Nagaraju 12031EIB18 ABSTRACT

India is one of the worlds largest producers as well as consumer of food products, with the sector playing an important role in contributing to the development of the economy. Food and food products are the largest consumption category in India, with a market size of USD 181 billion. Domestically, the spending on food and food products amounts to nearly 21% of the gross domestic product of the country and constitutes the largest portion of the Indian consumer spending more than a 31% share of wallet. Going forward, the Indian domestic food market is expected to grow by nearly 40% of the current market size by 2015, to touch USD 258 billion by 2015. (FICCI-EY report, 2009) India has started to emerge as one of the major exporters of the world of processed foods in the recent past. Food processing industry in India is increasingly seen as a potential source for 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. In order to facilitate and exploit the growth potential of the sector, the government on its part 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 also outlined a plan to address the low scale of processing activity in the country

by setting up the mega food parks, with integrated facilities for procurement, processing, storage and transport. To promote private sector activity and invite foreign investments in the sector the Government allows 100% FDI in the food processing & cold chain infrastructure. The recent budget has announced several policy measures, especially for the cold chain infrastructure, to encourage private sector activity across the entire value chain. However, despite of continual efforts and initiatives of the Government to provide the required stimulus to the sector, processing activity is still at a nascent stage in India with low penetration. At the same time, though India is a key producer of food products, having an adequate production base for inputs, productivity levels are very low in the country. While India remains a top producer of food, production, yield levels are among the lowest amongst the BRIC countries. Also, the Indian export market, at USD 13.7 billion, has a share of only 1.47% of the world food trade. This report aims at understanding the challenges and necessary measures to overcome those challenges in the logistics and supply chain activities right from the procurement of the raw material to the processing and export of the processed foods.

INTRODUCTION

OVERVIEW

India is the world's second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector contributing around 26% of Indias GDP. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Health food and health food supplements sector is another rapidly rising segment of this industry, which is gaining vast popularity amongst the health conscious. 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. The food industry is on a high as Indians continue to have a feast. Fuelled by what can be termed as a perfect ingredient for any industry large disposable incomes - the food sector has been witnessing a marked change in consumption patterns, especially in terms of food. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs.250, 000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80, 000 crores (US $ 22.2 billion). The Indian food industrys sales turnover is Rs 140,000 crore (1 crore = 10 million) annually as at the start of year 2000.The food processing industry in the country is on track to ensure profitability in the coming decades. India's strong agricultural base and accelerating economic growth holds a significant potential for the Food Processing Industry that provides a strong link between agriculture and consumers. Government also has accorded a high priority to the sector and has provided many fiscal incentives. An enviable share of the world's agri-produce and diverse agro-

climatic regions coupled with changing demographic patterns, food habits and rise in income levels opens up numerous opportunities in the sector India as a large consumer market and India as a potential sourcing to the world.

FOOD PROCESSING INDUSTRY

Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either in the home or by the food processing industry. Food processing typically takes clean, harvested crops or butchered animal products and uses these to produce attractive, marketable and often long shelf-life food products. Similar processes are used to produce animal feed. Since liberalisation in Aug'91 and uptill Feb 2000 proposals for projects of over Rs.53, 800 crores (US.13.4 billion) have been proposed in various segments of the food and agro-processing industry. Besides this, Govt. has also approved proposals for joint ventures, foreign collaboration, industrial licenses and 100% export oriented units envisaging an investment of Rs.19, 100 crores (US $ 4.80 billion) during the same period. Out of this, foreign investment is over Rs. 9100 crores (US $ 18.2 billion). Processed food exports were at over Rs.13, 500 crores (US $ 3.2 billion) in 1998-99. Out of these exports, rice accounted for 46%, whereas marine products accounted for over 34%. India is one of the worlds major food producers but accounts for less than 1.5 per cent of international food trade. This indicates vast scope for both investors and exporters. Food exports in 1998 stood at US$5.8 billion whereas the world total was US$438 billion.

 The industry requires about Rs 29,000 crores in investment over the next five years to 2005 to create necessary infrastructure, expand production facilities and state-of-theart- technology to match the international quality and standards. The office of the Agricultural Affairs of the USDA / Foreign Agricultural Services in New Delhi says that one of Indias proudest accomplishments has been achieving a tenuous self-sufficiency in food production and that the country produces a wide variety of agricultural products at prices that are at or below world values in most cases. The Indian palate is accustomed to traditional foods, mostly wheat and rice-based, rather than potato and corn-based western palate. In marketing perspective, this is considered an important factor for foreign marketers. Indias middle class segment will hold the key to success or failure of the processed food market in India. Of the countrys total population of one billion, the middle class segments account for about 350-370 million. Though a majority of families in this segment have non-working housewives or can afford hired domestic help and thus prepare foods of their taste in their own kitchens, the profile of the middle classes is changing steadily and hired domestic help is becoming costlier. This is conducive to an expansion in demand for ready-to-eat Indian-style foods. India's exports of Processed Food was Rs.34864.36 Crores in 2011-12, which including the share of products like Mango Pulp (Rs.620.83 Crores), Dried and Preserved Vegetable (Rs.700.19 Crores), Other Processed Fruit and Vegetable (Rs. 2117.86 Crores), Pulses (Rs. 1067.93 Crores), Groundnuts (Rs. 5246.45 Crores), Guargum (Rs. 16523.87 Crores), Jaggery & Confectionary (Rs. 3459.40 Crores), Cocoa Products (Rs. 175.98 Crores), Cereal Preparations (Rs. 1870.04 Crores), Alcoholic and Non-Alcoholic Beverages (Rs. 1469.54 Crores) and Miscellaneous Preparations (Rs. 1291.03 Crores).