Q.1 Discuss in detail the scope and potential of Agro Processing Industry in India.

The Iood processing sector is highly Iragmented industry, it widely comprises oI the Iollowing
sub-segments: Iruits and vegetables, milk and milk products, beer and alcoholic beverages, meat
and poultry, marine products, grain processing, packaged or convenience Iood and packaged
drinks. A huge number oI entrepreneurs in this industry are small in terms oI their production
and operations, and are largely concentrated in the unorganized segment. This segment accounts
Ior more than 70 oI the output in terms oI volume and 50 in terms oI value. Though the
organized sector seems comparatively small, it is growing at a much Iaster pace.
Agro processing could be deIined as set oI techno economic activities carried out Ior
conservation and handling oI agricultural produce and to make it usable as Iood, Ieed, Iibre, Iuel
or industrial raw material. Hence, the scope oI the agro-processing industry encompasses all
operations Irom the stage oI harvest till the material reaches the end users in the desired Iorm,
packaging, quantity, quality and price. Ancient Indian scriptures contain vivid account oI the
post harvest and processing practices Ior preservation and processing oI agricultural produce Ior
Iood and medicinal uses. Inadequate attention to the agro-processing sector in the past put both
the producer and the consumer at a disadvantage and it also hurt the economy oI the Country.


Presently, the processing oI Iruits and vegetables is estimated to be around 2.2 oI the total
production in the country. The major processed items in this segment are Iruit pulps and juices,
Iruit based ready-to-serve beverages, canned Iruits and vegetables, jams, squashes, pickles,
chutneys and dehydrated vegetables. The new arrivals in this segment are vegetable curries in
retortable pouches, canned mushroom and mushroom products, dried Iruits and vegetables and
Iruit juice concentrates.
The Iruits and vegetable processing industry is rather Iragmented. A large number oI units are in
household and small-scale sector, having low capacities oI up to 250 tonnes per annum. From the
year 2000 onwards the industry has seen a signiIicant growth in ready-to-serve beverages, pulps
and Iruit juices, dehydrated and Irozen Iruits and vegetable products, pickles, processed
mushrooms and curried vegetables, and units engaged in these segments are export oriented.
ilk and ilk Products
India is with highest livestock populations in the world, it accounts 50 oI the buIIaloes and
20 oI the world`s cattle population, most oI which are milch cows and milch buIIaloes.
In 2005-06 total milk productions in the country was over 90 million tonnes with a per capita
availability oI 229 gms per day.
Poultry industry is also among the Iaster growing sectors rising at a rate oI 8 per year. It is
observed that the vertical integration oI poultry production and marketing has lowered costs oI
production, consumer prices oI poultry meat and marketing margins. There are eight integrated
poultry processing units in the country, which oI course hold a signiIicant share in the industry.
arine Products
India is the largest Iish producing country in the world it is the third largest Iish producer in the
world while ranks second in inland Iish production. Categorically India`s potential Ior Iishes,
Irom both inland and marine resources, is supplemented by the 8,000 km coastline, 3 mn
hectares oI reservoirs, 50,600 sq km oI continental shelI area, 1.4 mn hectares oI brackish water
and 2.2 mn sq km oI exclusive economic zone.
Grain Processing
Primary milling oI grains is the considered to be the important activity in the grain-processing
segment oI the industry. However, primary milling adds little to shelI liIe, wastage control and
value addition. Around 65 oI rice production is milled in modern rice mills. However, the
sheller-cum-huller mills operating give low recovery. Wheat is processed Ior Ilour, reIined wheat
Ilour, semolina and grits. Apart Irom the 820 large Ilourmills, there are over 3 lakh small units
operating in this segment in the unorganised sector. Dal milling is the third largest in the grain
processing industry, and have about 11,000 mechanised mills in the organised segment. Oilseed
processing is another major segment, an activity largely concentrated in the cottage industry.
According to estimates, there are approximately 2.5 lakh ghanis and kolus which are animal
operated oil expellers, 50,000 mechanical oil expellers, 15,500 oil mills, 725 solvent extraction
plants, 300 oil reIineries and over 175 hydrogenated vegetable oil plants.
eer & Alcoholic everages
When discussed on alcoholic beverages, India is considered to be the third largest market Ior
alcoholic beverages in the world. The domestic beer and alcoholic beverage market is largely
dominated by United Breweries, Mohan Meakins and Radico Khaitan. The demand Ior beer and
spirits is estimated to be around 373 million cases per year. There are 12 joint venture companies
having a licensed capacity oI 33,919 kilo-litres per annum Ior production oI grain based
alcoholic beverages. Around 56 units are manuIacturing beer under license Irom the Government
oI India.
Constraints & Drivers of Growth

Changing liIestyles, Iood habits, organized Iood retail and urbanization are the key Iactors Ior
processed Ioods in India, these are post-liberalization trends and they give boost to the sector.

There has been a notable change in consumption pattern in India. Unlike earlier, now the share
and growth rates Ior Iruits, vegetables, meats and dairy have gone higher compared to cereals
and pulses. Such a shiIt implies a need to diversiIy the Iood production base to match the
changing consumption preIerences.

Also in developed countries it has been observed that there has been a shiIt Irom carbohydrate
staple to animal sources and sugar. Going by this pattern, in Iuture, there will be demand Ior
prepared meals, snack Ioods and convenience Ioods and Iurther on the demand would shiIt
towards Iunctional, organic and diet Ioods.

Some of the key constraints identified by the food processing industry include:
O Poor inIrastructure in terms oI cold storage, warehousing, etc
O Inadequate quality control and testing inIrastructure
O IneIIicient supply chain and involvement oI middlemen
O High transportation and inventory carrying cost
O AIIordability, cultural and regional preIerence oI Iresh Iood
O High taxation
O High packaging cost
In terms of policy support, the ministry of food processing has taken the following
initiatives:
O Formulation oI the National Food Processing Policy
O Complete de-licensing, excluding Ior alcoholic beverages
O Declared as priority sector Ior lending in 1999
O 100 FDI on automatic route
O xcise duty waived on Iruits and vegetables processing Irom 2000 01
O Income tax holiday Ior Iruits and vegetables processing Irom 2004 05
O Customs duty reduced on Ireezer van Irom 20 to 10 Irom 2005 06
O Implementation oI Fruit Products Order
O Implementation oI Meat Food Products Order
O nactment oI FSS Bill 2005
O Food SaIety and Standards Bill, 2005

Apart from these initiatives, the Centre has requested state Governments to undertake the
following reforms:
O Amendment to the APMC Act
O owering oI VAT rates
O Declaring the industry as seasonal
O Integrate the promotional structure
SWOT Analysis of Food-Processing Industry
Strengths
O Abundant availability oI raw material
O Priority sector status Ior agro-processing given by the central Government
O Vast network oI manuIacturing Iacilities all over the country
O Vast domestic market
Weaknesses
O ow availability oI adequate inIrastructural Iacilities
O ack oI adequate quality control and testing methods as per international standards
O IneIIicient supply chain due to a large number oI intermediaries
O High requirement oI working capital.
O Inadequately developed linkages between R&D labs and industry.
O Seasonality oI raw material
Opportunities
O arge crop and material base oIIering a vast potential Ior agro processing activities
O Setting oI SA and Iood parks Ior providing added incentive to develop greenIield
projects
O Rising income levels and changing consumption patterns
O Favourable demographic proIile and changing liIestyles
O Integration oI development in contemporary technologies such as electronics, material
science, bio-technology etc. oIIer vast scope Ior rapid improvement and progress
O Opening oI global markets
Threats
O AIIordability and cultural preIerences oI Iresh Iood
O High inventory carrying cost
O High taxation
O High packaging cost
Why to invest in Food Processing Sector

1. Vast source of raw material
O India is one oI the largest producers oI wheat and rice.
O Coconuts, cashew nuts, ginger, turmeric and black pepper is widely grown in some parts
oI the country.
O India is the second largest producer oI groundnuts, Iruits and vegetables. That it accounts
Ior about 10 per cent oI the world's Iruits production with the country topping in the
production oI mangoes and bananas.
O Due to the high processing levels milk products oIIer a signiIicant opportunity in India.
India is the world's largest producer oI milk owing to the strong business models Iormed
through cooperative movements in the country. Milk and related products account Ior
17 oI India's total expenditure on Iood. This segment enjoys liberal regulations as all
milk products except malted Ioods are automatically allowed 51 Ioreign equity
participation and all exports oI dairy products are Ireely allowed.
O Alcoholic beverages have been categorised as the new high opportunity sector in India.
iquor manuIactured in India is categorised as Indian Made Foreign iquor (IMF. The
sector is still barred Irom the import oI potable alcohol as it is subject to government
licensing. In the meanwhile, India has recently started producing wine Ior domestic
consumption.
O Meat and poultry has also gained popularity due to the emergence oI producers that have
integrated breeding, Ieed milling, contract growing and marketing Iacilities Ior improved
productivity. Meat, Iish, and poultry are in rural areas as they are easily aIIordable and
provide necessary nutrients. India has the potential to be a leading global Iood supplier iI
it employs the right marketing strategies and creates an eIIicient supply chain
. Conventional farming to commercial faming
In recent years, there has been a shiIt Irom conventional Iarming oI Iood grains to horticulture
which include Iruits, vegetables, ornamental crops, medicinal and aromatic plants, spices,
plantation crops which include coconut, cashew nuts and cocoa and allied activities

3. arket in the form of large urban middle class
With a huge population oI 1.08 billion and population growth oI about 1.6 per annum, India is
a large and growing market Ior Iood products. Its 350 million strong urban middle class with its
changing Iood habits poses a huge market Ior agricultural products and processed Iood.

4. Low Production cost
The relatively low-cost but skilled workIorce can be eIIectively utilised to set up large, low-cost
production bases Ior domestic and export markets.

5. Change in consumption patterns
Increasing incomes are always accompanied by a change in the Iood habits. Over the last three
decades in India a shiIt in Iood habits have been observed. 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
oI milk and milk products, meat, egg and Iish, Iruits and beverages.

For instance, According to report oI ICRA the proportionate expenditure on staples like cereals,
grams and pulses declined Irom 45 per cent to 44 per cent in rural India while the Iigure settled
at 32 per cent oI the total expenditure on Iood in urban India.

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

According to the ConIederation oI Indian Industry (CII the Iood-processing sector has the
potential oI attracting US$ 33 billion oI investment in 10 years and generate employment oI 9
million person-days.

. Government Assistance
The Government has introduced several schemes to provide Iinancial assistance Ior setting up
and modernizing oI Iood processing units, creation oI inIrastructure, support Ior research and
development and human resource development in addition to other promotional measures to
encourage the growth oI the processed Iood sector.

7. Foreign Direct Investment
Foreign direct investment (FDI in the country's Iood sector is poised to hit the US$ 3-billion
mark in coming years. FDI approvals in Iood processing have doubled in last one year alone. The
cumulative FDI inIlow in Iood processing reached US$ 2,804 million in March '06. In '05-06, the
sector received approvals worth US$ 41 million. This Iigure is almost double the US$ 22 million
approved in 2004-05.

The US-based private equity Iund, New Vernon Private quity imited (NVP, has decided to
invest Rs 45 crore in Kochi-based spice major, astern Condiments, which is the Ilagship
company oI astern Group.

America's largest chocolate and conIectionery-maker Hershey is acquiring 51 per cent stake in
Godrej Beverages and Foods Ior US$ 54 million.

8. Food Parks
In an eIIort to boost the Iood sector, the Government is working on agri zones and the concept oI
mega Iood parks. Twenty such mega parks will come are proposed across the country in various
cities to attract Foreign Direct Investment (FDI in the Iood-processing sector.

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

.Conducive food processing policy environment
The national policy on Iood processing aims at increasing the level oI Iood processing Irom the
present 2 per cent to 10 per cent by 2010 and 25 per cent by 2025.
The government has allowed 100 per cent FDI in processing sector.

The Policy will seek to create an appropriate environment Ior entrepreneurs to set up Food
Processing Industries through:
O Fiscal initiatives and interventions like rationalization oI tax structure on Iresh Ioods as
well as processed Ioods and machinery used Ior the production oI processed Ioods.
O A concerted promotion campaign to create market Ior processed Ioods by providing
Iinancial assistance to Industry Associations, NGOsCooperatives, Private Sector Units,
State Government Organization Ior undertaking generic market promotion.
O Harmonization and simpliIication oI Iood laws by an appropriate enactment to cover all
provisions relating to Iood products so that the existing system oI multiple laws is
replaced and also covering issues concerning standards Nutrition, Merit goods, Iutures
marketing, equalisation Iund etc.
O IIorts to expand the availability oI the right kind and quality oI raw material round the
year by increasing production, improving productivity.
O Strengthening oI database and market intelligence system through studies and surveys to
be conducted in various States to enable planned investment in the appropriate sector
matching with the availability oI raw material and marketability oI processed products.
O Strengthening extension services and to the Iarmers and co-operatives in the areas oI post
harvest management oI agro-produce to encourage creation oI pre-processing Iacilities
near the Iarms like washing, Iumigation, packaging etc.
O IIorts to encourage setting up oI agro-processing Iacilities as close to the area oI
production as possible to avoid wastage and reduce transportation cost.
O Promotion oI investments, both Ioreign and domestic.
SimpliIication oI documentation and procedures under taxation laws to avoid unnecessary
harassment arising out oI mere technicalities.

Infrastructual Development
The Policy will Iacilitate:
O stablishment oI cold chain, low cost pre-cooling Iacilities near Iarms, cold stores and
grading, sorting, packing Iacilities to reduce wastage, improve quality and shelI liIe oI
products.
O Application oI biotechnology, remote sensing technology, energy saving technologies
and technologies Ior environmental protection.
O Building up a strong inIrastructural base Ior production oI value added products with
special emphasis on Iood saIety and quality matching international standards.
O Development oI Packaging Technologies Ior individual products, especially cut-Iruits &
vegetables, so as to increase their shelI liIe and improve consumer acceptance both in the
domestic and international markets.
O Development oI new technologies in Food Processing & Packaging and also to provide
Ior the mechanism to Iacilitate quick transIer oI technologies to Iield through a net work
oI R&D Institutions having a Central Institute at the national level with satellite
institutions located strategically in various regions to cover up the whole Country and to
make available the required testing Iacilities. This could be done by establishing a new
institution or strengthening an existing one.
O Development oI area-speciIic Agro Food Parks dedicated to processing oI the
predominant produce oI the area e.g., apple in J&K, pineapple in North ast, ichi in
Bihar, Mango in Maharashtra and Andhra Pradesh etc. etc.
O Development oI Anchor Industrial Centre andor linkage with Anchor Industrial Units
having network oI small processing units.
O Development oI Agro-industrial multi-products units capable oI processing a cluster oI
trans-seasonal produces.
ackward Linkage
The Policy will promote:
O stablishment oI a sustained and lasting linkage between the Iarmers and the processors
based on mutual trust, understanding and beneIits by utilizing the existing inIrastructure
oI cooperative, village panchayats and such other institutions.
O Mechanism to reduce the gap between the Iarm gate price oI agro-produce and the Iinal
price paid by the consumer.
O Development oI Futures Market in the best interest oI both the Iarmers and the processors
ensuring a minimum price stability to the Iarmer and a sustained supply oI raw material
to the processor.
O Setting up oI an qualization Fund to ensure sustained supply oI raw material at a
particular price level and at the same time to plough back the savings occurring in the
eventuality oI lower price to make the Fund selI-regenerative.
Forward Linkage
The policy will promote:
O stablishment oI a strong linkage between the processor and the market to eIIect cost
economies by elimination oI avoidable intermediaries.
O stablishment oI marketing network with an apex body to ensure proper marketing oI
processed products.
O Development oI marketing capabilities both with regard to inIrastructure and quality in
order to promote competitive capabilities to Iace not only the WTO challenge but to
undertake exports in a big way.

Given the trends in the Indian Iood and beverage sector including key industry consideration, it
is imperative Ior the Indian industry to leverage the emerging opportunities at once. These could
be:
O xploitation oI the huge untapped potential in processed Ioods.
O Opportunities presented by contract Iarming, captive supplies oI raw materials,
disintermediation and direct access to Iarmers, availability oI new and improved seeds
and Iarm technology.
O Value addition to unprocessed categories oI Iood such as dairy, Iruits and vegetable,
staples and edible oils.
O xploitation oI increasing health and saIety awareness oI the Indian consumer - this
would pave the way Ior value added products on a health platIorm.
O Investment in supply chain in order to improve costs, tighten supplies and minimize
wastage.
O Investment in better packaging and cold chain inIrastructure will aid the processed Iood
and beverage sector as these would aid in processing oI Iruits and vegetables.
O xploration oI appropriate regional branding strategies in order to appeal to the deep
rooted traditions, values and customs oI the consumer
O Taking advantage oI the inherent ethnic tastes and Iood habits oI the Indian consumer --
this provides the local Iood players a distinct advantage over Ioreign entrants into the
sector and poses an entry barrier Ior the latter
O xploitation oI the increasing consumerism Iuelled by new job opportunities, larger
disposable incomes and the emerging boom in modern retail trade.
O Opportunities Ior growth through the inorganic route, both domestically and outbound
this would provide access to new product categories, brands, markets and new
technologies.
O The S A opportunity would also provide players the added incentive to develop
greenIield projects within these zones and enjoy additional Iiscal beneIits

The Indian Foods & Beverage industry is poised Ior a signiIicant leap Iorward -- these
are interesting times and continued success will depend on a proper understanding oI the
landscape and challenges therein, quickly exploiting emerging opportunities, skillIul
execution oI strategic mergers and acquisitions and eIIecting a seamless organisation to
evolve into truly global players.
Thrust Areas
The vision 2015 oI the Government oI India Ior the Iood-processing sector aims at:
O nhancing and stabilizing the income level oI the Iarmers
O Providing choice to consumers in terms oI wide variety and taste
including traditional ethnic Iood
O Providing greater assurance in terms oI saIety and quality oI Iood to consumers
O Promoting a dynamic Iood processing industry
O nhancing the competitiveness oI Iood processing industry in both
domestic as well as international markets
O Making the Iood processing sector attractive Ior both domestic and
Ioreign investors
O Achieving integration oI the Iood processing inIrastructure Irom Iarm to market
O Having a transparent and industry Iriendly regulatory regime
O Putting in place a transparent system oI standards
based on science
The Iollowing speciIic targets would be to increase:
O The level oI processing oI perishables Irom 6 to 20
O Value addition Irom 20 to 35
O Share in global Iood trade Irom 1.5 to 3, by the year 2015

An estimated investment oI Rs. 100,000 crores is required to achieve the discussed vision, oI
which Rs.45,000 crores is expected to come Irom the private sector, Rs. 45,000 crores Irom
Financial Institutions and Rs. 10,000 crore Irom Government.













India has a major agribusiness sector which has achieved remarkable successes over the last
three and a halI decades. Unprocessed Ioods are susceptible to spoilage by biochemical
processes, microbial attack and inIestation. The right post harvest practices such as good
processing techniques, and proper packaging, transportation and storage (oI even processed
Ioods can play a signiIicant role in reducing spoilage and extending shelI liIe. The industry
consists oI segments like processed Iruits and vegetables, cereal based products, dairy products,
meat, poultry and Iishery products, beverages and conIectionary. The global processed Iood
market is estimated at $3.2 trillion. The Indian Iood market is estimated at $182 billion. Food
processing industry in India is growing at 14 annum.The total Iood production in India is likely
to double in the next ten years and there is an opportunity Ior large investments in Iood and Iood
processing technologies especially in areas oI canning, dairy and Iood processing, specialty
processing, packaging, Irozen Iood or reIrigeration and thermo Processing. Fruits & vegetables,
Iisheries, milk & milk products, meat & poultry, packaged or convenience Ioods, alcoholic
beverages & soIt drinks and grains are important sub-sectors oI the Iood processing industry.
Health Iood and health Iood supplements are another rapidly rising segment oI this industry
which is gaining vast popularity amongst the health conscious. Coming to the snack Iood sector,
application oI modern technology has helped in enriching the quality oI produce. It has
tremendous growth opportunities in the country. Growing population, rapid urbanization,
changing consumer preIerences etc are expected to keep the demand increasing in Iuture too.
With a well-integrated supply chain and a good marketing strategy, a tremendous opportunity
lies Ior snack Iood industry in India.
India's Iood processing industry is expected to beneIit Irom this and grow to around $260-billion
Irom the present USD 200-billion in the next 6-years, according to industry expert. It is
estimated that potential Ior processed Ioods is estimated to reach Irom Rs 8,200-billion in 2009-
10 to Rs13, 500-billion by 2014-15. India produces 41 oI the world's mangoes, 30 oI
cauliIlowers, 28 per cent oI tea, 23 oI cashews, 36 per cent oI green peas and 10 oI
onions.The Indian diary sector is around $ 62 b and will grow to $108 b. The Indian Iood
production is estimated at 500 million tonnes and Iood processing industry has immense
potential.India is a large and growing market Ior Iood products as it is growing at about
1.6annum. On the global Iood sector, the Iood products industry is expected to reach $3,137.2-
billion by 2011.
In India, only 6 oI total agro output oI India is currently processed as against 80 in some
developed countries leaving a large potential to be tapped in this sector.
The Indian government has Iormulated a Vision 2015, to triple the size oI the Iood processing
industry, Irom the current $ 70 b to around $ 210 b, enhancing her global share to 3, increasing
value addition to 35, Irom the current 20 and raising the level oI processing oI perishables to
20.The most promising sub-sectors includes -SoIt-drink bottling, ConIectionery manuIacture,
Fishing, aquaculture, Grain-milling and grain-based products, Meat and poultry processing,
Alcoholic beverages, Milk processing, Tomato paste, Fast-Iood, Ready-to-eat breakIast cereals,
Food additives, Ilavors etc.