State of the industry

India must innovate to realise processing potential

By RJ Whitehead

- Last updated on GMT

Related tags Food processing industry Food processing Food Food industry

India must innovate to realise food processing potential
Food processing is regarded as a sunrise industry in India. However, while it is true that there has been rapid growth over the past few years, the fact remains that the levels of processing and value addition have remained significantly low.

One of the reasons for this is the low level of indigenous R&D and innovation. Where research does exist, the scientific community hasn’t sought to successfully commercialise their findings. 

Furthermore, food processing units, and especially SMEs, lack access to research and technological innovations. 

The food processing industry is one of India’s biggest sectors in terms of production, consumption, export and GDP growth. Estimated to be worth US$70bn, it accounts for around 14% of total industrial output and around 6% of GDP. Presently, the sector directly employs around 13m people, and around 35m indirectly.

Largely unorganised

Food processing is mainly unorganised, with 75% of processing units yet to modernise. Accordingly, the organised sector is relatively small, with around 5,300 fruit and vegetable processing units, 500 fish processing units, 500 flour mills, nearly 200 meat processing units and numerous dairy processing units at state and district levels.

Of the country’s total agriculture and food production, only 2% is processed, a tiny proportion when compared to countries like Brazil, at 70%, America (65%) and even China (23%). The level of processing in India is estimated at 37% in the dairy sector, 26% in fisheries, 2% in fruit and vegetable and 1% in meat and poultry.

The global processed food industry is forecast to reach a value of over US$1,6bn by the end of 2012, with an annual growth rate of 3.3% since 2007. However, a slowdown in overall global exports following the recession is likely to affect the processed food industry.

The industry, which is highly working capital-intensive, is facing a lack of investment in critical infrastructure, such as creation of a value chain, technology improvements and investment in R&D. These may result in difficulties in complying with international food regulations and other non-tariff barriers imposed by developed country markets.

Gloomy outlook

Though exports from India hold significant potential, the medium-term outlook is grim due to a number of factors, including pressure on cost competitiveness.

Nonetheless, the government, in line with its Vision 2015 for the food processing sector, proposes to give a greater thrust towards infrastructure development, which will include setting up of mega food parks, cold-chain infrastructure, value-added centres and packaging centres.

Its emphasis will be on building strong links with agriculture and horticulture, enhancing project implementation capabilities, increasing the amount of private-sector investment and supporting the creation of rural infrastructure to ensure a steady supply of high-quality agricultural produce.

Agricultural exports from India are expected to cross the US$22bn mark by 2014 and account for 5% of the world’s agriculture exports, according to the Agricultural and Processed Food Products Export Development Authority (APEDA). The export of floriculture, fresh fruits and vegetables, processed fruits and vegetables, animal products, other processed foods and cereals stood at over US$7.3m in 2009-10.

Increasing exports

According to Business Monitor International, India’s food exports are expected to increase by 72.8 percent over 2008 to $24.25bn in 2013. However, in spite of the country’s vast natural resources, food imports are also expected to remain strong over the forecast period, reaching $12.3bn by the end of next year. At an overall food and beverage level, the export of processed segments is growing much faster. Between 1980 and 2007, India’s share of the global food export market increased from 1.1% to 1.4%, with the majority of the increase coming over the last decade.

India’s agro-climatic conditions and rich natural resource base set a firm foundation for agriculture development. Today, the country has become the world’s largest producer across a range of commodities, including coconut, mango, banana, dairy products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables. However, it needs to leverage the production capability for economic gain and become self-sufficient to meet domestic consumption.

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