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| Food Processing Industry |
The food processing industry is one of the largest industries in India, ranked fifth in terms of production, consumption and exports. Ministry of Food Processing Industries, Government of India, has estimated the industry to be worth US$ 70 billion, contributing 6.3 per cent to India’s GDP in 2003 and had a share of 6 per cent in total industrial production. The industry registered an average growth of 7.15% in the last five years, and provides direct employment to about 1.6 million workers. The average value addition in the food processing industry is 20%.
However, even though India is among the world's largest agricultural producers, the processing industry is lagging far behind. Processing levels are very low at 2.2% in fruits and vegetables as compared to 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Similarly, only 35% of milk, 21% of meat and 6% of poultry products are processed in India.
Level of processing in food processing sector |
| Item |
Organised sector |
Unorganised sector |
Total Processing |
| Fruits & Vegetables |
1.2% |
0.5% |
2.2% |
| Dairy Products |
15% |
22% |
35% |
| Meat |
21% |
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21% |
| Poultry |
6% |
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6% |
| Marine Fisheries |
1.7% |
9% |
10.7% |
| Shrimps |
0.4% |
1% |
1.4% |
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| Source: Cygnus Report, Indian Food Processing Sector, 2005 |
| Segments |
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Fruit and vegetable processing |
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Licensed capacity 2.1 million tons (as on 1 January 2006) – share of organised sector 48% |
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Exports in 2004-05 worth Rs. 14.6 billion |
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Growth areas: ready to serve beverages, fruit juices & pulps, dehydrated and frozen products, pastes, and other convenience products |
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Low domestic consumption of value added products vis a vis fresh fruits & vegetables |
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Dairy processing |
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22% of total milk production is processed by the unorganized sector |
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Organised sector share is only 13% of the total milk produced in the country, but is expected to rise rapidly, especially in the urban regions |
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The 50,000 ton branded butter market, valued at Rs. 6 billion, growing at 8-10 per annum |
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The cheese market is estimated to be Rs. 5 billion (54,000 tonnes in volume terms), growing at a compounded annual rate of 8-9% |
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The ice cream market is estimated to be Rs. 9 billion per annum - several corporate players, including MNCs are focusing on this market |
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Emerging segments are Ultra Heated Treated milk and flavoured milk |
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Exports in 2004-05 worth Rs. 3.9 billion |
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Milk products manufactured by the organised sector are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk and infant foods. |
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Meat and Meat processing (buffalo, sheep, goat, poultry) |
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Meat production is governed by state/local laws, as slaughtering is a state subject. |
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Total production about 5 million tones |
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Exports of meat products increased from 292,652 tonnes in 2001-02 to 629,550 tonnes in 2004-05 |
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India has 3,600 slaughter houses, 9 modern abattoirs and 171 meat processing units licensed under Meat Food Products Order (MFPD) which regulates production and sale of meat products, including quality aspects. |
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Large potential for setting up modern slaughter facilities and development of cold chains in the meat and poultry processing sector |
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Fish processing |
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Largely comprised of small scale proprietary/ partnership firms or fishermen co-operatives |
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372 freezing units with a processing capacity of 10,320 tonnes per day |
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502 frozen storages with a capacity of 138,229 tonnes |
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11 surimi units, 473 pre-processing centres and 236 other storages |
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Processing of fish into canned and frozen forms is carried out almost entirely for the export market. |
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Exports of marine processed products have been fluctuating from year to year. Overall exports increased from 440,473 tonnes in 2000-01 to 461, 329 tonnes in 2004-05 – an increase of only about 5% |
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Consumer Foods |
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Includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, biscuits, aerated and alcoholic beverages, packahed drinking water etc. |
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total production about 4 million tones per year |
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Some products are reserved for production in the small scale sector (e.g. bread) |
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Share of organised sector varies from 40% to 80% for various products |
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around over 60,000 bakeries, 20,000 traditional food units, 100 aerated soft dronks plants, 218 packaged drinking water units and several pasta food units. |
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multinational companies are coming up in confectionery and cocoa based products areas |
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opportunities for organised players to invest and grow, as the maturing market and consumers become more quality and brand conscious |
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Grains processing |
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Total production of more than 200 million tonnes of different food grains |
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Primary milling of rice, wheat and pulses is the most important activity |
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Total investment in the grain milling sector up to December 2002 was around Rs. 70 billion in 2002-03, including foreign investment of over US$ 250 million |
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10,000 pulse mills in the country with a milling capacity of 14 million tonnes, milling about 75 per cent of annual pulse production of 14 million tones |
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Branded rice is becoming popular in both the domestic as well as the export market. |
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Indian Basmati rice commands a premium in the international market |
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| International Trade |
Exports of food products constituted 10% of total Indian exports. However, India’s share in world trade of processed foods is just 1.6%.
Food imports constituted nearly 5% of total imports for India, valued at US$ 3,665.98 million in fiscal year 2004. The major import commodities and products are edible oil (mainly palm oil), pulses and nuts.
The significant share of food products in India’s trade reflects the importance of this sector for India’s growth as a global economy. Increasing trade in food products indicates not only opportunity for growth in food processing, but also greater acceptance and demand for processed food from India in overseas markets.
Foreign Direct Investment (FDI)
According to the Ministry of Food Processing Industries, the actual inflow of foreign direct investment (FDI) in the food and food processing sector up to November 2005 was Rs. 52.7 billion. Nearly 30% of FDI in this sector comes from EU member states such as The Netherlands, Germany, Italy and France. Some of the successful ventures from the EU are Perfetti, Cadbury, Godrej-Pilsbury, Nutricia International, Manjini Comaco, etc. |
| Factors for Growth |
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Large target consumer base and rising income levels |
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Changing age profile of the Indian population (a large proportion of the population is relatively young - in the age group of 20-59 years) |
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Changing lifestyles (urbanization, exposure to western lifestyles, increase in nuclear and double income families) |
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Diverse agro-climatic conditions, providing a wide-ranging and large raw material base suitable for food processing industries |
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Comparatively cheaper workforce can be effectively utilized to set up large low cost production bases |
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Well-developed R&D and technical capabilities of Indian firms. |
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| Constraints/Bottlenecks |
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Lack of adequate infrastructure, such as cold chain, post harvest facilities, retail distribution network etc. |
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Lack of suitable processing-grade varieties |
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Import restrictions on commercially important crops like potato, and horticulture seeds/planting materials- which deter free import of exotic varieties for cultivation |
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Complex phytosanitary certification requirements and post entry quarantine conditions for imported planting materials and seeds |
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Impediments in land holding policies for organized cultivation |
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Lack of quality awareness as well consistency of quality as per international standards |
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| Foreign Investment regulations |
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All food processing industries (other then milk food, malted foods and flour, and a few items reserved for the small scale sector) are included in the list of high priority industries eligible for foreign investment |
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Automatic approval is accorded for foreign direct investments up to 100%, except in few cases |
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There are no requirements for obtaining industrial licenses for setting up or expanding capacity in most food processing industries (except for some products such as distillation and brewing of alcoholic drinks and manufacture of sugar, animal fats and oils) |
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Food processing units set up as 100% export-oriented-units (Zero duty import of capital goods and raw material), are permitted to sell upto 50% of their FOB export earnings in the domestic market, after payment of applicable duties |
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Full repatriation of profits and capital. |
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| Positive outlook for the future |
| Indian food processing industry has seen significant growth and changes over the past few years, driven by changing trends in markets, consumer segments and regulations. These trends, such as changing demographics, growing population and rapid urbanisation are expected to continue in the future and, therefore, will shape the demand for value added products and thus for food processing industry in India. The Government of India’s focus towards food processing industry as a priority sector is expected to ensure policies to support investment in this sector and attract more FDI. India, having access to vast pool of natural resources and growing technical knowledge base, has strong comparative advantages over other nations in this industry. The food-processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors. |
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ICREON