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Food Processing

Introduction
 
The US$ 135 billion food processing industry in India is projected to grow at a compound annual growth rate (CAGR) of 10% to reach US$ 200 billion by 2015. Food processing industry in India is supported by a great agro-climatic diversity suitable for round the year cultivation of crops. In terms of production, India is among the world’s major food producers, the country accounts for 17% animal, 12% plant and 10% fish genetic resources of the globe; and 16% of cattle, 57% of buffalo, 17% of goats and 5% of sheep population of the world. These numerous advantages and factor conditions like low cost of labor put India in an enviable position to produce a wide variety of food crops and commercial crops for domestic consumption as well as export. 
 
Potential
 
India’s comparative advantage lies in its favorable climate, geographic location - it is geographically close to key export destinations (Middle East, South East Asia), large agriculture sector and livestock base, long coastline, and inland water resources. Despite the huge supply advantages, India’s share in the global food trade is still around 1.5 %. Huge losses across the value chain resulting in poor processing levels are limiting the growth of India’s share in the global processed food trade. The low share of processed food and global trade is an opportunity waiting to be tapped. Increasing urbanization and rise in disposable incomes will further push demand for processed food. This is an opportune time for companies to invest in quality facilities and develop products with features that appeal to the growing Indian consumer base and the export markets
 
Level of Processing across segments 
 
Segment                                 Processing level in India
Fruits and vegetables             2.2%
Fisheries                                  26%
Poultry                                    6%
Buffalo Meat                            20%
Milk                                          35%
 
Source: Ministry of Food Processing Industry, Govt. of India
 
Fruits and vegetables offer a significant potential for the organized processing players due to the low level of processing and a vast supply base, coupled with considerable international demand for certain fresh as well as processed fruits and vegetables. However, inefficient domestic farming, lack of warehousing and cold storage facilities, and other inefficiencies in the supply chain are the biggest bottlenecks in the growth of the sector. Due to the high processing levels milk products offer a significant opportunity in India. India is the world’s largest producer of milk owing to the strong business models formed through cooperative movements in the country. Milk and related products account for 17% of India’s total expenditure on food. This segment enjoys liberal regulations as all milk products except malted foods are automatically allowed 51% foreign equity participation and all exports of dairy products are freely allowed.
 
India produces more than 200 million tons of different food grains (rice, wheat, maize, barley and millets) every year. The major segments within Grain Processing are Oil Milling and Pulse Milling and Flour Milling. Indian Oilseed sector is one of the largest in the world. India is next only to European Union and China in terms of vegetable oil imports. Grain processing is the biggest component of the food sector, with a share of 40%. But the sector is predominantly into primary processing, sharing 96% of the total value, while the secondary and the tertiary sectors add 4%. The low level of technology modernization in the sector with a high primary processing leads to low value addition in the sector. 
 
India has the largest livestock population in the world; however, most animals are not bred for meat, as a vast majority of the Indian population is vegetarian. Animals generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for more than half of the global buffalo population indicating a significantly high export opportunity. However, the level of processing in meat is just about 6%, as the Indian consumer prefers fresh meat from the market than processed/frozen meat. For this reason, processing of large animal meat is usually high in exports. Also, Indian buffalo meat, due to its lean character and nearly organic nature, is highly preferred in the export market. There is a large potential for setting up modern slaughter facilities and development of cold chains in the meat processing sector. Apart from the huge opportunity in buffalo meat export, the poultry segment with the current low per-capita consumption and world class production infrastructure and productivity offers a potential export opportunity. India ranks among the top six egg producing and among the top five chicken producing countries. 
 
India is the third largest producer of fish and the second largest producer of “fresh water” fish. The 8,000 km coastline from both inland and marine resources, 3 million hectares of reservoirs, 1.4 million hectares of brackish water, 50,600 sqkm of continental shelf area and 2.2 million sqkm of exclusive economic zone supplement India’s vast potential for fishes. Marine exports account for around 3% of the total exports of the country and nearly 20% of the agricultural exports. More than 50 different types of fish and shellfish products are exported to 75 countries around the world.
 
According to a study titled “Indian Marine & Fish Industry” released by India’s Association Chambers of Commerce (ASSOCHAM), fish production in India is likely to cross 12 million tons by 2015 from the current level of about 9.3 million tons. Captured fish consists of 62% of total fish production while the remaining 38% is from aquaculture. The major fish producing centers as well as processing, freezing and storage facilities in the country are concentrated in the states of Karnataka, Andhra Pradesh, Maharashtra, Tamil Nadu, Gujarat, Kerala and Odisha.  India’s substantial fishery resources are underutilized and there is tremendous potential to further increase the output. The units in the fish processing sector are largely small scale proprietary, partnership firms and fishermen co-operatives. There is a huge scope for investments in packaged marine processing plants, operations in preservation, processing and export of coastal fish. There is also scope for developing technology for value addition and infrastructure for exports in the form of marine products based food parks through public private partnership. Besides, there is an increased demand for processed and ready-to-eat marine products in the domestic market.
 
Demand drivers: 
  • With a huge population of 1.1 billion and population growth of about 1.6 % per annum, India is a large and growing market for food products. 
  • Its 350 million strong urban middle class with its changing food habits poses a huge market for agricultural products and processed food.
  • Rise in urbanization, proliferation of nuclear families and increasing numbers of working women are the new drivers of demand for packaged and processed food. 
  • Increasing incomes over the last three decades in India has seen a shift in food habits. A large part of this shift in consumption is driven by the processed food market, which accounts for 32% of the total food market. It accounts for US$ 29.4 billion, in a total estimated market of US$ 91.66 billion. 
 
Opportunity for Investment:
  • The Indian Foods & Beverage industry is poised for a significant leap forward -- these are interesting times and continued success will depend on a proper understanding of the landscape and challenges therein, quickly exploiting emerging opportunities, skillful execution of strategic mergers and acquisitions and effecting a seamless organization to evolve into truly global players.
  • The total food production in India is expected to double in the next ten years and there is ample opportunity for huge investments in food and food processing technologies, skills and equipment. 
  • An estimated investment of US$ 17.5 billion is required in the food processing industry to achieve the goals projected in India’s Vision 2015. Of this investment, US$ 8 billion is expected to come from the private sector, another US$ 8 billion from financial institutions and US$ 1.5 billion from the government.
  • Investments are needed in various stage of the supply and value chain, proper research, farm and lab connectivity, up-gradation of technology, skill and manpower training, backend and front-end integration and cold chain integration.
 
Incentives:
 
  • The Government has introduced several schemes to provide financial assistance for setting up and modernizing of food processing units, creation of infrastructure, support for research and development and human resource development in addition to other promotional measures to encourage the growth of the processed food sector.
  • In an effort to boost the food sector, the Government is working on agri-zones and the concept of mega food parks. Twenty such mega parks will come are proposed across the country in various cities to attract Foreign Direct Investment (FDI) in the food-processing sector. The Government has released a total assistance of US$ 23 million to implement the Food Parks Scheme. It has so far approved 50 food parks for assistance across the country. The Centre also plans US$ 22 billion subsidy for mega food processing parks.
  • The national policy on food processing aims at increasing the level of food processing from the present 2% to 10 per% by 2010 and 25% by 2025. The Policy will seek to create an appropriate environment for entrepreneurs to set up Food Processing Industries through fiscal initiatives and interventions like rationalization of tax structure on fresh foods as well as processed foods and machinery used for the production of processed foods. 
  • 100% FDI allowed in the food processing sector and cold chain infrastructure. 
  • Vision 2015 of the Government of India for the food-processing sector aims at: promoting a dynamic food processing industry, Enhancing the competitiveness of food processing industry in both  domestic as well as international markets, making the food processing sector attractive for both domestic and foreign investors, and achieving integration of the food processing infrastructure from farm to market.
  • To attract investment in food processing sector, the government launched the Mega Food Parks Scheme (MFPS) during the 11th Five Year Plan (2007-12). The primary objective of the MFPS is to provide adequate / excellent infrastructure facilities for food processing along the value chain from the farm to market. It will include creation of infrastructure near the farm, transportation, logistics and centralized processing centers. The main feature of the scheme is a cluster based approach. The scheme will be demand driven, pre-marketed and would facilitate food processing units to meet environmental, safety and social standards. Under the Mega Food Parks Scheme, India is setting up mega food parks for specific segments such as fruits and vegetables, dairy, meat and poultry, and wine to create backward and forward linkages covering the complete food processing value chain and to implement best practices as part of the post-harvest management. The Mega Food Parks Scheme envisages that each food park will feature 30-40 food processing industries, benefitting 6,000 farmers directly and 25,000-30,000 farmers indirectly. 
  • The MFPS is expected to facilitate the achievement of the Vision 2015 of Ministry of Food Processing Industries to raise the processing of perishables in the country from the existing 6% to 20%, value addition from 20% to 35% and the share in global food trade from 1.5% to 3% by the year 2015. For more information on the MFP scheme, please visit: http://mofpi.nic.in/guidelines/Guidelines_MFPS.pdf
  • The government is also planning to modernize abattoirs to  promote scientific and hygienic slaughtering, application of modern technology for waste management, better by product utilization, provision of chilling facility, retail cold chain management under Public-Private-Partnership mode with the involvement of local bodies on build-own operate / build-operate-transfer / Joint Venture basis. Financial assistance under the Scheme is through grant of 50% of the total cost of plant and machinery and technical civil works subject to a maximum of Rs 15 crore (US$ 2.7 million @ US1=Rs. 55.34) per project.
  • In order to promote technology up-gradation and modernization of food processing industries in sectors such fruits, vegetables, cereals, meat, poultry, oilseed products, rice milling, flour milling, pulse processing, flavors and colors, oleoresins, spices, coconut, mushrooms, hops etc., the government will provide financial assistance of 25% of the cost of plant and machinery and technical civil works subject to a maximum of Rs 5 million (US$ 90,350 @ US$1=Rs. 55.34).
  • Other policy measures that have been initiated to promoted the Food Processing industry include Income Tax deduction of 100 % of profit for five years and 25 % of profit in the next five years in case of new agro processing industries set up to package and preserve fruits and vegetables; excise duty on meat, poultry and fish products has been reduced from 16% to 8 %, excise duty on dairy machinery has been fully waived off etc.
  • Among the new initiatives announced in the 2012-13 Budget include the Rs. 2,242 crore (US$ 393 million) project launched along with the World Bank to improve productivity in the dairy sector. Rs. 500 crore (US$ 87 million) has been set aside to broaden the scope of production of fish to coastal aquaculture. A new centrally sponsored scheme titled, “National Mission on Food Processing” to be started in 2012-13 in cooperation with the state/provincial governments. 
 
Important Links: 
  • Ministry of Food Processing Industries: http://www.mofpi.nic.in
  • Agricultural and Processed Food Products Export Development Authority: http://www.apeda.com
  • Marine Products Export Development Authority: www.mpeda.com
  • Department of Industrial Policy & Promotion: www.dipp.nic.in
  • Mega Food Parks Scheme: http://mofpi.nic.in/guidelines/Guidelines_MFPS.pdf 
 
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