Food processing sector

  • IASbaba
  • September 13, 2021
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Spotlight Sep 11: Discussion on New strides in Food processing sector



  • GS-3: Food Processing

Food processing sector

Context: India has made vast progress overtime in providing food security for its people and has become largely self-reliant in agriculture. Accordingly, the policy focus has shifted from attaining self-sufficiency to generating higher and stable income for the farming population. Food processing industry (FPI) is one area which has the potential to add value to farm output, create alternate employment opportunities, improve exports and strengthen the domestic supply chain. 

  • India, with about 11.2 per cent of total arable land in the world, is ranked first in the production of milk, pulses and jute, second in fruits and vegetables and third in cereals (Government of India, 2019). 
  • It is also the sixth largest food and grocery market in the world.
  • Food & Grocery retail market in India further constitutes almost 65% of the total retail market in India. By 2025, India’s food processing industry is expected to be worth over half a trillion dollars.
  • Through the Ministry of Food Processing Industries (MoFPI), the Government of India is taking all necessary steps to boost investments in the food processing industry in India. The government has sanctioned 41 food parks funded under the Mega Food Parks Scheme of which 38 have final approval; 22 are operational as of 1 August 2021. 

Potential of Food processing industry in India 

The importance of post-harvest management is that it has the capability to meet food requirements of a growing population by eliminating losses, making more nutritious food items from raw commodities, i.e., fruits and vegetables, and by proper processing and fortification.

  • Employment Generation: It provides direct and indirect employment opportunities, because it acts as a bridge between Agriculture and Manufacturing.
  • Doubling of farmers’ income: With the rise in demand for agri-products there will be commensurate rise in the price paid to the farmer, thereby increasing the income.
  • Reduce malnutrition: Processed foods when fortified with vitamins and minerals can reduce the nutritional gap in the population.
  • Reduce food wastage: UN estimates that 40% of production is wasted. Similarly, NITI Aayog estimated annual post-harvest losses of close to Rs 90,000 crore. With greater thrust on proper sorting and grading close to the farm gate, and diverting extra produce to FPI, this wastage could also be reduced, leading to better price realisation for farmers.
  • Boosts Trade and Earns Foreign exchange: It is an important source of foreign exchange. For e.g. Indian Basmati rice is in great demand in Middle Eastern countries.
  • Curbing Migration: Food Processing being a labour intensive industry will provide localized employment opportunities and thus will reduce the push factor in source regions of migration.
  • Curbing Food Inflation: Processing increases the shelf life of the food thus keeping supplies in tune with the demand thereby controlling food-inflation. For e.g. Frozen Safal peas are available throughout the year.
  • Crop-diversification: Food processing will require different types of inputs thus creating an incentive for the farmer to grow and diversify crops.
  • Preserve the nutritive quality of food and prolongs the shelf life by preventing them from spoilage due to microbes and other spoilage agents,
  • Enhances the quality and taste of food thereby bringing more choices in food basket
  • Enhances consumer choices: Today, food processing allows food from other parts of the world to be transported to our local market and vice versa.

Challenges Faced by Food Processing Industry in India

Supply and Demand Side Bottlenecks

  • Small and dispersed marketable surplus due to fragmented holdings, low farm productivity due to lack of mechanization, high seasonality, perishability and lack of proper intermediation (supply chain) result in lack of availability of raw material. This in turn, impedes food processing and its exports.
  • Demand of processed food is mainly restricted to urban areas of India.

Infrastructure Bottlenecks

  • More than 30% of the produce from farm gate is lost due to inadequate cold chain infrastructure.
  • The NITI Aayog cited a study that estimated annual post-harvest losses close to Rs 90,000 crore.
  • Lack of all weather roads and connectivity make supply erratic.

Informalization in Food Processing Industry

  • The food processing industry has a high concentration of unorganised segments, representing almost 75% across all product categories. Thus, causes the inefficiencies in the existing production system.

Deficiencies in the Regulatory Environment:

  • There are numerous laws, under the jurisdiction of different ministries and departments, which govern food safety and packaging.
  • The multiplicity of legislation and administrative delays leads to contradictions in food safety specifications and guidelines.

Low-Value Exports: 

  • Further, most processing in India can be classified as primary processing, which has lower value-addition compared to secondary processing.
  • Due to this, despite India being one of the largest producers of agricultural commodities in the world, agricultural exports as a share of GDP are fairly low in India relative to the rest of the world.
  • The same proportion is around 4% for Brazil, 7% for Argentina, 9% for Thailand, while for India it is just 2%.

Besides these, issues like mounting cost of finance, lack of skilled and trained manpower, inadequate quality control and packaging units and high taxes and duties, thwart development of FPI.

The new strides to further boost the sector:

India cannot afford any wastage of food, according to FAO; every third malnourished child is an Indian. Several measures have been taken by the Indian government like National Food Security Act, 2013 and India Food Banking network. However, with the rapid increase in the population, it is of essence for the Indian government to improve the measures for preventing wastage of food.The cooperatives sector can help to decrease this wastage.

  • There is a need for an integrated approach with a focus on forging backward and forward linkages, which are crucial for scaling up the economic viability of the sector.
  • The regulatory framework for contract and corporate farming needs to be developed in this regard. Model land leasing law developed by NITI Aayog is a step in the right direction that needs to be implemented by states with suitable local adaptations and modifications.
  • Promote the holistic development of the sector by increasing private sector participation with a well-developed framework for risk-sharing and fiscal incentives for creating infrastructure for logistics, storage, and processing. There is a need for modification in the Mega food park scheme for first-time entrepreneurs as the current cap of ten crores credit is not sufficient and has to be enhanced for the high-cost adoption of technology and enhancement of scale.
  • The implementation architecture needs to be simplified for a complete overhaul of certifying and approval procedures. There is a crying need to get a single window scheme for the same.
  • Ensure uniform implementation of the APMC act to increase private sector participation and also harmonisation of tax structure under GST to reduce vast fluctuations in price.
  • There is also an urgent need to improve research and development (R&D) standards. This will meet stringent global standards and increase the scope for exports. The globalisation has increased trade across the borders and about 460 million tons of food valued at US$ 3 billion is traded annually. Hence, India has immense potential for global trade in agricultural and processed food products. The share of food processing exports in total exports was about 12% during the last few years. Between 2011 and 2015, India s exports of processed food products have been growing at a compounded annual growth rate (CAGR) of 23.3%. These figures reinforce the fact that India can capitalise on the export potential of the food processing sector in the forthcoming years.
  • There is also a need to encourage academia and industry to commence courses in food packing, processing, biotechnology, information technology so that there would be a constant supply of skilled manpower and also help India achieve global excellence in the food processing sector.

Can you answer?

  1. Integration of food processing into the agricultural production cycle will help achieve the target of doubling farmers’ income. Do you agree? Substantiate.

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