Sri City an emerging hub for FMCG firms

A combination of good location, modern facilities and subsidies has made the industrial park in Andhra Pradesh a magnet for these companies

Three years ago, when US beverage and food maker PepsiCo decided to set up its largest factory in India at Sri City, near the Andhra Pradesh-Tamil Nadu border, eyebrows weren’t raised at its decision to do so. The multinational, in fact, was following a variety of companies that had already made similar commitments.

One of these was Mondelez, the US-based snacks multinational, best known in India for its Cadbury brand of chocolates. Last week, Mondelez inaugurated the first phase of its largest plant in the Asia-Pacific region at Sri City, fulfilling a commitment it had made three years earlier.

The east coast of Andhra Pradesh, led by the integrated township Sri City, has emerged as a hub for fast moving consumer goods (FMCG) and food companies. Mondelez, PepsiCo, Kellogg’s, Colgate-Palmolive and a host of other global and domestic food & FMCG firms have already committed nearly $1 billion (about Rs 6,600 crore) in investment at Sri City alone, say officials of the integrated township.  An additional nearly $1 bn of commitments by companies have been recently signed, Andhra Pradesh’s mines and food processing secretary Girija Sankar said. He says most of these are in the food processing sector.

Just outside Sri City, another bunch of companies such as ITC, Britannia, Heritage Foods, Godrej Agrovet and Godfrey Phillips have either set up their units or are in the process of doing so. Even Baba Ramdev’s Patanjali Ayurved is considering manufacturing units in Andhra Pradesh, sources in the know told this newspaper. The likely location could be Sri City, though this could not be confirmed from Patanjali.

Sri City officials say the interest shown by companies is due to a combination of factors, such as good location, state-of-the-art facilities and subsidies. “What companies are looking out are water, land, power and connectivity. Sri City offers all of this. Other advantages include ease of doing business and proximity to all the southern markets. All of this makes FMCG majors want to set up base here,” says Ravindra Sannareddy, managing director of Sri City.

Companies endorse this view. Daniel Myres, executive vice-president, integrated supply chain, Mondelez International, says infrastructure, talent and government support are the key reasons behind their investment here. PepsiCo India's chairman & chief executive, D Shivakumar, says Sri City is ideally located. It offers a great opportunity to harness the benefits of superior connectivity, great infrastructure and an ample talent pool, requisites for a business. “The new beverage facility at Sri City is a key part of the company’s growth plans for the Indian market and we are delighted to locate it in Andhra Pradesh,” he said.

Yoshihiro Miyabayashi, managing executive officer and director of Japanese major Unicharm Corp, maker of the Mamy Poko brand of baby diapers, says it opted for the place due to its connectivity to airports and sea ports. “This will facilitate imports and exports,” he says. Unicharm set up the first phase of its Rs 250-crore production unit in Sri City last year and is on the way to completing the other phases. This is the second manufacturing unit for Unicharm in eight years, after its first one was set up in Majrakath, Rajasthan.

Sri City, say sources in the know, has benefited from Andhra Pradesh’s long coastline and its proximity to ports such as Krishnapatnam inside the state and to those outside of it such as Ennore and Chennai in Tamil Nadu. Parallely, it has access to the Chennai and Tirupati airports, as well as National Highway-5 and the railway network, they add.

Additionally, the Andhra government has given business a fillip by linking two of the biggest rivers, Godavari and Krishna, to the city, major sources of water for companies located there.

Sankar says the state now plans to set up food parks in every district, to attract investment from food processing companies. It is also setting up Food Producers Organisations, which will act as a single-point contact for FMCG companies keen to produce raw materials in the state.

SRI CITY’S ADVANTAGES

Food parks

• Grant of 50% of project cost to build mega food parks, limited to Rs 50 cr; grant of 50% of cost to build integrated food parks, up to Rs 20 cr; VAT/CST/GST reimbursement for integrated food parks during construction period for two years, up to Rs 2 cr

Power subsidy

• Rs 1.50 per unit for food processing units, including cold chains, cold storage units, ripening units for five years from date of commencement of commercial production

Capital subsidy

• 25% of project cost (includes plant & machinery, technical civil works), limited to Rs 5 cr for establishment of new food processing units; 25% of new/upgraded equipment cost limited to Rs 1 cr for tech upgrade; 50% for setting up primary processing and collection centres, limited to Rs 2.5 cr; 35% for setting up of cold chain for agriculture/horticulture/dairy/meat produce, up to Rs 5 cr

Interest subsidy

• 7% per annum on term loan for fixed capital investments, for a period of 5 years; Rs 2 cr for food processing units and cold chain infrastructure; Rs 1 cr for setting up PPCs and PCCs; for integrated food parks that avail loans from NABARD, interest subsidy will not be applicable

VAT/CST/SGST

• 100% reimbursement of net VAT/CST/SGST for 5 years for micro & small units; 75% of net VAT/CST/SGST for 7 years for medium units

Source: Andhra Pradesh government