Introduction: Food Processing Industry in India
Food is an indispensable part of life. In today’s fast-moving world, we like our food to be ‘fast’ as well. This means consumption of ready-to-eat meals like ‘2-minute noodles’ or ready-to-cook products like fries or simply processed meats. It is the “instant” tag that attracts people. According to a study published in BMC Public Health, processed food makes up about 10% of the average total caloric intake in both rural and urban India.
India is a major producer of food in the world, with a large and growing market. The food and grocery retail market was valued at $11.3 trillion in 2021 and is also among the largest in the global economy. The food processing industry is among the largest in India, in terms of growth, production, consumption, and exports. According to the Agricultural and Processed Food Products Export Development Authority (APEDA), the sector is forecasted to grow at a compound annual growth rate (CAGR) of 3% between 2022 and 2030. The sector is primarily export oriented. India’s geographical situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan, Singapore, Thailand, Malaysia, and Korea.
India has a competitive advantage in terms of resource endowment, presence of a large domestic market and has a scope for promoting value added products. Despite its accolades, the sector is deemed to be non-competitive on account of factors like poor quality and high cost of marketing channels. Tackling this non-competitiveness requires massive investments in infrastructure, technology upgradation, research and development (R&D) among others.
Against this backdrop, the Production Linked Incentive Scheme for Food Processing Industry (PLISFI) was launched in 2021 to support the creation of global food manufacturing champions. The scheme will help companies in improving their competitive strength in terms of scale of output, productivity, value addition and their linkages with the global value chain.
Processed Foods in India
A wide variety of food products are processed and manufactured in India. This wide variety includes fruits and vegetables, spices, meat and poultry, milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, beverages, among others.
Major sectors constituting the food processing industry in India are grains, sugar, edible oils, beverages, and dairy products. India ranks first in the production of milk, spices and livestock, and second in the production of food, vegetables, fruits and fish.
Under PLISFI, four major food product segments have been targeted for increased production. These segments are:
- Ready-to-Cook and Ready-to-Eat foods
- Processed Fruits and Vegetables
- Marine Products
- Mozzarella Cheese
Apart from these, innovative and organic products of SMEs including Free Range Eggs, Poultry Meat, Egg Products in these segments are also covered.
National Industrial Classification of Processed Food
The National Industrial Classification Code (NIC Code) is a statistical standard for developing and maintaining a comparable database for various economic activities. It has been developed to ascertain and analyse how much economic activity contributes towards national wealth. For the food processing industry, there are two main divisions in the NIC Code, Division 10 – Manufacturing of Food Products and Division 11 – Manufacture of Beverages.
Division 10 includes the processing of the products of agriculture, forestry, and fishing into food for humans or animals, and includes the production of various intermediate products that are not directly food products. This division is organised by activities dealing with different kinds of products like meat, fish, fruit and vegetables, fats and oils, milk products, grain mill products, animal feeds, and other food products. There are eight groups (Groups 101 – 108) under this division, however, for the purpose of limiting food processing to human consumption, only seven groups have been taken into consideration (Groups 101 – 107). Group 108 deals with manufacture of prepared animal feeds.
Division 11 includes the manufacture of beverages such as non-alcoholic beverages and mineral water, manufacture of alcoholic beverages mainly through fermentation, beer and wine, and the manufacture of distilled alcoholic beverages. There is only one group under this division, Group 110.
States Manufacturing Processed Food
Food processing is an ancient practice. With recent technological upgradation and innovation, the sector has scaled to the extent that it has become export oriented. It has been reported that India created history in agricultural and processed food exports by exporting products worth $25.6 billion. This accounted for around 51% of India’s total agricultural goods exports of over $50 billion. Therefore, it is crucial to understand where these products are manufactured. In this section, we shall explore the different states that are proactive in manufacturing these products.
The following analysis has been done using data from the Annual Survey of Industries, 2019-20. The report presents data on different sectors based on their NIC Codes.
To find out the states that are proficient in the manufacturing of processed food, the variables chosen are ‘Number of Factories in Operation’ and the ‘Total Output (in Rs. Lakhs)’. The NIC Group Codes range from 101 to 107 and 110 (as discussed in the previous section). The analysis attempts to find out the leading states in manufacturing of processed food.
The above table shows the result of the analysis. It can be observed that for the given NIC Codes, the States proactive in manufacturing of Processed Foods are Andhra Pradesh, Tamil Nadu, Gujarat and Uttar Pradesh. The ‘Number of Factories in Operation’ column shows the highest number of factories among all manufacturing states.
It is note-worthy to observe that only the states of Andhra Pradesh and Tamil Nadu have over 1000 factories in operation for Groups 106 and 107 respectively, with a Total Output of Rs. 2,363,561 lakhs and Rs. 2,125,593 lakhs respectively. For Group 106, it was also found that Tamil Nadu ranked second with 1727 factories in operation having a total output of Rs. 1,708,981 lakhs.
Other prominent states include Maharashtra and Karnataka. Maharashtra has a total of 2135 factories in Groups 103 to 107 and 110, with an average total output of Rs. 2,647,159.50 lakhs. Lastly, Karnataka has a total of 1941 factories in Groups 103 to 107 and 110, with an average total output of Rs. 1,502,434.50 lakhs.
Raw Materials Necessary for Production
The food processing industry highly depends on natural produce. The kind of raw material required depends on the nature of the processed food. These raw materials range from fresh fruits and vegetables, raw meats, eggs, grains, nuts, seeds, milk, among others. These are basic raw materials which are used in the production processes to manufacture different types of processed foods.
Additionally, to maintain and preserve the quality of food and its shelf life, preservatives are added to them. Preservatives are chemical substances that are added to food to help prevent spoiling, improve appearance, and maintain the food’s nutritional quality. Some preservatives come from natural sources like salt, sugar, vinegar, and citrus juice. Other preservatives are synthetic in nature, that is, they are human made. Products like biscuits, cereals, breads, snacks, ready-to-eat meals, cheese, yoghurt, deli meats, sauces contain preservatives. Some common preservatives are Benzoic acid, Calcium Sorbate, Erythorbic Acid, Potassium Nitrate, Sodium Benzoate. Sometimes, Antioxidants can also be used as preservatives.
Infrastructure Required for Production
Infrastructure is important for production of any commodity. Specific to food processing, there are three types of infrastructure which are needed for manufacturing of processed foods. These are enlisted below.
- Public Infrastructure like roads, water supply, power supply, drainage, effluent treatment plant, etc.
- Core Infrastructure like warehouses, cold storages, irradiation facilities, food testing and analysis labs, value added centres, individual quick freezing, tetra pack, sorting, grading, etc.
- Common Supply-chain infrastructure like cold chain, dry storage, packaging, logistics, back and front-end infrastructure, expansion of processing capacities.
Currently, there is a lack of suitable infrastructure in the shape of cold chain, packaging centres, value added centres, modernised abattoirs, etc. To improve manufacturing capabilities, huge investments will be required, specifically in core infrastructure and common-supply chain infrastructure. The PLISFI, along with providing financial incentives, calls for investments by companies in the sector in these areas.
Challenges Faced by the Sector
According to the Ministry of Food Processing Industries, the sector faces six main challenges. These are:
- Gaps in supply chain infrastructure (i.e., lack of primary processing, storage and distribution facilities);
- Inadequate links between production and processing.
- Seasonality of operations and low-capacity utilisations.
- Institutional gaps in supply chain, namely, dependence on Agricultural Produce Market Committee markets, etc.
- Inadequate focus on quality and safety standards; and
- Lack of product development and innovation.
To tackle these challenges, the Ministry’s focus has been on smoothening the supply chain by creating infrastructure, promoting exports, improving quality standards, expanding supply of formal credit, particularly to small and medium enterprises, and broadening the skilled labour pool in the economy.
The above discussion demonstrated that the Indian food processing industry has the potential to become a leading global manufacturer. For the realisation of this dream, massive investments will be required, especially in infrastructure and research and development.
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.
