With a potential size of US$ 535 billion in 2025, India’s food processing sector provides ample opportunities for entrepreneurs as well as farmers. As per recent data, the PLI Scheme for Food Processing Industries has approved nearly 158 applications with investments of Rs 7,427.22 crore as of March 31, 2023.
Increasing urbanization, rising disposable incomes, availability of a greater variety of processed food, growing demand from Tier 2 and Tier 3 cities, and the increasing E-commerce are together transforming the food consumption patterns in the country. However, India needs to work aggressively to boost food processing capacities to double the share of the sector as per Vision 2030. Boosting exports of processed food products will go a long way in benefitting entrepreneurs and further encourage the addition of capacities within the country.
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The food processing industry is one of the sunrise sectors of the Indian economy. It is also the fifth-largest industry in terms of production, consumption, exports and potential growth. In FY 2019, out of the total food and agri-commodity exports of India worth US$ 38.5 billion, share of processed food was about US$ 4.15 billion. When we look at HS 16-22 (foodstuffs) alone, India’s exports reached US$ 10.5 billion in 2022, growing at a CAGR of 22.4% over a period of 5 years.
The sector was valued at US$ 263 billion in 2019, and a report by KPMG has projected the industry to reach a size of US$ 535 billion by 2025 (with CAGR of 15%). It adds about 9.5% to gross value added (GVA). Currently, the food processing level in India is at 10%. This is considerably lower than the global levels; a case in point is the figure of around 55% in European economies. The low levels of food processing in the country may also be attributed to habits and inclination to consume fresh food, the distrust regarding “outside” food & its quality, and to the inherent tastes of our multi-cultural society.
However, the increasing urbanization, rising disposable incomes, availability of a greater variety of processed food, growing demand from Tier 2 and Tier 3 cities, and the increasing E-commerce are together transforming the food consumption patterns in the country. Besides, the Covid-19 pandemic has further led to increased acceptance of processed food. Driven by these factors, the domestic Food Processing industry is heading towards a strong growth trajectory and also has significant growth potential. The sector is offering numerous opportunities not only to farmers but also to entrepreneurs.
The proliferating demand for processed food is turning out to be a potential opportunity for the country’s farmers. Opportunities abound in terms of increased production, greater demand for raw material for value-added products, diversification from grain-based crops to horticulture, and production of high-value process-able varieties, all tending to boost the income of the farmers.
Nowadays, the emphasis is gradually drifting towards a change in cropping patterns, where farmers are enabled to produce crops for profit. The goal is to increase the prosperity of Indian farmers rather than sustenance. For instance in western Uttar Pradesh, farmers prefer to grow Sugarcane, while in Madhya Pradesh they prefer to grow Soybean. The success of exports of pickled Cucumber & Gherkins has changed cropping patterns in more than 20 districts in Karnataka. Change in cropping patterns is spreading to gradually to other states in the country.
However there are some challenges emerging on the supply front. The challenges include lack of-cold chain infrastructure, modern logistics and storage infrastructure. These are also the primary reasons that cause high levels of post-harvest wastage of agriculture produce in the country.
There have been multiple efforts from the Central Government as well as State Governments to reduce post-harvest wastage through the development of storage and supply chain infrastructure, development of processing infrastructure and subsidising of investments in the Food Processing Sector. Major schemes by Government of India include
Pradhan Mantri Kisan Sampada Yojana (PMKSY) which provides subsidy for the development of high-quality infrastructure like Mega Food Park with world-class facilities and modern storage facilities, Cold Chain, testing laboratories etc. The scheme also envisages setting up of near farm infrastructure such as Agri-Processing Clusters which are aimed at creating primary processing facilities.
The government also announced Agriculture Infra Fund worth Rs 1 lakh crore. It provides support to a large number of beneficiaries including Farmer Producers Organizations (FPOs), Self Help Group (SHG), Farmers, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agri-entrepreneurs, start-ups etc. by way of interest subsidy
Aiming to create global food manufacturing champions corresponding with India’s natural resource endowment and to support Indian brands of food products in the international markets, the Central government launched Production Linked Incentive Scheme for Food Processing Industry (PLISFPI) in 2021. It is to be implemented for a period of seven years till 2026-27.
Under the PLISFPI scheme, nearly 158 applications have been approved for availing incentives. As on March 31, 2023, the beneficiaries have invested Rs 7,427.22 crore under the scheme. Incentives worth Rs 517.604 Crore, so far have been disbursed for the Financial Year 2021-22.
The category-II under the PLI scheme is focussed specifically on Innovative and Organic products and is exclusively for eligible MSMEs (Micro, Small & Medium Enterprises). About 16 applications have been selected under the category. Out of the 30 selected applicants, 22 applicants for Millet-based products are MSMEs.
The following table lists some of the leading companies benefitting under the Production Linked Incentive Scheme for Food Processing Industry (PLISFPI)
Beneficiaries of PLISFPI
*RTE/RTC: Ready to Cook/ Ready to Eat
*F&V: Fruits and Vegetables
Source: Ministry of Food Processing Industries (Mofpi)
As India is one of the largest producers of numerous food categories such as Dairy, Cereals, Fruits & Vegetables (F&V), Animal Proteins, Fishes, Spices, Tea, etc., the domestic food processing sector has been recognized as a Special Focus Sector in the National Manufacturing Policy. The sector gives employment to maximum number of people with 20.05 lakhs consisting 12.32 % of the total employment share. Some of the major growth drivers of the domestic food processing industry in India include:
Government has also launched the Platform of Platforms (POP) under the National Agriculture Market (e-NAM). This will increase farmers’ digital access to multiple markets, buyers and service providers and bring transparency in business transactions, aimed at improving price search mechanism and quality.
Several factors instrumental in driving the growth of domestic food processing industry are working in tandem. Major factors like the changing consumer needs, the government’s focus, developing infrastructure, and improvements in agriculture are fuelling the growth in food processing sector.
By 2030, India’s household consumption is expected to quadruple, making it the 5th largest consumer market in the world. Moreover, with the surge in the size of the Indian middle class and the rising women workforce, the demand for processed food is climbing up. The steady growth in organized retail and a sharp rise in online retail are expected to further push the growth of the industry.
In the coming years, the Tier-II and Tier-III cities are being expected to mirror the trend of consuming more processed food, currently visible in metropolitan cities. The domestic as well as international players have identified this potential and are gearing up for the exemplary upcoming change priming the sector for strong and sustained growth.
In order to achieve the vision of the government to double the share of food processing in GDP, we need to urgently strengthen end-to-end linkages and expand the sector’s share in eastern and northeastern regions (currently it is strongly concentrated in the northern and western regions). The sector desperately needs a strong infusion of food processing technology as well as the utilisation of modern technologies like AI, IoT and blockchain to improve efficiencies and reduce wastage.
Exports act as a strong incentive for growth, and India’s share in global imports of processed food are way too low compared to its potential. Despite being the second largest agri producer, India ranks 16th in the exports of processed food products, as shown in the graph above. This clearly shows huge untapped potential. Trade fairs like Indusfood play an exemplary role in exposing global buyers to Indian processed food exporters in a convenient and outcome-oriented fashion. It is especially encouraging to startups and MSMEs who lack the wherewithal to take their products and engage with buyers in key destination markets despite their strong product range. Indian processed food products need to be promoted aggressively in target markets in order to boost their exports through such focussed B2B events and branding activities, which will encourage further enhancement of food processing capacities within the country. Besides, going global will also improve the industry’s competitiveness and ensure greater quality and innovation.
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