India’s ailing food processing industry needs an urgent shot in arm
Consumer behaviour is changing, and India’s food processing industry is facing fresh demands due to the new trends in the market. With brand consciousness and eco-friendliness growing, it is important that the industry chalks out a proper strategy for its growth. By overcoming these challenges, it can surely realize its full potential.
Neil Banerjee November 11, 2022
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India is one of the leaders in agriculture production and its allied sectors (just behind China) in the world. Half of the population of the country depends on agriculture or related activities for its livelihood. However, despite being a dominant force in this sector, India has been unable to realize its full potential.
India woefully lags in food processing. Little to no initiative has been taken in the promotion of food processing units or for showcasing Indian food products on the global stage. The country is a laggard in the export of food products, which also includes processed food. India’s share in the export of overall food products comes at around 2-3 per cent and this is even lower in case of processed foods at 1-2 per cent. The growth of India’s overall food-related exports has been stagnant at <1 per cent CAGR between the years 2017-2020.
This can be improved drastically if more focus is directed towards the agriculture and food processing sectors. Proper management and a sound model can help change the course of India’s agriculture-related products industry and boost it. The times have changed and so has consumer behaviour. In today’s times, when people are busier and are devoting less time to preparing meals and cooking in general, it has become evident that the prevalent methods to sell and export food products need to be changed as well.
“The food processing industry forms an important segment of the Indian economy, and we believe that the next wave of growth will come from the food processing industry. This sector is highly employment intensive and unlocks significant value. Thus, advances in the food processing sector will have a significant impact on the socio-economic growth of the country,” says Arun Chawla, Director General, FICCI.
Focusing on the socio-economic impact of the food processing industry and where does india stand on the global stage
“There have been fundamental shifts in consumer behaviour as well – both due to and irrespective of – the pandemic. With growing awareness, health consciousness, the need for convenience and for improving lifestyles, consumers everywhere are increasingly moving towards processed & packaged foods. These factors have created new opportunities for the food processing industries around the world,” Chawla points out.
The socio-economic conditions of India can be highly improved if more time and focus are invested in building the food processing industry of the country. The food processing industry can give employment opportunities to a number of people. Also, investing more in a sector with a higher economic value will also raise the wages of the employees and the various other people associated with that industry.
There are sub-segments within the food processing industry which have remained relatively untapped such as the fruit, dairy, cereal and vegetable segments. India has maintained a good position in these segments, and it also has the highest cattle and buffalo population in the world.
According to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI), in terms of employment, the average number of jobs created by the food processing industry per crore of fixed cost investment is 8 which is higher than the industry average of 5.
The agriculture sector of India has shown tremendous growth over the last few years. This growth and development are primarily driven by new innovations, government schemes, the indulgence of private sector players and the increase in productivity. Factors such as the rise in disposable incomes and the growing population of the country have also contributed to this growth.
India accounts for an 11 per cent share of the total agriculture production globally. But, as far as the export of food products is concerned, it only accounts for 2-3 per cent globally and this percentage is even lower when it comes to processed food which accounts for only 1-2 per cent of the global average.
The potential that the food processing industry holds is unlimited. India has all the resources to build an industry that can generate more income for the players involved while also helping the Indian economy to gain a good momentum by focusing on exports. However, as of now, India lags behind many countries who have already cracked the code and are cashing in on their initiatives by building and developing food processing units across their territories.
“India is the 2nd largest producer of vegetables but ranks 15th in exports. India has the potential to become a processed food export powerhouse – with its rich agricultural resource base, its strategic geographic location and its proximity to food-importing nations and its extensive network of food processing training, academic and research institutes,” says Hemant Malik, Chairman- FICCI Food Processing Committee & CEO- Food Division, ITC Ltd.
The popularity of processed foods is growing day by day. This is because of two trends that are drastically changing consumer behaviour. The first is the increasing demand for convenience and the second is the growing focus on health and wellness. People are always on the go these days and have less time to spend on making or cooking meals due to which their preferences have shifted towards easy to prepare and healthy meals. The increase in online activities and the fact that there is an increasing number of women joining the workforce have also contributed towards the growth and prevalence of these trends.
People are also becoming more brand conscious. Indian products are not very well received in foreign countries. Mostly, it is only the people of Indian origin residing abroad who usually end up buying them as they feel more connected to their country’s brands. There are a variety of choices to choose from nowadays. For a brand to become the primary choice of the consumers, creating a good reputation and brand value for itself is paramount.
Another factor that is driving this shift is the increasing concern towards buying products that are eco-friendly. The environment has become a major point of concern for everyone. Major economies are making products keeping sustainability in mind.
“Global consumption trends indicate a constant growth in the demand for processed food products. This demand growth increases with the level of processing – almost doubling when it comes to secondary and higher processing. This increased demand for processed foods is also being shaped by the changing consumer behaviour,” says Sushma Vasudevan, Managing Director and Partner, BCG.
The key challenges
India is known for its low-labour costs, but the cost of processed food products remains high as agri produce is expensive. The potential to utilise the cost-effectiveness of low labour costs is hence lost in procuring and producing agricultural products. The reason behind this is that the farmlands here are majorly owned by small farmers unlike in the other countries of the world such as Brazil and Germany, where they are mostly corporate-owned and operated.
India faces a dire problem when it comes to maintaining and managing the quality of its food products. This is due to many reasons like:
Limited farming knowledge amongst the farmers.
Overuse of fertilizers and pesticides leading to the contamination of the produce.
Limited knowledge about the quality certifications required for the export markets.
Limited number of facilities for quality testing.
Low brand value and strength
The consumers today are extremely brand conscious. Once they like a product, they stick to it. Indian brands have little to no strength in the foreign markets with only Indian-origin people being able to recognise the Indian food brands and products. We need to be highly focused on creating a brand following in the international market as it will help to set the stage for the other Indian food products as well.
GI (Geographical Indication) tags are well-received in the international market as they have to undergo very precise checks and must tick every quality related box. GI Tags also provide authenticity and inspire trust in the consumers.
Inadequate infrastructure for storage, processing and logistics
There have been extensive efforts and initiatives by the government, like the Warehouse Infrastructure Fund and the Private Entrepreneurs Guarantee Scheme, to incentivize both the public and private players to build more storage infrastructure. But the built storage infrastructure is limited to four states and hence, is not enough. Sellers are unable to store products and thus have to sell their produce at very cheap prices while the same produce is sold at higher prices in the rural cities.
Low compliance with sustainability and ethical requirements
The food that we consume and produce has a huge impact on our environment. Our food value chain system makes it imperative to shift our focus towards sustainable food systems. In recent times, people too have become more conscious about their social responsibilities and are thus choosing products which are eco-friendly.
Assessing the problems and tapping the potential of this sector
“The shift in consumer behaviour makes for a strong case for India to invest in the food processing sector with a special focus on developing its export competitiveness. There are multiple key inhibitors that the industry faces. Concerted efforts from both the public and private stakeholders are required to address them and capture the huge potential that can subsequently be unlocked in this sector,” says Rachit Mathur, Managing Director and Partner, BCG.
Having identified the drawbacks that persist in this sector, we now need to look for the ways to counter these problems. Handling and managing farming activities is important; raising awareness about new techniques and spreading efficient farming knowledge amongst the smallholder farmers (SHFs) is essential for limiting crop damage and for stopping the overuse of chemicals in the fields. This will result in good crop production of premium quality, making it eligible for the export markets.
Crop-based public-private partnership (PPP) models will further make the agriculture process more efficient and will also give a huge return on investment (ROI). A good business model is, hence, not only helpful but necessary for generating profits for everybody involved in the food processing sector.
Private players should be involved, and they should work with the SHFs to perfectly assess the situation. Private players can be greatly helpful by investing in logistics and storage facilities for the accurate pricing of products and for lowering down the wastage of food. Private players can also finance the activities needed to create and boost the brand value and strength of Indian food products in the export markets.
Another beneficial aspect related to branding is the need for more GI brands to protect the genuine products that are specific to a geographical location in India from the falsely branded products in the market.
Being environment friendly will not only do wonders for the farmers and investors but will also lead to the fulfilment of the larger eco-friendly goals of the country. Awareness and proper education are imperative for shifting our focus towards building an industry which is in harmony with nature.
There is a long way to go but a start must be made. The sooner, the better.