Assignment -1- Why to invest in food processing Business?
Introduction • India’s food processing sector is one of the largest in the world and its output is expected to reach $ 535 Bn by 2025-26. It lies at the heart of the Government of India’s Make in India initiative and resonates with Prime Minister Modi’s call for ‘vocal for local’. • New initiatives like a planned infrastructure spend of around INR 100 lakh crore (around $1 Trn) and INR 25 lakh crore to boost the rural economy have put the food processing sector on a high growth trajectory. The Pradhan Mantri Kisan Sampada Yojna, for example, is a comprehensive package which shall create modern infrastructure with efficient supply chain management from farm to retail outlet. More recently, boosting Prime Minister Modi’s Atmanirbhar Bharat vision,the scheme of Formalization of Micro Food Processing Enterprises (FME) is being rolled out with an outlay of INR 10,000crore. • Buoyed by such actions, India’s food sector attracted $ 4.18 Bn in foreign direct investment between April 2014-March 2020. India is one of the largest producers of a range of agricultural products and as the global population grows, demand for made in India food is ever rising.
The Sunrise Sector Food Processing- Why India
• 1st in Dairy production and 2nd in Horticulture crops globally. • AAGR of 8.3% in the last five years. • 12.2% of the total workforce in the registered manufacturing sector. • Over USD 6 Bn worth of FDI in Food Processing Sector since 2014-15. • Processed Food contributed 22.6% share of agri-food exports in 2021-22. • 23 Operational Mega Food Parks, 271 Integrated Cold Chains, 47 Backward- Forward Linkage projects, 140 Food Testing labs.-
Indian Food Processing Market: Drivers
• India not only has the advantage of a huge domestic market but also with abundant raw material, is a large sourcing hub for agriculture products. The increase in the size of the food processing market can be attributed to changing consumption patterns due to urbanization, changes in the gender composition of workforce, and growing consumption rates. Additionally, more than two-thirds of India’s 1.3 Bn people are young with growing incomes which also creates a large market for food products. • In terms of statistics, India has one of the largest working populations in the world and, with a rise in disposable incomes, this segment of the population is also becoming the biggest consumer of processed foods in the country • With an increase in urban working culture and fast-paced lifestyles, there is limited time available for cooking and meal preparation. Thus, processed foods such as ready-to-eat products and snacks have become quite popular, particularly in urban areas. By 2030, Indian annual household consumption is set to treble, making India an opportune market for consumption of processed foods. • The increasing penetration of organized food retail outlets are offering a wide range of options to consumers. These outlets provide consumers access to diverse products, usually with attractive discounts. • Further, the proportion of working women in the industry has been increasing continuously both in the urban and rural regions.
Four major factors play a role in the growth of the food processing sector:
• Strong domestic demand: Changing lifestyle and food habits due to increased disposable income • Supply side advantages: High level of agricultural production - large livestock base, wide variety of crops, inland water bodies and a long coastline, that help increase marine production • Export opportunities: Proximity to key export destinations, greater integration with the global economy • Proactive government policy and support. Key Advancements recently( Union Budget ) • Driven by the high-value processing of various agricultural products, increased urbanization, rising disposable incomes, the rise of nuclear families, and the demand for convenient food, India’s food processing industry is expected to reach a staggering $ 535 billion. The COVID-19 pandemic has further boosted growth by shifting customer preferences towards branded packaged goods and promoting a healthier lifestyle. With the market becoming increasingly competitive, customers now have more options with the introduction of new products and market entrants. This strong growth is expected to continue in the future. • In order to boost the growth of the food processing sector, the government launched production-linked incentive (PLI) schemes. With a total budget of INR 10,900 crore, the government has already invested INR 4,900 crore in the sector through the PLI plan. The scheme will run for seven years, from 2020-21 to 2026-27. To qualify for the incentive, the entire manufacturing process, including the initial processing of food items, must take place within India, which is expected to provide a much-needed boost to the local industry. The scheme will also help to promote Indian brands globally. Additionally, with 2023 being declared as the International Year of Millets, the Ministry of Food Processing Industries (MoFPI) is committed to promoting post-harvest value addition, increasing domestic consumption, and branding millet products both nationally and internationally through various PLI schemes. In 2022-23, MoFPI invested 800 crores to expand the PLI Scheme and added a new component specifically for millet-based products. A total of 30 projects for millet- based products have been approved. Furthermore, the government has continued the umbrella Pradhan Mantri Kisan Sampada Yojna (PMKSY) scheme with an allocation of INR 4600 crores till March 2026. The Ministry has also been implementing the PM Formalization of Micro Food Processing Enterprises Scheme (PMFME) for providing financial, technical, and business support for the upgradation of existing micro food processing enterprises. • In the recent Union Budget 2023-24, the Finance Minister, Nirmala Sitharaman, announced an increased grant of roughly INR 1.15 crore for the Ministry of Agriculture and Farmers Welfare, which is a 4.6% increase compared to last year's grant of nearly INR 1.10 lakh crore. This grant aims to create a strong foundation for agriculture-based production and processing. • The industry is expected to continue its robust growth with the support of the government and the private sector. According to the Confederation of Indian Businesses (CII), three key factors will be crucial in the growth journey of India’s food processing industry: first, the establishment of strong backward links to ensure food security and to produce nutritious processed foods; second, improved access to financial resources; and third, cost competitiveness.
Potential of the Indian Food Processing Sector
• Various factors create an enabling eco-system for the Indian food processing sector. Geographic factors such as different soil types and different climate types create suitable supply-side conditions for the cultivation of diverse food crops. In line with this, India currently ranks first in the production of food products such as milk, ginger, banana, guava, papaya, mango and is the second-largest producer of rice, wheat, potato, sugarcane, cashew nut and tea.
• Further, demographic factors such as a growing trend towards urbanization create favorable demand side conditions. According to the Census 2011, the total urban population constitutes 31.16% of the population – exemplifying increased disposal incomes, changing lifestyles and rising demands for processed food.
• The bridge between the demand and supply-side conditions lies in the policy level factors. In 2016, the government allowed 100% FDI in the food processing sector through the automatic route. Existing infrastructure such as the Kisan Rail and Krishi Udan, as well as the vast networks of SHGs and FPOs under the DAY-NRLM scheme offer opportunities to bolster food processing efforts, while also promoting local foods and traditional products such as pickle, papad etc. • Furthermore, recent government initiatives such as the Prime Minister-Formalization of Micro Food Processing Enterprises (PM-FME) Scheme (under the Atma Nirbhar Bharat Abhiyan) seek to benefit 2 lakh micro food processing units through credit linked subsidy, while adopting a One District One Product (ODOP) approach. Similarly, a significant impetus to the country’s food processing infrastructure is envisioned under the Pradhan Mantri Kisan SAMPADA Yojana, through its focused implementation of mega-food parks and integrated cold chain supply chains.
Conclusion: Food Processing is a sunrise sector and even with the advent of large MNC players, there is always demand for locally processed food. Abundance of raw materials and better govt policies are also contributing factors for Food Processing units. Regional taste preferences can be catered to only by a local brand and this in turn has given rise to a large number of local players who have huge market share in smaller areas esp Tier 2 and 3 cities. Presence of good D2C marketing channels has helped to promote the regional brands to become national players as well.
The changing food habits, consumption patterns, low production costs, and food preferences have significantly contributed to the boom in the food processing industry.
