India’s food processing industry has seen tremendous growth over the years. According to KPMG (May 2021), Indian food processing industry report the global food processing industry stands at $1.7 trillion. India’s food processing market stands at $263 billion and is expected to grow to $535 billion by 2025. India is a food surplus country and the country is capable of supplying globally. There is tremendous untapped potential that needs to be harnessed. Currently India is the 14th largest exporter in the world with only two per cent share in global export of food products. There is significant potential for India to export to the top 10 largest global markets.
Processed foods exports is seeing an upward trend year-on-year (YoY), but the majority of exports from India are dominated by low value added food products (raw material/ semi-processed) (69 per cent) compared to Mexico (50 per cent), China (48 per cent), Germany (28 per cent) and Netherlands (41 per cent). The Indian food processing industry comprises six key sub-segments: dairy, meat and marine, cereals, grains and oilseeds, fruits and vegetables, beverages (non-alcoholic) and packaged food. The industry consists of six major sub-segments. Packaged foods followed by cereals, grains and oilseeds are the highest contributors to the overall gross value added (GVA) of the industry.
As per the Indian food processing industry report (May 2021), India’s exports to China, Iran and Bangladesh have grown by 62 per cent, 41 per cent and 22 per cent year-on-year (YoY) respectively. Exports to the UAE and Vietnam have declined by 6.8 per cent and 19 per cent (YoY) respectively. India’s exports form a major share of food products imported by Nepal, Iran and Bangladesh. The food processing industry has seen a positive impact which has been led by the Ministry of Food Processing Industries (MOFPI). Under Pradhan Mantri Kisan Sampada Yojana (PMKSY), quality infrastructure for modern food processing is being developed across the country with grants from the Government of India.
India’s export of processed food products has witnessed a growth of 26.51 per cent in rupee terms during April- February (2020-21), compared to the same period during the previous year (2019-20). The total value of export of processed products was Rs 43,798 crore during April-February 2021 as per quick estimates, of which oil meals exports stand at Rs 11,471 crore. The overall exports of oil meals during April-May 2021 is reported at 531,700 tonnes, South Korea being a major importer, importing 179,115 tonnes of oil meals.
Besides PMKSY, the government has announced Production Linked Incentive Scheme for Food Processing Industry (PLISFPI) to support creation of global food manufacturing champions commensurate with India’s natural resource endowment and support Indian brands of food products in the international markets with an outlay of Rs 10900 crore.
The first component of PLISFPI relates to incentivising manufacturing of four major food product segments namely ready to cook/ ready to eat (RTC/ RTE) foods including millets based products, processed fruits & vegetables, marine products, mozzarella cheese. While initiatives have been taken to augment the food processing infrastructure, more needs to be done to scale up infrastructure across various segments such as dairy, fisheries, etc. to utilise the full potential of the industry.
In addition, there are significant opportunities in storage and supply chain infrastructure-cold chain logistics, smart logistics etc. To ensure a faster augmentation/up-gradation of quality infrastructure in line with industry requirements, government partnerships with private players through appropriate PPP models should be considered.
Challenges with dairy exports
The dairy industry is booming, with a positive impact on dairy products export. Dr RS Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation, Ltd (Amul), Anand opined that India’s food production is more than $550 billion out of which dairy itself is $110 billion and at this growth rate dairy industry will become $200 billion in the next ten years. “Currently we are producing 21 per cent of the world's milk, in ten years we will be producing one-third of the world’s milk in India and that too by 100 million farmers. India can become the dairy to the world because of the government and policy makers' intention to provide jobs in the rural areas, sustainable and we know in agriculture, crop sustainability is the problem because there are subsidies, in dairy there are no subsidies,” he added.
India has a geographical advantage, as all neighbouring countries are milk deficient (Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka, South-East countries, Middle-East countries, Russia, China). India needs to find a solution to reach these countries and that is where the policy makers need to take initiatives.
“Ten biggest dairy importing countries don’t import from India even after paying full duties. India imports more than 5000 tonnes of dairy products every year, till now in the last 40 years these countries have not imported dairy products from India. None of the dairy surplus countries allow free trade or concession rate while importing dairy products from other countries. We, also need to address long term policy because in exports market development takes time,” added Dr Sodhi.
With global trade improving and rising demands, there is also a demand for Indian cuisine. Indian cuisine has been well received globally and its popularity is on the rise. MTR has been one of the pioneers in taking the Indian cuisine globally.
Rise in demand of Indian ready to eat
Sanjay Sharma, CEO, MTR Foods Pvt Ltd, Bangalore Urban, said, “We are trying to take Indian cuisine across the world. The largest market currently is the US with 42 per cent of the global market for Indian food. The UK is another big market, the markets are pretty much spread in the proportion that Indian diaspora is spread across the world. The US is about 4.4 million immigrants, the UK is about 3.5 million, then there is Africa and the African sub-continent, South East Asia and so is the Middle-East having a fair amount of Indians out there. These naturally tend to be the more attractive market. The US has probably the most richest and wealthy Indian immigrants and therefore represents a large share of Indian ready to eat. Indian ready to eat is a relatively underdeveloped market that is largely because brands haven’t invested in building these markets.”
There are various trade barriers that impact the ease of doing business in global markets. Most of the food that MTR exports to European markets have ghee or paneer, which limits their exports as Europe doesn’t import dairy products from India.
Sharma further stated, “While exporting from India there are quite a few cross lines across various agencies that want to do sampling and testing of our products and therefore exporting out of India is not an easy proposition. So there are quite a few challenges out there needless to say cost of production is one of them, which is quite a big challenge as most of our goods are fairly expensive. Most of the commodities suffer from either poor productivity on account of poor yields of poor variety being grown or having fairly high amounts of pesticide residue which actually get blocked by other countries. There is a lot of work that we need to do to insure Indian exports from India becomes more and more competitive.”
Not only is India capable of exporting dairy products and ready to eat foods but also food grains. Basmati rice has been well received globally due to its aroma and long grains. Basmati exports is valued at Rs 33,000 crore, it is a very big part of the total agri export. Of the 500 million tonnes of rice consumed, basmati is only 10 million tonnes. Future of rice as a commodity to be traded and exported is going to follow very different dynamics.
Expansion of basmati rice exports
Vivek Chandra, CEO, Global Branded Business, LT Foods Ltd, Delhi, said, “The biggest market for basmati is the Middle-East. The Middle-East market is pretty much saturated. The far east eats sticky rice. It leaves us with markets in Africa, Europe and the US. Africa is a very price competitive and price sensitive market. So really it is the US and the EU that we traditionally said that don’t consume basmati. The fact is that they consume about nine million tonnes of rice each year, of which basmati is about 600,00 tonnes. Developing these markets is key, and we’ve identified this as a big bag. Then we started investing against that, acquired two brands, Royal in the US and 817 in Canada to start to build this.”
“Now, with these brands and Daawat, we have 50 per cent of the market share of North America. We are now focused on expanding basmati consumption to other ethnicities to the mainstream consumers as we call them. Value added products go a long way in building uniqueness in differentiation and also in building resilient consumer demand. If India has to grow in agri export and take a bigger share of the processed food category then we do have to move in value added products for basic commodities,” added Chandra.
Food processing industry gaining momentum
Yogesh Bellani, CEO, FieldFresh Foods, Delhi mentioned, “The Indian food processing industry is gradually moving to maturity thanks to rising income prosperity, increasing customer aspirations and globalisation. The sector is currently characterised with limited value addition and low usage of technology with MSMEs accounting for majority of market share. The cold chain infrastructure is nascent and with lesser shelf life of products coupled with low margins, beverage companies (especially fruit juice companies) are struggling to compete with the unorganised sector. Further, with COVID-19, out of home consumption has suffered significant losses. Segments such as hygiene, health & wellness, and immunity-based products have seen increasing sales.”
He further stated, “India is a large source of raw material as well as packaging material and this provides a huge opportunity for it to become a ‘food factory’ to global supply chains especially for regions like Europe, Middle-East and Asia Pacific. However, there are associated factors such as lower quality perception, uncertainty on trade policies etc. which could pose a challenge for exports. Technology adoption can help address quality and enhance value addition to achieve economies of scale for Indian producers, thus making the products competitive in the global market. Innovations in products can help achieve scale to become successful in a price sensitive market like India. Government support by way of schemes for technology adoption and free trade agreement (FTA) revisions could further augment the potential that we have to offer.”
More than just commodity exports
India’s potential is still untapped and there are several challenges that need to be addressed if India is going to become a global exporter of processed food. “There have been multiple challenges in various global markets primarily on account of non tariff barriers. That is something that we have learnt in multiple ways when we are dealing with commodities. Especially when we were exporting rice, we found out that we can’t export to Iran even though we are big exporters of rice and Iran is a big consumer of rice that we grow in the country, including the basmati variety. We just couldn’t enter the market due to non-tariff barriers,” observed Neel Kingston Jasper, Head of Finance & IT - Foods Business Division, ITC, Chennai.
“Being in the commodity market is purely a function of price. We cannot be a food processing export player and just be working on the access of price because that is something that anybody can beat you, as there are surpluses in other parts of the country as well as other parts of the world,” concluded Jasper. Global exports have been low and are dominated by low value-added products. The other issue is that Indian products cannot compete in the global market in terms of price and quality. India needs to scale up production with quality and cost effective products, meeting global certification requirements.
Harnessing the potential
India has the potential to export to the rest of the world but there are several challenges when it comes to global trade. These bottlenecks are beyond organisations control and policy makers need to take initiatives to address these issues. Policy makers should negotiate FTAs, lowering non-tariff barriers (NTBs) and expediting implementation of remission of duties and taxes on exported products (RoDTEP) scheme.
The PLI scheme can be the catalyst in enhancing processing capacities to meet rising demands. Complimentary industries such as food ingredients, food processing equipment, food logistics and food packaging have huge potential. To enhance competitiveness and meet the hygiene needs at a scale, the players especially MSMEs will require high quality testing and certification infrastructure.
A coordinated approach is the need of the hour for development of all segments of the food processing industry taking into account opportunities in regional preference, exports, quality management systems and measures to enhance competitiveness of Indian products. With MOFPI, Agricultural and Processed Food Products Export Development Authority (APEDA), Marine Products Export Development Authority (MPEDA), Food Safety and Standards Authority of India (FSSAI) supported by a Food Processing Council (consisting of industry representatives) working in tandem can boost the industry growth at segment/ product level, tapping value added exports and addressing issues and challenges – infrastructure bottlenecks, quality bottlenecks etc.