Food Processing Industry in India

The size of India’s food processing industry in 2012 was around $160 billion. This is estimated to be  around $260 billion in 2015, registering around 8% growth every year. The Industry is broadly divided into six segments viz. Fruits and vegetables; Milk and milk products; Meat and poultry; Marine products; Grain processing and Consumer food. Consumer food includes sub-segments viz. Packaged food; Aerated soft drinks; Packaged drinking water; Alcoholic beverages etc.

We note here that the food processing industry is one of the largest industries in India and ranks fifth in terms of production, consumption and exports. In 2012-13, the food processing industry constituted 9.8% of India’s manufacturing sector GDP.

Given the changes in the Indian landscape, the packaged foods segment holds immense promise and a concerted move to develop India’s Food Processing sector will be a force multiplier in creating large-scale employment, enhancing farm incomes and combating agri-wastages.

Key drivers of Indian Food Processing Industry

The Key drivers of India’s food processing industry are as follows:

Strong demand growth

The demand for processed food is increasing due to increasing disposable income, urbanisation, young population and nuclear families; leading to changing lifestyle and increasing expenditure on health and nutritional foods.

Flourishing Farm Sector

India is bestowed with a diverse agro-climatic conditions; large agriculture sector with second largest producer of fruits and vegetables; abundant livestock with largest production of milk; and cost competitiveness. With the increased linkages of primary sector with secondary sector; Investment opportunities to arise in agriculture, food infrastructure, and contract farming.

Increasing investments

The food processing sector is a sunrise sector and government sees it as a future driver of Indian economy. Government has launched various infrastructure development schemes to increase investments in food processing infrastructure. The government is also making an amicable FDI environment in this sector.

Key Problems of the Indian Food Processing Sector

Despite of its large size, Indian food processing industry is still at a nascent stage compared to its potential. It is one of the sunrise sectors in the country. Of the country’s total agriculture and food produce, only 2 percent is processed currently in comparison to 40% in countries such as Malaysia and Thailand. There are several challenges that need to be addressed. These challenges span across the entire value chain and are as follows:

Productivity Issues

A major area of concern is food production itself. Despite being an agrarian economy and one of the largest producers of vegetables, fruits, wheat etc, it is unfortunate that the productivity of crops is quite low relative to international standards.

Availability of Skilled Resources

Human resource development needs to cover the entire gamut from basic infrastructure, education, vocational and technical guidance to qualified professionals in the sector.

Supply Chain Deterrents

Long and fragmented supply chains leading to high wastage and high costs especially due to seasonality, perishability and variability of produce.

Deadlocks in Infrastructure

Indian export- related infrastructure for agri-produce is grossly inadequate, especially at sea ports and airports. More than 30 percent of the produce is lost due to poor post-harvesting facilities and lack of cold chain infrastructure.

Low Adherence to Quality Standards

Unavailability of basic standardization and certification infrastructure. Given the size of the industry, there is a huge gap in the availability of laboratories, trained manpower, and certification agencies.

Low level of Linkages between Industries

Low level of interaction between industry and research institutes are one of the major problems. In order to improve farm productivity, continuous introduction and implementation of innovative technologies calls for existence of a strong R&D network. While investments are being made in this regard, the efforts have not been as rewarding.

Potentials for Food Processing Industry

Food processing Industry offers distinct benefits to both the producers as well as processors. The following four fundamental shifts in the market conditions reaffirm the potential for the sector.

Rapid growth in organized retail, a catalyst for the food industry
  • Increased consumer spend as organized retail and hypermarkets can drive cost down by 35-40%
  • Employment generation and higher tax revenue
  • Productivity gains across entire supply chain through dis-intermediation and superior technology
Consumer trend towards convenience and ‘enjoying life’ driven by demographic trends in age, income-levels and more women in the workforce
  • Explosion of convenience foods, value-added foods and eating-out
  • Increasing willingness to pay premium for quality products
Global shift to outsourcing from India across products/ services including food
  • High-margin businesses possible in niche export markets (e.g. organic foods, herbal products)
  • Quality improvement and spill-over to domestic markets, as producers meet stringent export requirements
  • Investments in cold chain and transport infrastructure
De-regulation and liberalization of the Indian economy, driven by central and state governments
  • Ease of entry for new businesses and capacity addition
  • Demand-growth from economy growth and rising incomes
  • Potential to bring in global technology, know-how and investments
  • India is the world’s second largest producer of food next to China, but accounts for only 1.6 percent of international food trade.
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