INTERNATIONAL INSTITUTE OF PLANNING &

MANAGEMENT,
NEW DELHI

INDUSTRIAL RELATION

OPPORTUNITY ANALYSIS IN FOOD

PROCESSING INDUSTRY IN INDIA

Submitted by

NAME ACHAL KUMAR

BATCH FW 2008-10
SECTION P-2
EMAIL ID Achalkumar7@gmail.com
PHONE NO. 9971196607

1
 CONTENTS

ABSTRACT

INTRODUCTION

THEORETICAL REVIEW

OPPORTUNITIES FOR THE FOOD PROCESSING INDUSTRY IN

INDIA

CHALLENGES IN FOOD PROCESSING

RESEARCH AND REVIEW

CRITICAL ANALYSIS

BIBLIOGRAPHY

2
 ABSTRACT

Ranked fifth in terms of production, consumption, export and expected

growth, the Indian food processing industry is one of the largest

industries in India. While the industry is large in size, it is still at a

nascent stage in terms of development. Of the country’s total

agriculture and food produce, only 2 per cent is processed.

With the opening of the Indian economy plus favorable regulations the

Indian food processing sector in coming years is expected to attract

huge investment. It can be said that the Indian food processing

industry is a sleeping giant ready to get up from its slumbering stage.

This report provides all the necessary information required for a busy

manager/investor looking to invest in this sector.

3
 INTRODUCTION

India some 36 proposals to establish business parks have been given

the go-ahead as the country rapidly forges ahead with plans to develop

its food processing industry.

According to a report from Business Line, the Union Minister for food

processing industries, N. T. Shanmugam, has confirmed that Rs650

crore (€133m) has been earmarked for the development of the parks

and the food processing industry in general.

At the Inauguration of an Rs12 crore private sector industrial park for

food processing units at Palavanatham, Tamil Nadu, Shanmugam said

the development of the Indian food processing industry afforded great

scope for rural prosperity but that thus far all efforts have been

hampered due to poor infrastructure.

However, the extra investment earmarked by the Indian Government

for the food processing industry is now expected to support that

infrastructure, helping to develop areas such as cold storage and

research and development facilities. Subsidies of up to 25 per cent of

the total project price are to be offered by the government. Slightly

smaller subsidies are also being offered to newly established

operations for the food packaging industry.

4
The Government confirmed that the subsidies will be given for

establishing new rice mills, modernisation and expansion of existing

rice mills, oil mills, flower mills, bakery units, chilling centres,

confectionaries and manufacture of ice-cream.

Currently one of the biggest challenges facing the progress of the

Indian food processing industry is the lack of existing infrastructure.

Currently it is estimated that only 2 per cent of agricultural produce is

preserved for processing because of a lack of facilities for storage. In

the US some 70 per cent of agricultural produce is currently processed.

Many industry observers believe that the Indian food processing

industry is a sleeping giant and that such initiatives will encourage the

rapid growth of the industry, which could eventually make it a world-

wide force to be reckoned with.

5
 THEORETICAL REVIEW

Food Industry

According to the latest report published by market research firm

RNCOS called ‘Indian Food and Drinks Market: Emerging Opportunities’

the Indian food and beverages market is expanding rapidly and is

projected to grow at a CAGR of 9 per cent during 2009-13 and reach

US$ 580 billion by 2013.

Exports

Exports of agricultural products from India are expected to cross

around US$ 22 billion mark in the next five years and account for five

per cent of the world’s agriculture exports, according to the

Agricultural and Processed Food Products Export Development

Authority (APEDA).

Exports of fresh and processed vegetables, fruits, livestock and cereals

rose 12 per cent to US$ 8.1 billion in 2008-09 from US$ 7.1 billion in

2007-08.

Spices

Despite a global slowdown, Indian spice exports are growing. India

exported 470,520 tonnes of spices valued at US$ 1.2 billion—an all-

time high—in 2008-09. Between April to February 2009-10, India

6
exported 437,241 tonnes of spices valued at US$ 1.02 billion,

according to the Spices Board of India.

Moreover, India enjoys a 48 per cent in volume and 44 per cent in

value share in the global spice trade.

Food Processing

In order to further grow the food processing industry, the government

has formulated a Vision-2015 action plan under which specific targets

have been set. This includes trebling the size of the food processing

industry from around US$ 70 billion to about US$ 210 billion, raising

the level of processing of perishables from 6 per cent to 20 per cent,

increasing value addition from 20 per cent to 35 per cent, and

enhancing India’s share in global food trade from 1.5 per cent to 3 per

cent.

According to the Union Minister for Food Processing Industries, Mr

Subodh Kant Sahai the Central Government is envisaging an

investment of US$ 21.9 billion in the food processing industry over the

next five years, a major chunk of which it plans to attract from the

private sector and financial institutions.

The total FDI investment in the food processing sector in 2008-09 was

US$ 103 million.

7
During April to December 2009, FDI inflow in food processing sector

was US$ 206.1 million as compared to US$ 100 million during the

financial year 2008-09.

The cumulative FDI received by the industry from April 2000-January

2010 stood at US$ 1.02 billion.

Beverages

According to a report published by market research firm RNCOS in

August 2009, titled “Indian Non-Alcoholic Drinks Forecast to 2012”, the

Indian non-alcoholic drinks market was estimated at around US$ 4.8

billion in 2008 and is expected to grow at a CAGR of around 15 per

cent during 2009-2012.

As per the report, the fruit/vegetable juice market will grow at a CAGR

of around 30 per cent in value terms during 2009-2012, followed by

the energy drinks segment which will grow at a CAGR of around 29 per

cent during the same period.

According to another RNCOS report called ‘Indian Food and Drinks

Market: Emerging Opportunities’ alcoholic drinks have emerged as the

largest and fastest growing product category. As per the report, the

Indian alcoholic market is expected to grow at a CAGR of around 12

per cent during 2010-2013.

8
Major investments

An investment of 900 million has been planned for the food processing

sector under the Eleventh Plan.

• Focusing on India as a rapidly growing market, US soft drinks

giant Pepsico is planning to pump in an additional US$ 205

million as equity in its Indian operations. The investment will be

utilised in market infrastructure, supply chain, manufacturing

capacity, fruit processing, agriculture and research and

development. The company is targeting US$ 8.6 billion-plus

revenue by 2020.

• FieldFresh Foods, a joint venture between telecom-to-retail major

Bharti Enterprises and the Del Monte Pacific arm, DMPL India, is

looking to invest US$ 43.2 million in setting up its first

manufacturing plant in India as well as getting into backward

integration.

• Iffco is looking at entering the dairy business by setting up a new

venture by the year end at an investment of US$ 224.9 million.

• Capital Foods and Kishore Biyani-led Pantaloon Retail, plan to

float a Special Purpose Vehicle (SPV) that would invest US$ 60

million in setting up two mega food-parks in Maharashtra and

Karnataka.

9
Government Initiatives

The new trade policy places increased focus on agro-based industries.

• Food processing industries have been put in the list of priority

sectors for bank lending. The Centre has also announced a series

of new initiatives which include a separate policy at the state

level, thrust on contract farming and making the sector tax-free.

• The government plans to open 30 mega food parks by the end of

the 11th Five Year Plan (2007-2012).

• Income tax deduction of 100 per cent profit for first five years

and 25 per cent profit for the next five years has been allowed in

case of new agro-processing industries.

• Fruit and vegetable processing units have been completely

exempted from paying excise duty.

• Automatic approval for foreign equity up to 100 per cent is

permitted for most of the processed food items.

• Items like fruits and vegetables products, condensed milk, ice

cream, meat production have been completely exempted from

Central Excise Duty.

• Excise duty on ready to eat packaged foods and instant food

mixes has been brought down to 8 per cent from 16 per cent.

• Excise duty on aerated drinks has been reduced to 16 per cent

from 24 per cent.

10
 • The Ministry of Food Processing Industry would assist in the

setting up of more food processing units so that the industry

could create 10 million jobs by 2015, according to Mr Subodh

Kant Sahai, Union Minister for Food Processing.

• In the Union Budget of 2010-11, the government has announced

setting up of five more mega food park projects in addition to the

ten already being set up. Moreover, external commercial

borrowing will be made available for cold storage or cold room

facility including for farm level pre cooling, for preservation or

storage of agriculture and allied produce, marine products and

meat.

Looking ahead

According to a FICCI-E&Y study on the Indian food industry called

‘Flavours of Incredible India – Opportunities in the Food Industry’,

published in October 2009, investment opportunities in the Indian food

industry are set to shoot up by a huge 42.5 per cent to US$ 181 billion

in 2015 and to US$ 318 billion by 2020.

Exchange rate used:

1 USD = 45.46 INR (as on March 2010)

1 USD = 44.79 INR (as on April 2010)

11
Opportunities for the Food Processing Industry in India

In India agricultural and dairy sectors have achieved remarkable

successes over the last three and a half decades. Besides being one of

the world's largest producers of food-grains, India ranks second in the

world in the production of fruits and vegetables, and first in milk

production?providing much needed food security to the nation.

The accomplishments of the green and white revolutions have,

however, not been matched by concurrent developments in supply

chain management, and in new technologies for better processing,

preservation, and storage of food. Pockets of shortages and near

starvation, substantial wastages due to spoilage, quality deficiencies,

and inadequate returns to the farmer are still very much in evidence.

Increased urbanization, improved standards of living, and the

convenience needs of dual income families point to major market

potentialities in the food processing and marketing sectors. This is also

evident from the presence of several global foods giants and leading

Indian industrial enterprises in the country's food processing sector,

such as: Nestle India Ltd, Cadbury's India Ltd, Kelloggs India, Hindustan

Lever Ltd, ITC-Agro, Godrej Foods and MTR Foods Ltd Besides, in the

current globalized milieu, our surplus food production, as well as the

increasing preference for Indian foods (in several regions of the world)

need to be leveraged to achieve economic, and strategic objectives

through exports. The Food and Agriculture Integrated Development

12
Action (FAIDA) report (1997) prepared by McKinsey has estimated that,

driven by changing consumer preferences, the annual consumption of

'value-added' foods alone would grow to Rs.225, 000 crores by 2007?

larger than the entire manufacturing sector! A more recent report has

stated an absolute revenue increase of Rs. 900 billion in food

manufacturing between 1993 and 2000. This is in contrast with Rs. 150

billion and Rs. 300 billion in the pharmaceutical and IT industries,

respectively. Overall, the value of the Indian food industry has

increased from Rs. 3.09 trillion in 1993-94 to Rs. 3.99 trillion in 2000-

01. The segments with the largest growth potential have been

identified as dairy, wheat, fruits and vegetables, and poultry. This

report has also identified some of the major challenges for the

emerging food industry in India

With the global economy beginning to perk-up, India’s food processing

industry is expected to benefit from this and grow to around $260

billion from the present $200 billion in the next 6-years, an industry

expert said.

“The food processing industry will grow 30-40 per cent as against the

present 15 per cent in the next 10-years,” Ernst and Young’s Associate

Director, Shrikanth Kamat, said.

The food sector has a huge potential and the industry’s growth would

reach $320 billion by 2020, Mr. Kamat said in his presentation on

13
technology for the food processing industry; business potential

between Argentina and India, here.

Potential for processed foods is estimated to reach from Rs 8,200-

billion in 2009-10 to Rs 13,500-billion by 2014-15, he said.

India produces 41 per cent of the world’s mangoes, 30 per cent of

cauliflowers, 28 per cent of tea, 23 per cent of cashews, 36 per cent of

green peas and 10 per cent of onions.

India is a large and growing market for food products as it is growing at

about 1.6 per cent annum, Mr. Kamat said.

On the global food sector, Mr. Kamat said the food products industry is

expected to reach $3,137.2 billion by 2011.

“Global food, beverage and tobacco industry will continue to grow with

major contributions from developing countries as China and India,” Mr.

Kamat said.

Only 6 per cent of total agro output of India is currently processed as

against 80 per cent in some developed countries, Mr. Kamat said.

Currently food products in the organised sector are high-priced

because of multiple taxes. The Goods and Services Tax (GST) which is

proposed to be implemented from April 1, 2010, will help reduce prices

of manufactured products, he added.

14
 CHALLENGES IN FOOD PROCESSING

Unprocessed foods are susceptible to spoilage by biochemical

processes, microbial attack and infestation. The right post harvest

practices such as good processing techniques, and proper packaging,

transportation and storage (of even processed foods) can play a

significant role in reducing spoilage and extending shelf life. The

challenges in processing lie in retaining the nutritional value, flavour,

aroma, and texture of foods, and presenting them in near natural form

with added conveniences. However, such qualities cannot be readily

quantified and correlated with physico-chemical parameters, sensory

evaluations providing the only means of benchmarking. Besides,

processed foods need to be offered to the consumer in hygienic and

attractive packaging, and at low incremental costs.

The challenges for the food preservation, distribution and

processing sectors are diverse and demanding, and need to be

addressed on several fronts to derive maximum market benefits.

Presently, the organizations addressing the educational and R & D

requirements are too few, and there is a pressing need for

supplementing their efforts. In the emerging scenario, the Food

Engineering professional needs to develop sufficient awareness and

appreciation of the relevant principles of life sciences, and physical

sciences, as well as of a wide variety of other topics including:

nutrition, preservation and storage techniques, processing unit

15
operations, bio-processing, waste management, distribution and

supply chain management, food laws and regulations and so on.

Besides, the professional needs to develop an appreciation of R&D and

innovation in critical technology areas such as: newer or novel process

development in preservation and storage techniques, rheology,

colloids and dispersal systems, packaging-polymers and composites,

sensors for detection and process control, bioprocess engineering, and

so on.

16
 RESEARCH AND REVIEW

The food processing sector is highly fragmented industry, it widely

comprises of the following sub-segments: fruits and vegetables, milk

and milk products, beer and alcoholic beverages, meat and poultry,

marine products, grain processing, packaged or convenience food and

packaged drinks. A huge number of entrepreneurs in this industry are

small in terms of their production and operations, and are largely

concentrated in the unorganized segment. This segment accounts for

more than 70% of the output in terms of volume and 50% in terms of

value. Though the organized sector seems comparatively small, it is

growing at a much faster pace.

Source: D&B Research

17
Structure of the Indian Food Processing Industry

Food Processing Units in Organized Sector (numbers)

Source: Ministry of Food Processing Industries, Annual Report 2003-04

Industry Sub-Segments

Fruits & Vegetables

18
The installed capacity of fruits and vegetables processing industry has

doubled from 1.1 mn tonnes in January 1993 to 2.1 mn tonnes in 2006.

Presently, the processing of fruits and vegetables is estimated to be

around 2.2% of the total production in the country. The major

processed items in this segment are fruit pulps and juices, fruit based

ready-to-serve beverages, canned fruits and vegetables, jams,

squashes, pickles, chutneys and dehydrated vegetables. The new

arrivals in this segment are vegetable curries in retortable pouches,

canned mushroom and mushroom products, dried fruits and

vegetables and fruit juice concentrates.

The fruits and vegetable processing industry is rather fragmented. A

large number of units are in household and small-scale sector, having

low capacities of up to 250 tonnes per annum. From the year 2000

onwards the industry has seen a significant growth in ready-to-serve

beverages, pulps and fruit juices, dehydrated and frozen fruits and

vegetable products, pickles, processed mushrooms and curried

vegetables, and units engaged in these segments are export oriented.

Exports of Processed Fruits & Vegetables (Quantity in MT, Value

in Rs Mn)

19
Source: Ministry of Food Processing Industries, Annual Report 2005-06

Milk and Milk Products

India is with highest livestock populations in the world, it accounts 50%

of the buffaloes and 20% of the world’s cattle population, most of

which are milch cows and milch buffaloes. India’s dairy industry is

considered as one of the most successful development industry in the

post-Independence era.

In 2005-06 total milk productions in the country was over 90 million

tonnes with a per capita availability of 229 gms per day. During 1993-

2005, the dairy industry recorded an annual growth of 4%, which is

almost 3 times the average growth rate of the dairy industry in the

world. The total milk processing in India is around 35%, of which the

organized dairy industry accounts for 13% while remaining is either

consumed at farm level, or sold as fresh, non-pasteurized milk through

unorganized channels.

20
In an organized dairy industry, dairy cooperatives account for the

major share of processed liquid milk marketed in India. Milk is

processed and marketed by 170 Milk Producers’ Cooperative Unions,

which federate into 15 State Cooperative Milk Marketing Federations.

Over the years, several brands have been created by cooperatives like

Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini

(Karnataka), Milma (Kerala) and Gokul (Kolhapur).

The milk surplus states in India are Uttar Pradesh, Punjab, Haryana,

Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil

Nadu. The manufacturing of milk products is very much concentrated

in these states due to the availability of milk in huge quantity.

According to the Ministry of Food Processing Industries, exports of

dairy products have been growing at the rate of 25% per annum in

terms of quantity and 28% in terms of value since 2001. Significant

investment opportunities exist for the manufacturing of value-added

milk products like milk powder, packaged milk, butter, ghee, cheese

and ready-to-drink milk products.

Meat & Poultry

Since 1995, production of meat and its products has been significantly

growing at a rate of 4% per annum. Presently the processing level of

buffalo meat is estimated at 21%, poultry is estimated at 6% while

21
marine products are estimated at 8%. But only about 1% of the total

meat is converted into value added products like sausages, ham,

bacon, kababs, meatballs, etc. Processing of meat is licensed under the

Meat Food Products Order, 1973. Presently the country has 3,600

slaughterhouses, 9 modern abattoirs and 171 meat-processing units

licensed under the meat products order.

Poultry industry is also among the faster growing sectors rising at a

rate of 8% per year. It is observed that the vertical integration of

poultry production and marketing has lowered costs of production,

consumer prices of poultry meat and marketing margins. There are

eight integrated poultry processing units in the country, which of

course hold a significant share in the industry.

Exports of Meat and Meat Products (Quantity in MT, Value in Rs

Mn)

Source: Ministry of Food Processing Industries, Annual Report 2005-06

22
Meat export is largely driven by poultry, buffalo, sheep and goat meat,

which is growing at close to 30% per annum in terms of quantity. It is

considered that the growing number of fast food outlets in the country

has and will have a notable impact on the meat processing industry.

Marine Products

India is the largest fish producing country in the world it is the third

largest fish producer in the world while ranks second in inland fish

production. Categorically India’s potential for fishes, from both inland

and marine resources, is supplemented by the 8,000 km coastline, 3

mn hectares of reservoirs, 50,600 sq km of continental shelf area, 1.4

mn hectares of brackish water and 2.2 mn sq km of exclusive

economic zone.

Processing of marine produce into canned and frozen forms is carried

out fully for the export market. With regards to infrastructure facilities

for processing of marine products there are 372 freezing units with a

daily processing capacity of 10,320 tonnes and 504 frozen storage

facilities for safe storage with a capacity of 138,229.10 tonnes, besides

there are 11 surimi units, 473 pre-processing centres and 236 other

storages.

Processed fish products for export include conventional block frozen

products, individual quick frozen products (IQF), minced fish products

23
like fish sausage, cakes, cutlets, pastes, surimi, texturised products

and dry fish etc.

Exports of marine products have been inconsistent and on a declining

trend which can be owed to the adverse market conditions prevailing

in the European and American markets. The anti-dumping procedure

initiated by the US Government has affected India’s shrimp exports to

the US.

Fish Production & Exports

Source: Ministry of Food Processing Industries, Annual Report 2005-06

Grain Processing

Processing of grain includes milling of wheat, rice and pulses. In 1999-

00, there were more than 91,000 rice hullers and 2,60,000 small

flourmills which were engaged in primary milling. There are 43,000

modernized rice mills and huller-cum-shellers. Around 820 large

flourmills in the country convert about 10.5 mn tonnes of wheat into

24
wheat products. Also there are 10,000 pulse mills milling about 75% of

pulse production of 14 mn tonnes in the country.

Primary milling of grains is the considered to be the important activity

in the grain-processing segment of the industry. However, primary

milling adds little to shelf life, wastage control and value addition.

Around 65% of rice production is milled in modern rice mills. However,

the sheller-cum-huller mills operating give low recovery. Wheat is

processed for flour, refined wheat flour, semolina and grits. Apart from

the 820 large flourmills, there are over 3 lakh small units operating in

this segment in the unorganised sector. Dal milling is the third largest

in the grain processing industry, and have about 11,000 mechanised

mills in the organised segment. Oilseed processing is another major

segment, an activity largely concentrated in the cottage industry.

According to estimates, there are approximately 2.5 lakh ghanis and

kolus which are animal operated oil expellers, 50,000 mechanical oil

expellers, 15,500 oil mills, 725 solvent extraction plants, 300 oil

refineries and over 175 hydrogenated vegetable oil plants.

Indian Basmati rice has gained international recognition, and is a

premium export product. Branded grains as well as grain processing is

now gaining popularity due to hygienic packaging.

25
Beer & Alcoholic Beverages

When discussed on alcoholic beverages, India is considered to be the

third largest market for alcoholic beverages in the world. The domestic

beer and alcoholic beverage market is largely dominated by United

Breweries, Mohan Meakins and Radico Khaitan. The demand for beer

and spirits is estimated to be around 373 million cases per year. There

are 12 joint venture companies having a licensed capacity of 33,919

kilo-litres per annum for production of grain based alcoholic beverages.

Around 56 units are manufacturing beer under license from the

Government of India.

Country liquor and Indian Made Foreign Liquor are the two segments in

liquor; both cater to different sections of society . The former is very

much consumed in rural areas and by low-income groups, while the

middle and high-income groups consume the latter.

Liquor license outlets in India figures approximately 23,000 with

another 10,000 outlets in the form of bars and restaurants. Regulations

in this sector differ state-wise in terms of excise and custom duty. In

Tamil Nadu, Kerala and Andhra Pradesh, the distribution is controlled

by the state government, and any change XVIII in the ruling party has

a direct impact on the availability of alcohol.

26
The wine industry in India has come into prominence lately and has

been receiving support from the Government as well, to promote the

industry,. The market for this industry has been estimated to be

growing at around 25% annually. Maharashtra has emerged as an

important state for the manufacture of wines.

Consumer Foods

This segment comprises of packaged foods, aerated soft drinks,

packaged drinking water and alcoholic beverages.

Packaged / Convenience Foods

Consumer food industry mainly consists of ready-to-eat and ready-to-

cook products, salted snacks, chips, pasta products, cocoa based

products, bakery products, biscuits, soft drinks, etc.

There are around 60,000 bakeries, several pasta food units and 20,000

traditional food units and in India. The bakery industry is among the

few processed food segments whose production has been increasing

consistently in the country in the last few years. Products of bakery

include bread, biscuits, pastries, cakes, buns, rusk etc. This activity is

mostly concentrated in the unorganized sector. Bread and biscuits

constitute the largest segment of consumer foods with an annual

production of around 4.00 million tonnes. Bread manufacturing is

reserved for the small-scale sector. Out of the total production of

27
bread, 40% is produced in the organized sector and remaining 60% in

the unorganised sector, in the production of biscuits the share of

unorganized sector is about 80%.

Cocoa Products

Cocoa products like chocolates, drinking chocolate, cocoa butter

substitutes, cocoa based malted milk foods are highly in demand these

days, 20 production units are engaged in their manufacture with an

annual production of about 34,000 tonnes.

Soft drinks

After packed tea and packed biscuits the soft drink segment is

considered to be the 3rd largest in the packaged foods industry. Over

100 plants are engaged in aerated soft drinks industry and provide

huge employment. It has obviously attracted one of the highest FDI in

the country. Strong forward and backward linkages with glass, plastic,

refrigeration, sugar and the transportation industry further strengthen

the position of the industry. Soft drink segment has a huge potential in

the Indian market, as a vast portion of the market is still to cover.

Exports of Consumer Foods (Quantity in MT, Value in Rs Mn)

28
Source: Ministry of Food Processing Industries, Annual Report 2005-06

29
Constraints & Drivers of Growth

Changing lifestyles, food habits, organized food retail and urbanization

are the key factors for processed foods in India, these are post-

liberalization trends and they give boost to the sector.

There has been a notable change in consumption pattern in India.

Unlike earlier, now the share and growth rates for fruits, vegetables,

meats and dairy have gone higher compared to cereals and pulses.

Such a shift implies a need to diversify the food production base to

match the changing consumption preferences.

Also in developed countries it has been observed that there has been a

shift from carbohydrate staple to animal sources and sugar. Going by

this pattern, in future, there will be demand for prepared meals, snack

foods and convenience foods and further on the demand would shift

towards functional, organic and diet foods.

Some of the key constraints identified by the food processing

industry include:

• Poor infrastructure in terms of cold storage, warehousing, etc

• Inadequate quality control and testing infrastructure
• Inefficient supply chain and involvement of middlemen
• High transportation and inventory carrying cost
• Affordability, cultural and regional preference of fresh food
• High taxation
• High packaging cost

30
In terms of policy support, the ministry of food processing has

taken the following initiatives:

• Formulation of the National Food Processing Policy

• Complete de-licensing, excluding for alcoholic beverages
• Declared as priority sector for lending in 1999
• 100% FDI on automatic route
• Excise duty waived on fruits and vegetables processing from
2000 – 01
• Income tax holiday for fruits and vegetables processing from
2004 – 05
• Customs duty reduced on freezer van from 20% to 10% from
2005 – 06
• Implementation of Fruit Products Order
• Implementation of Meat Food Products Order
• Enactment of FSS Bill 2005
• Food Safety and Standards Bill, 2005

Apart from these initiatives, the Centre has requested state

Governments to undertake the following reforms:

• Amendment to the APMC Act

• Lowering of VAT rates

• Declaring the industry as seasonal

• Integrate the promotional structure

31
SWOT Analysis of Food–Processing Industry
Strengths

• Abundant availability of raw material

• Priority sector status for agro-processing given by the central
Government
• Vast network of manufacturing facilities all over the country
• Vast domestic market

Weaknesses

• Low availability of adequate infrastructural facilities

• 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.
• Seasonality of raw material

Opportunities

• Large crop and material base offering a vast potential for agro
processing activities
• Setting of SEZ/AEZ and food parks for providing added incentive
to develop greenfield projects
• Rising income levels and changing consumption patterns
• Favourable demographic profile and changing lifestyles
• Integration of development in contemporary technologies such
as electronics, material science, bio-technology etc. offer vast
scope for rapid improvement and progrers
• Opening of global markets

32
Threats

• Affordability and cultural preferences of fresh food

• High inventory carrying cost
• High taxation
• High packaging cost

33
 CRITICAL ANALYSIS

The Indian food processing sector comprises of the segments like

fruits and vegetables, milk and milk products, beer and alcoholic

beverages, meat and poultry, marine products, grain processing,

packaged or convenience food and packaged drinks.

A huge number of entrepreneurs in this industry are small in terms

of their production and operations and are largely concentrated in

the unorganized segment. This segment accounts for more than

70% of the output in terms of volume and 50% in terms of value.

According to Ministry of Food Processing Industries, Government of

India sources, presently, the processing of fruits and vegetables is

estimated to be around 2.2% of the total production in the country.

The major processed items in this segment are fruit pulps and

juices, fruit based ready-to-serve beverages, canned fruits and

vegetables, jams, squashes, pickles, chutneys and dehydrated

vegetables. The new arrivals in this segment are vegetable curries

in canned mushroom and mushroom products, dried fruits and

vegetables and fruit juice concentrates.

India is with highest livestock populations in the world, it accounts

50% of the buffaloes and 20% of the world’s cattle population, most

of which are milch cows and milch buffaloes. India’s dairy industry

34
is considered as one of the most successful development industry in

the post-Independence era.

The dairy industry recorded an annual growth of 4%, which is

almost 3 times the average growth rate of the dairy industry in the

world. The total milk processing in India is around 35%, of which the

organized dairy industry accounts for 13% while remaining is either

consumed at farm level, or sold as fresh, non-pasteurized milk

through unorganized channels.

In an organized dairy industry, dairy cooperatives account for the

major share of processed liquid milk marketed in India. Milk is

processed and marketed by 170 Milk Producers’ Cooperative

Unions, which federate into 15 State Cooperative Milk Marketing

Federations. Over the years, several brands have been created by

cooperatives like Amul (GCMMF, Gujarat), Vijaya (Andhra Pradesh),

Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka),Milma

(Kerala) and Gokul (Kolhapur).

The milk surplus states in India are Uttar Pradesh, Punjab, Haryana,

Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and

Tamil Nadu. The manufacturing of milk products is very much

concentrated in these states due to the availability of milk in huge

quantity.

35
According to the Ministry of Food Processing Industries, exports of

dairy products have been growing at the rate of 25% per annum in

terms of quantity and 28% in terms of value since 2001. Significant

investment opportunities exist for the manufacturing of value-

added milk products like milk powder, packaged milk, butter, ghee,

cheese and ready-to-drink milk products.

The production of meat and its products has been significantly

growing at a rate of 4% per annum. Presently the processing level

of buffalo meat is estimated at 21%, poultry is estimated at 6%

while marine products are estimated at 8%. But only about 1% of

the total meat is converted into value added products like

sausages, ham, bacon, kababs, meatballs, etc. Processing of meat

is licensed under the Meat Food Products Order, 1973. Presently the

country has 3,600 slaughterhouses, 9 modern abattoirs and 171

meat-processing units licensed under the meat products order.

Poultry industry is also among the faster growing sectors rising at a

rate of 8% per year. It is observed that the vertical integration of

poultry production and marketing has lowered costs of production,

consumer prices of poultry meat and marketing margins. There are

eight integrated poultry processing units in the country, which of

course hold a significant share in the industry.

36
Meat export is largely driven by poultry, buffalo, sheep and goat

meat, which is growing at close to 30% per annum in terms of

quantity. It is considered that the growing number of fast food

outlets in the country has and will have a notable impact on the

meat processing industry.

India is the largest fish producing country in the world it is the third

largest fish producer in the world while ranks second in inland fish

production. Categorically India’s potential for fishes, from both

inland and marine resources, is supplemented by the 8,000 km

coastline, 3 million hectares of reservoirs, 50,600 sq km of

continental shelf area, 1.4 million hectares of brackish water and

2.2 million sq km of exclusive economic zone.

Processing of marine produce into canned and frozen forms is

carried out fully for the export market. With regards to

infrastructure facilities for processing of marine products there are

372 freezing units with a daily processing capacity of 10,320 tons

and 504 frozen storage facilities for safe storage with a capacity of

138,229.10 tons, besides there are 473 pre-processing centers and

236 other storages.

Processed fish products for export include conventional block frozen

products, individual quick frozen products (IQF), minced fish

products like fish sausage, cakes, cutlets, pastes, products and dry

37
fish etc.

Exports of marine products have been inconsistent and on a

declining trend which can be owed to the adverse market conditions

prevailing in the European and American markets. The anti-

dumping procedure initiated by the US Government has affected

India’s shrimp exports to the US.

Processing of grain includes milling of wheat, rice and pulses. There

are more than 91,000 rice hullers and 260,000 small flourmills

which were engaged in primary milling. There are 43,000

modernized rice mills and huller-cum-shellers. Around 820 large

flourmills in the country convert about 10.5 million tons of wheat

into wheat products. Also there are 10,000 pulse mills milling about

75% of pulse production of 14 million tons in the country.

Primary milling of grains is the considered to be the important

activity in the grain-processing segment of the industry.

However, primary milling adds little to shelf life, wastage control

and value addition. Around 65% of rice production is milled in

modern rice mills. However, the sheller-cum-huller mills operating

give low recovery.

Wheat is processed for flour, refined wheat flour, semolina and

grits. Apart from the 820 large flourmills, there are over 300000

small units operating in this segment in the unorganized sector.

38
Pulses milling is the third largest in the grain processing industry,

and have about 11,000 mechanized mills in the organized segment.

Oilseed processing is another major segment, an activity largely

concentrated in the cottage industry. According to estimates, there

are approximately 250000 oil extraction mills which are animal

operated oil expellers, 50000 mechanical oil expellers, 15500 oil

mills, 725 solvent extraction plants, 300 oil refineries and over 175

hydrogenated vegetable oil plants.

Indian Basmati rice has gained international recognition, and is a

premium export product. Branded grains as well as grain processing

is now gaining popularity due to hygienic packaging.

When discussed on alcoholic beverages, India is considered to be

the third largest market for alcoholic beverages in the world. The

domestic beer and alcoholic beverage market is largely dominated

by United Breweries, Mohan Meakins and Radico Khaitan. The

demand for beer and spirits is estimated to be around 373 million

cases per year. There are 12 joint venture companies having a

licensed capacity of 33919 kilo-litres per annum for production of

grain based alcoholic beverages. Around 56 units are manufacturing

beer under license from the Government of India.

Country liquor and Indian Made Foreign Liquor are the two

segments in liquor; both cater to different sections of society. The

39
former is very much consumed in rural areas and by low-income

groups, while the middle and high-income groups consume the

latter.

Liquor license outlets in India figures approximately 23000 with

another 10000 outlets in the form of bars and restaurants.

Regulations in this sector differ state-wise in terms of excise and

custom duty. In Tamil Nadu, Kerala and Andhra Pradesh, the

distribution is controlled by the state government, and any change

XVIII in the ruling party has a direct impact on the availability of

alcohol.

The wine industry in India has come into prominence lately and has

been receiving support from the Government as well, to promote

the industry. The market for this industry has been estimated to be

growing at around 25% annually. Maharashtra has emerged as an

important state for the manufacture of wines.

The consumer food segment comprises of packaged foods, aerated

soft drinks, packaged drinking water and alcoholic beverages.

Consumer food industry mainly consists of ready-to-eat and ready-

to-cook products, salted snacks, chips, pasta products, cocoa based

products, bakery products, biscuits, soft drinks, etc.

There are around 60000 bakeries, several pasta food units and

20000 traditional food units and in India. The bakery industry is

40
among the few processed food segments whose production has

been increasing consistently in the country in the last few years.

Products of bakery include bread, biscuits, pastries, cakes, buns,

rusk etc. This activity is mostly concentrated in the unorganized

sector. Bread and biscuits constitute the largest segment of

consumer foods with an annual production of around 400 million

tons. Bread manufacturing is reserved for the small-scale sector.

Out of the total production of bread, 40% is produced in the

organized sector and remaining 60% in the unorganized sector, in

the production of biscuits the share of unorganized sector is about

80%.

Cocoa products like chocolates, drinking chocolate, cocoa butter

substitutes, cocoa based malted milk foods are highly in demand

these days, 20 production units are engaged in their manufacture

with an annual production of about 34000 tons.

After packed tea and packed biscuits the soft drink segment is

considered to be the 3rd largest in the packaged foods industry.

Over 100 plants are engaged in aerated soft drinks industry and

provide huge employment. It has obviously attracted one of the

highest FDI in the country. Strong forward and backward linkages

with glass, plastic, refrigeration, sugar and the transportation

industry further strengthen the position of the industry. Soft drink

41
segment has a huge potential in the Indian market, as a vast

portion of the market is still to cover.

Changing lifestyles, food habits, organized food retail and

urbanization are the key factors for processed foods in India, these

are post-liberalization trends and they give boost to the sector.

There has been a notable change in consumption pattern in India.

Unlike earlier, now the share and growth rates for fruits, vegetables,

meats and dairy have gone higher compared to cereals and pulses.

Such a shift implies a need to diversify the food production base to

match the changing consumption preferences.

Also in developed countries it has been observed that there has

been a shift from carbohydrate staple to animal sources and sugar.

Going by this pattern, in future, there will be demand for prepared

meals, snack foods and convenience foods and further on the

demand would shift towards functional, organic and diet foods.

Some of the key constraints identified by the food processing

industry include poor infrastructure in terms of cold storage,

warehousing, etc, inadequate quality control and testing

infrastructure, inefficient supply chain and involvement of

middlemen, high transportation and inventory carrying cost,

affordability, cultural and regional preference of fresh food, high

taxation, high packaging cost.

42
 BIBLIOGRAPHY

http://www.ircc.iitb.ac.in/~webadm/update/archives/Issue1_2004/focus

.html

http://www.ibef.org/artdispview.aspx?

in=22&art_id=25848&cat_id=498&page=2

http://www.foodproductiondaily.com/Supply-Chain/Indian-food-

processing-industry-poised-for-huge-growth

http://beta.thehindu.com/business/Industry/article34524.ece

43