(Sample Material) UPSC IAS Mains GS Online Coaching : Paper 3 - "Food Processing and Related Industries in India"

Sample Material of Our IAS Mains GS Online Coaching Programme

Subject: General Studies (Paper 3 - Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management)

Topic: Food Processing and Related Industries in India-Scope, Significance And Location, Upstream and Downstream Requirements, Supply Chain Management

Food Processing and Related Industries in India-Scope, Significance And Location, Upstream and Downstream Requirements, Supply Chain Management

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 and food products are the largest consumption category in India, with a market size of USD 181 billion. Domestically, the spending on food and food products amounts to nearly 21% of the gross domestic product of the country and constitutes the largest portion of the Indian consumer spending- more than a 31% share of wallet. Going forward, the Indian domestic food market is expected to grow by nearly 40% of the current market size by 2015, to touch USD 258 billion by 2015.

With a population of more than one billion individuals and food constituting a major part of the consumer’s budget, this sector has a prominence next to no other businesses in the country. Moreover the importance of this sector to India’s economy becomes all the more relevant, considering the fact that this sector continued to perform well, despite fall in GDP number and poor performance by many other industries, during recession in 2008-09.

The industry encompasses a gamut of activities involved in reaching the final product to the consumer, starting with farming activity to produce inputs, processing of the inputs to create products and the associated supply chain involved in delivering the products.

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. This sector is also capable of addressing critical issues of food security and providing wholesome, nutritious food to our people.

Food Processing has emerged as the sunrise sector in India, having huge growth potential and opportunities that are still untapped. In order to facilitate and exploit the growth potential of the sector, the government on its part has initiated extensive reforms. Some of the key measures undertaken by the Government include: amendment of the Agriculture Produce Marketing Committee Act, rationalization of food laws, implementation of the National Horticulture mission etc.

The government has also outlined a plan to address the low scale of processing activity in the country by setting up the mega food parks, with integrated facilities for procurement, processing, storage and transport. To promote private sector activity and invite foreign investments in the sector the Government allows 100% FDI in the food processing & cold chain infrastructure. The recent budget has announced several policy measures, especially for the cold chain infrastructure, to encourage private sector activity across the entire value chain.

In order to raise India’s processed-product quality to international standards, to address health concerns and harness the export opportunity, the government is establishing a network of quality control and testing laboratories and testing centers across India, supported by R&D through research institutes. However, despite of continual efforts and initiatives of the Government to provide the required stimulus to the sector, processing activity is still at a nascent stage in India with low penetration. The level of processing is currently low across the product categories. For example, only 2.2% of the total production of food and vegetables is processed, as compared to 65% in the US or China. At the same time, though India is a key producer of food products, having an adequate production base for inputs etc, productivity levels are very low in the country. While India remains a top producer of food, production yield levels are among the lowest amongst the BRIC countries. Also, the Indian export market, at USD 13.7 billion, has a share of only 1.4% of the world food trade.

Thus considering the criticality of the situation and the need to appropriately address the challenges faced by the sector, FICCI has identified some of the major bottlenecks hampering the growth of the sector and conducted a pan India survey to analyze the most important ones which require immediate action and policy intervention from the Government.

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.

The Uncontrollable factors include fragmentation of land holdings which has resulted in lack of scale and has made investments in automation unviable; regional climatic variations which impact the production; and the constraints in land availability due to competing pressure from urbanization, constructions and industrialization. These factors are difficult to address and hence have to be discounted for while accounting for the inadequate growth of the sector.

It is the controllable factors which can be addressed by companies and the Government, which impact the production levels and hence need proper actions. Even today we are grappling with issues of quality and quantity of raw produce, low labor productivity with slow adoption of technology. On the Infrastructure front, we have supply chain and wastage related problems and low levels of value addition etc. The other issues of concern, holding this sector back are impaired access to credit; inconsistency in state and central polices, which requires all of us, at the Center and at the State level to  work as one single cohesive unit

It is well known that the nascent Indian food processing industry holds tremendous potential to grow. However, there are weaknesses that need to be addressed.

Top five bottlenecks which need immediate action to stimulate the growth of the sector:

I) Inadequate Infrastructure Facilities: As per industry responses, inadequate support infrastructure is the biggest bottleneck in expanding the food processing sector, in terms of both investment and exports.

Key concerns in this area are:

A) Long and fragmented supply chain: Companies in the processed food manufacturing space face problems on the inbound supply chain side in terms of inconsistency of inputs quality, high level of wastages as the product reaches the manufacturing base and unwanted cost additions with minimal value additions. This is due to the long and fragmented supply chain which results in these wastages and price escalations. This creates the requirement for companies to invest in creating backward linkages through contract farming, which would enable the company to control the inputs at an assured quality level with minimal wastages.

B) Inadequate cold storage and warehousing facilities: India’s existing food cold storage facilities can accommodate 21.7m tons of produce compared with a requirement for more than 31m tons which indicates a shortfall of 10m tons of cold storage facilities for agriculture produce. Also, Cold storage facilities now available are mostly for single commodity like potato, orange, apple, grapes, pomegranate and flowers etc. which result in poor capacity utilization. Without a strong and dependable cold chain vital sector like food processing industry which is based mostly on perishable products cannot survive and grow.

Warehousing which is a key requirement in the overall supply chain, is mostly dominated by unorganized players. 20% of warehousing is organized currently with 70% of the organized market controlled by the Government .Involvement of more private players will help in the better development of warehousing facilities.

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