Food Processing

The food processing sector is critical to India’s development. It establishes vital linkages and synergy between industry & agriculture, the two pillars of the economy. India is the world’s second largest producer of food and holds the potential to become the food provider of world. The growth of this industry will bring immense benefits to the economy, raising agricultural yields, enhancing productivity, creating employment and raising life-standards of people across the country, especially in rural areas.

The liberalisation of the Indian economy and world trade and rising consumer prosperity has thrown up new opportunities for diversification in the food-processing sector and opened new vistas for growth. India has made a good progress on the horticultural map of the world. It is also the largest producer, consumer and exporter of spices. The inherent strength of high raw material production and large domestic market base has to be buttressed with operating processing units at optimum capacity levels as per economies of scale which would enable achieving a competitive edge over imported products.

The fruit and vegetable processing industry in India is highly decentralized. A large number of units are in the cottage/home scale and small scale sector, having small capacities upto 250 tonnes/annum though big Indian and multinational companies have capacities in the range of 30 tonnes per hour or so. 

The sector has been characterised by poor marketing, transport and communication infrastructure. The market density of fruits and vegetables is low and facilities for storage and cold chains in the hinterlands are woefully inadequate. Erratic and inadequate power supply, lack of roads, education and health facilities and null or low rural industrialisation accentuates the problems.

The domestic consumption of value added fruit and vegetable products is however, very low compared to the primary processed food in general and fresh fruits and vegetables in particular which is attributed to higher incidence of tax and duties including that on packaging material, lower capacity utilisation, non-adoption of cost effective technology, high cost of finance, infrastructural constraints, inadequate farmers-processors linkage leading to dependence upon intermediaries. The inability for market promotion is an important reason for inadequate expansion of the domestic market. Also Indian brands have yet to acquire an image in the international markets because of poor global marketing.

External liberalisation poses threats of stiffer competition under a new world trade order with WTO agreements relaxing quantitative restrictions and non-tariff/sanitary barriers on importing countries which exposes the Indian farmer to world market forces. Under the new trade regime, the food sector will be confronted by challenges of trade related Intellectual Property Rights, comprising patent laws, copyrights, trade links, etc.

Commercial R&D activities in the food industry have remained confined to only a few areas. R&D activities have scarcely emerged from the laboratory to be extensively adopted on the field.

Most Financial Institutions lack capacity to appraise hi-tech export-oriented projects. There are no suitable insurance schemes for such projects, most of which deal in export of perishables. In financing such projects the banks face considerable credit risks. With new technology, the risk perception is higher than the existing one.

Supply chain efficiencies together with a focused approach to enhance exports are the key to ensure that India is able to successfully tap new product/market opportunities. India has the potential to achieve a 3% share in the world trade of agricultural and food products by 2015.