Food processing and agriculture business opportunities in India

Food processing and agriculture business opportunities in India

Opportunities in the agriculture sector in  India

The agriculture industry sector in India

The economy in India relies heavily on agriculture. A large portion of India’s land can be cultivated and it ranks second in farm output in the whole world. Countless opportunities in agribusiness are abound in India.

This sector contributes to the country’s gross domestic product, at an estimated value of 10% of the total amount. Agriculture is also the primary source of income for Indians especially in rural households. To note, around 830 million Indians live in rural areas.

Aside from the country’s major crops which include rice, wheat, coarse cereals, cotton, and oilseeds, India also boasts of an abundance of raw materials – buffalo meat, milk, bananas, mango, guava, pulses, tea, and sugarcane.

There are huge quantities produced in most food categories in India. The nation ranks among the highest in the areas of milk, fruit and vegetables, livestock, grain and other food production. However, the level of processing in India is low. Some examples of this include only 2.2% of all fruits and vegetables being processed and only 6% of poultry products.

Agriculture Development and Value Chain in India

The high demand for food poses a need to develop an integrated value chain for the Indian agricultural sector. This value chain should ideally be divided into five distinct categories:

  1. Input
  2. Production
  3. Procurement and Storage
  4. Processing
  5. Retailing.

Under processing are three more recommended categories – primary processing, secondary processing, and tertiary processing.

  • Primary processing includes sorting, grading, cleaning, bleaching, refrigerating, chilling
  • Secondary processing means preserved pulps, slices, etc., malt and milling, simmered and dried milk, cutting and frying of poultry or marine products
  • Tertiary processing essentially involves processed food, ready-to-eat meals, flavored drinks, confectionary items, jams, ketchups, sauces

As the food processing industry is still strongly developing, there are many opportunities across the different segments in the area of food logistics. Among these are the development of the upcoming food parks, development of cold chain facilities, improved and sustainable packaging technology, development of free trade warehousing, capacity building and skill development.

Opportunities in agricultural machinery in India

India is the largest manufacturer of tractors in the world. Power tillers are gaining popularity especially for lowland flooded rice fields and hilly terrains. Manually operated tools, animal-operated machines, and mechanical - or electrical - operated machinery are some examples, which are slowly increasing in demand. Innovation and technology in the Indian agricultural machinery industry can take the industry to greater heights, keeping pricing in mind.

Indian farmers are more motivated to buy agricultural machinery due to availability of credit from banking and non-banking institutions. The Department of Agriculture and Cooperation and the Ministry of Agriculture have also been providing financial assistance to these farmers to help them purchase the resources needed for agriculture.

Food processing in India

The Indian food processing industry sector is ranked fifth in the country with regards to production, consumption, export and expected growth. It also accounts for 32% of the total food market. In order to minimize wastage and maximize profits, it is imperative to build an integrated system of post-harvest technology and cold chain management.

From 2008 to 2013, the Indian food processing sector has grown annually at 8.4 percent. Investments in the registered food processing industry had grown by 20.1 percent at the end of 2012. Moreover, the number of registered food processing factories is still increasing steadily.

This growth can be attributed to many factors. Two of which are the abundant availability of raw materials and the rise in disposable incomes. Due to the latter, higher spending on food items is guaranteed. An increasing number of Indians are spending money on eating out, making it a prime factor towards a growing food processing industry.

The industry is currently experiencing a major shift from traditional farming to perishable products. This is due to an increasing demand brought about by urbanization and increased income. There are various government policies in place to support the transformation of the industry.

Though some top global players such as Nestle and PepsiCo have presence in India, there is still huge potential in the Indian food processing and packaging industry.

Opportunities in the food processing industry in India

Notable features of the Indian food processing industry are:

  1. Early stage with low penetration and high potential
  2. Major players aren’t scaled up and integrated
  3. Unorganized players have swamped this segment using low technology and investment

The government of India has outlined a development plan for this industry. Some Indian companies have entered the food processing market while top international food product manufacturers have introduced multiple processed products.

Fruits and vegetables

This is the fastest growing sub-sector of the food processing sector. However, only 13% of vegetables and 12% of fruits undergo production processes. Plus the organized sector processes only 48% of India’s fruits and vegetables. This is due to a rapid growing sector, small domestic units unable to handle the load and therefore high wastage. This is an opportunity for foreign players to set up efficient processing units in this industry.

Meat and Poultry

  1. This sector is expected to grow significantly
  2. A continuous rise in meat production due to increasing in nonvegetarians
  3. This sector has undergone major structural changes
  4. Consumption of buffalo meat has increased, demand for goat and lamb meat exceeds supply while chicken is most popular
  5. With a CAGR of 15%, poultry meat is the fastest growing segment in the domestic market

There is high demand for poultry and this poses as a great target for consumers due to their increasing income rates. This sector prides itself in being one of the largest producers of eggs and poultry meat. Innovation and advancement by foreign companies can further boost sector production and raise industry standards.

The dairy Industry

  1. The growth of dairy production at 4% per year while consumer demand is double that rate contributes to record growth of liquid milk and butter.
  2. The Indian dairy sector is ranked first in the world in terms of processed food.

Marine food

  1. Comprised of small and medium size family concerns
  2. India is now on fast track to produce and supply valued seafood products
  3. This segment is almost entirely export-oriented

Grains

  1. India is the second largest producer of wheat and rice
  2. 65% of wheat is converted into wheat products
  3. Rice and wheat processing is most important segment of this industry

Opportunities in the Food Processing Value Chain

The Ministry of Food Processing Industries and related agencies aim to increase investments in the food-processing sector through initiatives like the ‘National Food Processing Policy’. This will also encourage Indians to buy more modern equipment used for food processing.

Avoiding significant wastage and spoilage poses a great challenge. Some challenges in this sector include:

  • High food inflation
  • High post-harvest wastage
  • Low level of processing

Food Processing Equipment

Market size of food processing equipment is estimated at USD 1.5 billion. Growth drivers are:

  1. Critical factors include technology, price, delivery and performance standards
  2. Lost cost production
  3. Buyers have a clear plan for upgrades to equipment

Post-Harvest Technology

Better methods of processing and storage will reduce the losses in the fruits and vegetable segment. Post harvest technology focuses on storage, grading, and packing.

Food Packaging

India is proficient in manufacturing basic machinery for the small and medium sector. However, growing demand for advanced and sophisticated technology requires automation leading to joint ventures with foreign companies to produce a variety of packaging machinery.

Opportunities in the cold chain sector in India

Due to India being an agricultural-based economy, wastage is a concern and so the government with the help of U.S. technology is developing the cold chain sector. Therein lies an opportunity for those looking to invest in this sector with improved storage and transportation techniques.

Integrated Cold Chain

An efficient strategy to develop an integrated cold chain network provides potential strengths for storing primary and processed agricultural products for most of the year.

Hence the adoption of latest and proven technologies will be critical to the success of domestic as well as international market players. For a smoother market entry, it’s helpful to engage the services of a professional market research agency to facilitate the process.

Barriers in the cold chain sector

The costs for the cold storage business is very expensive. The energy alone used for this industry is quite costly. There is also a concern for when power is unreliable. This is the case in most areas and result as challenges for this particular sector. Another challenge is how consumers prefer fresh and local meat produce that greatly affects the cold storage business sector.

Conclusion

Agriculture and food processing in India are good avenues for opportunities. Because of the abundance of resources in India and the economic development of the country, this sector will continue to grow and hosts many opportunities.

With numerous innovations being introduced into the Indian food processing sector, we expect to see much development within it. Participation in terms of investment and technology at every stage of food processing presents opportunities for international and local players. For in-depth knowledge, it would be beneficial to refer to market research on specific areas within this vast sector.

This entry in Asia was updated on March 30, 2017 by specialist.