Even though India holds an important position in world food production, the same cannot be said about its food processing industry. But the industry is growing and the potential is huge
Being the largest producer of milk and cereals and the second largest of wheat, rice, inland fish, fruits and vegetables, India holds a strong position in food production on the world stage.
This fact notwithstanding, the country’s food processing industry is in a nascent stage. Only around 2% of fruits and vegetables are processed, and the figure stands at 26% for marine, 6% for poultry and 20% for buffalo meat, as against 60-70% of the overall food production in developed countries. Going by those numbers, there is a huge potential waiting to be tapped in the food processing sector in India.
| DARE/sectors |
| 1. Dairy Products: Milk and milk products contribute to nearly 17% of the country’s total expenditure on food. |
| 2. Fruits and Vegetables: India is the second largest vegetable producer and third largest fruit producer in the world. |
| 3. Meat and Poultry: Only 1% of meat production is converted into value-added products. |
| 4. Fisheries: Fish production in India currently stands at 6.4 million tons. |
| 5. Packaged Foods: Size $2 billion (2005-06); low penetration |
| 6. Beverages: Size $155 million |
Canned and Packed
Food processing involves the use of various techniques that give food longer shelf life. These techniques involve removal of moisture from food to prevent the growth of microorganisms. Common techniques are curing, drying, canning etc. The processed items are then packed and marketed at higher prices. Food processing may or
may not involve changing the raw material completely.
DARE/quick points |
| 1. Food processing is the fifth largest industry in India |
| 2. The size of India’s food processing industry is $110 billion and is likely to grow at 10% to touch $330 billion by 2015. |
| 3. It employs more than 1.6 million people. |
| 4. Exports of processed foods grew over 190% between 2002-03 and 2006-07. |
| 5. Foreign direct investment in the sector will touch $325 million by 2009. |
| DARE/major players | |
| Player | Sector |
| Dabur | Beverages and Culinary |
| Gits | Snacks and Dairy |
| Godrej | Beverages and Staples |
| MTR | Snacks and Icecreams |
| Haldiram’s | Snacks |
| Parle Agro | Beverages |
| HUL | Beverages, Staples, Dairy |
| Britannia | Bakery Products |
| Amul | Dairy |
With food habits changing because of altering lifestyles and more and more people taking to urban living, the food processing industry is likely to see a major boom. Availability of raw materials due to high food production in India, and cheap labor has made food processing in India an attractive industry. The growth of business depends a lot on the nature of the produce and processing methods. The food quality should be top-class, and therefore, procurement of superior quality of raw materials becomes imperative. This industry is labor intensive, providing employment at each step—production of raw materials, processing at various units in organized and unorganized sectors, packaging of end product, transport and selling at retail stores.
However, there are several constraints that are coming in the way of the growth of this industry. Non-availability of adequate critical infrastructural facilities such as cold chains, packing and grading centers, lack of adequate quality control and testing infrastructure, inefficient supply chain, lack of varieties of farm produce that is fit for processing and seasonality of raw material are some of these constraints.
The government, on its part, has tried to introduce some measures to tide over the situation. These include developing infrastructure and supporting the industry through research and development. The government allows 100% foreign direct investment in most of the processed food items, except alcoholic beverages and those pertaining to the small-scale sector. The Food Safety and Standards Bill has created a regulatory body for the sector. It also gives total tax deduction on profits for five years and on 25% of profits for the next five years to new agro-processing units. The government is also developing 30 mega food parks that are likely to cover the entire food processing cycle.
A Growing Market
Employing over 1.6 million people, India’s food processing industry contributes 6.3% to the GDP and 16% to exports, according to a report by India Brand Equity Foundation and KPMG. Some experts peg the market size for processed foods at $102 billion, with the potential to grow by 10% to $330 billion by 2015. At present, the processing segment holds a 32% share of India’s booming food industry.
Exports of processed food have grown at over 190% between 2002-03 and 2006-07, increasing from $6.98 billion in 2002-03 to $20.51 billion in 2006-07. FDI inflows in the food sector have been high and according to estimates, they are likely to touch $325 million by 2009. Major global players such as Coca-Cola, Danone, Nestlé and Cadbury are already present in India.
According to the IBEF-KPMG report, products that have growing demand in the export market are pickles, chutneys, fruit pulp, canned fruits and vegetables, concentrated pulps and juices, dehydrated vegetables and frozen fruits and vegetables along with processed animal-based products.
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