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Sector Overview


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:


World Exports*
India’s Exports
India’s Share (%)
Growth Rate (%)

*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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ACDS 2007