Food Processing Sector in India
The food processing sector is critical to India’s
development. It establishes vital linkages and
synergy between industry & agriculture, the
two pillars of the economy. India is the world’s
second largest producer of food and holds the
potential to become the food provider of world.
The growth of this industry will bring immense
benefits to the economy, raising agricultural
yields, enhancing productivity, creating employment
and raising life-standards of people across the
country, especially in rural areas.
This industry ranks fifth in the country and
employs 16 lakh workers, comprising 19% of the
country’s industrial labour force. It accounts
for 14% of total industrial output with 5.5% of
the GDP. Its turnover is estimated at Rs.1,44,000
crore, of which Rs.1,11,200 crore is in the unorganised
sector. The liberalisation of the Indian economy
and world trade and rising consumer prosperity
has thrown up new opportunities for diversification
in the food-processing sector and opened new vistas
for growth.
Fruit and Vegetable Processing–
National Environment
India has made a good progress on the horticultural
map of the world with a total annual production
of horticultural crops touching over 149 million
tonnes. India is the second largest producer of
the fruits (45.5 Million tonnes) and vegetables
(90.8 Million tonnes) in the world, contributing
10.23% and 14.45% of the total world production
of fruits and vegetables respectively. It is also
the largest producer, consumer and exporter of
spices.
The fruit and vegetable processing industry in
India is highly decentralized. A large number
of units are in the cottage/home scale and small
scale sector, having small capacities upto 250
tonnes/annum though big Indian and multinational
companies have capacities in the range of 30 tonnes
per hour or so. The prominent processed items
are fruit pulps and juices, fruit based ready-to-serve
beverages, canned fruits and vegetables, jams,
squashes, pickles, chutneys and dehydrated vegetables.
More recently, products like frozen pulps and
vegetables, frozen dried fruits and vegetables,
fruit juice concentrates and vegetable curries
in restorable pouches, canned mushroom and mushroom
products have been taken up for manufacture by
the industry. The processing level in India is
estimated to be around 2%, as compared to about
80% in Malaysia, 30% in Thailand, and 60-70% in
the UK and USA.
The domestic consumption of value added fruit
and vegetable products is however, very low compared
to the primary processed food in general and fresh
fruits and vegetables in particular which is attributed
to higher incidence of tax and duties including
that on packaging material, lower capacity utilisation,
non-adoption of cost effective technology, high
cost of finance, infrastructural constraints,
inadequate farmers-processors linkage leading
to dependence upon intermediaries. The inability
for market promotion is an important reason for
inadequate expansion of the domestic market.
India’s share in the world trade of horticultural
processed products too, is miniscule – less
than 1 per cent. This compares very unfavourably
with countries like Malaysia (83%), Philippines
(78%), Brazil (70%) and US (70%). India’s
major exports are in fruit pulp, pickles, chutneys,
canned fruits and vegetables, concentrated pulps
and juices, dehydrated vegetables and frozen fruits
and vegetables.
Supply chain efficiencies together with a focused
approach to enhance exports are the key to ensure
that India is able to successfully tap new product/market
opportunities. India has the potential to achieve
a 3% share in the world trade of agricultural
and food products by 2015. This implies an annual
growth rate of 14% till 2010 and 15% annual growth
from 2010 as tabulated below:
| Year |
World Exports* |
India’s
Exports |
India’s
Share (%) |
Growth Rate
(%) |
| 2003 |
522 |
8 |
1.5 |
- |
| 2010 |
770 |
15 |
2.0 |
14 |
| 2015 |
1020 |
30 |
3.0 |
15 |
*World Exports of 2010 & 2015 are projected
on the basis of CAGR of 6% for the 5year period
(1999-2003)
Source: Vision Strategy & action Plan for
Food Processing Industries in India. Prepared
by Rabo India Finance Pvt Ltd for Ministry of
Food processing Industries, Government of India
April 2005
Major Challenges, Constraints and Concerns
Despite policy initiatives, growth potential and
significant achievements, there are several disturbing
trends as delineated here :
-
In
India, the value addition to food fortification
is only 7% compared to as much as 23% in China,
45% in Philippines and 188% in the UK. The small-scale
and unorganised sectors account for 75% of the
total industry.
-
External
liberalisation poses threats of stiffer competition
under a new world trade order with WTO agreements
relaxing quantitative restrictions and non-tariff/sanitary
barriers on importing countries which exposes
the Indian farmer to world market forces. Under
the new trade regime, the food sector will be
confronted by challenges of trade related Intellectual
Property Rights, comprising patent laws, copyrights,
trade links, etc.
-
The
inherent strength of high raw material production
and large domestic market base has to be buttressed
with operating processing units at optimum capacity
levels as per economies of scale which would
enable achieving a competitive edge over imported
products.
-
Advances
in bio-technology have enabled production of
Genetically Modified (GM) foods. These have
already appeared in some countries. GM foods
need be critically examined on their good and
adverse impacts on human health.
-
Taxes
on processed food in India are among the highest
in the world. No other country imposes excise
duty on processed food and distinguishes between
branded and unbranded food sectors for taxation.
There is excise duty of 16% in the form of CENVAT
levied on food products. Besides there is sales
tax, octroi, mandi samiti, entry tax and customs
duty on material, levied by the Central/State/Local
bodies. The net effect ranges from 21% to 30%
on various food items.
-
Commercial
R&D activities in the food industry have
remained confined to only a few areas. R&D
activities have scarcely emerged from the laboratory
to be extensively adopted on the field.
-
Indian
brands have yet to acquire an image in the international
markets because of poor global marketing.
-
Most Financial Institutions lack capacity to
appraise hi-tech export-oriented projects. There
are no suitable insurance schemes for such projects,
most of which deal in export of perishables.
In financing such projects the banks face considerable
credit risks. With new technology, the risk
perception is higher than the existing one.
-
The
sector has been characterised by poor marketing,
transport and communication infrastructure.
The market density of fruits and vegetables
is low and facilities for storage and cold chains
in the hinterlands are woefully inadequate.
Erratic and inadequate power supply, lack of
roads, education and health facilities and null
or low rural industrialisation accentuates the
problems.
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