Study on the Food Processing Industry of India with focus on the fruit and vegetables processing, meat and poultry and fisheries

1. EEB Project
Study on the Food Processing Industry of India
with focus on the fruit and vegetables
processing, meat and poultry and fisheries
Submitted to: Ms. Shikha Singh
Submitted by: Group 2 Section B
Roll no.: 12,14,16,18,20
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2. Contents
Abstract ......................................................................................................................................................... 3
Introduction ................................................................................................................................................... 4
Overview of Economic Reforms................................................................................................................... 6
Sector wise Reforms ..................................................................................................................................... 7
10th 5 year Plan: ............................................................................................................................................ 9
11th Five year plan ....................................................................................................................................... 11
10th v/s 11th plan ...................................................................................................................................... 12
Impact of Budgets ....................................................................................................................................... 14
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3. Abstract
This project covers the macroeconomic analysis of the sector of meat and poultry, fisheries, food and
vegetables in the food processing industry of India.
We have studied the sectors under 3 heads which cover the study of economic reforms, 10th and 11th five
year plans and the budgets of the last 10 years.
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4. Introduction
Indian food processing industry is widely recognized as a 'sunrise industry' having huge potential for
uplifting agricultural economy, creation of large scale processed food manufacturing and food chain
facilities, and the resultant generation of employment and export earnings. The industry is estimated to be
worth around US$ 67 billion and employing about 13 million people directly and about 35 million people
indirectly. The food processing sector in India is geared to meet the international standards. Food Safety
and Standards Authority of India has the mandate to develop standards and also to harmonize the same
with International Standards consistent with food hygiene and food safety requirement and to the
conditions of food industry.
Fruit and Vegetable Industry
The installed capacity of fruits and vegetables processing industry has increased from 1.1 million tonnes
in January 1993 to 2.1 million tonnes in 2006. The processing of fruits and vegetables is estimated to be
around 2.2% of the total production in the country. The major processed items in the fruit and vegetable
segment are fruit pulps and juices, fruit based ready-to-serve beverages, canned fruits and vegetables,
jams, squashes, pickles, chutneys and dehydrated vegetables. Some recent products introduced in this
segment include vegetable curries in retortable pouches, canned mushroom and mushroom products, dried
fruits and vegetables and fruit juice concentrates.
The fruits and vegetable processing industry is highly decentralized, and a large number of units are in the
cottage, household and small-scale sector, having small capacities of up to 250 tonnes per annum. Since
2000, the food processing industry has seen significant growth in ready-to-serve beverages, fruit juices
and pulps, dehydrated and frozen fruits and vegetable products, pickles, processed mushrooms and
curried vegetables, and units engaged in these segments are export oriented.
Meat and Meat Products
India ranks top in animal and cattle population. The meat and meat processing industry is still to come up.
Some top players in the meat processing industry like Venkateswara Hatcheries, Godrej Agrovet, Vista
Processed Food, Al Kabeer, Allanasons etc., with modern state-of-the-art slaughter and processing plants,
have changed the entire scenario, making the industry grow at almost 10%. There is a huge scope for
expanding exports, especially in buffalo and poultry meat, eggs and dairy products.
India ranks first in world buffalo population, with 56.5% i.e. 94.1 million of buffalo population and one-
sixth of goat population in the world. India also ranks first in milk production with over 100 million
tonnes a year. The country is also fifth in egg production with over 1.6 million tonnes, while it is ninth in
the number of poultry. Though India is at top in meat, milk and eggs production, exports are very low
because of quality considerations.
Poultry Industry
It is believed that the Indian Poultry Industry is 5,000 years old, since last 4 decades it began to witness
remarkable growth from backyard to poultry industry.
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5. The organized sector of poultry industry is contributing nearly 70% of the total output and the rest 30% in
the unorganized sector. The broiler industry is well dominated in southern states in our country with
nearly 60-70% total output coming from these states. The layer industry once again is represented more in
southern states especially, Andhra Pradesh, Tamil Nadu and Maharashtra producing nearly 70% of the
country's egg production. India's 75% of egg produce is consumed by the 25% population living in urban
and semi-urban areas. Presently about 800 hatcheries are operating in the country.
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6. Overview of Economic Reforms
After 1991, Agricultural sector (which included the Food processing industry) was ignored. Industry-first
approach, focusing on removal of industrial licensing, removal of import licensing from all manufactured
and capital goods, tariff reductions and relaxation of rules for foreign investment However, post- 2000,
government focused on the food processing industry 100% FDI is allowed automatically in food
processing sector No industrial license required to start the industry except for a few items like alcohol,
beer etc Export Promotion: Food parks and export zones were promoted which provides benefits like duty
free imports, profits from export sales are exempt from corporate taxes etc
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7. Sector wise Reforms
Reforms related to fruit and vegetable processing
 Amendment of APMC Act : Agriculture Produce Marketing Committee Act required the farm
produce to be sold only at designated government markets to registered intermediaries. Industry
could not buy directly from the farmers nor could the farmers approach the industry to sell their
products. This proves to be a disincentive for the farmers, traders and industries. Hence
amendments were required and were made in 2002.
 Now under contract farming produce can directly be sold to the sponsor or in open
market.
 Central Food Technology Research Institute (CFTRI)
 Research and Development in the areas of food science and technology
 The focus is on developing low-cost technology , utilization of indigenous raw materials, biofriendly
technology and food safety and nutrition
 Linkages with organizations like FAO, UNICEF, World bank etc
 Also provides process engineering and plant design for the entrepreneurs
 Provides more than 300 testing services to facilitate export requirements
 Has more than 200 faculty in various research areas and provides training in the areas of food
technology, biochemistry, microbiology etc
 Agricultural and Processed Food Products Exports Development Authority (APEDA)
 To promote export of agricultural products
 Data on international trade of agriculture and processed foods; Importers and Exporters list;
Financial assistance schemes; Food regulation in various countries and provides the list of
recognized labs
 FDI upto 100% permitted through the automatic route in infrastructure.
 No industrial license required
 Income tax rebate allowed:100% of profit for 5 years and 25% of the profit for next five years to
industries which process and package fruits and vegetables.
 Custom duty relief: On machinery 7.5 to 5%, on refrigerated vans from 20% to 10%, on packing
machines from 15% to 5%.
 Fruit and vegetables are completely exempt from excise duty.
Meat, poultry and eggs
 Excise duty reduced from 16% to 8% on meat and poultry products
 Exemption limit on excise duty for small scale industries increased from 1 to 1.5 crores.
 Excise duty on reefer vans reduced from 16% to 8%
 Poultry development schemes:
 Assistance to state poultry/duck farms with a maximum of Rs.85 lakhs for each farm
 During 2007-08 Rs.14.15 crores were released and 201 farms benefitted.
 Provision for insurance so as to facilitate rearing of quality breed of animals.
 Contract farming and vertical integration encouraged which helped in reduction of prices,
increase in efficiency of supply chain, lead to better managing practices.
 Formation of cooperatives like NECC
 National Egg coordination Committee is an autonomous body which is involved in the
pricing, promotion, export, technology, networking, monitoring etc of the production and
distribution of eggs
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8. Fisheries
 The coastline has been accorded the status of EEZs
 Development of inland fisheries and aquaculture:
 During 2006-07 additional area of 22,984 hectares was brought under fish culture and
37,923 personnel were trained in the improved production practices.
 Development of marine fisheries infra and post harvest operations
 Subsidies for motorization of traditional crafts and subsidies on the excise duty on fuel
 Landing and berthing facilities for the vessels
 Welfare programs for fishermen which include training of the fishermen, development of
fishermen villages and provision of insurance cover.
Export promotion:
 Food processing industry is one of the growing areas identified for exports. Free Trade Zones
(FTZ) and Export Processing Zones (EPZ) have been set up with all infrastructures. Also, setting
up of 100% Export oriented units (EOU) is encouraged in other areas. They may import free of
duty all types of goods, including capital foods.
 Capital goods, including spares upto 20% of the CIF value of the Capital goods may be imported
at a concessional rate of Customs duty subject to certain export obligations under the EPCG
scheme, Export Promotion Capital Goods. Export linked duty free imports are also allowed.
 Units in EPZ/FTZ and 100% Export oriented units can retain 50% of foreign exchange receipts in
foreign currency accounts.
 50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area.
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9. 10th 5 year Plan
Under the 10th 5 year Plan, the Ministry of Food Processing Industries formulated and Executed the below
mentioned schemes for Meat & Poultry, Fisheries and Fruits and Vegetables Sector:
• Modernization of Abattoirs: The Financial Assistance varied between 25% to 33.33%, with a
maximum limit of Rs. 4 Crores. The Scheme was confined to local bodies only.
• TechnologyUp gradation:
• For General Areas: Financial Assistance up to 25% of the cost of plant and machinery &
technical civil works with a Max Limit of 50 lakhs
• For Difficult Areas: Financial Assistance was 33.33% with a maximum limit Rs. 75
Lakhs
• Integrated Cold Chain Facilities were deployed to improve upon the shelf life for
Fruits and Vegetables
• Food Parks
• Financial Assistance of 25% with a maximum limit of Rs.4 Crores
• Supply Driven : Rather than understanding the consumer demand of the product, only the
products manufactured by the farmers were supplied into the Market
SECTOR WISE PERFORMANCE
Proposal Proposal Amount % Utilization of
Sector
Received Approved (Rs. Lacs) total assistance
Meat & Poultry
77 21 763.95 3.1%
Products
Deep Sea fishing
111 59 1763.10 7.2%
& Fish Processing
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10. Fruits &
786 203 3976.36 16%
Vegetables
Most of the Resources were underutilized and thus the physical output was as per the Target defined for
the 10th Year Plan.
Root Causes of the Underperformance in 10th 5 year plan
• High Taxes & Duties:
 Central Excise Taxwas around 16% on Packaging materials such as, jars, shrink-
wrapping.
 High Import Duty on Raw materialssuch as tin plate, aluminum foil, etc which was
around 25 to 44%.The Import Duty Machinery for packaging was around 20-25%.
 Thus High Taxes and Import duties de-motivated the Entrepreneurs which led to overall
decreased Performance.
• Ineffective Policies
 Stress was only on local bodies like municipalities in case of Abattoir's Modernization
Schemes.
 Food Parks were Supply driven rather market driven.
• Underutilized processing Capacities
 Fish processing capacity
 The Need was of modernization/ up gradation of facilities, rather than addition of
capacity which led to improper allocation of financial funds.
• Presence of Multiple authorities like NDDB, Department of Animal Husbandry, Ministry of
Agriculture, APEDA, MPEDA, Unregistered slaughter houses lead to problems of
Synchronization and redundancy with respect to Development activities.
• Large Presence of Unregistered Slaughter Houses in the market which eat away the market share
of the Player in the Organized sector and impedes the growth and development plans.
• Limited Credit Availability from the Government also made it Difficult for Entrepreneurs to
invest in the required sectors and execute the business.
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11. 11th Five year plan
Based on the review of the 10th Plan schemes, it is proposed that all existing schemes be continued under
the 11th Plan with or without modifications.
However, certain components under some of the schemes were to be changed as follows:
The components of Packaging Centre, Cold Chain Facilities, Value Added Centers and Irradiation
Facilities under the Scheme of Infrastructure Development may be merged into a single
component.
The component of Bar Coding under scheme for Quality Assurance, Codex Standards and R&D
not to be continued under the Eleventh Five Year Plan
The component of Strengthening of Codex Cell under Scheme for Quality Assurance, Codex
Standards and R&D to be merged with the scheme for Setting up/ Up gradation of Quality
Control/ Food testing Laboratory
Scheme for Backward and Forward Integration not to be continued under the Eleventh Five Year
Plan
A new scheme for upgrading the safety and quality of street foods is proposed under the Eleventh
Plan. It will have two components of ‘Safe Food Towns’ and ‘Food Corner/ Food Court’.
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12. 10th v/s 11th plan
Parameter 10th plan 11th plan
Demand driven, Increased
Integrated food zones Supply Driven,
integration, FA, PPP.
Increased FA, Eligibility & project
Abattoirs Lessor FA
management agencies.
Cold Chain, Value
Addition & Increased FA + Inclusion of cold
Lessor FA
Preservation storage & horticulture produce.
Infrastructure
Adoption of
Increased FA, reimbursement &
TQM, ISO Standards, Lessor FA, only grants
grants.
GMP, etc.
R&D in the processed
Lessor FA Increased FA
food sector
Food Corner / Food
NA FA + IA
Court
Safe food towns NA FA + IA
FA: Financial Assistance; IA: Implementation Agencies
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13. Estimated Impact on Employment Generation and Growth
The present proposal envisages an outlay of about Rs. 5000 Crores including Rs. 3700 Crores for
infrastructure development.
A matching private sector investment means a total provision for investment in infrastructure to Rs. 7400
Crore.
Assuming a leveraging ratio of 2.5, a total investment of Rs. 7400 Crores in infrastructure can lead to an
investment of about Rs. 20,000 Crores in processing units.
Assuming creation of 140 jobs per Crore of investment in the organized sector, an investment of Rs.
20,000 Crore will lead to creation of 2,800,000 additional jobs.
Further, assuming a reasonable investment turnover ratio of 2, a total investment of Rs. 20,000 Crores.
Over the Plan period would lead to an aggregate turnover/value of production of Rs. 40,000 Crores over
the Plan period.
This would enhance the growth rate of the Food & Beverages Industry from the present 7% to around
10.01% over the next plan period.
The income levels of the affected farmers are also expected to go up by 20% over a period of 5 years by
the way of better realization, value addition and integration of the supply chain. A variety of traders and
industries are likely to be incentivised in the building of the supply chain, such as transporters, cold chain
specialists, farmer groups, marketing and processing units and retailers.
However, all this would require a coordinated approach on policy issues. The issues meriting attention are
Quantity and quality of raw material for processing, sector’s access to bank credit , Need to move towards
a single market for agricultural commodities and processed food, Need to remove multiple regulations,
Tax structure (Introduction of VAT, Indirect taxes),Transport cost, Rural connectivity, Need to abolish
APMC Act etc.
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14. Impact of Budgets
Ministry of Food Processing Industries (MOFPI)
The Ministry of Food Processing Industries (MOFPI) is a ministry of the Government of India is
responsible for formulation and administration of the rules and regulations and laws relating to food
processing in India. The ministry was set up in the year 1988, with a view to develop a strong and vibrant
food processing industry, to create increased employment in rural sector and enable farmers to reap the
benefits of modern technology and to create a of surplus for exports and stimulating demand for
processed food. The ministry is currently headed by Sharad Pawar, a Minister of State with Independent
Charge. Functions of the ministry are divided into three categories Policy support and developmental,
Promotional and technical and Advisory and regulatory.
Before 1988 food processing industries was a department under the ministry of agriculture. Since its
incorporation allocation of fund from union budget shows a continuous increase. In 2010-11 budget
allocation for food processing industry is INR 400 crore, where as in 1999-2000 it was just 50 crores
Budget For Ministry Of Food Processing Industries
600.0
400.0
200.0
Budget
0.0
Union Budget 2001-02
In order to increase the foreign direct investment in food processing sector government changed FDI
policy in 2001-02. Automatic approval for foreign equity upto 100% is available for most of the
processed food items excepting alcohol and beer and those reserved for small sector subject to certain
conditions. This move by the central government increases the FDI inflow, in 2001-02 the FDI received
was 1036.12 cr compare to 198.13cr in 2000-01.
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15. Other major move by central government to support processed fruits and vegetables industry was the
reduction in excise duty on processed fruits and vegetables brought down from 16% to zero.
Union Budget 2002-03
Export promotion and attracting FDI in food processing industry, especially in the processed fruit and
vegetable industry were the strategies adopted by the central government in 2002-03. Targeted export for
2002-03 was Rs146bn.
Union Budget 2003-04
One of the objectives of 10th five year plan was to support the supply side of food processing industry. In
India only less than 10% of the fruit and vegetables were getting processed, this is causing seasonal price
fluctuations and leads to less price to the farmers. In order to enhance the refrigeration facilities customs
duty on refrigerated truck has been reduced from 25% to 20%, this will support the fruit and vegetable,
meat, poultry, fish and dairy industries. Also the excise duty exception given to fruit and vegetable
processing industry continues.
Union Budget 2004-05
Government allowed under Income-Tax Act, a deduction of 100% of profit for five year and 25% of
profits for the next 5 in case of new agro processing industries set up to process, preserve and package
fruits and vegetables, in effect new investment in the processed fruit and vegetable industry will get a tax
benefit for ten years. These moves by government boost the investment in fruit and vegetable processing
industry. In order to support meat, poultry and fish industry excise duty has been reduced from 16% to
8%.
Union Budget 2005-06
In 2005-06 strategy adapted by central government was to boost the supply side of the food processing
industry. This move by the government supports not only the food processing industry but also the
agriculture in the nation. To ensure easy availability of credit, Government has included food processing
industries in the list of priority sector for bank lending. NABARD has created a refinancing window with
a corpus of Rs.1000 crore, especially for agro-processing infrastructure and market development. One of
the main objectives of this movement was to reduce the seasonal fluctuation of fruit and vegetable prices
by increasing food processing capacity in the nation.
Other important point in the budget was the reduction in customs duty on refrigerated vans from 20% to
10%. This will support the fruit and vegetable, meat, poultry, fish and dairy industries. Also the excise
duty exception given to fruit and vegetable processing industry continues.
Union Budget 2006-07
Meat, poultry and egg and fish processing industries got lot of support in the 2006-07 central budgets.
Excise Duty has been waived on meat, fish and poultry, earlier it was 8%. Excise duty waiver increases
the profitability of these industries and hence it will attract more investment in the area of meat, poultry
and fish processing industry. This movement by the government also helps to reduce the price rise of
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16. these products. Packaging machines serve a wide variety of industries, including fruit and vegetable,
meat, poultry and fish processing industry, duty on packaging machines is reduced from 15 % to 5 %.
Union Budget 2007-08
Major share of fruit and vegetable, meat, poultry and fish processing industries in India are Micro, Small
and Medium Enterprises sector. In order to support the functioning of MSME, exemption limit of excise
duty for MSMEs rose from Rs.1 crore to Rs.1.5 crore. Fruit and vegetable processing industries are the
major beneficiaries in this movement by the government.
Other major points in the 2007-08 budgets were reduction in excise duty on reefer vans (refrigerated
motor vehicles) from 16% to 8%. Customs duty also reduced on machineries using for food processing
industries from 7.5% to 5%. Central sale tax reduction from 4% to 3% (April 2007) helped food
processing industries also. Similarly Incubates whose annual business turnover does not exceed Rs.50
lakhs exempted from service tax for the first three years. This movement by the government was to
promote new innovation and new startup companies.
Union Budget 2008-09
To ensure easy availability of credit, during 2005-06, Government has included food processing
industries in the list of priority sector for bank lending. NABARD has created a refinancing window with
a corpus of Rs.5000 crore, especially for agro-processing infrastructure and market development. To
encourage Cold Chain facilities refrigeration equipments (consisting of compressors, condensers,
evaporators etc) above 2 tone refrigeration utilizing power of 50 KW and above, exempted on end-use
basis.
Union Budget 2009-10
Although budget has nothing for the industry in particular, but indirect impact on the performance of the
food processing industry like Small businesses are exempted from keeping books and payment of advance
tax, capital expenditure other than land, goodwill and financial instruments are fully deductible for tax
purposes. Earlier strategies of government was profit linked strategies, but in 2009-10 government
changed the policy from profit linked strategies to investment linked strategies to encourage new
investment in the area of fruit and vegetable processing industry.
Union Budget 2010-11
During 2010-11 inflation of food product was very high, so there were some measures in 2010-11 budgets
taken by the central government to control the price rise. Since the fruit and vegetable, meat, poultry and
fish processing industries are interlinked with the agriculture sector, it also benefited from the policies
made by the central government to support agriculture. Most important policy change to support food
processing industries was the external borrowing facility availability. This government move has open
new dimensions for the food processing industry. India’s food processing industry is expected to benefit
and grow to around $260-billion from the present $200-billion in the next 6-years. The concessional
import duty to specified machinery for use in the plantation sector is being further extended upto March
2011. Concessional duty will also be applicable for cold storages, food processing units, specified
equipment for food preservation etc.
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