Mains Marathon

Approach

• Define the term food processing and related industries and give some examples of the segments involved.
• Highlight the performance and prospects of food processing and related industries in India and mention the major constraints and challenges faced by this sector.
• Also, suggest some measures or recommendations to overcome these challenges.
• Conclude with a summary of the main points and a positive outlook.

Answer:

Food processing is the transformation of raw ingredients into food, or of food into other forms, such as by adding value, increasing shelf life, enhancing nutrition or improving taste. Food processing and related industries in India include segments such as cereal/pulse milling, fruit & vegetable processing, milk products, beverages, fish, poultry & eggs, meat products, soft drinks, beer/alcoholic beverages, bread, biscuits & other bakery products.

Performance and prospects of food processing and related industries in India:

Performance:

• The food processing industry in India is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.
• The food processing industry accounts for 32% of the country’s total food market, 8.80% of Gross Value Added (GVA) in Manufacturing and 8.39% of GVA in Agriculture.
• The food processing industry contributes around 13% of India’s exports and 6% of total industrial investment.
• The FDI equity inflow in the Food Processing Sector for the period of April 2021-March 2022 was USD 709.72 million.
  • The total FDI received in the food processing sector since April 2000 till March 2022 was USD 11.08 billion.
• India is the second largest producer of fruits and vegetables in the world with around 12% of the global production.

Prospects:

• The Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the sales.
• The industry is expected to grow at a CAGR of 15% to reach USD 535 billion by 2025.
• India has a large domestic market with a population of over 1.3 billion and a growing middle class with rising disposable income and changing consumption patterns.
• India has a diverse agro-climatic zone that enables cultivation of a variety of crops and livestock.
• India has a low cost of production and availability of skilled labour force that can support the food processing industry.
• India has a favourable policy environment that provides incentives and support for the development of food processing and related industries.

Constraints and challenges faced by this sector:

• 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.

Way Forward

• Adopt a Hand-Holding Approach
  • Government should adopt a hand-holding approach by establishing risk sharing mechanisms, fiscal incentives and partnership models for creation of infrastructure for logistics, storage and processing.
  • In this context, the government has launched the Pradhan Mantri Kisan Sampada Yojana, aimed at bridging the infrastructure gap.
  • Also, 100% foreign direct investment in food processing units has been allowed.
• Streamlining the Regulatory Structure: There is a need to foster development of backward linkages crucial for securing scale and economic viability by evolving conducive regulatory framework for contract and corporate farming and encouraging commodity clusters and intensive livestock rearing.
  • The Strategy for New India @ 75 recommends that states take the lead in passing Model Contract Farming Act, 2018.
  • Remove impediments of multiple departments and laws in seeking approvals by bringing them under a single window.
  • Ensure proper agricultural marketing reforms e.g., by uniform implementation of the APMC act.
• Human Resource Development
  • Skilling is required at two levels. First at the farm gate in promoting agricultural best practices and second, in processing activities.
  • The National Skill Development Corporation (NSDC) estimated the need to skill 17.8 million persons in the food processing industry by 2022.
  • In this pursuit, industry, academia and government should put in combined efforts for development of specialized institutes and courses in food packaging, processing, biotechnology, and such allied fields.
• Promoting Village-Level Procurement: The NITI Aayog, in the Strategy for New India @ 75 document, recommended village-level procurement centres for perishables such as fruits, vegetables and dairy.
  • In this context, the upgrading of 22,000 rural haats into Gramin Agriculture Markets (GrAMS), announced in the 2018-19 Budget, was a step in the right direction.

The need today is to treat food processing as part of the overall food sector and provide all the facilities, exemptions, and concessions as available to agriculture and related activities. Food processing industry will not only serve the nutritional needs of New India, but it will also act as an important link in doubling the farmer’s income.