Contribution to Economy: Food Processing Industry in India
India’s food processing sector is one of the largest in the world, with its output expected to reach $535 billion by 2025-26. The sector accounts for over 32% of the total food market in India and contributes 12.8% to the country’s Gross Domestic Product.
According to the Annual Survey of Industries (ASI), 2019-20, of the total output of Rs. 898,330,129 lakhs, the food processing industry accounted for 13.84%, ranking first among all sectors. These statistics highlight the importance of the sector in the Indian economy.
In this analytical article, we shall explore the contribution of the sector to the economy in terms of Gross Value Added, Trade, Employment and Demand and Supply.
Gross Value Added
Gross Value Added (GVA) gives the rupee value of goods and services produced in the economy after deducting the costs of inputs and raw materials used.
With data gathered from the Ministry of Food Processing Industries’ (MoFPI) Economic Data Bank, the following analysis gives an insight into the food processing sector in the country. The data are gathered for the years 2012-13 to 2020-21. The following analysis calculates the Annual Average Growth Rate (AAGR). The AAGR reports the mean increase in the value of something on an annualised basis. It is a linear measure that does not consider the effects of compounding.
The above figure shows the annual growth in GVA at constant prices for the Food Processing Industry (FPI) between 2012-13 and 2020-21. The GVA in 2013-14 was Rs. 1.50 lakh crores, indicating a 6.0% growth from Rs. 1.41 lakh crores in 2012-13.
It can be observed that the sector has not experienced linear growth. There was no change in the sector from 2012-12 to 2013-14. Moreover, the sector witnessed the highest growth of 18.22% in GVA in 2018-19. The following financial year, it fell to -4.42%, most likely on account of COVID-19 induced lockdowns. It registered a growth of 4.64% in 2020-21.
Since 2012-13, the sector’s GVA has grown at an Annual Average Growth Rate (AAGR) of 6.94%. Its share in the manufacturing and total GVA has grown at an AAGR of 9.06% and 1.60% respectively.
Trade
India’s export and import basket for the food processing industry comprise a wide range of products. It includes 19 different product categories as defined under the Harmonised System of Nomenclature. These products include meats, dairy produce, coffee, tea, spices, cereals, products of the milling industry, vegetable and other extracts, sugars and sugar confectionery, cocoa and cocoa confectionery, beverages, spirits, among others. It also includes residues and waste from the food industries and animal fodder.
In this section, annual trade data has been analysed, from the year 2012-13 to 2021-22, to calculate the compound annual growth rate (CAGR). An attempt has been made to predict the future value of trade for some consecutive years.
Imports
In 2012-13, the sector imported goods worth $18,780.98 million, with the highest imports in the category, ‘Animal or vegetable fats and oils and their cleavage products’, worth $11,331.21 million. This was followed by ‘Edible vegetables and certain roots and tubers’, valued at $2461.69 million. While products under ‘Meat and edible meat offal.’ were least imported, valued at $2.00 million.
This trend continued till 2021-22, with an exception in the year 2016-17. While ‘Animal or vegetable fats and oils and their cleavage products’ garnered the highest imports, valued at $10,946.32 million, the category that received the least imports was ‘Preparations of meat, fish, molluscs or other’, valued at $2.88 million. Meanwhile, ‘Meat and edible meat offal.’ received imports worth $3.13 million.
In 2021-22, the sector received total imports worth $31,224.00 million, with the highest imports in ‘Animal or vegetable fats and oils and their cleavage products’, valued at $19,354.91 million, and least imports in ‘Meat and edible meat offal.’, valued at $4.12 million.
Since 2012-13, the sector has grown at a Compound Average Growth Rate (CAGR) of 5.21%.
Based on this CAGR, the future value of imports for the years 2022-23, 2023-24, and 2024-25 have been calculated.
In 2022-23, the predicted value of imports is $32,852.28 million. In 2023-24, the predicted value is $34,565.48 million, while in 2024-25, the predicted value rises to $36,368.02 million.
Exports
In 2012-13, the sector exported goods worth $35,898.06 million, with the highest exports in the category, ‘Cereals’, valued at $9,655.41 million. This was followed by Lac, gums, resins and other vegetable saps and extracts’, valued at $4,321.32 million. While products under ‘Cocoa and Cocoa preparations.’ were least exported, valued at $54.03 million. This trend continued for all the years, that is, till 2021-22.
In 2021-22, the sector received total exports worth $46,113.30 million, with ‘Cereals’ being valued at $12,872.74 million, and ‘Meat and edible meat offal.’ being valued at $153.68 million.
Since 2012-13, the sector has grown at a Compound Average Growth Rate (CAGR) of 2.54%.
On the basis of this CAGR, the future value of exports for the years 2022-23, 2023-24, and 2024-25 have been calculated.
In 2022-23, the predicted value of exports is $47,282.64 million. In 2023-24, the predicted value is $48,481.63 million, while in 2024-25, the predicted value rises to $49,711.03 million.
It can be seen from the above discussion that the food processing sector is export oriented. In 2012-13, the sector had a trade surplus of $17,117.08 million. Similarly, in 2021-22, the sector had a trade surplus of $14,889.30 million.
It has been reported that in FY 2022-23, an export target of $23.56 billion has been fixed for the agricultural and processed food products. Of this, $9.59 billion (40%) has already been achieved in the first four months of the current fiscal.
The rise in the export of agricultural and processed food products is the outcome of various initiatives taken for the export promotion of agricultural and processed food products such as organising B2B exhibitions in different countries, exploring new potential markets through product-specific and general marketing campaigns by the active involvement of Indian Embassies.
Employment
The sector is a key contributor to employment generation in India. In August 2022, Minister of State for MoFPI, Shri Prahlad Singh Patel, in a written reply in Lok Sabha, stated that the number of persons engaged in the registered food processing sector increased from 17.73 lakhs in 2014-15 to 20.05 lakhs in 2018-19. Additionally, as per the National Sample Survey, a total of 51.11 lakh persons are engaged in the unregistered/unincorporated food processing sector.
According to the Annual Survey of Industries 2019-20, the food processing sector ranked first in total number of persons engaged, accounting for 11.10%. This amounts to approximately 18.45 lakhs out of a total of 1.66 crore persons. The survey only takes into account the registered manufacturing units.
However, it was recently reported that the sector contributes 12.2% of employment in the registered manufacturing sector. This implies that over the past two years, employment in the registered manufacturing units has increased. However, due to unavailability of recent data on unregistered units, estimates of employment in these units are unknown.
The above estimates suggest that the sector has a large presence of unregistered manufacturing units, which employ more persons as compared to the registered units. Furthermore, it has been estimated that the sector is expected to generate 9 million jobs by 2024.
Market Demand and Supply
Food, in any form, is essential for survival. Therefore, for the sector to become a manufacturing hub in India, it needs to understand the factors that drive demand for food products.
Growth in urban population and rising employment have resulted in consumers living a fast-paced life. To keep up with the demands of every-day life, the population has been demanding processed foods such as ready-to-eat products and snacks. With increasing disposable incomes, the demand for processed foods will further increase.
In the aftermath of the pandemic, consumers have grown extremely conscious of their fitness and health, and demand organic and low preservatives in their food, alongside convenient ready-to-eat products. They are also starting to become conscious of the environment. Thus, food now must be organic, and its packaging must be eco-friendly. This will now be a contributing factor into decision-making for purchase of processed foods.
The presence of a young population has also given rise to demand for trendy foods and different cuisines. Furthermore, the emerging presence of food-delivery services are also contributing to rising demand for processed foods.
From the supply perspective, the sector faces various challenges. Firstly, it has a long and fragmented supply chain which results in wastage and price escalations. This is due to the large presence of the organised players in the market and due to operating commercial viability challenges.
Secondly, inadequate infrastructure further creates constraints in the supply-chain. Lack of core infrastructure like warehousing and public infrastructure like transport connectivity hampers supply in the sector. Moreover, the sector is still in its infancy stage, and therefore has a lot of scope for growth and improvement.
Other issues include lack of research and development, taxation, access to credit, old technologies, etc.
For the sector to flourish, it is necessary that these issues are solved by timely government interventions by means of public and foreign policy. This must be done by keeping in mind the level of contribution the sector makes to the national income of the country. Supply chain optimization is the key to make the sector a manufacturing hub for the world.
Purvi Patil
Ms. Purvi Patil is a Research Assistant at Tatvita. She has pursued her graduation from the Liberal Arts Department of Savitribai Phule Pune University. Her areas of interest include International Relations, Data Protection and Privacy, and Sustainability.
