India Country Market
Insights and Opportunities
Food Processing Sector
Overview: The food processing industry is one of the largest industries in India. It is ranked fifth in terms of production, consumption, export, and expected growth. Food Processing Industry is widely recognized as a ‟sunrise industry‟ in India having huge potential for uplifting the agricultural economy, the creation of large scale processed food manufacturing and food chain facilities, and the resultant generation of employment and export earnings. India has enormous growth potential from its current status of being the world's second largest food producer to be the world's number one producer.
The food processing industry is of enormous significance for India's development because of the vital linkages and synergies that it promotes between the two pillars of the economy, namely industry and agriculture. Food processing covers a spectrum of products from subsector comprising agriculture, horticulture, plantation, animal husbandry and fisheries. Essentially, the food industry involves the commercial movement of food from field to fork.
While India has an abundant supply of food, the food processing industry is still nascent: only 2% of fruit & vegetables and 15% of milk produced are processed. Despite this the processed food industry ranks fifth in size in the country, representing 6.3% of GDP. It accounts for 13% of the country's exports and 6% of total industrial investment. The industry size is estimated at $70 billion, including $22 billion of value added products. This sector has been attracting FDI across different categories. India produces 600 million tons of food grains every year. India is the second largest exporter of rice and fifth largest exporter of wheat in the world, its agricultural exports account for nearly 12% of total export figures. India ranks first in the world in production of cereals and milk. It is the second largest fruit and vegetable producer and is among the top five producers of rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar, and oilseeds.
India is the seventh largest producer of fish in the world and is ranked second in inland fish production.
India is now poised for the “food revolution” that will ensure agricultural diversification and large investments in food processing. The entries of multinationals, aggressive rise of commodity branding and low cost of technology are changing the economics of the Indian food industry. The Indian food market is approximately $69.4 billion, of which value-added food products comprise $22.2 billion. With food production expected to double by 2020, large investments are already going into food and food processing technologies, skills and equipment. The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting $33 billion of investment in 10 years and generate employment of 9 million people. The government has formulated and implemented several plans and schemes to provide financial assistance for setting up and modernizing food processing units, creating infrastructure, supporting research and development and human resource development, in addition to other promotional measures to encourage the growth of the processed food sector.
Opportunities: In a bid to boost the food sector, the Government is working on agrizones and the concept of mega food parks. Twenty such mega parks will come up across the country in various cities to attract Foreign Direct Investment (FDI) in the food processing sector. The Government approved 105 proposals between January 2002 and May 2005 from foreign industrialists to set up food processing industries in India involving $144 million. The ministry has released a total assistance $23 million to implement the Food Parks Scheme. It has so far approved 50 food parks for assistance across the country. The Centre also plans $22 billion subsidy for mega food processing parks.
In India the Food Processing Industry is relatively nascent and offers opportunities for FDI. It accounts for $29.4 billion, in a total estimated market of $91.66 billion. There is a rapidly increasing demand for processed food caused by rising urbanization and income levels. To meet this demand, the investment required is about $28 billion. Food processing has been declared a priority sector. The Government has recently established Special Economic Zones with the purpose of promoting exports and attracting FDI. These SEZs do not impose duty on imports of inputs and they enjoy simplified fiscal and foreign exchange procedures and allow 100% FDI. The Government is also moving towards introducing an integrated food law, which is expected to help meet the requirements of international trade and make the Indian food industry competitive in the global market. To harness the value-creating potential of agro processing, superior market mechanism and infrastructure are required to be created. State governments have already begun to actively encourage the creation of aggregators by encouraging companies to engage in agriculture marketing. It is believed that this may provide the basis to jumpstart private investment into cold chain and other supply chain infrastructure.
Machinery: In recent times, quite a number of new technologies, both in processing and packaging, have emerged and made an impact on the shelf life of food products. These technologies have also matched some consumer trends such as concerns regarding freshness and health. Despite a considerable increase in the supply provided by the local food processing and packaging machinery manufacturers, there is ample demand for foreign machinery featuring state of the art technology in India. Hence U.S. companies have a great opportunity to export equipment for processing and packaging meat, seafood, vegetables, fruits, cereals, oil seeds, and other like items.
Cold Storage Equipment: The cold storage equipment sector provides an excellent opportunity for U.S. companies to invest because the GOI has accorded a high priority to stop the wastage of food products. India is one of the world's largest producers of fruits and vegetables but nearly 30 percent of this production is lost due to inadequate cold chain facilities. Moreover, other segments like dairy products, seafood, and processed meat, also require cold storage facilities. The GOI is taking steps to develop cold chain infrastructure, pushing a steep rise in demand for cold storage equipment. Currently, the commercial and industrial refrigeration market has an estimated value of US$ 212 million. There are significant opportunities for U.S. companies to partner with Indian counterparts to provide cold storage and refrigeration equipment. U.S. engineering companies can provide the latest technology of international standards to their Indian partners.
Infrastructure: Deficiency in infrastructure exists across the sector. The cold storage capacity today caters to less than 15 percent of the produce with over 80 percent designed only to handle potatoes. There is also a paucity of chilling infrastructure for milk and a lack of modern abattoirs for the meat processing sector. Fish processing requires a major step-up in infrastructure availability. Physical marketing and warehousing infrastructure also needs to be upgraded. India's limited controlled atmosphere storage facilities technologies, protocols, and machinery are here lies the potential for U.S. companies