Food Processing

India is the second largest producer of fruits and vegetables .Its processing level is estimated to be around 2 %, as compared to about 80 % in Malaysia, 30% in Thailand, and 60-70% in UK and USA. A strong and dynamic food processing industry is important for diversification and commercialization of agriculture. It ensures value addition to the agricultural products, generates employment, enhances income of farmers and creates surplus for export of agro foods.

Food processing covers a spectrum of products from sub-sectors comprising agriculture, horticulture, plantation, animal husbandry and fisheries. India has abundant availability of a wide variety of crops, fruits, vegetables, flowers, live-stock and seafood. Diverse climatic conditions and a long coastline have contributed to India's position as a leading food producer.

While India has an abundant supply of food, the food processing industry is still nascent: only two per cent of fruit and vegetables; and 15 per cent of milk produced are processed.

• Despite these low volumes, the processed food industry ranks fifth in size in the country, representing 6.3 per cent of GDP. It accounts for 13 per cent of the country's exports and 6 per cent of total industrial investment.
• The industry size is estimated at US$ 70 billion, including US$ 22 billion of value added products.
• The sector has been attracting FDI across different categories.
  
  

Sectoral Overview

Indian FP Industry can be further sub decided into various food processing sectors such as grain processing, meat processing, poultry & egg processing, milk & milk products, fish processing, fruit & vegetable processing, consumer food industries.

The question of providing financial assistance under the Plan Scheme for setting up/modernization in the grain/rice/pulses/flour milling sector has been reviewed. It was felt that priority should be given to processing and enhancing shelf life of perishable items so as to reduce wastage and encourage value addition in that sector. Considering that rice/pulses/ flour are consumed in the processed form only and primary processing in these sectors adds little to shelf life, wastage control and value addition, it has been decided to discontinue assistance to this sector from the financial year 2004-05. Priority will be given to fruit and vegetables, dairy, meat and poultry, fish, bakery, confectionary and consumer goods.

Cereal based consumer food industry include pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, rice flakes, corn flakes biscuits, ready to eat and ready to cook products, coco products. etc. The bread and biscuits constitutes the largest segments of consumer foods in India. Ministry of Food Processing Industries is also providing financial assistance for setting up/modernization/expansion of consumer industries and has approved 12 number of proposals of cereal based consumer food industries from April 2003 to March 2004.

Processing of meat products is licensed under Meat Food Products Order, (MFPO),1973 which was hitherto being implemented by the Directorate of Marketing & Inspection (DMI) has since been transferred to MFPI.

Under MFPO, all persons who are engaged in the business of manufacturing meat food products for sale excepting hotels, restaurants, boarding houses, eating houses etc., where meat food products are manufactured for consumption in their respective premises, are required to obtain MFPO Licence.

Organised dairy industry accounts for less than 15% of the milk produced in India. The rest of the milk is either consumed at farm level, or is sold as fresh, non-pasteurised milk through unorganised channel. The share of organised industry is expected to rise rapidly-especially in the urban regions. India, with its status as the largest milk producer in the world, is on the verge of assuming an important position in the global dairy industry. Many international dairy companies are viewing India with an eye to tapping its vast growing market for dairy products. The rise in the market for dairy products is likely to witness the fastest growth at over 20-30% per annum.
With its long coast line of over 8000 kms., 50600 sq, kms. of continental shelf area and 2.2 million sq. km. of Exclusive Economic Zone, India is endowed with rich fishery resources.
Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, cocoa products, biscuits, soft drinks, beer, alcoholic beverages (non-molasses based), mineral and packaged water. Bread and biscuits constitute the largest segment of consumer foods. Their production is about 3.70 million tons per year. Manufacturing of bread is reserved for SSI sector. Out of the total production of bread, 40% is produced in the organized sector and the remaining 60% in the unorganised sector. Similarly, production of biscuits in the organized sector is about 11.50 lakh tons and quantity of biscuits produced in the unorganised sector is about 3.80 lakh tons. According to available information, production of flakes is around 14,000 tons. Production of pasta products has registered a marginal growth in the organized sector but its growth in the unorganised sector is comparatively higher.

The aerated soft drinks industry in India comprises over 100 plants across all States. It provides direct and indirect industry related employment to over 125,000 employees. It has attracted one of the highest foreign direct investments in the country amounting to around Rs.4700 crore. It contributes over Rs.1200 crore annually by way of excise duty, sales tax and related taxes. It has strong forward and backward linkages with over Rs.1000 crores relating to glass, plastic, refrigeration, sugar and transportation industry. Total export earnings are over Rs.700 crore per annum. Presently there are more than 7000,000 outlets in the country.

The soft drinks constitute the 3rd largest packaged foods regularly consumed after packed tea and packed biscuits. The estimated production of soft drinks has registered a gradual increase as follows:

India is the third largest market for alcoholic beverages in the world. The demand for spirits and beer is estimated to be around 373 million cases. There are 12 joint venture companies having a licensed capacity of 33919 Kilo-litres per annum for production of grain based alcoholic beverages.

Wine industry India has made a beginning to establish itself as a quality conscious industry. The demand per annum for wine in the domestic market is estimated to be around 6 million bottles (750 ml). Against this, the estimated annual production of wine by the domestic industry is over 2.4 million bottles. The market is estimated to grow at around 25 % per annum in the next five years.

The wine industry in India provides considerable opportunities for value addition and employment generation in the agro-processing sector. It offers:

a) Possibilities for value addition to grapes/fruits, which could be cultivated on a large scale as a measure of agri diversification offering higher incomes to farmers
b) Opportunities for employment generation
c) Possibilities of weaning people away from hard liquor &
d) Opportunities for increased domestic production to counter large imports of wine

Export Promotion

• Food processing industry is one of the thrust areas identified for exports. Free trade zones (FTZ) and export processing zones (EPZ) have been set up with all infrastructure. Also, setting up of 100% Export oriented units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods.
• Capital goods, including spares upto 20% of the CIF value of the Capital goods may be imported at a concessional rate of Customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed.
• Units in EPZ/FTZ and 100% Export oriented units can retain 50% of foreign exchange receipts in foreign currency accounts.
• 50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area.
• All profits from export sales are completely free from corporate taxes. Profits from such exports are also exempt from Minimum Alternate Tax (MAT).