Food Processing Sector-Significance and Challenges- Explained Pointwise

India with its agricultural tradition and diverse climate, holds immense potential for the food processing sector. This industry is not only a cornerstone for the country’s economic growth but is also pivotal for ensuring food security, reducing wastage, enhancing farmers’ incomes and providing employment opportunities.
In order to achieve a developed nation status in the next 25 years, the food processing sector would be crucial in transforming India’s primary agriculture sector with enhanced productivity and profitability while ensuring sustainability and resilience.

Table of Content

What is Food Processing? What are the reasons behind its growing Demand in India? What is the significance of Food Processing Sector? What are the Government schemes and initiatives for promotion of Food Processing Sector in India? What are the Challenges faced by the Sector In India? What Should be the Way Forward?

What is Food Processing? What are the reasons behind its growing Demand in India?

Food processing is the transformation of raw agricultural ingredients – such as crops, livestock, or fish – into food that is suitable for consumption, cooking, or storage. It extends the shelf life of food, reducing waste and ensuring availability throughout the year.
Food processing sector has been recognized as a ‘sunrise sector‘ and a key priority industry under the ‘Make in India‘ initiative.

Type of Food Processing: The can be categorized into primary and secondary products:

1. Primary products are made from processed raw materials, like fruits and vegetables.
2. Secondary products are created by processing primary food items into new products, such as jams, sauces, and butter.

Main reasons behind the Growth of Food Processing sector in India:

1. Changing Consumer Demographics & Lifestyles:
   1. Urbanization: Rapid urban migration has led to busier lifestyles, increasing the demand for Ready-to-Eat (RTE) and Ready-to-Cook (RTC) meals.
   2. Rising Disposable Income: A growing middle class has more “wallet share” to spend on premium, branded, and packaged health foods.
   3. Health Consciousness: There is a significant surge in demand for organic, functional (ayurvedic/herbal), and fortified foods.
2. Strong Agricultural Foundation:
   1. Raw Material: India is a global powerhouse in raw material production, providing a steady supply for processing. India is the world’s largest producer of milk and the second-largest producer of fruits, vegetables, cereals, and fish.
   2. Diverse Agro-Climatic Zones: India’s 15 different agro-climatic zones allow for the cultivation of almost any vegetable or fruit year-round, ensuring a consistent supply of raw ingredients.
3. Government Policy Support:
   1. Sunrise Sector: The Government of India has classified food processing as a “Sunrise Sector,” backed by massive financial outlays.
   2. PMKSY (Pradhan Mantri Kisan Sampada Yojana): This “umbrella” scheme focuses on modernizing supply chains and creating “Mega Food Parks” to reduce post-harvest losses.
   3. PMFME Scheme: Aimed at the Micro level, this scheme helps 200,000 unorganized units transition into the formal sector through credit-linked subsidies and technical training.
   4. PLI Scheme: The Production Linked Incentive (PLI) scheme, with an outlay of ~₹10,000 crore rewards companies for increasing their manufacturing output and promoting Indian brands abroad.
   5. 100% FDI: The government allows 100% Foreign Direct Investment (FDI) under the automatic route for food processing, attracting global giants like Nestlé, PepsiCo, and Danone. 
   6. Proactive government policy & assistance with government interventions like Mega Food Park Scheme.
4. Technological & Infrastructure Advancements:
   1. Cold Chain Revolution: Massive investments in integrated cold chains and “Multi-Product Food Irradiation Units” are extending the shelf life of perishables.
   2. e-Commerce: The explosion of Quick-Commerce (Q-Commerce) and e-commerce platforms has shortened the “farm-to-fork” journey, giving processed food brands direct access to consumers.
5. Export Opportunities:
   1. Global Demand: There is a high demand for Indian processed foods (like spices, basmati rice, and marine products) in the Middle East, Southeast Asia, and the West.
   2. Trade Agreements: Recent trade deals with the UAE, Australia, and the EFTA are opening up duty-free or reduced-tariff access to new markets.

What is the significance of Food Processing Sector?

1. Increased Contribution to GDP: The food processing sector has emerged as an important segment of the Indian economy in terms of its contribution to GDP. During the last 5 years the sector had
grown at an average annual growth rate of around 8.3% as compared to around 4.87% in the agriculture and allied sectors (at 2011-12 prices).

2. Employment Generation: This sector is a major employment generator in the country. As per the latest Annual Survey of Industries (ASI) for 2019-20, the total number of persons engaged in the registered food processing sector was 20.32 lakhs. Moreover as per the NSSO 73rd Round, 2015-16, the unregistered units of the sector supported employment for 51.11 lakh workers and constituted 14.18% of employment in the unregistered manufacturing sector.

3. Large FDI inflow and market size: FDI equity inflows into the food processing sector reached $3.28 billion between 2019-2022. It is the fifth largest sector of the country’s economy.

4. Promotes balanced regional development: This industry is a sunrise industry with a consistent demand for locally processed food. This promotes balanced regional development in the country.

5. Women entrepreneurship: The sector provides employment opportunities to rural women in India and also serves as a platform for entrepreneurship. For ex- Lijjat papad venture.

6. Nutritional Improvement: Processed foods can be fortified with essential vitamins and minerals, thereby addressing malnutrition and improving public health outcomes.

What are the Government schemes and initiatives for promotion of Food Processing Sector in India?

Pradhan Mantri Kisan Sampada Yojana (PMKSY)	This Central Sector Scheme is being implemented across the country to facilitate the creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet for promotion. Key Sub-Schemes under PMKSY: 1. Mega Food Parks: Provides state-of-the-art infrastructure for food processing units. Out of 41 approved, 24 are now fully operational. 2. Integrated Cold Chain & Value Addition: Focuses on reducing post-harvest losses. 3. Agro-Processing Clusters: Creates modern infrastructure for groups of entrepreneurs. 71 clusters have been approved to date. 4. Food Safety & Quality Assurance: Includes setting up NABL-accredited food testing labs to ensure international standards. It has directly benefitted over 53 lakh farmers & >7.6 lakh employment opportunities have been created.
Pradhan Mantri Formalization of Food Processing Enterprises (PM-FME)	It was launched in June 2020 under Atmanirbhar Bharat Abhiyaan to encourage ‘Vocal for Local‘ in the sector with a total outlay of Rs. 10,000 crore during the period 2020-2025. The scheme aims to enhance the competitiveness of individual microenterprises in the unorganised segment of the food processing industry and promote formalisation of the sector. This is the first ever Government scheme for Micro Food Processing enterprises and is targeted to benefit 2 lakh enterprises through credit linked subsidies and adopting the approach of ‘One District One Product‘.
Food Processing Fund	The Government of India instituted the Food Processing Fund (FPF) in NABARD during 2014-15, with a corpus of Rs. 2,000 crore, with the objective of providing affordable credit to public and private players for setting up of Designated Food Parks (DFPs)
Warehouse Corpus Fund	The fund was set up corpus of Rs. 5000 crore to support State governments, State-owned agencies, and Corporates for the creation of scientific warehouse capacity through financial support.
Production Linked Incentive Scheme for Food Processing Sector (PLISFPI)	PLI scheme for Food Processing Sector was launched with the aim to generate employment for approximately 2.5 lakh persons in formal sector. The scheme has led to the creation of 3.3 lakh jobs & added more than 67 lakh metric tonnes of processing capacity.
Mega Food Park Scheme	Mega Food Parks are built on a ‘cluster’ strategy and focus on the development of cutting-edge support infrastructure in a well-defined agri/horticultural zone for the establishment of modern food processing units.
Union Budget 2024-25	Announced the establishment of 50 multi-product irradiation units to reduce post-harvest losses & enhance shelf life, 100 NABL-accredited food testing laboratories to strengthen quality assurance across the value chain & establishment of National Makhana Board – aimed at boosting value addition, branding, and global positioning of Makhana from India.

What are the Challenges faced by the Sector In India?

1. Low GVA despite high demand: Despite the increasing demand for processed food and ready-to-eat food in India, the share of the sector in overall GVA has only been 1.88% (2020-21) as against the share of manufacturing at 17.86% and the share of GVA in agriculture at 16.26%.
2. Lack of skilled manpower and modern technology: The availability of skilled manpower has been identified as one of the major challenges facing the industry in India. Many processing facilities use outdated technologies, reducing efficiency and product quality.
3. Infrastructure Bottlenecks: Inadequate cold storage facilities, transportation systems, and processing infrastructure result in post-harvest losses exceeding 30% of produce. The NITI Aayog estimates annual post-harvest losses close to Rs 90,000 crore.
4. Informalization and Unorganized Segments: The sector has a high concentration of unorganized segments, representing almost 75% across product categories. This causes inefficiencies in the production system.
5. Supply Chain Inefficiencies: Fragmented supply chains with multiple stakeholders and poor coordination lead to delays, waste, and low quality products. For ex- Broken supply chain in the agricultural hinterland of Bihar.
6. Regulatory Challenges: Stringent sanitary and phytosanitary (SPS) measures in export markets impede Indian processed food exports. For ex- Rejection of Indian processed exports by the EU.

Read More- [Kurukshetra Feb 2024 Summary] Food Storage Infrastructure- Explained Pointwise

What Should be the Way Forward?

1. Use of Smart technologies: Internet of Things (IoT), Artificial Intelligence (AI) Applications, Robotics and Automation should be used in the food processing sector to increase productivity and decrease wastage.
2. Focus on horticulture and animal products: Special focus must be put on making India a market leader in global trade for at least five value chains- processed fruits and vegetables, processed fish and sea food, meat, dairy products, poultry and eggs by 2047.
3. Skilled Manpower: The food sector must employ more professionals trained in food technology, quality control, processing methods, and food safety management.
4. Better health markers: It must involve better health markers on the packets. The regulatory mechanism governing food safety must be strengthened and properly governed.
5. Tapping the popularity of agricultural products: There is also a need to tap the popularity of various food grains and coarse grains like millets which are gaining increasing importance due to their nutritional benefits and adaptability to various climatic conditions.

Conclusion:
The food processing sector is pivotal for India’s economic transformation, farmer income enhancement, reduction of food waste, and rural employment generation. It has the most profound impact on the rural economy. With sustained focus on infrastructure, technology, formalization, and market linkages, India is well-positioned to unlock the full potential of this “sunrise industry” and emerge as a global food processing hub.

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