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FOOD PROCESSINGFOOD PROCESSINGFOOD PROCESSINGFOOD PROCESSINGFOOD PROCESSINGIN INDIAIN INDIAIN INDIAIN INDIAIN INDIA

Chronicle IAS Academy [1]

India is the world’s second largest producerof food next to China, and has the potential ofbeing the biggest in the food and agriculturalsector. The food processing industry is one of thelargest industries in India-it is ranked fifth interms of production, consumption, export andexpected growth.

Performance of this sector has improvedsignificantly in the recent years. Manufacturingsector was generally growing at a higher ratethan FPI till 2009-10. Performance of FPIimproved substantially in 2010-11; almost at parwith manufacturing sector. In 2011-12, as perthe Index of Industrial Production (IIP), FPI hasout-performed manufacturing; while FPI grewat 15.1 per cent, manufacturing growth wasclose to 3.0 per cent.

This sector has a total of 35,838 registeredunits with an invested capital of nearly Rs. 2.5lakh crore producing an output of around Rs. 5.8lakh crore in value terms. Major industriescontributing to this sector are grain mills, sugar,edible oils, beverages and dairy products. As canbe seen from the table, total number of factoriesin FP Sector [constituting both Food Products:Division-10 & Beverages: Division-11] in 2010-11is 35,838. This is 30.4 per cent higher as comparedto 2009-10. The sector has generated employmentto the tune of 16.75 lakh persons which is higherby 4.3 per cent as compared to the previous year.Similarly, Capital invested in FP sector has alsoincreased significantly by 28.6 per cent.

Further Food processing sector is highlylabour absorptive and less capital intensive innature. As per ASI:2010-11, among all industries

'Food products' generated the highestemployment (12.2%), followed by 'Textiles'(11.5%), 'Basic metals' (8%), 'Other non-metallicproducts' (7.3%) and 'Wearing apparel' (6.9%).In terms of capital requirement, capital to outputco-efficient Food Products is 0.19 implying foodproducts requires less capital for producing oneunit of output, in value term, as compared toother labour intensive industries.

In terms of emoluments or compensation toemployees, 'Basic Metal' has the highest share(11.2%) followed by 'Machinery and equipments'(8.3%), 'Motor vehicles, trailers and semi-trailers'(8%). However, among labour intensiveindustries, 'Food products' (7.7%) has the highestshare of employment followed by 'Textiles'(7.6%). Similarly, fixed capital per employee isvery favourable at Rs. 6.54 lakh per employee in“Food Product” industry as compared to Rs. 7.45lakh in “Textiles” and overall industry averageof Rs. 12.64 lakh.

In an emerging country like India, wheregrowth with equity is a primary policy thrust,the optimum development of the food processingsector will contribute significantly in tacklingseveral developmental concerns such asdisguised unemployment in agriculture, ruralpoverty, food security, food inflation, improvednutrition, prevention of wastage of food, etc. Byserving as a bridge between agriculture andmanufacturing and by dealing with the basicneeds of all Indian citizens – the assured supplyof healthy and affordable food at all locations inthe country, this sector has the potential to be amajor driver in India's growth in the coming years.

MAJOR SUB SECTORS

Food processing is a large sector that coversactivities such as agriculture, horticulture,plantation, animal husbandry and fisheries. Italso includes other industries that use agriculturalinputs for manufacturing of edible products.

a) Fruits & Vegetable Processing:

• India produces the widest range of fruitsand vegetables in the world.

• It is the second largest vegetable (100million tonnes) and fruit (50 million tonnes)

FOOD PROCESSING

IN INDIA

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producer accounting for 8.4 per cent of theworld’s fruit and vegetable production.

• The share of organized sector in fruitprocessing is estimated to be nearly 50 percent.

• Fruit production in India registered agrowth of 3.9 percent over the yearswhereas the fruit processing sector grewseveral times faster at 20 per cent over thesame period.

• The total area under fruit cultivation isestimated at 4.18 million hectares and 7.59million hectares under vegetablecultivation.

• However less than 2 per cent of the totalvegetables produced in the country arecommercially processed, as compared tonearly 70 per cent in Brazil and 65 percent in USA.

• India’s installed capacity for fruits andvegetable processing increased from 1.1million tonnes in 1993 to 2.77 milliontonnes in 2007.

• About 20 per cent of processed fruits andvegetables are exported.

• Major products exported include fruitpulps, pickles, chutneys, canned foods,concentrated pulps and juices andvegetables.

• Fruit exports registered a growth of 16 percent in volume and 21 per cent in valueterms in 2006-07.

• Mango and mango based products aloneconstitute 50 per cent of the exports.

b) Milk Processing:

• Indian stands first in the world in terms ofmilk production.

• The current size of the Indian dairy sectoris Rs.3133.5 billion and has been growingat 5 per cent a year.

• The dairy sector ranks first in terms ofprocessed foods with 37 per cent of theproduce being processed.

• The organized sector processes an estimated20 percent of the total milk output in India.

• There are 676 dairy plants registered withGovernment of India, which come underthe organized sector.

• The cooperative sector dominates the milkindustry with over 70,000 village level dairyfederations at the state level.

• Gujarat Cooperative Milk MarketingFederation (GCMMF or AMUL) is the mostsuccessful player in the evolution of theIndian Dairy Industry.

• Milk and milk products contribute to asignificant 17 per cent of the country’s totalexpenditure on food.

• The market for dairy products is expectedto grow at 15-20 per cent.

c) Fish Processing:

• India has large marine product andprocessing potential with varied fishresources along the 8,041 km coastline,28,000 km of rivers and millions of hectaresof reservoirs and brackish water.

• India is the third largest fish producer inthe world and second in in-land fishproduction.

• The Fisheries sector in India has beenclassified into marine, inland andaquaculture.

• The fisheries sector contributes nearly 1 percent to the country’s GDP. This segmentalso provides employment to 11 millionpeople engaged fully, partially or insubsidiary activities pertaining to the sector.

• India’s fish production stood at a level of6.4 million tonnes. Of this, about 60 percent (3.9 million tons) came from marineresources.

• Fish processing is mostly targeted for exportmarkets. Processed fish product exportsinclude conventional block frozen products,individual quick frozen products andminced fish products like fish sausage,cakes, cutlets, pastes, etc.

d) Meat and Poultry Processing:

• India has the largest number of livestockpopulation in the world accounting for 50per cent of buffaloes and 16 per cent of thegoat population.

• Meat production is Rs.625 million and Meatexport is Rs.5.2 million.


• Most of the animals in India are not bredfor meat. Animals generally used forproduction of meat are cattle, buffaloes,goats, sheep, pigs and poultry.

• Only 11 per cent of the buffalo population,6 per cent of the cattle, 33 per cent of thesheep and 38 per cent of the goatpopulation is culled for meat.

• In the case of poultry, export from India ismostly to Maldives and Oman. Othermarkets such as Japan, Malaysia, Indonesiaand Singapore are being explored.

• The growing number of fast food outlets inthe country has had a significant impacton the meat processing industry in India.As per capita incomes rise and urbanfamilies live in smaller units, the demandfor processed meat products, which can bequickly cooked, has been rising. Most ofthe production of meat and meat productscontinues to be in the unorganized sector.

e) Consumer food industry

Consumer food industry includes packagedfoods, aerated soft drinks, packaged drinkingwater and alcoholic beverages.

Packaged or Convenience Foods

• This segment comprises bakery products,ready-to-eat snacks, chips, namkeens(salted snacks and savouries) and otherprocessed foods/ snack foods.

• The market size of confectioneries isestimated at US$ 484.3 million growing atthe rate of 5.7 per cent per annum. Biscuitshave a market of US$ 373.4 million,growing at 7.5 per cent per annum.

• Other products like bread, chocolates arealso growing at a significant rate. There isa demand for Indian snack food (Ready-To-eat) in overseas markets. The exportsmarket is estimated at US$ 33.4 million andis growing at around 20 per cent annually.

• The packaged food industry has aroundover 60,000 bakeries, 20,000 traditional foodunits and several pasta food units. In thepast decade several new biscuits &confectionery units, soya processing unitsand starch/glucose/sorbitol producingunits have come up. Multinational

Companies are coming up in confectioneryand cocoa based products areas.

Aerated Soft Drinks

• The aerated soft drinks industry in Indiacomprises hundreds of plants across allStates. It provides direct and indirectemployment to over 125,000 employees. Ithas attracted one of the highest foreigndirect investments in the country,amounting to around US$ 1049 million.Two of the biggest global brands in thissegment are well established in India.

• Soft drinks constitute the third largestpackaged foods segment, after packed teaand packed biscuits. Total export earningsof the industry are over US$ 156 millionper annum.

Packaged Drinking Water

• The market size for packaged drinkingwater in India has been estimated at aroundUS$ 223 million. The industry comprises215 companies which have been grantedlicense for manufacturing packageddrinking water and 3 for manufacturingpackaged natural mineral water. Trendssuch as shortage of drinking water in thelarge metropolitan cities, changes inconsumer lifestyles leading to demand forconvenience and availability of variouspackaged sizes to suit different needs haveled to a spurt in growth over the last 3-4years and these trends are expected tocontinue to fuel demand in this sector.

Alcoholic Beverages

• India is the third largest market for alcoholicbeverages in the world. The demand forspirits and beer is estimated to be around373 million cases per annum. There are 12joint venture companies producing grainbased alcoholic beverages that have acombined licensed capacity of 33.9 millionlitres per annum. 56 units are engaged inmanufacturing beer under license from theGovernment of India. The demand perannum for wine in the domestic market isestimated to be around 6 million bottles(750 ml), while the domestic production ofwine is over 2.4 million bottles.


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The various competitive advantages in the foodprocessing sector that India enjoys over othernations are:

1. India’s comparatively cheaper workforcecan be effectively utilized to setup largelow cost production bases for domesticand export markets. Cost of productionin India is lower by about 40 per centover a comparable location in EU and10-15 per cent over a location in UK.

2. Due to its diverse agro-climaticconditions, it has a wide-ranging andlarge raw material base suitable for foodprocessing industries.

3. India ranks No. 1 in the world inproduction of Milk (Fresh & whole ofBuffalo and Goat), Cashew NutsShelled, Ginger, Chick Peas, Bananas,Guavas, Papayas, Mangoes andIndigenous Buffalo Meat. Further, Indiaranks No. 2 in the world in productionof Rice, Wheat, Potatoes, Garlic, CashewNuts, Groundnuts, Dry Onion, GreenPeas, Pumpkins, Gourds, Cauliflowers,Cow Milk and Sugarcane.

4. India has the largest irrigated land inthe world. It is also world’s largestproducer of milk, tea and pulses. Indiahas large marine product and processingpotential with varied fish resourcesalong the 8,041 km coastline, 28,000 kmof rivers and millions of hectares ofreservoirs and brackish water. India alsopossesses the largest livestock populationin the world with 50 per cent of world’sbuffaloes and 20 per cent of cattle.

5. Investments in food industry areincreasing, not only by domestic firmsand Indian government, but also foreigndirect investment.

6. The Indian food processing industry hassignificant support from the welldeveloped R&D and technical

capabilities of Indian firms. India has alarge number of research institutionslike Central Food TechnologicalResearch Institute, Central Institute ofFisheries Technology, National DairyResearch Institute, National Researchand Development Centre etc. to supportthe technology and development in thefood processing sector in India.

7. India's large market size, relativelyyoung population, growing middle classand changing life styles also createsincredible market opportunities for foodproducers, food processors, machinerymakers, food technology and serviceproviders in this sector.

8. Urbanization, growth of nuclearfamilies, increasing proportion ofworking women, changing taste forglobal and non-traditional cuisine,increasing preference for health foods,growth and penetration of retail chainsetc. also act as drivers to give thisindustry a boost.For instance, Accordingto report of ICRA the proportionateexpenditure on staples like cereals, gramsand pulses declined from 45 per cent to44 per cent in rural India while the figuresettled at 32 per cent of the totalexpenditure on food in urban India.

A large part of this shift in consumptionis driven by the processed food market,which accounts for 32 per cent of thetotal food market. It accounts for US$29.4 billion, in a total estimated marketof US$ 91.66 billion. The foodprocessing industry is one of the largestindustries in India -- it is ranked fifth interms of production, consumption,export and expected growth. Accordingto the Confederation of Indian Industry(CII) the food-processing sector has thepotential of attracting US$ 33 billion ofinvestment in 10 years and generateemployment of 9 million person-days.

INDIA'S STRENGTH IN FOOD PROCESSING

SIGNIFICANCE OF FOOD PROCESSING INDUSTRY IN INDIA

To the economy:

• The sector contributes as much as 9.0 to10.0 percent of GDP.

• During the last 5 years ending 2011, FPIsector has been growing at an AverageAnnual Growth Rate (AAGR) of around 6


per cent as compared to around 4 per centin Agriculture and 9 per cent inManufacturing.

• In terms of investments, food processingsector has registered a positive growth interms of Capital Invested (fixed capital andphysical working capital). The investedcapital in industry growing at an AverageAnnual Growth Rate of 22.17 per cent.

• FDI is permissible for all the processed foodproducts up to 100 per cent on automaticroute except for items reserved for Microand Small Enterprises. FDI attracted in2012-13 (April-August) was 336.10 crores.

To the social development:

• The food processing sector will providebetter market access to farmers. Adeveloped food processing industry willreduce wastages, ensure value addition,generate additional employmentopportunities as well as export earnings andthus lead to better socio-economicconditions of millions of farm families.

• The sector can create jobs for rural poor,

and thus reduce the burden on agriculturalsector for creation of their livelihood.

• According to the Annual Survey ofIndustries for 2010-11, Food ProcessingIndustry provides employment to 16.75lakh persons in registered industry.

• During the last five years, employment inregistered food processing sector has beenincreasing at an Annual Average GrowthRate of 3.8 per cent. Unregistered foodindustry sector support employment to 47.9lakh workers. (NSSO).

• Share of employment in registered foodprocessing industry has increased from 18per cent in 2005-06 to 25.9 per cent in 2010-11.

To food security:

It has been noticed that the wastage in hugeamounts occur in fruits and vegetables, pulsesand cereals. Thus food processing industryprovides a suitable supply chain which reducesthe wastages and ensure grater supply to theconsumer to meet their daily needs. This alsocontrols food inflation.

MAJOR LOCATIONS OF FOOD PROCESSING INDUSTRY IN INDIA

As the food processing sector is growing,several states in India are focusing on developingthe sector and attracting investments in it. SomeStates are at an advantageous position withrespect to others due to favourable raw materialpresence, market demand and other institutionalfactors. Some locations of food processingindustries are discussed below:

• Andhra Pradesh

Andhra Pradesh is a key state thatcontributes significantly to the food and foodprocessing sector in India. The state ranks firstin the country in area and production ofmango,oil palm, chillies and turmeric, second incitrus and coriander,third in cashew, fourth inflowers and fifth in grapes, banana,ginger andguava based on area and production. It accountsfor a sizable share of country’s aggregateproduction of rice. It also contributes 25-30 percent to the total sea food exports of the country.

The food processing industry contributes19.36 per cent to total industrial production in

the state. It ranks second in the production ofvalue-added products and beverages with a 10per cent contribution to the exports of thecountry.

The state is also well endowed with humanresources with the right skill sets. It is estimatedthat the agro-based industry in the state employs65 per cent of its total population.

The government of the State is also providingbetter incentives to the companies such as:

1. Additional 10 per cent of the subsidyassistance to the agro food processing units.

2. Government extending electricity tariffat a concessional rate.

3. A refund of 50 per cent of Stamp DutyLand Registration and DocumentationDuty paid by the unit.

4. A subsidy of 50 per cent for buyingequipment per beneficiary on primaryprocessing activities, like grading, sorting,packaging, washing at the farm gate.


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5. The Government will assistestablishment of futures markets forproducts being used by the foodprocessing industries and promote microirrigation systems and contract farmingfor which a separate policy and packagewill be prepared by the HorticultureDepartment

6. The Government will develop andpromote electronic trade exchanges forprocessed food products

7. The Government will assist marketingcapabilities of food processing units toface not only WTO challenges but alsoundertake exports.

8. All the Food Processing units will begiven clearances under the SingleWindow Act,. etc.

These incentives help in attracting foodprocessing based industries and also help increating integrated backward and forwardlinkage.

• Madhya Pradesh

Madhya Pradesh is the fourth largestproducer of agri-produce in India with lowestconsumption of fertilizer per hectare. The stateranks first in the production of soyabean, gram,oilseeds, pulses, and linseeds, maize. It rankssecond in the production of lentils and niger.

Agriculture contributes almost one-third ofthe Gross State Domestic Product (GSDP) and isthe main source of employment for over 70 percent population. It constitutes about 60 to 75 percent rural income. The performance of theagriculture sector in the state has beenimpressive.


1. Food processing industries having afixed capital investment of US$ 110,840and above are given a special subsidyat the rate of 25 per cent of fixed capitalinvestment (in backward areas) up to aceiling of US$ 55,420.

2. No Mandi fee is charged on agriculturalproduce, purchased from outside thestate for food processing industries tobe used as raw material.

3. Expenditure incurred in obtainingnecessary National/ InternationalQuality Certification such as FPO,Agmark, BIS, Euro Standard etc. by thefood processing industry are reimbursed.

4. In order to give encouragement forResearch and Development in foodprocessing industries, 10 per cent ofactual expenditure incurred for itssubject are reimbursed as a subsidy.

India get its first mega food park, Srini megafood park at Chittoor in Andhra Pradesh,aimed to facilitate end-to-end food processingwith beneficial forward and backwardlinkages.

From seed to shelf, Srini Food Park willfacilitate end-to-end food processing withbeneficial forward and backward linkages. Onpar with software parks, this new-age facilityis equipped with Central Processing Centreand Primary Processing Centres. It aims atbecoming a pioneering infrastructure enablerand facilitator for the Food Processing Industry.

As a model `Mega Food Park` it providesstate-of-the-art food processing infrastructuredesigned as per global standards and developsa veritable market place with common facilitieson the lines of a software park or a textile park.Food Park provides world-class facilities forpulping, IQF, bottling, tetra packing, modularcold storage, warehousing and advancedtesting lab. It enables basic and supply chaininfrastructure, cluster farming and is ablybacked by field collection centers, self helpgroups and individual farmers. It will empowerfood industry with state-of-the-artinfrastructure and quality raw materialsourcing.

With the highest growth in the fruits andvegetables sector (20%) and with Chittoorbeing the largest fruits and vegetables clusterin India, this Mega Food Park becomes an idealdestination for food processing units.

Mega Food Park is promoted by experiencedprofessionals and supported by the government(the Ministry of Food Processing Industries andthe Andhra Pradesh Infrastructure InvestmentCorporation) and is intended to benefit allcomponents of the value chain.


5. In food parks common facilities like coldstorage, warehouse, etc., are beingestablished.

6. Land has been allotted at concessionalrates to attract entrepreneurs in foodparks set up in specific locations

7. The Agriculture and HorticultureDepartment took initiative to promotecontract farming around the Food Parkas per the demand of industriesestablished at foodparks.

• Uttar Pradesh

Uttar Pradesh dominates India’s agriculturalproduction, accounting for 34 per cent of thetotal groundnut, 17.5 per cent of the totalrapeseed, 8 per cent of the fruits and 14 per centof the vegetables produced in the country. It hasthe largest livestock population in the countryand tops the milk production. It is the largestproducer of sugarcane and ranks second in themanufacture of sugar.

The state has 2659 food productmanufacturing units, which is the highest in asingle sector in the state (19.5 per cent of totalmanufacturing units in the state). The state withits prosperity has enabled the growth of alliedindustries like ware-housing, cold storages andflourmills.

However, despite the inherent potential, thefood processing sector has so far been largelyuntapped only around 2 per cent of theproduction is commercially processed. Key issuesfaced in this area relate to post harvestmanagement, which includes grading, sorting,packaging, processing, transportation andmarketing. It is envisaged that agriculture in thestate can turn into a lucrative venture, if there isa proper linkage from end to end among variouscomponents of agri-business, i.e. from the stageof sowing to final sale and consumption, whichcan develop synergy and dynamic efficiency inthe system.

• Karnataka

About 70 per cent of Karnataka’s population

lives in villages and 71 per cent of the total workforce is engaged in agriculture. The state is theleading coffee producer in India, accounting fornearly 70 per cent of the country’s coffeecultivation. Horticulture contributes to nearly 17per cent of the state's GSDP.

Karnataka offers several green-fieldopportunities for setting up agro-based industrialactivities including preservation, processing andpackaging of food. Several MNCs haveestablished a footprint in the state, Britannia, ITC,Nestle, and Unilever being the most prominent.


• Agro Food Processing Industries has beendeclared as “Seasonal Industry” for thepurpose of Labour Act. These industrieswill also be exempt from payment ofminimum demand charges to the KPTCL,during closure period of more than 190 daysat a time.

• 100 per cent exemption from payment ofElectricity Tax and levy of concessional STof 4 per cent on liquid fuel used for CaptivePower Generation.

• All Agro Food Processing Industries whichpurchase fruits and vegetables directly fromthe farmers on contract farming basisexempted from payment of Market Fee/Cess under the APMC Act

• Reimbursement of technology transfer fee,consultancy fee/contract research fee, if thetechnology is transferred through R & DInstitutions like Central Food TechnologicalResearch Institute, Defense Food ResearchLaboratory etc.

• The Government assistance will be in theform of providing financial assistance forcreation of basic infrastructure facilities.

• Government adopted the “Mega Food Park”concept formulated by Ministry of FoodProcessing, Govt. of India, forImplementation in select Districts byproviding infrastructure, forward andbackward linkages.

UPSTREAM AND DOWNSTREAM IN FOOD PROCESSING INDUSTRY

Food Processing Industry is divided as:Upstream, Midstream and Downstream.

The upstream stage of the productionprocess involves searching for and extracting


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raw materials. In the food processing industry,upstream involves farming of raw material suchas fruits, vegetables, livestock rearing, grain, etc.The upstream stage in the production processmay also manifest itself as a supplier providingraw materials to manufacturers or otherbusinesses that ultimately process the materialsto its finished form.

The midstream stage involves thetransportation (by rail, ship or truck), storage,and wholesale marketing of raw materialsproduced by the farmers.

The downstream stage in the productionprocess involves processing the materialscollected during the upstream stage into afinished product. The downstream stage furtherincludes the actual sale of that product to otherbusinesses, governments or private individuals.The type of end user will vary depending on thefinished product. The downstream process hasdirect contact with customers through thefinished product.

Upstream Stage: Brief description

Upstream stage of the production processinvolves growing raw materials for the foodprocessing industry.

As the food processing industry is growingat high speed in India, the demand for rawmaterials are increasing tremendously. Thusfarmers are switching to new and advancedpractices for farming raw materials at high scale.Industrial agriculture treats the farm as a factory,with "inputs" (pesticides, fertilizers) and"outputs" (crops). The end-objective is increasingyields while controlling costs — usually byexploiting economies of scale (i.e. making a lotof one thing, or "monocropping"), and byreplacing solar energy and manual labour withmachines and petro-chemicals like pesticides andfertilizers.

But the drawbacks of this are:

• Soil & Water: We are exhausting andpolluting our soil and water. Industrialagriculture uses 70% of the planet's freshwater. According to EPA, U.S. agriculturecontributes to nearly 75% of all water-quality problems in the nation’s rivers andstreams.

• Resilience & Food Security: Our foodsupply is more susceptible to shocks thanever before because we have disassembledour grain reserves, let bankers into thebusiness of betting on commodity crops andput small-scale farmers around the worldout of business.

• Climate Change: The current food systemis responsible for 1/3 of global greenhousegas emissions; it is also fully dependent onoil both for transport and because pesticidesand fertilizers are petro-chemically derived.

• Bees & Biodiversity: Industrial agricultureis the largest single threat to biodiversity,and 7 in 10 biologists believe that today'sbiodiversity collapse poses an even greaterthreat to humanity than climate change.Bees, bats, amphibians and other beneficialspecies are dying off, and their declines arelinked to pesticide exposure.

• Human Health: While farmworkers andtheir families, rural communities andchildren are on the "frontlines" of industrialagriculture, they all carry pesticides in ourbodies. Pesticide exposure underminespublic health by increasing risks of cancer,autoimmune disease (e.g. diabetes, lupus,asthma), non-Hodgkin's lymphoma,Parkinson's disease and more.

Further in the case of agricultural marketingin India, also known as ‘distributive handling’of agricultural produce - there are number ofintermediaries who are involved in marketingthe agricultural produce. Intermediaries oftenflout market norms and their pricing lackstransparency. The presence of intermediariesreduces the returns of farmers substantially.Wholesale regulated markets, governed by StateAPMC Acts, have developed a monopolistic andnon-transparent character. Indian farmersrealize only 1/3rd of the total price paid by thefinal consumer, as against 2/3rd by farmers innations with a higher share of organized retail.

Further there has been a lack of investmentin the logistics of the retail chain, leading to aninefficient market mechanism in the economy.Though India is the second largest producer offruits and vegetables (about 180 million MT/annum), it has a very limited integrated cold-chain infrastructure. Further the chain is highlyfragmented and hence, perishable horticultural


commodities find it difficult to link to distantmarkets, including overseas markets, round theyear. Storage infrastructure is necessary forcarrying over the agricultural produce fromproduction periods to the rest of the year and tofood processing industries.

To overcome these problems and to increasethe supply of raw materials to the foodprocessing industries, these days the trend hasbeen towards integration and collaborationacross players in the value chain, to garnermutual benefits. Such integration is initiated bymanufacturers, who are looking to integratebackwards to establish linkages with farmersand logistics provider. This led to two new modelsemerging in the sector – Contract farming andTerminal markets.

Contract Farming:

Contract Farming is an agreement betweenthe food processor (contractor) , who is typicallya large organized player, and the farmer,whereby the latter is contracted to plant thecontractor ’s crop on his land. He also agrees toharvest and deliver to the contractor a quantumof produce, based upon anticipated yield andcontracted acreage at a pre agreed price. Thefood processor provides inputs in terms oftechnology and training to the farmer, to improvethe yield and quality of the produce.

This results in a win-win situation thatgenerates a steady source of income for thefarmer and eliminates supply shocks and assuresgood quality farm inputs which are crucial forthe processor. The Government of India has beenactively encouraging contract farmingendeavours. The National Agricultural Policyenvisages that ‘private sector participation willbe encouraged through contract farming andland leasing arrangements to allow acceleratedtechnology transfer, capital inflow and assuredmarket for crop production ’.

Terminal Markets:

A Terminal market is a central site, often ina metropolitan area, that serves as an assemblyand trading place for agricultural commodities.Here there are different options for disposing offthe produce. It can either be sold to the endconsumer, or to the processor, or packed forexport, or even stored for disposal at a future

date. It thus offers different options to farmersunder a single roof. Typically, terminal marketsoperate on a hub and spoke model where themarkets form the hubs, and are linked todifferent collection centres (spokes) that arelocated close to the production centres.

The Government of India is looking topromote terminal markets, as a means ofintegrating domestic produce with retail chains.There are plans to set up such markets in eightcities across five states, at a cost of US$ 131million. The cities being considered are Mumbai,Nasik, Nagpur, Chandigarh, Raipur, Patna,Bhopal and Kolkata.

Further a new trend of global farms has comeup in the recent past to increase the foodproductivity.

Food shortage and reducing level of arableland is encouraging countries to approach otherterritory for farm land. Chinese governmentwants its agricultural firms to buy or lease farmlands in Africa or South America to bolster foodsecurity in their country. China has 40% offarmers across the globe but only 9% ofagricultural land. More than 40% of arable landof Brazil is unused and China would like to takeup this land for soyabean production. SimilarlyLibya is negotiating with Ukraine for growingwheat and Saudi Arabia too is looking for greenpastures for steady supply of food & livestocks.

Downstream Stage: Brief Introduction

The size of the Indian urban food market isestimated at Rs 350,000 crore. The domesticmarket for processed food is huge and fastgrowing.

The key drivers for increased demand invalue-added processed food products are: a)growth in consumer class; b) change in lifestylecharacterized by expanding urban population,increased number of nuclear and dual-incomefamilies; c) change in attitudes and tastes withincreasing modernization and to a lesser extentwesternization of tastes, particularly, of theyouth; d) low penetration rates; and e) ability tooffset seasonal supply-and-demand effects infresh products.

Thus to tap the huge market for processedfoods, an efficient marketing system is


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necessary to bring about demand-drivenproduction.

Some steps that need to be taken are:

• Special attention is to be laid towardssetting up regulated markets with theprimary objective to improve marketefficiency and achieve equitable distributionof benefits between producers, traders andconsumers. This will be possible by evolvingstrategies to strengthen regulated marketyields and equipping them with grading,cleaning and packaging facilities, alongwith market information systems.

• Efforts are to be made to develop packagingtechnologies for individual products toincrease their shelf life and improveconsumer acceptance, both in the domesticand international markets.

• Efforts are to be made to harmonise foodlaws to encourage production of highquality products with minimumintervention from regulatory authorities.The complexity of multiple administeringauthorities for food processing enterprisesis also required to be simplified bydeveloping an integrated and unifiedsystem.

• At present, there are 7,521 regulatedmarkets. Most of these lack criticalinfrastructure. Therefore, massiveinvestment is needed to provide criticalagricultural marketing infrastructure. It isestimated that at least Rs 12,234 crore is

needed for the regulated markets. Initiativehas to be taken to promote public-privatepartnerships as they ensure efficientresource utilisation and better managementpractices. There are many examples ofsuccessful public-private partnerships. Safalmarket in Karnataka is an instance of themodernisation of wholesale markets. ITC'se-Chaupal, Haryali Kisan Bazaar,Mahindra Shubhlabh, Cargil FarmgateBusiness and Tata Kisan Sansar are allinitiatives of marketing distribution in thePPP format. Besides, commodity exchangesand futures markets have come up in theform of National Commodity andDerivative Exchange Ltd (NCDEX) andMulti-Commodity Exchange Limited (MCX).

To encourage the private sector to makeinvestments in marketing infrastructure onthe required scale, a favourable regulatoryenvironment needs to be created so as toattract large corporates. This would include:a) liberalised credit norms to entrepreneursfor agricultural marketing activities; b)changes in the market regulatoryframework to allow private entrepreneursestablish market yards and other regulatoryfacilities; c) changes in the co-operativelaws to allow farmers' co-operatives towork along corporate lines and competewith private trade; d) review of severallegal instruments to facilitate the entry ofentrepreneurs in marketing activities; ande) provisions to allow private entrepreneursto cover price and yield risks for farmers.

SUPPLY CHAIN MANAGEMENT

IN FOOD INDUSTRY

Modern consumers nowadays demand avariety of both local staple foods and exotic foods;and they expect products from either categoryto always be of the highest quality, affordabilityand safety. In response to this ever-growingdemand, the ‘farm to fork’ food supply chainconcept has grown and now involves manytypes of organizations, some directly involvedin producing food (eg farms) and others lessdirectly (eg food processing equipmentmanufacturers). And as the food industry sectoris vast and diversified, categorized by differentsegments such as fresh food industry, organicfood industry, processed food industry and

livestock food industry. Each segment needsdifferent supply chain strategies such asprocurement and sourcing, inventorymanagement, warehouse management,packaging and labeling system, and distributionmanagement.

Thus Food supply chain performancemanagement is key to meeting the growingconsumer demand for products that are safe, ofhigh quality, sustainably produced, and ofassured provenance. A well-managed supplychain has social, environmental and economicbenefits.


Farm to Fork Concept:

Farm-to-fork refers to the stages of theproduction of food: harvesting, storage,processing, packaging, sales, and consumption.It also refers to a movement concerned withproducing food locally and delivering that foodto local consumers. It may also be associated withorganic farming initiatives, sustainableagriculture, and community-supportedagriculture.

Example of making banana chips:

This may involve many manufacturers - Onecompany might dry the bananas into chips andthen sell them to the muesli producers who thenadd them as a component to the finishedbreakfast product. The manufacturing can bedone close to where the commodity crop is grownor it can be moved elsewhere for this, evenexported to another country. Then there is thepackaging company who manufacture thepackaging material to protect the product. Alongthe way distributors and transporters move thefoods by road, rail, air or sea.

Once the product arrives at the destination,it goes into the shops or marketplace for selling.

The shop can be a huge multi-nationalsupermarket or a small outlet. The retailerspromote the product to make consumers wantto buy it through advertising and marketingstrategies at both the point of sale and throughadvertising media, like newspapers and televisionchannels. Finally, the customer buys the product,takes it home and consumes it. The supply chainis now completed.

However, this is not necessarily the final stepin the life of the product - the post-consumerstage of waste disposal and management for allthe food that goes uneaten.

Direct Contributors to supply chain:primary producers, ingredient suppliers, foodmanufacturers, packaging suppliers, transportand storage providers, wholesalers, brokersand agents, retailers and catering outletsincluding commercial (restaurants) and non-commercial (private catering).

Indirect Contributors to supply chain:such as service providers (water, wastedisposal), equipment manufacturers (processequipment and vending machines),biochemical manufacturers (additives,vitamins, pesticides, drugs, fertilisers, andcleaning agents) and animal feed producers.

Elements of the supply chain

The stages of the supply chain are now brieflyoutlined below:

• Food Ingredients and raw materials

The supply chain in the food industry startswith ingredients or raw materials. Selection ofthe appropriate raw materials is needed toachieve the desired end product. Suppliers arecontracted to supply materials that meet therequirements outlined on the raw materialspecification sheet. There may be a number ofconcurrent suppliers of the same ingredient toensure availability is always guaranteed,especially for high volume businesses, such as infast food restaurants.

A traceability system allows manufacturersto trace the source and path of each ingredientor raw material throughout the productionprocess. This is very important if any incidenceof contamination or allergens come to light aftera product has been placed in the market. Having

There are various reasons for risinginterest in Supply Chain Management inagribusiness industry.

The reasons at suppliers’ level include:

• Greater differentiation of food products.

• The competition for consumerexpenditure.

• Changes in the operating environment.

• Improvement of product quality.

• Ability to ship products in cost-effectiveways provides consumers with flexibilityfrom which to choose.

The reasons at consumers' level include:

• Consumers’ sensitivity to quality, safety,health and nutritional factors of foodproducts.

• Interest in place of origin and means ofproduction, including non-food valuessuch as environmental sustainability andanimal welfare.


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such safeguards in place can prevent or minimizeany widespread risks to consumers.

• Transport and storage

All the food we consume has undergonesome forms of transport. In the simplest case,fresh vegetables may be taken to a local market.Consumers then buy produce and drive, walkor cycle it home. This first step may be eliminatedif the produce is bought at the farm-gate, suchas in the case of strawberries in the summer time,but then it is still transported home by thecustomer. A product may be a key ingredientfor another product and thus is transported to amanufacturing site elsewhere by road, rail, seaor air. This procedure can be repeated before itis finally sold as a finished product, which againrequires transport to get it to the point of sale.Transportation of foods results in what is termed"food miles" .

Commodity products, such as grains, can bebulk or container shipped around the world inhuge transporter ships. In bulk shipping the graingoes straight into the hold of the ship instead ofbeing transported in containers on board the ship.Some countries are major commodity exportersto other parts of the world, such as Australia andCanada for wheat export and pulses.

The storage, packaging and transport stepsof the supply chain can involve manytechnologies, needed to maintain productquality. Chilled or frozen distribution ("cold-chain") and modified atmosphere environmentsare used for many products.

Foods can be stored and packed in modifiedor controlled atmospheres. Controlled

atmospheres are useful for crops that ripen afterharvest or deteriorate quickly even when storedoptimally. The gas composition is carefullymonitored and a proportion of the storeatmosphere is re-circulated to control the carbondioxide concentration. In modified atmosphereshowever the product is held in an airtightenvironment and the atmosphere is changed byrespiratory activity of the fresh foods. Carbondioxide levels can be higher than 20% andoxygen levels can be as low as 0%. High CO2

levels are important for controlling insects andmould growth for example in grain storage.

• Food Production

Ingredients are combined or transformed insome way during the manufacturing stage toproduce the final food product. Commercialfood products can have multiple ingredients orcomponents, which themselves may haveundergone transformations, making them quitecomplex final products. Production can takemany forms – it can be batch or continuous, ona mass-scale, or more limited in output - and canuse many specialized techniques and equipment.

Packaging is added to the finished product.Packaging protects the food and provides theappropriate barrier to maintain product safety,amongst other important roles. Individualpackaged products are then combined into largerconsignments ready for distribution to salespoints.

• Marketing

Marketing involves providing sales platformfor the food products. Sometimes it is done by


the producer himself. Government creates amarket through setting up APMC Depots, onlinewebsites and also through trade exhibitions.

• Market

Finally, the chain gets completed when thecrop reaches the market for consumption andthe farmers as well as the processing units getthe money out of it.

Safety in the supply chain

Safety is vitally important in foodproduction. The result of a supply chain shouldbe a product that should be safe to eat.Manufacturers are forced by law to make sureof this. Risk assessment and hazard analysisschemes are used in industry to assess potentialproblems before they arise.

How food gets contaminated in supply chain?

Examples of Contamination at Production stage:

• If a hen’s reproductive organs are infected,the yolk of an egg can be contaminated inthe hen before it is even laid.

• If the fields are sprayed with contaminatedwater for irrigation, fruits and vegetablescan be contaminated before harvest.

• Fish in some tropical reefs may acquire atoxin from the smaller sea creatures theyeat.

Examples of Contamination in Processing

• If contaminated water or ice is used towash, pack, or chill fruits or vegetables,the contamination can spread to thoseitems.

• Peanut butter can become contaminated ifroasted peanuts are stored in uncleanconditions or come into contact withcontaminated raw peanuts.

• During the slaughter process, pathogens onan animal’s hide that came from theintestines can get into the final meatproduct.

Examples of Contamination in Distribution

• If refrigerated food is left on a loading dockfor long time in warm weather, it could reachtemperatures that allow bacteria to grow.

• Fresh produce can be contaminated if it isloaded into a truck that was not cleanedafter transporting animals or animalproducts.

• The contents of a glass jar that breaks intransport can contaminate nearby foods.

Examples of Contamination in Preparation

• If a food worker stays on the job while heor she is sick and does not wash his or herhands carefully after using the toilet, he orshe can spread pathogens by touching food.

• If a cook uses a cutting board or knife tocut raw chicken and then uses the sameknife or cutting board without washing itto slice tomatoes for a salad, the tomatoescan be contaminated by pathogens fromthe chicken.

• Contamination can occur in a refrigeratorif meat juices get on other items that willbe eaten raw.

Thus Hazard Analysis and Critical ControlPoints – HACCP method is used formaintaining food safety.

There are three types of hazards definedin food production:

• Biological: such as food poisoning due tobacterial contamination (e.g. salmonella),mould growth and viral infections.

• Chemical: such as that from cleaning fluids,fertilizers or paints.

• Physical: such as stones, hair, fingernails,rings and bits of machinery.

In order to make a HACCP plan, each stageof the production system is first described. Anyrisks associated with each stage are thenidentified with an explanation of why thisparticular problem poses a risk. The controlcheck is then worked out to stop the hazard orreduce the likelihood of it happening. Finally anaction plan is outlined to state what action is tobe taken if the control check shows the hazardhas happened. On top of this, it is essential thateffective record keeping is maintained todocument everything.

The HACCP team should include peoplefrom across multidisciplinary competencies,including food technologists, microbiologists,packaging technologists, etc.


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Good Agricultural Practices proposed by FAOfor proper food supply chain:

Sharing the responsibility for providing safefood among all players in the food andagriculture sector - from food producers andprocessors to retailers and households - ismirrored by an approach in which developedcountries offer developing ones the resources andexperience to build their capacity to ensure theirfood chains are safe. FAO's approach includesthe adoption of Good Agricultural Practices(GAP) which establish basic principles forfarming, including soil and water management,crop and animal production, storage, processingand waste disposal. The aim of the food chainapproach, which incorporates these improvedfarming practices, is to ensure that the food chainbecomes more transparent so national andglobal food crises can be prevented rather thantreated.

Contemporary issues in supply chainmanagement in food industry in India:

The global business environment includingagribusiness is in a state of transition, beinginfluenced by globalization, strategic alliances,merger and acquisition, business process and re-engineering. These strategic approaches arealtering the focus of overall management ofbusinesses and influencing the ultimate goal –reaching the end-users by shifting from mass-marketing to customized marketing andemphasizing relationship-based marketing in allfields. The rapid advancement of informationtechnology is also having its affect on businessesand their management. The widespread successof any business depends on the efficientutilization of its supply chain, which links all theparticipants and players of that particularbusiness. The chain usually starts from thegathering of raw materials or goods and finisheswhen the good is supplied to the ultimate end-users, the customers. The effective and efficientmanagement of supply chains is challenging, andrequires clear understanding of the componentsof supply chain management (SCM). Theagribusiness sector,as a whole,needs to applySCM efficiently to be competitive in the changingglobal picture.

However, the food supply chain in India havefollowing shortcomings:

• Poor Infrastructure

India has the second longest Road Networkin the world. But less than 2% of the entire roadlength is covered by National Highways. This2% of the road handles 40% of the Cargo.Normal distance travelled by an Indian Truck is250-300 km/day as against an Internationalnorm of 600-800 km/day. Also most of the roadsin India can support only 16.2 tons as againstan International norm of 36 tons.

Many of the Indian cities have brought in‘Truck Curfews’ by blocking the trucks during daytime. If the curfew is missed, the trucks have to beparked outside the city and there is a long delay.This type of delay becomes a problem in case ofPerishable goods. For instance, it is said that 20%of the Tomatoes get rotten during Transit.

Railway network is not very suitable fortransit of Food items as it does not provide endto end delivery in many cases. Port Infrastructureis very important for importing Food Items andthe delay caused in the ports can have adverseeffect. High dependence on manual labour andlow technological presence impacts the supplychain lead time. The cost of an Import Containerbox in India is USD 500 as against USD 300-350in foreign ports.

• Underexposure of Organized Logistics

In India, only 6% of the logistics isorganized. The absence of organized logisticspaves way for delay in Transportation of foodproduces from the farm to the end consumer.There are lot of middlemen involved and the timetaken for the produce to reach the end consumerresults in Food Wastage and price hike.

• Absence of Adequate Warehouses

Two types of Warehousing are required forFood Products. One is a sheltered Warehouse tostore Food Grains like Rice, wheat and Cereals.The other one is Cold Storage Facility to storeFruits and Vegetables.

Sheltered Warehouse

Many of the warehouses have inadequate


capacity. The crop production has gone upsignificantly over the years, but the warehouseshave not increased. In 2010-2011, the Food Grainproduced was 233 Million Metric Tons. Thestorage capacity owned by the Government was91 Million Metric Tons. As a result, many cropsare stored in the Open Space and if it rainsunexpectedly, then the food grains are damaged.Also due to the absence of Pest ControlMechanisms, 20% of the food grains are eatenby rodents each year.

Cold Storage Facility

Cold Storage Facility is important for storingFruits, Vegetables and Milk. The existing ColdStorage Facilities can store 21.7 mn tons foodproduce, but the requirement is more than 31mn tons. This means that one third of the foodproduce goes waste each year due to the absenceof Storage Facilties.

The absence of Private Players in Warehousingis also a main concern. Most of the warehousesare controlled by Government and they are notable to expand as per the demand. GovernmentStorage Facilities are poorly maintained and it alsocontributes to loss of Food Produce.

Steps needed to overcome the problems:

• Encouraging 3PL (Third Party Logistics)Players

3PL are Service Providers who take care ofEnd to End Delivery. The concept of singleLogistics Service Provider (LSP) is at an infantlevel. Government must encourage 3PL playersby easing the norms. A single logistics servicemeans that there will be no loss of Food producesin between due to the presence of various players.

• Warehousing with Private-PublicPartnership

Government must encourage Private firmsto set up Warehouses. The Government hasalready shown interest in this scheme, thoughPrivate Players are not very interested. Therehave been few cases of Private Public Partnershipin this sector.

Adani Agri Logistics has a tie up with FoodCorporation of India (FCI) and has set up Stateof the Art Warehouses at seven places in thecountry. It has currently capacity of 0.6 mn Tonsand is planning to increase the capacity to 2 mn

Tons. Fully Integrated, IT enabled Operationsmakes sure that there is no loss in both Qualityand Quantity of the Food Grains. These type ofFirms must be encouraged by the Government.

• Steps taken by government to improve coldstorage facilities:

Department of Agriculture and Cooperation isproviding incentives through followingschemes for setting up of cold and drywarehouses in the country:

1. National Horticulture Mission (NHM)

Under NHM scheme financial assistance isprovided for taking up various activities relatedto horticulture such as development includingsetting up of cold storages for which credit linkedback ended subsidy @ 40% (for general areas)and 55% (for hilly and tribal areas) of capitalcost of the project up to 5000 MT capacity withmaximum of Rs.6000/MT to all states exceptNorth Eastern and Himalayan States.

2. Horticulture Mission for North Eastern &Himalayan States (HMNEH)

Under HMNEH scheme financial assistanceis provided for taking up various activitiesincluding setting up of cold storages for whichcredit linked back ended subsidy 55% of capitalcost of the project up to 5000 MT capacity withmaximum of Rs.6000/MT to North Eastern andHimalayan States.

3. National Horticulture Board (NHB)

National Horticulture Board (NHB) providesback-ended capital investment subsidy to theeligible organizations for creation /modernization/expansion of cold storage/Controlled Atmosphere Storage @ 40% of theproject cost in general areas and 55% in case ofhilly and scheduled areas up to 5000 MT capacitywith maximum of Rs.6000/MT. The scheme isdemand driven and is being implemented acrossthe country.

4. Rural Godown Scheme

Under Rural Godown Scheme, subsidy isavailable for construction of Rural Godowns @25% for all categories of farmers, Agriculturegraduates, cooperatives. All other categories ofindividuals companies and corporations are


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being given subsidy @ 15% of the project cost.The subsidy is 33.33% in case of North Eastern(NE) States/hilly areas, SC/ST entrepreneurs &their cooperatives and women farmers. Thescheme has been recently revised for making itmore attractive by enhancing the maximumcapacity to 30,000 MT with maximum ceilingon subsidy of Rs.3.00 crore for other than NEStates and by enhancing the maximum capacityto 25,000 MT with maximum ceiling on subsidyof Rs.3.333 crores in respect of North Eastern/Hilly States.

5. Scheme for Development and strengtheningof Agricultural Marketing Infrastructure,Grading and Standardization

Under the Scheme for Development andstrengthening of Agricultural MarketingInfrastructure, Grading and Standardization,subsidy @ 25% of the capital cost of the projectwith a ceiling of Rs. 50.00 lakh per project isavailable. In respect of North-Eastern States andHilly and Tribal areas and entrepreneursbelonging to SC/ST and their cooperativessubsidy of 33.33% is provided with a ceiling ofRs.60.00 lakh per project.

How FDI in Retail can improve supply chainof food processing sector?

FDI in retail is expected to bring the investmentand expertise necessary to modernize and developthe farm and manufacturing sector. Analystsestimate that the retail market in India, currentlyworth $500 billion, will grow to $1.3 trillion by2020. Organized retail is expected to reach 20-25% of total retail by 2020 (from a current 5-6%).The prospect of higher growth in the food andgrocery category is particularly attractive because

over fifty percent of India’s workforce is employedin the farm sector. Therefore, advocates see asignificant role for FDI for the economicdevelopment of the country as a whole.

FDI proponents also point to theemployment potential of the food retail sector,specifically in aggregators and low-levelprocessors. They project that such investmentwould create new off-farm jobs for 50-60 millionlow-skilled workers, enough to absorb newentrants to the work force as well as thosepotentially displaced by the market efficienciesintroduced by FDI (projected to be a segment ofsmall farmers). FDI would also bring investmentin post-harvest infrastructure that wouldincrease the shelf-life of produce and minimizefood wastage (now as high as 20-30%).Moreover, new investment would result in otherpositive externalities such as better seeds andstricter standards that would increase quality andproductivity while lowering costs. FDI in retailshould also be cross-cutting and modernize notonly retail and agriculture, but alsomanufacturing.

Further the entry of players in the organizedretail will tend to make the supply chain moreeffective and efficient by:

Sourcing directly from the farmers or atleastcloser to the farm gate and eliminating theunnecessary intermediaries. This in turn resultsin better price realization to the farmers.

Overall, farmers are bound to gain from theadvent of the organized food retailers under aproper regulatory environment promoting directprocurement on one hand and machinery toprevent the exploitation of farmers on theother hand.

OVERALL BOTTLENECKS IN FOOD

PROCESSING INDUSTRY IN INDIA

a) Inadequate Infrastructure Facilities:

Even though India ranks second inproduction of fruits and vegetables, nearly 20 to25 per cent of this production is lost in spoilage invarious stages of harvesting. This clearly showsthe problem of inadequate infrastructure, whichis the biggest bottleneck in expanding the foodprocessing sector, in terms of both investment andexports. It includes: long and fragmented supply

chain,inadequate cold storage and warehousingfacilities,road, rail and port infrastructure. Also,lack of modern logistics infrastructure such aslogistics parks, integrated cold chain solutions, lastmile connectivity, dependence on road over rail,customized transportation, technology adoption(barcoding, RFIDs) and government support viaincentivizing private public partnerships are someof the lacunae that exist in supply chain & logisticssector in India.


b) Traditional Processing Technology:

Currently most of the processing in India ismanual. There is limited use of technology likepre-cooling facilities for vegetables, controlledatmospheric storage and irradiation facilities.This technology is important for extended storageof fruits and vegetables in making thembeneficial for further processing. In case of meatprocessing, even with the the level of technologyused in most of them is limited, resulting in lowexploitation of animal population. Introductionof modern technology is necessary to increaseprocess efficiencies as well as quality of the endproduct.

c) Food Safety Laws & Inconsistency in Stateand Central policies:

The Indian food regulations comprisevarious food policies that have been enacted atdifferent points of time, and are under the ambitof various ministries of Government of India(GOI). Historically they were introduced tocomplement and supplement each other inachieving total food sufficiency, safety andquality. The result is that the food sector in Indiais governed by a number of different statutesrather than a single comprehensive enactment.This incremental approach has led toincoherence and inconsistency in the food sectorregulatory scenario. In addition the multiplicityof ministries and administering authorities atboth the central and state level has resulted in acomplex regulatory system that is not wellintegrated adding an additional burden on thefood industry.

d) Low Level of Government Outlay forDevelopment of Food Processing Industries

During 11th Plan an Outlay of Rs. 4031.00crores was envisaged but in last 4 years only Rs.1132.00 crores have been spent. The vision 2015envisaged public expenditure of Rs. 10,000 coresby 2015 but the trend so far, is much below thedesired level.

e) APMC Act:

While 25 states/UTs have amended theirAPMC acts; it still discourages direct marketingarrangement between farmer and processer. Theprocessor is required to obtain license from the

respective state govt. as well as liable to paymarket fees without even using mandiinfrastructure.

In addition, some of the states haveamended APMC Act but it has not clearlyoutlined policies on contract farming/directmarketing. Thus, APMC Acts of different stateshave become a stumbling block for marketsseeking to scale up operations.

f) Essential Commodities Act, Stock Order, etc.

The Essential Commodities Act (ECA) 1955was put in place after independence to controlproduction, supply and distribution of essentialagricultural commodities and was put in placeto ensure availability of food products. In thecurrent context of liberalizations, controlling themovement of products by licensing of dealers,limits on stocks and control on movements onlyhamper the growth of the agricultural sector andpromotion of food processing industries.

g) Taxes on processed food items

Incidence of taxation in processedagricultural products not only acts as adisincentive for investment in the sector but alsoaffects the competitiveness of the food productsin the country. Though primary agriculturalcommodities including fruits and vegetables aremostly exempted from tax, processed foodcommodities are subject to variety of taxes. Inmost of the states, low value added food productsare exempted from VAT. However, certain highvalue added food products like biscuit,confectionery, snack items are levied VAT at therate of 12.5% in many states.

Apart from VAT, other taxes such aspurchase tax, entry tax, octroi, etc are also leviedon food products.

h) Lack of Diversification of Product Portfolioand Commercialization

R&D in the food processing sector in thecountry is largely governed by universities andinstitutions with very little involvement ofindustry. The research is also on traditional lineswith less emphasis to market preferences. Thereis a need to involve industry for productdevelopment setting up of food development


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centers/incubation centers on a regional basis/in various prominent agro-climatic zones. Thecurrent Indian crop production system largelycontinues to be traditional and subsistenceagriculture. As a result crops varieties beinggrown are not in tune with market andprocessing requirements.

i) Lack of Quality Standards:

The current legislative requirements have puttremendous emphasis on food hygiene, GMP,HACCP and nutritional labeling in the entirefood chain. However, most of the unorganizedplayers in food processing industry do notadhere to quality standards resulting in minimalshare in world trade because of the tighteningof restrictions and the introduction of theSanitary and Phytosanitary Agreement by globalindustry bodies.

j) Lack of Skilled Manpower

At the current levels of operations itself, thereis shortage of skilled manpower at various levels.A survey by FICCI on estimating the skill

shortage in Indian Industry, estimates thatshortage of refrigeration mechanics, electriciansand fitters exists to the tune of 65%.In addition,shortage of agricultural scientists exists to thetune of 60% and shortage of food safetyprofessionals exists to the tune of 70%7. Thereare no specialized institutes for R&D and forimparting specialized skills in bakery andconfectionery. Besides CFTRI, there are very fewinstitutions, which provide qualified manpowerfor food processing sector. There is a pressingneed to address the skill gaps.

k) High cost of transportation

The non-availability of climate controlled orreefer containers coupled with the high costs (inmost of the cases both side fares are computeddue to non-availability of return cargo),temperature abuse in transit capacity issues interms of handling and distribution of produce,high costs of packaging (the protocol of usage ofplastic bins for distribution with cost efficacy isyet to be developed), etc. negate the advantageof low production cost.

STEPS TAKEN BY THE GOVERNMENT

TO IMPROVE FOOD PROCESSING INDUSTRY

1. Scheme for Infrastructure Development:

To fulfil the need for creation of integrated andholistic infrastructure for food processing sector,Ministry of Food Processing Industries (MOFPI)had launched new Schemes in 11th FYP withstrong focus on creation of modern enablinginfrastructure to facilitate growth of food processingand creation of an integrated cold chainmechanism for handling perishable produce.

a) Mega Food Parks Scheme:

The scheme aims to accelerate the growthof food processing industry in the countrythrough facilitating establishment of strong foodprocessing infrastructure backed by an efficientsupplychain.

The Mega Food Parks Scheme provides fora capital grant of 50 percent of the project costin difficult and ITDP notified areas(with a ceilingof Rs 50 crores). The grant shall be utilizedtowards creation of common infrastructure inCPC and PPCs in the park. Such facilities are

expected to complement the processing activitiesof the units proposed to be set up at the CPC inthe Park. Each Mega Food Park may take about30-36 months to be completed.

Out of 30 Mega Food Parks proposed duringthe 11th five year plan, the Ministry has takenup 15 projects under the Scheme so far. Of this,Final approval has been accorded to 8 MegaFood Parks in the States of Andhra Pradesh,Punjab, Jharkhand, Assam, West Bengal,Uttarakhand, Tamil Nadu and Karnataka. Thecumulative project cost of these 8 Parks is Rs.930 crore which includes total grant assistanceof Rs.500 crore under the Scheme. In-principleapproval has been accorded to remaining 7projects. In addition to these, 15 new Mega FoodParks are in the process of Governmentapproval.

During the 12th Plan following changes havebeen proposed:

• Considering the size of investments requiredin a Mega Food Park project, it is considered


A mega food park provides various facilities to food processors, farmers, retailers andexporters, thus help in fast growth of food processing industries. The key benefits to thesestake-holders are:

Food Processors Farmers

• Developed plot in the Mega Food Park on • Sell produce to collection centreslease with Power, Water, and ETP facilities

• Cutting edge processing facilities in CPC • Benefit from higher pricing

• Reap benefits of power cost, common • Avail of information regarding seed and otherfacilities, testing, government support best practices

• Avail of backward and forward • Improve product qualitylinkage benefits

• Increase profitability • Reduce losses through best practices inhandling and packing

• Avail of primary processing facilities, ColdStorages, Ripening Chambers, and Warehouses

Retail Chains MNC Exporters

• Avail of good quality produce • Avail good quality product from producers

• Avail standardized products • Be sure of product quality through food chain

• Benefit from quality assurance • Quality assurance providedfrom testing labs

• Benefit from good transportation facilitiesviz reefer trucks and vans

• Avail of labeling, packing facilities at megapark

• Satisfy your customer through goodproduct

essential that promoters of such projectshave not only sufficient experience but alsorequisite financial resources. This is alsocritical due to nature of investments, as likein any infrastructure project, these projectshave a long gestation period with slowreturns. Further many projects underimplementation have suffered due to lackof trust and coordination among variousequity holders. In some cases, such conflictshave even endangered the projects, asvarious entities seek to have control overthe Board of Directors of SPVs. Thus it hasbeen proposed that a business entity maybe eligible to promote a SPV for setting upa Mega Food Park project.

• Acquisition of suitable land for the projectalong with change in land use has beenfound another major reason for delay thusworking group recommended to give larger

preference to those proposals which alreadypossess the required land along withnecessary permission to use it for a MFP atthe time of submission of Expression ofInterest itself.

• Further to interact with the principle of“Decentralisation” proposed during the 12thPlan of the Ministry , it is being proposed toprovide for greater role of the state governmentsin both selection and implementation of theMega Food Park projects.

b) Scheme for Cold Chain, Value Addition andPreservation Infrastructure

The Task Force on Cold Chain set up by theMinistry of Agriculture has identified a huge gapof 9 to 10 million tonnes of cold storage capacityin the country. Ministry of Food ProcessingIndustries through its Scheme for Cold Chain,


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Value Addition and Preservation Infrastructurehas been successfully addressing the above issue.The Scheme was approved in 2008 with anobjective to provide integrated and complete coldchain, value addition and preservationinfrastructure facilities without any break, forperishables from the farm gate to the consumer.The assistance under the Scheme includesfinancial assistance (grant-in-aid) of 50% of thetotal cost of plant and machinery and technicalcivil works in General areas and 75% for NEregion and difficult areas subject to a maximumof Rs 10 crore.


• The level of assistance would be reviewedto bring parity with the schemes ofDepartment of Agriculture & Cooperation,to the extent feasible. In case required,competitive bidding with standardizedprojects would be taken up to bring aboutgreater objectivity in the selection process.In addition, the Scheme may make requisitelinkages to value addition/processing, asthe mandatory requirement under theScheme, so as to clearly differentiate suchprojects from those assisted by NHB/NHM.

• The state-wise selection and financial biddingprocess would also necessitate preparationof Model Projects for various States, alongwith requisite technical parameters. Therewould also be involvement of stategovernments along with agencies such asNHB, NHM and NCDC in the selection andimplementation of projects.

c) Scheme for Modernization of Abattoirs

The rise in per capita income in the countryhas witnessed an increased demand for meatproducts in recent years. It is to be noted thatmeat consumption remains a “luxury” formajority of non-vegetarian population in India.However, as the purchasing power of the peoplerise, there has been a perceptible shift towardsmeat and poultry consumption.

Unfortunately, the meat sector remainsunorganized except buffalo meat processing forexport market. This has led to not onlycontinuous upward pressure on meat prices, butalso increasing concerns regarding hygienestandards of meat products. Quality andhygiene levels in the meat market continue to be

major issues due to unscientific breeding,primitive and crude slaughtering and de-feathering techniques, lack of basicinfrastructure facilities including facilities forhandling carcass/flaying, cross–contaminationin slaughter and improper handling duringcarriage and transportation. These issues leadto high wastages of meat, contamination anddeterioration in quality and also avoidable crueltyto animals during whole process.

Thus during 11th Plan, the Ministry hadlaunched a comprehensive Scheme forModernization of Abattoirs across the country.The Scheme is mainly aimed at promotingscientific and hygienic slaughtering of animals,by-product utilization and value addition,provision of chilling facility to prevent microbialactivity in slaughtered animals and betterforward linkage facilities for finished meat andmeat products.

The Scheme is to be implemented with theinvolvement of local bodies (Panchayats andMunicipal Corporations) and also has theflexibility for facilitating involvement of privateinvestors through competitive bidding.Professional agencies are also being involved bythe Ministry for project appraisals,implementation and monitoring of projects.

2. Schemes for Quality Assurance, Codex,R&D & promotional activities

a) Scheme for Setting up/Upgradation ofQuality Control/Food Testing Laboratory

This is aimed at encouraging setting up ofmodern food testing laboratories in the country,both in public and private sectors. Under thisScheme, Central/State Government organi-zations and Universities (including deemedUniversities) are eligible for grant support limitedto the entire cost of capital equipments requiredfor setting up/modernization of laboratories. Allother implementing agencies are eligible for grantlimited to 50% / 70% of the cost of capitalequipment required for setting up/upgradationof such laboratories in general areas/difficultareas.

b) Scheme for Implementation of HACCP, ISO14000, ISO 22000, GMP and GHP

This is to promote adoption of quality andsafety standards by food processing units whichwould help them in reaching a larger domestic


and international market. Further, this alsoencourages other implementing agencies toadopt quality management systems. Under thisScheme, grant assistance is provided to Central/State Government Organizations/ IITs,Universities and private sector to the extent of50% / 75% of project cost in general areas/difficult areas with a maximum assistance of Rs.15 lakh and Rs. 20 lakh respectively.

c) Scheme for Research and Development

This Scheme is aimed at encouraging R&Dinitiatives in industry in the field of preservation,processing, packaging, storage, etc. Such R&Defforts are expected to lead to product andprocess development which would make theindustry more efficient and commerciallysustainable. Under this Scheme, grant assistanceis provided to all Universities, IITs, Central/StateGovernment Organizations, R&D Laboratoriesand CSIR recognized R&D units in private sector.For the Government Organizations, grantsupport is available to the tune of 100% of thecapital cost. For all other implementing agencies,the grant support is available up to 50% / 70%of the capital cost for general areas/difficultareas.

d) Scheme for Promotional Activities

The details of the Scheme for Promotionalactivities are also provided in the section of thisReport dealing with proposed National Mission.This Scheme is to support organizing of industryspecific seminars and workshops as alsoexhibitions and trade fairs. Further this providessupport for conducting studies and surveyswhich would be helpful for the sector. There isno limit envisaged for financial assistance ifMinistry is directly engaged as a sponsor/co-sponsor for such activities. However, if otherimplementing agencies are to take up theseactivities, the Scheme provides for grant supportup to 50% of the cost, with a maximum limit ofRs. 3 lakh in case of seminars/workshops andstudies/surveys.


As the Food Safety and Standards Act, 2006became effective from August, 2011, the needfor setting up of adequate food testing labs hasincreased manifold. It is therefore proposed to

create a network of 108 food testing labs in thecountry which may be of minimum specifiedstandards, though customized to the needs ofthe local region/industry. The Governmentagencies/departments setting up/modernizinglabs are already provided up to 100% assistancefor purchase of requisite equipment. It is nowproposed to provide these agencies capital grantsupport up to 70% / 90% of cost of technicalcivil work in general areas/difficult areas.Further, for encouraging private sectorenterprises also to set up/modernize food labs,it is proposed to increase the quantum of grantassistance up to 70% / 80% of the lab equipmentin general areas/difficult areas.

For encouraging adoption of quality andsafety standards (HACCP, ISO 22000), theMinistry proposes to make the package ofincentives more attractive and in line withincreased compliance cost. It is proposed to coverat least 100 units during the 12th Plan underquality and safety standards. To achieve this, itis proposed to increase grant assistance to 60%/ 75% of total cost, subject to a maximum of Rs.25 lakh / Rs. 30 lakh for both Government andprivate agencies.

A Scheme for Setting up/ Strengthening ofCodex Cell will be launched during 12th plan. Thisis aimed at strengthening/setting up of codex cellin the Ministry as well as at the level of stakeholderssuch as industry associations, national researchinstitutions. This is to enable larger participationin codex deliberations and adequate projection ofnational view point in codex system. This wouldinclude computerization, compilation andmaintenance of codex documents, study/surveyfor scientific data generation, engagement ofconsultants for preparing discussion/positionpapers, code of practices, etc.

3. Schemes for Human Resource Development

The Food Processing Industry is critical toIndia‘s development as it establishes a vitallinkage and synergy between the two pillars ofthe economy –Industry and Agriculture.Demand for trained manpower, includingentrepreneurs, managers, technologists, skilledworkers to cater to the growing needs of the foodprocessing industry is increasing day-by-day.Besides latest technology & diversification and


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new ways of managing and marketing isrequired by the existing food processing industryto face global competition. The following schemehas been launched by the government:

a) Creation of Infrastructure Facilities forRunning Degree/ Diploma/CertificateCourses in Food Processing Technology

This is to encourage introduction ofspecialized courses in food processingtechnology in recognized Colleges/EducationalInstitutions. Apart from Degree/Diplomacourses, certain short duration Certificate coursesmay also be considered under the Scheme. Thesecourses may be of duration of 3–6 months andinitiated preferably through Industrial TrainingInstitutes/Polytechnics. The level of assistanceavailable for creation of requisite infrastructureis proposed to be enhanced from existing Rs. 75lakh to Rs. 1 crore for each proposal.

b) Entrepreneurship Development Programme(EDP)

This is to promote entrepreneurship in food

processing sector. Eligible institutions may beprovided assistance of Rs. 2 lakh per EDP during12th Plan. The Curriculums for such programmesmay be standardized with the assistance ofNIFTEM to keep them abreast of developmentsin the food processing industry and till such timethe existing curriculum would be continued.

c) Food Processing Training Centre (FPTC)

These Centres are basically meant fordevelopment of rural entrepreneurship andtransfer of technology for processing of foodproducts by utilising locally grown raw materialand providing hands-on experience at suchproduction–cum-training centres. Thus, theseCentres would be helpful in promotingentrepreneurship/skill development as well astransfer of technology. The entire outlay for HRDactivities during the 12th Plan would now beimplemented under NFPM though the Ministrywould be directly releasing remaining assistancefor projects sanctioned during 11th Plan, forwhich Rs. 6 crore each for next two years hasbeen provided.

NATIONAL MISSION ON FOOD PROCESSING

Government of India has proposed to launcha National Mission on Food Processing (NMFP)during 12th Plan.

Objectives of the Mission are:

a. To spread the message of significanceof food processing for enhancingagricultural productivity and farmersincome in the country.

b. To assist the state governments increating requisite synergy between theiragricultural plans and development offood processing sector.

c. To assist the state governments inaddressing both institutional andinfrastructural gaps along the ValueChains and thus create efficient SupplyChains for agricultural produces.

d. To promote initiatives for skilldevelopment, training andentrepreneurship which would meetneeds of both post-harvest managementand food processing industry.

e. To assist MSMEs in setting up/

modernization of food processing unitsby providing need based support interms of capital/technology/skill etc.

f. To assist food processing industry tomeet requisite standards in terms of foodsafety laws and market demand, bothdomestic and international.

Structure of the Mission

The proposed structure would be a three-tierstructure at National, State and District levels.

a) National Level

At the apex level, there would be a MissionDirectorate in the Ministry of Food ProcessingIndustries with a Governing Council and anExecutive Committee.

A Governing Council would be constitutedunder the Chairmanship of the Minister of FoodProcessing Industries and may comprise ofMinisters and senior officials from relevantMinistries/Institutions, Industry associations andrepresentatives of select state governments. TheCouncil would be responsible for laying down


priorities of the Mission and making itsoperational guidelines. It would also haveperiodical review of progress of the Mission andgive its suitable recommendations.

An Executive Committee, on the other hand,would be constituted under the Chairmanshipof Secretary of the Ministry, with a JointSecretary of the Ministry as Member Secretary,and would have representatives from relevantMinistries/Institutions, Industry associations andselect state governments to oversee the activitiesof the Mission and approve State Action Plans.The Committee would ensure smooth functionallinkages among various levels and would be thelink between Ministry and various stategovernments.

The Mission Directorate, with a JointSecretary as Mission Director, would be providedwith adequate resources, including manpower,to carry out its responsibilities.

b) State Level

At the State level, too, a similar structurewould be provided. Thus, there would be a StateFood Processing Mission, which may be guidedby a General Body headed by Chief Minister/concerned Minister and comprise of Ministersfrom relevant Departments/Institutions,Industry Associations, Experts etc. An ExecutiveCommittee under Chief Secretary/DevelopmentCommissioner/Principal Secretary/AgricultureProduction Commissioner/Secretary (Industries)may be set up which would be responsible forimplementing the Schemes/programmes of theMission.

A senior officer, at the level of Director, maybe designated as the Mission Director at Statelevel who would be overall responsible for allactivities under the Mission. The State levelMission may be required to have dedicatedprofessionals and domain experts who wouldbe supported by NMFP on need basis. Each Statewould be encouraged to set up a State Vision/Plan Document for the food processing sector.

c) District Level

At the District level, District IndustriesCentres may be nodal body for planning,

implementation and monitoring of variousprogrammes of Mission. In case of the States,with food processing under independentdepartment/directorate, a nodal office may beset up at major food processing clusters toundertake this responsibility. Also, in case offood processing being attached with Departmentof Agriculture, a suitable agency may beidentified at the District level. A district levelcommittee can be formed by the StateGovernment whenever considered necessary.Some mechanism for coordination with otheragencies/schemes at District/State level shouldalso be developed.

Thus, all three tiers of the Food ProcessingMission would work in close co-ordination witheach other and would be guided by the commonobjective of promoting, processing and valueaddition to the sector. The requisiteadministrative and financial support for theabove proposed structure may be provided bythe Ministry.

The Major Programmes/Schemes to becovered under NMFP during 2012-13 are:

(i) Scheme for Technology Upgradation/Establishment/ Modernization of FoodProcessing Industries.

(ii) Scheme for Cold Chain, Value Additionand Preservation Infrastructure for Non-Horticultural Products.

(iii) Scheme for Human ResourceDevelopment (HRD)

• Creation of Infrastructure Facilitiesfor Running Degree/Diploma/Certificate Courses in FoodProcessing Technology.

• Entrepreneurship DevelopmentProgramme (EDP)

• Food Processing Training Centre(FPTC)

(iv) Scheme for Promotional Activities

• Organizing Seminar/Workshops

• Conducting Studies/Surveys

• Support to Exhibitions/Fairs

• Advertisement & Publicity

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