Food Processing Sector in India- Top Challenges & Govt. Initiatives

Updated July 30, 2022

The Government of India has identified the food processing sector as the sunrise sector. For, the sector has a potential of huge growth. It can attract billions of foreign direct investment, and generate billions of employment opportunities, raise the farmers’ income etc.

Food Processing Industries have many verticals and they have their own role in. For efficient or concerted development, one most important thing is to address the demand and supply-side constraints of food processing in India.

To promote the development of these industries, the Indian government has come out with many initiatives like PM Kisan SAMPADA, Foreign Direct Investment policy, ICFNR, FSSAI etc. Industry bodies and academia can play a crucial role in the success of these initiatives.

The Food Processing Industry has enormous significance in India as it provides direct and indirect employment opportunities, reduces malnutrition, reduces food wastages, helps in crop diversification, enhances food inflation, enhances consumer choices and boosts the exports.

Almost 60 per cent of India’s population is directly or indirectly dependent upon agriculture and allied activities. In India, agriculture is the main source of food and livelihood for the vast population of India, thereby Food processing sector can increase the quality of the product and boosts its economy.

What is Food Processing in Essence?

The food Processing is a process through which any raw agriculture product, dairy, Animal husbandry, meat, poultry are transformed into the consumable product and has some commercial value. The process involves suitable aid of employees, power, machines etc. to transform the original physical properties of the raw materials into a new physical property of the product.

Processing also includes the process of value addition to produce products through methods such as preservation, the addition of food additives, drying etc. with a view to preserve food substances in an effective manner, enhance their shelf life and quality.

The food processing dates back from prehistoric times when early humans started roasting, smoking, steaming and baking food products. It further evolved to salting and canning methods prior to the Industrialization. Over time, methods of Food Processing have been changed.

Urbanization is the factor that expands the Food Processing sector. With increasing urbanization, many are living far away from the place where the food is originally produced. This increases food wastage and the cost of food is sky-rocketing. The food processing industry helps reduce the wastage and satisfy the demand of the people.

What Methods Used for Food Processing?

The methods used in food processing include the following:

(a) Removal of unwanted wastes like skins, peels etc.
(b) Chopping or slicing
(c) Shredding
(d) Soaking
(e) Liquefaction
(f) Fermentation
(g) Emulsification
(h) Cooking processes like boiling frying etc.

(i) Addition of gas in food products to increase their shelf life and improve their taste.
(j) Adding additives and preservatives
(k) Drying
(l) Packaging
m) Canning
(n) Pasteurization

Significance of the Food Processing Sectors

Importance of food processing can be assessed in terms of certain advantages. These Vantages may include following:

Raise the Farmers’ Income

One of the most significant roles of the Food Processing sector is to enhance the income of the farmers. It is being happened as when the agri-products demand increase in the food processing industries, there will be a commensurate rise in the price paid to the farmer, thereby increasing the income of the farmers.

Reduce Malnutrition

Certain food processed methods can improve and retain the various nutrient and vitamins content of the food. It will reduce the inequality of nutritional distribution in the population.

Reduce Food Wastage

UN estimates that 40% of the total production is wasted due to the inadequate facilities for transportation, storage, processing and marketing. Whereas, NITI Aayog estimated annual post-harvest losses of close to Rs 90,000 crore in India. So, 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. If these deficiencies are addressed well, there is a huge scope of development of the sector and will bolster the economy of India.

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.

Shelf Life- The Major Benefit of Food Processing

Food preservatives are used to preserve the nutritive quality of food and prolong the shelf life by preventing them from spoilage due to microbes and other spoilage agents,

Improve the Quality of Food

Certain microbes like yeast and bacteria are used to enhance the quality and taste of food. Notwithstanding, bringing more choices in food basket with good quality. This provides to increase the value of the food items e.g. cakes, bread, alcohols etc.

Enhances Consumer Choices

Today, food processing allows food from other parts of the world to be transported to our local market and vice versa. Therefore, people will have more choices in the products to choose from.

Importance of Food Processing Industries for the Indian Economy

The food processing sector is of enormous significance as it provides vital linkages and synergies between the two pillars of the economy, i.e. agriculture and industry and it plays a vital role in the generation of employment opportunities. It is one of the contributors to the development of the economy of India. Here is the glimpse that substantiates the fact.

Employment Generation by Food Processing Industry

More than 50% of the Indian population are employed under the Agricultural units. Yet, India still faces the issues of unemployment and poverty. These problems can be mitigated by expanding food processing industries. The food processing sectors make a bridge between the Agriculture sector and the Manufacturing industries. Therefore, it will generate directly and indirectly employment opportunities for the population.

Rural Development and Curb Migration

Since the food processing industry is a labour-intensive industry, therefore it will provide localized job opportunities and thus will reduce the push factor in source regions of migration. This will reduce the migration of people from rural to urban areas and prove to be a contributor to rural development.

Boosts Trade & Earns Foreign Exchange

FPI has the potential to boost trade and earns more and more foreign exchange. For e.g. Indian Basmati rice is in great demand in Middle Eastern countries. Therefore, it is an important source of foreign exchange. Even, it can maintain India’s position of highest exporter of several food items like ginger, mango etc.

Transportation Cost

he FPI will curb the loss faced by the producers while transporting to the market. It will help in increasing the income of the producers.

Increase Agriculture’s Share in GDP

In India, a larger population is involved in the agriculture sector than the manufacturing sector (tertiary sector). In spite of lesser population employs in the tertiary sector, they have the largest share in the GDP. On the other hand, a larger population in the agriculture sector has a lesser share in the GDP. So, the food processing industry can be the game-changer in this regard by increasing the value of the produce.

Challenges Faced by The Indian Food Processing Industry

At present most of the industries are in unorganized sectors. So, the number of problems are arising from different sections of these industries. Some of the basic problems encountered by Indian Food Processing Sectors at different levels are given below.

The Poor yield of Farm Produce, Therefore low Returns

Various crops are seasonal, thus it causes a delay in the process. Certain crops like oilseeds are mainly grown by small and medium farmers. These farmers require capital to buy the fertilizers, equipment etc. to increase the quality of their produce. Notwithstanding, this is difficult for them because they cannot afford to do so, thereby it is seen a reduction in production. Certain crops are increasingly dependent on monsoons which are sometimes resulting in poor or no yield of produce. Hence, these farmers get low returns of their invested capital and their hard-work.

Old Process Adversely Impact Food Processing Industry

The foods produce in these industries are usually inspected manually. It causes the human error and time wastages. Therefore, many food products are wasted due to carelessness of those who handle them while shifting, packaging, storing transporting etc. This needs to be reduced through efficient and stringent measures.

No Control on the Quality of Inputs

No control on the quality of inputs one of the hurdles for the development of the Food Processing Industry in India. When the quality of the inputs is not good then the products will also come out bad, thereby it will reduce the selling capacity of the Industry.

Vagaries of Weather Harm Food Processing Industry

The unexpected change in the weather is one of the problems of Food Processing Industries. It can create irregularities in Food processing and reduce the outlet of the produce.

Lack of Finance to Manage

To manage the Food Processing sector, it requires a huge amount of capital. But it lacks certain finance from the state and union to manage and operate the Industry. Therefore, it is one of the major challenges of the Food Processing Industry.

Transportation System and Unavailability of Reliable Handling

Well, the connectivity of the transport system is one of the basic requirements of the development of this sector. But certain rural regions do not have well transport connection. Thus, products take a long time to reach the food processing units and transport to the market. Even, it has challenges of unavailability of reliable handling of the products from the producer to consumer. Therefore, increase in the connectivity and availability of reliable handling are quite important factors to increase the profit of the farmers and others who are involved in the process. The perishables must be sent to its destination in an efficient manner.

Lack of Storage Facilities at Farm

Many small-scale FPI are suffering from a shortage of food storage infrastructure that helps in the storage of raw materials. The scarcity of space in these infrastructures accounts for large wastage of the agricultural produce. This results in the minuscule development of these sectors.

Govt Initiatives for Growth of Food Processing Sector

It has been the endeavour of the Government to promote food processing industry in the country to reduce wastage of agricultural produce and minimize post-harvest losses. It has the potential to boost the economy of India, thereby it is required to bolster the food processing sector.

Setting up Mega Food Parks

The government provides capital grants of 50 per cent for all states and 75 percent to the special status state. Since its launch, 42 mega parks have been given in-principle approvals. One of the major food parks, the North East mega food park in Assam has already been started.

Foreign Direct Investment Policy

FDI up to 100 per cent is allowed in food processing industries under the automatic route.

Agricultural and Processed Food Products Export Development Authority

It is the topmost organization under the Ministry of Commerce and Industry, which focusses on ‘export’ of processed products. Also, it aims to double the agriculture produce by 2022 by a holistic approach which incorporates the development of forward and backward linkages and value addition through processing. It also focusses to boost investment in the food processing unit.

Pt Deen Dayal Upadhyay Vigyan Gram Sankul Pariyojana

This scheme has been launched for remote villages of Uttarakhand where transportation is difficult due to the topography. The areas selected under this scheme will process and add value to milk, honey, horticulture, local crops herbal tea, mushroom, forest produce, medicinal and automatic plants and traditional craft and handloom.

Pradhan Mantri Kisan SAMPADA Scheme

It is an Rs. 6000 crore umbrella scheme incorporating ongoing and new schemes of the Ministry of food processing and industry. It aims to integrate cold chain and value addition infrastructure, food safety and quality assurance infrastructure etc. Some important schemes under SAMPADA yojana are:

Mini Food Parks Scheme

It is under the SAMPADA Scheme. Under the scheme, the items would be directly sourced from the farmers to reduce wastage of farm produce. This is expected to boost farmers income.

Mega Food Parks

It consists of a supply chain infrastructure that pertains collection centres, primary processing centres, central processing centres, and food processing units.

Cold Chains are to Help Food Processing Industry

Cold chain infrastructure facility is created along with the entire supply chain (pre-cooling, weighing, sorting, grading, waxing facilities, mobile cooler vans, etc.,)

Scheme for Creation of Backward and Forward Linkages:

The objective of this scheme to provide effective backward and forward integration for the processed industry by plugging the gaps in the supply chain in terms of availability of raw material and linkage with the market. This scheme is applicable to perishable horticulture and non-horticulture produce such fruits, vegetables, dairy products, meat etc.

The Food Safety and Standards Authority of India (FSSAI)

It aims to strengthen the food testing infrastructure of India. Along with this, it plans to upgrade the existing 59 food testing factories and setting 62 mobile tests lab.

The Indian Council for Fertilizer and Nutrient Research (ICFNR)

It will help to adopt the best practices of research for fertilizer, which will enable the farmers to avail good quality fertilizers at affordable prices.

Infrastructure for Agro-Processing Cluster Approach

(a) The National Agricultural Market (eNAM) which creates a pan India market, support the removal of intermediaries, thereby providing efficient supply chain across the Industries.

(b) The new Contract Farming Act further helps in improving the backward and forward integration of the supply chain

(c) Electronic Negotiable Warehouse Receipt (e-NWR) System to facilitate an easy pledge financing by banks and other financial institutions.

Subsidy by NABARD for Food Processing Industry

In case of setting up of agricultural-based processing industry in rural areas such as flour mills, rice mills etc., government through NABARD provides 30 per cent subsidy of the project cost to the entrepreneur.

Food Processing has various advantages which are specific to the Indian context. It has the capacity to lift millions out of poverty and malnutrition. The government should develop the food processing industry in a way that helps in tapping these advantages.

Current Status of Food Processing Industry in India

The Indian food industry has the potential for huge growth, increasing its contribution to world trade every year. The food industry in India has emerged as high growth and high-profit sector due to its immense potential for value addition.

(a) According to the data by the Department of Industrial Policies and Promotion (DIPP), the food processing industries received about US$ 7.54 billion worth of FDI between April 2000-March 2017.

(b) The Confederation of Indian Industries estimates that the food processing industries have the potential to attract US$ 33 billion worth of investments in the next 10 years and generate employment.

(d) Global and Local e-commerce companies are increasing their investment in this sector like Amazon is planning to invest $515 billion in the next 5 years and Swiggy, Zomato etc. has started to increase their investment.

(e) It accounts for 32 per cent of the country’s total food market, one of the largest industries in India and ranks fifth in terms of production, consumption and export.

What should India Learn on Preventing Wastage of Food?

India can use the innovative and unorthodox measures taken by many countries across the world to reduce the wastage of food. Some of them are:

(a) In France, it is mandatory for the supermarkets to either give away the unsold food to charities or to farms for feeding animals or to be used as fertilizers. It is a solid law in France.

(b) In Canada, unused and unspoiled foods from retailers, restaurants, markets and manufacturers are being taken in order to give away the excess food to the charities.