Food Processing Sector in India Challenges & Opportunities

Priyanka Gupta Rahul Krishnan Rohit Batra RudraPratap Sadaf Irfan

The Indian Food Sector : Introduction

India is one of the major food producers in the world. The food sector contributes to about 28 % of Indias GDP. In terms of world ranking, India stands :
1st in the production of Cereals, Milk & Livestock population 2nd in producing Fruits & Vegetables Ranks amongst the top 5 in producing Rice, Wheat,

Groundnuts, Tea, Coffee, Tobacco, Spices, Sugar & Oilseeds

Total market for food products
Of this, processed food

Rs. 2,500 Bn.

Rs. 1,400 Bn.

Food is the largest consumption category in India

India has huge supply advantages due to diverse agroclimatic conditions and wide ranging raw material base.
52% cultivable land compared to 11% world average All 15 major climates in the world exist in India Largest livestock population

Largest producer of milk

46 out of 60 soil types exist in India

Largest producer cereals

Significant Opportunity India as a global sourcing hub

20 agri-climatic regions Sunshine hours and day length are ideally suited for round the year cultivation

Second-largest fruit and vegetable producer

Among the top five producers worldwide of rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and oilseeds.

Huge wastage across the supply chain leads to lower level of processing and hence low value addition.
Producer
Consumer Field Losses (Pest, Diseases, Rodents etc))
Developi ng Countrie s Pre-Processing Relatively (e.g. inefficient harvesting, drying, milling) high Level of Processing across Segments losses in Transport the initial parts of (e.g. spillage, leakage) Segment India Other Countries the value chain Storage US A (65 %), Philippines Fruits and (e.g. technical deficiencies) Rich 2.2% (78%) Vegetables Count China (23)%; Processing & Packaging ries High (e.g. excessive peeling, washing) Marine 26% losses at a 60-70% in developed Marketing Poultry 6% later countries (e.g. spoilage, rotting in stores) stage Buffalo Meat 20% in the Wastage by Consumer food 60-75% in developed (e.g. overeating, food chain wastage) Milk 35% countries
Britt-Louise Andersson, SIWI

Field

Indias Position in Global Trade

India has the second largest arable land of 161

million hectares and has the highest acreage under irrigation. During the period 1980-2007, Indias share in the global exports has increased from 1.1% to just 1.4%, the majority of the increase happening in this decade. However, Export of Processed Food and Beverages is growing faster than the overall Food and Beverages.
Two nodal agencies, Agricultural & Processed food

products Export Development Authority (APEDA)

Major Food Processing Companies in India

Entry of multinationals, low cost of technology and rise in commodity branding has resulted in a change in the Indian food industry.

Major Players in Milk Products

Major Players in Fruits and Vegetable Processing

Major Players in Rice-Most Processed grain

Major Challenges for the Indian Food Processing Industry are:

Consumer education on nutritional facts of

processed foods Low price-elasticity for processed food products Need for distribution network and cold chain Backward-forward integration from farm to consumers Development of marketing channels Development of linkages between industry, government and institutions Taxation in line with other nations Streamlining of food laws

Some of the Challenges in the Sector: 1. Productivity Issues

India's overall agriculture productivity is still low

Challenge 2: R&D
Commodity-centric R&D
Lack of a holistic approach involving a matrix of farm enterprises

Compartmentalization of R&D agencies Poor validation and feedback mechanisms

Lack of effective bilateral flow of information amongst research, extension, and implementation departments

Lack of large-scale on-farm validation of techniques and feedback thereon, leading to practically no scope for enhancement

A seven-step mechanism is required to set-up a research-development-technology transfer continuum involving all stakeholders
1. Problem identification and prioritization 2. Convergence of existing technologies to match the need 3. Generation of need-based viable technologies using the holistic farming system approach 4. On-farm assessment and evaluation 5. Feedback on the technologies 6. Refinement of technologies, if necessary 7. Ensuring timely availability of inputs

Challenge 3: Human Resource Development

The industry is in dire need of highly skilled/trained manpower across different levels to handle various operations
Emphasize food safety in storage conditions Training in Warehousing and Distribution

Managerial and Operational level HRD

Industry level

Regulatory and trade issues Food production

Warehousing & Distribution

Platform to make policy decisions Inclusion in academic curriculum

Enforcement

Food safety awareness Auditing and inspection skills Process development

Institutional Development Focus on packaging techniques, storage and safe transportation

Challenge 4: Supply Chain Hindrances

Necessity for a Strategic focus on Supply Chain in FPI

Seasonality Seasonal production Vs Year-round Processing Operations Perishability Higher persishability of raw materials Variability Variable quality of raw materials due to cyclical variations and changing weather conditions

This situation discourages processing units to reach optimum size and achieve economies of scale.

Additionally, lack of consistent quality hinders small scale units to build brand equity for themselves in international and domestic markets.

Challenge 5: Low Adherence to Quality Standards

Increasing need for food processors to adhere to quality standards for both domestic as well export market
Increasing GlobalisationStringent Safety Norms Rising Customer awareness on Quality and Health

Lack of requisite controls across the agri-value chain-from farm inputs to storage of produce to food processing techniques Poor compliance to requisite food standards in export countries Absence of basic standardization and certification infrastructure

Opportunities
Food Processing sector has strong synergies with the inclusive growth

mandate of the government and also provides a platform to significantly transform the face of rural India.
A developed Food Processing sector will help overcome the biggest challenges in front of India: Low farmer income and high subsidies High wastage along the value chain Poor hygiene and safety standards

Given the huge potential opportunity, players should consider the constraints as opportunities waiting to be exploited and make investments for the overall growth of the industry.

Opportunities
High domestic demand and supportive policy provides significant opportunities across the Food Processing value chain
Policy Support

Farm Inputs

Farming

M arketing/ Aggregator

Processing

Logistics (Food)

Retail/ Food Services

Consumer

Product Design Distribution Financial & Business Services Transport Services/ Infrastructure Quality Control M arket Intelligence M arketing

Mega Food Parks Key Opportunities Integrated Cold Chain Backward and Forward Integration

Food Safety Management Systems Training Facilities B2B Sales

Quality Control Labs Joint Research Facilities Customised Farm Equipment

Attractive areas for investments

Cold chain:

The estimated cold-storage capacity at 19.5 mt is less than 15% of the annual horticulture production. The size of cold chain industry is estimated to be around US $2.2-2.7 billion and is expected to grow at 20-25% annually. FDI to the extent of 100% is allowed in the sector. With the rising focus on horticulture, increasing corporate participation and advent of food parks and agri export zones is likely to result in significant restructuring of cold storage infrastructure with an estimated investment of US $8-10 billion. Voltas, Blue-Star and Kirloskar Pneumatic are some of the cold storage players and equipments
Supply chain:

An efficient supply chain not only brings down the price of the end product but also eliminates intermediaries by connecting farmers directly to the super stores. It has thus become an important aspect of organised retail setup. The food supply chain in India is highly fragmented with numerous intermediaries and lack of economies of scale. Sophisticated applications such as demand forecasting, data integration, financial flow management, supply-demand matching, information sharing will enable it to become mature and efficient.

 Food safety management systems

The tightening of restrictions and the introduction of the Sanitary and Phytosanitary Agreement by global industry bodies like the World Health Organisation (WHO), have led to increased adherence of safety norms and regulations. Indian companies will have to strictly adhere to international food safety standards in order to gain a larger share of world trade. Machinery In packaging, freshness and hygiene remains a key factor in determining buying by consumers. In recent times, a number of new technologies have emerged both in processing and packaging, which have made an impact on the shelf life of food products.
Food retail

Food and groceries form major portion (75%) of the retail pie. However, it has the lowest level of penetration of 1% in organized retail. Branded foods market size is growing at 15-20%. Players have outlined major expansion plans recognizing the opportunity

Vision FPI
Vision 2015 adopted by the Ministry of Food Processing envisages
Trebling the size of the processed food sector Increasing level of processing of perishables from 6 %

to 20 %. Value addition to increase from 20 % to 35% Share in global food trade to increase from 1.5 % to 3%

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