The supply chain has to get badly impacted due to Corona Virus Pandemic. Although there is a relaxation for the food processing industry to operate however getting workmen and input materials seems to be still a problem, writes Rajat K Baisya
Food, and more particularly the primary food is essential for survival. But processed food is not. However, processed food constitutes the main meal of the poor, particularly those who don’t have time to cook and have to eat lunch and dinner out. Their population is not insignificant. In this category, we have also young unmarried working population including executives and industrial workforce. For them, street food, roadside Dhabas, hotel food, fast food and ready to eat food and even so-called junk food supply and availability is a must. I have seen some of the workers and drivers on the move take ParleG biscuits available at Rs 5 a pack and tea for their lunch if they are in places where nothing else is available. These make some categories of processed foods also essential.
The lockdown, if it was declared a little earlier then things would have been in better control today. Nevertheless, India is still under control it seems. India has 20% of the global population and very densely populated in urban centres, there is thus always a threat of the virus spreading to community-level looms large. And if that reaches the inflection point and goes beyond the capability of our medical and health infrastructure which itself is low, then there could be a major upheaval. Let us hope that it will be controlled well before that stage 3 to set in.
India has also over 400 million workforce and out of that about 50% is in the agricultural sector and over 90% in the unorganised sector including the workforce in agriculture. In that context as per the Annual Report for FY 2017-18 of the Ministry of Food Processing Industries, the total employment in the processed food industry stated to be as 18.54 lakhs (1.85 million), and as such food industry engages less than 0. 46% of the total workforce and largest employer is still agriculture.
Britannia MD Mr. Berry has already made a statement that processed food supply will get dried up in a week’s time because of severe supply chain constraints. I have spoken to the MD of one of the largest tea warehousing and food processing company producing some of the leading brands of Tea in India in Kolkata. He said he is not sure if tea comes under essential food items and then when I said that ‘to the best of my knowledge it is’, he said, in any case, no workers were coming and as such the factory is closed. Govt has kept food retail stores and grocery stores in the local area open. Large organised retail stores are running with limited inventory and very few staff.
There again the housekeeping and shelf fillers, loaders, unloaders stores assistants etc. are all constituted largely by migrant workers and they all left. If lockdown continues supply chain has to get badly impacted. Although there is a relaxation for food processing industries to operate however getting workmen and input materials seems to be still a problem. For large processors, supply chain linkage for distribution through channel is also an issue. Most of the large processors have, therefore, temporarily stopped production. Companies like Coke, Pepsi etc. Parle has declared closure till the 15th of April. The food industry, therefore, has been also hit very badly like many other industrial sectors.
About 80% of the processed food industry is in the unorganised sector and they will have a real problem arising out of this temporary lockdown. March is the year-end. Most of the manufacturers and marketers will have a higher budget to deliver the annual target by pumping in more stock in the trade in the month of March. This year that opportunity is almost gone and therefore, processors will be reporting under-performance.
Most of the processors in the MSME sector will not be able to absorb the fixed overheads and will be looking to the government for the bailout scheme as a one-time economic package for the sector. I was looking at the MOFPI web site again post Corona scare and found that in their web site they have a section dedicated for action plan during this pandemic. But when I opened that section I find only two circulars issued by the Ministry of Home Affairs are posted there regarding essential commodities movement which is now a piece of common knowledge. There are no other specific proposals for the food processors in this hour of crisis.
Some processors are frantically enquiring about the forthcoming mango season. Normally preparations start from the month of April itself for the mango season. During mango season, a plant normally runs 24X7 for about 3 to 4 months to process as much mango to last the industry requirement for the whole year. About 70 % of the total pulp is exported and 30 % for domestic consumption. Companies like Coke, Pepsi, Dabur, Parle Agro are the largest consumers in the domestic industry. And for the international trade, large buyers are in the Middle East and selectively in Europe.
Companies like Parle Agro etc. have their dedicated processors lined up to supply mango pulp for the season. The issue is, whether this year’s requirement will be as much as it used to be. I guess that it will be less even if we don’t lose much of the summer season. For international trade, Sales managers, export managers, and owner-promoters themselves will be canvassing for order confirmation and travelling to countries like UAE, Kuwait, Bahrain, Yemen, and Saudi but that travel got disrupted by the coronavirus spreading in those countries as well. Despite the high spirit of some of the processors in down south, they should reconcile to the fact that the market will not be as usual.
Mango is a cyclical crop, if one year is good, it will be bad next year. This year it seems to be good and therefore, availability can be assured if the supply line is not getting disrupted because of farm labour shortage and breakdown of the transport infrastructure. If mango season goes off well then at least the fruit and vegetable (F&V) processing sector get great relief for the simple reason that four months of round the clock working is equal to one shift working of the plant for the whole year.
Taking other fruits and vegetable season into account including say tomato this sector reports healthy performance. Otherwise, this is a difficult sub-category of food processing industries. Some of the very large processors keep migrant workforce within the premises or in close proximity by providing them food and shelter as well as health service. This year getting workers will be still a question mark?
There was a report that farmers are emptying their milk container in the open drain because there are no buyers in West Bengal and the quantity reported as 2 lacs liters per day which can only go to a dairy plant, like Amul. For transporting milk to a large distance we need refrigerated transport containers and as a system collapsed, farmers had no avenues to sell the milk which itself is a big loss.
The sweetmeat industry in Bengal is a Rs 10000 crores category annually and during this lockdown, they have stopped production as consumers are not buying the sweets anymore. Everything is linked with the ultimate consumers and manufacturers and marketers will be reassessing the requirement of the market to decide the production schedule and plan.
The general goods transport operations have been hit badly and it is taking a long time to reach markets. The goods booked in Kolkata for delivery in Gurgaon and Delhi in the middle of March have not yet reached and transporters are not sure about when it will arrive and where is the consignment right now.
While it is difficult to estimate the losses in terms of revenue to the processed food industry during the Corona pandemic and it depends on how long the lockdown continues. The scenario will be clearer once it is over which we can assess only in the coming weeks. We only hope that this impasse will not last very long.
The author is the chairman of Strategic Consulting Group and served as Professor and Head of the Department of Management Studies, IIT Delhi.