Report on Food Processing Final

8/6/2019 Report on Food Processing Final

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A REPORT ON

FOOD GRAIN SECTOR

SUBMITTED TO:

PROF. SATYA ACHARYA

SUBMITTED BY:

APOORV AGARWAL

PRINCE LUKKAD

RONAK AGARWAL

SHIV MISHRA

VARUN SINGHAL


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TABLE OF CONTENT

INTRODUCTION ....................................................................................................................................... 3

GROSS CAPITAL FORMATION IN AGRICULTURE AND ALLIED SECTORS ............................... ................... 4

FOOD PROCESSING INDUSTRY IN INDIA ............................................................................................... 6

SIGNIFICANT CONTRIBUTION TO GDP AND EMPLOYMENT ............................ ........................... ............ 7

INDIA'S STRENGTHS IN FOOD PROCESSING ................................................. Error! Bookmark not defined.

HURDLES IN THE GROWTH PATH ............................................................................................................. 9

SIGNIFICANT OPPORTUNITIES-DOMESTIC MARKET AND EXPORTS .................................... ..................... 10

FOOD PROCESSING SEGMENTS .............................................................................................................. 10

FOOD GRAIN SECTOR ............................................................................................................................. 14

PRICE POLICY FOR AGRICULTURAL PRODUCE ......................................................................................... 21

INDIAS IMPORT AND EXPORT OF VARIOUS COMMODITIES ................................................................... 24

INDIA FACES CHALLENGES ON THIS FRONT ............................................................................................ 28

EXPORT PROMOTIONAL STRATEGY ....................... ................................ ...................... ........................... 28

PESTAL ANALYSIS ON FOOD PROCESSING INDUSTRIES ............................. ........................... ................... 28

FIVE FORCES ANALYSIS .......................................................................................................................... 30

SWOT ANALYSIS OF FOODPROCESSING INDUSTRY ............................................................................... 34

OPPORTUNITIES IN FOOD PROCESSING CHAIN- ..................................................................................... 35

KEY GROWTH DRIVERS OF FOOD PROCESSING SECTOR IN INDIA............................ ....................... ......... 38

CONSTRAINTS ........................................................................................................................................ 38

GOVERNMENT INITIATIVES .................................................................................................................... 39

CONCLUSION ......................................................................................................................................... 43

REFERENCE- ........................................................................................................................................... 44


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INTRODUCTION

Agriculture, as the largest private enterprise in India, is the lifeline of the economy. Agriculture provides

the underpinning for our food and livelihood security and support for the economic growth and social

transformation of the country. During 2008-09 the agricultural sector contributed to approximately 15.7

per cent of India's GDP (at 2004-05 prices) and 10.23 percent (provisional) of total exports besides

providing employment to around 58.2 per cent of the work force. This has compromised the lives,

livelihood and food security of the people. Therefore, there is a compelling case for increased

investment in the sector. The continued high growth of agriculture is essential to meet the food and

nutritional security requirements of the people and provide livelihood and income in rural areas.

The overall target of GDP growth in the country for the Eleventh Plan is 9 per cent per annum with an

annual average growth rate of 4 per cent in agriculture, 10-11 per cent in industry and 9-11 per cent in

the services sector. The strategy for accelerating agricultural growth to 4 per cent per annum in the

Eleventh Plan requires action in terms of bringing technology to the farmers, improving the efficiency of

investments, increasing systems support and rationalizing subsidies, diversifying, while also protecting

food security concerns, and fostering inclusiveness through a group approach, by which the poor will get

better access to land, credit and skills.

The total growth of GDP vis--vis growth rate in agriculture and allied sector from 2005-06 to 2009-10 is

given in the table below:


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Table:Growth in agriculture and allied sector GDP vis--vis total GDP from 2005-06 to

2009-10 (at 2004-05 prices)

The agriculture and allied sector GDP is likely to show a decline of 0.2 per cent during2009-10 as against

the previous year's growth rate of 1.6 per cent. This is due to the impact ofoverall deficit of 23 per cent

in rainfall during the south west monsoon which adversely affectedKharifproduction.The production of

food grains,oilseeds and sugarcane is accordingly expectedto decline by 8 per cent, 5 per cent and 11.8

percent respectively as compared to the previousyear. Production of cotton, horticulture crops and

vegetables is however expected to increase by0.2 per cent, 2.5 per cent and 4.8 per centrespectively.

GROSS CAPITAL FORMATION IN AGRICULTURE AND ALLIED SECTORS

Public investment in agriculture, in realterms, had witnessed a steady decline from theSixth Five Year

Plan onwards. Analysis of trendsin public investment in agriculture and allied sectors reveal that it

declined in real terms (at1999-2000 prices) from Rs.64,012 crore during the Sixth Plan (1980-85) toRs.52,107 crore duringthe Seventh Plan (1985-90) to Rs.45,565 croreduring the Eighth Plan (1992-97),

and Rs.42,226crore during Ninth Plan (1997-2002). However,this trend was reversed in the Tenth Plan

(2002-07), with public investment in agriculture ofRs.67,260 crore.

The share of agriculture and allied sectors in total gross capital formation has also progressively declined

for nearly two decades. However, this trend has since been arrested and the share of capital formation

of the agriculture and allied sectors in GDP has increased from 14.1 per cent in 2004-05 to 21.3 per cent

in 2008-09 (at 2004-05 prices). The share of public investment to GDP of the agriculture and allied

sectors has also increased from 2.9 per cent in 2004-05 to 3.8per cent in 2008-09 (at 2004-05 prices).

The share of private investment to GDP of agriculture and allied sectors has also increased from 11.2 per

cent in 2004-05 to 17.5 per cent (at 2004-05 prices) in 2008-09. Gross capital formation public and

Year

2005-06

2006-07

2007-08

2008-09

2009-10

Total GDP

9.5

9.7

9.2

6.7

7.2

Agriculture andallied sector (%)

5.2

3.7

4.7

1.6

(-)1.2


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private in agriculture and allied sectors and its percentage share to GDP of agriculture and allied sectors

is given in Table below:

Gross Capital Formation (GCF) Public and Private in Agriculture and Allied Sectors

and its percentage share to GDP of Agriculture and Allied Sectors (at 2004-05 prices)

(inRs. crore)

Although agriculture contributes only 21% of Indias GDP, its importance in the countrys economic,

social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72

percent of the Indias 1.1 billion people, a large number of whom are poor. Most of the rural poor

depend on rain-fed agriculture and fragile forests for their livelihoods.

The sharp rise in foodgrain production during Indias Green Revolution of the 1970s enabled the country

to achieve self-sufficiency in foodgrains and stave off the threat of famine. Agricultural intensification in

the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with

declining food prices, reduced rural poverty.

Sustained, although much slower, agricultural growth in the 1990s reduced rural poverty to 26.3 percent

by 1999-2000. Since then, however, the slowdown in agricultural growth has become a major cause for

concern. Indias rice yields are one-third of Chinas and about half of those in Vietnam and Indonesia.

With the exception of sugarcane, potato and tea, the same is true for most other agricultural

commodities.

The Government of India places high priority on reducing poverty by raising agricultural productivity.

However, bold action from policymakers will be required to shift away from the existing subsidy-based

regime that is no longer sustainable, to build a solid foundation for a highly productive, internationally

competitive, and diversified agricultural sector.


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FOOD PROCESSINGINDUSTRY IN INDIA

Food processing industry is one of the largest industry in India and ranked fifth in terms of production,

consumption, export and growth prospects. Important subsectors in food processing industries are :

fruits and vegetable processing, fish processing, milk processing, meat and poultry processing,

packaged/convenience food, alcohol beverages, soft drinks and grain processing. The food processing

industry contributed 6.3 % to Indias GDP in 2006 and share of industrial production.

Annual food production in India is 602 million tonnes in which 220 million tons of cereals.

India produces annually 90 million tonnes of milk (highest in the world); 150 million tonnes of fruits and

vegetables (second largest); 485 million livestock (largest); 204 million tonnes of food grains (third

largest); 6.3 million tonnes of fish (third largest); 489 million poultry and 45,200 million eggs. As a result,

Indian food processing industry has become an attractive destination for investors the world over.

India has a diverse agro-climatic regions and soil types with optimum amount of sunshine hours and day

length suited for cultivating both food and commercial crops round the year. Naturally, India is a leading

producer of many agricultural products like fruits and vegetables, cereals, pulses etc. India offers a huge

potential in terms of rising consumption and as a sourcing hub for the world due to its supply strength.

The food processing industry provides vital linkages and synergies between industry and agriculture. The

Food Processing Industry sector in India is one of the largest in terms of production, consumption,

export and growth prospects. The government has accorded it a high priority, with a number of fiscal

reliefs and incentives, to encourage commercialization and value addition to agricultural produce, for

minimizing pre/post-harvest wastage, generating employment and export growth.

The Indian food processing industry is one of the largest in the world in terms of production,

consumption, export and growth prospects. Earlier, food processing was largely confined to the foodpreservation, packaging and transportation, which mainly involved salting, curdling, drying, pickling, etc.

However, over the years, with emerging new markets and technologies, the sector has widened its

scope. It has started producing many new items like ready-to-eat food, beverages, processed and frozen

fruit and vegetable products, marine and meat products, etc. It also include establishment of post-

harvest infrastructure for processing of various food items like cold storage facilities, food parks,

packaging centres, value added centres, irradiation facilities and modernized abattoir.

India has a strong agricultural production base with diverse agro-climatic conditions and arable land of

184 million hectares. It is one of the major food producers in the world and has abundant availability of

wide variety of crops, fruits, vegetables, flowers, live-stock and seafood. Food Processing to GDP, India's

supply strengths and rising consumption-led demand, hurdles in terms of wastage and highlights theopportunities in the sector for players and the government.

With agriculture at the core of Indian economy and more than two-thirds of the populationdependent

on farming, a developed Food Processing sector can be a strong link betweenagriculture and the

consumers. Government's high priority to the sector coupled with agrowing consumption-led demand is

leading to a fast pace growth in the sector. Adeveloped Food Processing sector will help overcome the

biggest challenges in front ofIndia

y Low farmer income and high subsidiesy High wastage along the value chain


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y Poor hygiene andsafety standards

Food processing is the set of

methods and techniques used

to transform raw ingredientsinto food or to transform

food into other forms for

consumption by humans or

animals

either at home or by the food

processing industry. Food

processing is a large sector

that

covers activities such as

agriculture, horticulture,plantation, animal husbandry

and fisheries.

It also includes other

industries that use agriculture inputs for manufacturing of edibleproducts. The food processing industry

is made up of primary, secondary and tertiary foodprocessors.

In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flourmills, pulse

mills and oil-seed mills. Also, there are several thousands of bakeries, traditionalfood units and fruit &

vegetable/spice processing units in unorganized sector.

SIGNIFICANT CONTRIBUTION TO GDP AND EMPLOYMENT

Indian food processing industry is estimated tobe around USD 67 billion, of the USD 180.

1. billion food industry, making it the fifth biggest .The food industry expected to grow to USD2. 280

billion by 2015 and generate an additionalemployment for approximately 8.2 millionpeople. It has been

observed that employmentpotential of the food-processing sector is muchhigher than other sectors. For

instance, an investment of INR 10 billion generates employment for 54,000 people in the food

processingsector, jobs for 48,000 people in textiles and employment of 25,000 people in the paper


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industry. There is also fourfold generation of indirect employment in auxiliary and other downstream

activities on account of investment in the food sector. Also, 60 percent of the employment generation

takes place in 3 small towns and rural areas.

These numerous advantages and factor conditions like low cost of labour put India in anEnviable

position to produce a wide variety of food crops and commercial crops fordomestic consumption as well

as export.


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India, with a population of more than 1.1 billion, is one of the largest consumer markets inthe world.

Food consumption in India is expected to grow to 229.7 billion in dollar terms by4 2013 from 168.6

billion in 2007. Food and Beverages is largest category in Indian5 consumer spending and is expected to

remain in the future. The country's highly favorabledemographic patterns, with more than 50 percent of

the population below 30 years of age,increasing disposable income, urbanization and lifestyle change

are likely to bring aboutchanges that will enforce shifts in the Indian food and drinks industry, as young

populationsare one of the key drivers in the demand for processed and health foods.

HURDLES IN THE GROWTH PATH

In spite of the huge supply advantages, India's share in the global food trade is still around1.5 percent.

Huge losses across the value chain resulting in poor processing levels arelimiting the growth the India's

share in the global processed food trade.

Processed food has a longer shelf life and reduces wastage. The lack of processing andstorage of fruits

and vegetables results in huge wastages, as shown in the figure, estimated at about 35 percent, the

value of which is approximately INR 33,000 crore 6 annually (Recent reports put the number at a much

higher level). So, it is imperative for the government and private players to invest in infrastructure to

make India not only have sustainable food production for its growing population but also export more to

the world.


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SIGNIFICANT OPPORTUNITIES-DOMESTIC MARKET AND EXPORTS

The low share of processed food and global trade is an opportunity waiting to be tapped.Increasing

urbanization and rise in disposable incomes will further push demand forProcessed food. This is an

opportune time for companies to invest in quality facilities anddevelop products with features that

appeal to the growing Indian consumer base and theexport markets.Also, from a government's point of view, Food Processing sector can help reduce theburden of subsidies

and raise the farmers' income simultaneously. Agricultural produce thatis processed for domestic

consumption can not only fetch higher prices and hence higherincome for the farmers, but also

generate direct and indirect employment helping alleviaterural poverty. So, the government should

continue to support the industry with an enablingand growth oriented policy.

FOOD PROCESSING SEGMENTS

India's low level of processing is expected to change significantly in the future fuelled bysustained

economic growth and steady urbanization. Processed food output is expected togrow at a strong 7

percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.61 billion USD in 2013.

Premiumisation, especially among the young and rich urban population,is also a key factor helping value

growth over the forecast period.

These are the various segments in food processing industries in India.

FRUITS AND VEGETABLE PROCESSINGINDUSTRIES

Fruits and vegetables is one of the most important and fast growing sub-sectors of the foodprocessing

sector, as fruits and vegetables form an indispensable part of healthy diet. India accounts for 13 percent

of vegetables and 12percent of fruits production globally, with anenviable share in few categories likeMango, Banana, Cashew, Green Peas and Onion. The productivity has also improved from 10.25 and

14.37 million Tons/Hectare for Fruits and Vegetables in 2002-03 to 10.94 and 16.14 million

Tons/Hectare for Fruits and Vegetablesrespectively.


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MEAT AND POULTRY SUPPLY

India's has the largest livestock population in the world, however, most animals are not bredfor meat, as

a vast majority of the Indian population is vegetarian. Animals generally usedfor production of meat are

cattle, buffaloes, sheep, pigs and poultry. India accounts for morethan half of the global buffalo

population indicating a significantly high export opportunity.India ranks among the top six egg producing

and among the top five chicken producingcountries.


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As is evident from the figure, most of the broiler meat produced is used for domesticconsumption, while

beef and veal meat is also exported.

DAIRY PROCESSING

India is the largest producer of milk in the world Milk. Milk products production is expected toincrease

from 99.9 million tons equivalent in 2006 to 108.8 million tons in 2009 growing at a CAGR of 2.89

percent.

The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra,

Andhra Pradesh, Karnataka and Tamil Nadu with majority of the manufacturing of milk products also

concentrated in these states.

India's unique pattern of production, consumption, processing and marketing of dairy products consist

of over 11 million farmers organized into about 0.1 million village Dairy Cooperative Societies (DCS).

GRAIN PROCESSING

India produces more than 200 million tons of different food grains every year - 209.32million tons in

2005-06. India produces all major grains - rice, wheat, maize, barley and12 millets like jowar (great

millet), bajra (pearl millet) and ragi (finger millet) . The majorsegments within Grain Processing are Oil

Milling and Pulse Milling & Flour Milling. IndianOilseed sector is one of the largest in the world, with a

total turnover of INR 86,000 crore ofwhich INR 16,000 crore are import/exports. India is next only toEuropean Union and Chinain terms of vegetable oil imports.

Processing

The solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is13 reported at

115.4 lakh tons compared to 122.0 lakh tons in the previous year.Grain processing is the biggest

component of the food sector, with a share of 40 percent.But the sector is predominantly into primary

processing, sharing 96 percent of the totalvalue, while the secondary and the tertiary sectors add 4

percent.


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Consumer food processing

Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages.Packaged foods

includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, cornflakes, rice flakes, ready to eat

and ready to cook products, biscuits etc. Bread and biscuitsconstitute the largest segment of consumer

foods. The packaged food sales topped 13billion USD in 2007 and are expected to reach 23.4 billion USD

by 2013.

Agriculture and agro products remain the most important sector of the Indianeconomy. They contribute

nearly one third of the GDP and account for 64% ofthe workforce.

In short, India has the following advantages in the Food Processing Sector:

India is one of the largest food producers in the world

India has diverse agro-climatic conditions and has a large and diverse raw

material base suitable for food processing companies

India has huge scientific and research talent pool

A largely untapped domestic market of 1000 million consumers

300 million upper and middle class consume processed food

200 million more consumers expected to shift to processed food by 2010

Well developed infrastructure and distribution network

Rapid urbanization, increased literacy, changing life style, increasednumber of women in workforce, rising per capita income- leading to rapid

growth and new opportunities in food and beverages sector

Strategic geographic location (proximity of India to markets in Europe and

Far East, South East and West Asia)

In terms of policy support, the government has formulated the National food processing policy and

approved complete de-licensing for the sector excluding alcohol beverages. The sector was also

declared a priority sector for lending in 1999. The central government is working with all the states to

reform policy and facilitate investment in food processing sector.


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WhyIndia for Food processing?

y Vast source of raw material and low production cost-India ranks first in availability of milk,pulses and tea and second in fruits, vegetable, rice and wheat. Milk product offers significant

opportunity in India as it is worlds largest producer. In addition to this, but skilled work force

could be utilized to setup production facilities.

y Large consumer market and changing consumer pattern-Indias homogeneous market sizeendowed with growing income and changing life style has created market opportunities for food

producers, machine makers, food technology and service providers. Also proportionate

expenditures on staples such as cereals, grams and pulses has declined while the expenditure on

milk and milk products has increased.

y Food parks and special agriculture zones- The government is promoting agriculture zones andmega food parks to develop the food processing sector. More than 30 food parks are proposed

in the country to attract foreign direct investment in this sector.

y Government assistance and favorable government policies- The national policy on foodprocessing aims at increasing the level of food processing from 2 percent to 10 percent by end

of 2010.

FOOD GRAIN SECTOR

The total geographical area of the country is 328.7 million hectares, of which 140.3 million hectares is

the net sown area, while 193.7 million hectares is the gross cropped area. The gross and net irrigated

area is 85.8 million hectares and 60.9 million hectares respectively, with a cropping intensity of 138 per

cent.

Crop Production

1.9 Production of food grains during 2009-10 is estimated at 216.85 Million Tonnes (MT) asper 2nd

Advance Estimates compared to 234.47 M.T. achieved during 2008-09. Production of rice is estimated at

87.56 M.T. which is 11.62 M.T. lower compared to 99.18 M.T. during theprevious year. Production of

wheat is estimated at 80.28 M.T.(2nd Advance Estimates) which is0.4 MT less as compared to 80.68

M.T. in 2008- 09. Production of coarse cereals during 2009-

10 is estimated at 34.27 M.T. (2nd Advance Estimates) compared to the previous year'sproduction of

40.03 M.T. during 2008-09. Production of sugarcane during 2009-10is estimated at 251.27 M.T. (2nd

Advance Estimates) against 285.03 M.T. achieved during2008-09. Cotton production is estimated at

223.18 lakh bales during 2009-10(2nd AdvanceEstimates) against 222.76 lakh bales during 2008- 09. Theproduction of jute &mesta during theyear 2009-10 is estimated at 103.57 lakh bales (2nd Advance

Estimates) as against 103.65 lakhbales during 2008-09.Deficit rainfall during the south-west monsoon

season affected Kharif agricultural operations during the current year, with paddy suffering the most

adverse impact. Despite the timely onset of the south-west monsoon during 2009, the monsoon

remained weak and erratic during the major part of the season. At the end of the south-west monsoon

(1 June, 2009 to 30 September, 2009), there was an overall deficit of 23 per cent in rainfall.


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Source: Department of Agriculture and Corporation

CROP PRODUCTION 2008-09

8.5 For three consecutive years, from 2005-06 to 2008-09 (fourth advance estimates), foodgrains

production recorded an average annual increase of over 8 million tonnes. Total foodgrains production in

2008-09 was estimated at 233.88 million tonnes as against 230.78 million tonnes in 2007-08 (Table 8.4).

However, the production of major commercial crops(oilseeds, sugarcane, cotton, jute and mesta)

declined in 2008-09 compared to 2007-08 levels.


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CROP PRODUCTION 2009-10

Deficiency in rainfall in the south-westmonsoon season during 2009, particularly in Julyand August,

severely affected kharif crops, especiallypaddy. The recovery of monsoon in September andpost-

monsoon (October-December) cumulativerainfall of 8 per cent above normal protected the kharif

crops to some extent and improved the prospects ofrabi crops in 2009-10. As per the first advance

estimates (kharif only) for 2009-10, production of food grains is estimated at 98.83 million tonnes which

is lower than the target of 125.15 million tonnes setfor the year as also lower than the fourth advance

estimates (kharif only) of 117.70 million tonnes for2008-09.

Rice

As per the first advance estimates, theproduction of kharif rice is at 71.65 million tonnes in2009-10, a

decrease of about 15 per cent over 2008-09 levels and 17 per cent over the target for 2009-10.

Coarse Cereals

Total kharif production of coarse cereals in2009-10 is expected to decline to 22.76 milliontonnes against

28.34 million tonnes in 2008-09 anda target of 32.65 million tonnes for kharif 2009-10.

Cereals

The overall production of kharif cereals in 2009-10 is expected to decline by 18.51 million tonnes

over 2008-09.

Pulses

Total production of kharif pulses is estimated at 4.42 million tonnes in 2009-10, which is 8 percent lower

than the production during 2008-09 and 32 per cent lower than the targeted production for 2009-10.

Oilseeds

Total kharif production of the nine oilseeds is estimated at 152.33 lakh tonnes in 2009-10, which

is about 15 per cent lower than the kharif production in 2008-09.

Sugarcane

Sugarcane production in 2009-10 is estimated at 249.48 million tonnes, which is lower than the

production of 273.93 million tonnes during 2008-09. This represents a decline of 9 per cent over the

previous year and 27 per cent vis--vis the targeted production for 2009-10.

Cotton

Cotton production in 2009-10 is estimated at 236.57 lakh bales (of 170 kg each), which is higher

than the fourth advance estimates of 231.56 lakh bales in 2008-09 by 2.2 per cent.

Jute and Mesta

The production of jute and mesta is estimated at 102.43 lakh bales (of 180 kg each) in 2009-10.

This is lower than the targeted production of 112.00 lakh bales and also lower than the 104.07 lakh

bales produced in 2008-09.


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GROWTH RATES OF AREA, PRODUCTION AND YIELD

Growth in production of agricultural crops depends upon acreage and yield. Limitations of expansion in

agricultural land suggest multiple cropping as a means to increase the gross cropped area. It is clear that

the main source of long-term output growth can only be improvement in yields. Trends in indices of

area, production and yield of different crops till 2008-09 (Base triennium ending 1981-82=100) are given

in Table. Trends in area and production are given in Figure.

Rice

The compound growth index of rice yield has shown a growth of 1.9 per cent per annum during 2001-08

compared to the 1990s leading to an increase in growth in production. However, the index of area under

rice shows negative growth during the above period.

Wheat

The area under wheat that was around 25 million ha in 2002-03 increased to 26.4 million ha in2005-06

and further to 28 million ha in 2008-09. The compound growth indices of area, production andyield

during 1991-2000 and 2001-08 have shown perceptible decline.

Pulses

Gram and tur are the major contributors to total pulses production in the country. During 2000-01 to

2008-09, there has been improvement in thegrowth indices of area and yield in tur and index ofarea in

gram resulting in increase in the growth ofproduction.

Sugarcane

The compound growth rate index of area undersugarcane increased significantly during 2001-

08.However, the growth index of yield moderated butremained positive.

Cotton

The yield of cotton went up from 307 kg/ha in2003-04 to 419 kg/ha in 2008-09 (fourth

advanceestimates). The compound growth rate index of yield increased significantly from - 0.41 per cent

duringthe1990s to 13.64 per cent during 2001 to 2008.

However, the growth in index of area moderated butremained positive. The combined effect on the

indexof production was an increase in growth from 2.29 per cent during the 1990s to 15.48 per cent

during2001-08.

Oilseeds

The growth in indices of yield and area underoilseeds has shown perceptible improvement during


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2001-08 compared to the 1990s.

AREA COVERAGE 2009-108.23 The area

coverage of 667.84 lakh ha under total

food grains during kharif 2009-10

compared to714.02 lakh ha during kharif

2008-09 shows a decline of 46.18 lakh ha.

The area coverage under kharif rice

during 2009-10 is around 361.62 lakh ha,

which is 44.85 lakh ha less than the

406.47 lakh ha duringkharif 2008-09. The

area coverage under oilseeds during

kharif 2009-10 is 175.19 lakh hectares,

whichis lower by 9.49 lakh ha than kharif

2008-09. The area coverage under

sugarcane during the current

year is 41.78 lakh ha, which is also lower

by about 2.18 lakh ha than that in the

previous year.


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PRICE POLICY FOR AGRICULTURAL PRODUCE

The Governments price policy for agricultural commodities seeks to ensure remunerative prices to the

growers for their produce with a view to encouraging higher investment and production, and to

safeguard the interests of consumers by making supplies available at reasonable prices. The price policy

also seeks to evolve a balanced and integrated price structure in the perspective of the overall needs of

theeconomy. Towards this end, the Governmentannounces minimum support prices (MSPs) eachseason

for major agricultural commodities andorganizes purchase operations through public andcooperative

agencies. The designated Central nodalagencies intervene in the market to undertakeprocurement

operations with the objective of ensuringthat market prices do not fall below the MSPs fixed by the

Government.

The Government decides the support pricesfor various agricultural commodities after taking intoaccount

the recommendations of the Commissionfor Agricultural Costs and Prices (CACP), the viewsof State

Governments and Central Ministries as wellas such other relevant factors as consideredimportant for

fixation of support prices. TheGovernment has fixed the MSPs of 2009-10 kharifand rabi crops. The

MSPs for paddy (common) andpaddy (Grade A) have been raised by Rs 100 perquintal and fixed at Rs

950 per quintal and Rs 980per quintal respectively. An incentive bonus of Rs 50per quintal is also

payable over and above the MSPof paddy. The MSP of arhar (tur) has been raisedover the 2008-09 level

by Rs 300 per quintal andfixed at Rs 2,300 per quintal while that of moong has been raised by Rs 240 per

quintal and fixed at Rs 2,760 per quintal. The MSP of sesamum has been fixed at Rs 2,850 per quintal,

raising it by Rs 100 per quintal. The MSPs of other kharif crops have been retained at their 2008-09

levels. The MSP of wheat has been raised to Rs 1,100 per quintal from Rs 1,080 per quintal and of barley

to Rs 750 per quintal from Rs 680 per quintal. The MSPs of gram and safflower have been raised by Rs

30 per quintal each. The MSPs of masur and rapeseed mustard have been retained at their previous

years levels of Rs 1,870 per quintal and Rs1,830 per quintal respectively.


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Procurement of Food grains-The main objectives of food management are procurement of foodgrains

from farmers at remunerative prices, distribution of foodgrains to consumers, particularly the

vulnerable sections of society, at affordable prices and maintenance of food buffers for food security

and price stability. The instruments used are the MSP and central issue price (CIP). The nodal agency

which undertakes procurement, distribution and storage of foodgrainsis the Food Corporation of India

(FCI). Procurementat MSP is open-ended, while distribution is governedby the scale of allocation and its

offtake by the beneficiaries. The offtake of foodgrains is primarilyunder the targeted public distribution

system(TPDS)and for other welfare schemes of the Government ofIndia. Offtake of foodgrains under the

TPDS has beenincreasing in the last five years and has gone upfrom 29.7 million tonnes in 2004-05 to

34.8 milliontonnes in 2008-09.

Overall procurement of rice and wheat which was 35.8 million tonnes in 2006-07, increased marginally

to 37.6 million tonnes in 2007-08. Howeverincreased MSP along with various other steps taken by the

Government has resulted in record wheat procurement of 22.69 million tonnes in 2008-09 and 25.38

million tonnes in 2009-10 (April to December).As regards rice, the procurement in 2008-09 was 32.8

million tonnes and 22.9 million tonnes in 2009- 10 (April December). The record procurement of rice

and wheat during 2007-08, 2008-09 and 2009-10 (April December) has resulted in comfortable food

stock availability to meet the TPDS needs and buffer stocks norms.As in earlier years, procurement of food grains by the FCI continues to be higher in the States ofPunjab,

Haryana, Uttar Pradesh and Andhra Pradesh. These four States accounted for nearly 69.7 per cent of the

rice procured for the Central Pool in 2006-07, 69.46 per cent in 2007-08 and 67.47 per cent in 2008-09

(Table).

Punjab and Haryana which accounted for 91.1 per cent of procurement of wheat for the Central Pool in

2007-08, accounted for 66.88 per cent in 2008-09 and 69.53 per cent in 2009-10, indicating an increased

share in procurement by other states (Table).

The overall procurement of coarse grains in the kharif marketing season (KMS) 2008-09 hasincreased to

13.75 lakh tonnes due to a substantial increase in MSPs of coarse grains in KMS 2008-09.


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Provision of minimum nutritional support to the poor through subsidized foodgrains and ensuring price

stability in different States are the twin objectives of the food security system. In fulfilling its obligation

towards distributive justice, the Government incurs food subsidy. While the economic cost of wheat and

rice has gone up continuously, the issue price has been kept unchanged since July 1, 2002. The

Government, therefore, continues to provide large amount of subsidy on foodgrains for distribution

under the TPDS, other nutrition-based welfare schemes and open market operations.


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INDIAS IMPORT AND EXPORT OF VARIOUS COMMODITIES-

Supported by a committed government in improving the food trade and providing aconducive

atmosphere for agriculture, India is a net exporter of agricultural products. BMIIndia Food and Drink

Report for Q1 2009, expects India to be a net food exporter to 2013.

The report attributes the status to India's immense landmass and availability of a largenumber of

commodities. Over the forecast period to 2013, exports are expected to increaseby 72.8 percent over

2008 to USD 24.25 billion. However, in spite of vast natural resources,import growth of food products in

India is also expected to be strong over the forecastperiod, to reach USD 12.3 billion by 2013. At an

overall Food and Beverage level, the export1 of processed segments is growing much faster as shown in

the figure .


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Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India.

MPEDA is responsible for overseeing all fish and fishery product exports; other processedfood product

exports are the responsibility of APEDA. The Government of India (GOI) hasaccorded high priority to the

establishment of cold chains and encourages major initiativesin this sector.

y Foreign equity participation of 51 percent is permitted for cold chain projects.y There is no restriction on import of cold storage equipment or establishing cold

storages in India.

y National Horticulture Board (NHB) operates a capital investment subsidy scheme (CISS)that subsidies the promoter.

According to the WTO statistical database, the US is the world's leading food exporterfollowed by

Netherlands, Germany, France and Brazil in the top five. In spite of the supplyadvantages, India stands a

distant 21st for the year 2007, with a 1.4 percent share in theglobal trade. India is a major exporter in

the Food Industry and imports less. The exports aregrowing at over 15 percent y-o-y with 2007 growth a

high 29 percent. During the period1980-2007, India's share in the global exports have increased from 1.1

percent to just 1.4percent, the majority of the increase happening in this decade.

Grain Processing

The grain processing sector, with 96 percent Primary Processing, has a limited exportsfocus. However,

Basmati Rice is gaining traction in the Indian market and commands apremium in the export market as

well. The table below shows the key segments and theproduction and Export/Import over the last two

years.


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The major exports segments are cereals and rice. Though production is expected to remainstagnant

during the year as compared to last year, the exports of cereals and rice isexpected to slightly increase.

India has expanded the basket for Basmati rice, by extending the classification. The Indiangovernment

last year expanded the definition of basmati, and it now recognizes even thoserice varieties as 'evolved

basmati' which have at least one traditional basmati grandparent.

Also, India had last year set the export floor for basmati at USD 1,200 per ton and alsoimposed an export

tax of USD 200 per ton to discourage exports and conserve domesticsupplies but has since revoked the

export tax, and lowered the export floor to USD 1,1003 per ton . This is expected to further boost

exports.Processed fish products for export include: conventional block frozen products, instant

quickfrozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi,textured

products and dry fish, etc.

European Union, USA, Japan, China, South East Asia, Middle East etc. are the major exportdestinations.

The export has been strong with frozen shrimp continuing the largest item interms of volume.In view of

the supply and growth potential of the sector, Government of India has set atarget to increase fisheries

export from INR 6000 crore to INR 14000 crore during the XIFive Year Plan Period. Achieving the target

for exports is dependent on the raw materialsupply; optimum capacity utilization of processing

industries, product diversification; value

addition and adherence to quality control regulations. The share of export of shrimp in blockfrozen form

is around 22 percent as against 2.2 percent in IQF form. The unit value of IQFproducts being INR 475 per

kg as against INR 194 per kg for the block frozen shrimp, thereis considerable scope for boost of marine

exports through value addition. Similarly, theshare of fish surimi which is priced at INR 68/kg, is only 3.2

percent of the total export ascompared to that of ribbon fish (which is the raw material for surimi)

which is priced at INR4 25/kg and enjoying an export share of 18.3 percent .

70 percent of Indian sea food exports constitute fish and shrimp in various forms and shrimp alone

accounts for 71.5 percent of the value of exports4. However value added products comprise of a smaller

share and the major share of the present export in volumetric terms is in bulk form. India needs to

promote value addition, be more export-driven by promoting products like fresh surimi, and raise the

share of IQF products that claim a higher price to boost trade.


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MILK PROCESSING-

Milk and milk products are produced for domestic consumption. Also, storage facilitiesinfrastructure

bottleneck prevent the segment from growing in exports. India's share inexports of dairy products in

international market is insignificant. These markets aredominated by OECD countries, some of whom

provide a very high level of support to theirdomestic producers which are unlikely to be scaled down in

the near future. SPS and TBTclauses are stringent and make the export markets protective.

In the current scenario, where the sector is strongly controlled by cooperatives, an export-oriented

growth strategy will need to support the private players at the expense of the Dairy Cooperative

Societies. Private sector targets very narrow segment of exports and emerging urban areas. This would

seriously affect the dairy farmers unless government comes up with innovative measures to produce

surplus milk at low cost at global quality standards.

INDIA'S FOOD PROCESSING TRADE BY GEOGRAPHY

The Indian food processing industry is primarily export oriented. India's geographical situation gives it

the unique advantage of connectivity to Europe, the Middle East, Japan, Singapore, Thailand, Malaysia

and Korea. India exports mostly to the proximate countries. Globally, most of the countries import from

countries that are geographically closer. For example, 45 percent of USA imports are from Canada and

Mexico. Another 50 percent is accounted by select Cairns group countries. EU imports 50 percent fromSpain, Netherlands, France, Italy, Belgium and Germany, while another 25 percent is accounted by select

Cairns group countries.


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INDIA FACES CHALLENGES ON THIS FRONT:

Poor quality and grading mechanisms for raw material leading to loss of consistency in variety of raw

material.

High level of wastage across the value chain

India is still a production-supply driven market and not a market demand driven. For example, the

apples produced in Himachal Pradesh are of table variety and not of the processing grade. There are not

enough grading facilities in India that can separate class A products from the rest. This not only leads to

wastage and higher costs for processors, but also low level of processing and value addition, leading to

lower realization for farmers. Improved knowledge on processing grade will improve supply of such

products and fetch remunerative prices for the farmers.

y Presence of too many intermediaries implying a high cost of raw materialy High costs of packagingy Low technology equipment and knowledgey High costs and poor quality of distribution

EXPORT PROMOTIONAL STRATEGY-

India needs to map demand with production capabilities.

Himachal Pradesh, known as the fruit bowl of the country, has approximately 200,000 hectares of land

under horticulture cultivation yielding about half a million tons of different kinds of fruit. The state earns

more than INR 25 billion from cultivation of fruits and vegetables. While apple is the main fruit crop,

other fruits like pears, peaches, cherries, apricots, almonds and plums are the major commercial crops

of Himachal Pradesh. Recently the production of apple has been severely affected by adverse climatic

changes. As an alternate, farmers in HimachalPradesh are increasingly moving towards commercial

cultivation amongst which one of the most preferred crops.

PESTAL ANALYSIS ON FOOD PROCESSING

INDUSTRIES-

POLITICAL

In terms of policy support, the ministry of food processing has taken the following initiatives:

y Formulation of the National Food Processing Policyy Complete de-licensing, excluding for alcoholic beveragesy Declared as priority sector for lending in 1999y 100% FDI on automatic routey Excise duty waived on fruits and vegetables processing from 2000 01


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y Income tax holiday for fruits and vegetables processing from 2004 05y Customs duty reduced on freezer van from 20% to 10% from 2005 06y Implementation of Fruit Products Ordery Implementation of Meat Food Products Ordery Enactment of FSS Bill 2005y Food Safety and Standards Bill, 2005

Apart from these initiatives, the Centre has requested state Governments to undertake the following

reforms:

y Amendment to the APMC Acty Lowering of VAT ratesy Declaring the industry as seasonaly Integrate the promotional structure

ECONOMIC

The size of the Indian urban food market is estimated at Rs 350,000 crore. The domestic market for

processed food is huge and fast growing. The retail boom will create a huge demand for the food-

processing sector in the coming years. Little wonder that 2007 has been designated the Year of Food

Technology.

The private sector is yet to realize its full potential in the food-retailing sector, as the market is still to

explore. Though, it has now started discovering the money there is to be made in the urban foodretailing market.

LEGAL

y Legal aspect has important role in grain sector act such as MRTP has been relaxed n made moreflexible

y There is continuous improvement in TPM and TQMy Legal document such as standardization sheet are required to meet the customer need

ENVIRONMENT

y Opportunity to trade globallyy Conducive working environmenty Subsidy provided by the government encourage development in this sectory Increased infrastructurey Vast domestic markety Various initiative and assistance in project make this sector more investor friendly


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FIVE FORCES ANALYSIS

THREAT OF NEW ENTRANTS

The threat of new entrants is an issue that large industry cannot ignore. Entry barriers into the industry

are quite low, because most of the processed food items have been exempted from the purview of

licensing under the Industries, Development and regulation, Act, 1951. There is also high potential for

incentives if these small industries are able to succeed. Both of these facts can be considered threats to

large established industries. The production of food grains is increasing but the capacity of processing is

not increasing, so there is also a gate open for new entrants. There is one more reason for low entry

barrier i.e., for the focused growth of the 'pulse milling and flour milling' sector, the Ministry is providing

financial assistance to the grain processing industries for its setting up/ expansion/ modernization in theform of grant. Indias comparatively cheaper workforce can be effectively utilized to setup large low cost

production bases for domestic and export markets. A few opportunities associated with potential

entrants is that established firms can take advantage of economies of scale in production, access to

distribution channels, and large amounts of capital to launch massive advertising campaigns.

The most common forms of entry barriers for food grain processing, except intrinsic physical or legal

obstacles, are as follows:

y Cost of entry: for example, investment into technology for oil processing because the grant isgiven for rice milling and flour milling only;

y Distribution channels: for example, ease of access for competitors;y Cost advantages not related to the size of the company: for example, contacts and expertise;y Differentiation: for example, certain brand that cannot be copied i.e. new entrants have to

introduce something new or something innovative to enter into the market.

Factors Affecting the Threat of New Entrants

The threat of new entrants is greatest when:

y Processes are not protected by regulations or patents.y Start-up costs are low for new firms entering the industry as ministry is giving grant for rice and

flour milling.

y Customers have little brand loyalty. Without strong brand loyalty, a potential competitor has tospend little to overcome the advertising and service programs of existing firms and is more likely

to enter the industry.

y Switching costs are low as there are many suppliers in the industry.Reducing the Threat of New Entrants

Enhancing the marketing/brand image, utilizing patents, and creating alliances with associated products

can minimize the threat of new entrants. Competitors may enter the industry if there are excess profits,


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setting a price that earns positive but not excessive profits could lessen the threat of new entry in the

industry.

POWER OF BUYERS

Buyers have the most power when they are large and purchase much of your output. If your business

sells to a few large buyers, they will have significant leverage to negotiate lower prices and other

favorable terms because the threat of losing an important buyer puts you in a weak position. Buyers also

have power if they can play suppliers against each other. The most important determinants of buyer

power are the size and the concentration of customers. The bargaining power of buyers is high where

there is a large number of undifferentiated small suppliers.

Factors Influencing the Bargaining Power of Buyers

Buyers have more power in this industry because:

y The industry has many small companies supplying the product and buyers are few and large.y The products represent a relatively large expense for the customers. Customers may not

purchase a barrel of oil, but they will purchase if they are selling it again to a retailer.

y The retailers have access to and are able to evaluate market information. The firm has lessroom for negotiation if buyers know market demand, prices, and costs.

y The firms product is not unique and can be purchased from other suppliers. If the brand ishomogenous or similar to all of the others, buyers will base their decision mainly on price.

y Customers can easily, and with little cost, switch to another product. For example, due tocompetition when Agro Tech Foods launched their lower-priced blended oil under Sundropumbrella they acquired mass market in edible oils.

Reducing the Bargaining Power of Buyers

The firm can reduce the bargaining power of their customers by increasing their loyalty by selling

directly to consumers, or increasing the inherent or perceived value of a product by adding features or

branding. In addition, if the firm can select the customers who have little knowledge of the market and

have less power, the firm can enhance their profitability.

POWER OF SUPPLIER

The suppliers have little power because there are numerous throughout India that industry can choose

who to buy from, so this would be considered an opportunity for industry. A threat involved with the

power of suppliers is that suppliers can fairly easily integrate forward into the industry and become a

rival.


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Every business requires inputslabor, parts, raw materials, services etc. The cost of the inputs can have

a significant effect on the industrys profitability. Whether the strength of suppliers represents a weak or

a strong force hinges on the amount of bargaining power they can exert and, ultimately, on how they

can influence the terms and conditions of transactions in their favor. Suppliers would prefer to sell to

the firm at the highest price possible or provide the firm with no more services than necessary. If the

force is weak, then the firm may be able to negotiate a favorable business deal for themselves.

Conversely, if the force is strong, then the firm is in a weak position and may has to pay a higher price or

accept a lower level of quality or service.

In the food grain processing industry, there are many suppliers for raw materials like in flour milling, the

firm can buy wheat directly from the farmers or ITC or the wholesaler. So the force is weak and the firm

is able to negotiate a favorable business deal.

Factors Affecting the Bargaining Power of Suppliers

Suppliers have the most power when:

The input(s) the firm requires are available only from a small number of suppliers. For instance, rice

mainly produced in southern region of the country so the rice milling firm in northern region has small

number of suppliers.

The inputs the firm requires are unique, making it costly to switch suppliers. If the firm uses a certain

enzyme in a food manufacturing process, changing to another supplier may require the firm to change

their entire manufacturing process. This may be very costly to the firm, thus they will have less

bargaining power with their supplier.

It is difficult for the firm to switch to another supplier.

The firm does not have a full understanding of their suppliers market. They are less able to negotiate

if they have little information about market demand, prices, and suppliers costs. for example Jaora

Gold.

Reducing the Bargaining Power of Suppliers

To increase the firms power, form a buying group of small producers to buy as one large-volume

customer. If the firm has the resources, they may choose to integrate back and produce their own inputs

by purchasing one of their key suppliers or doing the production their self.

Threat of substitutes

The threat that substitute products pose to an industry's profitability depends on the relative price-to-

performance ratios of the different types of products or services to which customers can turn to satisfy

the same basic need. The threat of substitution is also affected by switching costs that is, the costs in

areas such as retraining, retooling and redesigning that are incurred when a customer switches to a

different type of product or service. Products from one business can be replaced by products from

another. If a firm produces a commodity product that is undifferentiated, customers can easily switch


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away from their product to a competitors product with few consequences. In contrast, there may be a

distinct penalty for switching if their product is unique or essential for their customers business.

Substitute products are those that can fulfill a similar need to the one that a firms product fills. As an

example, a family restaurant may prefer to buy the processed pulse by a firm, but if given a better deal,

they may go to another supplier.It also involves:

Product-for-product substitution (soya oil for groundnut oil); is based on the substitution of need;

Substitution that relates to something that people can do without (soya oil, groundnut oil).

Factors Affecting the Threat of Substitution

Substitutes are a greater threat when:

A firms product doesnt offer any real benefit compared to other products. What will hold their

customers if they can get an identical product from their competitor?

Customers have little loyalty. When price is the customers primary motivator, the threat of

substitutes is greater.

Reducing the Threat of Substitutes

The firm can reduce the threat of substitutes by using tactics such as staying closely in tune with

customer preferences and differentiating their product by branding. In some cases, the advertising

required to differentiate is more than one firm can bear. In that case, collective advertising for an

industry may be more effective.

RIVALRY AMONG COMPETING FIRMS IN INDUSTRY

Rivalry among competitors is often the strongest of the five competitive forces, but can vary widely

among industries. If the competitive force is weak, companies may be able to raise prices, provide fewer

products for the price, and earn more profits. If competition is intense, it may be necessary to enhance

product offerings to keep customers, and prices may fall below break-even levels.

Rivalries can occur on various playing fields. In food grain processing industries, rivalries are centered

on price competition especially industries that sell edible oils, for example the Agro Tech Foods

launched their lower priced Sundrop edible oil. In other industries, competition may be about offering

customers the most attractive combination of good ingredients, or creating a stronger brand image than

competitors.

Factors Influencing Rivalry among Competitors

The most intense rivalries occur when:

One firm or a small number of firms have incentive to try and become the market leader. In some

cases, an industry with two or three dominant firms may experience intense rivalry when these firms are

battling to achieve market leader status. In other situations, when competitors with diverse strategies

and relationships have different goals and the rules of the game are not well established, rivalry will

be more intense.


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For example the government is providing grants for establishing new flour and rice milling.

There are high fixed costs of production. When a large percentage of the cost to produce products is

independent of the number of units produced, businesses are pressured to produce larger volumes. This

may tempt companies to drastically cut prices when there is excess capacity in the industry in order to

sell greater volumes of product.

Products are perishable and need to be sold quickly. Sellers are more likely to price aggressively if they

risk losing inventory due to spoilage or if storage costs are high.

Products are not unique or homogenous. Undifferentiated products (commodities) compete mainly on

price, because consumers receive the same value from the products of different firms. Because firms do

not experience any insulation from price competition, there is more likely to be active rivalry.

Customers can easily switch between products. Intense rivalry is likely when customers in a given

industry can easily switch to other suppliers. In these situations, the businesses in the industry will be

vying for market share.

Reducing the Threat of Rivals

Threats of rivals can be reduced by employing a variety of tactics. To minimize price competition,

distinguish the product from the competitors by innovating or improving features. Other tactics include

focusing on a unique segment of the market, distributing your product in a novel channel, or trying to

form stronger relationships and build customer loyalty.

SWOT ANALYSIS OF FOODPROCESSINGINDUSTRY

STRENGTHS

Abundant availability of raw material

Priority sector status for agro-processing given by the central Government

Vast network of manufacturing facilities all over the country

Vast domestic market

WEAKNESSES

Low availability of adequate infrastructural facilities

Lack of adequate quality control and testing methods as per international standards

Inefficient supply chain due to a large number of intermediaries


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High requirement of working capital.

Inadequately developed linkages between R&D labs and industry.

Seasonality of raw material

OPPORTUNITIES

Large crop and material base offering a vast potential for agro processing activities

Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield projects

Rising income levels and changing consumption patterns

Favourable demographic profile and changing lifestyles

Integration of development in contemporary technologies such as electronics, material science,

bio-technology etc. offer vast scope for rapid improvement and progress

Opening of global markets

THREATS

Affordability and cultural preferences of fresh food

High inventory carrying cost

High taxation

High packaging cost

OPPORTUNITIES IN FOOD PROCESSING CHAIN

Depicted below is a generic representation of Food value chain. It involves multiple steps

and relationships between multiple players with multiple ministries and departments

providing policy and regulatory support. It is important to note that the value chain need not

be sequential as shown and can jump a level or two in a few cases.


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Farm input Companies that provide farm equipment, seeds, fertilizers etc.

Farming Agricultural production combines the farm inputs with other inputs such as land,water, labor

and investment.Marketing/Aggregator Farmers usually sell the crop to a market aggregator who buys

frommultiple farmers and sells to a processor. Farmers, if they are big enough and/or nearer tothe

processor, or are under a direct procurement contract etc., can directly sell to theprocessor. Farmers

can also choose to sell the crop directly to the consumers dependingupon the nature of the crop.

Processors to Consumers The processor does some value addition to the primary foodsand delivers

processed food to consumers with the help of Logistics providers and Retailoutlets. Consumers can be

individual or institutions. The key attributes that help sell the final goods to the consumers are design,

distribution and marketing.

Enablers: At each stage of the process, the players are supported by a set of business enablers like

Financing, Transport, Infrastructure Both hard and soft, Quality and Safety certifications, and

Knowledge about the market. At an overarching level is the government policy that provides an enabling

environment for all players to function in the industry competitively and in a socially responsible manner

Key Opportunities-

1. Process able varieties of crops- India is blessed with multiple agri-climatic zones and hasadvantages of round-the-year cultivation capability. India still produces varieties of crops,

tomatoes and oranges for example, that are not commercially viable for producers. The lack of

production and identification of items with commercial viability contributes to the significant

wastage. We import apples from USA as the apples of Himachal Pradesh lack enough juice for

processing. India needs to focus on more process able variety of crops to reduce wastage,

increase processing levels and hence value addition.

2. Contract forming- Eighty percent of India's 115 million farms are situated on plots of less than 2ha. A little over 1 percent of all farms are larger than 10 hectares and these constitute 15

percent of the cultivated land. With organized retail penetration increasing and government's

proposed mega food parks obviating the need foran intermediary, Contract Farming is an

opportunity for the processors that will help in better handling, price realization and minimizing

wastage.

PepsiCo and Cadbury's examples of contract farming in India can be a model for others to follow. The

potato farming initiated by Pepsi in Jharkhand can be useful in making potato chips that can be supplied

to food chains like Mc Donald's and others.

3. Investment in infrastructure through PPP- Government has announced various policy measuresand tax incentives for cold chain and warehousing, Food Parks and Agri -Export Zones to

augment the storage and processing capacity. Lack of infrastructure is a major roadblock

impeding the growth of the processed food segment. With a lot of

emphasis on value addition in food processing, it is imperative that investments in infrastructure are a

must and should have favorable policy framework and fiscal incentives.


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MEGA FOOD PARKS

Lot many State governments have taken the policy directive from the center and have planned Mega

Food parks with associated fiscal incentives. The proposed food parks aim to bring together all players in

the value chain together so as to minimize waste and improve value addition in the industry.

This move will also help farmers realize better prices by removing intermediaries. The processors also

will be benefited by a better inventory management and production planning.

The proposed mega-food parks will be between 10 and 100 hectares in size and 30 locations across India

had already been identified. The parks would be set up through private consultants with the

government providing grants of up to INR 1 500 million each.

Each mega food park will have a minimum catchment area of five districts. With a chain developing from

the farm gate to the retail shelves with collection and distribution centers and central processing centers

in between, where functions like sorting, grading and packaging along with irradiation, food

incubationcum- development will take place, the food processing ministry hopes this initiative to be a

commercial success.

INTEGRATED COLD CHAIN

India wastes more fruits and vegetables than it consumes. About 30 percent of the fruits and vegetables

grown in India (40 million tons amounting to USD 13 billion) get wasted annually

due to gaps in the cold chain such as poor infrastructure, insufficient cold storage capacity, unavailability

of cold storages in close proximity to farms, poor transportation infrastructure, etc. This results in

instability in prices, farmers not getting 2 remunerative prices and rural impoverishment. Government

plans to encourage setting up of Integrated Cold Chain facilities to improve storage and reduce waste by

not missing any link in the value chain from the farmer to the consumer/retailer.

Food Safety Management Systems

Food safety is a growing concern across both developed anddeveloping nations. The introduction of

Sanitary andPhytosanitary Agreement and stringent safety regulations means the Indian

Processors/Producers should beknowledgeable of the Food Safety requirements.

Foodretailers/Independent bodies/Exporters should take theinitiative in educating the backward

linkages. Goingforward, there will be a need for Food Safety certifyingagencies (for ISO 22000)

authorized by the importing countriesor standards setting boards.

The opportunity in food processing industry is significant, but so are the challenges that ail

the sector. Certain limitations could be seen as an opportunity waiting to be exploited for

the allied sectors and others as a guiding light to a roadmap for government's intervention.


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KEY GROWTH DRIVERS OF FOOD PROCESSING

SECTOR IN INDIA:

y Increasing spending on health and nutritional foods.y Increasing number of nuclear families and working womeny Changing lifestyley Functional foods, fresh or processed foodsy Organised retail and private label penetrationy Changing demographics and rising disposable incomesy Increased urbanizationy Improved standards of livingy Increasing disposable incomey Emergence of organised food retaily Changing lifestyles and food consumption patterns

CONSTRAINTS:y Low income and the high share of basic food in the household consumption expenditurey Easy availability of raw materials for cooking, preference for consumption of food at home

etc.

y Low productivity, high wastage.y

In-adequate infrastructure for sorting, grading, packing etc. in addition to the high cost ofraw material (at processors level).

y APMC Act which restricts sourcing materials from farmers.y Lack of a common policy on Contract farming.y Lack of trained man power for various stages of processing, storage, marketing and

branding.

y Lack of access to modern technology.y Lack of suitable infrastructure in terms of warehousing, etcy Lack of adequate quality control and testing infrastructurey Inefficient supply chain and involvement of middlemeny High inventory carrying costy High taxationy High packaging costy Access to Credit for farmers as well as small and medium food processors is a key issue.y Over 75% rely on informal credit at very high interest rates leading to increase in cost of

production affecting competitiveness.

y Inability to attract investment by large corporate houses who complain of unreliable sourcesof supply of raw material.

y Inability of Government Schemes to have the desired impact on productivity, technologyand market arrivals.


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GOVERNMENT INITIATIVES-

y Formulation of the National Food Processing Policyy Excise duty waived on fruits & vegetables processing from 2000 01y Income tax holiday for fruits & vegetables processing from 2004 05y Food Safety & Standards Bill, 2005

Apart from these initiatives, the Centre has requested state Governments to undertake the following

reforms:

y Amendment to the APMC Acty Lowering of VAT ratesy Declaring the industry as seasonaly Integrate the promotional structure

POLICY INITIATIVES

Several policy initiatives have been taken from time to time to promote growth of the processed foodsector in the country. Some of these are:

y Most of the processed food items have been exempted from the purview of licensing under theIndustries (Development & Regulation) Act, 1951, except items reserved for small-scale sector

and alcoholic beverages.

y Food processing industries were included in the list of priority sector for bank lending in 1999.y Automatic approval for foreign equity upto 100% is available for most of the processed food

items excepting alcohol and beer and those reserved for small scale sector subject to certain

conditions.

y Excise duty on processed fruit and vegetables has been brought down from 16% to zero level inthe Budget, 2001-02.

y In the Budget of 2004-05 income tax holiday and other concessions were announced for certaincategories of food processing industries.

y In the Budget 2006-07 excise duty has been waived on condensed milk, ice cream, preparationsof meat, fish and poultry, pectins, pasta and yeast. Excise duty on ready to eat packaged foods

and instant food mixes, like dosa and idli mixes have been reduced from 16% to 8%. Excise duty

on aerated drinks has been reduced from 24% to 16%. Fruit and vegetable processing units are

already exempted from payment of excise duty.

y To ensure easy availability of credit, Government has included food processing industries in thelist of priority sector for bank lending. NABARD has created a refinancing window with a corpusof Rupees one thousand crore for agro processing infrastructure and market development.

y Licensing powers have been delegated to regional offices under Fruit Products Order, 1955.y In Budget 2007-08 excise duty has been waived on all kinds of food mixes including instant

mixes, Soya Bari, (Food supplement) and ready to eat packaged foods and on Biscuits.

y Excise duty on reefer vans (refrigerated motor vehicles) has been reduced from 16% to 8%.Exemption limit of excise duty for small scale industry has been raised from Rs. 1.00 crore to

1.50 crores.


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y Customs duty on refrigerated motor vehicles has been waived while customs duty on foodprocessing machinery reduced from 7.5% to 5%. duty on sunflower oil (crude) reduced from

65% to 50% and on sunflower oil (refined) reduced from 75% to 60%.

y Special additional duty of 4% has been waived in the case of refined edible oil.y Central sales tax reduced from 4% to 3%.y All services provided by Technology Business Incubators and their Incubatees whose annual

business turnover do not exceed Rs. 50 lakhs have been exempted from service tax for the first

three years.

DEVELOPMENTAL INITIATIVES

y Providing assistance under various Plan schemes to Food Processing Industries.y Widening the R&D base in food processing by involvement of various D institutes and support to

various D activities.

y Human Resource Development to meet the growing requirement of managers, entrepreneursand skilled workers in the food processing industry.

y Assistance for setting up analytical and testing laboratories, active participation in the layingdown of food standards and their harmonization with international standards.

y Ministry has set up a national level institute called National Institute of Food Technology,Entrepreneurship and Management (NIFTEM) at Kundli in Haryana. The Institute will be of

international standards. Institute will start functioning from academic year beginning from July

2009.

y Sevottam, Charter mark in service delivery for excellence is being introduced in the Ministry.y An Integrated Food Law i.e. Food Safety and Standards Act, 2006 has been notified on

24.08.2006. The Act will enable in removing multiplicity of food.

y Laws and regulatory agencies and will provide single window to food processing sector. Ministryof Health & Family Welfare has been designated as the nodal Ministry for administration and

implementation of the Act.

y Decentralization of processing and disbursement of grant under Scheme for Technology Upgradation / expansion / modernization of food processing industries through Bank financial

institutions.

REGULATORY INITIATIVES

The Ministry regulates the fruit and meat processing industry through the following regulatory orders:

y Implementation of Fruit Products Order (FPO), 1955.y Implementation of Meat Food Product Order (MFPO), 1973.


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CHALLENGES:

It has been repeatedly emphasized time and again that this sector offers immense opportunities across

the entire value chain; however, we still have some way to go before we are able to grab these

opportunities. Even today we are grappling with issues of quality and quantity of raw produce,

fragmentation of land holdings, constraints in land availability and low labor productivity with slow

adoption of technology. On the Infrastructure front, we have supply chain and wastage related

problems and low levels of value addition etc. The other issues of concern, holding this sector back are

impaired access to credit; inconsistency in state and central polices, which requires all of us, at the

Center and at the State level to work as one single cohesive unit.

PolicyIntervention needed:-

Whilst, the Government initiatives aimed at bringing about regulatory reforms and infrastructure

development in agriculture marketing and private sector investment in infrastructure creation have

created the much desired vibrancy in the sector in recent times. However, there is paramount need to

take big ticket measures to catapult the growth of food processing sector and take to the high growth

trajectory.

Second Green Revolution in Agriculture

The first Green Revolution has run its course. Cereal yields are rising very slowly, water tables are

plunging, and agricultural growth is also low. India needs a second Green Revolution in India which takes

rice and wheat cultivators beyond the grain production stage to agro-food processing and gives value

addition. This high end initiative requires commitment from all the stakeholders in the food value chain.

Comprehensive National Level policy on Food Processing

The comprehensive policy will ensure private sector investment in infrastructure development,increasing farm productivity and up gradation of quality and give further impetus to the food processing

sector.

Inter-MinisterialWorking Group to Address the Issues

The Government should set up Inter Ministerial Working Group (IMWG) under the leadership of

Ministry of Food Processing to look at comprehensively addressing various issues that are holding this

sector back.

Implementation ofGST as per the set deadline

Government should ensure timely implementation of GST to provide incentive to the food processingsector, while removing subjectivity in treatment and classification of various food products. Some

packaged foods which are of daily necessities, be classified at lower rate of taxation.

Implementation of Food Safety and Standards Act (FSS Act)

Government should ensure the enforcement of the Food Safety and Standards Act in spirit including

increasing radically the number of trained inspectors and state of the art lab facilities.

Implementation of all the Provisions of Model Act across all States/UTs.


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One of major issues holding the sector back is the non-implementation of all the provisions of the Model

Act across all the sates/UTs. The Government should ensure speedily implementation of all the

provisions of the act.

Credit Access to Food Processing Industries

The Government should establish a National bank, on the lines of NABARD, to lend credit to food

processing industries. This will ensure speedily disbursals of the funds to food processing sector, always

grappling, with the issue of lack of access to credit from banks.

All Industry incentives under single window clearance.

Government should bring all Industry incentive policies under single window clearance. A nodal body

under Food processing Industry with single window clearance of all issues, must be created so that no

separate rules and regulations comes from different ministries to impact the sector without due

deliberations.

FINANCIAL AND BANKING POLICIES-

The following items within the food and agro-based processing sector would be eligible for classification

as priority sector for lending by banks: -

y Fruit and vegetable processing industryy Food grain milling industryy Dairy productsy Processing of poultry and eggs, meat productsy Fish processingy Bread, oilseeds, meals (edible), breakfast foods, biscuits, confectionery (including cocoa

processing and chocolate), malt extract, protein isolate, high protein food, weaning food and

extruded/other ready to eat food products

y Aerated water/soft drinks and other processed foodsy Special packaging for food processing industriesy Technical assistance and advice to food processing industries

Based on the recommendations of an Internal Working Group, the Reserve Bank of India (RBI) has come

out with revised guidelines on priority sector lending which take into account the revised definition of

small and micro enterprises as per the Micro, Small and Medium Enterprises Development Act, 2006.

As per the revised guidelines RBI will allow banks to include direct finance to companies for agriculture

and allied activity of up to Rs1 crore as priority sector lending (PSL) exposure as against the earlier

exposure of Rs20 lakh.

Direct finance to agriculture shall include short, medium and long term loans given for agriculture and

allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers, Self-

Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others

(such as corporates, partnership firms and institutions) up to the limits indicated in Section I, for taking

up agriculture/allied activities. Indirect finance to agriculture shall include loans given for agriculture and

allied activities.


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Direct finance to small enterprises shall include all loans given to micro and small (manufacturing)

enterprises engaged in manufacture/ production, processing or preservation of goods, and micro and

small (service) enterprises engaged in providing or rendering of services, and whose investment in plant

and machinery and equipment (original cost excluding land and building and such items as mentioned

therein) respectively, does not exceed the amounts specified in Section I, appended.

The micro and small (service) enterprises shall include small road & water transport operators, small

business, professional & self-employed persons, and all other service enterprises. Indirect finance to

small enterprises shall include finance to any person providing inputs to or marketing the output of

artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.

Retail Trade shall include retail traders/private retail traders dealing in essential commodities (fair price

shops), and consumer co-operative stores.

Provision of credit and other financial services and products of very small amounts not exceeding

Rs.50,000 per borrower, either directly or indirectly through a SHG/JLG mechanism or to NBFC/MFI for

on-lending up to Rs.50,000 per borrower, will constitute micro credit. Education loans include loans and

advances granted to only individuals for educational purposes up to Rs10 lakh for studies in India and

Rs.20 lakh for studies abroad, and do not include those granted to institutions.

Loans up to Rs.20 lakh to individuals for purchase/construction of dwelling unit per family, (excluding

loans granted by banks to their own employees) and loans given for repairs to the damaged dwelling

units of families up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban and

metropolitan areas.

CONCLUSION

Indian food industry is making an important mark in the global food arena as a large producer and

exporter of agro food products. At present small players dominate the Indian food processing industry.

The industry needs larger companies, which have financial muscle for establishing a large market

network and also to invest in technology. The favorable policy environment and increasing interest of

corporate in agro food processing sector, augurs well for India, which is well on track to become one of

the leading food nations of the world.


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REFERENCE1. www.mofpi.nic.in2. www.rbi.org.in3. www.agricoop.nic.in4. www.dacnet.nic.in5. www.agri.gujrat.gov.in6. www.antya.com7. www.cifti.com8. www.fciweb.nic.in9. www.fcinez.com10.www.wikipedia.com11.www.google.com

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Report on Food Processing Final

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