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Food Processing

Background

India’s food-processing sector, is still in a nascent stage, and has a share of around  5.5% in the GDP. Its sales turnover is around Rs. 2.8 trillion, and employs around 13 million people. Availability of raw materials, changing lifestyles and relaxation in policies has given a considerable push to the industry’s growth. The Indian food processing industry holds considerable significance because of the linkages and synergies that it promotes between the two key sectors of the economy, i.e., industry and agriculture. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. Thus a thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it.

Fast growth in the food processing sector and progressive improvement in the efficiencies of value chain are also important for achieving favourable terms of trade for Indian agriculture both in the domestic and international markets.

  
 

Indian food processing industry covers a spectrum of products from sub-sectors comprising agriculture, horticulture, plantation, animal husbandry and fisheries. India has abundant availability of a wide variety of crops, fruits, vegetables, flowers, live-stock and seafood.

Size 

    • The Ministry of Food Processing Industries, GoI, has estimated the size of the Indian food market at US$ 191 bn (Rs 8,600 bn).
    • This processed food market is projected to be over US$ 100 bn, of this the primary processed food market accounts for 60%, while the value-added processed food market is around 40%.

Structural Characteristics 

·        The Indian food processing industry is an extensive though highly fragmented industry. A large number of players in this industry are small sized companies, and are largely concentrated in the unorganised segment. This segment accounts for more than 70% of the output in volume terms and 50% in value terms. Though the organized sector is comparatively small, it is growing at a much faster pace.

·        Though India’s agricultural production base is reasonably strong, wastage of agricultural produce is sizeable.

·        Processing of fruits and vegetables is a low 2%, around 35% in milk, 21% in meat and 6% in poultry products. These are quite low by international standards, as processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia.

Policy 

·        Food processing has been declared a priority sector by the Government of India (GoI).  No industrial license is required for food processing except for alcoholic beverages and a few items reserved for SSI.

·        100% FDI is allowed except in alcoholic beverages and some items reserved for SSI.  

·    Up to a maximum of 24% foreign equity is allowed in SSI
     sector.

·         Use of foreign brand names is now freely permitted.  

·         Most of the items can be freely imported and exported except for items in the negative lists for imports & exports. Capital goods are also freely importable, including second hand ones in the food processing sector.

·        Agro based units can be established in special economic zones and 100% EOU are allowed (i) sales up to 50% in domestic tariff area, and (ii) import of capital goods and raw materials at 0% duty.

·        The Government has also proposed to set up the National Institute of Food Technology Entrepreneurship and Management. 

·         Wide ranging fiscal policy changes have been introduced progressively. Excise & Import duty rates have been reduced substantially. Many processed food items are totally exempt from excise duty.

·        Custom duty rates have been substantially reduced on plant & equipments, as well as on raw materials and intermediates, especially for export production. Customs duty on packaging machines has been reduced from 15% to 5%.

·        Excise duty is fully exempt on condensed milk, ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast. Excise duty on ready-to-eat packaged foods and instant food mixes, like dosa and idli mixes, is also to be reduced from 16% to 8%.

Outlook

·      Demographic factors, changing lifestyles and consumer demand for greater variety has increased pressures on the food processing sector to provide products at competitive prices.

·      Policies are now promoting the participation of private investors that would promote efficiency in food processing and agriculture marketing systems.The Government of India is already in the midst of a vision, strategy and action plan for the food processing sector. This strategy addresses issues of taxation, organised retail, infrastructure development, marketing interventions and regulations, strengthening of institutions and issues of food safety and regulations.

·      The Vision 2015 strategy released in 2003-04 envisages:

Ø     Trebling the size of the processed food sector to close to US$ 300 bn by 2015

Ø     Increasing level of processing of perishables from 6% to 20%

Ø     Value addition to increase from 20% to 35%

Ø     Increase share in global food trade from 1.5% to 3%

Ø     Increase the share of value added products in food consumption from the current 16% to 50%.

·        Among the food processing segments, progress has been pre-eminent in the grain processing sector with the extensive branding of processed end-products like wheat flour and processed rice. The other growing segment is poultry and meat in terms of branding and marketing of products.

·         The fruits and vegetables segment is still localised in its operations, and largely unbranded. The products that are likely to see  growth include pickles, fruit pulps, canned and frozen fruits and vegetables.

·         Organised food retailing is likely to play an important role in increasing the consumption of processed food items leading to accelerated growth of this sector. The retail format reduces the number of intermediaries and transaction costs.

·        The Ministry of Food Processing, GoI, has projected the organised food retail industry to grow by 30% for the next five years. Among the key categories that constitute the organised retail market, the food and beverages segment make up a high 29%. Though current sales of processed foods through retail outlets are hardly 1% of total food sales, it is estimated to grow at an annual rate of 40% in the near future.

Reference :
www.dnb.co.in
http://mofpi.nic.in/policies/index.htm
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