the collection centres.
Why and how has such an approach
been allowed to take root? India’s food
processing sector was growing at about 6%
four years ago and is now expanding at
nearly 15% annually, according to the Min-
istry of Food Processing Industries. Union
Minister Subodh Kant Sahay has repeated
a packaged set of figures at various fora in
India and abroad in order to broadcast the
potential: the country processes about 10%
of the total food produced and by 2015 this
portion is expected to rise to 20% and to
COMMENTARY
bring about this difference in processed
food percentage will require an investment
of Rs 1,00,000 crore. Fortuitously for this
ministry, an Eleventh Plan working group
has estimated that agricultural infrastruc-
ture to support retail d­evelopment will
need an investment of over Rs 64,000
crore, and the Ministry of Agriculture has
added that since the major portion of this
investment is expected to come from the
private sector, an appro­priate regulatory
and policy environment is necessary.
Importance of Food Processing
Here lies an important expectation; that
food processing and the accompanying
value addition is central to the growth de-
sired in the agricultural sector. It is
a view and a position that is being sup-
ported by policy output such as an August
2010 briefing by Ganesh Kumar et al
r­eleased by the International Food Policy
Research Institute (Ifpri) entitled “Liber-
alising Foodgrains Markets: Experiences,
Impact, and Lessons from South Asia”.
This too advocates “spatially integrated
markets” to ensure that local shortages in
“certain food items do not translate into a
sharp rise in food prices”. The briefing
criticises government policies in India for
regulating the movement of goods across
states and worsening a lack of spatial inte-
gration; adding that “large-scale gains in
efficiency” arose with the removal of zon-
ing restrictions because then private trade
could occur between neighbouring states
“driven by arbitrage possibilities rather
than their deficit-­surplus status”.
It is unclear how a “second Green Revo-
lution” and MTMs or “spatially integrated
markets” will be brought about. In a
­comprehensive paper the chief economic
­adviser to the Government of India, Basu
(2010), said that especially for a big coun-
try like ours “it is politically risky to rely
­entirely on private traders and international
trade to iron out excessive price fluctua-
tions”, adding that “nations can be held to
available at
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17
COMMENTARY
ransom and at this early stage of India’s de-
velopment we do not want that to happen
at least for a few vital food items”. The chief
economic a­dviser explained that what the
Indian government does in practice is to try
to sell some grain at above the minimum
support price (MSP) and also releases some
foodgrains below the market price to BPL
households and other vulnerable segments
of the population. “The net e­ffect of this
kind of government action is to give an up-
ward push to the price of foodgrains that
prevail in the open market. So for people
who buy foodgrains at the market price,
the price they face is above the price they
would have had to pay in case there was no
government intervention”, said Basu. This
may not hold true in several situations, but
it is indeed true that people who buy
foodgrains at market price in India include
millions of rural poor who either do not
have BPL cards or who live in areas without
easy a­ccess to PDS outlets. Basu’s suggestion
is that if the government’s aim (in times of
drought or climate extremes) is to lower
the price of foodgrains, it is not enough to
release a large quantity of foodgrains. In
18
addition, this should be released in small
batches to many traders or directly to con-
sumers, rather than being stocked at very
much above the buffer norms. The important
related point is that the central government,
as the largest stockist of food­grains in India,
ought to vary the way it buys foodgrains
(which may also satisfy fiscal accounting
objectives) and the way it releases food­
grains (which will satisfy the needs of the
BPL, AAY, poor APL population but not
­necessarily FCI and not n­ecessarily traders).
However, the widening cycle of invest-
ment in infrastructure for the retail food
industry is apparently following the
n­ational, spatially integrated model, which
is designed more for growing c­entres of
urban consumption (further burdening
the urban poor) rather than satisfying the
nutritional needs of those who have de-
pended on both the PDS and open markets
for their needs. This investment is
e­mployed to extend contract farming, be-
ing used to build new processing centres,
set up food transport networks, expand
road transport infrastructure (and multi-
modal transport systems), and to create
october 9, 2010  vol xlv no 41  EPW   Economic & Political Weekly
and fill retail spaces in India's cities and
towns. Investors in this range of activities
include new entities that have been
spawned by corporations in different
s­ectors, which have quickly merged and
consolidated. One common element is the
finance industry, a relative newcomer in
the food system both in India and globally
– represented by banks and investment
funds, asset management firms and institu-
tional investors. They are being partnered
by relatively young businesses in the real
estate and property development sector,
the transport and logistics sector, the infra-
structure and telecoms industries.
references
Basu, Kaushik (2010): “The Economics of Foodgrain
Management in India”, Working Paper, Ministry
of Finance, Government of India, September.
Kumar, A Ganesh, Devesh Roy and Ashok Gulati (2010):
“Liberalising Foodgrains Markets: Experiences,
­Impact and Lessons from South Asia”, International
Food Policy Research Institute (IFPRI), IFPRI Issue
Brief 64 (www.ifpri.org), August.
UNCTAD (2009): Trade and Development Report 2009,
Department of Industrial Policy and Promotion
(Ministry of Commerce and Industry, Government
of India), “Discussion Paper on Foreign Direct In-
vestment (FDI) in Multi-Brand Retial Trading”,
July, http://dipp.nic.in/discussionPapers/DP_FDI_
Multi-BrandRetailTrading_ 06July2010.pdf