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

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

 INTRODUCTION: Reduce wastage and increase value addition
                              Facts- milk 1st, cereals, fruits ,vegetables- 2nd
                                         overall food production 2nd

What is supply chain management?

• Supply chain is a system that links a company with its suppliers and customers.
• Supply chain management (SCM) tries to optimize ^this system by…

1. getting the right things
2. to right place
3. at right time
4. In a cost-effective manner.

What is upstream-downstream?

• In any business, you get input (men/material)==>process it==>output (goods/service).
• In Supply chain, Upstream-downstream depends on the point of reference. For example,

Point of reference	Upstream	Downstream
farmer	Traders of seeds, fertilizer, pesticides and agro-machinery.	middlemen @Mandi Food company (if he has contract farming agreement) households (if he is directly selling to final customers)
food processing company	Farmers, Mandi-agents Suppliers of food-preservatives, edible-colors, plastic-aluminum packaging etc.	distributors wholesalers retailers final-customers
Kirana shop	Wholesaler	Aam-admi
Flipkart.com	Book publishers Mobile/electronics/computer companies Suppliers of packaging boxes, bubblewrap plastic etc.	Online buyers

In short,

Upstream	downstream
towards suppliers to your company (+ intermediaries if any)	towards consumers (+intermediaries if any)

India is the second largest food producer in the world after China

Processes in a food processing industry

There are two types of processes in a food processing industry :

1. Manufacturing: Raw materials → Food.
2. Value Addition: Increase shelf life and value of a manufactured food.

Products in food processing industry

We can divide the products in food processing industry into two:

1. Primary (Eg: Fruits and Vegetables).
2. Secondary or Value Added (Jams and Squashes)

Why are food processing industries significant?

1. Scope and Significance of Food Processing Industries in India India is a land famous for food production. More than 50% of Indian population work in Agriculture related activities. If there are good food processing industries in India, raw materials like grains or meat can be converted into food for domestic and foreign consumption.
2. Food processing units acts as a link between agriculture and industries.
3. Food processing industries can absorb a major share of workers from the agriculture sector, who face disguised unemployment. It can lead to better productivity and GDP growth.
4. Food processing prevents food wastage and help in attaining food security.
5. Processed food requires less space for storage.
6. Processed food can be exported. This may help us in getting foreign exchange reserves.

What is the scope of India in food processing industry? (Have you ever wondered why UPSC specially mentioned food processing as a topic in Mains syllabus? – Because it is a sector which has huge potential for growth in future!)

1. India’s position as a major food producer : India ranks 1st in the production of – milk, ginger, banana, guava, papaya, mango etc. It ranks 2nd in the production of rice, wheat, potato, sugarcane, cashew nut, tea etc. It is among the top 5 countries in the production of coffee, tobacco, spices, seeds etc. With such a huge raw material base, we can easily become the leading supplier of food items in the world.
2. Resource advantage of India : Different soil types and different climate types for cultivation of diverse food crops, long coastal line suitable for fishing, huge resource of domestic animals etc.
3. Increasing employment : Expected to create more than 10 lakh new jobs.
4. Curbing Migration : Provides employment in rural areas, hence reduces migration from rural to urban. Resolves issues of urbanization.
5. Curbing food inflation : Removes issues of wastage or middle man. Curbs food inflation. Indirect relief on non-food inflation too.
6. Crop Diversification : Because of long shelf life, farmers can diversify their products.
7. The demand potential : Expected to reach 250b$ turnout by 2015 and 350b$ by 2020. Youth population, middle class, rising income, nuclear families, media penetration etc cited as positive factors.
8. Government initiatives to boost food processing: Various government initiatives like attracting FDI, reduction in excise duties etc have boosted food processing.
9. Future driver of Indian growth : Food processing corresponds to around 10% of GDP in agriculture-manufacturing sector. It has potential for more.

Location of food processing industries in India :

India has more than 35000 registered units. But majorities of the food processing factories are concentrated in the coastal states ( one reason being, accessibility to marine food processing)
Major coastal states includes: Andhra, Maharashtra, Karnataka, Kerala, Gujarat, Punjab and WB. Non-coastal states include UP, Punjab etc.

Major segments of food processing

1. Fruits and Vegetables.
2. Milk and Milk Products.
3. Meat and Poultry.
4. Marine Products.
5. Grain Processing.
6. Consumer Food.

Upstream and Downstream requirements of food processing industries

Upstream stage: The upstream stage of the production process involves searching for and extracting raw materials. The upstream part of the production process does not do anything with the material itself, such as processing the material. This part of the process simply finds and extracts the raw material. Thus, any industry that relies on the extraction of raw materials commonly has an upstream stage in its production process.

Downstream stage: The downstream stage in the production process involves processing the materials collected during the upstream stage into a finished product. The downstream stage further includes the actual sale of that product to other businesses, governments or private individuals. Downstream process has direct contact with customers through the finished product.

Upstream requirements:

1. Accessibility to raw materials.
2. Modern extraction techniques.
3. Good linkages with farmers.
4. Storage facilities for raw materials like Grains, Meat, Fish etc.
5. Quality testing facilities.
6. Transport facilities.
7. Work force.

Downstream requirements:

1. Latest processing techniques.
2. Latest processing machinery.
3. Quality testing facilities.
4. Organized retail stores for faster distribution.
5. Work force.

Supply Chain Management

Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, inventory and finished goods from point of origin to point of consumption.

Let’s analyse the case of Supply Chain Management for Food Processing Industry. Raw materials like grains, raw meat, fish etc are collected by different sources. These sources may do preliminary processing of these to make components of a food product before passing over them to the main manufacturer through many middle men. The manufacturer does the final processing of these components to make the food product. This completes only the first stage of supply management.

Now the finished product has to be delivered to the consumer. Here also there will be a number of middle men and stages. The manufacturer normally hands over the food product to a whole sale dealer. The wholesaler pass the product to a retailer from where the consumer buys the processed food item for his personal use.

Thus, Supply Chain Management is the management of upstream and downstream value added flow of materials from suppliers→ company→ retailer→ final consumers.

Importance of Supply Chain Management in Food Processing Industry : If there are good Supply Chain Management practices in a country, then it will boost economy as a whole. Good supply chain links helps farmers, manufactures, wholesalers, retailers and consumers. Every one in the supply chain link will get inputs at a faster rate, at the right time and at a cheaper cost.

Obstacles in the growth of food processing Industries

Challenges faced by India’s food processing sector

The key challenges identified overall for the food processing sector in India are as follows:

• Poor supply chain linkages: India’s agriculture market has a long and fragmented supply chain that results in high wastage and high costs, especially due to seasonality, perishability, and variability of produce.
• Infrastructure bottlenecks: The export related infrastructure for agri-produce is grossly inadequate, especially at sea ports and airports. More than 30 percent of the produce from the fields gets spoilt due to poor post-harvesting facilities and lack of adequate storage infrastructure.
• Lack of skilled manpower: The agricultural workforce is inadequately skilled across different levels of food processing.
• Low adherence to quality standards: India lacks basic standardization and certification infrastructure. Given the size of the food processing industry, there is a huge gap in the availability of laboratories, trained manpower, and certification agencies.
• Small size companies: Indian food processing companies are small and can’t compete with global giants which invest heavily on R & D.
• Lack of good laboratories in India : Food export to US and EU demands high quality standards. India lack good laboratories to check heavy metal and other toxic contamination in food.
• Lack of skilled work force. We have only a few graduates in Food Technology.
• Lack of right vision and support from the government at the right time.
• Lack of good transportation facilities. Roads are overburdened.
• Lack of storage facilities and good production techniques.
• Lack of organised retail.
• Limitations in supply chains.
• Limitations in the quality.
• Lack of modern regulations.

Key drivers of growth in food processing/Opportunities in food processing Industry

1. Consumer spending on food
2. Change in consumer taste and preference
3. With growing awareness, better health consciousness, need for convenience, and improving lifestyles, the share of processed food is gradually and steadily increasing on consumer plates across the world.
4. Growth in food exports
5. There is a rise in the demand for Indian processed food in the international market. 
6. Availability of cheap workforce

Government support-

In general govt support in form of  LAND- AEZ's

                                                        capital- as FDI relaxation, Funds From NABARD, Priority Sector Lending

                                                       Industry specific efforts- SAMPADA 

• Foreign Direct Investment (FDI) policy: The government has permitted 100 percent FDI for trading through e-commerce and manufacturing of food products through automatic route. Further, FDI is now allowed in multi-brand food retail and India is looking to double food processing levels to 20 percent. According to the Department of Industrial Policies and Promotion (DIPP), the food processing industry has received around US$7.47 billion of FDI in the period April 2000 to December 2016.
• Fiscal benefits: The government offers several fiscal incentives to small and medium enterprises for setting up food processing facilities. Some of these incentives include capital subsidies, tax rebates, and reduced customs and excise duties. Additionally, the government has constituted a fund of US$312 million (Rs 2000 crore) with the National Bank of Agriculture and Rural Development (NABARD) to provide concessional loans to mega food parks and units established therein.  
• Increased focus on infrastructure: The government has established 60 fully equipped Agri-Export Zones (AEZs), in addition to 42 mega food parks and 128 cold chains, to boost agricultural and food processing exports. Under the 2016-17 Union Budget, the federal government allotted US$19.65 million for developing mega food processing parks. Moreover, in November 2016, the Food Safety and Standards Authority of India (FSSAI) launched a major scheme to upgrade food testing laboratories in India.
• Revamped national mission on food processing: The government is taking steps to launch a new scheme – SAMPADA or Scheme for Agro-Marine Processing and Development Of Agro-Processing Clusters by 2019-20. The overall mission will involve the launch of three separate schemes – creation and expansion of food processing and preservation capacities, new agro-processing clusters, and establishing backward and forward linkages. SAMPADA will have an outlay of US$935 million (Rs 6000 crores).
• schemes
• Mega Food Parks: Ministry of Food Processing Industries is focusing on boosting the food processing industry so that agriculture sector grows exponentially and become a major contributor to doubling the farmer’s income and aid ‘Make In India’ initiative of the government. To give a major boost to the food processing sector by adding value and reducing food wastage at each stage of the supply chain with particular focus on perishables, Ministry of Food Processing Industries is implementing Mega Food Park Scheme in the country. Mega Food Parks create modern infrastructure facilities for food processing along the value chain from farm to market with strong forward and backward linkages through a cluster based approach. Common facilities and enabling infrastructure is created at Central Processing Centre and facilities for primary processing and storage is created near the farm in the form of Primary Processing Centers (PPCs) and Collection Centers (CCs).Under the Scheme, Government of India provides financial assistance upto Rs. 50 Crore per Mega Food Park project.
• Integrated Cold Chain and Value Addition Infrastructure
• Government has taken various other measures to boost food processing sector as follows:
• 
  
  (a)      To provide impetus to investment in food processing and retail sector, govt. has allowed 100% FDI in trading including through e-commerce, in respect of food products manufactured and / or produced in India. This will benefit farmers immensely and will create back – end infrastructure and significant employment opportunities.
  (b)      The govt. has also set up a Special Fund of Rs. 2000 crore in NABARD to make available affordable credit at concessional rate of interest to designated food parks and agro processing units in the designated food parks.
  (c)      Food and agro–based processing units and cold chain infrastructure have been brought under the ambit of Priority Sector Lending (PSL) to provide additional credit for food processing activities and infrastructure thereby, boosting food processing, reducing wastage, create employment and increasing farmers’ income.

• Road Ahead

  Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP) by the food processing industry offers several benefits. It would enable adherence to stringent quality and hygiene norms and thereby protect consumer health, prepare the industry to face global competition, enhance product acceptance by overseas buyers and keep the industry technologically abreast of international best practices.

2018-SAMPADA Scheme in detail

The objective of SAMPADA is to supplement agriculture, modernize processing and decrease agri-waste.

SAMPADA is an umbrella scheme incorporating ongoing schemes of the Ministry like Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, Food Safety and Quality Assurance Infrastructure, etc. and also new schemes like Infrastructure for Agro-processing Clusters, Creation of Backward and Forward Linkages, Creation / Expansion of Food Processing & Preservation Capacities.

The SAMPADA is a comprehensive package to give a renewed thrust to the food processing sector in the country. It includes new schemes of Infrastructure for Agro-processing Clusters, Creation of Backward and Forward Linkages and Creation / Expansion of Food Processing & Preservation Capacities aim at development of modern infrastructure to encourage entrepreneurs to set up food processing units based on cluster approach, provide effective and seamless backward and forward integration for processed food industry by plugging gaps in supply chain and creation of processing and preservation capacities and modernization/ expansion of existing food processing units.

The implementation of SAMPADA will result in creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet. It will not only provide a big boost to the growth of food processing sector in the country but also help in providing better prices to farmers and is a big step towards doubling of farmers’ income. It will create huge employment opportunities especially in the rural areas. It will also help in reducing wastage of agricultural produce, increasing the processing level, availability of safe and convenient processed foods at affordable price to consumers and enhancing the export of the processed foods.