Global Journal of Management and Business Studies.

ISSN 2248-9878 Volume 3, Number 3 (2013), pp. 261-270

© Research India Publications
http://www.ripublication.com/gjmbs.htm

Export Performance of Processed Food in India

Kakali Majumdar

College of Management, Shri Mata Vaishno Devi University, Kakryal,

Katra, J&K-182320, India.

Abstract

Indian food processing industry is primarily export oriented. With the

export growth rate of around 15%, its share in the international market
is only 1.7%. Again, only 2% of the total food produced in India is
processed for further consumption. This is a matter of concern that
despite massive potential, this sector remains grossly underutilized.
Against this background, the present paper aims to study the export
prospect of Indian Food processing industry laying focus on its trends,
the problems it faces and possible remedial measures to achieve its
high potential. Growth rates have been calculated following the best
fitted trend. Revealed Symmetric Comparative Advantage Index has
been used to measure the Comparative advantage of Indian processed
food export.

Keyword: Food processing Industries, Best Fitted Trend, Revealed

Symmetric Comparative Advantage Index.

1. Introduction
Liberalization of trade resulted in a rapid transformation of the export and import
situations in the developing countries (Aksoy and Beghin, 2005). Specially, W.T.O
brought the opportunities for countries to grow and realize their export potential.
India’s approval of the Agreement on Agriculture resulted in change in levels of
comparative advantage for various agricultural commodities exported in the global
markets (Shinoj and Mathur, 2008). Structural changes in the composition of
agricultural trade were also observed in the world market (Jongwanich, 2009).
Traditional food export has been gradually replaced by processed food export.
India is the second largest producer of food, just behind China. Earlier, the
activities of food processing sector in India were mainly limited to the food
262 Kakali Majumdar

preservation, packaging and transportation. However, over the years, with the
emergence of new markets and technologies, the sector has extended its scope. It has
started producing many new items like ready to eat food, beverages, processed and
frozen fruit and vegetable products, marine and meat products, etc. It also includes
establishment of post-harvest infrastructure for processing of various food items like
cold storage facilities, food parks, packaging centers, value added centers, irrigation
facilities and modernized abattoir. Presently Indian Food Processing Industry mainly
consists of Dairy, Fruits and Vegetables, Grains and Cereals, Fisheries, Meat and
Poultry, consumers food items etc. Among these, Dairy products have the largest
market share of about 37%. With the rapid growth of the economy, shift in the
consumption pattern from cereals to more varied products like milk, vegetables etc.
have resulted in the development of food processing industry in India. According to
the eleventh five year plan, food processing industry constitutes more than half of the
total food products in India. Food processing industry in India is primarily export
oriented. No industrial license is required for setting up of fruit & vegetable processing
industry. Though the industry is large in terms of size in India, it is still at a budding
stage in terms of development and accounts for only 1.7 per cent of world trade in this
particular sector. Against this back ground, the present work aims to study the nature
and prospects of export of Food Processing Industry in India.

2. Literature Review
Athukorala, et al. (2002) observed that as the developed countries have better
processing technologies, packaging facilities etc, they are better positioned for export
prospects of food processing sector over the developing countries. Athukorala and
Jayasuriya (2003) highlighted, due to some infrastructural inadequacy the impact of
food safety standards on processed food exports in developing countries are still
inconclusive. Mehta and George (2003) said the processed food exports can be a viable
instrument to sustain and enhance social welfare in developing countries and this will
be possible if all trading partners work towards making the trinity of science, safety
and trade of food products blend to form a harmonious unity. Wilkinson (2004) studied
transformations in the food processing sectors of developing countries are increasingly
seen as strategic from the point of view of export earnings, domestic industry
restructuring and dietary issues. Studies by Chenggapa et al (2005) and Mukherjee &
Patel (2005) pointed out though Indian consumers have preferred fresh and
unprocessed food over processed and packaged food, the recent changes in
consumption patterns, particularly in middle and high income groups show ample
opportunity for processed food segments in the country. Goyal and Singh (2007)
found, rising income, increased urbanization, changing lifestyle, greater willingness to
experiment with new products, increase in the number of working women etc. have led
to a strong growth in consumption of processed food products. Study by Dharni and
Sharma (2008) indicated that Food processing sector is an important link between
agriculture and industry. In this study, the non-parametric DEA approach is used to
Export Performance of Processed Food in India 263

compute the Malmquist Total Factor Productivity (TFP) change. An inter-country

econometric study of processed food exports by Jongwanich (2009) highlighted that
food safety standards imposed by developed countries have a negative implication for
processed food exports from developing countries.

3. Research Methodology
3.1Objective: The specific objectives of the paper are as follows:
1. To study the export Growth trend of food Processing Sector in India.
2. To study the competitive advantage of export of food producing sector.

3.2 Hypothesis
H1: There will be a significant positive influence of time on export growth of the
processed food.

3.3 Data sources

The study is based on secondary data. A large variety of products are listed under this
sector. The present study mainly concentrates on processed fruits & vegetables and
some processed food products namely Dried and preserved vegetables, Mango Pulp,
Others Processed fruits and vegetables, Pulses, Ground Nuts, Guar Gum, Jaggery and
Confectionery, Coca products, Cereal Preparation, Alcoholic Beverages and
Miscellaneous Preparation . Time-series data on the export of processed foods, both in
physical quantity and value, for the year 2001-02 to 2009-10, were collected from
ministry of Food Processing Industries, APEDA, RBI bulletin, Economic Survey.
Because of the non-availability of the item wise data related to processed food, the
present study remains restricted within the said period. However, the growth rate for
total export, export of agricultural product and export of total processed food has been
calculated for the period of 1993-94 to 2009-10.

3.4 Growth Measurement

Growth rates of selected Processed Foods, both in the absolute quantity (in MT) and
value (Rs Crores) have been calculated with the best fitted model for the year 2001-02
to 2009-10. Linear, Exponential, Parabola and Log quadratic models have been
considered for the selection. R2 of different functional forms are not comparable. But,
if the difference in R2 is substantial the form with highest R2 can be considered as the
best fit. In case of narrow gap, the form with the lower C values (Chattopadhyay and
Bhattacharya, 1986), can be considered (Majumdar, Basu, 2006). C is defined as
C = ( P − Q ) ( n − 1) , where P is the number of pairs of adjacent residuals of the same
sign and Q is the number of pairs of the opposite sign. If the residual is greater than
equal to zero at one of them or if it is less than equal to zero at the other then 1 is
assigned to Q. Models with insignificant coefficient of the quadratic term have been
rejected.
264 Kakali Majumdar

3.5 Measurement of comparative advantage

For examining the comparative advantage of Indian processed food export, Revealed
Symmetric Comparative Advantage (RSCA) index (Dalum et al., 1998) is calculated
using the formula: RSCA = (RCA-1) / (RCA+1).RSCA measures the comparative
advantage or disadvantage of a country with respect to another country or group of
countries. RCA is the Revealed Comparative Advantage (Balassa, 1965) that can be
calculated by the following relation: RCAij = (Xij/Xwj)/(Xi/Xw) ,Where Xij = ith
country’s export of commodity j, Xwj = world exports of commodity j, Xi = total
exports of country I, Xw = total world exports’. In the present study, country ‘i’ refers
to India, commodity ‘j’ refers to any of the selected processed food item. RCA indices
greater than unity reveals comparative advantage of that particular product in world
trade. Basically RSCA is an improvement over RCA as RCA suffers from the problem
of asymmetry (Dalum et al., 1998). RSCA ranges from -1 to +1. Its positive value
indicates comparative advantage of the country in export of the commodity and vice
versa.

4. Result and Discussion

4.1Export performance
India’s exports of processed foods have been increased over the years. It increased
from Rs.2563.91 Crores during 2001-02 to Rs. 8307.29 Crores in 2009-10 which
includes Dried and Preserved Vegetable of Rs. 532.07 Crores, Mango Pulp of Rs.
744.61Crores of, Other Processed Fruit and Vegetable of Rs. 1434.51 Crores, Pulses of
Rs. 408.32 Crores, Groundnuts of Rs. 1425.39Crores, Guargum of Rs. 1133.31 Crores,
Jaggery & Confectionary of Rs. 233.2 Crores, Cocoa Products of Rs. 96.99 Crores,
Cereal Preparations of Rs. 1013.54 Crores, Alcoholic and Non Alcoholic Beverages of
Rs. 589.93 Crores and Miscellaneous Preparations of Rs. 694.28 Crores. The value of
export of dried fruits and vegetables decreased from Rs 537.15 Crores to 532.07
Crores during 2001-02 to 2009-10. The export of Jaggery and Confectionery also
decreased from Rs 436 Crores to Rs 233.2 Crores during the same period. The exports
of selected processed food product for the year 2009-10 in quantitative and value terms
have been presented in Table 2. Export of other processed fruits and vegetables which
include Apple Juice , Beans Shelled, Chips Fried ,Dried Apricots, Grapefruit Juice,
Jam Jellies of Other Fruits, Lemon Juice, Pineapple Juice, Tomato Juice etc. registered
maximum increase from Rs 201.74 Crores( 61332.36MT) to 1435.51 Crores
(397978.2MT) during the said period. During 2009-10 other processed foods emerged
as the largest contributor to total processed food export with 21.80 per cent share in
physical units and 17.28% in value term. This is followed by ground nut (18.64 and
17.16% respectively) (APEDA). Coca products registered lowest percentage share,
only .32% in physical unit and 1.16% in value term.
Export Performance of Processed Food in India 265

4.2Growth Rates
The exponential growth rates ( G t = b × 100 ) for export of Indian processed food have
been presented in Table 1 and Table 2. The exponential growth rate of processed food
products was 15% during the period of 1993-94 to 2009-10 where as that of total
export and export of agricultural product was 16% and 12% per annum respectively.
All the growth rates were observed significant that supports the hypothesis H1.

Table 1: Growth rate of total Export and Agricultural Product in India.

Absolute Export( Rs Crores) Growth Rates

Item 1993-94 2009-10 1993-94 to 2009-10
Total Export 69748.85 845125.2 16*%
Export of Agricultural Produc 12586.55 89522.59 12*%
Export of Processed Food 7 25 8307.29 15*%
Sources: Calculated from APEDA, Agricultural Statistics at a glance. Note: * Indicate
significant at 1% level by one-tailed t test.

The Export growth rate of all the selected processed food items both in terms of
quantity and value, from the best fitted functional form, for the year 2001-02 to 2009-
2010 are represented in Table 2.

Table 2: Export growth rate of Processed Food in India ((2001-02 to2009-10)).

Quantity Value
Growth Growth
rate (%) Selected Model rate Selected Model
Dried and preserved -.74
vegetables -7.3 Linear Parabola
Mango Pulp 11.30 Linear 12.64 Parabola
Others Processed fruits and 28
vegetables 25.88 Parabola Exponential
Pulses -3.7 Log quadratic 5.1 Log quadratic
OTHER PROCESSED FOODS
Ground Nuts 14.82 Linear 17.47 Parabola
Guar Gum Linear 15 Log quadratic
Jaggery and Confectionery 20.10 Linear 21.20 Linear
Coca products 22.9 Exponential 27 Exponential
Cereal Preparation 22.7 Exponential 22 Exponential
Alcoholic Beverages 8.71 Linear 24.07 Parabola
Miscellaneous Preparation 23.14 Parabola 22.19 Parabola
266 Kakali Majumdar

So far as absolute quantity is concerned maximum growth rate is observed for

Others Processed fruits and vegetables, 25.88% and minimum for Dried and preserved
vegetables, -7.3%. In case of value, the figures are 28% and -.74% respectively, for the
same products. Large discrepancy between the growth rates of quantity and value was
observed for Dried and preserved vegetables, -7.3 and -.74% respectively and for
Pulses, -3.5 and 5.1% respectively.

4.3 World vs Indian Export

Share of India in the world export of these commodities during the year 2009-10 has
been presented in Table 3. The highest share was observed for Guar Gam, i.e. 45.75%.
The share for Ground nut was 21.35% that of Dried Fruits and Vegetables was 6.02%,
pulses 1.47%, Cereals Preparations .55%, Alcoholic Beverages .21%, jiggery and
Confectionery .32% and almost insignificant percentage of coca product, .07.

Table 3: India and World Export of some important processed

food (2009-10); Value US $ Millions.

PRODUCT World Export Indian Export RCA Ratio RSCA

Dried and preserved
vegetables 1865 112.25 (6.02) 4.51 0.64
Pulses 5866 86.14(1.47) 1.10 0.05
Ground Nuts 1409 300.83(21.35) 16.03 0.88
Guar Gum 523 239.09(45.75) 34.24 0.94
Jaggery and
Confectionery 15468 49.2(.32) 0.24 -0.62
Cereals Preparation 38841 213.80(.55) 0.41 -0.42
Coca Products 30948 20.42(.07) 0.05 -0.91
Alcoholic Beverages 60185 124.35(.21) 0.15 -0.73
Source: Calculated from APEDA, Note: Figure in the parentheses are the percentage share,
ERP-Export Performance Ratio.

In the present work Revealed Comparative Symmetric Advantage (RSCA) analysis

has been done for the selected processed food items. Positive RSCA value indicates
comparative advantage of the country in export of the commodity and vice
versa.Table-3 shows that India has comparative advantage for Guar gum, Ground nut,
Dried Fruits and Vegetables and Pulses. India enjoys maximum comparative
advantage in Guar Gum. The RSCA for Gur Gum during 2009-10 was calculated at
0.98(RCA, 34.24). India is the single largest producer of Guar in the world, having
85% of global market share which is reflected by the RSCA measure. This is followed
by Ground Nut with RSCA.88 (RCA 16.03), Dried Fruits and Vegetables .64 (RCA
4.51) and Pulses .05 (RCA 1.1). The exports of Jaggery and Confectionery, Cereals
Export Performance of Processed Food in India 267

Preparation, Coca Products, Alcoholic Beverages from India did not enjoy any
comparative advantage during 2009.

4.4 Export Destination

Trade barriers, comparative advantages, geographical proximity etc. are the
determinants of export destinations of any product. As shown in Table 5, USA, UK,
Saudi Arabia, Netherlands, Indonesia, Philippines, Malaysia, Thailand etc. are the
main destination of export of Indian processed food. During 2009 the main importer of
Indian Dried fruits and vegetables, Guargam and other processed foods was USA with
the amounts imported being 449945, 71923 and 73116MT respectively (APEDA data).
For Mango Pulp and Jaggery & Confectionary, Saudi Arab was the top most
destination and the amount of exports were 63480 and 4317 MT respectively. Pakistan
and Indonesia were the main destination for Pulses and Ground nuts during 2009 and
the physical amounts were 25829and 817692MT respectively. As per the APEDA
data, the most important processed food of India is Guar Gum. After USA, China and
Germany are the second and third largest destinations of Guar Gum export from India.

4.5 Government Intervention

Since liberalization Food-processing sector has been identified as high priority sector
and a number of schemes and incentives were announced by Indian Government. FDI
up to 100% in beverages is permitted under the automatic route for processed food
items excluding alcoholic beverages and a few other restricted items. Most of the
processed food items were exempted from the licensing and excise duties. During
1999, food processing industries were recognized as a priority sector for accessing
bank credits (Kumar & Rao, 2010). In 2001, the government of India launched the
program of establishing agri export zone (AEZ). THE MAIN OBJECTIVE BEHIND IS TO
identify the potential of the agri product in a contiguous region. APEDA was
constituted as the nodal agency to promote the set up of AEZ.

5. Conclusion
The present study reveals that out of eight processed food items there are four items
where India enjoys comparative advantage in the world market. Except few processed
products, most of the cases the growth rates were quite high. However, the
contribution of this sector to the world trade is almost insignificant. Despite being one
of the world’s major food producers, with huge potential for exporters, Indi’s accounts
in the world food trade is only 1.5%. The constraints like non-availability of adequate
infrastructural facilities, age-old technology, lack of adequate quality control,
inefficient supply chain, inadequate shortage facility, high inventory cost, high
packaging cost are creating negative environment to the growth of this sector. It is
estimated that around 20 to 25% food stock is lost due to lack of proper storage
facilities. Another important factor is that due to its being a capital intensive Industry,
it leads to less number of producers in this specialized sector. The local market of
268 Kakali Majumdar

Processed food is still small because of that the exporters fail to achieve economies of
scale which indirectly influencing the world trade share of processed food. Food
processing sector is also badly affected by lack of funding. Long gestation period and
low returns create risk to lending money for this sector. As a result, a significant
portion of its capacity has remained unutilized. The stagnant price realisations in the
international market have also dented the prospect of some Indian processed food in
the overseas market. Some other countries have started flooding of processed food in
the global market at cheaper prices.
Despite all these problems, this sector has a bright future. Several giant firms have
entered in to this sector. It can be mentioned that effective supply chain needs to be
develop for the sustained growth of this sector. Brand building through technology up
gradation should also be taken into consideration to give a fillip to this sector. There
should be quality management, firm adherence to export commitments and acquisition
of appropriate negotiation skills.

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