Indian Food Processing Industry is Set to Grow at a Dynamic Pace in next 5 years

The Indian food processing industry, which forms a vital linkage between agriculture & the manufacturing sectors, has tremendous potential to grow further. India already has a vast primary food processing industry (flour mills, edible oils, rice, etc.) and its secondary processing industry is growing at a rapid pace (fruits, vegetables, dairies, chocolates, etc.). The govt. also understands how a robust food processing industry can lead to a boost in exports, harmonize existing food supplies, manage food wastages, & offer better value to the Indian farmer fraternity. Hence, the govt. is also providing numerous impetuses to the industry with the objective of double its export.

As one of the largest producers of food & Agri commodities in the world, the Indian food processing industry is poised to grow further. India is home to over 500 million livestock, highest across the world. The country constitutes 17% share in global milk production. After China, it is the second-largest producer of fisheries, fruits, & vegetables. Likewise, it features amongst the five main producers for a host of farm products such as tea, coffee, rice, groundnuts, spices, sugar, tobacco, etc. Despite one of the biggest producers of foods, India constitutes just 1.5% of the global processed food market. However, the government is committed to double its share in the foreseeable future.

Growth Drivers in the Indian Food Processing Industry

• Indian retail industry is growing at an unprecedented pace. The overall retail market in India is pegged at ~ USD 950 billion. Food is one of the major constituents of retail consumption, accounting for around 31% of the Indian retail basket. Indian retail industry is currently highly unorganized, with organized retail contributing around 12% of the market. However, organized retail is growing at a rapid pace.

• Young demographics, surge in the middle class, & evolving consumer preferences will continue to drive the organized retail in the country, which is conducive for the Indian food processing industry. Hypermarkets, supermarkets, food joints, cafes are picking up fast in Indian cities. Interestingly, organized food retail is also expanding into Tier 2 & 3 cities. The government has also simplified the FDI policy in retail to attract international capital & expertise in large volumes.

• India has diversified food preferences, as different states/ regions have their culinary traditions. However, despite the differences, numerous food items are becoming popular across India. Traditional South Indian items such as coffee, Dosa, Idli, etc. are now days frequently consumed in North & other parts as well. Likewise traditional Punjabi foods such as Tandoori foods, Butter Chicken, Tandoori bread, etc. are becoming popular elsewhere.

• As the middle-income class is growing, food preferences are also evolving. Indians traditionally like freshly cooked foods. However, in the past couple of decades, there has been a notable rise in demand for processed foods, fast food items, chocolates, bakeries, etc. Fast-paced urban lifestyles are also fuelling demand for processed foods & drinks, which is a positive impetus for Indian food processing industry.

Potential to become a Food Factory

India has the potential to become a global food factory. India's food export is growing at a commendable pace driven by a rise in dairy, poultry, meat & fish, horticulture produces, juices, mango pulp, confectionaries, & much more. In FY 19, the total agricultural and related export in India amounted to USD 38.5 billion. India's strategic position on the global map gives it a unique advantage, as the country is placed in proximity to the Middle East, Africa, Japan & the Asia pacific.

The processed food exports amounted to around USD 4.15 billion, consisting of a relatively small share. However, it grew by around 7% compared to the same previous year. In the times to come alongside agriculture commodities, the country will continue to expand its processed food output and export.

Proactive Govt Initiatives

The government realizes the significance of a robust Indian food processing industry as it can manage food loss & harmonize supply constraints. Similarly, it can generate millions of employment, foster growth in MSME segments, & attract large ticket size investments in the country. Not to forget it can revolutionize the Indian agriculture sector by seamlessly connecting Indian farm produce with the global supply grid.

Under the Ministry of Food Processing Industries (MoFI), India is developing 42 Mega Food Parks. Currently, 17 are operational. These food parks are built across 50-100 acres of land & incorporate around 30-35 food processing facilities. 100% FDI is allowed under the automatic route in the booming food processing industry in the country.

A robust food processing industry thrives on the back of an equally strong storage infrastructure. India's cold chain infrastructure is currently underdeveloped. However, GOI is offering impetus including financial subsidies to develop cold storage chains alongside value addition & packaging facilities.

Investment Opportunities

Besides massive domestic demand, the GOI is also committed to double food export in the next ten years. This will dovetail the industry in a positive direction, thereby generating tremendous potential for large and medium ticket investments.

Already a host of major global food giants are operational in India such as Kraft, Mars, Del Monte, Pepsi, Coca Cola, Cargill, Perfetti, McCain, Nestle, Yakult, & much more. However, the Indian market is highly unorganized, which implies that there is tremendous potential to run profitable ventures in the burgeoning sector.

Some of the potential segments in the industry include baby cereals, dairy, grains, natural flavors, edible oils, processed fruits & vegetables, & much more. Food e-commerce is also set to grow exponentially in India stemmed by a rise in disposable income, evolving lifestyle, & rapid urbanization. Crises like COVID have also pushed forward the e-commerce in food retail . Online grocery in India has also witnessed a steep rise in demand after the mandatory lockdown in the face of the COVID crisis. Existing players such as Groffers, Milk Basket, & Big Basket experienced a monthly jump of sales of around 100%  during April.

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