ThefoodprocessingindustryinIndiaisasunrisesectorthathasgainedprominenceinrecentyears.

Availabilityofrawmaterials,changinglifestylesandrelaxationin
policieshasgivenaconsiderablepushtotheindustrysgrowth.Thissectorisamongthefewthatservesasavitallinkbetweentheagricultureandindustrialsegments
oftheeconomy.Strengtheningthislinkisofcriticalimportancetoimprovethevalueofagriculturalproduceensureremunerativepricestofarmersandatthesame
time create favourable demand for Indian agricultural products in the world market. A thrust to the food processing sector implies significant development of the
agriculturesectorandensuresvalueadditiontoit.
The Indian food processing industry holds tremendous potential to grow, considering the still nascent levels of processing at present. Though Indias agricultural
productionbaseisreasonablystrong,wastageofagriculturalproduceissizeable.Processingoffruitsandvegetablesisalow2%,around35%inmilk,21%inmeat
and 6% in poultry products. By international comparison, these levels are significantly low processing of agriculture produce is around 40% in China, 30% in
Thailand,70%inBrazil,78%inthePhilippinesand80%inMalaysia.ValueadditiontoagricultureproduceinIndiaisjust20%,wastageisestimatedtobevaluedat
aroundUS$13bn(Rs580bn).
India,withanarablelandof184mnhectaresis,thehighestproducerofmilkintheworldat90mntonnesp.a.,secondlargestproduceroffruits&vegetables(150
mntonnes),thirdlargestproduceroffoodgrainsandfishandhasthelargestlivestockpopulation.Consideringthewiderangingandlargerawmaterialbasethatthe
countryoffers,alongwithaconsumerbaseofoveronebillionpeople,theindustryholdstremendousopportunitiesforlargeinvestments.
MinistryofFoodProcessingIndustries
TheMinistrywassetupin1998andtheindustrysegmentsthatcomeunderitspurvieware:
Fruit&Vegetableprocessing(includingfreezinganddehydration)
GrainProcessing
ProcessingofFish(includingcanningandfreezing)
Processingandrefrigerationofcertainagriculturalproducts,dairyproducts,poultryandeggs,meatandmeatproducts
Industriesrelatedtobread,oilseeds,meals(edible),breakfastfoods,biscuits,confectionery,maltextract,proteinisolate,highproteinfood,weaningfoodand
extrudedfoodproducts(includingotherreadytoeatfoods)
Beer,includingnonalcoholicbeer
Alcoholicdrinksfromnonmolassesbase
Aeratedwaterandsoftdrinks
Specialisedpackagingforfoodprocessingindustries.
The Ministry of Food Processing Industries, GoI, has estimated the size of the Indian food market at US$ 191 bn (Rs 8,600 bn). The processed food market is
projectedtobeoverUS$100bn,ofwhichtheprimarilyprocessedfoodmarketaccountsfor60%,whilethevalueaddedprocessedfoodmarketisaround40%.
Theaverageannualgrowthofthefoodprocessingindustryhasbeenaround8%betweenFY01FY06.Thesegmentsthathavedriventhegrowtharethebeverages
andmeat&meatproductsandprocessedfishsectors.ThefoodprocessingindustryinIndiahasashareof1.5%inthetotalGDPofthecountry,andaspartoftotal
manufacturingaccountsfor9%.Indiasshareinworldtradeinrespectofprocessedfoodisabout1.6%.
Anextensiveandhighlyfragmentedindustry,thefoodprocessingsectorlargelycomprisesofthefollowingsubsegments:fruits&vegetables,milkandmilkproducts,
beer&alcoholicbeverages,meatandpoultry,marineproducts,grainprocessing,packaged/conveniencefoodandpackageddrinks.Alargenumberofplayersinthis
industry are small sized companies, and are largely concentrated in the unorganised segment. This segment accounts for more than 70% of the output in volume
termsand50%invalueterms.However,thoughtheorganizedsectoriscomparativelysmall,itisgrowingatamuchfasterpace.

Source:D&BResearch

StructureoftheIndianFoodProcessingIndustry

FoodProcessingUnitsinOrganisedSector(numbers)

Source:MinistryofFoodProcessingIndustries,AnnualReport200304
IndustrySubSegments
Fruits&Vegetables
Theinstalledcapacityoffruitsandvegetablesprocessingindustryhasincreasedfrom1.1mntonnesinJanuary1993to2mntonnesin2000andfurtherto2.1mn
tonnesin2006.Theprocessingoffruitsandvegetablesisestimatedtobearound2.2%ofthetotalproductioninthecountry.Theprominentprocesseditemsinthis
segmentarefruitpulpsandjuices,fruitbasedreadytoservebeverages,cannedfruitsandvegetables,jams,squashes,pickles,chutneysanddehydratedvegetables.
Some recent products introduced in this segment include vegetable curries in retortable pouches, canned mushroom and mushroom products, dried fruits and
vegetablesandfruitjuiceconcentrates.
Thefruitsandvegetableprocessingindustryishighlydecentralized,andalargenumberofunitsareinthecottage/householdandsmallscalesector,havingsmall
capacitiesofupto250tonnes/annum.Since2000,theindustryhasseensignificantgrowthinreadytoservebeverages,fruitjuicesandpulps,dehydratedandfrozen
fruitsandvegetableproducts,pickles,processedmushroomsandcurriedvegetables,andunitsengagedinthesesegmentsareexportoriented.
ExportsofProcessedFruits&Vegetables
(QuantityinMT,ValueinRsMn)

Source:MinistryofFoodProcessingIndustries,AnnualReport200506

Thedomesticindustryisyettochangeitspreferenceinfavourofprocessedfoods.Consumptionofvalueaddedfruitsandvegetablesislowcomparedtotheprimary
processedfoods,andfreshfruitsandvegetables.Theinclinationtowardsprocessedfoodsismostlyvisibleinurbancenters.
Asignificantthrustcanbegiventothissectorbystrengtheninglinkagesbetweenfarmersandprocessors.Theweaklinkagebetweenfarmersandmarkets,aswellas,

farmers and processing companies has brought about inefficiencies in the supply chain and encouraged the involvement of middlemen. The Government of Indias
NationalAgriculturePolicyenvisagestheparticipationoftheprivatesectorthroughcontractfarmingandlandleasingarrangementswhichnotonlyassuressupplyof
rawmaterialforprocessingunits,butalsoamarketforagricultureproduce,acceleratetechnologytransferandcapitalinflowintotheagriculturesector.
Contract farming in wheat practiced in Madhya Pradesh by Hindustan Lever Ltd and by Pepsi Foods Ltd in Punjab for tomatoes, foodgrains, spices and oilseeds are
some successful examples of contract farming in India, which changed the farming landscape and promoted the cultivation of processable variety of farm produce.
Suchinnovativepracticeswillpowerthefruits,vegetablesandgrainprocessingindustry.Apartfromsuchinitiatives,fiscalincentivesandtaxconcessionswillalsogive
impetustothesector.Thefiveyear100%taxexemptionannouncedbytheGovernmentinFY05wasonesuchincentiveforupcomingfruitsandvegetableprocessing
units.
MilkandMilkProducts
Indiahasoneofthehighestlivestockpopulationintheworld,accountingfor50%ofthebuffaloesand20%oftheworldscattlepopulation,mostofwhicharemilch
cowsandmilchbuffaloes.IndiasdairyindustryisconsideredasoneofthemostsuccessfuldevelopmentprogrammesinthepostIndependenceera.
Asof200506totalmilkproductioninthecountrywasover90mntonneswithapercapitaavailabilityof229gms/day.Theindustryhasbeenrecordinganannual
growthof4%duringtheperiod19932005,whichisalmost3timestheaveragegrowthrateofthedairyindustryintheworld.MilkprocessinginIndiaisaround35%,
(with the organized dairy industry accounting for 13% of the milk produced) while the rest of the milk is either consumed at farm level, or sold as fresh, non
pasteurizedmilkthroughunorganisedchannels.
DairyCooperativesaccountforthemajorshareofprocessedliquidmilkmarketedintheIndia.Milkisprocessedandmarketedby170MilkProducersCooperative
Unions,whichfederateinto15StateCooperativeMilkMarketingFederations.Overtheyears,severalbrandshavebeencreatedbycooperativeslikeAmul(GCMMF),
Vijaya(AP),Verka(Punjab),Saras(Rajasthan).Nandini(Karnataka),Milma(Kerala)andGokul(Kolhapur).
ThemilksurplusstatesinIndiaareUttarPradesh,Punjab,Haryana,Rajasthan,Gujarat,Maharashtra,AndhraPradesh,KarnatakaandTamilNadu.Themanufacturing
ofmilkproductsisconcentratedinthesemilksurplusStates.
AsperdatareleasedbytheMinistryofFoodProcessingIndustries,exportsofdairyproductshavebeengrowingattherateof25%p.a.inquantitytermsand28%in
valuetermssince2001.Significantinvestmentopportunitiesexistforthemanufacturingofvalueaddedmilkproductslikemilkpowder,packagedmilk,butter,ghee,
cheeseandreadytodrinkmilkproducts.
Meat&Poultry
Since1995,productionofmeat&meatproductshasbeensteadilygrowingatarateof4%p.a..Currently,theprocessinglevelofbuffalomeatisestimatedat21%,
poultry 6% and marine products 8%. Only about 1% of the total meat is converted into value added products like sausages, ham, bacon, kababs, meat balls, etc.
Productionofmeatisgovernedunderlocalbylawsasslaughteringisastatesubject.ProcessingofmeatislicensedundertheMeatFoodProductsOrder,1973.
In2003Indiahadalivestockpopulationof470mnthatincluded205mncattleand90mnbuffaloes.Thecountryproducesabout450mnbroilersand30billioneggs
annually.Cattle,buffaloes,sheepandgoat,pigsandpoultryarethetypesofanimalswhicharegenerallyusedforproductionofmeat.Slaughterrateforcattleasa
wholeis20%,forbuffaloesitis41%,pigs99%,sheep30%and40%forgoats.Thecountryhas3,600slaughterhouses,9modernabattoirsand171meatprocessing
unitslicensedunderthemeatproductsorder.
Thepoultryindustryisamongthefastergrowingsectorsrisingatarateof8%peryear.Verticalintegrationofpoultryproductionandmarketinghasloweredcostsof
production,marketingmarginsandconsumerpricesofpoultrymeat.Thereareeightintegratedpoultryprocessingunitsinthecountry,whichholdasignificantshare
intheindustry.
ExportsofMeatandMeatProducts
(QuantityinMT,ValueinRsMn)

Source:MinistryofFoodProcessingIndustries,AnnualReport200506
Meatexportshavebeengrowingatcloseto30%p.a.inquantityterms,largelydrivenbypoultry,buffalo,sheepandgoatmeat.Exportsofvalueaddedmeatproducts
areinsignificant.Inthedomesticmarket,thegrowingnumberoffastfoodoutletsinthecountryhashadasignificantimpactonthemeatprocessingindustry.
MarineProducts
Indiaisthethirdlargestfishproducerintheworldandrankssecondininlandfishproduction.Indiasvastpotentialforfishes,frombothinlandandmarineresources,
issupplementedbythe8,000kmcoastline,3mnhectaresofreservoirs,1.4mnhectaresofbrackishwater,50,600sqkmofcontinentalshelfareaand2.2mnsqkm
ofexclusiveeconomiczone.
Processing of marine produce into canned and frozen forms is carried out almost entirely for the export market. Infrastructure facilities for processing of marine
productsinclude372freezingunitswithadailyprocessingcapacityof10,320tonnesand504frozenstoragefacilitieswithacapacityof138,229.10tonnes.Apartfrom
these,thereare11surimiunits,473preprocessingcentresand236otherstorages.
Processed fish products for export include conventional block frozen products, individual quick frozen products (IQF), minced fish products like fish sausage, cakes,
cutlets,pastes,surimi,texturisedproductsanddryfishetc.
ExportsofmarineproductshavebeenerraticandonadecliningtrendwhichcanbeowedtotheadversemarketconditionsprevailingintheEUandUSmarkets.The
antidumpingprocedureinitiatedbytheUSGovernmenthasaffectedIndiasshrimpexportstotheUS.
FishProduction&Exports

Source:MinistryofFoodProcessingIndustries,AnnualReport200506
GrainProcessing
Grain processing includes milling of rice, wheat and pulses. As of 199900, there were over 91,000 rice hullers and 2,60,000 small flour mills engaged in primary
milling.Also,thereareabout43,000modernisedricemills/hullercumshellers.Around820largeflourmillsinthecountryconvertabout10.5mntonnesofwheatinto

wheatproducts.Alsothereare10,000pulsemillsmillingabout75%ofpulseproductionof14mntonnesinthecountry.
Primary milling of grains is the most important activity in the grain processing segment of the industry. However, primary milling adds little to shelf life, wastage
control and value addition. Around 65% of rice production is milled, mostly in modern rice mills. However, the shellercumhuller mills operating give low recovery.
Wheatisprocessedforflour,refinedwheatflour,semolinaandgrits.Apartfromthe820largeflourmills,thereareover3lakhsmallunitsoperatinginthissegmentin
the unorganised sector. Dal milling is the third largest in the grain processing industry, and has approximately 11,000 mechanised mills in the organised segment.
Oilseedprocessingisanothermajorsegment,anactivitylargelyconcentratedinthecottageindustry.Accordingtoestimates,thereareapproximately2.5lakhghanis
andkolus(animaloperatedoilexpellers),50,000mechanicaloilexpellers,15,500oilmills,725solventextractionplants,300oilrefineriesandover175hydrogenated
vegetableoilplants.
Indianrice,especiallyBasmatirice,hasgainedinternationalrecognition,andisapremiumexportproduct.Brandedgrainsaswellasgrainprocessingisnowgaining
popularity.
Beer&AlcoholicBeverages
Indiaisthethirdlargestmarketforalcoholicbeveragesintheworld,andthedomesticmarketislargelydominatedbyUnitedBreweries,MohanMeakinsandRadico
Khaitan.Thedemandforbeerandspiritsisestimatedtobearound373mncasesperyear.Thereare12jointventurecompanieshavingalicensedcapacityof33,919
kilolitresp.a.forproductionofgrainbasedalcoholicbeverages.Around56unitsaremanufacturingbeerunderlicensefromtheGovernmentofIndia.
Thetwosegmentsintheliquorsegment,countryliquorandIndianMadeForeignLiquor,bothcatertodifferentsectionsofsociety.Theformerisconsumedinrural
areasandbylowincomegroups,whilethelatterisconsumedbythemiddleandhighincomegroups.
Thereareapproximately23,000licensedliquoroutletsinIndia,withanother10,000outletsintheformofbarsandrestaurants.Regulationsinthissectordifferstate
wise.InTamilNadu,KeralaandAndhraPradesh,thedistributioniscontrolledbythestategovernment,andanychangeXVIIIintherulingpartyhasadirectimpact
on the availability of alcohol. In Uttar Pradesh, liquor distribution licenses were earlier based on bidding, and the highest bidder was given the license. This has not
changedtothelotteryallotmentsystem.GujaratGovernmenthasbannedthesaleanddistributionofliquorinthestate.
The wine industry in India has come into prominence lately and has been receiving support from the Government as well. The market for this industry has been
estimatedtobegrowingataround25%annually.Maharashtrahasemergedasanimportantstateforthemanufactureofwines.Therearemorethan35wineriesin
Maharashtra, and around 1,500 acres of grapes are under cultivation for wine production in the state. The Maharashtra Government has declared winemaking
businessassmallscaleindustryandhasalsoofferedexciseconcessions.
ConsumerFoods
Thissegmentincludespackagedfoods,aeratedsoftdrinks,packageddrinkingwaterandalcoholicbeverages.
Packaged/ConvenienceFoods
Consumer food industry mainly consists of readytoeat and readytocook products, chips, salted snacks, pasta products, cocoa based products, bakery products,
biscuits,softdrinks,etc.
Therearearound60,000bakeries,20,000traditionalfoodunitsandseveralpastafoodunits.Thebakeryindustryisamongthefewprocessedfoodsegmentswhose
productionhasbeenincreasingsteadilyinthecountryinthelastcoupleofyears.Bakeryproductsincludebread,biscuits,pastries,cakes,buns,rusketc.Thisactivity
ismostlyconcentratedintheunorganizedsector.Breadandbiscuitsconstitutethelargestsegmentofconsumerfoodswithanannualproductionisaround4.00mn
tonnes.Breadmanufacturingisreservedforthesmallscalesector.Outofthetotalproductionofbread,40%isproducedintheorganizedsectorandtheremaining
60%intheunorganisedsector.Similarly,intheproductionofbiscuits,shareofunorganizedsectorisabout80%.
CocoaProducts
Thereare20unitsengagedinthemanufactureofcocoaproductslikechocolates,drinkingchocolate,cocoabuttersubstitutes,cocoabasedmaltedmilkfoodswithan
annualproductionofapproximately34,000tonnes.
Softdrinks
This segment is the 3rd largest in the packaged foods industry, after packed tea and packed biscuits. The aerated soft drinks industry in India comprises over 100
plants and provides direct and indirect employment to over 125,000 employees. It has attracted one of the highest foreign direct investments in the country. Its
positionisstrengthenedbystrongforwardandbackwardlinkageswithglass,plastic,refrigeration,sugarandthetransportationindustry.
PenetrationlevelsofaeratedsoftdrinksinIndiaarequitelowcomparedtootherdevelopinganddevelopedmarkets,whichisindicativeofthepotentialthesegment

holdsforfurthergrowth.
ExportsofConsumerFoods
(QuantityinMT,ValueinRsMn)

Source:MinistryofFoodProcessingIndustries,AnnualReport200506
Constraints&DriversofGrowth
Growingurbanization,increasingdisposableincome,emergenceoforganisedfoodretail,changinglifestylesandfoodconsumptionpatternsarethekeyfactorsdriving
growthforprocessedfoodsinIndia.Thesearepostliberalisationtrendsthathavegivenanimpetustothesector.
ConsumptionpatternsinIndiahavebeenundergoingavisibleshift.Earlier,theshareofcerealproductswasthehighest,followedbymilk&milkproducts,vegetables,
edible oil and meat products. However, in recent years, the growth rates for fruits, vegetables, meat and dairy products have been higher than cereals and pulses.
Thisshiftinturnimpliesthatthereisalsoaneedtodiversifythefoodproductionbasetomatchthechangingconsumptionpreferences.
Thisshiftinconsumptionfollowsthepatternobservedindevelopedcountriesintheevolutionoftheglobalfooddemand.Thereisashiftfromcarbohydratestaplesto
animalsourcesandsugar.Goingbythispattern,infuture,therewillbeincreasingdemandforpreparedmeals,snackfoodsandconveniencefoodsandfurtheronthe
demandwouldshifttowardsfunctional,organicanddietfoods.
Someofthekeyconstraintsidentifiedbytheindustryinclude:
Lackofsuitableinfrastructureintermsofcoldstorage,warehousing,etc
Lackofadequatequalitycontrolandtestinginfrastructure
Inefficientsupplychainandinvolvementofmiddlemen
Highinventorycarryingcost
Hightaxation
Highpackagingcost
Affordabilityandculturalpreferenceoffreshfood
HighestpriorityhasbeenaccordedbytheGovernmentforthedevelopmentofinfrastructure.TheGovernmenthasalreadytakenseveralinitiativesonthisfrontwhich
includedevelopingoffoodparks,packagingcentres,modernisedabattoirs,integratedcoldchainfacilities,irradiationfacilitiesandvalueaddedcentres.
Theinitiativetodevelopfoodparkswastakenprimarilyinordertoassistthesmallandmediumenterpriseswhichareunabletoinvestincapitalintensiveactivities.
Sofar,22foodparkshavecomeintooperationwhichprovidecommonfacilitieslikecoldstorage,foodtestingandanalysislaboratories,packagingcentres,etc

Intermsofpolicysupport,theministryoffoodprocessinghastakenthefollowinginitiatives:
FormulationoftheNationalFoodProcessingPolicy
Completedelicensing,exceptforalcoholicbeverages
Declaredasprioritysectorforlendingin1999
100%FDIonautomaticroute
Excisedutywaivedonfruits&vegetablesprocessingfrom200001
Incometaxholidayforfruits&vegetablesprocessingfrom200405
Customsdutyreducedonfreezervanfrom20%to10%from200506
ImplementationofFruitProductsOrder
ImplementationofMeatFoodProductsOrder
EnactmentofFSSBill2005
FoodSafety&StandardsBill,2005
Apartfromtheseinitiatives,theCentrehasrequestedstateGovernmentstoundertakethefollowingreforms:
AmendmenttotheAPMCAct
LoweringofVATrates
Declaringtheindustryasseasonal
Integratethepromotionalstructure
Investments
ThetotalinflowofforeigndirectinvestmentinthefoodprocessingsectorhasbeenaroundRs52.7bn(US$1.2bn)between1991toNovember2006.Duringthelast
fiveyears,FDIwitnessedaninflowofoverRs24bnofforeigninvestment.Thehighestinvestmentinasingleyearwasin200102amountingtoRs10bn.
MaharashtrawasamongthefrontrunnerstoreceivethehighestshareofFDIinfoodprocessingduringthelastfiveyears.Thedairyandconsumerindustrisereceived
FDIworthRs2.7bneachasforeigninvestment.Nearly30percentofFDIinthefoodprocessingsectorcomesfromEUcountriessuchasNetherlands,Germany,Italy
andFrance.Perfetti,Cadbury,GodrejPilsbury,NutriciaInternational,ManjiniComacoaresomeofthesuccessfulventuresfromEUcountries.
MajorFoodProcessingCompaniesinIndia

Theentryofmultinationalcompanieshasincreasedcompetitioninthefoodprocessingindustry.Atthesametime,thesecompaniesarefacingtoughcompetitionfrom
strongIndianbrands.Thislevelofcompetitionhasincreasedinnovations,facilitatingasustainedgrowthofthesectorandalsoimproveglobalcompetitiveness.The
emergingnewgrowthphaseofthesectorisjustinitsinitialstageswiththepotentialforIndiatoemergeasaleadingfoodsuppliertotheworld.

SWOTAnalysisofFoodProcessingIndustry
Strengths
Abundantavailabilityofrawmaterial
PrioritysectorstatusforagroprocessinggivenbythecentralGovernment
Vastnetworkofmanufacturingfacilitiesalloverthecountry
Vastdomesticmarket
Weaknesses
Lowavailabilityofadequateinfrastructuralfacilities
Lackofadequatequalitycontrol&testingmethodsasperinternationalstandards
Inefficientsupplychainduetoalargenumberofintermediaries
Highrequirementofworkingcapital.
InadequatelydevelopedlinkagesbetweenR&Dlabsandindustry.
Seasonalityofrawmaterial
Opportunities
Largecropandmaterialbaseofferingavastpotentialforagroprocessingactivities
SettingofSEZ/AEZandfoodparksforprovidingaddedincentivetodevelopgreenfieldprojects
Risingincomelevelsandchangingconsumptionpatterns
Favourabledemographicprofileandchanginglifestyles
Integrationofdevelopmentincontemporarytechnologiessuchaselectronics,materialscience,biotechnologyetc.offervastscopeforrapidimprovementand
progress
Openingofglobalmarkets
Threats
Affordabilityandculturalpreferencesoffreshfood
Highinventorycarryingcost
Hightaxation
Highpackagingcost