Processed Food Industry: Set for a leap forward

Food is essential for all living beings and livelihood of many. Food is no longer related only to agriculture and farmers. Today, processed food industry is offering opportunity to various entrepreneurs to enter this field. There is a silent revolution going on in the country. Besides the expanding middle class there is a growing aspirational class. The farm to kitchen chain, with increased agricultural production and better storage facilities will boost food processing sector. Ashok Malkani views the scenario of the food processing industry and the opportunity it offers to new entrepreneurs.

Agriculture is the most important section of Indian economy. It is the primary source of livelihood for about 58 per cent of India’s population. According to IBEF (India Brand Equity Foundation), food grain production during 2017-18 was 284.83 million tonnes and the Indian government’s target during 2018-19 is 285.2 million tonnes. Production of horticulture crops is estimated to be 314.7 million tonnes in 2018-19. This has enabled the food processing sector to experience a tremendous boom over the last several years. 

Food processing, incidentally is the transformation of food or f r o m one form to another; that is, f r o m agriculture produce to ready to eat or heat and eat product. The process can vary f r o m simple drying and freezing to complex formulation of a frozen meal with rightly balanced ingredients and nutrients. There are three stages of processing – Primary, Secondary and Tertiary. 

Primary processing is the conversion of raw materials to food commodities. Milling is an example of primary processing.

Secondary processing involves conversion of ingredients to edible products, like baking bread. 

Tertiary process is the conversion of raw materials to convenience food like canned soup, frozen dinners, etc. 

Benefits of Food Processing

There are several benefits of food processing. Some of them are toxin removal; preservation, which eases marketing and distribution tasks; increasing food consistency. It also enables availability of all kinds of food throughout the year, transportation of delicate perishable goods across long distances and making the food safe for consumption by de-activating spoilage and pathogenic microorganisms.  Processed foods are usually less susceptible to early spoilage than fresh foods and are better suited for long-distance transportation f r o m the source to the consumer.  

Processing can also reduce the incidence of food-borne disease. Fresh materials, such as fresh produce and raw meats, are more likely to harbour pathogenic micro-organisms (e.g. Salmonella) capable of causing serious illnesses.

Scope for Entrepreneurs

An entrepreneur could enter food processing industry at any of the stages. There is immense scope for enterprising people. 

Today India is the sixth largest food processor in the world. By 2030, Indian annual household consumption is expected to treble, making India the 5th largest consumer. Rising household incomes, urbanisation and the growth of organised retail are currently some of the major drivers of this market, besides increasing demand in the international market. 

Food & Grocery retail market in India constitutes almost 65 per cent of the total retail market in India. Currently, according to IBEF, India consumes processed food items worth $ 370 billion and this is expected to increase over the years.  

According to a report by the Agricultural and Processed Food Products Exports Development Authority (APEDA), “Food processing industry accounts for 32 per cent of the country’s total food market”. The Indian food processing market was worth Rs. 24,665 Billion in 2018. Looking forward, the market is projected to reach Rs. 50,571 Billion by 2024, exhibiting a CAGR of 12.4 per cent during 2019-2024. 

It may be mentioned that most of these food processing units are Micro, Small & Medium Enterprises (MSMEs). Over 450 million tonnes of raw materials f r o m agriculture, dairy, etc. are refined and transformed, by processing, into edible products. 

The rate of agricultural export growth over the past decade is the highest in comparison to other countries. According to the data collected by the APEDA, export of processed food products in India, rose to $ 197 million f r o m $ 190 million last year.  

The government, through the Ministry of Food Processing Industries (MoFPI) is taking steps to boost investment in the food processing sector. In this connection, it has sanctioned, under the Mega Food Park Scheme, setting up of 42 Mega Food Parks (MFPs). 23 of them are expected to become operational by 2020.  

Incidentally Mega Food Park, undertaken by MoFPI, aims to establish “direct linkage f r o m farm to processing and then to consumer markets”. The government provides grants up to Rs 50 crores for each food park to a consortium of companies, whose collective investment is expected to be at least Rs 250 crores. 

Food processing has an important role to play in linking Indian farmers to consumers in the domestic and international markets. The Ministry of Food Processing Industries is making all efforts to encourage investments across the value chain.

This has encouraged, over the last about a decade, investment f r o m foreigners. The Department of Industrial Policies and Promotion (DIPP) discloses that India received about $ 7.54 billion FDI f r o m April 2000 to March 2017. The CII has anticipated that the food processing sector can possibly pull in around $ 33 billion FDI in the following ten years.  

As per the 2016-2017 Annual Survey of Industries, there are 37,175 registered food processing units in the country. According to an Assocham Grant Thorton study, the Indian food processing sector has the potential to attract $33 billion in investment.

The Government’s “Make in India” campaign launched in 2014 has also acted as an incentive for inviting investment in the food processing industry.  

Factors influencing growth in Food Processing Industry

There are several factors which have contributed to an increased demand of processed food. Some of them are:

Demographic changes: The urban population accounts for 35 per cent of the total populace, which is believed to be about 1.37 billion currently. And about 61 per cent is under the age of 35. Growth in urban population and increase in employment are egging the consumer to live a fast-paced life. Also, women are joining the work force, not only in cities but also in small towns and villages. This means they have to compromise on household chores such as cooking. Both these factors (fast paced life of the youth and the increasing number of women joining the work force) have made it necessary for them to opt for ready to eat food. 

Changing lifestyle & women in workplace: Urbanisation and the increasing number of working women have also pushed consumers to look for packaged products – including food stuffs. Increasing health consciousness has also encouraged the trend of choosing packaged products.  

Rising disposable income: Growth in economy directly results in the growth of income. According to the government the per capita income is estimated to have risen by 10 per cent to Rs. 10,534 a month during the financial year ended March 2019. Income growth has increased consumer appetites and discretionary spending. 

Increasing retail and e-retail: India’s food & grocery (F&G) retail market, according to private estimates, is considered to be the third largest in the world with over $ 500 billion sales. The share by modern formats like hypermarkets is likely to grow f r o m the present 2 per cent to 4 per cent by 2020.This is mainly due to the evolving lifestyles and purchasing habits of an increasing number of consumers who are choosing to shop at modern retail stores (hypermarkets and supermarkets) on a weekly or monthly basis, instead of shopping at traditional grocers on a daily basis. 

The increasing demand for processed food has witnessed noteworthy developments in the retail and e-retail space in India. 7-Eleven, the world’s largest convenience store chain, has announced its intention to set up its first stores in India. While online grocery retailing is the smallest retail channel (representing 19 per cent of total retail grocery sales), it is the fastest growing retail segment and the one with the highest potential.

Emerging Casual Dining Restaurant (CDR) and Quick Service Restaurant (QSR) Segments: There has been a sizeable increase in CDRs and QSRs and most of them use preformed or ready to heat products in order to help them serve their customers quickly.   

Incentives like Foreign Direct Investment and other measures by GOI: According to official data, FDI in food processing sector rose to 24 per cent in 2017-18. In 2017 the government had approved American e-commerce major Amazon’s proposed $ 500 million investment in retailing of food products. At present, 100 per cent FDI in food processing sector is allowed through automatic route. Additionally, the government has reduced excise duties on food processing and packaging machinery f r o m 10 percent to 6 per cent, allowed food processing units a 100 per cent income tax exemption on profits for the first five years of operation, and a 25 per cent income tax exemption on profits for years six to ten of operation and provided other incentives. 

Food Processing & Handling Equipment

Another segment that offers scope for investors is the Food Processing & Handling (FPH) equipment manufacturing segment. Valued at $ 129.2 billion in 2018, it is projected to reach $ 196.6 billion by 2025, at a CAGR of 6.2 per cent f r o m 2019. 

Generally, equipment used in food processing applications serves one of the following purposes: measurement, transportation, storage, processing, or thermal treatment.

According to RnR Market Research the Food Processing & Handling equipment market is projected to grow at a CAGR of 6.2 per cent. The report states, “The rising disposable incomes, growing population, busy lifestyles, and shift in the focus toward convenience foods and instantly processed foods are some of the key trends that are driving the demand for food processing equipment, which is, in turn, influencing the growth of the food processing & handling equipment market. Companies across food processing, food retail and foodservice value chains have various opportunities to access or increase their penetration of equipment products, either organically or through acquisition.” 

Amid demographic changes, innovation, and evolving customer needs, the outlook for the sector is positive, and growth is expected to accelerate in the years ahead (5 per cent CAGR f r o m 2016–21, compared with 4 per cent f r o m 2011–16).

A report by McKinsey & Company states that the future of the industry will depend on four powerful trends which will accelerate its growth. Besides urbanisation and rising living standards, which are causing dietary shift to higher-value-added product, fueling demand for processed and packaged foods and leading to higher equipment sales, there is also the changing consumer preference for organic and healthier food resulting in menu expansion. With the need for higher standards, there will likely be requirements for a new range of equipment for food production, for higher machine standards, and a need for specialised systems (for example, radio-frequency-identification labeling) to ensure traceability and minimise spoilage.

Customers are demanding machines that improve operational efficiency, reduce costs, and increase uptimes, leading to new requirements for automation, energy efficiency, and integrated solutions. This will also provide opportunity for entrepreneurs who would like to invest in this segment. 

There is ample scope for entrepreneurs as reports that global market for food processing and handling equipment of $ 137.2 billion in 2019 will grow at a CAGR of 6.2 per cent to reach $ 196.6 billion by 2025. Advancements in the food processing industry, innovation in processing technology, and continuous growth in the demand for processed food are some factors that are expected to support the growth of the food & beverage processing equipment market.  

With the growing preference for healthy food and functional foods, manufacturers are expected to adopt new equipment to fulfill the demand for healthy functional foods & beverages. In this connection, it may be mentioned that, according to a new research report by Global Market Insights Inc., Hygienic Easy to Clean Food Processing Equipment market is expected to exceed $ 55 billion by 2025. Rising demand for food safety along with growing need for new and efficient processing equipment is expected to drive the demand. 

Bakery & Confectionery

Bakery and confectionery products segment is believed to form the largest segment of processed food segment. Global confectionery ingredients market is expected to grow to $ 97.38 billion by 2025 at a CAGR of about 6.1 per cent between 2019 and 2025 according to Zion Market Research.

Increased investment by industry players on innovation and research development is expected to have a positive impact on the confectionery ingredients market. The report claims that there will be a rise in consumer awareness in the health benefits of chocolate and demand for natural ingredients following a change in eating habits. 

Confectionery products can also be produced with whey ingredients like whey powder and lactose, which has various benefits. Whey powder reduces contents of sugar.      

With increasing demand for processed confectionery and bakery products the demand for bakery equipment is also bound to rise. The increase in awareness among consumers regarding healthy food consumption has led to higher demand for healthier functional foods, leading to reduction in the consumption of sugar and products that contain sugar such as candies, sweet spreads, and bakery products. This trend is witnessed in all the regions, and is expected to restrain the growth of the confectionery products market, which would subsequently impact the confectionery processing equipment market.

Technological advancements in the food industry such as 3D food printers used by manufacturers of gummies and jellies to give different sizes and shapes to the products will also provide entrepreneurs for further scope.   

Globalisation and increase in incomes can be attributed to the growth of the premium chocolate market, giving investment opportunities for the manufacturers of chocolate processing equipment.

Marketsandmarkets projects global confectionery processing equipment (machinery used for the production of confectionery products such as hard candies, chewing gums, gummies & jellies, and soft confectionery) to touch $ 6.55 billion by 2023. 

Packaging of Processed Food

Another area, which offers scope for new entrepreneurs, is packaging of processed food. The middle class, with increasing spending power, is now exploring the packaged processed foods in the ready to make and easy to eat category. Almost 65 per cent of the Indian population lives in rural region. But they are attracted to food products of urban cities thus rural India provides a great opportunity for packaged food and beverage industry. Packaged chocolates, biscuits, chips, cakes etc. are eagerly lapped up by them.  

As the Indian food and beverage industry is growing rapidly, creating awareness among consumers of the packaged products is likely to increase the growth of this market.


With increased focus on food safety and regulations, companies need to keep track throughout the value chain. The food manufacturers will have to rely on food processing and packaging equipment companies. With increasing focus on health, the food processing industry – including bakery and dairy products – is set for a quantum leap and a bright future for enterprising entrepreneurs who are keen to enter this segment.

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