Food Processing Sector

India's food processing sector offers significant potential for enhancing farm income, creating off-farm employment, and reducing post-harvest losses. Abundant raw materials, government support, and favourable geographic factors present opportunities for expansion. However, challenges such as supply chain issues , inadequate infrastructure, marketing constraints and skilled manpower shortages persist. Policy initiatives like the Sampada Yojana and Mega Food Parks address these issues, aiming to link agricultural production to the market and increase value addition. To further boost competitiveness, measures like establishing a Food Processing Bank and implementing quality control mechanisms are necessary. Overall, the sector plays a crucial role in agricultural sustainability and economic growth through reducing wastage and enhancing export income.

Despite India's prominent position as a top producer of fruits, vegetables, milk, and other agricultural goods, the level of food processing in the country remains relatively low. The food processing industry holds significant potential for enhancing farm income, generating off-farm employment opportunities, and mitigating post-harvest losses in agricultural production by investing in preservation and processing infrastructure, both on and off the farm. Essentially, the food processing sector involves the conversion of raw agricultural produce into processed food products using various chemical and mechanical operations.

The food processing sector stands out as a significant contributor to employment within the organized manufacturing sector, accounting for 12.22% of total registered/organized sector employment. Furthermore, the proportion of processed food exports in agricultural exports has notably risen from 13.7% in 2014-15 to 25.6% in 2022-23. Over the past seven years leading up to 2021-22, the food processing sector has demonstrated steady growth, with an Average Annual Growth Rate (AAGR) of approximately 7.26%. Accordingly, the Ministry of Food Processing Industries has undertaken several initiatives to give impetus to development of the food processing sector in the country.
The Food Processing sector is hailed as a sunrise industry due to several compelling reasons:

• Multi-sector Linkages: It fosters crucial linkages and synergies between two fundamental pillars of the economy - industry and agriculture, thereby facilitating mutual growth and development.
• Employment Opportunities: With a substantial 12% share in total employment, the food processing sector serves as a significant provider of jobs, contributing to livelihoods and economic stability.
• Enhancing Farmer Incomes: By providing avenues for value addition and market access, the food processing industry enables farmers to secure remunerative prices for their produce, aligning with the government's ambitious target of doubling farmers' income.
• Reduction in Food Wastage: A robustly developed food processing industry plays a pivotal role in mitigating food wastage through efficient preservation and processing techniques, thereby addressing critical issues of food security and resource conservation.
• Contribution to GDP and Foreign Exchange: By driving GDP growth and facilitating exports, the food processing sector significantly contributes to economic prosperity, earning crucial foreign exchange and bolstering India's position in the global market

The Food Processing Industry (FPI) in India is poised with numerous opportunities, leveraging its strengths and favourable conditions:

• Abundant Raw Material Availability: India's top global rankings in the production of milk, spices, pulses, food grains, fruits, and vegetables ensure a steady and diverse supply of raw materials, providing a strong foundation for food processing activities.
• Government Support: With attractive fiscal incentives and substantial investments in ports, logistics, and supply chain infrastructure, the government's backing further enhances the growth prospects of the FPI.
• Favorable Geographical Factors: India's advantageous geographical features, including diverse soil types, favorable agro-climates, ample freshwater resources, and a vast coastline, create conducive conditions for agricultural production and food processing.
• Extensive Manufacturing Facilities: A well-established network of manufacturing facilities, coupled with India's strategic geographic location and proximity to food-importing nations, positions the country favorably for the export of processed foods.
• Demographic Dividend: India's rich demographic dividend, combined with a strong emphasis on skill development, ensures the availability of skilled personnel, which is particularly advantageous for the labor-intensive FPI.
• Rapid Growth Rate: The high growth trajectory witnessed by the FPI in recent years reflects its potential and attractiveness as a thriving sector with promising opportunities for expansion and investment.
• Growing Local Demand: With a population exceeding 1.4 billion and increasing demand for branded food products, the domestic market presents significant growth prospects for the FPI.
• Global Market Access: The easing of trade barriers and improved accessibility to global markets provide ample opportunities for Indian food processors to expand their reach and tap into international demand.
• Infrastructure Investment Opportunities: Investments in state-of-the-art infrastructure such as cold storage, reefers, ripening chambers, food testing labs, modern storage facilities, and research and development (R&D) infrastructure present lucrative avenues for growth and innovation within the sector.
• Diversification of Processing: The development of new products such as fortified foods, health foods, traditional Indian delicacies, and convenience foods caters to evolving consumer preferences and opens up new avenues for value addition and market expansion within the processing segment of the FPI.

• Supply Chain Issues: The complexity of the food supply chain, coupled with irregular and unreliable raw material supply, inadequate cold storage facilities, and poor transport connectivity, contributes to supply chain inefficiencies and increases logistics costs.
• High Storage and Packaging Costs: The high cost of storing processed foods, exacerbated by expensive packaging materials, adds to the overall production cost burden, reducing profitability for food processors.
• Inadequate Export Infrastructure: Insufficient export-related infrastructure, including ports and airports, limits the ability of Indian food processors to effectively reach international markets and compete with global leaders.
• Food Wastage: High levels of food wastage, estimated at 40% by the FAO, and low processing rates of agricultural produce pose significant challenges to the sustainability and efficiency of the FPI.
• Marketing Challenges: Intense competition from established global players, coupled with limited funding for branding and marketing activities, restricts the market penetration and growth potential of Indian food products, both domestically and internationally.
• Skilled Manpower Shortage: The lack of adequately skilled manpower, particularly in various levels of food processing, hampers the efficiency and productivity of FPI operations.
• Quality Standards Compliance: Non-compliance with quality standards due to inadequate infrastructure for standardization and certification, coupled with a lack of trained personnel and certification agencies, undermines consumer trust and market competitiveness.
• Cultural Preferences: Cultural preferences for fresh food and a prevailing taboo against processed foods in India pose challenges for market acceptance and consumer adoption of processed food products.
• Low R&D Funding: Inadequate funding for research and development in the food processing sector limits innovation and technological advancement, hindering competitiveness and product diversification.
• Scheme Inefficiencies: Overlapping and ambiguous government schemes, coupled with inefficient implementation, fail to address critical challenges effectively, leading to resource wastage and ineffective policy outcomes.
• Lack of Indigenous Production: Dependency on imported food processing equipment due to limited indigenous production capabilities restricts technological advancements and innovation within the sector.

• Access to Micro-Enterprise Opportunities: Through schemes like Mudra loans and other government initiatives, poor farmers can establish micro-enterprises in the food processing sector. These ventures offer a viable pathway for farmers to diversify their income streams and improve their economic status.
• Social Empowerment through Ownership: Owning and operating a food processing enterprise not only provides financial benefits but also enhances social status within the community. This sense of ownership fosters empowerment and uplifts the overall socio-economic well-being of farmers.
• Income Enhancement through Value Addition: Food processing adds value to agricultural produce, enabling farmers to fetch higher prices for their goods. By processing raw materials into value-added products such as packaged foods, sauces, jams, or pickles, farmers can significantly increase their income.
• Partnership Opportunities with Larger Companies: Small food processing units can collaborate with larger food companies as outsourced agents. The implementation of the GST input tax credit mechanism facilitates seamless transactions between smaller processors and larger companies, creating mutually beneficial partnerships.

The poor acceptance of cost-effective small processing units can be attributed to several key factors:

• Limited Investment in Marketing and Branding: Small units often lack the financial resources to invest in marketing and branding, resulting in low visibility and returns.
• Intense Competition from Global Leaders: Small units face stiff competition from global giants in the food processing industry, making it difficult to compete effectively.
• Inability to Meet International Standards: Small units may struggle to meet international standards of packaging and labeling, limiting access to export markets.
• Infrastructure Challenges: Inadequate infrastructure, such as cold storage facilities and logistics support, hampers operational efficiency and product quality.
• Skill Shortages and Manpower Issues: Lack of skilled manpower affects competitiveness and operational effectiveness.

• Exemption from Licensing: Processed food items are exempted from licensing under the Industries (Development and Regulation) Act, 1951, easing regulatory burdens for businesses.
• Foreign Direct Investment (FDI): 100% FDI is permitted through an automatic route for the food processing sector, with additional provisions for trading in food products produced in India.
• Lower GST Rates: More than 70% of food products fall under lower tax slabs of 0% & 5%, encouraging production and consumption within the sector.
• Production Linked Incentive Scheme (PLIS): Launched by the Ministry of Food Processing Industries (MoFPI), PLIS aims to create global food champions and enhance the visibility of Indian food brands abroad for the period 2021-22 to 2026-27.
• PM Formalisation of Micro Food Processing Enterprises Scheme (PMFME): This centrally sponsored scheme provides technical, financial, and business support to set up and upgrade 2 lakh Micro Food Processing Enterprises.
• Fiscal Incentives for MSMEs: MSMEs in the food processing sector receive fiscal benefits such as capital subsidies, tax rebates, and reduced customs and excise duties.
• Priority Sector Lending (PSL): Food and agro-based processing units, along with cold chain infrastructure, have been categorized as priority sectors for lending.
• Mega Food Parks: Government-supported mega food parks provide common infrastructure facilities, reducing investment requirements for individual companies.
• PM Kisan Sampada Yojana: Funding is provided for the establishment of cold chain infrastructure under this scheme.
• Operation Green: Subsidies are provided for processing, transformation, and cold storage of select vegetables to ensure year-round availability at reasonable prices.
• Nivesh Bandhu – Investors’ Portal: A portal that provides information on government policies and incentives for the food processing sector.
• Agriculture Infrastructure Fund: Banks and NBFCs are providing loans worth 1 lakh crores for post-harvest management infrastructure such as warehouses and cold storage facilities.
• Agriculture export policy, 2018:
  • The agriculture export policy by the Commerce Ministry aims to assist exporters in addressing sanitary and phytosanitary (SPS) issues through bodies like Agricultural and Processed Food Products Export Development Authority (APEDA) and Food Safety and Standards Authority of India (FSSAI), thereby lowering compliance costs for the food processing sector.
  • Additionally, it emphasizes promoting and marketing Indian ethnic products such as canned Indian cuisine like sarso ka saag, Agra petha, and Hyderabadi biryani in international markets, focusing on branding and packaging.

• Entrepreneurship Before and After Independence: North-West India has a rich history of entrepreneurship, supported by a well-established banking network even before independence. This facilitated easy access to credit for entrepreneurs, laying the groundwork for industrial growth.
• Green Revolution: The states of Punjab and Haryana reaped significant benefits from the Green Revolution, which led to the modernization of agriculture and a surge in production. This abundance of agricultural produce served as a foundation for food processing industries.
• LPG Reforms in the 1990s: The liberalization, privatization, and globalization (LPG) reforms in the 1990s opened doors for multinational companies like PepsiCo to undertake contract farming projects in Punjab. This initiative, focusing on crops like potato, chili, and tomatoes, spurred the growth of processing industries producing chips, snacks, and other products.
• Raw Material Availability: Punjab and Haryana have well-developed dairy industries, and locally available bulky and perishable items like wheat and milk serve as essential raw materials for food processing. Additionally, the favorable soil, climate, and topography of the region make it conducive for growing wheat, rice, and other food grains.
• Government Support: The establishment of Mega Food Parks in Punjab, Haryana, and Rajasthan, equipped with common infrastructure for weighing, packaging, labeling, and marketing, has provided a significant boost to food processing entrepreneurs. This government support encourages investment and growth in the sector.
• Proximity to Market: The North-West region, particularly the Delhi-NCR and Uttar Pradesh areas, boasts high population density, resulting in instant demand for processed food items such as bread, biscuits, and spices. Moreover, the large Punjabi NRI diaspora abroad creates a market for processed and canned food products from companies in the region.

• The Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) is a vital initiative aimed at enhancing India's food processing sector. Initially allocated Rs. 6,000 crore for the 2016-20 period (extended to 2020-21) under the 14th Finance Commission cycle, it has been restructured for the 15th Finance Commission cycle with Rs. 4,600 crore. PMKSY integrates ongoing schemes of the Ministry of Food Processing Industries (MoFPI), including Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, Food Safety and Quality Assurance Infrastructure, and Infrastructure for Agro-processing Clusters.
• The Mega Food Parks Scheme, a key component of PMKSY, aims to link agricultural production to the market by bringing together farmers, processors, and retailers. These parks maximize value addition, minimize wastage, increase farmers' income, and create employment opportunities, particularly in rural areas. Each Mega Food Park includes supply chain infrastructure such as collection centers, processing centers, cold chain facilities, and food processing units. This integration facilitates efficient processing, storage, and distribution of agricultural produce, thereby bolstering the food processing sector and enhancing the agricultural value chain.

To further enhance the growth and competitiveness of the food processing industry, several policy measures should be considered and implemented. The proposal for establishing a Food Processing Bank, currently under consideration, could effectively address the issue of credit accessibility for entrepreneurs in the sector. Additionally, the implementation of the Model Contract Farming Act would facilitate crucial backward linkages necessary for scaling up and ensuring the economic viability of food processing ventures. Prioritizing sector credit for all related activities within the food processing industry, along with extending fiscal incentives for technology upgradation of existing facilities, would further support its development. Quality control mechanisms aligned with global standards, facilitated through specialized institutes, are imperative to ensure the quality and safety of processed food products. Moreover, introducing courses in food packaging, processing, and biotechnology at Agricultural Universities would contribute to the development of skilled personnel in the sector. Ultimately, the food processing industry holds the potential to significantly reduce the wastage of perishable agricultural produce and boost our export income, thereby contributing to agricultural sustainability and economic growth.