Food Processing Industry in Indiaby Udit Jain on June 18, 2007
Food Processing Industry in India
Food processing industries have a crucial role to play in value addition to the agriculture, increase the shelf life and also in the reduction of post-harvest losses. The most important point in the food industry is that a substantial portion being rural based it has a very high employment potential with significantly lower investment. The fruits and vegetables farming for processing is not only employment intensive but also enhances the gross as well as net returns of the farmers (Rao 1994;9 Acharya 1997;10 Dileep et al 200211). Agro-industry also generates new demand on the farm sector for more and different agricultural output, which are more suitable for processing (Srivastava 198912). On the other hand, the development of these industries would relax wage goods constraint to economic growth by enhancing the supply of their products (Desai and Namboodiri 199213).
Food Processing Industry has enormous significance for India’s development for the vital linkages and synergies it supports between industry and agriculture – the two pillars of economy. While agriculture sector in India contributes one fourth of country’s GDP and provides employment to approximately two thirds of the population, today the food processing industry (FPI) alone accounts for 6 percent of the GDP. The quantity of processed food produced in the country is under 1.6 percent while in countries such as Thailand, Malaysia and Brazil it is 65-75 percent. India’s fast growing consumer markets are slated to include 500 million consumers by 2010, with the FPI expected to treble from 6 to 20 percent with its share in the global agro-trade expected to rise to 3 percent. So far, between August 1991 and January 2006 cumulative FDI in food processing has been of the order of 1,177 million US dollars, representing only 3.6 percent of the total FDI inflow. With liberalization of trade in the post – WTO regime, India has the opportunity to export agricultural and food products to the world. Over the last decade food processing has grown at a rate of 7.1 percent per annum.14 The sector has great potential for employment generation, both direct and indirect, across the supply chain in production of raw materials, storage of produce and finished products and distribution of food products to consumers, besides enhancing the shelf life of agricultural products and reducing wastages. The chain of intermediaries in the marketing of fruits and vegetables is very long and this leads to very small fraction of every rupee of profit to the farmer (World Bank 2003;15 Pingali and Khwaja 200416).
A combination of reasons, such as high taxation levels, infrastructural inadequacies, long and fragmented supply chain, regulatory distortions, multiplicity of laws including some antiquated ones, poor scale economies and retarded flow of credit for the sector, has stymied the natural and healthy expansion of the food processing industries. In India, due to a variety of factors, processed food prices are substantially higher than fresh food. There is an urgent need to take measures to reduce costs, and make processed food affordable. Lack of continuous availability of raw material remains a critical area of concern for the sector. In the horticulture sector itself there are huge post harvest annual losses of around 30-40 percent of the produce (about Rs. 50 000 Crore). Closer interface between research institutions and the farmers, through aligned responsibilities, is essential for effectively tackling location-specific pre-harvest management requirements of various crops in varied agro-climatic conditions.