SWOT Analysis of Food Processing Sector in India
SWOT Analysis of Food Processing Sector in India
SWOT Analysis of Food Processing Sector in India
Mohammad Zia
B.Sc(Ag), MAEBM
1
Muehlfeld K., Weitzel U., van Witteloostujin A., Mergers and Acquisitions in the Global Food Processing
Industry in 1986-2006, Food Policy 36 (2011), p 466.
2
Kachru, R.P., Agro processing industry in India- Growth, Status and Prospects.
3
Mohammad Rais, Aacharya S., Sharma N., Food Processing Industry in India: S&T Capability, Skills and
Employment Opportunities, J Food Process Technol. 2013: 4(9)
4
ibid
5
Annual Report 2013, Ministry of food Processing Industries, Government of India.
Value added Processing – this includes processed food such as processed
fruits and vegetables like jam, jelly, pickles, processed dairy products like
ghee paneer etc., processed poultry meat and marine products.
METHODOLOGY
In this study relevant literature was reviewed and analysis of secondary data on food
processing sector was conducted. The sources of secondary data were reports form National
Sample Survey Organisation (NSSO), National Skill Development Corporation (NSDC),
NABARD, Annual Survey of Industries, Annual Report of Ministry of Food Processing
Industries, and other individual studies.
LITERATURE REVIEW
Subrahmanayam (2000), analysed that the processed food industry can play a key role
in preventing the post harvest losses. Subrahmanayam emphasised the importance of
strengthening the backward linkages by the processing units. Also, encouragement of small
scale processing units near the growing areas may reduce the intermediaries in supply chain.
Singh et al (2012), analysed the trends and status of the food processing sector in
India also carried out SWOT analysis of the sector. They opined that though there are many
promising dynamics which support good growth of this industry, there are still some
significant constraints which, if not addressed sooner, can impede the growth prospects of the
Food Processing Industry in India. One of the biggest constraints is that this industry is
capital intensive. Apart from this low education level of consumers regarding the processed
food, low price elasticity of food products, improper distribution and marketing channels etc
are the major challenges that are need to be addressed to achieve full potential of food
processing sector in India.
Rais, et al (2013) analysed the food processing sector in India and its science and
technology capabilities, skill and employment opportunities. They analysed that Food
processing industry is slowly and steadily becoming one of the major industries of our
economy. Its share in GDP is on continuous rise, with a CAGR of 8.40%, from 2005-06 to
2009-10. There has been a continuous increase in the total plan outlay amount from INR 65
billion in 10th plan; to INR 150.77 billion in proposed outlay for 12th plan. The sector is
growing, but it is yet to compete in the world market. India’s share in world export is meagre
with 1.17%. There is a wide gap between productivity and processing of items. The factors
which have been used to study food processing industry are S&T capability of sector, its
employment generation capacity and skills needed in the sector. The employment generation
capacity of the sector is huge, but the industry is not working at its potential. The labour force
is highly unskilled, with 80% of them having educational level below 10th standard. The
impact of a variety of policies and programmes undertaken by government to develop food
processing sector has not been very encouraging. The state needs to strengthen its efforts in
S&T capability, infrastructure support and skill set in order to develop food processing
industry.
Sarvanan and Mohansundaram (2013) analysed the trend of public expenditure,
employment potential and progress of FDI in food processing sector. There is an increase in
the outlay for the sector from INR 11 billion in 2004-05 to INR 60 billion in 2011-12. The
percentage of utilization varied from 63.8 (2005-06) to 98.5 (2010-11). That is, only in three
years, out of eight years, the utilization rate was above eighty percent implying the fact that
much has to be done the central government to properly utilize the allowed funds. In case of
employment generation, the number of persons employed in Food Processing Industries units
in the organized sector have been increasing every year; from 1.34 million in 1998- 99 to 1.5
million in 2007-08. The notable point in this finding is that here data is not available
regarding persons employed in the unorganised sector, definitely that will be manifold that of
organised sector. Another area of study taken into consideration was FDI in food processing
sector. The FDI in FPI in India has increased with fluctuations during 2000-01 to 2010-11.
The FDI in FPI was INR 1.98 billion in 2000-01 and suddenly increased to INR 10.36 billion
in the next year only to decline drastically in the next seven years. Then only in 2009-10 it
went up to INR 13.14 billion but declined in the next year to INR 8.58 billion.
Export Share
3%
4%
10% 24%
USA
Netherlands
France
Germany
10%
Brazil
Belgium
Thailand
India
18%
14%
17%
6
Adukia, Rajkumar S., Food Processing Industry in India.
7
http://www.fao.org/index_en.htm Food and Agricultural Organization of United Nations
8
National Manufacturing Competitiveness Council Report 2012
Form the above graph it is clear that India being the second largest producer of food products
on the world next to China but still the share of the country in the world market is amongst
the lowest. This show the ample opportunities of that the sector possesses in order to mark
the country’s presence in the world market.
India is the world’s second largest producer of food next to China and has the potential of
being the biggest in the World. Food and food products are the biggest consumption category
in India, with spending on food accounting for nearly 21% of India’s GDP and with a market
size of $181 billion. The Indian domestic food market is expected to grow to a market size of
$258 billion by 2015 and $344 billion by 2025 (World of Food India, 2011; Merchant 2008).9
Food processing is a large sector that covers activities such as agriculture, horticulture,
plantation, animal husbandry and fisheries. It also includes other industries that use
agriculture inputs for manufacturing of edible products. The Indian food industry represents
an important and socially impactful business within country’s economy. With an addressable
population of more than one billion individuals and food constituting the major part of the
consumer’s budget, this sector has a prominence next to no other business in the country.
There is tremendous scope for improving production introducing new food products to suit
the changing tastes of the Indian consumer and for future export.10 Food processing industry
is one of the largest industry in India, ranking fifth in terms of production, consumption,
export and expected growth. CII has estimated that by 2020 food processing sector has the
potential of attracting US $ 33 billion of investment and generate employment of 9 million
person days.11
Recognizing the importance of food processing, Government of India established a separate
Ministry of Food Processing Industries in July 1988. MOFPI is concerned with formulation
and implementation of the policies and plan within the overall national priorities and
objectives.
As mentioned earlier the industry is one of the major employer and gives employment
directly to around 1.675 million people in the year 2010-11 which is around 13.5% of the
total employment of the manufacturing sector.12 There have been significant changes
observed in the sector in the past few years. The following graph shows the employment
trend in the food processing sector form the year 2006-07 to 2010-11.
Apart from being a major employment provider in the manufacturing sector, the food
processing sector is an important attractor of investment. Trends in the past year show a
positive growth in the investment inflow into the sector. Albeit in case of foreign direct
investment there is a fluctuating trend due to global economic slowdown. The total
9
Singh Surendra P., TegegneF., Eknem E., Food Processing Industry in India: Challenges and Opportunities,
Journal of Food Distribution Research, Vol. 43(1)
10
Ernst & Young, Flavors of Incredible India: Opportunities in the Food Industry.
11
Corporate Catalyst India, A Brief Report on Food Processing Sector in India, August 2012.
12
Annual Report, Ministry of Food Processing Industries, Government of India, 2013.
investment in the sector in the year 2010-11 was around 2493.37 billion Rupees which is
around 28% higher from the previous year.13
In this section of the study attempt is made to analyse the strengths, weaknesses,
opportunities, and threats of the processed fruits and vegetable sector. On one side strengths
and weaknesses reflect the internal factors and on the other hand opportunities and threat
throw light on the external factors. Identification of SWOT is necessary as it will help in
achieving subsequent steps in planning the development and growth of sector.
Strength
The major strength of the food processing sector in the country is the round the
calendar availability of raw materials. With a major work force and huge geographical area
involved in agriculture and allied activities there is no shortage of raw materials to the sector.
With continuous supply of raw materials the sector can assure a continuous supply of the
final products to both domestic and international market. Thus, this make the sector more
promising than other agricultural and industrial activities.
The social acceptability of agro-processing as important area and support from the central
government plays a very strengthening role in the growth of the sector. Almost 70% of the
country’s population lives in villages and their main occupation is agriculture. With the
opening of the domestic market to international players the domestic producer has become
more fragile to the global fluctuations. There are two major reasons why this sector enjoys a
special attention:
a. Being practised by a major sector of the population of country any
development in this sector will directly have an impact the level of income of
the population.
b. Being a part of the open world market government emphasises on making the
products more competent, so that the farmers and producers can withstand in
the global market.
Rapid transportation is the basic prerequisite for the food processing as the shelf-life
of majority of the food products is very less specially fruits and vegetables hence to ensure
minimum post harvest losses there is a wide network of manufacturing all over the country.
Government has also ensured this by providing better transport facilities connecting the fields
to the plants. Mega food parks, AEZs etc are some of the examples of this.
With a population over a billion, India proves to be a major market for any sector of
production. With continuous rise in the level of income, the market is expanding every day.
13
Annual Report, Ministry of Food Processing Industries, Government of India, 2013.
The change in tastes and preferences of the consumer is also a major factor. Any minor
change in tastes and preferences of such a huge fraction of consumers proves to be a major
change for the market.
Weakness
The major hurdle in the development of the sector is the high initial working capital
requirement. The working capital requirements from initial level of processing till marketing
of the processed food. The available technology in the country is still much costlier than that
of the other food processing countries. It is still out of reach of small and medium
entrepreneur to enter this sector without the assistance from the government.
Still a major section of the processed food is owned by the unorganised sector. Many of the
food processing plants are old and use traditional technologies, resulting in low processing
efficiency realization. This increases the per unit operational cost of processing. Most of the
enterprises are run on a small scale and have limited ability to do product development by
themselves, or the technology for improving their quality. Unorganised sector still opt the
traditional methods of food processing, this lowers down their production capacity and causes
a major hurdle in the growth and development of the sector. Retarded speed of automation
and slow transformation of organised sector to unorganised sector is proving to be a hurdle in
achieving higher growth rate in the sector and also meeting the domestic demand of the
consumers whose demand is a better packaged and processed product.
In spite of a huge sum of budget expenditure made on research and development, still
the government is unable to bridge the gap between the lab and the industry. The
dissemination of information is sometimes slow that by the time it reaches the industry, the
technology becomes outdated in context of global market. On the other hand the available
technology is so costly that the small and medium entrepreneurs cannot adopt it. Hence this
gap between the lab and the processing unit is one of the major factors that are resisting the
growth of the sector to make the processing level beyond 2%.
In spite of having comparative advantage in terms of raw material, agro production, and
growing demand for processed food, the level of food processing is not significant as
compared to other countries. More importantly the lack of processing and storage of fruits
and vegetables results in huge wastages estimated at about 35%, the value of which is
approximately INR 330 billion annually. The nation still faces the problem of improper
methods of storage of food stuffs leading to great wastage of food products. Percentage of
estimated loss of major products:14
• Cereals – 3.9-6%
• Pulses – 4-6%
• Oil seeds – up to 10%
• Fruits and vegetables – 15-18%
• Milk – 0.8%
14
Source: Study conducted by CIPHET, Ludhiana on post harvest losses.
• Fish(inland) – 6.9%
• Fish (marine) – 2.9%
• Meat – 2.3%
• Poultry – 3.7%
Opportunities
India being the second largest producer of food and food grains in the world has the
immense potential in the sector of food processing as only 2.2% of the total produce is
processed, compared to that of USA (80%), France (70%), Malaysia (80%), Thailand (30%).
As average Indian spends almost half of his expenditure on food and food products which is
expected to increase by 20% of the current level by 2020.15 An increase in per capita
disposable income by 8% by the end of present decade is also an opportunity which needs to
be properly trapped. Growth in size of middle to very rich class, which is projected to
increase at more than 300% between 2005 and 2015. During the same time period the youth
population i.e. 15-25 years in India is expected to grow by 11%. The current yields of nation
is lowest among the BRICS nations, this shows a significant opportunity for growth to meet
the increasing demand for food.
Along with demographic and economic changes there are key lifestyle changes expected
which will result in transition in consumer’s consumption pattern:
• Growing number of nuclear working families who have limited time for cooking.
• An increased incidence of lifestyle diseases such as diabetes, asthma and obesity
resulting in a demand of healthy products.
• A growing level of international exposure which has led to consumer awareness of
newer concepts.
• An increased consumer awareness driven by media penetration which is not restricted
to urban India.
Threats
15
Gyan Research and Analytics Pvt. Ltd., Indian Food Processing Industry – Opportunities and Outlook 2015,
2012.
16
Ministry of Food Processing Industries, Government of India, Annual Report 2012-13
Being a WTO signatory Indian market is open for both imports and exports. India is the
second largest producer of food, the produce of the country stands nowhere in the global
market in terms of quality and standard. With the entrance of MNCs in the domestic market,
domestic producers face a much higher competition in the domestic market in terms of price
as well as the quality and standard. The promotion strategy adopted by the MNCs is highly
intensive that it shadows the domestic products.
Rapid development in the contemporary and requirements of the industry may lead to fast
obsolesce. With the fast changing technologies the requirements of better technology is also
changing but the actual situation is that research and development could not make pace with
the demand of the sector. This is emerging as a big threat for the sector.
CONCLUSION
India is one of the world’s 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
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. The challenges for the food processing sector are diverse and
demanding, and need to be addressed on several fronts to derive maximum market benefits. A
combination of uncontrollable and controllable factors has affected the growth of the sector
and has acted as a hindrance in achieving its potential.
***
REFERENCES
Kachru, R.P., Agro processing industry in India- Growth, Status and Prospects.
Mohammad Rais, Aacharya S., Sharma N., Food Processing Industry in India: S&T
Capability, Skills and Employment Opportunities, J Food Process Technol. 2013: 4(9)
Singh Surendra P., TegegneF., Eknem E., Food Processing Industry in India: Challenges and
Opportunities, Journal of Food Distribution Research, Vol. 43(1)
Ernst & Young, Flavors of Incredible India: Opportunities in the Food Industry.
Corporate Catalyst India, A Brief Report on Food Processing Sector in India, August 2012.
Gyan Research and Analytics Pvt. Ltd., Indian Food Processing Industry – Opportunities and
Outlook 2015, 2012.
Khan Amir Ullah, The domestic Food Market: Is India Ready for Food Processing?
National Skill Development Corporation, Report on Human Resource and Skill Requirement
in Food Processing Sector.