[Food Processing] Introduction, Scope, Significance, Awesomeness

(hardly), Obstacles (truckload of) for GS Mains

1. Prologue
2. Indian food processing industry: Significance
1. Increasing Employment
2. Curbing Migration
3. Curbing Food Inflation
4. Crop-diversification
Scope/Potential
3.
1. Abundant Raw Material
2. Geographical advantages
3. New Demand
4. Government Initiatives
4. Obstacles to food processing?
1. Economies of scale
2. Lack of organized retail
3. Lack of Food testing facilities
4. Lack of Skilled Manpower
5. Lack of R&D
6. Transport problems
7. Export Problems

Prologue
In the new Mains syllabus, UPSC has included: Food processing
and related industries in India

their Scope, significance, Location

Supply chain management (SCM)
Upstream and downstream requirements

But ^thats not the end. Food processing topic also

overlaps with
GS-2

1. Ministries and Departments of the Government

GS-3

2. Government policies and interventions for development in various sectors and issues arising
design and implementation.
3. storage, transport and marketing of agricultural produce and issues and related constraints;
4. Sci-Tech research e.g. Food irradiation, developing new crop hybrids, animal-breeds etc.

+ same food processing points can be selectively used for

discussing rural-unemployment, food inflation, general
inflation, FDI in multi-brand retail; even current account deficit
and rupee depreciation: whether its essay / interview or group
discussion (in case of SBI/CAT) hell even RBI Officer phase II
descriptive papers.

Structure of the [Food processing] Article series:

1. We get basic overview of significance-scope-potentialobstacles
2. Truckload of Government schemes related to post-harvest
management, Mega Food parks etc.
3. Model APMC acts, the direct cooperative marketing etc.
4. Finance, taxation, FDI, export related issues
5. Then we start basic theory of supply chain management
(SCM), and upstream downstream issues of individual
food processing sub-sectors viz. Dairy, Fruit and Veggies,
Egg-Meat-Fishes, Confectionary, Wine, Edible oil etc.

References used for this article series

Source Title
Books
1. A Manual for
Entrepreneurs: Food
Processing Industry
(Tata McGraw-Hill
Publication)
2. Food processing:
Opportunities and
Challenges (ICFAI
university press)
3. IGNOU MBA
booklets
(Coursecode: MS55)
PDFs State of Indian agriculture
2012-13 (By Agricultural
Ministry)
Vision 2015 for food
industries: part 1 and 2
Flavors of Incredible India:
A report by Ernst & Young

comment
Initial chapters provide the challenges/problems
with food processing industry. Rest goes into
actual management, accounting, sales, marketing
strategy for a food entrepreneur=useless from
UPSC point of view.
Some chapters deal with food industries in China,
Australia etc but hardly any good fodder points
Some chapters provide details of individual food
processing sector but mere copy paste job from
Vision 2015 PDF document.
for theory on supply chain management,
upstream-downstream requirements

for agro-livestock-fish-production information

and schemes
for opportunities and obstacles in individual
sector: dairy, meat, wine etc.
for supply chain diagrams of individual food
processing sector

and FICCI
Planning commissions
report on Encouraging
Investments In Supply
Chains and cold storages

+ Additional points for opportunities, obstacles.

plenty of fodder on
supply chain,
opportunities, obstacles
various schemes
doesnt have much specific fodder points for food
processing though.
some fancy charts, numbers.

12 FYP documents
th

Web

IBEF report on Food

processing industry
pib.nic.in, Indian express

for government schemes, salient features,

export/dumping issues.

Note: All those Food processing related PDFs have been

uploaded on https://files.secureserver.net/0sL2N0Ej5XwsWc
12th Five year plan uploaded
on https://files.secureserver.net/0sLrYY0FFJRric

Indian food processing industry: Significance

size

Has more than 35000 registered units

Output of ~5-6 lakh crores

Food processing contributes about 9-10% of GPD, in Agro-Mfg.

sector.
location Location wise: Maximum factories in (ie. more than 1000 in given state)

Coastal states: Andhra, Maharashtra, Karnataka, Kerala, Gujarat, Punjab, WB

Non-coastal States: UP, Punjab
Observe majorities of the food processing factories are concentrated in the
coastal states.

Increasing Employment
Food processing industry provides plenty of direct and
indirect employment opportunities, because it acts as
bridge between Agriculture and Manufacturing
As per ASI survey in 2010, Food processing industry
generated highest employment among all industry.
Giving employment to almost 17 lakh people.

12th Five year plan (FYP) wants to create more than 50

million jobs. Out of that, Food processing sector is to
create one million jobs.

Curbing Migration
When food processing plants are setup near agro/rural regions,
they reduce:
1.
2.
3.
4.

Poverty among villagers,

disguised unemployment
exploitation of farmers
rural-urban migration
1. unplanned urbanization,
2. slums/hygiene/social problems in cities

Curbing Food Inflation

In the last few years Food inflation has been a major
problem. Food inflation is eventually passed through into
manufactured goods through higher money wages.
Therefore persistent high food inflation= bad for general
macroeconomic stability.
well-developed food industry + compact supply
chain=reduces food inflation via:
1. Disintermediation (meaning no
middlemen/commission agents)
2. less wastage/spoilage of perishable products

Thus food industry is significant for reducing food

inflation.

Crop-diversification
Indian villagers are away from market= have to grow
cereals. (as we learned in Von Thunen model)
In recent years, Government increased Minimum support
prices for rice and wheat.
That leads to surplus grain production=>Pvt. Players give
less price to farmer=>government has to buy wheat
@Minimum support price (MSP) but FCI didnt have
enough storage capacity
Result: Wheat gets rotten @godowns and railway
stations.
On the other hand, weve to rely on imported oilseeds
because of higher MSP, farmers prefer to grow rice/wheat

than oilseeds=> higher oilseed import adds to Current

account deficit and leads to 1$=62 rupees=>crude oil
expensive=petrol expensive=everything transported
through petrol/diesel gets expensive=thus the cycle of
middle class exploitation is complete.
Coming to the original point: we need crop diversification,
all farmers shouldnt be growing just rice and wheat. But
if want to seduce the farmers into growing other crops,
then following must be done

1. Promote food industry with backward linkages to farmers

growing fruits, vegetables, milk, fish, meat, poultry, grain,
etc.
2. Aggressively market the processed food in India + Abroad
once weve done #1 + #2=> then even the farmers away
from market area will see good income opportunity in growing
non-cereal crops => crop diversification => the excessive
rotting-wheat surplus problem is solved.
Some filler significance points: food processing
1. Increases shelf life: milk vs butter
2. Increase value: milk vs butter
moveing to.

Scope/Potential

Abundant Raw Material

Indias world in production of
Rank
1
milk, ginger, chickpea, banana, guava, papaya, mango, buffalo meat
2
rice, wheat, potato, garlic, cashew nut, groundnut, dry onion, green peas,
pumpkin, gourds, cauliflowers, sugarcane, tea
among top coffee, tobacco, spices, oilseeds
five

With such a huge raw material base, we can easily become

leading food supplier in the world. (But we havent, because of
the obstacles discussed later).

Geographical advantages
1. 46 out of 60 soil types are present in India.
2. More than 26 types of climatic conditions= can cultivate
large variety of fruits, crops, vegetables.
3. Large coastline, villagers in 13 states engaged in fishing
as their secondary activity.

4. Variety domestic animals such as cows, buffaloes, goats,

chicken, lamb, sheep.
5. Large irrigated area under cultivation. Ample supply of
fresh water for human, plant and animals.

New Demand
In the upcoming years, there will be good demand for healthy,
modern food products due to following reasons:
1. Youth population (age group 15 25): doesnt shy away
from trying new food products.
2. More Nuclear families: usually working couple => less
cooking time + expensive maids=need ready to eat /
ready to cook food.
3. Rising incomes, middle class and rich families=can afford
processed food.
4. Emergence of Tier 1 and Tier 2 cities, shopping mall
culture.
5. Growing migration from rural to urban India + rising
income = demand for bread, butter etc.
6. Media penetration, advertisements=> demand is
created for health-drinks, noodles, cream-biscuits,
cornflakes etc.
7. Celebrity chefs, cookery channels= new dishes,
international cuisines introduced=>demand for their
ingredients, vegetables in India.
8. Diabetes, obesity, Blood pressure, lifestyle diseases
=>demand for healthy food.
As a result, food processing industry is expected to reach
year turnover USD
2015 >250 billion
2020 >300 billion

Government Initiatives
Many food processing sectors that were earlier reserved
for small scale industries (SSI) have been de-reserved
FDI limits have been relaxed, Excise duties have been
reduced, export subsidies given
National mission on food processing, Vision2015 for food
processing,
New schemes for mega food parks, cold chain etc.

Many states have reformed their outdated APMC laws.

and so on (^all these elaborated in later articles.) Together

they facilitate the expansion of food processing industry in
India. More scope points, specific to individual sector (i.e.
Dairy, meat, fish etc) later articles.
so far everything sounds hunky dory but if our food processing
industry was so awesome, then UPSC wouldnt have included it
in the syllabus. Then, what are the.

Obstacles to food processing?

country
India
China
USA

__ % of total fruits/vegetables processed

barely 6-7
>20
>60

So, why low level of food processing in India?

Economies of scale
When you produce something on large scale, the unit
production cost decreases. How / Why?
1. When you purchase raw material in large bulk, you
negotiate/bargain with supplier.
2. Fixed cost remains same (building rent, cost of lights,
initial cost of buying machinery etc.) e.g. you bought a
ice cream machine for 10 lakh- whether you make 100
liters ice cream or 1000 liters ice-cream per day- its upto
you but the more ice cream you produce, the average
unit cost decreases. (think of 100/5 vs. 100/50)= hence
bigger the plant, cheaper to produce.
Most of Indian food processing
units/companies/enterprises/factories are small sized meaning
= poor economies of scale. It leads to following problems:
Aspect
Pricing

problems of small company / poor economies of scale

Since unit production cost is high, he cant sell his products cheap unlike a big MNC, a
consumers are price sensitive.
Brand-Building Small players=small profit, seasonal business. In global market they cant establish the

term player they only do opportunistic businesses, undercut each other.

Cant invest in R&D to develop new products (e.g. chilli chewing gum or toma
Low Technology

Marketing

Un-Export
Quality

retailing

Cant do marketing research / survey to find out what consumers want?

Cant invest in advertisement campaigns to create new demand.
e.g. Kellogs is aggressively advertising its cornflakes in India, highlighting we

but on the other hand, an Indian Halwai (sweet maker) cant do same level of m
to create demand for jalebi or peda.
cant do backward linkage e.g. contract farming: giving seeds/fertilizer/pestici
Instead small company relies on multiple small supplier hence Raw material=no
quality.

Then their products are rejected in US/EU market for not meeting the Codex/H
(e.g. mango juice rejected for stone weevil, buffalo meat rejected for food-n-mo
rejected for heavy metal contamination and so on.)
Cant do forward linkage e.g opening its own factory retail outlet like Nike, A
small company has to rely on third party retailers and need to give them margin
profit decrease and poor economies of scale continues.

But why do we have this poor economies of scale?

1. For long, many food processing items were reserved for
Small scale industries only.
2. High input costs due to multiple taxes, middle men. Profit
level is low=cant expand.
3. Government schemes, subsidies, grants have lowceilings =Individual person cant setup big plants
4. Hard to get bank loans. (more elaboration in later article)
5. Bigger the plant, bigger the headache in terms of taxliabilities. Creative Indian entrepreneurs rather setup
multiple small plants to get subsidies/tax benefits of
MSME-industries, and sell unbranded food products.
Anyways, some more obstacles for Indian food processing
industry:
Price Sensitivity Indian public=Low per capita income = higher price sensitivity and
higher income elasticity in relation to food expenditure.
Preference For Indians prefer freshly cooked products as compared to packaged
Fresh Food
products. Traditional mindset: fresh = nutritious.
Agri Problems truckload of agri-problem. Well see the individual problems in later
articles. for the overview:
Agriculture/Dairy production yield levels are among the

Supply Chain
Problems

Logistics

Infrastructure

Finance
Taxation

Schemes

Laws

lowest amongst the BRIC countries.

Land holdings=small, fragmented.
Area under cultivation is decreasing due to urbanization,
real-estate development, industrialization and ofcourse
thanks to totally awesome people like Raabert Vadhera.
there is no common policy on contract farming throughout
India
high cost of raw material (driven by low productivity and
poor agronomic practices)
Presence of intermediaries thanks to Nuisance called APMC
acts.
high cost of packaging, finance, transport and distribution
lack of organized retail
Logistics cost= transportation, warehousing, material
handling etc.
In India, Logistics accounts for about 13% of GDP, which
translates to over USD130 billion.
This cost is significantly higher as compared most developed
countries.
Inadequate infrastructure of storage, sorting, grading and
post-harvest management.
Private sector unwilling to invest in logistic or infrastructure
under prevailing economic conditions and policy paralysis.
hard to get loans (for both farmers and food-entrepreneurs)
food industry subjected to variety of taxes.
Taxes on processed food in India are among the highest in
the world.
Except India, No country distinguishes between branded and
unbranded food sectors for taxation.
Multiple and complicated tax regimes have rendered the
food industry uncompetitive
Plethora of government schemes: overlapping, ambiguous,
low ceilings. e.g. you need crore rupee worth machine,
they barely give few lakhs- that too after months of visits to
various offices.
Food laws are often inconsistent and overlapping.
The Food Inspectors cause of harassment and bribe-demands
in terms of pulling up entrepreneurs under the Weights and
Measures Act, ingredient content and mix, labelling norms,

etc.

Market
Information

Manpower

Packaging

While the various acts are necessary, court cases turn out to
be expensive for small-entrepreneurs- especially if involved
in inter-state trade.
Market information not easily accessible
Small players cannot buy international journals/magazines to
find the latest trends in demand/innovation. Most of them
also dont know how to use internet for business/marketing.
Lack of trained manpower.
Very few universities offer special courses for food
processing and entrepreneurship.
Since Indian consumers= price sensitive, most of the food
products are sold in small packages (Rs.5 noodles, biscuits
etc)=more plastic required= higher share of packaging costs
as a proportion of total costs.*

*High packaging cost

Packaging cost is ___ % of total production cost
Potato Chips
20%
Fruit Juice
19%
Jam
12%
Chicken Nuggets
8%
Branded Atta
6%

A recent ICAR study on Status of Post-Harvest losses

type
cereal
pulses
oilseed
fruits
veggies
spices
marine

post-harvest % loss
wheat
blackgram
groundnut
guava
tomato
turmeric
inland-fish

6
6
10
18
12
7
7

moving to more problems faced by Food processing industry:

Lack of organized retail

In USA there are two types of retailers
1. Big malls: Walmart etc.
2. small kirana walla known as mom and pop shops
But both of them have cold-storage facilities, hence they sell l
both dry and wet/fresh food products
dry

fresh

bakery items, noodles, pasta, flour, cheeze

etc.

fruits, milk, veggies, meat, chicken, fish

But in India, kirana stores dont have cold storage

facilities=> they only sell dry food products.
and fresh produce is sold through vendors with pushcarts=>wastage because they dont have cold storage.
Meat, poultry and marine products are primarily sold in
separate markets but they too dont have cold
storage=>wastage.

Thus, lack of organized retail, leads to

1. low product quality
2. lack of variety, choice

4. low hygiene levels

5. low value for money

3. poor shopping experience

6. high cost of product

Lack of Food testing facilities

1. The number of laboratories in the country is insufficient.
Most of these laboratories lack world-class facilities and
infrastructure. Equipment, Testing manuals outdated
2. Many laboratories are not equipped with basic facilities
such as for testing antibiotic residues, heavy metal
contamination and other toxic contaminants in the food
items.
3. Very slow response time of Government controlled food
laboratories is long, extending to upto 5 years.
4. Most laboratories at sea ports are not fully equipped to
handle testing of imported products, organic foods,
residual radioactive matter, new toxins and allergens,
textural analysis, residues of veterinary drugs, enzymes
and hormones etc. these tests are necessary for
complying with Codex, HACCP , GMP , GHP etc before
exporting to in US/EU markets.
Lack of Skilled Manpower
A food processing unit requires skilled manpower, including

Production Managers or Supervisors

Product Development Technologists
Food Engineers

Quality Control Scientists

Research Technicians
Technical Representatives

Food Microbiologists

machine operators, assistants

Problems
Lack Of Men

Lack Of
Courses

As per a study by National Skill Development Corporation:

the annual human resource requirement in food processing
industry is estimated at about 5 lakh persons including about
one lakh persons in the organized sector.

But right now, every year, barely ~5000 graduates and

postgraduates pass out from in different disciplines of Food
science and technology.
very few universities offer graduation/PG courses,
entrepreneurship courses for food science and technology
Need short-term, diploma/certificate type courses for rural
youth.
need to introduce courses for small scale players such as
retailers, halwais

Outdated
Syllabus And
Professors

Inspectors

Engineering

Need specialized institutes for training/R&D in bakery,

confectionery, wine making.
Syllabus/courses in university departments are not being
updated regularly and are in most cases, outdated with
respect to the present trends and food industry requirement.
The teaching faculty in most of the Indian academic
institutions studied has limited industry experience /
exposure.
Food inspectors unaware of GMP, GHP & HACCP standards,
latest developments in food standards, new products, and
laboratory network
Engineering curriculum does not equip graduate engineers
with the skill of designing cold chain infrastructures. Fresh
graduates find it difficult to make heat load calculation and
configure the plant & machineries in energy-efficient manner.
There is urgent need to upgrade the syllabus accordingly.

Lack of R&D
1. Sarkari Domain

Indian food processing industry is mainly

madeup of small scale players= they cant invest
money in R&D=> becomes governments
responsibility to do the R&D.

2. Baba Adams
Mindset

3. Manpower

4. Implementation

But Sarkari Research objectives are outdated,

food market requirements keep changing
frequently given the new product launches by
MNCs.
Multinational Food companies typically have an
in-house global network of R&D professionals.
Although theyre willing to work with Indian
institutions for developing India-specific products
and processes.
But the quality of R&D currently undertaken by
existing Indian institutions is not in line with their
requirements.
The chairmanship of public research institutes
usually given to (retired) IAS or politicians=>
lack of dynamism/market-orientation of the
hardcore professionals in food-MNCs.
Many students prefer alternate careers which are
found to be more fulfilling and remunerative.
There has been a significant drop in the quality of
people entering the R&D field
Indian Government recently introduced a variety
of kiwifruit in North India, but could not provide
adequate support/advice on cultivation practices.
Result= domestic kiwi produce is much smaller
in size than imported kiwi.

5. There is a huge opportunity for developing and

commercializing desi foods for export e.g. ethnic
beverages such as kokum, coconut water and ethnic food
such as khakra, amla preserve etc. But, to make them
appealing to foreign consumers, R&D required for product
development, food-texture, rheology, mouth-feel, smell,
color, packaging etc.
6. Internationally, following research-developments are
ongoing, while we are generations behind in research:
area
What foreign players are doing in R&D?
Non-thermal food processing technologies to preserve the nutrients
processing
in milk, fruit juices and also for killing microorganisms in eggs.
Role of ozone in fresh food sterilization

Calcium treatment to extend the shelf life of melons

packaging

Packaging films that offer optimal barrier properties to extend shelf

life.
Biodegradable films made from pectin and starch
Silicon oxide films that improve oxygen and moisture barriers.
Use of natural antioxidants in packaging materials for shelf life
extension of combat rations for soldiers.
Active and intelligent packaging systems To monitor product
quality and trace a products history through critical points in the
food supply chain.

Transport problems
Transport capacity
India
developed countries
Normal distance covered by trucks/trailers 250 -300km / day 600- 800 km/day
roads capacity to handle maximum weight 16 tonnes
36 tonnes (USA)

Indian national highways account for only 2% of the total

road network but carry 40% of all cargo.
This puts a high pressure on the highways due to the high
traffic volumes => delays in transit + damage to
perishable products
Though highways are well-spread, theyre yet to connect
all 550,000+ villages in India

Railway
problems

Ports

Railway is cheaper than road transportation but railways currently

contribute barely ~25% of the total cargo transported
Last mile connectivity from rail transporters =absent.
Inefficiencies associated with a government monopoly. (timingschedules, technology upgrades etc)
Lack of wagons with cold storage facilities.
Congested rail stations, lack of sorting, grading, warehousing
facilities nearby.
Road transport operators provide more flexibility.
Although The Dedicated Freight Corridors are expected to improve
the connectivity of the railways, increase carrying capacity and
reduce the transit time.
Environmental and social hurdles in land acquisition= hard to get
setup new port / expand the existing port.
High dependence on manual labor + low technology usage=
increases the turnaround, loading/unloading times at ports, thus
impacts entire supply chain lead time and increases cost For e.g.
the cost of an import container in India=~$500, elsewhere ~350 in

foreign ports.

Export Problems
Although India is the second largest producer of food in the
world but its share in worlds exports is very low despite its
inherent strength in tea, spices and rice. Why?
expensive
Raw Material

low
processing

low quality

Branding

transport

Packaging

Dumping
Devaluating

Fragmented base of suppliers=uniform quality not available

Lot of intermediaries=raw material cost increased.
High duties on imported raw material: additives/flavorings etc.
As a result input cost =high, hence pricewise, we cannot
compete with other exporters.
Our processing has largely remained in primary forms like
pickling, sun drying and/or making preserves. Sometimes we
just export intermediate product to second country theyll
further process it and sell to third country @even higher price.
(e.g our shrimps to Japan, Japan selling them to US)
Often our products rejected from US/EU markets for not
meeting Codex, HACCP quality standards
yet to Build global brands on the back of Indias strengths
(Darjeeling tea, Basmati rice, Durum wheat, Alphonso mango,
Tamilnadu Banana or Kashmiri Apples)
Developed countries view India as an unpredictable and
unreliable source of food and agro products.
Poor cargo facilities at airports and ports are other bottlenecks
discussed earlier
yet to develop packaging technologies for Indian food products
to make them more acceptable to foreign consumers.
Desi shrimps face Anti-dumping duties in USA.
1$=~60 Indian rupees while 1$=~100 Paki rupees
Given these exchange rates and local prices of Basmati in India
vs Pakistan. From an American/Europeans point of view, it is
cheaper to import Basmati from Pakistan than from India.

^these are just few of the many problems/obstacles faced by

Indian food industry. In the next article, we see various
government schemes related to post-harvest management,
food processing industries and agro-export.

URL to article: http://mrunal.org/2013/08/food-processingintroduction-scope-significance-awesomeness-hardlyobstacles-truckload-of-for-gs-mains.html

Posted By Mrunal On 21/08/2013 @ 21:06 In the
category Economy
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