Food Processing Industry in India – Overview & Opportunities

The Food Processing Industry refers to various techniques and operations by which raw foodstuffs are transformed into food that is suitable for consumption, cooking, or storage. It consists of processes like the basic preparation of foods, the alteration of a food product into another form (as in making preserves from fruit), and preservation and packaging techniques. (The official definition  by Data Bank on Economic Parameters of the Food Processing Sector.)

India is the 2nd largest producer of food in the world, and the food processing sector in the country is expected to double in the next decade. The ever-growing consumer demands have opened up huge investment opportunities for foreign and private entities in the food processing and equipment industry.

The areas for growth and expansion in the food-related industry sector are expected in food processing, packaging, canning, refrigeration, thermal processing, and specialty processing.

India ranks 5th in terms of producing, growing, consuming, and exporting. According to the Indian Council of Agricultural Research, this sector is forecasted to reach $194 billion at the end of 2015. Food processing in the Indian economic context is considered a sunrise industry. It acts as a crucial link between Agriculture and Industry.

With 192 Million Hectares of gross cropped area,89.9 Million Hectares of net irrigated area,127 agro-climactic zones,42 mega food parks being set up with an allocated investment of INR 98 Billion, India is all set to be the most talked-about business destination in food processing.

Why Invest In Food Processing Industry

  • A rich agriculture resource hub – India was ranked No. 1 in the world in 2012 in the production of bananas, mangoes, papayas, chickpea, ginger, okra, whole buffalo, goat milk, and buffalo meat.
  • India ranks 2nd in the world in the production of sugarcane, rice, potatoes, wheat, garlic, groundnut (with shells), dry onion, green pea, pumpkin, gourds, cauliflower, tea, tomatoes, lentils, wheat, and cow milk.
  • The country’s gross cropped area amounts to199 Million hectares, with a cropping intensity of 140%. The net irrigated area is 89.9 Million hectares.
  • A total of 127 agro-climatic zones have already been identified in India.
  • Good Strategic geographic location and proximity to food-importing nations make India favorable for the export of processed foods.
  • An extensive network of food processing training, academic and research institutes spans around the country.
  • 42 mega food parks are being set up in public-private partnership at an investment of INR 98 Billion rupees. The parks have around 1200 developed plots with basic infrastructure enabled that entrepreneurs can lease for the setting up of food processing and ancillary units.
  • The cost of skilled manpower is relatively low as compared to other countries.
  • Attractive fiscal incentives have been instated by central and state governments and these include capital subsidies, tax rebates, depreciation benefits, as well as reduced custom and excise duties for processed food and machinery.
  • The major global players in the food domain are successfully operating in India
  • 121 cold chain projects are being set up to develop supply chain infrastructure.
  • The contribution of the food processing industry to the gross domestic product at 2004-05 prices in 2012-13 amounts to INR 845.22 Billion. India’s food processing industry has grown annually at 8.4% for the last 5 years, up to 2012-13.
  • Food is the biggest expense for an urban Indian household. About 38.6% of the total consumption expenditure of households was spent on food in 2011-12.
  • According to the CII-McKinsey report, the processed food industry is expected to expand by 9% every year, and reach $100.19 billion (Rs.6 Lakh Crores) by 2030.

Why Food Processing Industry in India Will Grow?

  • A population of 1.2 Billion people, with the world’s highest aspiring youth population – India has 572 Million people under the age of 24 brings in huge domestic demand for processed foods.
  • The increase in the per capita income of individuals has led to changes in lifestyles and food habits. The demand for processed food is expected to increase to about 8.5% by the end of 2017.
  • Increased urbanization, rising disposable income of the middle class, media penetration have spurred the sustained growth of processed food consumption.
  • A favorable strategic geographic location makes India an important export destination for the food processing industry.
  • Inland water reservoirs and long coastline helps in developing and processing marine-based  products

Policy Growth Drivers

  • For new agro-processing companies, there is a 100% tax exclusion for five years, followed by a 25% tax exemption for another five years
  • Present Government policy allows export-oriented units to sell 50% of their products in the domestic marketplace.
  • Import duty on raw materials and capital goods are waived off for 100 % export-oriented units.
  •  For pickles, mustard oil, groundnut oil, and bread – items reserved for the micro small, and medium sector, 24% foreign direct investment are allowed under the automatic route.
  • Foreign Direct Investment is allowed in the automatic route for most food products except for items reserved for micro and small enterprises.
  • Food Processing Policy has set a target to increase the quantum of food processing from 10% in 2010 to 25% in 2025.

Financial Support From Government:

  • Special emphasis has been given as per key provisions in the union budget,2014-2015 for the development of indigenous cattle breeds and starting a blue revolution in inland fisheries. 500 billion INR is allocated in each of these sectors. It has also been decided to provide for a lock-in period of eight years for use of assets in instances where a deduction under Section 35 A of the Income Tax Act has been claimed.
  • One can avail any one of the below allowances:

1. Investment allowance (additional depreciation) at the rate of 15% to manufacturing companies that invest more than INR 1 Billion in plant and machinery acquired and installed between 01.04.2013 and 31.03.2015 provided the aggregate amount of investment in new plant and machinery during the said period exceeds INR 1 Billion.

2. In order to provide a further fillip to companies engaged in manufacturing, the said benefit of an additional deduction of 15% of the cost of new plant and machinery exceeding INR 250 Million, acquired and installed during any previous year, until 31.3.2017.

  • Full exemption from customs duty is being granted to de-oiled soy extract, groundnut oil cake/cake meal, sunflower oil cake/cake meal, rice bran/rice bran oil cake, and palm kernel cake until 31.12.2014.
  • The government has introduced several schemes to provide financial assistance in the form of grants and subsidies for the setting up and modernization of food processing units, the creation of infrastructure, support for research and development and human resource development as well as other promotional measures to encourage growth within the processed food sector.

Sector-wise Business Food Processing Opportunities

Fruits and vegetables: preserved, candied, glazed, and crystallized fruits and vegetables, juices, jams, jellies, purees, soups, powders, dehydrated vegetables, flakes, shreds, and ready-to-eat curries.

Suggested Read: Best Food Franchise Opportunities in India

  • Food preservation by fermentation: wine, beer, vinegar, the preparation of yeast, alcoholic beverages.
  • Beverages: fruit-based, cereal-based.
  • Dairy: liquid milk, curd, flavored yogurt, processed cheese, cottage cheese, swiss cheese, blue cheese, ice cream, milk-based sweets.
  • Food additives and nutraceuticals.
  • Confectionery and bakery: cookies and crackers, biscuits, bread, cakes, and frozen dough.
  • Meat and poultry: eggs, egg powder, cut meats, sausages, other value-added products.
  • Fish, seafood, and fish processing – processing and freezing units.
  • Grain processing – oil milling sector, rice, pulse milling, andflour milling sectors.
  • Food preservation and packaging: metal cans, aseptic packs.
  • Food processing equipment: canning, dairy and food processing, specialty processing, packaging, frozen food/refrigeration, and thermo-processing.
  • Consumer food: packaged food, aerated soft drinks, packageddrinking water.
  • Spice pastes.
  • Supply chain infrastructure – this niche has investment potential in food processing infrastructure, the government’s main focus is on supply chain-related infrastructures like cold storage, abattoirs, and food parks.
  • The establishment of food parks – a unique opportunity for entrepreneurs, including foreign investors to enter the Indian food processing sector.

Key  Major Food Processing Industry Leaders