Food Processing Industry

The food industry is on a high as Indians continue to have a feast. Fuelled by what can be termed as a perfect ingredient for any industry - large disposable incomes - the food sector has been witnessing a marked change in consumption patterns, especially in terms of food.

Change in consumption patterns

Increasing incomes are always accompanied by a change in the food basket, says an ICRA report, which analyses food expenditure patterns over the last three decades in India. The report observes that the proportionate expenditure on cereals, pulses, edible oil, sugar, salt and spices declines as households climb the expenditure classes in urban India while the opposite happens in the case of milk and milk products, meat, egg and fish, fruits and beverages.

For instance, the proportionate expenditure on staples (cereals, grams, pulses) declined from 45 per cent to 44 per cent in rural India while the figure settled at 32 per cent of the total expenditure on food in urban India.

A large part of this shift in consumption is driven by the processed food market, which accounts for 32 per cent of the total food market. It accounts for US$ 29.4 billion, in a total estimated market of US$ 91.66 billion. The food processing industry is one of the largest industries in India -- it is ranked fifth in terms of production, consumption, export and expected growth.

The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and generate employment of 9 million person-days.

Policy Initiatives

The Government has formulated and implemented several schemes to provide financial assistance for setting up and modernising of food processing units, creation of infrastructure, support for research and development and human resource development in addition to other promotional measures to encourage the growth of the processed food sector.

The Centre has permitted under the Income Tax Act a deduction of 100 per cent of profit for five years and 25 per cent of profit in the next five years in case of new agro processing industries set up to package and preserve fruits and vegetables.

Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16 per cent to 8 per cent.

Most of the processed food items have been exempted from the purview of licensing under the Industries (Development and regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.

Food processing industries were included in the list of priority sector for bank lending in 1999.
Automatic approval for foreign equity up to 100 per cent is available for most of the processed food items except alcohol, beer and those reserved for small-scale sector subject to certain conditions.

Foreign Direct Investment

Foreign direct investment (FDI) in the country's food sector is poised to hit the US$ 3-billion mark. In the last one year alone, FDI approvals in food processing have doubled.
The cumulative FDI inflow in food processing reached US$ 2,804 million in March ’06. In ’05-06, the sector received approvals worth US$ 41 million. This figure is almost double the US$ 22 million approved in '04-05.

Ready-to-eat food

The popularity of ready-to-eat packs and the bottomlines of eateries have a story to tell. Eating out no longer marks a special occasion. Not only does the traditional eat-at-home type prefer to eat out, he is very demanding too. He wants value for his money in terms of quality and variety. No wonder, multi-cuisine restaurants are mushrooming even in small towns. Italian, Mexican, Lebanese, Japanese, Cajun – the list is growing.

Corroborating this trend, Euromonitor International, a market research company, says the amount of money Indians spend on meals outside the home has more than doubled in the past decade, to about US$ 5 billion a year and is expected to double again in about half that time.
The industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP growth rate of 6-8 per cent, during the tenth five-year plan period. Value addition of food products is expected to increase from the current 8 per cent to 35 per cent by the end of 2025. Fruit and vegetable processing, which is currently around 2 per cent of total production will increase to 10 per cent by 2010 and to 25 per cent by 2025.

The popularity of food and agro products is not surprising when the sector is now offering a growth of more than 150 per cent in sales. With such promise in the sector, a number of foreign companies have joined the fray. While US brands such as McDonald’s, Pizza Hut and Kentucky Fried Chicken have become household names, more are on their way.

The new wave in the food industry is not only about foreign companies arriving here attracted by the prospective size of the market. It is also about the migration of the Made in India tag on food products travelling abroad. Indian food brands and fast moving consumer goods (FMCGs) are now increasingly finding prime shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR Foods' ready-to-eat food stuff, ITC's Kitchen of India and Satnam Overseas' Basmati rice.

Food Parks

In a bid to boost the food sector, the Government is working on agrizones and the concept of mega food parks. Twenty such mega parks will come up across the country in various cities to attract Foreign Direct Investment (FDI) in the food processing sector.

The Government has released a total assistance of US$ 23 million to implement the Food Parks Scheme. It has so far approved 50 food parks for assistance across the country. The Centre also plans US$ 22 billion subsidy for mega food processing parks.