Betting Big On India's Food Processing Sector!
It's a tough way ahead, but not far! In 2018, India's food processing sector is going to be a game changer
By 2020, India is expected to be the most populous country in the world. As grating as it may sound, the immediate challenge facing India is not fixing the economy but feeding its population. While daunting, the situation provides a suitable ground for India to spur growth in its food processing sector.
Food processing industry is of enormous significance for India's development. Firstly, it is the only sector that creates a direct and vital linkage between industry and agriculture. The GDP contribution of agriculture and allied sectors in India stood at $244.74 bn in FY16. Secondly, the sector has emerged as a fast growing sector making it one of the largest industries in India. Thirdly, and most importantly, it is a way to mitigate farmer distress and address food wastage concerning India.
Despite the immense potential of food processing sector as a means to generate employment and increasing farmers' income, it has been languishing for decades. If India aspires to become the food factory of the world, then it needs to urgently work on streamlining the key factors influencing its food processing sector.
Creating a rural connect
Over 40 per cent of India's rural population still remains outside the rural road network. A study by the World Bank makes the point that the retail prices of low value/bulk commodities are generally 10 per cent higher in unconnected villages than in those with road access. A road link brings socio-economic benefits such as reduction in prices of agricultural and consumer products, access to markets, and employment opportunities.
According to a Neilsen research report, the FMCG sector in rural and semi-urban India is estimated to cross $100 billion by 2025. With income per household in rural India expected to rise to 3.6 percent in 2025 from current 2.8 percent, companies need to cater to the rural population with quality and affordable products. Investment in deploying distributors and stockists to reach the last mile should be on top priority for Indian food and beverages companies. In addition, public-private partnership at the local level merits serious consideration.
Improving infra and supply chain
India produces 205 million tons of fruits and vegetables annually and is the second largest country in terms of farm production in the world. Unfortunately, only seven percent of what is grown gets processed. Currently, the sector lacks a fully automated supply chain solution connecting agro producers to end consumers. It lacks basic infrastructure such as adequate grading and packaging centres, cold chains and warehouses, and sufficient modernized abattoirs. Measures such as increasing farmers' income and doubling investments in food processing sector, as announced in the union budget 2018, will have a positive impact on industries that are connected to agriculture and allied sectors. Sustained efforts are needed on this front to spur further growth.
With household consumption of India set to double by 2020, the Govt of India has launched and implemented specific schemes to different segments of the FPI such as establishment and modernisation of Food Parks, Grading and Packaging Centres, integrated Cold Chain Facility and Modernized Abattoir. What is needed is carrying forward this momentum through active involvement of private players and foreign entities - recently Govt has allowed 100% FDI in the sector. Additionally, firms can look into contract farming to secure supply. Any improvement in the infrastructure shall serve to reduce the wastages, improve the value addition to the end product, and make it more cost competitive.
The food industry suffers from low investment in R&D; only a handful of companies have full-fledged R&D centres to bring out innovative products. In addition, there are regulatory challenges with new products. Only recently there has been clarity on product approval and new formulations due to proprietary regulation issued recently by FSSAI. What is now required is to innovate in terms of newer products that will not only effectively procure raw fruits and vegetables, but will also jumpstart growth in the sector.
As consumers' preferences shift to healthier products, owing to changing lifestyle and rise in disposable income levels, companies should look at offering more number of nutritional foods and beverages. In addition, better preserving and packaging techniques need to be developed that not only increase the shelf life but also improve the nutritive value of the processed food.
Fast growth in the food processing sector has a key role to play in strengthening India's economy by improving agriculture trade in both domestic and international markets. It holds immense relevance in ensuring food security of the country and is a crucial factor in reducing postharvest wastages. A thriving food processing industry is bound to give better returns and improve the livelihood of our farmers. It's a tough way ahead, but not far! In 2018, India's food processing sector is going to be a game changer.
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