Industry Overview
Section B: Food Processing Industry
The food and agro industry is one of the largest sectors in India in terms of production, consumption and export and growth prospects. India has one of the largest arable lands in the world. It has diverse agro-climatic zones: hot and humid along the long coastal regions, dry and cold in the mountainous regions and hot and dry in plateau regions. This diversity makes India a unique destination for producing different kinds of horticultural and agro-products. Agriculture and allied sectors are estimated to have grown by 2.5% in FY12. In FY12, contribution of agriculture including allied activities to Indias GDP at 2004-05 prices is around 13.9% with agriculture alone accounting for 12.3% followed by forestry and logging at 1.4% and fishing at 0.7%. Although the share of agriculture in GDP has shown a declining trend, but the importance of the sector to the economy cannot be undermined with the fact that it provides a vocation to about 70% of the population. The food processing industry is of great significance for the countrys development as it is connected to the economy, industry and agriculture. It is one of the most diverse sectors of manufacturing, covering marine products, dairy products, fruits and vegetables, sugar, edible oils and beverages. During Apr-Nov 2011, it has grown at 17.2% as against 4.3% growth of the overall manufacturing sector. Currently, under manufacturing, food processing is one of the fastest growing segments accounting for about 27% of the average industrial growth. Rate of growth of output of some processed food products (in %)
Particulars FY08 FY09 FY10 FY11 FY12* Sugar 15.2 (33.9) (6.0) 30.2 38.3 Fruit pulp 87.0 (2.0) 5.0 35.1 30.4 Fruit juices 20.9 41.0 46.6 16.8 26.0 Cashew kernels 8.4 (4.2) (0.9) (7.9) 22.2 Instant food mixes 30.8 19.4 20.8 10.6 17.9 Mineral water 29.4 6.9 28.3 19.9 15.4 Chocolate 8.9 24.2 11.3 13.7 13.3 Malted foods 8.5 (36.8) (8.8) 8.4 6.4 Butter 4.8 3.4 (22.7) (4.7) 0.1 Biscuits (0.9) 29.2 10.4 (1.4) (1.6) Frozen meat (12.9) 76.8 27.4 (21.8) (1.7)
Note: * Apr-Dec Source: Economic survey 2011-12
Food processing involves any type of value addition to agricultural or horticultural produce and includes processes such as grading, sorting and packaging which enhance the shelf life of food products. The food processing industry provides vital linkages and synergies between industry and agriculture. The government has announced various fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce, for minimising pre/post-harvest wastage, generating employment and contributing to export growth. Indias food processing sector covers a wide range of products such as fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups including confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc. The food processing industry directly employs about 13 mn people and nearly 35 mn people indirectly. The food processing sector contributes over 14% of manufacturing GDP of which unorganised sector accounts for more than 70% of production in terms of volume and 50% in value terms. India annually yields 110 mn tonnes of milk, 150 mn tonnes of fruits and vegetables, 485 mn livestock, 230 mn tonnes of foodgrains, 7 mn tonnes of fish, 489 mn poultry and 45,200 mn eggs.
However, in processing, India trails the developed and some developing countries by a wide margin. Only 2.2% for fruits and vegetables are processed in India as against 65% for the US, 78% for the Philippines and 23% for China. Indias processing of 26% of marine products, 6% of poultry and 20% of buffalo meat is also lower as against 6070% average for the developed countries. SWOT Analysis of the Food Processing Industry
Strengths Weakness Abundant availability of raw materials Easy penetration in rural areas due to competitive pricing Priority-sector status for agro-processing accorded by the central government Massive network of manufacturing facilities Vast domestic market Low availability of adequate infrastructural facilities such as cold chain, packaging, and branding Lack of adequate quality control and testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital Inadequately developed linkages between R&D labs and industry Opportunities Threats Bulky crop and material base offering vast potential for agro processing activities Setting up of SEZs/AEZs and food parks to incentivise development of greenfield projects Rising income levels and changing consumption patterns Favourable demographics and changing lifestyles Integration of development in contemporary technologies such as electronics, material science, biotechnology etc. offer vast scope for rapid improvement and progress Opening up of global markets Affordability and cultural preferences of fresh food Loss of trained manpower due to better working conditions in other industries Competition from global players High inventory carrying cost High packaging cost
Source: D&B Research
Export Market
Source: APEDA
Trend in exports of food and agro products: FY08 to FY11 Overall exports of food and agro products grew at four-year CAGR of 11% duringFY08FY11 to ` 436.3 bn in FY11. This growth was driven largely by superior growth of export of animal products such as buffalo meat, poultry products, animal casting and other processed foods growing, which grew at more than 20% each. The contribution of animal products to exports registered an upward trend from 16% in FY08 to 23% in FY11 whereas the contribution of cereals declined from 47% in FY08 to 33% in FY11 mainly due to export ban on nonbasmati rice, export duty on basmati rice, and restrictions on private participation in wheat purchases. Segment-wise major export destinations
Segments Major markets Floriculture US, Netherlands, UK, Pakistan, Germany, Japan, Ethiopia, Italy, Bangladesh Fresh Fruits & Vegetables UAE, Netherlands, UK, Pakistan, Bangladesh, Malaysia, Saudi Arabia, Sri Lanka, Malaysia, Qatar Processed Vegetable and Fruits US, UK Malaysia, Netherlands, Philippines, Germany, Pakistan, Canada, Nepal, Russia, China, Australia, France, Angola, Belgium, Singapore, Yemen, Thailand Kuwait Animal Products Egypt, Philippines Kuwait, Iraq, Angola, Jordan, Oman, Congo, US, Afghanistan, Vietnam, Malaysia, Saudi Arabia Cereals Vietnam, Malaysia, Bangladesh, Yemen, US, UK, Taiwan, Indonesia Sudan, Singapore, UAE, Iran, Kuwait, Saudi Arabia
Source: APEDA
Schemes for Technology up-gradation, establishment and expansion of FPIs
Government of India (GoI) has implemented schemes for upgrading technology and expanding and modernising the food
processing industries to attract potential entrepreneurs. The table below indicates the financial assistance released by the Ministry for food and agro products. Financial assistance for food and agro products
Segment/Year FY09 FY10 FY11 (Dec 2010) Fruits & Vegetable Processing NA NA 190.1 Meat Processing (As on 28/2/11) 0.18 0.23 0.46 Diary Processing NA NA 108.8 Fish Processing NA NA 12.6 Grain Processing Oil (As on 24/1/11) Pulses Flour 205.15 68.87 99.83 56.26 16.23 39.36 36.13 43.15 90.75 Alcoholic Beverages NA NA 27.3 Consumer Industries 183.7 224.72 196.74
Source: Ministry of Food Processing Industry
Foreign direct investment policy
The countrys food processing market is opening up to a wide range of investors across the globe. Government is also actively encouraging investment in agro processing industries to reduce wastage and boost value addition. As per extant policy, FDI up to 100% is permitted under the automatic route in the food infrastructure (Food Park, Cold Chain/Warehousing). Foreign participation of up to 100% for most processed items except alcoholic beverages and items reserved for small scale units has also been approved by GoI. The four-year period between FY07 FY10 witnessed stupendous CAGR growth of 44% for the food processing industry wherein the FDI inflows to the sector increased from ` 4.4 bn in FY07 to 13.1 bn in FY10. However, the momentum was lost in FY11 when FDI inflow declined 34.7% to ` 8,580 mn. FDI inflows in food processing
Source: National Institute of Food Technology Entrepreneurship and Management, MOFPI & D&B Research
Credit deployment by the scheduled commercial banks to the food processing sector has also shown a growing trend over the period of past few years. As per RBI, the total bank credit outstanding to food processing sector stood at ` 922.53 bn as on Dec 31, 2011, 17% higher than the amount as on the same period previous year. Outstanding bank credit includes any principal amount which has become due from the units which must have not repaid the amounts. The share of food processing sector in the total credit outstanding to all Industries stood at 4.96%, almost the same as during the previous year. Credit deployment to food processing industries
Source: Ministry of Food Processing Industry, D&B Research
Eleventh and twelfth five year plan
The total plan outlay of the Ministry rose from ` 6.5 bn during the 10th Plan to ` 40.3 bn during the 11th Five Year Plan. In the 11th plan, maximum increase in the outlay was seen under Scheme for Infrastructure Development, wherein the plan outlay has increased from ` 1.8 bn in 10th plan to ` 26.13 bn. The scheme-wise outlays for 11th Plan are given below: Total Outlays for the 11th Plan period (2007-2012) (` bn)
Scheme Scheme Scheme Scheme Scheme Scheme for for for for for for Infrastructure Development 26.13 Technology Up-gradation/Establishment/ Modernisation of Food Processing Industries 6.00 Quality Assurance, Codex standards, R&D and promotional activities 2.50 Human Resource Development 0.65 strengthening of institutions 3.25 Up-gradation of Quality of Street Foods 1.78
Source: Ministry of Food Processing Industry, D & B Research
The 11th Five Year Plan approach was mainly driven by Vision 2015 which focused on increasing level of processing of perishables, value addition and share in global food trade. The plan included various new components such as promoting the spirit of public private partnership and integrated approach with appropriate emphasis on backward linkages. The major thrust areas of the 11th five year plan were development of value chain and processing infrastructure, upgrading or modernisation of technologies, promoting quality certification and standards, strengthening of institutional mechanism for skill development etc. Some of the policy measures and initiatives taken by GoI during the plan period include: Most processed food items have been exempted from the purview of licensing under the Industries (Development & Regulation) Act, 1951. The industry is included on the priority sector list facilitating easy availability of finance. Excise duty levied on ready-to-eat products, instant food mixes, aerated drinks and fruits and vegetables processing units have been reduced. GoI has approved foreign participation of up to 100% for most processed items except alcoholic beverages and items reserved for small scale units. A large number of foreign collaborations have been approved. Excise Duty of 16% on dairy machinery has been completely waived off and excise duty on meat, poultry and fish products has been reduced from 16% to 8%. Tax concessions (100% IT deduction for 5 years and 25% in next 5 years for new agro processing, waiver of excise duty on dairy machinery, zero input duty on EOUs etc) External commercial borrowings to be available for cold storage Launching of National Mission on Food Processing Capital investment in creation of modern storage capacity eligible for viability gap funding Ministry of Food Processing industries also formulated appropriate policies and implemented many schemes targeted to infrastructure development, technology upgradation, quality assurance, reduce wastage and increase value addition in the value chain. Major schemes implemented by the Ministry of Food Processing Industry
Infrastructure development Mega Food Parks (MFPs) 10 MFPs were approved in the first phase Five MFPs were approved in the second phase Proposals have been invited for additional 15 MFPs Each of these MFPs is likely to consist of 3040 food-producing units in the cluster Cold chain, value addition and preservation infrastructure Eight of the 10 projects approved in the first phase in 200809 have started commercial production. 39 projects approved in the second phase in 2011-12. Likely to reduce wastage especially among perishable food products. Modernisation and setting up of abattoirs 10 projects assisted so far with a grant assistance of ` 357.4 mn as on Jan 31. 2012 Focusses on hygienic and more humane slaughtering of animals. Technology up-gradation, establishment/modernisation of FPIs 852 units have been assisted with a grant of ` 1,358.7 mn during FY12 (Apr-Jan) Quality assurance, codexs standards, R&D, and promotional activities in FY12 Five projects for setting up/upgradation of food testing labs approved Two proposal for implementation of HACCP/ISO certification of units approved Eight proposals for R&D approved Human resource development during FY12 One proposal for creation of infrastructure facilities 25 proposals for setting up of Food Processing Trading Centres (FPTCs) 122 entrepreneurship development programmes have been held Strengthening of institutions as centres of excellence. Following have been strengthened: Indian Institute of Crop Processing Technology, Thanjavur National Institute of Food Technology and Entrepreneurship Management, Kundi, Haryana Indian Grape Processing Board National Meat and Poultry Processing Board
Source: Economic Survey 2011-12
For the 12th Five Year Plan (2012-2017) greater emphasis would be laid on decentralised process of implementation with
greater involvement of states in selection of projects and monitoring their implementation. In this five year plan, major thrust would be on addressing critical issues impacting the value chain in the sector by focusing on policy making and coordination instead of project implementation, so as to. Also, the existing focus on infrastructure development will be continued with the expansion of scope and depth so as to ensure sustainability of the value chains. Some of the key recommendations of the working group for the 12th plan activities include: Setting up of National Mission on Food Processing to improve coordination and implementation of schemes and to enable greater involvement of state governments. Expanding and modifying existing infrastructure development schemes New Mega Food Parks Additional cold chain projects Establishment of new abattoirs and modernization of existing abattoirs Develop and strengthening of existing and new institutions Taking up a nationwide skill development program along the lines of special projects for skill development of rural youths under SGSY of MoRD. Putting in place a network of food testing labs (Government/ Private) by providing incentives. Encouragement for larger participation in Codex deliberations and setting up of Codex Cell to promote, coordinate and monitor related initiatives at the level of stakeholders such as industry associations, national research institutions etc. Setting up of an Innovation Fund and Venture Capital Fund for Food Processing to promote innovations and technology development as well as to support conversion of the innovations into viable business opportunities. The total outlay of ` 52.25 bn for the 12th plan period has been proposed. During 12th plan, scheme for Mini Food Parks is being proposed to provide for a maximum grant of ` 200 mn, over a minimum area of 30 acres which may facilitate setting up of 15 such Mini Food Parks. It has been proposed to support 120 more integrated cold chain projects, out of which 20 projects would be of irradiation facilities. During the 12th plan, establishment of 90 new abattoirs and modernisation of 150 existing abattoirs has also been proposed out of which 40 abattoir projects would be taken up during first two years of the 12th Plan, which would include 20 projects for setting up new abattoirs and 20 projects for modernisation of existing abattoirs. In the field of strengthening of institutions, establishment of 10 regional centres for National Institute of Food Technology Entrepreneurship & Management (NIFTEM) and 8 Indian Institute of Crop Processing Technology (IICPT) centres across the country has been proposed.
Issues and Challenges
Although food processing industry in India is enjoying the benefits of diverse and rich resource base and locational advantage, there are many constraints which the industry is facing some of which include nonavailability of adequate critical infrastructural facilities, like cold chain, packing and grading centres, lack of adequate quality control and testing infrastructure, inefficient supply chain, insufficient credit supply, obsolete machinery, lack of skilled manpower, high taxation, high packaging cost, high inventory carrying cost affordability and cultural preference for fresh food. Besides, presence of fragmented industry players and multiple laws also pose barriers to the growth prospects. Strict maintenance of quality standard, labelling and traceability and increasing competition are some of the threats faced by this industry.
The Road Ahead
India has the potential of becoming one of the largest producers in the food and agricultural sector globally. The country is endowed with a large production base for a variety of food crops due to its varied agro-climatic conditions. To realise
the vast potential of Indian agriculture, enhance the farmers income, generate employment opportunities, provide choice to consumers at affordable price and contribute to overall national growth, GoI, through the Ministry of Food Processing Industries, has adopted Vision 2015 which envisages: Increasing level of processing of perishables from 6% to 20% Enhancing value addition from 20% to 35% Increasing share in global food trade from 1.5% to 3% The initiatives identified for development to provide support and thrust to the food processing industries in India include: establishing Mega Food Parks; modernised abattoirs, cold chains and infrastructure for preservation of foods, upgrading safety and quality of street food and establishing and upgrading quality control laboratories. __
