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Processed foods - Growth potential, demand high
Thursday, 16 January, 2014, 08 : 00 AM [IST]
Anurag More and Priyanka Dhomse, Mumbai
Food processing sector in India is said to be worth $100 billion, yet it has huge growth potential and offers opportunities that remain to be tapped. The sector is of key importance, as it holds the vital link between agriculture and industry.

According to Market, the Indian food processing industry provides almost 60 per cent of all job opportunities by directly employing around 1.6 million workers. It is the fifth-largest industry in the country in terms of production, consumption, export and growth.

The Indian processed food sector is expected to touch $255 billion by financial year 2016 with 13 per cent growth rate per annum. The packaged fruit juice market is estimated to be slightly over Rs 1,000 crore in size.

32% of total market
According to Netscribes, the processed food and beverage market accounts for 32 per cent of the total food market. The Indian food processing industry is valued at Rs 8,410.50 billion, and is estimated to grow at a compound annual growth rate (CAGR) of 10 per cent to reach Rs 12,460 billion by 2015.

The highest share of processed foods is in the diary sector, where 37 per cent of the total produce is processed. Of this, only 15 per cent is processed by the organised sector.

“The processed food market is estimated at Rs 2,80,000 crore. Though it is large in size, it is still at a nascent stage in terms of development. Of the country’s total agriculture and food produce, only two per cent of the total is processed,” Vinod Gaikwad, general manager, marketing and sales, Greenways Food and Beverages (D) Pvt Ltd.

Nilesh Lele, director, Enel Advisors, said, “The industry is large and ever-growing. Some estimates put it to be in the range of $100 billion.”

Import and export
India's exports of processed foods and beverages was Rs 381.51 billion in 2012-13, including the share of such products as mango pulp (Rs 6.09 billion); dried and preserved vegetable (Rs 6.37 billion); other processed fruit and vegetable (Rs 17.33 billion); pulses (Rs 12.85 billion); groundnuts (Rs 40.65 billion); guar gum (Rs 212.87 billion); jaggery and confectionery (Rs 9.18 billion); cocoa products (Rs 2.94 billion); cereal preparations (Rs 22.41 billion); alcoholic and non-alcoholic beverages (Rs 19.09 billion), and miscellaneous preparations (Rs 17.12 billion) (source: Netscribes).

“The Indian domestic market has a great unmet demand, which is one of the main drivers of this sector. While a majority of this market would be met through indigenous production, imports will also increase manifold. Imports of fresh produce, wine, packaged foods and cheese are just a few such examples of big opportunities,” said Netscribes.

Prospective size
Gaikwad said, “The new wave in the food industry is not only about foreign companies arriving here attracted by the prospective size of the market. It is also about the migration of the ‘Made in India’ tag on food products travelling abroad. Indian food brands are increasingly finding prime shelf space in the retail chains in the United States and Europe.”

“In recent months, the imports of food products have been hurt due to the time-consuming process of product approval. Unofficial reports have put the estimated loss in the range of Rs 1,000 crore,” opined Lele.

Government initiatives
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 the amendment of the Agriculture Produce Marketing Committee Act; the rationalisation of food laws; the 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 mega food parks with integrated facilities for procurement, processing, storage and transport.

In order to raise the quality of India’s processed products 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 centres across India, supported by research and development (R&D) through research institutes.

100% FDI
To promote private sector activity and invite foreign investments in the sector, the government allows 100 per cent foreign direct investment (FDI) in food processing and cold chain infrastructure. During the last Budget, several policy measures were announced, especially for cold chain infrastructure, to encourage private sector activity across the entire value chain.

The Prevention of Food Adulteration Act (PFA), 1954 and Rules, 1955 were enacted in India (Kapur and Krishnamurthy, 1981). Delhi has a separate Directorate of Prevention of Food Adulteration, which is entrusted with the responsibility of implementing the provisions of PFA Act and Rules.

The other Acts
  • Fruits Products Order, 1955;
  • Meat Food Products Order, 1947;
  • Edible Oils Packaging (Regulation) Order, 1998;
  • Solvent Extracted Oil, De-oiled meal and Edible Flour Order, 1967, and
  • Milk and Milk Products Order, 1992
The government has implemented several schemes to promote the growth of the food processing industry. The Centre has permitted income tax deduction amounting to 100 per cent of the profit earned for five years, and 25 per cent of the profit for the next five years, in case of new agro-processing industries to package and preserve fruit and vegetables.

Netscribes stated that the excise duty on meat and fish products was halved to eight per cent, whereas dairy machinery was exempted from duty. The Indian government approved the funds for establishing 15 mega food parks across the country, and aims to enhance the processing level of perishables from six per cent to 20 per cent, and increase value addition from 20 per cent to 34 per cent by 2015.

Gaikwad said, “The Centre allows 100 per cent FDI in this sector, and has formulated and implemented several plan and schemes to provide financial assistance for setting up and modernising food processing units, creation of infrastructure, support for research and development and human resource development, in addition to other promotional measures to encourage the growth of the processed food sector.”

“FSSA 2006 is a revolutionary step, and the implementation will take time. It is too early to comment about the impact of the new regulations,” Lele said.

Netscribes stated that like many other growing industries, the food processing industry faces many challenges, including the lack of infrastructure in the shape of cold chain; the lack of packaging centres; value-added centres, and modernised abattoirs.

“As per the Federation of Indian Chambers of Commerce and Industry (FICCI) report, the challenges faced by the sector include inadequate infrastructural facilities; comprehensive national level policy on the food processing sector, food safety laws; inconsistency in central and state policies and the availability of trained manpower,” it added.

“The key challenges also include faced by the sector are the low level of research and development; industry-academia gap; skill gap; technology gap; meeting global quality standards, a higher number of small and unorganised players, and regulatory bottlenecks,” Netscribes stated.

Securing the raw materials and maintaining profitability in the face of ever-growing inflation would be challenges.   

Overcoming challenges
The government has come up with several schemes to provide financial assistance for setting up and modernising food processing units, creating infrastructure, and promoting measures to encourage the growth of the processed food sector.

The Central government allows 100 per cent FDI in this sector, and there are incentives to set up processing plants either in agri-exports' zones or outside of them. The Centre, in co-operation with state governments, will be starting schemes under the National Mission on Food Processing (NMFP) and taking steps to create additional foodgrain storage capacity in the country.

“There are various steps being taken. For instance, fruit and vegetables are preserved using cold storage,” said Lele.  

“In order to address the problem of infrastructure in the food processing sector, the government is supporting the implementation of the food park scheme, the setting up of packaging centres, value-added centres etc.,” Gaikwad stated.

Earlier, food processing was largely confined to the food preservation, packaging and transportation, which mainly involved salting, curdling, drying, pickling, etc.

However, over the years, with emerging new markets and technologies, the sector has widened its scope. It has started producing many new items like ready-to-eat foods, beverages, processed and frozen fruit and vegetable products, marine and meat products. It also includes the establishment of post-harvest infrastructure for processing of various food items.

Netscribes stated that with increasing health-consciousness, consumers nowadays are opting for healthy ingredients such as natural flavours in processed food and drinks. Zero-calorie beverages with no additives or preservatives are seen to attract more consumer interest. Also, convenient pre-processed food, which requires little preparation, is witnessed to gain more demand in developed markets.

To improve hygiene in food processing, different measures are being taken by the governments of various countries to ensure food safety. Thus, the packaging of processed food products has become an important step to ensure safety and hygiene of food products. The demand for processed foods is growing at 10 to 15 per cent per annum. The rising contribution of women to the working fo
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