Land of processing opportunity

In the midst of India’s formidable economic boom, the country is emerging as one of the world’s biggest food-producing nations. Food processing is now one of its largest industries, and growth is predicted to accelerate in coming years.

DATE 2023-11-28 AUTHOR Carolina Johansson

Not long ago, India conjured up images of poverty and starvation, but the country has seen vast change in recent decades. Today the country ranks as the world’s second- largest food producer, surpassed only by China, and there is much more to come.

Some say India is on track to become the global food power nation of the future, although a lot still needs to be done to realize this vision.

With close to 184 million hectares of arable land, India’s food industry is largely based on primary production. Each year about 601 million tonnes of food stuffs are grown, primarily milk, grains, livestock, fruit and vegetables. India is the world’s largest producer of milk and livestock and is also big in the areas of fish and poultry.

Despite its vast resources, India contributes just 1.5 percent of the international food trade. Of its vast amount of agricultural produce, only about 2 percent is processed. Baboo M Nair, professor emeritus at the Department of Applied Nutrition and Food Chemistry at Lund University in southern Sweden, says, “Like many agriculture-based economies, between 60 and 70 percent of the labour force [in India] generates its livelihood from agriculture, but farming only contributes about 25 percent of GDP.

Productivity in the agro-food sector is very low. One reason is that farmers mainly supply raw materials or low-cost products for the domestic market. There is, therefore, great potential to develop value-added products for export.”

One of India's leading industries

Food processing is one way to add value and shelf life to products. It covers a relatively broad spectrum of methods, such as grading, extraction, concentration, heat treatment, storing and packaging. Packaging and storage are in themselves a huge problem in India:

One estimate suggests as much as 30 percent of India’s crops is wasted due to limited storage and food processing facilities. While the level of food processing remains low in India by international standards, the industry has seen steady growth in recent years, and it now ranks as one of India’s leading industries. This development has been supported by government initiatives, market liberalization and demographic factors.

Dharmendra Shukla, senior manager, Beverages and Viscous Food at Alfa Laval India, says, “A lot of government initiatives have aimed to improve economic conditions for farmers. One way of doing this is through food processing, which has been one of the prioritized industries. We are seeing food parks emerging as well as a lot of subsidies and grants going into the sector.”

Rapid urbanization is also supporting the shift to processed food. India’s double-digit economic growth during the past decade has transformed the lives of hundreds of thousands of Indians and led to an emerging middle class. Not long ago, most of India’s food trade took place at roadside stands. Today, retailing is growing rapidly, and supermarkets are opening in the cities to cater for the new class structure. Organized retail trade has been increasing by an average of 45 percent per year in recent years, according to the Indian Federation of Indian Chambers of Commerce and Industry (FICCI).

“The booming technology business in India has been another important contributing factor,” says Shukla. “The IT industry has brought a lot of purchasing power to this country.”

Growing interest in the food sector

The FICCI estimates that 300 million people in India consume processed food today, with a further 200 million expected to do so by 2010. That still leaves an untapped market of close to 1,000 million people.

The strong growth in the food processing industry of recent years is only expected to accelerate. The government, whose figures indicate the sector value will triple in size by 2015, is targeting an increase in the level of perishable-food processing from 6 percent to 20 percent, and a doubling of India’s share of global food trade to 3 percent. Getting there will require, among other measures, new investment in technology and infrastructure.

In a press statement in December, in which it called for tax breaks and alleviations in VAT duties to stimulate the sector, the FICCI argued, “The processed-food segment should be able to grow by more than 10 percent annually, driven by consumer demand, organized distribution and policy initiatives taken by the government.”

This spells a lot of opportunities in the sector, both for investors and companies. Nair, who is organizing an inter-national seminar on networking for building strategic alliances between small and medium-sized food and bio-tech companies, says interest in the sector is growing. “We are likely to see change,” he says. “We have already seen a lot of private interests going into the food processing industry, and it is a sector with many opportunities.

“The food industry in India is still focused on low-cost products, but it is developing in the right direction. One way is to work with strategic alliances and networking that benefit not only Indian companies but also international ones. Pension funds could invest in India’s agro-food and bio-tech industries with good return on a long-term basis, provided there is also some cooperation in the field of research, technology and education.”

Dairy, wheat, fruit and vegetables are considered the segments with the greatest potential. Today, about 2 percent of the total fruit and vegetable harvest is processed, accounting for about 1.5 percent of the total food processing industry. That share is expected to rise to 10 percent by 2010 and to 15 percent by 2015.

The combined installed processing capacity for fruit and vegetables more than doubled between 1993 and 2007, from 1.1 million tonnes to 2.5 million tonnes. Shukla says, “Only five to 10 years ago most of the juices, concentrates and preserves were produced manually, and investors were reluctant to put money into the food processing industry. Now, everyone wants to be part of it."

Great technology demand

The boom in India’s food processing industry has created a huge need for new and efficient solutions to heat, cool, sterilize, extract, concentrate, separate and transport food stuffs.

Further investments in technology and equipment will be needed if India is to realize its ambitions for food export. It was not that long ago that almost all India’s food trade took place at roadside stands, but that is changing as well.

On the domestic front, the rise in retail shopping and the emergence of supermarkets are driving investment in refrigeration, packaging and cooling-system solutions. The latter is of particular importance, as solutions here can help alleviate the problem of post-harvest waste.

Alfa Laval has been a key supplier to the Indian food processing industry for many years. Its separation, heating, cooling, refrigeration and fluid-handling equipment and solutions are used in the production of dairy products, fruit-based products and beverages, vegetable oil, beer and starch, but also in the wine, fish and meat-processing industries.