Reasons to Invest in Food Processing Industry in India

Reasons to Invest in Food Processing Industry in India

The Food Processing Industry in India rests on two strong pillars of the Indian economy – Agriculture and Manufacturing, which are the key sectors of a developing nation. The “Sunrise Sector” as it is rightly deemed, is currently going through a positive transition, wherein policies are being amended, conducive investment eco-system is being created, and all efforts to set up the required infrastructure are being made. Given the inherent strengths of India in the availability of quality raw material and availability of skilled and unskilled workforce at competitive prices, the country shall soon become a food processing hub for the world. It shall bolster food exports, mapping India as a key player in the global trade.  Food Processing has emerged as a critical component of India’s economy.

Strategic advantages, including diverse agro-climatic zones, varied soil types and a vast irrigated area, have contributed towards making India the world’s second-largest agro-producer, with close to 900 million MT of farm output. Further, the exponential increase in domestic demand for healthier, safer and convenient processed food has resulted in 20 to 30% growth across categories such as value-added dairy products, Ready-to-East/Ready-to-Cook (RTE/RTC) segment, breakfast cereals, and confectionery items and fruit beverages amongst others.

However, the Indian food processing industry faces several critical challenges, including a very low level of processing for perishables (only 2% for fruits & vegetables).

The food processing industry is one of the largest industries in India. It is ranked fifth in terms of production, consumption, export and expected growth. Food Processing Industry is considered having huge potential for elevating the agricultural economy, raising farmer incomes, generating employment and creating export earnings.

The food processing sector contributes as much as 11 per cent and 9 per cent of GDP in Agriculture and Manufacturing sector respectively.  The purpose of this industry is to manufacture and preserve food substances in an effective manner to enhance their shelf life, improve quality as well as make them functionally more useful. It covers a gamut of products from sub-sectors comprising agriculture, horticulture, animal husbandry and fisheries.

Considering the advantages and potential following are some of the reasons, among others, why one should invest in the food processing industry in India.

  • Fastest growing economy in the world
  • The largest producer of several agro commodities
  • 2 billion consumers with increasing demand for branded quality food
  • 4th largest economy in terms of purchasing power parity
  • Proactive government policies with attractive fiscal incentives
  • Significant investments in world-class ports, logistics & supply chain infrastructure
  • High focus on skill development, availability of skilled personnel
  • Opportunity for investors across the food processing supply chain
  • Tax incentives for new setups.
  • India ranks 2nd in terms of total food production globally, next to China.
  • India ranks 1st in the world in terms of production of milk, bananas, mangoes, guavas, papayas, ginger, okra and buffalo meat.
  • India ranks 2nd in the world in the production of green peas, potatoes, tea, tomato, sesame and many other vital commodities.
  • The food processing sector ranks 1st in terms of employment & number of factories in operation and 3rd in terms of output.
  • The industry has witnessed a growth much higher than the growth in the agriculture sector and at par with the manufacturing industry.
  • Strategic geographic location and proximity to food-importing nations make India favourable for the export of processed foods.
  • India witnesses 5-16% wastage in fruits and vegetables annually, due to lack of modern harvesting technologies and cold chain infrastructure.
  • The processing levels in fruits and vegetables currently stand at close to just 2%.
  • The wastage levels in other perishables are also significantly high – 5.2% in inland fish, 10.5% in marine fish, 2.7% in meat and 6.7% in poultry.
  • To reduce the wastage level and fulfil the increasing demand for processed food, India needs adequate infrastructure, processing facilities, research & development and skill development.
  • This sector has a total aggregate output of around USD 114 Bn. Major industries constituting the food processing sector are grains, sugar, edible oils, beverages and dairy products.
  • Development of food parks in various parts of the country

Processing of different sub-segments of food in the country is very low as compared to other developed nations.  Overall processing level of perishable products in India is approx. 10%, whereas in the USA it is 80%, Malaysia 80%, France 70%, Thailand 30% and Australia 25%.

Current estimated processing levels of perishables in India are:

  • Fruits & vegetables 2%
  • Marine produce 23%
  • Poultry 6%
  • Meat 21%
  • Dairy 35%

There is a huge unexplored opportunity underlying in the food processing industry in the country.  Food processing industry can be primarily segmented in the areas of agriculture, horticulture, animal husbandry and fisheries.

The food processing industry is a very vast and wide industry with a lot of sub-segments, primary, secondary and tertiary processing involved in it.  Apart from the agricultural and industrial opportunities it provides, it also offers tremendous opportunities in the field of farm tourism, cold chain, logistics, packaging, standards & certifications, etc.

Each of these subjects can be detailed in the coming editions of this series.

Author: CA Abraham P J ACA



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