Food Processing Industry: A Sunrise Sector in India

Oils and fats are amongst the key ingredients for a variety of food applications and are widely used in households and various industries. In the food industry, the choice of oils and fats is an important determinant of many crucial factors such as shelf-life of foods, quality, taste, flavor, and texture and, most importantly, costs/profits. Increasingly, consumer preference is also being based on the choice of oils and fats used in the preparation of foods.

Palm oil is the most commonly preferred amongst oils and fats by food processors, due to its versatile properties such as being odorless and colorless. Its ability to remain stable at high temperatures is a big plus in its favour. Palm Oil made products boast of an excellent shelf life which makes it a perfect fit for the food processing industry. Globally, it is one of the majorly produced, traded and consumed oils.

The food processing industry has become an essential part of the food supply chain in the global economy. It plays an important role in linking farmers to consumers in domestic and international markets. This industry in India is regarded as a sunrise sector, accounting for 32% of the country’s total food market. It is ranked 5th in terms of production, consumption, export, and expected growth prospects. It has gained immense prominence in the recent years due to increased demand for instant food, packed food, ready-to-eat food, in view of the changing demographics of increasing number of women entering the job market. It is expected to double from USD 263 billion (2019-20) to USD 535 billion by 2025-26. The food processing sector contributes 12.8% to the Indian GDP and provides 11.6% share in total employment. This sector is expected to generate 9 million jobs by 2024.

Key factors driving growth in this sector:

  • India has the largest working population in the world, and rising income levels has made it the biggest consumer of processed foods.
  • MSMEs have been playing a significant role in this sector with the advancements in food technology and science.
  • Expansion in urbanization has increased the penetration levels of organized retail outlets, offering a variety of options with attractive discounts.
  • The online food ordering business has witnessed a major boost, specially during the pandemic period. This can be a game changer in the long term.
  • Demand for healthy, packaged and immunity booster foods have grown tremendously.
  • The ‘Atmanirbhar Bharat’ (Self-Reliant India) initiative has prioritized the sector and offered the much-needed support.

The FMCG (Fast Moving Consumer Goods) market, including bakery and snack foods sector, are playing a lead role in this fast-growing food processing industry. India’s FMCG market was valued at USD 110 billion in 2020. Compared to 2012, the market size of fast-moving consumer goods has tripled. By 2025, the market is expected to grow to USD 220 billion. The popularity of bakery products has been stimulated by the growth in the fast-food chains as they are used for burgers, snacks, and sandwiches. Moreover, introduction of value-added bakery products has given a boost to the overall market growth. According to the report by IMARC Group, titled “Indian Bakery Market: Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026”, the Indian bakery market reached a value of USD 9.63 Billion in 2020. The market value is projected to reach USD 13.3 Billion by 2025, expanding at a CAGR of 9.1% during 2020-2025.

Table No.1 Market share of FMCG in India FY 2019

Source: Statista

Traditional snacks also play an important role in Indian lifestyle, and most of these delicacies are deep fried. This market has also shown tremendous growth in the past couple of years. COVID 19 pandemic has given a major boost to the home based namkeen (savoury snacks) industry. In 2020, the snacks market share in India was about USD 5.57 billion and is expected to reach almost USD 13 billion by 2026. The sweet and namkeen market is forecasted to grow at a CAGR of more than 7% in near future.

The demand for processed foods is surging due to innovation and latest trends like e-retailing of products, improved packaging, and innovation in ingredients. The industry is expected to grow, to a great extent, with   growing awareness and a flourishing economic environment. The COVID 19 pandemic has acted as a booster, which has further enhanced acceptability and increased the demand in this sector.

The surge in the demand for Palm Oil is directly linked to the increased demand from the processed food industry as Palm-based oils and fats provides the ideal requirements like versatility and stability, along-with price competitiveness and improved shelf life, making it an ideal ingredient for these industries. India imports 60% of its edible oil requirements, of which Palm Oil dominates the markets due to its nature. Palm oil is imported from Malaysia and Indonesia, which are members of ASEAN, thus affording benefits from the Free Trade Agreement.

In recent years, the Indian Government has taken proactive initiatives towards developments, with favorable policies and budget announcements along with Make-in-India Campaign. It also has plans to achieve self-sufficiency in edible oils with National Mission on Edible Oil – Oil Palm (NMEO-OP) and a fund of USD 1.48 billion has been allotted for this purpose. This will open up opportunities for Malaysia as it is amongst the largest producers of Palm oil and has put prolonged and continuous contributions for value addition in this sector. New areas of cooperation can be explored to rejuvenate business linkages, in order to ensure continuous progress of the bilateral trade between the two countries. Research in Malaysia in the fields of planting and processing can offer a good head start to the Indian industry in this sector.

As per official data, 100% foreign investment under automatic route has been permitted for oil palm plantation since 24.11.2015. The Government is constantly taking various initiatives to boost investments which, inter-alia, include Make-in-India programme, measures to improve ease of doing business, facilitating Micro, Small and Medium Enterprises (MSME), reforms in the Foreign Direct Investment (FDI) Policy, etc.

The scheme aiming towards helping small micro-units engaged in the food processing industry is PM Formalization of Micro Food processing enterprises. Pradhan Mantri Kisan Sampada Yojna (PMKSY) scheme is aimed at promoting entrepreneurs in setting up food processing units, closer to agricultural areas. Under PMKSY, Government has also approved 42 Mega Food Parks, 353 Cold Chain projects, 63 Agro-Processing Clusters, 292 Food Processing Units, 62 Creation of Backward & Forward Linkages Projects and 6 Operation Green projects across the country. The Union Budget for 2021-22 is aimed to boost India’s overall competitiveness and capacities in the food processing sector.  The government has been making efforts to encourage investments in this sector through several schemes, fiscal reliefs and incentives. It is also committed to supporting innovative ideas, and sustainable solutions.

According to the World Investment Report 2021, FDI inflows rose by 25.4% to reach USD 64 billion in 2020, from USD 51 billion in 2019, becoming the 5th largest recipient in the world in 2020. India’s economy rebounded in the April-June quarter even while a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier driven by a surge in manufacturing and higher consumer spending.

With rising population, consumer spending is bound to rise which will increase demand in the food processing industry. Demand for allied industries like food processing equipment and food logistics have also experienced the ride to the sky.  The food processing industry is all set to become the most robust sector in India, contributing significantly towards the growth and development of the region. In the recent years, there have been various developments in FSSAI regulations, improvements in infrastructure and international partnerships through FDI route. E-commerce players like Amazon, Flipkart, Grofers and Big Basket have added value to this segment. In the post COVID era, India has the potential to be a food export hub and a global leader in the industry.

Prepared by: Bhavna Shah 

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