Lesson-35 Food Processing Sector in India


Processing is an important marketing function in the present-day marketing of agricultural commodities. A little more than 100 years ago, it was a relatively unimportant function in marketing. A large proportion of farm products were sold in an unprocessed form and a great deal of the processing was done by the consumers themselves. Contribution of FPI sector has increased to Rs. 66,078 crore in 2009-10 from Rs. 47,689 crore in 2005-06 with CAGR of 8.49%. CAGR for total manufacturing sector during the same period has been 9.35%. At present, consumers are dependent upon processing for most of their requirements. Many technological changes have occurred in the recent past, such as the introduction of refrigeration, modern methods of milling and baking food grains, new processing methods for dairy products, and modern methods of packing and preservation. These technological changes have had a significant impact on the standard of living of the consumers, on the economic and social organizations of society, and on the growth of trade in the country.


The processing activity involves a change in the form of the commodity. This function includes all of those essentially manufacturing activities which change the basic form of the product. Processing converts the raw material and brings the products nearer to human consumption. It is concerned with the addition of value to the product by changing its form.


The processing of agricultural products is essential because very few farm products –milk, eggs, fruits and vegetables – are consumed directly in the form in which they are obtained by the producer – farmer. All other products have to be processed into a consumable form. Processing is important, both for the producer – sellers and for consumers. It increases the total revenue of the producer by regulating the supply against the prevailing demand. It makes it possible for the consumer to have articles in the form liked by him. The specific advantages of the processing function are:

  • It changes raw food and other farm products into edible, usable and palatable forms. The value added by processing to the total value produced at the farm level varies from product to product. It is nearly 7 percent for rice and wheat, about 79 percent for cotton and 86 percent for tea. It is generally higher for commercial crops than for food crops. Examples of the products in this group are: the processing of sugarcane to make sugar, gur, khandsari; oilseeds processing to make oil; grinding of food grains to make flour; processing of paddy into rice; and conversion of raw mango into pickles.

  • The processing function makes it possible for us to store perishable and semi –perishable agricultural commodities which otherwise would be wasted and facilitates the use of the surplus produce of one season in another season or year. Examples of the processing of the products in this group are: drying, canning and pickling of fruits and vegetables, frozen goods, conversion of milk into butter, ghee and cheese and curing of meat with salting / smoking.

  • The processing activity generates employment. The baking industry, the canning industry, the brewing and distilling industry, the confectionary industry, the sugar industry, oil mills and rice mills provide employment to a large section of society.

  • Processing satisfies the needs of consumers at a lower cost. If it is done at the door of the consumer, it is more costly than if it is done by a firm on large scale. Processing saves the time of the consumers and relieves them of the difficulties experienced in processing.

  • Processing serves as an adjunct to other marketing functions, such as transportation, storage and merchandising.

  • Processing widens the market. Processed products can be taken to distant and overseas markets at a lower cost.


The ministry of Food Processing, Government of India indicates the following segments within the Food Processing industry:

  1. Dairy, Fruits & vegetable processing

  2. Grain processing

  3. Meat & poultry processing

  4. Fisheries

  5. Consumer foods including packaged foods, beverages and packaged drinking water

Though the industry is large in size, it is still at a nascent stage in terms of development of the country’s total agriculture and food produce, only 2% is processed.

  1. Dairy: In the dairy sector, most of the processing is done by the unorganized sector. Though the share of organized sector is less than 15%, it is expected to rise rapidly, especially in the urban regions. Among the milk products manufactured by the organized sector, some of the prominent ones are ghee, butter, cheese, ice cream, milk powders, malted milk food, condensed milk and infant foods.

  2. Fruits and vegetables: Fruits and vegetables processing in India is almost equally divided between the organized and unorganized sectors, with the organized sector holding 48% of the share. While products like juices and pulp concentrate are largely manufactured by the organized sector, the unorganized sector’s foothold is in the traditional areas of processed items like pickles, sauces and squashes.

Most of the units engaged in above are currently export oriented. Domestic consumption of processed fruits and vegetable products is low, indicating a potential for growth through increased penetration of the domestic market.

  1. Grains: India produces more than 200 million tones of different food grains every year. The major grains such as rice, wheat, barley, and millets like jowar, bajra, and ragi are produced in the country. About 15% of annual production of wheat is converted into wheat products. Primary milling of rice, wheat and pulses is the most important activity in food grains processing.

  2. Meat and poultry: India has a livestock population of 470 million, which includes 205 million cattle and 90 million buffaloes. Processing of meat products is licensed under Meat Food Products Order , (MFPO), 1973.  Total meat production in the country is currently estimated at 5 million tonnes annually. Only about 1-2 % of the total meat is converted into value added products. Poultry processing is also at a nascent stage. The country produces about 450 million broilers and 33 billion eggs annually. Growth rate of egg and broiler production is 16 5 and 20 % respectively. Most of the production of meat and meat products continues to be in the unorganized sector. Some branded products like Venky’s and Godrej’s Real Chicken are, however, becoming popular in the domestic market.

  3. Fish Processing: India is the third fish producer in the world and is second in inland fish production. The fisheries sector contributes US $ 4.4 billion to the national income, which is about 1.4 % of the total GDP. With its over 8,000 km of coastline, 3 million hectares of reservoirs, 1.4 million hectares of brackish water, 50600 sq km of continental shelf area and 2.2 million sq km of exclusive economic zone, India is endowed with rich fishery resources and has vast potential for fishes from both inland and marine resources. It is widely felt that India’s substantial fishery resources are underutilized and there is tremendous potential to increase the output of this sector.

  4. Consumer Foods: consumer food industry includes packaged foods, aerated soft drinks, packaged drinking water and alcoholic beverages.

Packaged or Convenience Foods: This segment comprises bakery products, ready to eat snacks, chips, namkeens (salted snacks and savouries) and other processed foods/ snack foods. Other products like bread, chocolate are also growing at a significant rate. There is a demand for Indian snack food (Ready-To-eat) in overseas markets.

Aerated Soft Drinks: Two  of the biggest global brands in this segment are well established in India. Soft drinks constitute the third largest packaged foods segment, after packed tea and packed biscuits. Penetration levels of aerated soft drinks in India are quite low compared to other developing and developed markets, an indication of further potential for rapid growth.

Packaged Drinking Water: Trends such as shortage of drinking water in the large metropolitan cities, changes in consumer lifestyles leading to demand for convenience and availability of various packaged sizes to suit different needs have led to a spurt in growth and these trends are expected to continue to fuel demand in this sector.

Alcoholic Beverages: India is the third largest market for alcoholic beverages in the world. The demand for spirits and beer is estimated to be around 373 million cases per annum. There are 12 joint venture companies producing grain based alcoholic beverages that have a combined licensed capacity of 3.9 million litres per annum. 56 units are engaged in manufacturing beer under license from the Government of India.


1. Vast source of raw material

  • India is one of the largest producers of wheat and rice.

  • Coconuts, cashew nuts, ginger, turmeric and black pepper is widely grown in some parts of the country.

  • India is the second largest producer of groundnuts, fruits and vegetables. That it accounts for about 10 per cent of the world's fruits production with the country topping in the production of mangoes and bananas.

  • Due to the high processing levels milk products offer a significant opportunity in India. India is the world's largest producer of milk owing to the strong business models formed through cooperative movements in the country. Milk and related products account for 17% of India's total expenditure on food. This segment enjoys liberal regulations as all milk products except malted foods are automatically allowed 51% foreign equity participation and all exports of dairy products are freely allowed.

  • Alcoholic beverages have been categorised as the new high opportunity sector in India. Liquor manufactured in India is categorised as Indian Made Foreign Liquor (IMFL). The sector is still barred from the import of potable alcohol as it is subject to government licensing. In the meanwhile, India has recently started producing wine for domestic consumption.

  • Meat and poultry has also gained popularity due to the emergence of producers that have integrated breeding, feed milling, contract growing and marketing facilities for improved productivity. Meat, fish, and poultry are in rural areas as they are easily affordable and provide necessary nutrients. India has the potential to be a leading global food supplier if it employs the right marketing strategies and creates an efficient supply chain

2. Conventional farming to commercial faming

In recent years, there has been a shift from conventional farming of food grains to horticulture which include fruits, vegetables, ornamental crops, medicinal and aromatic plants, spices, plantation crops which include coconut, cashew nuts and cocoa and allied activities

 3. Market in the form of large urban middle class

With a huge population of 1.08 billion and population growth of about 1.6 % per annum, India is a large and growing market for food products. Its 350 million strong urban middle class with its changing food habits poses a huge market for agricultural products and processed food.

 4. Low Production cost

The relatively low-cost but skilled workforce can be effectively utilized to set up large, low-cost production bases for domestic and export markets.

 5. Change in consumption patterns

Increasing incomes are always accompanied by a change in the food habits. Over the last three decades in India a shift in food 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 of milk and milk products, meat, egg and fish, fruits and beverages.

 For instance, According to report of ICRA the proportionate expenditure on staples like cereals, grams and 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.

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

 6. Government Assistance

The Government has introduced several schemes to provide financial assistance for setting up and modernizing 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.

7. Foreign Direct Investment

Foreign direct investment (FDI) in the country's food sector is poised to hit the US$ 3-billion mark in coming years. FDI approvals in food processing have doubled in last one year alone. 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 2004-05.

 The US-based private equity fund, New Vernon Private Equity Limited (NVPEL), has decided to invest Rs 45 crore in Kochi-based spice major, Eastern Condiments, which is the flagship company of Eastern Group. America's largest chocolate and confectionery-maker Hershey is acquiring 51 per cent stake in Godrej Beverages and Foods for US$ 54 million.

 8. Food Parks

In an effort to boost the food sector, the Government is working on agri zones and the concept of mega food parks. Twenty such mega parks will come are proposed 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.

Last modified: Wednesday, 9 October 2013, 11:29 AM