By unshackling food processing in India and realising its potential, we can create value for farmers, entrepreneurs and labour.
India has traversed a long and hard journey from scarcity to surplus. Today, the world calls India a food powerhouse; our food production levels are among the highest in the world, ranking in the top three for dietary staples like pulses, milk, eggs, fruits, vegetables, and cereals. However, despite exporting ~40 billion dollars worth of food, India has not yet established itself among the top food processing nations. We have the potential to do a lot more. It’s safe to say that we have the potential to produce enough food, not just for the over 1.2 billion mouths within our boundaries, but export substantially more for the world too. And with that, we also have an opportunity to generate more income and provide meaningful employment for those engaged in the food industry.
The Global Food Market is 1.7 trillion USD
The global food sector is a large trade segment. In 2021, total food imports were sized at about 1.7 trillion USD. In aggregate, food imports contribute ~6.4% of all global imports of goods, and the top 10 exporters of food products account for ~50% of the total trade. The USA, Brazil, and China are considered meaningful exporters by their sheer size.
Netherlands, Germany, France, Spain, and Italy dominate with their production efficiency and processing ability. Countries such as Indonesia, Argentina, Mexico, and Vietnam also hold sizable shares, some more so than India.
India Captures Only Less Than 3% of the Global Market
As of 2021, India is the 12th largest exporter of food products. While this may seem like a sizeable contribution, India performs poorly by other metrics. India’s food export per capita is among the lowest in the world – we are ranked 114 out of 131 countries. Even countries such as Singapore, Indonesia, Malaysia, Sri Lanka, and China rank higher than India.
Furthermore, India’s level of food processing is lower than the average of other top exporters. On average, India’s share of processed food products within all food products is ~26% against the global average of all imports of ~47%. India lags in animal meat, fisheries and seafood, cereals and sugarcane, all large sectors within processed foods.
Several Roadblocks Across the Value Chain Are Holding India Back
Despite being in a position of surplus, India remains trapped in its scarcity mindset that prevents us from creating value for farmers, entrepreneurs and labour by unshackling the food processing industry.
Challenges are seen at every stage of the production and processing value chain:
- Raw material quality, quantity and variety are limited by a lack of awareness of demand-side factors, credit constraints, small land-holdings, and excessive use of pesticides.
- The supply chain is not large enough to accommodate high-capacity cold storage. Furthermore, farmlands are not well connected to processing centres.
- The processing sector faces uncertainty in sample testing, lacks scale, and is not particularly innovative.
- Strong market linkages are hampered by limited buyer-seller connections and weak marketing and branding of Agri products from India.
Many of these challenges can be traced back to structural constraints at the policy level. For instance, the APMC Act and lack of contract farming prevent strong linkages between the farm and the factory. The Essential Commodities Act empowers the government to control the production, storage, supply and distribution of some commodities, including food, even when prices rise. This Act affects the efficient development of agricultural markets by creating market distortions.
Moreover, the instability in export restrictions of food products makes investors skeptical. For example, vegetable oil exports were banned from 2008 to 2018. In September 2022, there was a ban on the exports of select rice varieties. The ban on sugar export has extended to October 2023. While there are important political reasons for these decisions, they discourage investment in infrastructure and R&D in the food processing sector. Doing business in India is already reported as being challenging by most investors. In the food sector, these constraints further lower ease of doing business and makes India’s food sector unattractive to investors.
However, the Opportunity for Food Processing in India is Big
Despite the several roadblocks, India’s food processing industry offers employment generation, value addition to farm produce, and export revenue. It will also play a critical role in increasing farmer income. Given the role of agriculture in our economy, a shift in focus on food processing is a critical progression.
The food processing industry is one of the largest employers in India’s manufacturing sector. ~2 million persons were employed in the registered food processing sector, and ~5 million persons in the informal sector. If India is able to reach the forecast of 535 USD billion in output by 2025-26, an additional 15 million jobs can be generated. Of these jobs, a significant share may be met by shifting those currently engaged in agriculture to the more lucrative food processing and allied industries like packaging, logistics, and trade.
An increase in the processing of food products unlocks higher economic value. The share of processed foods has been expanding within the global food basket. For instance, in western countries 60-80% of food is processed, and in China it’s 30%. This reveals an opportunity for India to expand not its food processing sector but also the export of processed food products. By simply doubling its market share of food exports, India will generate an additional revenue of ~40 billion USD.
India Needs to Unlock its Competitive Advantage Across the Value Chain in Food Processing
Given the benefits, there’s a need to work on multiple fronts to expand food processing in India in the short and long run.
| Immediate Short Term | Structural Long Term |
|---|---|
| Making the food processing industry more competitive by improving the ease of doing business. This will involve encouraging scale, effectively implementing policies and schemes, setting up well-designed food parks and clusters, supporting the industry in skilling and credit, and reducing regulatory inconsistencies. | Increasing production while improving quality and variety by reforming the agriculture, fishery and animal husbandry sectors. This, however, requires a long-term roadmap with strong political leadership. It will involve working closely with farmers to generate awareness of the potential of food processing; sharing knowledge, and resources, and making credit available. |
| Marketing Made-in-India value-added products globally to benefit from an export market with potentially higher disposable incomes and greater demand. We need to provide potential processors with easy access to information on import/export restrictions, conduct more buyer-seller meets, and work with central governments to reduce policy restrictions. | Reducing wastage and increasing efficiency by improving logistics. The FAO indicates that over 40% of food gets wasted, and ICAR-CIPET references that ~5% gets wasted before any processing. This wastage presents a huge potential for processing. |
In conclusion, employment for close to ~45% of India’s workforce is linked to food, although its contribution to our GDP is low. If India succeeds in its journey to make it a food processing hub, not only will we improve India’s overall growth but also provide meaningful employment opportunities and higher incomes to this large segment of the population.