Food Processing Sector

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Food processing is a method or process through which farm produce is transformed into food products that are fit for human consumption. It involves a surfeit of processes like grinding grain to make flour, cooking, industrial methods, etc., to produce value-added foods like Maggi, Pasta, etc. The Indian food processing industry, which is still in its infancy, promises to be a potential sunshine industry owing to the advantages that India boasts of in this regard. Rising incomes, abundant Agri-produce, and active government interventions cumulatively herald a conducive environment for India’s food processing sector. With the job of ensuring food security being accomplished, our focus shifts to the value addition of the produced food. India has already taken big strides in this direction to rank 5th in terms of global production, consumption, and exports of processed food.

Status of India’s Food Processing Sector

  • The Food industry in India is primarily dominated by sub-sectors like fisheries, plantations, fruits and vegetables, dairy products, and confectionery, to name a few.
  • This industry employs about 1.93 million people and has an aggregate production of around $ 159 billion.
  • Info 1According to estimations, there are around 25 lakh micro food processing enterprises in the country, which are not only unorganized but also unregistered. Nevertheless, the huge unorganized sector generates 74.3% of employment (with women accounting for a third of them), 12% of gross output, and 27% of value addition in the food-processing sector. Approximately 66% of these units are located in and around rural areas, and about 80 percent of them are family-operated enterprises. On the other hand, the organized sector with about 40,000 units accounts for 26% of employment, around 90% of output, and 72% of value addition.
  • Currently, India ranks 5th in the world in terms of exports, production, and consumption of processed food.
  • 22 Mega Food parks are operational as of 1 August 2021.

India’s Inherent Advantages

India, naturally, by virtue of its geographical location, is blessed with scores of advantages that help the food processing industry thrive. A few of those are,

  1. Blessed Geography: Out of the total 60 kinds of soils that are available worldwide, almost 46 are available in India. Also, India boasts of having 20 types of Agroclimatic conditions. This would enable Indians to cultivate a wide range of food crops as per the need and demand. Varied topographies are an added advantage, wherein we have landscapes ranging from deserts to rainforests to tundra vegetation. In addition, India has a long coastline of about 7,516.6 km, thereby facilitating a prosperous fishing industry.
  2. Largest arable land in the world: India, with 11.2% of the world’s arable land (1,656,780 km2), ranks first in the world. River plains of Indus, Ganges, Brahmaputra, Godavari, Krishna, Mahanadi, Cauvery, and Narmada are greatly conducive for extensive cultivation.
  3. Huge & cheap labour force: The size of India’s labour force is the world’s envy. With a labour force size of about 43 crores, there is no dearth of labour available at competitive prices. The fact that the food processing industry doesn’t demand a heavily skilled workforce works to our advantage as the portion of skilled persons in our labour force is dismally low.
  4. 2 (1)Large chunk of population engaged in farming: With 43% of the workforce already engaged in agriculture, we are obviated from the need to shift or bring in the additional workforce from other sectors to agriculture. All we need to do is increase the marginal productivity of those engaged in agriculture and shift some of the workforce to the secondary sector, i.e., the food processing industry.
  5. Abundance of raw materials: India is the world’s largest producer of pulses, milk, and jute and ranks second in the production of rice, sugarcane, wheat, groundnut, vegetable, fruits, and cotton. It is also one of the leading producers of fish, livestock, poultry, spices, and plantation crops. With nearly 20% of global cattle and a whopping 50% of buffaloes, India ranks first in the livestock.
  6. Rising middle-class population: With the increasing incomes and the consequent increase in purchasing power, India offers a huge market for processed food products. With the exponential rise of the urban lifestyle, processed food is in great demand.

Advantages Remain Uncashed

The above figures are undoubtedly the world’s envy that no other country can boast of. Despite being the world’s second-largest producer of fruits, less than 2% of fruits get processed in India, while China and the US process 40% and 90% of the same. With just about 2% of fruits and vegetables, 35% of milk, 8% marine, 6% poultry, and 1% meat being processed, the overall percentage of processed food in India is below 10%, far away from global statistics. Further compounding the woes, most of the processing in India can be deemed primary processing, which has a paltry value-addition compared to secondary processing, which India lacks. So, what’s the reason behind this discrepancy. What’s plaguing our food processing industry? Let’s understand.

  1. Poor economies of scale: Owing to the penchant for a socialistic economy, for the most part of independent India’s history, the Food processing industry has been reserved for the MSME sector. Consequently, it repelled the big players. Also, factors like lack of adequate institutional finance and labour law compliance complications, firms engaged in food processing hardly managed to grow in size. This led to a domino effect resulting in uncompetitive prices, poor brand building and marketing, primitive technology, lack of quality checks, lack of international markets, etc.
  2. Supply chain and Infrastructure frailty: Owing to the fragmented operational land holdings, even the food output supply is fragmented, which incurs additional costs for the buyer to consolidate the fragmented supply. The low farm productivity due to lack of mechanization and vagaries of climate often inflate the cost of food coming off the farm. The hurdles created by the APMC mandis are another supply chain bottleneck.

The lack of all-weather roads, warehouses, and cold chain storage infrastructure leaves the supply chains vulnerable and erratic. NITI Aayog reckons that annually around 30% of the produce from farm gates is lost due to inadequate cold chain infrastructure and annual post-harvest losses amount to Rs 90,000 crore. Moreover, the Private sector isn’t interested in investing in logistics or infrastructure owing to policy paralysis.

  1. Quality issues vis-à-vis global standards: Indian food processing units, owing to their limited economies of scale, are notorious for failing to comply with the quality norms, which results in losing the foreign markets. Numerous laws spread over the jurisdiction of different ministries and departments often end up in poor quality checks. As the adage goes, a fragmented responsibility is nobody’s responsibility. Also, the sheer nexus of players, particularly in the swathes of unorganized sector engaged in the food value chain, makes the execution of quality and safety checks a herculean task. This administrational vacuum ensued in practices like adulteration of milk and the use of carbide for fruit ripening. Due to this, despite being one of the largest producers of agricultural products in the world, India’s agricultural exports as a share of GDP are fairly low (i.e., 2%) in comparison with the rest of the world. The same figures for the other emerging economies like Brazil, Argentina, and Thailand are 4%, 7%, and 9%, respectively.
  2. Info 3Lack of organised retail sector: An organized retail chain is imperative for processed food to reach the end-users. Unfortunately, India is bereft of this crucial facilitator. Organized retail stores account for a mere 1% of all food and grocery sold in the country. The rest of the food finds its way to the end-users through unorganised retail stores, which cannot afford cold storage facilities; as a result of which, they had to limit the range of food products they could put up for sale.
  3. Lack of skilled workforce: This is a much popular, all-pervasive bottleneck that stifles the progression of many sectors in India. With just 1 in 5 workers skilled and ranking 129 among 162 (HDR report-2020), India’s workforce stands heavily crippled. Usually, the food processing sector doesn’t demand many skills. But the personnel manning the jobs like quality checks, research, and development, Food Microbiologists, and machine engineers are expected to possess the requisite skills.
  4. Policy lapses: Certain statutes like the Essential commodities act 1955, APMC acts, Labour laws, etc., have dissuaded many private players to venture into this sector that’s been plagued with uncertainties. Stocking of farm output, which is a pre-requisite for the food processing industry, is traditionally been looked down as a criminal act, thanks to the ECA act 1955.

Impending Need for the Fillip

A healthy and thriving food processing industry would not only benefit the direct stakeholders. It would cast a ripple effect on the national economy, both directly and indirectly. Some of its domino effects warranting a fillip from the government’s side are,

  1. Employment generation: According to the ASSOCHAM research paper, this sunrise industry is expected to generate over 9 million jobs by 2025. More importantly, this sector can absorb relatively low-skilled labour.
  2. Increasing farmers income: With the establishment of effective and organised food processing units nearby, farmers no more have to resort to distress sales as they market avenues galore for their agricultural produce. Also, this would result in effective realisation of the prices for their produce as they could subvert the APMC monopoly.
  3. Minimize food wastage: Due to the absence of sufficient storage facilities, annually, India loses about 40% of its harvest says the UN. On a similar note, NITI pegs the figure at 90,000 crores annually. Food processing units are supposed to absorb the additional food that doesn’t get sold in markets, thereby help to minimize the wastage.
  4. Minimize malnutrition: India harbours the largest chunk of the under-nourished population. With the rise of food processing, fortified food that is enriched with vitamins and nutrients would increasingly find its way into the markets, thereby helping fight the malnutrition crisis.
  5. Crop-diversification: India has earned notoriety for its mono-cropping practices, thanks to the administrational biases towards a few crops like paddy, wheat, and sugarcane. These water-guzzling crops have already taken a heavy toll on India’s water resources. With ample markets for a wide variety of crops, farmers would feel motivated to cultivate a diverse variety of crops.
  6. Arrest the migration: With new factories of food processing springing up in rural areas, rural youth could be employed within their vicinities, thereby precluding the rural youth from migrating to urban areas in search of jobs.
  7. Keeping Food Inflation in check: Processing elongates the shelf life of the food, thus keeping supply gates open all year. This would ensure a steady supply of Agri-produce, evading a supply bottleneck and, thereby, inflation.
  8. Facilitates exports: Due to the elongated shelf life and value addition, Indian Agri-produce could find markets abroad. This results in BOP surplus and accumulation of valuable foreign exchange.
  9. Decongests Agriculture: Our agriculture sector is overly crowded, with almost 42% of the workforce engaged in it. This resulted in the paltry marginal productivity of Indian agricultural labour. The food processing sector would attract a lot of Agri-labourers, thereby shifting the workforce from agriculture to its allied activities.

Government’s Intervention: Delayed, but not Forgotten

As we have discussed earlier, owing to the socialistic aspirations, earlier regimes have reserved the food processing industry exclusively for MSME till 2015. Consequently, the food processing sector of India, despite having huge potential, remained subdued for the most part of its history. The de-reservation of Food and allied industries coincided with the increased government intervention with a slew of schemes that are aimed at untapping the true potential of the food processing sector.

  • PM Krishi SAMPADA Yojana: The primary aim of this Scheme is to create processing and preservation capacities and modernization of existing food processing units with the goal of enhancing the level of processing, value addition, and food production.

Few of components under this scheme are,

  • Mega Food Parks
  • Integrated cold chain and value addition
  • Expansion of food preservation and processing facilities
  • Food safety and quality assurances
  • Human resources and institutions
  • Backward and forward linkages
  • Mega Food Parks: It was launched by the government in 2008, aimed at providing financial aid up to 50 crores to set up Mega Food Parks with state-of-art facilities for food processing. The primary objective of the Scheme is to modernize the entire value chain, right from the farm to the markets, based on a hub and spokes model. It involves the creation of facilities for primary processing and storage in the vicinities of the farm in the form of Primary Processing Centres (PPCs) and Collection Centres (CCs). It also includes building enabling infrastructure like roads, electricity, water, ETP facilities etc., at the Central Processing Centre (CPC). These PPCs and CCs act as aggregation and storage points to provide raw material to the food processing units of the CPC. This project is executed by a Special Purpose Vehicle (SPV), which is a Body Corporate registered under the Companies Act.
  • Operation Greens: This scheme was launched during the budget of 2018-19 to specifically promote the Farmer Producers Organizations, agricultural logistics, processing facilities, and professional management. This scheme aims at stabilizing the supply of Tomato, Onion, and Potato (TOP) crops and ensuring their availability throughout the year across the nation, thereby precluding any chances of price volatility. The scheme got an extension in 2020 to enfold all fruits & vegetables (TOPS TO TOTAL) in the scheme for a period of six months on a pilot basis under the Atmanirbhar Bharat Abhiyan. The two sub-components of the scheme are,

1)   Short term Price Stabilisation Measures: MoFPI provides 50% subsidy on the following:

– Transportation of Tomato Onion Potato (TOP) Crops from farms to storage

– Hiring of appropriate storage facilities for TOP Crops

2)  Long Term Integrated value chain development projects:

– Capacity Building of FPOs & their consortium

– Post-harvest processing facilities

– Agri-Logistics

– Creation and Management of e-platform for demand and supply management of TOP Crops.

  • Production Linked Incentive (PLI) Scheme: The government has launched the Production-Linked Incentive (PLI) Scheme in Food Products for enhancing India’s Manufacturing capacity and increasing the exports under the Atmanirbhar Bharat initiative. The scheme has a total outlay of 10,900 crores. The scheme will be implemented over a span of six years, from 2021-22 to 2026-27.
  • Scheme for Formalization of Micro food processing Enterprises: This scheme, with a total outlay of Rs.10,000 crore, is aimed at promoting Individual micro-enterprises and FPO/SHG/Cooperative societies by providing credit-linked subsidies. This Scheme will be spanned over a 5-year period from 2020-21 to 2024-25.

  Draft National Food Processing Policy-2019: The Ministry of Food Processing Industries released the Draft National Food Processing Policy, 2019, inviting the opinion of the public.


Reducing wastage at the farmer level.

-Supporting the food processing industry to create employment opportunities.

– Ensuring a higher flow of credit to the sector.

– Ensuring the availability of safer & affordable food products for the consumer.

– Infrastructure and skill-building to cater to the demands of the sector.

  • Repealing of Essential commodities act: It enabled the state governments to impose limits on the stocks, which was a serious impediment to the food processing units. However, with amendments being made to it in 2020, this bottleneck was removed.

Road Ahead

To address the paradox of being blessed with a multitude of inherent advantages which work wonders for the food processing industry and yet faring poorly with less than 10% of the food products being processed, India needs to work on the following measures.

– Integrating and consolidating various efforts aimed at reforming the backward linkages and forward linkages so that costs of food production could be brought down.

– Incentivising the private sector to invest in storage infrastructure. A risk-sharing framework must be formulated to motivate the private players and ensure capital security.

– Encouraging and promoting FPO/Cooperative societies/SHG to consolidate the farm produce and thereby help achieve economies of scale.

– Attracting FDI by removing the bureaucratic hurdles and liberalising the taxation regime and tax compliance mechanisms. There is a crying need to institute a single-window mechanism for the same.

– There is an impending need for India to improve on its research and development (R&D) standards. This should also involve setting up a robust nationwide quality check agency to ensure that Indian products don’t fall behind global standards. This helps India to increase its footprint in global trade.

– Encourage academia and industry to initiate courses in food packing, processing, and biotechnology, so that the gaps between industry demand and the current skilling curriculum could be plugged.

– Removing the marketing bottlenecks such as APMC mandis by conducting nationwide deliberations with the stakeholders and by bringing them into confidence. This would go a long way in connecting the farmers directly to the food processing units, which would be a win-win for both parties.

With the swelling urban and young population, demand for processed and packaged food is poised to ascend in the coming years. Similarly, by 2030, Indian annual household consumption is expected to treble, making India the 5th largest consumer in the world. The food processing industry in India needs to position itself to be able to cater to the exponentially rising demand by ramping up the infrastructure. The industry needs a steady flow of raw materials at a competitive & stable price. Apart from the raw material, the industry also needs a conducive politico-economic atmosphere to thrive. Government has a huge role in ensuring that the industry is well supported. A thriving food processing industry would go a long way in helping us achieve a string of our aspirations such as make in India, Start-up India, Atmanirbhar Bharat, Doubling farmer’s income, 5 trillion economy, Poshan Abhiyan, etc.



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