Food processing and related industries in India- scope and significance, location, upstream and downstream requirements, supply chain management

Agro Food Processing: Forming village clusters and establishing Food Storage,

  • Food Processing Industry is of enormous significance for India’s development because of the vital linkages and synergies that it promotes between the two pillars of the economy, namely Industry and Agriculture. India is world’s second largest producer of food and has the potential to become number one in due course of time with sustained efforts.
  • The growth potential of this sector is enormous and it is expected that the food production will double in the next 10 years and the consumption of value added food products will grow at a fast pace.
  • This growth of the Food Processing Industry will bring immense benefits to the economy, raising agricultural yields, meeting productivity, creating employment and raising the standard of very large number of people throughout the country, specially, in the rural areas.
  • Economic liberalization and rising consumer prosperity is opening up new opportunities for diversification in Food Processing Sector.
  • Liberalization of world trade will open up new vistas for growth.
  • The Food Processing Industry has been identified as a thrust area for development. This industry is included in the priority lending sector.
  • Most of the Food processing Industries have been exempted from the provisions of industrial licensing under Industries (Development and Regulation) Act, 1951 with the exception of beer and alcoholic drinks and items reserved for Small Scale Sector, like vinegar, bread, bakery.
  • As far as foreign investment is concerned automatic approval for even 100% equity is available for majority of the processed food items.


  • 2nd largest arable land in the world -India has the tenth-largest arable land resources in the world with 161 million tonnes. With 20 agri-climatic regions, all 15 major climates in the world exist in India. The country also possesses 46 of the 60 soil types in the world
  • Largest producer of milk -India is the largest producer of milk and second – largest producer of fruits and vegetables
  • Largest livestock population-India has the largest livestock population of around 512 million, globally. This comprises 119 million milch (in-milk and dry) animals, 80.06 million goats and 44.56 million sheep, as of FY15. The segment contributes about 25 per cent to the country’s farm GDP
  • Rising consumption expenditure-Consumer spending in 2015 was USD1 trillion; it is likely to reach USD3.6 trillion by 2020 Source: World Travel and Tourism Council, Directorate of Statistics, TechSci Research Note: GDP – Gross Domestic Product FOOD PROCESSING
  • Favourable location for exports –Strategic geographic location and proximity to food importing nations favour India in terms of exporting processed foods


Strong demand growth

  • Demand for processed food rising with growing disposable income, urbanisation, young population and nuclear families
  • Household consumption set to double by 2020
  • Changing lifestyle and increasing expenditure on health and nutritional foods

Food processing hub

  • India benefits from a large agriculture sector, abundant livestock, and cost competitiveness
  • Investment opportunities to arise in agriculture, food infrastructure, and contract farming
  • Diverse agro-climatic conditions encourage cultivation of different crops

Increasing investments

  • Government expects USD21.9 billion of investments in food processing infrastructure by 2015
  • Investments, including FDI, would rise with strengthening demand and supply fundamentals
  • Launch of infrastructure development schemes to increase investments in food processing infrastructure

Policy support

  • Sops to private sector participation; 100 per cent FDI under automatic route. Investment in April 2000- March 2016 stood at USD6.82 billion
  • Promoting rationalisation of tariff and duties relating to food processing sector
  • Setting up of National Mission on Food Processing
  • Foreign Trade Policy 2015-2020


  1. Fruits and vegetables
  • India is the world’s 2nd largest producer of fruits and vegetables. The government expects the processing in this sector to grow by 25 per cent of the total produce by 2025.
  • In 2015-2016, the total production in horticulture sector (fruits and vegetables) is estimated at 282.5 million tonnes.
  1. Milk
  • India is the largest producer of milk in the world, with the production estimated at 146.3 million tonnes in FY15 India is the largest producer of buffalo meat (1.4 MT in 2015) and the second largest producer of goat meat (0.91 MT in 2015).
  1. Meat and poultry
  • India is also the second largest egg producer (78.4 billion) and third largest producer of broiler meat (4.2 million tonnes in 2016), globally
  1. Marine products
  • Total fish production in India is estimated at 13.0 MT during 2015-16.
  • Andhra Pradesh stood as the largest producer of fish with production of 741.3 Thousand Tonnes during 2015-2016 (upto June 2015)
  1. Grain processing
  • India produces more than 200 million tonnes of different food grains every year.
  • Total food grains production reached 270.10 MT in FY16 (As per Ministry of Agriculture)
  1. Consumer food
  • Among the fastest growing segments in India; it includes – Packaged food, Aerated soft drinks, Packaged drinking water, Alcoholic beverages


What need to be done to develop Food Processing Industries?

Major thing that Strongly Required to Develop Food Processing Sector

  • To create an appropriate environment for entrepreneurs to set up Food Processing Industries through:
  • Fiscal initiatives/interventions like rationalization of tax structure on fresh foods as well as processed foods and machinery used for the production of processed foods.
  • Harmonization & Simplification of food laws by an appropriate enactment to cover all provisions relating to food products so that the existing system of multiple laws is replaced and also covering issues concerning standards Nutrition, Merit goods, futures marketing, equalisation fund etc.
  • A concerted promotion campaign to create market for processed foods by providing financial assistance to Industry Associations, NGOs/Cooperatives, Private Sector Units, State Government Organization for undertaking generic market promotion.
  • Efforts to expand the availability of the right kind and quality of raw material round the year by increasing production, improving productivity
  • Strengthening of database and market intelligence system through studies and surveys to be conducted in various States to enable planned investment in the appropriate sector matching with the availability of raw material and marketability of processed products
  • Strengthening extension services and to the farmers and cooperatives in the areas of post harvest management of agroproduce to encourage creation of pre-processing facilities near the farms like washing, fumigation, packaging etc.
  • Efforts to encourage setting up of agro-processing facilities as close to the area of production as possible to avoid wastage and reduce transportation cost.
  • Promotion of investments, both foreign and domestic.
  • Simplification of documentation and procedures under taxation laws to avoid unnecessary harassment arising out of mere technicalities.


  • Establishment of cold chain, low cost pre-cooling facilities near farms, cold stores and grading, sorting, packing facilities to reduce wastage, improve quality and shelf life of products.
  • Application of biotechnology, remote sensing technology, energy saving technologies and technologies for environmental protection.
  • Building up a strong infrastructural base for production of value added products with special emphasis on food safety and quality matching international standards.
  • Development of Packaging Technologies for individual products, especially cut-fruits & vegetables, so as to increase their shelf life and improve consumer acceptance both in the domestic and international markets
  • Development of new technologies in Food Processing & Packaging and also to provide for the mechanism to facilitate quick transfer of technologies to field through a net work of R&D Institutions having a Central Institute at the national level with satellite institutions located strategically in various regions to cover up the whole Country and to make available the required testing facilities. This could be done by establishing a new institution or strengthening an existing one.
  • Development of area-specific Agro Food Parks dedicated to processing of the predominant produce of the area e.g., apple in J&K, pineapple in North East, Lichi in Bihar, Mango in Maharashtra & Andhra Pradesh etc. etc
  • Development of Anchor Industrial Centre and/or linkage with Anchor Industrial Units having net work of small processing units. h. Development of Agro-industrial multi-products units capable of processing a cluster of trans-seasonal produces.


  • Establishment of a sustained and lasting linkage between the farmers and the processors based on mutual trust and benefits by utilizing the existing infrastructure of cooperative, village panchayats and such other institutions
  • Development of Futures Market in the best interest of both the farmers and the processors ensuring a minimum price stability to the farmer and a sustained supply of raw material to the processor.
  • Mechanism to reduce the gap between the farm gate price of agroproduce and the final price paid by the consumer
  • Setting up of an Equalisation Fund to ensure sustained supply of raw material at a particular price level and at the same time to plough back the savings occurring in the eventuality of lower price to make the Fund self-regenerative


  • Establishment of a strong linkage between the processor and the market to effect cost economies by elimination of avoidable intermediaries.
  • Establishment of marketing network with an apex body to ensure proper marketing of processed products.
  • Development of marketing capabilities both with regard to infrastructure and quality in order to promote competitive capabilities to face not only the WTO challenge but to undertake exports in a big way

Operational Guidelines for the Scheme for Creation of Infrastructure for Agro-processing Clusters

  • The Ministry has formulated the Scheme for Creation of Infrastructure for Agro Processing Clusters as a sub-scheme of Central Sector Scheme – “Kisan SAMPADA Yojana” coterminous with the 14th Finance Commission cycle.
  • The scheme aims at development of modern infrastructure to encourage entrepreneurs to set up food processing units based on cluster approach.
  • The scheme is to be implemented in area of horticulture / agriculture production identified through a mapping exercise.
  • These clusters will help in reducing the wastage of the surplus produce and add value to the horticultural / agricultural produce which will result in increase of income of the farmers and create employment at the local level.

Objectives of the Scheme

The major objectives of the scheme are:

  1. To create modern infrastructure for food processing closer to production areas.
  2. To provide integrated and complete preservation infrastructure facilities from the farm gate to the consumer.
  3. To create effective backward and forward linkages by linking groups of producers / farmers to the processors and markets through well-equipped supply chain.

Salient Features of the Scheme

  • At least 5 food processing units with an aggregate investment of minimum Rs. 25 crore will be set up in the Agro-processing cluster. These units may be setup by the promoters and associates of Project Execution Agency (PEA) and by other entrepreneurs. The investment in these units will not be eligible under this scheme.
  • Food processing units will be set up simultaneous to the creation of core infrastructure in the cluster. The core infrastructure facilities being developed in the agro-cluster shall be as per the requirement of food processing units to be set up in the cluster or as per the available raw material for processing in the area.
  • Agro-processing clusters may be developed by:
  • the promoter(s) willing to set up own units in the cluster and also allow
  • utilization of common infrastructure to other units in the area; the promoter(s) willing to develop common infrastructure for use by the units
  • to be set up in the food processing cluster by other entrepreneurs; the promoter(s) willing to develop common infrastructure in the existing food
  • processing clusters However, lead promoter shall setup at least one food processing units in the cluster with an investment of not less than Rs. 5 crore.
  • The extent of land required for establishing the agro-processing cluster would depend upon the business plan of Project Execution Agency (PEA), which may vary from project to project. At least 10 acres of land for the project shall be arranged by the PEA either by purchase or on lease of at least 50 years. The GOI grant shall not be used for procurement / purchase of land.
  • Preference will be given to setting up agro-clusters in agri-horti clusters identified by Central / State Governments, if any.
  • It is expected that on an average, each project may have around 5-10 food processing units to be set up in each Agro-processing cluster with an employment generation potential, both direct and indirect of about 500 to 1500 persons. This employment generation will provide livelihood to about 6000 persons based on an average household size of 4 members. However, the actual configuration of the project may vary depending upon the business plan for each Agro –processing cluster.
  • The food processing industries that make food products fit for human and animal consumption (except alcoholic products ) may be permitted to be set up in these clusters. Packaging facilities of food products as ancillary to the food processing industries (proposed to be setup in the cluster) may also be allotted land in the agro cluster.
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