Current General Studies Magazine (September 2014)
General Studies - III (Economy Based Article)
FOOD PROCESSING INDUSTRIES - A SUNRISE SECTOR
Food has a very wide connotation but it can be summed up as
any plant or animal material, which is consumed for nutrition and sustenance.
The collection, preparation and distribution of food constitute the very basis
of civilization, culture and home. Humanity has always recognized that
preservation of food to ensure availability according to need is central to its
concerns. Pickling, salting, drying and other methods of food processing are
almost as old as mankind itself. Food processing is a multi-faceted endeavor and
its further complexity lies in terms of the enabling environment, the status of
the production of the basic plant and animal material, the industry and then
consumer or the market.
Food processing industry is of enormous significance for
India's development because of the vital linkages and synergies that it promotes
between the two pillars of our economy, industry and agriculture. Fast growth in
the food processing sector and progressive improvement in the value addition
chain are also of great importance for achieving favourable terms of trade for
Indian agriculture both in the domestic and international markets. Even more
important is the crucial contribution that an efficient food processing industry
could make in the nation's food security. The simple fact that the post-harvest
losses are about 25 to 30 per cent in our country should serve as an eye opener
for all of us. Even marginal reductions in these losses are bound to give us
great relief on the food security front as well as improve the income levels of
It is in this context that the Government of India has given
utmost priority to developing the food processing sector. The Government has
taken a number of initiatives. The entire sector has been deregulated and no
licence is required except in the case of alcoholic beverages. Automatic
approval for foreign investment up to 51 per cent is allowed. Even where
investment is more than 51 per cent, approval is given on a case-to-case basis
by the Foreign Investment Promotion Board (FIPB). Cent per cent export-oriented
units are permitted to import raw materials and capital goods free of duty. Zero
duty import is also permitted, for capital goods. Export earnings are exempted
from corporate tax. A number of State Governments have also announced liberal
fiscal benefits for the food processing industries.
In line with this policy the Department of Food Processing
Industries has launched concessional finance schemes. The schemes cover the
entire spectrum of activities involved with food processing such as post-harvest
infrastructure including cold chain, food quality and safety, packaging,
research and development and promotion of processed food. During the 8th Plan
(1992-97), the Department provided an assistance of Rs.177 crore for various
food processing projects. During the first two years of the 9th Plan (1997-2002)
the amount of assistance provided is Rs.48 crore. These figures may seem small.
But what is important is that this seed money has generated projects of the
value of an estimated Rs.1100 crore.
The various initiatives taken by the government have
attracted large investments in the food processing sector. From July 1991 when
the liberalisation process started, until September 1999, 1,111 approvals (which
include 100 per cent joint ventures, foreign collaborations and industrial
approvals) involving a total investment of Rs.19086 crore. This is an investment
of Rs.9125 crore which had already been approved. As many as 5,718 industrial
entrepreneurs, memoranda involving an investment of Rs.53,697 crore were filed
during this period.
The environment for this industry has substantially changed
since 1991. As a result of these steps, the cumulative investment by the
financial institutions in the food industry sector increased from about Rs.6500
crore in 92-93 to Rs.18500 crore at the end of 97-98, an increase of almost 200
per cent. Further, foreign investments of Rs.8886 crore have been approved of
which Rs.2032 crore has been implemented. However, the share of the food
industry in the total sanctions by the financial institutions has decreased from
about 4 per cent to about 2.5 per cent.
In line with the market orientation of the financial market,
there has been a significant relaxation in the regulatory regime. The Cold
Storage Regulatory Order and the Rice Milling Regulations have been abolished.
The Government is committed to the removal of quantitative restrictions on
The Indian processed food industry has shown a tremendous
potential for exports. During 1998-99 the total export from the country was with
Rs. 1,41,603 crore which included Rs.25224 crore of agricultural, plantation and
processed food products. This was 18 per cent of the total exports. The export
of processed foods, viz., processed fruits and vegetables, animal products,
rice, marine products and other processed foods was valued at Rs.12915 crore
during 1998-99 which was 9.2 per cent of the total exports. Globalization has
led to an increase in trade across the borders of different countries and
annually about 460 million tons of food valued at US $3 billion is traded. India
has, thus, a great potential for global trade in agricultural and processed food
Food processing has the largest employment generation
potential. It generates 54,000 persons per Rs.1000 crore investment whereas in
textiles and in paper industries it is 45,000 and 25,000 persons respectively.
Altogether 12.73 lakh job opportunities are likely to arise in the food
processing sector with the implementation of the approvals given and industrial
entrepreneurial memoranda filed so far.
Despite these initiatives and advantages, the processing of
raw material for value addition is still at a very low level - less than 2 per
cent as compared to 25-60 per cent in the developed countries. To boost the
growth, the Government and the industry have to work in close unison.
The industry needs to adopt the latest technologies to inject
greater efficiency which could provide economies of scale and cost
effectiveness. We need to introduce technologies that can add value at a
reasonable cost as the premium of processed foods over fresh fruits and
vegetables cannot be very high if a large demand is to be generated. Some of the
new technologies in cold storage system include changing the cooling system, use
of prefab sandwich insulated panels, spraying potatoes with sprout suppressants
and then storing them to save power and use vapor absorption refrigeration,
based on solar and bio-gas energy which has been adopted in the advanced
countries. Similar inovations have already been applied in several other areas.
The other issue is the absence of linkages between the
industry and the farmers for the raw materials. Currently, most agro industries
depend on the normal trade channel for their raw material which often results in
the industry getting only the left overs of the market. This is very acute in
the horticulture-based industry. In order to ensure that the industry gets the
right quality and quantity of raw material at the appropriate time, the most
suitable method in the Indian context appears is to procure raw material
directly from the farmers through contract product. Experiments made by some
leading companies in this regard have been eminently successful.
India has large prospects for exports of agro-products. The key to India's
success, however, shall be quality. In our endeavor to boost exports, India may
been confronted with two issues, viz., genuine quality issues and pseudo quality
issues. We need to gear up to meet both the challenges. The concept of quality
assurance has been alluded to the Indian exporters so far. Total quality
management begins not only from the first stage of manufacturing of the end
product but from stage one of production of the raw material. Most of the
processed food manufactured in the country is not of a very good quality,
largely because of the use of poor raw material. Therefore, the processors need
to enter into contracted arrangements with the farmers for providing processable
varieties of raw materials and also help them to improve productivity by using
the latest agricultural technologies.
The growth potential of India's food industry is enormous.
With food being a national priority and food habits changing rapidly towards
value-added foods, the Indian food processing industry is on the brink of a
revolution that will modernize the entire food chain.
1Q. Discuss the growth potential of the food industry of India. (200 words)