Budget 2016: Food marketing opened to MNC multi-brand retailers

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board..

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board (FIPB) route. Finance minister Arun Jaitley announced in the Budget, presented on Monday, that, “100% FDI will be allowed through the FIPB route in the marketing of food products produced and manufactured in India”.

This basically means that foreign retailers in the food sector can set up marketing outlets in the country but will have to sell food products manufactured by Indian producers. Analysts said this means that Global retailers like Marks and Spencer’s or Tesco, which have food services units, can now set up marketing outlets in the country where they can sell food products manufactured by Indian companies.

Food processing minister Harsimrat Kaur Badal said on Tuesday that 100% FDI will be permitted only in multi-brand retailing of food products, and not in all items. Also, while the extant rule on FDI in multi-brand retailing of any product mandates that at least 30% of raw materials have to be sourced from the domestic market, in food processing, a foreign retailer will have to procure 100% of raw materials from domestic sources to be eligible to bring in 100% FDI.

If a foreign retailer doesn’t wish to source the entire raw materials from the domestic market for multi-brand retailing in food products, it can still set up shop, but the FDI has to be restricted to 51%. Also, it has to fulfill the usual conditions stipulated for multi-brand retailing, food processing secretary Avinash Srivastava told FE.
Currently, rules allow foreign food firms to set up shop in the country to produce and market their products like Coca-Cola or Pepsi does. However, the new proposal opens room for any global retailer to simply market products manufactured by Indian companies.

“This can range from tying up with small domestic retailers making some specific food products, who do not have the wherewithal to expand, or having alliance with even big players. The detailed rules will be known when the department of industrial policy and promotion comes out with the guidelines,” says Harminder Sahni of Wazir Advisors, a New Delhi-based retail industry consulting firm. The new rules will now allow “foreign companies to set up up shops here and bring in a lot of technology such as cold chains” to reduce wastage and improve efficiency in farming.

The domestic consumer retail market is estimated at about R12 lakh crore, of which half consists of selling food and food products. The wastage of food from the farm before it reaches the consumer is estimated to be about 15%-20%, or about R92,000 crore, every year because of lack of storage facilities and transportation.

“Allowing 100% foreign investment in the retail of domestically-processed food will give farmers greater access to the market and also encourage food firms to innovate, so that food is available in enough quantities to feed everyone as well as fits their pockets” said Siraj Chaudhry, chairman of Cargill India, the firm that makes and sells the Leonardo range of olive oils, Gemini, NatureFresh, Sweekar, Rath and Sunflower Vanaspati.

Echoing similar sentiments, Krish Iyer, president of Walmart India, said the move would encourage the industry to produce locally rather than import food products and sell it here. “This far-reaching reform will benefit farmers, give impetus to food the processing industry and create vast employment opportunities,” Iyer said.

By Sun Capital