Food Processing Industry of India


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

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Food Processing Industry of India

  1. 1. EEB ProjectStudy on the Food Processing Industry of India with focus on the fruit and vegetables processing, meat and poultry and fisheriesSubmitted to: Ms. Shikha SinghSubmitted by: Group 2 Section BRoll no.: 12,14,16,18,20 1
  2. 2. ContentsAbstract ......................................................................................................................................................... 3Introduction ................................................................................................................................................... 4Overview of Economic Reforms................................................................................................................... 6Sector wise Reforms ..................................................................................................................................... 710th 5 year Plan: ............................................................................................................................................ 911th Five year plan ....................................................................................................................................... 1110th v/s 11th plan ...................................................................................................................................... 12Impact of Budgets ....................................................................................................................................... 14 2
  3. 3. AbstractThis project covers the macroeconomic analysis of the sector of meat and poultry, fisheries, food andvegetables 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 fiveyear plans and the budgets of the last 10 years. 3
  4. 4. IntroductionIndian food processing industry is widely recognized as a sunrise industry having huge potential foruplifting agricultural economy, creation of large scale processed food manufacturing and food chainfacilities, and the resultant generation of employment and export earnings. The industry is estimated to beworth around US$ 67 billion and employing about 13 million people directly and about 35 million peopleindirectly. The food processing sector in India is geared to meet the international standards. Food Safetyand Standards Authority of India has the mandate to develop standards and also to harmonize the samewith International Standards consistent with food hygiene and food safety requirement and to theconditions of food industry.Fruit and Vegetable Industry The installed capacity of fruits and vegetables processing industry has increased from 1.1 million tonnesin January 1993 to 2.1 million tonnes in 2006. The processing of fruits and vegetables is estimated to bearound 2.2% of the total production in the country. The major processed items in the fruit and vegetablesegment 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 thissegment include vegetable curries in retortable pouches, canned mushroom and mushroom products, driedfruits and vegetables and fruit juice concentrates.The fruits and vegetable processing industry is highly decentralized, and a large number of units are in thecottage, household and small-scale sector, having small capacities of up to 250 tonnes per annum. Since2000, the food processing industry has seen significant growth in ready-to-serve beverages, fruit juicesand pulps, dehydrated and frozen fruits and vegetable products, pickles, processed mushrooms andcurried vegetables, and units engaged in these segments are export oriented.Meat and Meat ProductsIndia 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, VistaProcessed 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 forexpanding 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 milliontonnes a year. The country is also fifth in egg production with over 1.6 million tonnes, while it is ninth inthe number of poultry. Though India is at top in meat, milk and eggs production, exports are very lowbecause of quality considerations.Poultry IndustryIt is believed that the Indian Poultry Industry is 5,000 years old, since last 4 decades it began to witnessremarkable growth from backyard to poultry industry. 4
  5. 5. The organized sector of poultry industry is contributing nearly 70% of the total output and the rest 30% inthe unorganized sector. The broiler industry is well dominated in southern states in our country withnearly 60-70% total output coming from these states. The layer industry once again is represented more insouthern states especially, Andhra Pradesh, Tamil Nadu and Maharashtra producing nearly 70% of thecountrys egg production. Indias 75% of egg produce is consumed by the 25% population living in urbanand semi-urban areas. Presently about 800 hatcheries are operating in the country. 5
  6. 6. Overview of Economic ReformsAfter 1991, Agricultural sector (which included the Food processing industry) was ignored. Industry-firstapproach, focusing on removal of industrial licensing, removal of import licensing from all manufacturedand 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 foodprocessing 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 dutyfree imports, profits from export sales are exempt from corporate taxes etc 6
  7. 7. Sector wise ReformsReforms 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 7
  8. 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. 8
  9. 9. 10th 5 year PlanUnder the 10th 5 year Plan, the Ministry of Food Processing Industries formulated and Executed the belowmentioned 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 MarketSECTOR WISE PERFORMANCE Proposal Proposal Amount % Utilization of Sector Received Approved (Rs. Lacs) total assistance Meat & Poultry 77 21 763.95 3.1% ProductsDeep Sea fishing 111 59 1763.10 7.2%& Fish Processing 9
  10. 10. Fruits & 786 203 3976.36 16% VegetablesMost of the Resources were underutilized and thus the physical output was as per the Target defined forthe 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 Abattoirs 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. 10
  11. 11. 11th Five year planBased on the review of the 10th Plan schemes, it is proposed that all existing schemes be continued underthe 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’. 11
  12. 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 + IAFA: Financial Assistance; IA: Implementation Agencies 12
  13. 13. Estimated Impact on Employment Generation and GrowthThe present proposal envisages an outlay of about Rs. 5000 Crores including Rs. 3700 Crores forinfrastructure development.A matching private sector investment means a total provision for investment in infrastructure to Rs. 7400Crore.Assuming a leveraging ratio of 2.5, a total investment of Rs. 7400 Crores in infrastructure can lead to aninvestment 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 overthe Plan period.This would enhance the growth rate of the Food & Beverages Industry from the present 7% to around10.01% 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 bythe way of better realization, value addition and integration of the supply chain. A variety of traders andindustries are likely to be incentivised in the building of the supply chain, such as transporters, cold chainspecialists, farmer groups, marketing and processing units and retailers.However, all this would require a coordinated approach on policy issues. The issues meriting attention areQuantity and quality of raw material for processing, sector’s access to bank credit , Need to move towardsa 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 abolishAPMC Act etc. 13
  14. 14. Impact of BudgetsMinistry of Food Processing Industries (MOFPI)The Ministry of Food Processing Industries (MOFPI) is a ministry of the Government of India isresponsible for formulation and administration of the rules and regulations and laws relating to foodprocessing in India. The ministry was set up in the year 1988, with a view to develop a strong and vibrantfood processing industry, to create increased employment in rural sector and enable farmers to reap thebenefits of modern technology and to create a of surplus for exports and stimulating demand forprocessed food. The ministry is currently headed by Sharad Pawar, a Minister of State with IndependentCharge. 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 itsincorporation allocation of fund from union budget shows a continuous increase. In 2010-11 budgetallocation 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 0.0Union Budget 2001-02In order to increase the foreign direct investment in food processing sector government changed FDIpolicy in 2001-02. Automatic approval for foreign equity upto 100% is available for most of theprocessed food items excepting alcohol and beer and those reserved for small sector subject to certainconditions. This move by the central government increases the FDI inflow, in 2001-02 the FDI receivedwas 1036.12 cr compare to 198.13cr in 2000-01. 14
  15. 15. Other major move by central government to support processed fruits and vegetables industry was thereduction in excise duty on processed fruits and vegetables brought down from 16% to zero.Union Budget 2002-03Export promotion and attracting FDI in food processing industry, especially in the processed fruit andvegetable industry were the strategies adopted by the central government in 2002-03. Targeted export for2002-03 was Rs146bn.Union Budget 2003-04One of the objectives of 10th five year plan was to support the supply side of food processing industry. InIndia only less than 10% of the fruit and vegetables were getting processed, this is causing seasonal pricefluctuations and leads to less price to the farmers. In order to enhance the refrigeration facilities customsduty 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 vegetableprocessing industry continues.Union Budget 2004-05Government allowed under Income-Tax Act, a deduction of 100% of profit for five year and 25% ofprofits for the next 5 in case of new agro processing industries set up to process, preserve and packagefruits and vegetables, in effect new investment in the processed fruit and vegetable industry will get a taxbenefit for ten years. These moves by government boost the investment in fruit and vegetable processingindustry. In order to support meat, poultry and fish industry excise duty has been reduced from 16% to8%.Union Budget 2005-06In 2005-06 strategy adapted by central government was to boost the supply side of the food processingindustry. This move by the government supports not only the food processing industry but also theagriculture in the nation. To ensure easy availability of credit, Government has included food processingindustries in the list of priority sector for bank lending. NABARD has created a refinancing window witha corpus of Rs.1000 crore, especially for agro-processing infrastructure and market development. One ofthe main objectives of this movement was to reduce the seasonal fluctuation of fruit and vegetable pricesby increasing food processing capacity in the nation.Other important point in the budget was the reduction in customs duty on refrigerated vans from 20% to10%. This will support the fruit and vegetable, meat, poultry, fish and dairy industries. Also the exciseduty exception given to fruit and vegetable processing industry continues.Union Budget 2006-07Meat, 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 increasesthe profitability of these industries and hence it will attract more investment in the area of meat, poultryand fish processing industry. This movement by the government also helps to reduce the price rise of 15
  16. 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 2007-08Major share of fruit and vegetable, meat, poultry and fish processing industries in India are Micro, Smalland Medium Enterprises sector. In order to support the functioning of MSME, exemption limit of exciseduty for MSMEs rose from Rs.1 crore to Rs.1.5 crore. Fruit and vegetable processing industries are themajor beneficiaries in this movement by the government.Other major points in the 2007-08 budgets were reduction in excise duty on reefer vans (refrigeratedmotor vehicles) from 16% to 8%. Customs duty also reduced on machineries using for food processingindustries from 7.5% to 5%. Central sale tax reduction from 4% to 3% (April 2007) helped foodprocessing industries also. Similarly Incubates whose annual business turnover does not exceed Rs.50lakhs exempted from service tax for the first three years. This movement by the government was topromote new innovation and new startup companies.Union Budget 2008-09To ensure easy availability of credit, during 2005-06, Government has included food processingindustries in the list of priority sector for bank lending. NABARD has created a refinancing window witha corpus of Rs.5000 crore, especially for agro-processing infrastructure and market development. Toencourage 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-usebasis.Union Budget 2009-10Although budget has nothing for the industry in particular, but indirect impact on the performance of thefood processing industry like Small businesses are exempted from keeping books and payment of advancetax, capital expenditure other than land, goodwill and financial instruments are fully deductible for taxpurposes. Earlier strategies of government was profit linked strategies, but in 2009-10 governmentchanged the policy from profit linked strategies to investment linked strategies to encourage newinvestment in the area of fruit and vegetable processing industry.Union Budget 2010-11During 2010-11 inflation of food product was very high, so there were some measures in 2010-11 budgetstaken by the central government to control the price rise. Since the fruit and vegetable, meat, poultry andfish processing industries are interlinked with the agriculture sector, it also benefited from the policiesmade by the central government to support agriculture. Most important policy change to support foodprocessing industries was the external borrowing facility availability. This government move has opennew dimensions for the food processing industry. India’s food processing industry is expected to benefitand grow to around $260-billion from the present $200-billion in the next 6-years. The concessionalimport duty to specified machinery for use in the plantation sector is being further extended upto March2011. Concessional duty will also be applicable for cold storages, food processing units, specifiedequipment for food preservation etc. 16