Food Processing

Mains PYQs

Elaborate the scope and significance of the food processing industry in India.(2022)
What are the challenges and opportunities of food processing sector in the country? How can income of the farmers be substantially increased by encouraging food processing?(2020)
Elaborate the policy taken by the Government of India to meet the challenges of the food processing sector.(2019)
What are the reasons for poor acceptance of cost effective small processing unit? How the food processing unit will be helpful to uplift the socio-economic status of poor farmers?(2017)
What are the impediments in marketing and supply chain management in developing the food processing industry in India ? Can e-commerce help in overcoming these bottlenecks?(2015)

Food Processing is the transformation of raw ingredients into food or of food into other forms. Food processing typically takes clean, harvested crops or butchered animal products and uses these to produce attractive, marketable and often long shelf life products.eg milk to butter, cheese, ghee or various pickles etc. It includes items pertaining to the following two processes:

Manufactured Processes:
If any raw product of agriculture, animal husbandry or fisheries is transformed through a process [involving employees, power machines or money] in such a way what its original physical properties undergo a change and if the transformed product is edible and has commercial value, then it comes within the domain of Food Processing Industries. E.g. Cheese, beverages.

Other Value–Added Processes:
If there is significant value addition (increased shelf life, shelled and ready for consumption etc.) such produce also comes under food processing, even if it does not undergo manufacturing processes.

Items constituting the Food Processing Industries in India

Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. Based on International Standard Industrial Classification, it has been assumed that the factories listed below constitute Food Processing Industries:

Production, Processing and Preservation of Meat, Fish, Fruits, Vegetables, Oils and Fats.
Manufacturing of Dairy Products.
Manufacture of Grain Mill Products, Starch products and prepared animal feeds.
Manufacture of Other Food Products.
Manufacture of Beverages.

Significance of the Food Processing Sector in India

India is one of the largest producers as well as consumer of food products, with the sector playing an important role in contributing to the development of the economy. It is the fifth largest industry in our country in terms of production, consumption, export and growth.

Food processing units are located near the source of agricultural produce. Thus the industry can be set up in rural areas where income levels of people are low and people have fewer economic opportunities.

Development of food processing industry will push reforms in agriculture such as crop diversification, improvement in quality of inputs, incorporation of technology into agriculture etc

Development of the food processing industry will push reforms in the retail sector, for instance refrigerated storage in retail stores etc. Processed foods also have higher margins, leading to higher profitability for the retail sector.

Processed foods offer variety to customers and are convenient for consumption. Thus consumers also stand to gain from the growth of the food processing industry.

The industry encompasses a gamut of activities involved in reaching the final product to the consumer, starting with farming activity to produce inputs, processing of the inputs to create products and the associated supply chain involved in delivering the products.

It has increasingly come to be seen as a potential source of driving the rural economy as it brings about synergy between the consumer, industry and agriculture. A well-developed food processing industry is expected to increase farm gate prices, reduce wastages, ensure value addition, promote crop diversification, generate employment opportunities as well as export earnings. This sector is also capable of addressing critical issues of food security and providing wholesome, nutritious food to our people.

While the industry is large in terms of size, it is still a nascent stage in terms of development. But of the country’s total agriculture and food produce, only 10 per cent is processed.

However the contribution of the food processing sector to GDP has been growing faster than that of the agriculture sector. If the contribution to GDP of both the agricultural sector and food processing sector were growing at the same rate, then it would mean that the growth in the food processing sector is only due to increased agricultural raw material supply. However, more and more agricultural products are being conceited (in value terms) to food production. This means the level of processing in value terms has been increasing.

Primary food processing (packaged fruit and vegetables, milk milled flour and rice, tea, spices, etc.) constitutes around 60 percent of processed food. It has a highly fragmented structure that includes thousands of rice mills and hullers, flour mills, piles mills and oilseed mills, several thousands of bakeries, traditional food units and fruits, vegetables and spices processing units in unorganized sector.

In comparison, the organized sector that includes flour mills, fish processing units, fruits and vegetable processing units, meat processing units and numerous dairy processing units at State and District levels is relatively much smaller.

Critical success factors for Manufacturers in the Food Processing Sector in India

Integrated Supply Chain and Scale of Operations

While India ranks second in production of fruits and vegetables, nearly 20 to 25 percent of this production is lost in spoilage in various stages of harvesting.

The key issues are poor quality of seeds, planting material lack of technology in improving yield and unavailability of refrigerated transport facility. Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest. Good production also results in better quality of processed fruits.

Hence there is a need to establish backward linkages with the farmers with the help of arrangement such as contract farming to improve the quality of the produce.

Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence unable to exploit the advantages of economies of scale. This is also true with the land holdings.

Processing Technology

Most of the processing in India is currently manual. There is limited use of technology like precooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for further processing.

Bringing in modern technology is an area that existing as well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product.

Increasing Penetration in Domestic Markets

Most of the processing units are export oriented and hence their penetration levels in domestic markets are low.

For example, penetration of processed fruits and vegetables overall is at 10 percent, the relative share of branded milk products especially ghee is still low at 2 per cent, penetration of culinary products is still 13.3 percent and is largely tilted towards metros, consumption of packaged biscuits for Indian consumer is still low at 0.48 percent while that for Americans is 4 percent.

However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes.

Competitive Pricing

Consumers of processed foods are extremely price sensitive even a small change in pricing can have a significant impact on consumption. Competitive pricing also enables penetration in the rural markets.

Brand Competitiveness

Share of branded products in purchases of Indian consumers has also increased substantially. This is especially true for urban consumers. Branded products like Basmati rice and KFC’s chicken have been very successful implying that there is a good demand for hygienic branded products at responsible prices.

Production Innovation

Certain processed food categories such as snack foods are impulse purchase products where consumers look for novelty and new flavours and hence these categories lack brand loyalties. Visibility through attractive packaging boosts consumption.

Increasing time constraints amongst the working middle class has boosted consumption of products like instant soups, noodles and ready to make products. Innovation in packaging and product usage is an important success factor for processed foods.

India’s strengths in the Food Processing Sector

1. Favourable Factor Conditions

India has access to several natural resources that provides it competitive advantage in the food processing sector. Due to its diverse agro climate conditions it has a wide ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value-added products. The semi–processed and ready to eat packaged food segment is still evolving. India’s comparatively cheaper workforce can be effectively utilized to set up large low cost production bases for domestic and export markets. Cost of production in India is lower by about 40 percent over a comparable location in the EU and 10 –15 percent over a location in the UK.

Along with these factor conditions, India has access to significant investments to facilitate the food processing industry. There has been increasing investment not only by domestic firms and Indian Government, but also foreign direct investment.

2. Related and Supporting Industries

The Indian food processing industry has significant support from the well-developed R&D technical capabilities of Indian firms. India has a large number of research institutions like Central Food Technological Research Institute, Central Institute of Fisheries Technology, National Dairy Research and Development Centre etc. to support the technology and development in the food processing sector in India.

3. Government Regulations and Support

The Government of India has taken several initiatives to develop the Food Processing Industry in India. The government has been developing Agri zones and mega food parks to promote the food processing industry in India.

4. Large Number of Players

There are a large number of players in the organized as well as unorganized sector. The organized sector is small but growing – for example, it forms less than 15 percent of the dairy sector and around 48 per cent of the fruits and vegetable processing. The sector offers potential for growth and a large number of Multinational Corporation have entered into India to leverage his opportunity.

SWOT analysis of the Food Processing Industry in India.

Strengths

Round the year availability of raw materials.
Social acceptability of food processing as an important area and support from the central government.
Vast network of manufacturing facilities all over the country.
Vast domestic market.

Weakness

High requirement of working capital.
Low availability of new, reliable and better accuracy instrument and equipment’s
Inadequate automation w.r.t information management
Remuneration is less attractive for talent in comparison to contemporary disciplines .So this sector is unable to attract talented professionals.
Inadequately developed linkages between R&D labs and industry.

Opportunity

Large crop and material base in the country due to agro ecological variability offers vast potential for food processing activities.
Integration of developments in contemporary technologies such as electronics, material science, computer, bio technology etc. offer vast scope for rapid improvement and progress.
Opening of global markets may lead to export of our developed technologies and facilitate generation of additional income and employment opportunities.
Increasing population especially urban population which is having high disposable income and changing food habits.

Threats

Competition from global players
Loss of trained manpower to other industries and other professions due to better working conditions prevailing there may lead to further shortage of man- power.
Rapid development in contemporary and requirements of the industry may lead to fast obsolescence.

Supply Chain

A supply chain is a system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer.
Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the customer.
Supply chain management is an integrating function with primary responsibility of linking major business functions and business processes within and across companies into a cohesive and high performing business model.

A supply chain is dynamic and involves the constant flow of information, product and funds between different stages. The information regarding availability, pricing and funds flow is also part of the supply chain.

So, a typical supply chain may involve a variety of stages viz. customers, retailers, wholesalers/ distributors, manufacturer and raw material supplier.

Supply Chain of the Food Processing Sector and the Backward and Forward integration across the supply chain

Primary Processing relates to conversion of raw agricultural produce, milk, meat and fish into a commodity that is fit for human consumption. It involves steps such as cleaning, grading sorting, packing etc.

Secondary and Tertiary Processing Industries usually deal with higher levels of processing where new or modified food products are manufactured.

The generic value chain/supply chain of the food processing industry is from raw materials to retail to the consumer. Traditionally, different players across the value chain play different roles and work more or less independently. Recently, the trend has been towards increasing integration and collaboration across players in the value chain, to garner mutual benefits.

Such integration is being driven by the manufacturers, who are looking to integrate backward and forward chains; and establish linkages with both raw material producers (farmers) and aggressors/logistics providers.

These links have led to new models emerging in the sector–Contract Farming

Backward Linkage – Raw Material Supply
Backward linkage refers to transactions of farmers with the food processing industry.
The concept of backward linkage between farmers and industry is promoted to encourage and enable farmers to grow products of appropriate quality. This helps the poorest of the poor farmers as well as marginal and medium farmers fetch appropriate and remunerative return for their produce.

The existing institutions like local bodies, co-operatives and self–help groups, which have been in operation for over decades in different contexts, can be utilized to strengthen the backward linkage.

This mechanism would help quickly create the bridge of trust between farmers and processors. Thus, a complete network of farmers and processors will be created cutting across their status.

Forward Linkage – Marketing
It refers to transactions between the food processing industry and customers. There is an urgent need to develop forward linkages for fresh and processed food.

Presently, there are a large number of intermediaries operating between the farmers/processors and the consumers, resulting in high cost to the latter and low return to the former.

The efforts to cut intermediaries need to be made in such a way that special skill and expertise required to operate the intermediate links in the system like transportation and market distribution are not jeopardized.

To achieve this, attempts are required to be made to provide appropriate tax incentives and holidays for setting up food processing industries, taking care of expenses on market promotion and ancillary activities.

Policy initiatives and measures taken by the Government to support this sector

Policy Initiatives

In order to facilitate and exploit the growth potential of the sector, the government has initiated extensive reforms. Some of the key measures undertaken by the Government include amendment of the Agriculture Produce Marketing Committee Act, rationalization of food laws, implementation of the National Horticulture mission etc.

The government has sought to address the low scale of processing activation in the country by setting up mega food parks, with integrated facilities for procurement, processing, storage and transport.

Most processed food items have been exempted from the purview of licensing under the Industries (Development and regulation) Act, 1951. Food processing industries were included in the list of priority sector for bank lending in 1999.

Automatic approval for FDI up to 100 percent is available for most of the processed food items except alcohol, beer and those reserved for small scale sectors subject to certain conditions.

Zero duty import of capital goods and raw material for 100 percent export oriented units.

Full duty exemption on all imports for units in export processing zones has been done.

Food Safety and Standard Act, 2006 and FSSAI

Till the year 2005, thirteen different laws were applicable on the food and food processing sector. Multiple laws/regulations prescribe varied standards regarding food additives, contaminates, food colors, preservatives and labelling. In order to rationalize the multiplicity of food laws, the Ministry of Food Processing enacted the Food Safety & Standard Act (FSSA), 2006.

This Act was meant to consolidate the laws relating to food and to establish the Food Safety Standards Authority of India for laying down science based standards for articles of food and regulate their manufacture, storage, distribution, sale and import, to ensure availability of safe and wholesome food for human consumption. Ministry of Health & Family Welfare (MoHFW) is the administrative Ministry for the implementation of FSSAI.

Food Safety and Standards Authority of India will be aided by several scientific panels and a central advisory committee will lay down standards for food safety. These standards will include specifications for ingredients, contaminates, pesticides residue, biological hazard and labels.

Infrastructure Development in the Food Processing Sector

There is lack of suitable infrastructure in the shape of cold chain, packaging centers, value added centre, and modernized abattoirs etc. Government attaches highest priority to the development and expansion of physical infrastructure for facilitating prompt growth of industries. In order to address the problem of infrastructure in food processing sector, the Government has implemented the scheme for infrastructure development comprising the following components:

(i) The government is establishing a network of quality control and testing laboratories and testing centers across India, supported by R&D through research institutes in order to raise India’s processed food quality to international standards, to address health concerns and harness the export opportunity.

(ii) Mega Food Parks Scheme
The idea behind setting up mega food parks is that small and medium entrepreneurs find it difficult to invest in capital–intensive activities. Therefore, as a part of the strategy to develop food processing infrastructures, the Ministry has been proactively pursuing the task of setting up mega food parks in different parts of the country. In the mega food parks, common facilities like cold storage, food testing and analysis lab, effluent treatment plant, common processing facilities, packaging centre, power supply, water supply / seminar / conference / training facilities etc can be assisted. It facilitates establishment of a strong infrastructure backed by an efficient supply chain.

The Mega Food Parks have farm proximate facilities such as primary processing centers, collection centers and central processing centers. The food processing units within a Mega Food Parks use common infrastructure required for processing packaging, quality control labs, trade facilitation center etc.

This cluster approach makes food processing more economically viable. The state of the art processing infrastructure gives them the required technical edge. Mega Food Parks have the potential to revive agriculture in the surrounding areas by increasing returns for farmers, besides creating large employment opportunities in rural areas.

(iii) Scheme for Cold Chain, Value Addition and Preservation Infrastructure

The objectives of the scheme are to facilitate creation of integrated cold chain and preservation infrastructure facilities. It intends to address the shortage of cold storage capacity.

The scheme mentions two types of facilities to be created such as

Minimal processing center at the farm gate level having facilities like weighing, sorting, grading, pre cooling;
Mobile pre cooling vans

(iv) Modernization of Abattoirs
The objective is to modernize existing abattoirs or to establish modern abattoirs promoting scientific and hygienic slaughtering, application of modern technology for waste management, better by product utilization, provision of chilling facilities, retail cold chain management etc.

Challenges that still remain despite government initiatives

A combination of uncontrollable and controllable factors has affected the growth of the sector & has acted as hindrance in achieving its potential.

The uncontrollable factors include,

(i)Fragmentation of land holdings which has resulted in lack of scale and has made investments in automation unviable;

(ii) The constraints in land availability due to competing pressure from urbanization, constructions and industrialization.

These factors are difficult to address and hence have to be discounted for while accounting for the inadequate growth of the sector.

It is the controllable factors which can be addressed by companies and the Government, which impact the production levels and hence need proper actions.

Even today India is grappling with issues of:

(i) Quality and quantity of raw produce,

(ii)Low labour productivity with slow adoption of technology. Shortage of skilled and semi-skilled workers is also impacting the competitiveness of Indian food processing industry.

(iii)On the infrastructure we have supply chain and wastage related problems and low levels of value addition etc. The main issues are long and fragmented supply chains, inadequate cold storage and warehousing facilities, road rail and port infrastructure. Also lack of modern logistics infrastructure such as Logistics Park is an important constraint. Support services such as cold chain facilities, packaging centres and irradiation facilities are essential. These facilities can be arranged by investing a large amount of money and thus are not viable for scattered small food processing units.

(iv)Unavailability of credit;

(v)Inconsistency in the state and central policies, which requires both the Center and the State to work as one single cohesive unit.

(vi)There is a lack of technology and applied research. Most of the R&D institutions have not been able to develop innovative products, processing and machinery of global stature as reflected in India’s share in global trade.

(vii)Lack of organized retail

Schemes and Programmes related to Food Processing

SAMPADA – PM Kisan SAMPADA Yojana (Scheme for agro-marine processing and development of agro-processing clusters)

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SAMPADA is an umbrella scheme incorporating ongoing schemes of the government like Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, Food Safety and Quality Assurance Infrastructure, etc. and also new schemes like Infrastructure for Agro-processing Clusters, Creation of Backward and Forward Linkages, Creation of Food Processing & Preservation Capacities.

The SAMPADA is a comprehensive package to give a renewed thrust to the food processing sector in the country. It aims at development of modern infrastructure to encourage entrepreneurs to set up food processing units based on cluster approach, provide effective and seamless backward and forward integration for processed food industry by plugging gaps in supply chain and creation of processing and preservation capacities and modernization/ expansion of existing food processing units.

Advantages: The implementation of SAMPADA will result in creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet. It will not only provide a big boost to the growth of the food processing sector in the country but also help in providing better prices to farmers and is a big step towards doubling farmers\’ income.

It will create huge employment opportunities especially in the rural areas. It will also help in reducing wastage of agricultural produce, increasing the processing level, availability of safe and convenient processed foods at affordable price to consumers and enhancing the export of the processed foods.

PM Scheme for Formalization of Micro Enterprises in Food Processing(PMFME)