Home / News / India /  Sourcing plans of FMCG cos may be hit
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The repeal of India’s three controversial farm laws may impact the sourcing plans of food companies and the recently introduced production-linked incentive (PLI) scheme in food processing, industry executives said.

Last year, when the laws were announced, several food-focused firms had said it would ease procurement and raise productivity while also lowering wastage and increasing farmer incomes.

Piruz Khambatta, chairman of beverage maker Rasna Pvt. Ltd, said, “What really affects the food processing industry are the contract farming laws. In fact, many states have state-specific contract farming laws which are quite effective."

Companies, he said, may continue with contract farming as before. However, a good reform measure was politicized, and its repeal sends out the wrong signal, said Khambatta, a former president of the All India Food Processors Association.

“The biggest advantage of the new farm laws was not to the food processors, but to farmers—meaning that if a farmer wanted to go to a private player or a private mandi, the laws gave them a choice. We would have obviously been happy with the farm laws being implemented because it would have been made into a central Act. It would have definitely helped us."

India’s food processing sector, one of the world’s largest, is worth more than 2.6 trillion. The sector is expected to achieve a total output of $535 billion by 2025-26, according to estimates by national investment and promotional and facilitation agency Invest India.

An executive with a large food and beverage firm said the withdrawal of the farm laws is “negative" for the industry. Even before the laws were introduced, farmers did contract manufacturing, and that will continue or even increase. However, its benefits will be largely felt by a certain pool of farmers; marginal farmers will lose out, he said. Agri-sourcing has always been a challenge, and the farm laws were aimed to ease that, the executive said on condition of anonymity.

Spokespersons for ITC Ltd and Reliance Retail did not respond to an email seeking comments till press time, while a spokesperson for Hindustan Unilever declined to comment.

Reliance Industries Ltd said in January that it has nothing to do with the farm laws and that it has no plans to acquire farmland for contract farming, as alleged by protesting farmers. “Reliance Retail has never entered into long-term procurement contracts to gain an unfair advantage over farmers or sought (to have its suppliers buy produce) from farmers at less than remunerative prices, nor will it ever do so," it said.

The laws, according to analysts, would have provided barrier-free inter- and intra-state trade and commerce outside physical market premises, normally regulated by state government Agricultural Produce Market Committees (APMCs).

Under the farm laws, basic food items such as cereals, pulses, oilseeds, edible oils, onions and potatoes were to be deregulated and removed from the list of essential commodities, besides helping farmers engage with processors, wholesalers, aggregators, large retailers and exporters on a level playing field.

A top executive from a retail group said the industry’s ambition to double revenue within the decade could be hit following the repeal of the laws.

Another executive with a consumer goods firm said the repeal is neither “negative" nor “positive". All corporates have in any way created their own models to work with the farming community, he said.

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