Food Processing Industry in India Scope and Significance
FOOD PROCESSING IN INDIA
Do You Know?
“Had Our Processing System been robust, this photograph would not have been clicked”
CONTENTS
- Basics of Food Processing
- Food processing and related industries in India
- Scope and significance
- Bottlenecks
- Strategy and Policy
- Recent Government Schemes
- Location
- Upstream and downstream requirements
- Supply chain management
Introduction
As per NITI Aayog India Action Agenda
The food processing sector contributed 1.6% of India’s GDP in 2014-15. It made up 10.12% of GDP attributable to agriculture and 9% of manufacturing GDP during the same year”. Between 2011-12 and 2014-15, the food-processing sector grew at an annual average growth rate of 2.3 %, relative to the 1.7% growth rate in the agriculture sector. The sector is an important source of direct and indirect employment, accounting for 11.95% of formal employment in 2012-13″. Food processing industries cover a wide array of activities ranging from traditional agro-based industries such as rice and flourmills to the processing of tea and coffee to the dairy industry.
Definition
Food processing is the transformation of agricultural products into food, or of one form of food into other forms.
FORMULA
Food Processing = Transformation + Value Addition
Types
Structure of Food Processing Industry in India
- Food processing sector in India is a composite sector comprising two broad segments viz. organized and unorganized segments.
- There are an estimated 25-lakh micro food processing enterprises in the country, which are unorganized and unregistered. With 7% of investment in plant & machinery, the unorganized enterprises contribute of 74.3% of employment (a third of which are women), 12% of output and 27% of value addition in the food-processing sector. Nearly 66 per cent of these units are located in rural areas and about 80 per cent of them are family-based enterprises.
So Now You can understand,
“The Importance of this Sunrise Industry in uplifting the unorganized sector”
- The organized sector5 with nearly 40,000 units accounts for 93% of the plant & machinery in the sector, in value terms. This segment accounts for 26% of employment and contributes around 90% of output and 72% GVA
Practice Question:
With reference to food Processing Consider, which one of the following is correct?
- Beverages like wine and beer are secondary processed food
- Ready-to-eat foods are Tertiary processed food
Select the right answer using the code given below
a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 and 2
What are all the Propellers for Food Processing Industry in India?
“India despite being one of the major food producing country, ranks 12 in the export of food products”
Contradiction?
Let us discuss factors, which can change this contradiction into Proposition
Propellers – Tapping the Untapped Potential
I. Social Factors
- Urbanization: The total urban population in the country as per Census 2011 is more than 377 million constituting 31.16% of the total population. In coming days the share of urban India will grow which has high demand for processed food, this urban demand will act as a propeller for emerging industry.
- Changing Consumer Preference: There is a huge transformation in the lifestyle of consumers due to increase in disposable income and information available due to rapid evolution of the social media. Due to changing lifestyle and work culture, we also see a change in trends in consumption patterns. There is demand for not only processed food but value added healthy processed food.
- Growing Working Class: With education level growing year upon year, there is growth in working class too specially in metropolitan cities contributing to demand for processed food.
Note: Economic,Technological and Environmental Propellers will be discussed along with strategy and Policy Initiatives (Just keep the points in mind as mentioned in diagram above)
Scope& significance of Food Processing Industry
Scope of any subject can be viewed from two angles
- Its Importance to society and Economy
- Its ambit or coverage in different strata or sector
Significance of Food Processing Industry
Bottle Necks in Growth of FPI
So broadly, Problems can be divided into four broad categories – 4P Matrix
- Lack of efficient supply chain infrastructure and inadequate expansion of processing and storage capacity commensurate with agriculture production have been identified as the main reasons for higher wastages, higher cost of production, lower value addition in food processing sector.
- Perishable commodities Meat, Fish and Fruits & Vegetables, in particular, have recorded higher degree of wastage and have a negligible share in food output. Minimization of losses in perishable segment would require huge investment in farm gate infrastructure, storage & cold chain infrastructure and expansion of processing capacities.
- Lower Value addition – India despite being one of the major producer of agri-commodities, the level of food processing and value addition continues to remain low affecting our competitiveness & export performance and income of farmers.
- Significant gap in Cold Chain capacity is one of the important reasons for higher wastage of agri produce particularly perishable segments. Cold Chain infrastructure involves heavy investment with long payback period which is beyond the capacity of individual food processors.
- Inadequate production and availability of processable variety of raw material is a major area of concern, which arises due to inadequate emphasis on developing appropriate varieties and extension activities.
- Inadequate linkage of processors, exporters and bulk purchasers with farmers resulting in mismatch between the requirements of industry and supply of agri-produce by the farmers. The problem is often compounded by legal provisions relating to restrictions on commodity storage and movement.
- Lack of awareness:Processors face difficulty in availing benefits under schemes being implemented by different agencies of central and state governments in the absence of exclusive supportive forum at the state level. Lack of awareness and absence of appropriate knowledge sharing & guidance forum adds to their problem.
- Poor Credit Facility –Food processing units, largely operating in MSME segment, face problem in their access to bank credit due to seasonal and perishable nature of the commodities handled by these units. High cost and inadequate credit do not attract prospective entrepreneurs choosing food processing sector for investment.
- Bureaucracy – Multiple clearances are required for setting up of food processing units. The small processors are also required to go through the same processes as is applicable to larger units. Availing permission for Change in Land Use (CLU), environmental clearance, water and power connections are not only time consuming but also costly.
- Labour Laws – Food processing units are required to comply with labour laws in relation to lay-off, retrenchment and closure even though these units run seasonally. Further, payment of minimum charges for electricity even though units run for few months in a year, adversely affects the commercial viability of the processing units.
- Marketing of processed food is a major problem faced by food processors particularly the micro and small processors. Given the scale of operation, individual units are unable to invest in marketing and branding impacting performance of the sector.
- Sector specific Entrepreneurship Development training and Incubation Services are weak areas inhibiting growth of the sector.
- Co-ordination – A number of research institutes are undertaking R&D for product, process, and technology improvement & development. There is a need for coordinated action on research and dissemination of research output to the industry.
- GHP & GMP -Lack of adequate emphasis on food safety along the food value chain to promote Good Hygiene Practice (GHP), Good Manufacturing Practice (GMP) to maintain standards of food quality. Moreover, food testing, quality certification and safety issues are other weak areas which needs priority attention
- Food safety culture –While awareness of food safety is rising, especially among the educated in cities, the population at large remains ignorant about basic food safety issues such as common adulterants in food, checking the freshness of food products etc. For this, large-scale behavioural change communication programmes are required to educate citizens about basic food safety issues so that they can take responsibility for their own health, create a ‘food safety culture’ and act as a check on the food processing industry for better adherence to standards
Strategy to overcome the Bottle Necks
Strategy as suggested by Draft National Policy on Food Processing 2019 are
- Promotion of cluster approach as the key strategy for intervention in the food processing sector with emphasis on strengthening and creation of integrated supply chain infrastructure to minimize wastages;
- Incentivize expansion of capacity and upgradation of technology for processing and preservation particularly for perishables;
- Increase access to institutional credit at affordable cost for financing investment in fixed and working capital in food processing sector;
- Promoting employment by incentivizing FPOs to engage in Agri-business and food processing and empowering farmers graduating to agrientrepreneurs;
- Supporting unorganized food processing units to improve their competitiveness and upward movement to organized segment;
- Support for R&D activities in products & processes, facilitate dissemination of latest innovation & technology for adoption, promoting best practices in food production, processing, packaging, storage and transportation, strengthening India’s USP in traditional food;
- Strengthening of Institution operating in food processing segment for advancement of learning, dissemination of knowledge, entrepreneurship and skill training to meet the growing demand of the sector;
- Creating awareness on food quality & safety, training manpower for ensuring regulatory compliance, promoting voluntary compliance to regulatory standards through regime of self-certification and self-regulation;
- Undertaking institutional reforms for ensuring smooth supply of agro-raw material to the processing industry;
- Accelerate investment in food processing sector through collaboration between GOI, State Governments and other stake holders;
- Encourage separate single window clearance desk at Department of Food Processing at the state level to handle all matters related to food processing with Ministry of Food Processing in the Government of India as the nodal agency for extending support, guidance and filling critical gaps for attracting investments and rapid expansion of the sector.
Policy Intervention to overcome Bottle Necks
Important Schemes in News
a. PM- KrishiSampada Scheme– The main objective of this Scheme is creation of processing and preservation capacities and modernization / expansion of existing food processing units with a view to increasing the level of processing, value addition leading to reduction of wastage.
Components under SAMPADA Yojna
b. Mega Food Park: Mega Food Parks Schemelaunchedby the government in 2008 provides financial assistance upto 50 crores to setup modern infrastructure facilities for food processing called Mega Food Parks. The primary objective of the Scheme is to provide modern infrastructure facilities for the food processing along the value chain from the farm to the market with a cluster based approach based on a hub and spokes model. It includes the creation of infrastructure for primary processing and storage near the farm in the form of Primary Processing Centres (PPCs) and Collection Centres (CCs) and common facilities and enabling infrastructure like roads, electricity, water, ETP facilities etc. at Central Processing Centre (CPC). These PPCs and CCs act as aggregation and storage points to feed raw material to the food processing units located in the CPC. The Mega Food Park project is implemented by a Special Purpose Vehicle (SPV), which is a Body Corporate, registered under the Companies Act.
c. Operation Greens
- In the budget speech of 2018-19, a new Scheme “Operation Greens” was announced on the line of “Operation Flood”, with an outlay of Rs. 500 crore to promote Farmer Producers Organizations, agri-logistics, processing facilities and professional management.
- Operation Greens seeks to stabilize the supply of Tomato, Onion and Potato (TOP) crops and to ensure availability of TOP crops throughout the country round the year without price volatility.
- The scheme was extended during June 2020 to cover all fruits & vegetables (TOPS TO TOTAL) for a period of six months on pilot basis as part of Aatmanirbhar Bharat Abhiyan.
- The Ministry of Food Processing Industries has launched the scheme. NAFED will be the Nodal Agency to implement price stabilisation measures.
The strategy will comprise of a series of measures as decided by the Ministry which include:
- Short term Price Stabilisation Measures: MoFPI will provide 50% of the subsidy on the following two components:
- Transportation of Tomato Onion Potato(TOP) Crops from production to storage;
- Hiring of appropriate storage facilities for TOP Crops;
- Long Term Integrated value chain development projects
- Capacity Building of FPOs & their consortium
- Quality production
- Post-harvest processing facilities
- Agri-Logistics
- Marketing / Consumption Points
- Creation and Management of e-platform for demand and supply management of TOP Crops.
d. Gram Samriddhi Yojna
- India’s food processing ministry is working on a new scheme — Gram SamridhiYojana — to bolster the unorganised food processing sector concentrated in rural areas, an official said. About 66% of unorganised food processing units are in rural areas and of these, 80% were family run.
- The Rs 3,000 crore scheme funded by the World Bank and the centre will help cottage industry, farmer producers’ organisation and individual food processors to increase capacity, upgrade technology besides skill improvement, entrepreneurship development and strengthening the farm-to market supply chain.
e. Agri Export Policy 2018
Major Objectives Depicted in Figure
Modus Operandi for AEP 2018 – As presented in table
f. Scheme for Formalization of Micro food processing Enterprises (FME) is for the Unorganized Sector on All India basis with an outlay of Rs.10,000 crore. The expenditure will be shared by GOI and the States in ratio of 60:40. Scheme will be implemented over a 5 year period from 2020-21 to 2024-25.
Support to Individual micro units:
- Micro enterprises will get credit linked subsidy @ 35% of the eligible project cost with ceiling of Rs.10 lakh.
- Beneficiary contribution will be minimum 10% and balance from loan.
- On-site skill training & Handholding for DPR and technical upgradation.
Support to FPOs/SHGs/Cooperatives:
- Seed capital will be given to SHGs (@Rs. 4 lakh per SHG) for loan to members for working capital and small tools.
- Grant for backward/ forward linkages, common infrastructure, packaging, marketing & branding.
- Skill training & Handholding support.
- Credit linked capital subsidy.
g. Draft National Food Processing Policy -2019
The Ministry of Food Processing Industries released the Draft National Food Processing Policy, 2019 for public comments.
Aims
- The draft policy aims for the development of the food processing sector and addressing the critical gaps hampering its growth.
- It also aims to increase investment in the sector by six-fold by 2035.
Objectives
- Reducing wastage at the farmer level to increase their incomes
- Supporting the food processing industry to create employment opportunities
- Ensuring a higher deployment of credit in the sector
- Enhancing the availability of safer, affordable, and higher quality food products for consumer, and
- Infrastructure and skill-building to meet the demands of the sector.
Important Institutes Helping in Evolution of FPI
Important Institutes related to technology improvement and R & D in Food Processing Sector
Location of Food Processing Industries
Any Industry is dependent upon following factors listed
Location of Mega Food Parks In India
Supply Chain Management
A supply chain is an entire system of producing and delivering a product or service, from the very beginning stage of sourcing the raw materials to the final delivery of the product or service to end-users. The supply chain lays out all aspects of the production process, including the activities involved at each stage, information that is being communicated, natural resources that are transformed into useful materials, human resources, and other components that go into the finished product or service.
UPSTREAM AND DOWNSTREAM
Means From where & how material reaches processing plant and after processing how it reaches to last customer
SOURCE TO SINK Concept
Supply Chain of AMUL
How it is different from Value Chain ?
WAYFORWARD
Food Processing – “A Mantra for Equitable Growth”
The food processing industry in India is increasingly seen as a potential source for driving the rural economy as it brings about synergy between the consumer, industry and the farmer. It will act as an engine for propelling the dream of Doubling farmers Income. Rightly said by Mahatma Gandhi “The future of India lies in its villages” and we have to carefully nurture future of India by nurturing important Rural and agro based Industries like Food processing units which has immense potential in coming days.
Practice Question
Q. Elaborate on the Policy taken by the Government of India to meet Challenges of the food Processing [UPSC-2019, 250 Words]
Approach:
This should be your approach to answering the UPSC GS3 Mains question
One thing keep in mind Question specifically asked about Policy of government, so do not blindly write only about schemes. Policy is basically an approach to achieve an aim. It is bigger in score than schemes. Schemes are sub set of policy
Introduction: About Food Processing significance and some of the bottlenecks faced by this industry as question asks about steps taken by government, if something lags behind then policy initiatives are taken. So in introduction set a background for problems.
Body: Once background is set in intro, explain the policies as given in table above
Conclude: On a positive note how this sunrise industry is growing and it’s potential in coming years
Q. What are the reasons for poor acceptance of cost-effective small processing unit? How the food processing unit will be helpful to uplift the socio-economic status of poor farmers? [UPSC-2017, 250 Words]
Approach:
The question demands you to list the reasons for poor acceptance of small processing units.
These reasons are already discussed in the notes above. These can be
- Poor quality
- Hygiene standards
- Lack of branding
- Lack of marketing channels
The second part of the question has been beautifully explained in the notes
Can be answered easily with points discussed in Notes.
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INPUTS FROM
Sangeet Sir
Bsc & Msc Agriculture Gold Medalist