Question

With increasing incomes and changing food preferences, food processing industry is going to be one of the main industries of the country in the future. Comment.

Answer 1

Approach:

• Give a brief introduction about the food processing industry and write current status and future prospects of Industry.
• Write about the demand & Supply dynamics and how it can be one of the main industries of the country in the future.
• Provide an optimistic conclusion about the industry's future.

With a population of nearly 1.3 Billion and a rapidly growing middle class spending a high proportion of their disposable income on food, the Indian food and retail sectors are poised to witness tremendous growth in the coming years.

Current status:
Food Processing Sector has also emerged as an important segment of the Indian economy in terms of its contribution to GDP, employment and investment. The sector constitutes as much as 8.71 % and 10.04 % of GVAin Manufacturing and Agriculture sector respectively in 2015-16 at 2011-12 prices.

Future prospects:
Increasing per capita income, growing urbanization, changing lifestyles, rising participation of women in the workforce, and above all, rapid globalisation has provided a fillip to the growth of this sector.
As per a recent projection, total consumption of the food and beverage segment in India is expected to increase to US$1.14 trillion by 2025.
This sector is highly labour intensive per unit of capital (Annual Report of Ministry of Food processing Industry). So provide employment form millions in upcoming years.


Demand & Supply Dynamics:

• The composition of food production and demand is undergoing change. Increasing awareness about nutrition, affluence of working population and access to information have led to an increase in the use of health supplements, nutraceuticals, organic food as well as other high value products.
• All these factors have led to a paradigm shift in the demand for processed foods and composition of food processing sector. This will impact not only food processing industry but also other related segments such as machinery manufacturers, cold chain, logistics operators, retailers and, most importantly, the farmers.
• India’s geographical location gives it a unique advantage, having convenient connectivity to Europe, the Middle East and Africa (amongst others) from the western coast and Japan, Singapore, Thailand, Malaysia, Korea, Australia and New Zealand (amongst others) from the eastern coast.
• On the supply side,the agro climatic advantage and diversity of climatic zones makes India a home to a variety of fruits and vegetables, spices, cereals, marine produce, plantation crops and ingredients which are relished all over the world.

Challenges:

• The production advantages are huge, however, the level of processing for perishables continues to be very minuscule at around 10 per cent and even lower for fruits and vegetables (~2 %).
• On the other hand, the level of wastage of Agriculture produce is very high and is estimated at over US$ 15 Bn annually.
• Infrastructure and supply chain constraints

These three factors pose both challenges and opportunities. Challenge to the Government in terms of creating an ecosystem and enabling environment for investors to invest in food processing sector; and, on the other hand, an opportunity for investors to benefit from what the sector has to offer.

Steps taken by Government;

• FDI up to 100%, under the automatic route is allowed in food processing industries. Further, 100% FDI under Government route for retail trading, including through e-commerce, is permitted in respect of food products manufactured and/or produced in India.
• Investors’ Portal - Nivesh Bandhu which brings together all relevant information related to food processing, thus enabling investors to take informed decisions.
• Lower GST for the raw and processed product; around 80% of food products are covered in lower tax slab of 0%, 5% and 12%.
• Provision of profit linked tax holiday under section 80 IB and investment-linked deduction under Section 35 AD of Income Tax Act, 1961.
• Classifying loan to food & agro-based processing units and Cold Chain under agriculture activities for Priority Sector Lending.
• Cold Chain and Food Parks covered under Harmonised Master List of Infrastructure Sub-sector
• Setting up of a Special Fund of Rs. 2000 crore in National Bank for Agriculture and Rural Development (NABARD) to provide affordable credit for designated Food Parks and agro-processing units.
• Creating modern infrastructure for supporting the growth of the food processing sector through the implementation of the Schemes of Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, and Setting up / Modernization of Abattoirs
• Another important initiative has been the introduction of one umbrella scheme – the Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) PMKSY is a comprehensive package of support which will result in creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet. It will not only provide a big boost to the growth of food processing sector in the country but also help in providing better returns to farmers and is a big step towards increasing farmers income, creating huge employment opportunities especially in the rural areas, reducing wastage of agricultural produce, increasing the processing level and enhancing the export of processed foods.

Sustainable growth of food processing sector would require full participation of all stakeholders and equitable distribution of the benefits accruing to the sector. Among all the stakeholders, the farmers remain the key but most vulnerable participants. It is declared policy of the government to double farmers’ income by 2022. Strengthen farmer-industry connect is the key to achieve both the objectives. Given the huge production base of agri-produces, incentives offered by the government to promote food processing sector and its unique locational advantage, India has all the potential to become the food factory of the world.