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