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An overview of Food Processing Industry in India-Challenges and

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 Online International Interdisciplinary Research Journal, {Bi-Monthly}, ISSN2249-9598, Volume-IV, Issue-V, Sept-Oct 2014

An overview of Food Processing Industry in India –

Challenges and Opportunities
a
T.M. Sridhara Murthy, bM.S. Yogesh
a
Guest Faculty, MBA-Agribusiness Management, Institute of development Studies,
Manasagangothri, University of Mysore, Mysore, Karnataka, India
b
Research scholar, MBA-Agribusiness Management, Institute of development Studies,
Manasagangothri, University of Mysore, Mysore, Karnataka, India

Abstract
India holds the second largest arable land in the world. With 20 Agri-Climatic regions, all
15 major climates in the world exist in India. The country also possesses 46 of the 60 soil
types in the world. India is the largest producer of pulses, milk, tea, cashew and mangoes,
buffalo meat; and the second largest producer of tea, wheat, sugarcane and rice. Demand
growth for processed food has been rising with growing disposable income, urbanization,
a young population and rise in the number of nuclear families. Food processing industry
is one of the largest industries in India, ranking fifth in terms of production, growth,
consumption, and export. The total value of Indian food processing industry is expected
to touch US$ 194 billion by 2015 from a value of US$ 121 billion in 2012, according to
Mr Swapan Dutta, Deputy Director General, Indian Council of Agricultural Research
(ICAR).

Introduction

The Indian food industry has witnessed strong growth over the past few years.
India is the world's second largest producer of food next to China, and has the potential of
becoming the biggest producer in the years to come. The total food production in India is
likely to double in the next ten years. Indian food service industry is currently worth Rs
2,47,680 crore (US$ 41.39 billion) and is expected to grow at the rate of 11 per cent to
touch Rs 4,08,040 crore (US$ 68.16 billion) by 2018, according to 'India Food Service
Report 2013' by the National Restaurant Association of India (NRAI). With a huge
agriculture sector, abundant livestock, and cost competitiveness, India is fast emerging as
a sourcing hub of processed food. Moreover, India's market for organic food
consumption has also been recognised as one with the largest potential worldwide, as per
RNCOS research report titled, 'Indian Organic Food Market Analysis'.

India holds the second largest arable land in the world. With 20 Agri-Climatic regions, all
15 major climates in the world exist in India. The country also possesses 46 of the 60 soil
types in the world. India is the largest producer of pulses, milk, tea, cashew and mangoes,
buffalo meat; and the second largest producer of tea, wheat, sugarcane and rice. Demand
growth for processed food has been rising with growing disposable income, urbanization,
a young population and rise in the number of nuclear families. Domestic food spending is
expected to increase from US$ 181 billion in 2009 to US$ 318 billion in 2020. The
Government of India (GOI) expects US$ 21.9 billion of investments in food processing
infrastructure by 2015 and has also launched Infrastructure Development scheme to

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increase investments in food processing infrastructure. Investments, including foreign

direct investments (FDI), will rise with strengthening demand and supply fundamentals
(http://www.ibef.org). Food processing industry is one of the largest industries in India,
ranking fifth in terms of production, growth, consumption, and export. The total value of
Indian food processing industry is expected to touch US$ 194 billion by 2015 from a
value of US$ 121 billion in 2012, according to Mr Swapan Dutta, Deputy Director
General, Indian Council of Agricultural Research (ICAR). India’s Agri and Processed
foods exports shot up 63 per cent to set a record at Rs 101,504 crore (US$ 16.96 billion)
in the first 10 months of 2012-13, as compared to Rs 62,244 crore (US$ 10.39 billion) in
the corresponding period of last year, according to data compiled by the Agricultural and
Processed Food Products Export Development Authority (APEDA). The packaged food
segment is expected to grow 9 per cent annually to become a Rs 6 lakh crore (US$
100.19 billion) industry by 2030, dominated by milk, sweet and savoury snacks and
processed poultry, among other products, according to the report “India as an agriculture
and high value food powerhouse by 2030” by CII-McKinsey. The food processing
industries in India attracted foreign direct investments (FDI) worth US$ 1,811.06 million
during April 2000 to March 2013, according to the latest data published by Department
of Industrial Policy and Promotion (DIPP). Food Processing Industry is of enormous
significance for India’s development because of the vital linkages and synergies that it
promotes between the two pillars of the economy, namely Industry and Agriculture. India
is world’s second largest producer of food and has the potential to become number one in
due course of time with sustained efforts. The growth potential of this sector is enormous
and it is expected that the food production will double in the next 10 years and the
consumption of value added food products will grow at a fast pace. This growth of the
Food Processing Industry will bring immense benefits to the economy, raising
agricultural yields, meeting productivity, creating employment and raising the standard of
very large number of people throughout the country, specially, in the rural areas.
Economic liberalization and rising consumer prosperity is opening up new opportunities
for diversification in Food Processing Sector. Liberalization of world trade will open up
new vistas for growth. The Food Processing Industry has been identified as a thrust area
for development. This industry is included in the priority lending sector. Most of the food
processing industries have been exempted from the provisions of industrial licensing
under Industries (Development and Regulation) Act, 1951 with the exception of beer and
alcoholic drinks and items reserved for Small Scale Sector, like vinegar, bread, bakery.
As far as foreign investment is concerned automatic approval for even 100% equity is
available for majority of the processed food items. The Food Processing Sector Food
processing involves any type of value addition to the agricultural produce starting at the
post harvest level. It includes even primary processing like grading, sorting, cutting,
seeding, shelling packaging etc. The food processing sector comprises six major
segments:

• Fruits and Vegetables

Horticultural crops in India are currently grown on 12 million hectares
representing 7% of the country’s total cropped area. Annual horticultural
production is estimated at 100 million metric tones, which is over 18% of India’s

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gross agricultural output. India is the world’s second largest producer of fruits and
Vegetables.
• Milk and Milk Products
India has the largest livestock population with milk cows and buffaloes being its
main constituent. India is the world’s largest milk producer (72 million tones
annually) and the dairy industry has been recognized the world over as its most
successful development programme going by FAO estimates, while world milk
production fell by 2% in the last three years, the Indian production galloped by
4%. While consumption of liquid milk accounts for 46% of the total production,
the rest is converted into milk products.
• Meat and Poultry
India has the world’s largest livestock population, accounting for 50% of
buffaloes and 1/6th of the goat population. Such a large population represents a
challenge to retain existing productivity traits by application of modern science
and technology. Rigorous efforts are being made to improve the condition of
livestock by providing basic infrastructure and latest technology. FAO has
estimated the existing production of meat and poultry products at 4.42 million
tonnes. Only 11% of the buffalo population, 6% of cattle, 33% of sheep and 38%
of the goat population is culled for meat. At present, only a small percentage of
the meat produced is converted into value added products and most meat is
purchased by consumers in the fresh/frozen form for conversion into products at
home, restaurants, etc. Maximum conversion takes place in pork products.
• Fisheries and Sea Food
India boasts of the seventh largest marine landing base in the world with an
extensive 7,500 km coastline and an Exclusive Economic Zone (EEZ) of 2
million sq km, largely untapped, and a 29,000 km stretch of rivers and canals, 145
million hectares of reservoirs and 0.75 million hectares of tanks and ponds.
Though India’s fish potential from the EEZ has been estimated at 3.9 million
tones, the harvest is only of 2.87 million tonnes. This can be increased to 3.37
million tonnes by intense tapping in offshore and deep-sea grounds using modern
technology. There is also a good scope to improve fish harvest from inland waters
which, at present is 2.7 million tonnes. Besides, the fish potential in aquaculture
and shrimp farming has also largely remained untapped.
• Grain Processing
The country’s current food grain production (including rice, jowar, bajra, maize,
ragi, wheat, barley, gram and pulses) has been put at 225 million tones a year.
Food processing industries play a crucial role in reducing post-harvest losses.
Since most operations of this industry are rural based, it has the potential to
generate high employment at low investment. Promotion of food processing also
helps in energy conservation by reducing energy wastages in home cooking.
Grain processing, with a share of 40%, is the biggest component of the food
sector. Its basic feature is pre-dominance of the primary processing sector, sharing
96% of the total value, with the secondary and tertiary sectors adding about 4%.
This area needs to be viewed as a high growth potential area. Indian Basmati rice
commands a premium in the international market.
• Alcoholic Beverages

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Liquor made in India is categorised as beer, country liquor and Indian Made
Foreign Liquor (IMFL). Country liquor is made from a variety of raw materials
and has different names in different parts of the country. IMFL production
comprises wine, vodka, whisky, gin, rum, brandy, etc. Pre-mixed drinks like gin
and lime, rum and cola are being introduced in India now. Draught beer is another
recent introduction and has done well where introduced. Canned beer is also a
recent introduction. There are 36 breweries with a licensed capacity of 160
million litres per annum. Current production is over 300 million litres. In all, Rs.
11,000 million including Rs. 7,000 million of foreign investment, has been made
in this sector in the last six years.
Indian Agri-Business: Key facts
• Varied agro climatic zones.
• 2nd largest arable land (161 million hectares) in the world.
• Largest irrigated land (55 million hectares) in the world.
• Largest producer of wheat (72 million tones), accounting for nearly 15% of
global wheat production.
• Largest producer of pulses (15 million tones), accounting for nearly 21% of
global pulse production.
• Largest producer of milk (96 million tons), accounting for nearly 17% of
global milk
production.
• Largest producer and exporter of spices.
• 2nd largest producer of tea, accounting for nearly 28% of the global tea
production.
• 2nd largest producer of rice (92 million tons), accounting for nearly 22% of
global Rice Production.
• Largest exporter of the world's best basmati rice.
• 2nd largest producer of fruits (50 million tones) and vegetables (100 million
tones).
• 2nd largest producer of sugarcane (296 million tones), accounting for nearly
21% of the global sugarcane production.
• 3rd largest producer of edible oilseeds (25 million tons), accounting for nearly
7% of the global edible oilseed production.
Major Challenges for the Indian Food Industry
Food-processing industry is facing constraints like non-availability of adequate
infrastructural facilities, lack of adequate quality control & testing infrastructure,
inefficient supply chain, and seasonality of raw material, high inventory carrying cost,
high taxation, high packaging cost, affordability and cultural preference of fresh food.
Unprocessed foods are prone to spoilage by biochemical processes, microbial attack and
infestation. Good processing techniques, packaging, transportation and storage can play
an important role in reducing spoilage and extending shelf life. The challenge is to retain
the nutritional value, aroma, flavor and texture of foods, and presenting them in near
natural form with added conveniences. Processed foods need to be offered to the
consumer in hygienic and attractive packaging, and at low incremental costs. Major
Challenges for the Indian Food Processing Industry are:
• Inadequate Infrastructure Facilities:

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The inadequate support infrastructure which is the biggest bottleneck in

expanding the food processing sector, in terms of both investment and exports
includes: long and fragmented supply chain, inadequate cold storage and
warehousing facilities, road, rail and port infrastructure.
• Absence of Comprehensive national level policy on food processing sector:
The food processing sector is governed by statues rather than a single
comprehensive policy on food processing. India urgently needs a national food
processing policy which incorporates tax breaks for the sector. The policy to be
effective will have to be comprehensive and adopt a number of legislative,
administrative and promotional measures.
• Food Safety Laws & Inconsistency in State and Central policies:
The Indian food regulations comprise various food policies that have been enacted
at different points of time, and are under the ambit of various ministries of
Government of India (GOI). Historically they were introduced to complement and
supplement each other in achieving total food sufficiency, safety and quality. The
result is that the food sector in India is governed by a number of different statutes
rather than a single comprehensive enactment. This incremental approach has lead
to incoherence and inconsistency in the food sector regulatory scenario.
• Lack of adequate trained manpower:
Many positive developments in the food processing sector have also resulted in the
apprehension about the emerging skill shortages due to mismatch between the
demand for specific skills and available supply. In fact, of late, shortage of skilled,
semi-skilled and unskilled workers has emerged as a critical factor impacting the
competitiveness of Indian food industry.
Apart from the above major challenges hampering the growth of sector, constraints in
raw material production, Consumer education on nutritional facts of processed foods,
Low price-elasticity for processed food products, Need for distribution network and cold
chain, Backward-forward integration from farm to consumers, Development of marketing
channels, Development of linkages between industry, government and institutions, lack
of applied research etc as other major challenges for the growth of food processing
sector. Indian food industry is gradually making an important mark in the global food
arena as a large producer and exporter of agro food products. At present small players
dominate the Indian food processing industry.
Strengths and Opportunities of India
The future of the Indian farmer depends on the success of the food industry as India’s
prosperity is predominantly linked to the growth of incomes in the agrarian sector of the
economy. Increasing liberalization of the economy has tried to lift the protection that the
food and agriculture sector once enjoyed in the country. This has exposed the sector both
to the opportunities and challenges of the global food economy.
• It is the seventh largest country, with extensive administrative structure
independent judiciary, a sound financial and infrastructural network and above all
a stable and thriving democracy.
• Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw
material base suitable of food processing industries. Presently a very small
percentage of these are processed into value added products.

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•It is one of the biggest emerging markets, with over 1 billion population and a 250
million strong middle class.
• Rapid urbanization, increased literacy and rising per capita income, have all
caused rapid growth and changes in demand patterns, leading to tremendous new
opportunities for exploiting the large latent market. An average Indian spends
about 50 per cent of household expenditure on food items.
• Demand for processed/convenience food is constantly on the rise.
• India’s comparatively cheaper workforce can be effectively utilized to setup large
low cost production bases for domestic and export markets.
• Liberalized overall policy regime, with specific incentives for high priority food
processing sector, provides a very conducive environment for investments and
exports in the sector.
• Very good investment opportunities exist in many areas of food processing
industries, the important ones being fruit and vegetable processing, meat, fish and
poultry processing, packaged, convenience food and drinks, milk products etc.
Conclusion
The Indian food industry presents a very large opportunity to every stakeholder. This is
primarily driven by a robust consumer demand, the changing nature of the Indian
consumer, who is more informed and willing to try new products; and the strong
production base of the country. Needless to add, the several gaps in the current
production and delivery systems actually present a huge opportunity for the growth of
companies willing to bet long term in this sector. However, the growth of food processing
companies has been sub-optimal because of high cost, low level of productivity, high
wastage and lack of competitiveness of Indian food products in the global market.
Therefore, to fully leverage the growth potential of the sector, current challenges that are
being faced by the industry need to be properly addressed and steps need to be taken to
remove the bottlenecks hampering the pectoral growth.

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Bhuyan, A (2010) “India’s Food industry on the Path of High Growth” Indo-Asian News
Service.

IBEF (September 2011). “Food Industry”

http://www.ibef.org/industry/foodindustry.aspx.
R. P. Kachru, Indian Council of Agricultural Research, New Delhi, Agro-Processing
Industries In India Growth, Status And Prospects, Status Of Farm Mechanization In
India.

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