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Indian Food Processing Industry-Opportunities in the New Era Indian Food

Processing Industry-Opportunities in the New Era

Article in Indian Journal of Economics · October 2021

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Indian Food Processing Industry- Opportunities in the New Era

By

Dr. Jamil Ahmad

Assistant Professor
Department of Economics
Aligarh Muslim University
Aligarh- 202002 U.P, India
Jamilahmad786 @gmail.com
&
Mir Hasan Naqvi
Research Scholar
Department of Economics
Aligarh Muslim University
Aligarh, U.P., 202002, India
Email: [email protected]

Indian Food Processing Industry- Opportunities in the New Era

Abstract
The Indian food industry has tremendous capacity to grow and its contribution to world food
trade is increasing every year. In India, the food sector has emerged as a high growth and
high profit sector due to its immense potential for value addition particularly within the food
processing industry.

Food processing sector is poised for huge growth in exports in the coming years the reason
being the changing habits of people towards the packaged foods. Keeping this in view,
present paper has been written on food processing industry from the perspective of exports. It
studies the overall scenario, growth rates of export value of processed food items, FDI
inflows and the demand for processed food.

Keywords: Food, Export, Growth Rate.

*
Assistant Professor, Department of Economics, A.M.U. Aligarh. E-mail: [email protected]
**Research Scholar, Department of Economics, A.M.U. Aligarh. E-mail: [email protected]
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Indian Food Processing Industry- Opportunities in the New Era

Introduction:
The Indian food processing industry is one of the largest industries. It is ranked fifth in terms
of production, consumption, export & expected growth. It is the second largest producer of
food just behind China (Majumdar Kakali, 2013).Despite the large production of food in
India; we are unable to fulfill the basic needs of Indian citizens like having affordable,
sufficient and healthy food. Even today, India is dealing with the problem of food inflation
and also faces the problem of food security. With the supply side constraints, it is realized
that there is a need to increase production. It is to be understood that it will not be enough
only to produce more. It is equally important to save each grain produced by reducing
wastages. With adequate processing facilities much of the waste can be reduced thus ensuring
better remuneration for farmers. With the huge production base, India can easily become
leading food supplier to the world and at the same time serving its domestic market.
(Chattopadhyay M. and G. Bhattacharya, 1986). In spite of this, India’s share in global
food trade is still around 1.5 percent. Huge losses across the value chain resulting in poor
processing levels. Nearly 50,000 crores worth of food material is wasted every year in our
country as the overall processing level is only 2 per cent. A developed food processing
industry will reduce wastages, ensure value addition, and generate additional employment
opportunities as well as export earnings and thus lead to better socio-economic conditions of
millions of farm families.

The Indian food industry has tremendous capacity to grow and has increasing its
contribution to world food trade every year. In India, the food sector has emerged as a high
growth and high profit sector due to its immense potential for value addition particularly
within the food processing industry.

The Export earnings from processed food, including fruits, vegetables, meat and
poultry products, more than doubled to Rs. 38,950 crore in 2011-12, from Rs 15,816 crore in
previous year, as per provisional figures released by Agricultural and Processed Food
Products Export Development Authority of India (Amiti Sen 2012).The Ministry of Food
Processing has set a target of 150 per cent growth in processed food exports in the next five
years on rising global demand of Indian food (Dilip Kumar Jha 2009).
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Keeping this in view, present paper focuses on food processing industry from the perspective
of exports. It studies the overall scenario, growth rates of export value of processed food
items, and also addresses some of the problems and policy issues that affect this sector.

Data and Methodology

The data used in this paper has been gathered from sources such as Agricultural and
Processed Food Products Export Development Authority (APEDA), Ministry of Food
Processing Industries (MOFPI), Department of Industrial Policy and Promotion (DIPP),
Central Institute of Post-Harvest Engineering and Technology (CIPHET). The data regarding
the Foreign Direct Investment (FDI) in food processing sector has been taken from
Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. The data of
exports of processed and food items have been taken from DGIC&S, Kolkata, Ministry of
Commerce and Industry.

Compound growth rates for value of exports of processed food items from India were worked
out for the period 2006-07 to 2012-13.

The equation used for calculating the growth rates is the well-known compound interest
formula written as:

X= α (1+r)t …………………………………...…(1)

Taking the natural logarithm of equation (1), we get

LnX = Ln α + t Ln (1+r)……..…………..…… (2)

Putting β 1 = Ln α & β 2 = Ln (1+r) Equation (2) now can be written as,

Ln X = β 1 + β 2 t………………………………... (3)

Equation (3) shows that regress and is the logarithm of X and the regressor is “time”. The
percentage compound growth rate is calculated by taking antilog of regression coefficient,
subtracting 1 from it and multiplying the difference by 100.

Results and Discussion

India has a huge production base but there are also huge losses across the value chain because
of the poor processing levels. In case of fruits and vegetables, we process only 2.2 percent
while marine, poultry and buffalo meat are only 26 per cent, 6 per cent and 20 per cent
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processed. Though India is the largest producers of milk, only 35 per cent is processed
respectively.

Table: 1 Level of Processing Across Segments

Segment India Other Countries

Fruits and
2.2% US A (65 %), Philippines (78%), China (23)%
Vegetables

Marine 26%

Poultry 6% 60-70% in developed countries

Buffalo Meat 20%

Milk 35% 60-75% in developed countries

Source: MOFPI

Table 2: Percentage of losses estimated for major produces

Crop Cumulative wastage (%)

Cereals 3.9%-6.0%

Pulses 4.3-6.1%

Oil seeds 6.0%

Fruits and Vegetables 5.8-18.0%

Milk 0.8%

Fisheries 2.9%

Meat 2.3%

Poultry 3.7%

Source: A study by CIPHET

Table 2 shows the percentage of losses estimated for major produces. This is the result of
nation-wide study on quantitative assessment of harvest and post-harvest losses carried out by
Central Institute of Post-Harvest Engineering and Technology (CIPHET). It can be observed
that most of the wastage is happening in fruits and vegetables, pulses and cereals. Much of
this wastage can be reduced with adequate processing facilities. This helps in increasing
remuneration to producer as well as ensuring greater supply to consumer.
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Modernization has led to changing food consumption patterns and increased spending
on value-added products, stimulated by increasing income levels, rapid urbanization, rising
number of working women and changing lifestyles. There is increasing demand for quality
products that can be consumed at ease. This is because of increased health-consciousness,
changing demographics and lifestyles. Taking this into consideration, government of India is
trying to encourage investments in food processing industry, both domestic and foreign
resources. The growth of food processing sector helps in achieving increased agricultural
production by ensuring better remuneration for farmers. For a developed food processing
industry, we require policies and plans improvement of food processing infrastructure
including up-gradation of technology and enforcement of quality standards, promoting
investment in food processing, thus assisting in domestic market and export growth.

The food processing sector is one, which has attracted the FDI. The initiation of
economic reforms in mid-1991, aimed at improving the economic situation of the country,
have resulted in progressive reduction in barriers to capital flows and increase in international
trade, spread of market based economies in key sectors specially in food processing sector
and the exciting possibilities of beneficial change brought by transformative technologies,
which have opened up many opportunities to entrepreneurs and accelerated the process of
wealth creation (Desai, 2003).

Table3: Financial Year Wise FDI Equity Inflows from April 2000 to March 2014 (in US
Million $)

Annual figures

FDI in FPI: FDI Total: Share of FPI in

Annual Annual Total FDI:
Annual (US $
FDI (Rs FDI FDI FDI
Sr. Year (Apr million)
crore) US$ (Rs US$
No - Mar)
million crore) million

1. 2000-01 198.13 45.75 10733 2463 1.86

2. 2001-02 1036.12 219.39 18654 4065 5.40

3. 2002-03 176.53 36.88 12871 2705 1.36

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4. 2003-04 502.39 109.22 10064 2188 4.99

5. 2004-05 201.32 43.98 14653 3219 1.37

6. 2005-06 182.93 41.74 24584 5540 0.75

7. 2006-07 457.28 102.00 56390 12492 0.82

8. 2007-08 279.01 70.17 98642 24575 0.29

9. 2008-09 455.59 102.71 142829 31396 0.33

10. 2009-10 1314.23 278.78 123120 25834 1.08

11. 2010-11 858.03 188.67 97320 21383 0.88

12. 2011-12 826.16 170.21 165146 35121 0.48

13. 2012-13 2193.65 401.46 121907 22423 1.79

14. 2013-14 25,106.78 3982.88 147518 24299 16.39

Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce

The impact of FDI on food processing industry is very important for a country like India.
Table 3 indicates the inflow of Foreign Direct Investment (FDI) in food processing sector.
The inflow of FDI has significantly increased from 198.13 (Rs. Crore) in 2000-2001 to
25,106,78 (Rs. Crore) in 2013-2014. However, the share of FPI in total FDI varies in certain
years i.e. 0.88 percent in 2010-2011 to 0.48 per cent in 2011-2012 to 1.79 per cent in 2012-
2013. This share has increased to 16.39 per cent in the recent 2013-2014 year period. This
surely indicates that the government is trying to develop the country as a food processing
hub, which is likely to boost the Indian food processing sector because FDI is the major
instrument which serves as a link between investment and saving and ensures the catalyst for
the development of the economy particularly a country like India. There are very good
investment opportunities in many areas of food processing industries like fruit and vegetable
processing, meat, fish and poultry processing, packaged, convenience food and drinks, milk
products etc.

Export Potential:
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The Indian processed food industry has shown a tremendous potential for export.
India’s total export from food processed industrial sector for different principal commodities
are shown in the table below (Table-4)

Table: 4 Total export from FPI Sector Principal Commodities wise (From 2006-07 to 2012-
13) In (US Million $)
Commodity 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Guargum Meal 248.58 279.98 294.18 240.70 646.08 3354.82 3919.23

Rice 618.67 1081.71 2071.42 2289.35 2493.92 3217 3560.58

Marine Products 1767.42 1722.77 1534.46 2095.28 2622.72 3443.66 3462.28

Meat & 733.40 932.46 1173.34 1332.53 1971.08 2921.42 3291.92

Preparations

Oil Meals 1225.79 2037.76 2251.63 1658.83 2437.90 2420.46 2938.53

Spices 699.26 1044.75 1391.62 1301.60 1768.08 2750.09 2814.42

Rice (other Than 938.17 1845.00 382.67 76.38 50.86 1723.38 2647.59
Basmati)

Wheat 7.74 0.06 0.30 0.01 0.15 202.07 1934.17

Sugar 690.19 1344.99 1038.20 23.20 1198.92 1838.55 1574.67

Other Cereals 132.81 755.23 890.23 625.71 803.61 1127.98 1502.82

Misc Processed 248.88 338.53 454.31 442.36 577.42 795.89 911.62

Items

Coffee 435.44 464.24 496.34 429.74 661.77 952.91 866.39

Castor Oil 240.96 317.32 481.75 461.63 654 971.85 792.82

Groundnut 176.73 263.51 276.14 302.42 480.45 1093.05 747.41

Fresh Fruits 313.63 359.06 424.28 479.55 478.63 528.60 607.32

Cashew 550.47 549.27 639.28 591.35 619.23 915.24 746.97

Fresh Vegetables 342.73 367.84 527.25 621.82 559.53 600.34 570.65

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Sesame Seeds 208.86 411.23 333.39 316.51 507.25 553.13 528.08

Processed Fruits 157.20 192.27 238.44 245.04 228.64 343.58 361.81

& Juices

Spirit & 60.04 85.94 120.24 129.05 186.46 308.56 360.07

Beverages

Dairy Products 110.48 241.28 255.90 117.44 187.14 128.55 325.72

Pulses 170.41 130.63 117.68 86.75 190.52 227.58 235.45

Processed 143.61 149.03 154.47 158.68 167.88 222.02 205.80

Vegetables

Poultry Products 69.82 106.96 90.71 77.36 62.35 80.25 84.79

Shellac 32.57 30.80 22.92 15.12 30.81 53.09 73.84

Source: DGCIS, Kolkata, P: Provisional Results

Table 4 indicates the total exports from FPI sector from the period 2006-07 to 2012-13. The
exports of principal commodities such as marine products, sugar, oil meals has shown a
significant rise in the last decade, however growth of export of sugar, groundnuts, coffee,
sesame seeds and processed vegetables has shown negative trends in 2012-2013. But, overall
exports by FPI has risen from Rs 10,832(US$ Million) in year 2006-07 to Rs 36057 (US$
Million) in year 2012-13. Thus, Indian food market provides a big market for their products
which shows that this sector has a large potential for exportable commodities.

Table: 5 Compound Annual Growth Rate From 2006-07 to 2012-13

Sr No Commodity CAGR

1 Guargum Meal 65.03

2 Rice 31.25

3 Marine products 15.10

4 Meat & preparations 29.81

5 Oil meals 11.49

6 Spices 25.46

7 Rice(other than basmati) 3.48

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8 Wheat 214.85

9 Sugar 12.28

10 Other cereals 32.96

11 Misc processed Items 23.21

12 Coffee 14.49

13 Castor oil 24.41

14 Groundnut 31.77

15 Fresh fruits 10.81

16 Cashew 7.04

17 Fresh vegetable 9.60

18 Sesame seeds 14.51

19 Processed fruits & Juices 13.80

20 Spirit & beverages 34.83

21 Dairy products 2.65

22 Pulses 9.58

23 Processed Vegetables 7.25

24 Poultry Products -1.30

25 Shellac 14.70

Calculated by using CAGR Formula

Growth Analysis
For compound growth analysis, value of exports have been taken from the year 2006-07 to
2012-13 of different food products that are processed and also the growth trends are taken
into consideration for the year 2012-13. It can be observed from table 5 that the total
processed food items have shown a positive and significant growth trend of their exports to
abroad with compound growth rate at 65%, 31%, 32%, & 29% respectively for guargum
meal, rice, cereals & meat products. On the other hand the growth rates for the year 2012-13
are not that promising as in case of some commodities such as sugar, spices, castor oil,
 10

coffee, groundnut, cashew & fresh vegetables have negative growth rate for the year 2102 -13
alone. But if we draw conclusion from the seven year time period we observe that almost all
the commodities have shown growth over the period of time especially in case of wheat
(214.85%), guargum meal (65.03%) & spirit & beverages (34.83%).

Graph: 1 Compound Annual Growth rate from 2006-07 to 2012-13

250
214.85
200

150

100
65.03
50 31.25 29.81 25.46 32.96 31.77 34.83
15.1 23.21 24.41 14.7
11.49 12.28 14.49 10.817.04 9.6 14.5113.8
3.48 2.659.587.25
0
-1.3
-50

CAGR

It is evident from the above analysis by comparing the growth rates that food processing
industry is facing constraints like non-availability of adequate infrastructural facilities, lack of
adequate quality control & testing infrastructure, inefficient supply chain, and seasonality of
raw material, high inventory carrying cost, high taxation, high packaging cost, affordability
and cultural preference of fresh food. Unprocessed foods get spoiled by microbial attack,
biochemical processes and infestation. So, good processing techniques, packaging,
transportation and storage can play an important role in reducing spoilage and extending shelf
life. Processed foods need to be offered to consumer in hygienic and attractive packaging and
at lower incremental costs. The challenge is to retain nutritional value, aroma, flavour and
texture of foods and presenting them in near natural form with added conveniences.

There is tremendous scope for growth of food processing industry in India. For ensured
supply of inputs, exporters normally opt for contract farming where the producer provides
 11

inputs for stable output. Overall the food processing in India only has a future if
government’s policy focus is to improve productivity in the agricultural sector, getting
remunerative prices for farmers and improving the storage infrastructure across the country.
Now, there is an increased awareness about the need to encourage this sector.

Conclusion
The findings of the paper on the basis of table and discussion, it clearly indicates that Indian
food processing industry has strong foundation for growth in the field of food industry. The
findings of the paper further indicate FPI enables the farmers to add value to his products
both in terms of quality and quantity which help in meeting the requirements and standards of
the market at all stages of value chain. There are huge losses in value chain due to inadequate
storage and distribution and other factors. So, this needs to be taken as a wake-up call to
conserve our precious resources that go into the production of food.

The Ministry of Food Processing Industries (MFPI) has been supporting a range of initiatives
for the growth of food processing industry. It is increasingly becoming evident that only a
dynamic food processing sector can lead to increasing farm gate price and thus increase the
income levels of farmers, reduce wastage and increase employment opportunities. The
growth potential of India’s food industry is enormous. The future prospects of food
processing industry are bright in the sense of foreign direct investment, export performance
and employment generation.

Finally, the food being the national priority and food habits changing rapidly towards value
added foods, the Indian food processing industry is one on the brink of revolution that will
modernize the entire food chain.

Food Processing is a never ending process and Developing countries like India should put
more emphasis on this industry as this can help India in achieving significant economic and
social impact to improve their national standard and to solve the problem of food shortages.

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reappraisal, Indian Journal of agriculture economics, vol – 42, 1101
 12

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