What is Food Processing?
Food processing is any method that is used to add value to the raw food materials (including marine products, poultry and meat) which can be consumed by human beings or animals. It means to transform raw food materials into the forms which are either consumable directly or have shorter preparation cycle, are packaged in a convenient, attractive and marketable way and which increase the shelf life of the food items. Most of the food items consumed by the urbanites in India today are processed to some grade. For example, pasteurised milk, energy and nutrition bars, ready-mix batter for idlis/dosas, ready to eat curries etc. are some of the off-the-cuff examples that many of the urbanites consume on a typical day.
Food Processing Industry in India is one of the largest in terms of production and consumption. It has good growth prospects due to reasons which I shall highlight later in this article. But first let us understand the structure and valuation of this industry.
In the entire Manufacturing Segment, Food Processing constitutes about 9% of the manufacturing output. The Food Processing Industry in India was estimated at Rs. 350,000 crores in 2009. It is expected to grow at a rate of 14% yoy and is expected to reach to about Rs. 520,000 crores by 2012. It further poses an investment opportunity worth around Rs. 120,000 crores by 2015.
The Indian Food Processing Industry has mainly eight distinct segments namely, Packaged Foods, Dairy, Meat and Poultry, Sea Food/Marine Food Products, Fruits and Vegetables, Alcoholic Beverages, Grain Processing and Non-alcoholic Beverages. Out of these Dairy products have the greatest market penetration of about 37% whereas the Packaged Food has penetration of only 3%.
Contribution by organized sector and unorganized sector
A number of players in this industry are small players and form the unorganized sector for this industry. About 42% of the output comes from the unorganized sector, 25% comes from the organized sector and the rest of it comes from the small scale players. The most common type of food processing units that form the organized sector are flour mills, fish processing units, fruits and vegetables processing units, meat processing units, non-alcoholic and aerated drinks units, sugar units (mills) and modernized rice mills.
India produces nearly 16% of the total world’s total food grain production. It is one of the largest producers of agricultural produce. With a population expected to reach to about 590 million people by 2030 in urban India, India has a huge potential domestic demand for processed foods other than the demand from the exports.
There are many socio-economic factors that are driving the demand side of the Indian Food Processing Industry. The changing consumption patterns, both in tier 1 and tier 2 cities, rising income levels among the middle-class and changing lifestyles, are some of the factors providing the demand side push for the Food Processing Industry. Moreover, the central government has given a priority status to all agro-processing businesses.
Better bio-technology, competition with foreign players, improved packaging industry, are some of the supply side factors which will help in bolstering the growth of this industry.
Key constraints for growth
Though there are many promising dynamics which support good growth of this industry, there are still some significant constraints which, if not addressed sooner, can impede the growth prospects of the Food Processing Industry in India. One of the biggest constraints is that this industry is capital intensive. It creates a strong entry barrier and allows lesser number of players to enter the market. Lesser players mean lesser competition and lesser competition means reduced efforts to improve the quality standards.
There are other two constraints which pertain to maintaining the standards of quality. First constraint is poor infrastructure for storing raw food materials. Two main types of storages – the warehouses and the cold storages, lag in storage standards. The pests infest the grains sometimes due to lack of monitoring, proper use of pesticides and proper ventilation. Similarly, the power outages result in sub-optimal function of the cold-storages and the quality of food material in the cold storages becomes questionable. The second important aspect is having poor quality standards and control methods for implementing the quality standards for processing and packaging the processed foods. For example, vegetables may not be washed properly and processed into either ‘ready to eat food’ or packaged as ‘cut and ready to cook’ vegetables.
Unless these important constraints are addressed it will be difficult to break the cultural barrier where people prefer fresh food over packaged food. It will be difficult to gain customer confidence and the perceived growth of this industry may actually not be so lucrative in the forecasted time period.
|About Mridula: Mridula is a freelance writer. She writes on Entrepreneurship and has worked for a start-up in the past. To know more check out her profile at LinkedIn/Mridula Velagapudi|