Food Processing Industry in India

Phase 1: Before the 1960s – Ignored Agriculture and Industry-Centric Approach 

• After Independence, India’s focus was on building a self-reliant industrial base (especially capital goods industries).
• Despite agriculture contributing 48% of GDP in 1950-51, agriculture and food processing remained neglected.
• Food Processing Industry was virtually non-existent, except for basic flour mills, oil mills, and small-scale cottage industries.

Phase 2: 1960–1990 – Agricultural Focus, Green Revolution & Food Buffer Building

• 1960s food crisis forced the government to shift focus towards agriculture and self-sufficiency in food production.
• Major developments included Green Revolution (1966 onwards, creation of Buffer Stock, land reforms etc. But government’s focus was not on Food Processing Industry.

1991 Onwards – LPG Reforms and Opening up of Food Processing Sector

• The 1991 Economic Reforms (Liberalization, Privatization, Globalization – LPG) became a watershed moment for all industries, including food processing.
• Food processing identified as a “Sunrise Sector” due to its high growth potential, employment creation ability, and export opportunities. Major Government initiatives started (like Mega Food Parks, Agro-Processing Clusters, etc.).

Recognizing the gaps mentioned above, the Government of India has taken several steps over the years to boost the Food Processing Industry (FPI)—an important bridge between agriculture and industry.

Ministry: Ministry of Food Processing Industry (MoFPI)

• The key government department responsible for the food processing sector is the Ministry of Food Processing Industries (MoFPI).
• It runs various schemes to promote food processing industry in India.

Scheme: PM Kisan Sampada Yojana

• The full form of SAMPADA is: Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters
• Year of Launch: Launched in 2017
• Budget Allocation: ₹6,000 crore was allocated for the scheme

Why was SAMPADA launched?

• India produces huge amounts of fruits, vegetables, grains, dairy, and marine products. But according to estimates, 30-40% of this is wasted due to lack of storage, cold chains, and processing facilities.
• SAMPADA was designed to solve this problem by creating infrastructure, reducing wastage, generating jobs, and promoting value addition.

Major Schemes under SAMPADA (Umbrella Scheme)

SAMPADA combines and integrates all major schemes run by the Ministry of Food Processing Industries (MoFPI).

Objectives of PM Kisan SAMPADA Yojana 

The government aims to achieve multiple goals through this single umbrella scheme:

• Reduce Food Wastage: India loses food worth thousands of crores annually due to lack of storage and processing. SAMPADA focuses on creating infrastructure to minimize this loss.
• Employment Generation: SAMPADA creates direct employment in factories, logistics, and storage units, and indirect employment for farmers, transporters, and packaging industries.
• Increase Farmer Incomes: By offering farmers better prices for their produce and creating new markets for processed goods, SAMPADA aligns with the goal of doubling farmers’ income.
• Encourage Private Investment: The scheme offers financial assistance to private companies, farmer groups, and cooperatives to invest in food processing infrastructure

Scheme: Mega Food Parks

• Mega Food Parks are large, well-equipped industrial zones where farm produce is collected, processed, tested, packaged, stored, and transported—all in one integrated facility.
• Launched under the Ministry of Food Processing Industries (MoFPI), MFPs aim to provide modern infrastructure for food processing close to the production areas (farm gates).

How does a Mega Food Park work? (The Hub-and-Spoke Model)

Think of it like this: Imagine a big hub (Central Processing Centre – CPC) surrounded by many small satellite points (Collection Centres and Primary Processing Centres

• This Hub-and-Spoke Model ensures minimal time delay and prevents spoilage at every stage.

Financial Provisions

Challenges / Problems 

Despite the good intentions, implementation hasn’t been easy.

• Land Acquisition Issues:  Acquiring a continuous 50-acre plot, especially near production areas, is tough. Also, changing land use from agriculture to industrial takes time.
• Attracting Stakeholders:  SPVs struggle to attract Primary Processing Centres (PPCs) and Collection Centres (CCs), making the network incomplete.
• Power Shortages: Some MFPs (especially in UP) shut down due to inadequate electricity supply.
• Finance and Credit Bottlenecks: Banks hesitate to fund MFP projects as the concept is new and many projects struggle to achieve financial closure.
• Quality of Raw Materials: Lack of uniform quality in farm produce affects food processing units inside MFPs, which need consistency for mass production.
• APMC and Contract Farming Restrictions: Many states haven’t reformed APMC Acts, making direct purchase from farmers difficult. First sale often still has to happen in APMC Mandis.
• Export Connectivity Weakness: Limited focus on global value chains. Poor logistics and infrastructure limit India’s food export potential.

Way Forward 

To make Mega Food Parks successful:

• Flexibility in Land Requirements Reduce rigid 50-acre requirement or allow phased land acquisition.
• Land Use Reforms: Fast-track the process to convert agricultural land for industrial use.
• Encouraging Contract Farming: Promote legally binding agreements to ensure consistent supply and quality from farmers.
• Private Sector Financing: Allow SPVs to raise capital more easily from private investors and international partners.
• Power Infrastructure Development: Ensure uninterrupted power supply in rural areas where MFPs are located.
• Link to Global Value Chains: Upgrade quality standards, logistics, and infrastructure to attract foreign investors and boost exports.

Scheme: Production Linked Incentive (PLI) Scheme for Food Processing Industry

• Launched: March 2022
• Ministry Involved: Ministry of Food Processing Industries (MoFPI)

How does the PLI Scheme work?

• The government gives financial incentives (cash back/subsidy) to companies based on how much they increase their production and sales of eligible food products every year over a base year.
• This reward (incentive) is linked to actual output performance, not just promises or paperwork.

Target Sectors under PLI  Scheme for Food Processing Industry

The scheme focuses on sectors where India can become a world leader:

Scheme: Krishi UDAN 2.0

• Full Form: Krishi UDAN = Krishi Ude Desh ka Aam Nagrik
• Launched: October 2021
• Aim: Boost air transportation of perishable agricultural products (like fruits, vegetables, fish, meat, dairy, processed foods, etc.)
• Focus Regions:
  1. Hilly Areas
  2. North Eastern States
  3. Tribal Areas
  4. Other remote locations

Scheme: Operation Greens

• Budget 2018: Operation Greens announced  under Ministry of Food Processing Industries 
• It is modelled on the lines of Operation Flood (for milk) for enhancing production & reducing price volatility of fruits & vegetables. 
• It was started with Tomatoes, Onion and Potatoes (TOP). But the scope of the scheme has been increased to 22 perishables , including mango, apple, garlic, ginger, etc.

India is the world’s second-largest producer of fruits and vegetables. Despite this, the share of processing remains below 2%, leading to significant post-harvest losses, farmer distress, and missed export opportunities. The problems can be analyzed at three levels – upstream, processing, and downstream stages.

Upstream Issues

Before any fruit or vegetable reaches a food processing factory, it goes through multiple stages like cultivation, harvesting, collection, and transportation. These stages are collectively called the “Upstream” part of the supply chain.

Simply put: Upstream = Everything that happens before raw materials (fruits/vegetables) reach the processing company.

1. Wrong Varieties for Processing

• Most of the fruits and vegetables grown by Indian farmers are not suitable for industrial processing.
• For example:
  • Indian oranges are often too bitter to make packaged orange juice.
  • Indian potatoes are not of uniform size and have high sugar content, making them unsuitable for making chips or French fries like you see from brands like Lay’s or McCain.
• The government and food companies need to promote new crop varieties that meet industry standards.

2. Lack of Direct Link Between Farmers and Companies (Contract Farming Issues)

• In most parts of India, food companies can’t directly sign contracts with farmers to grow specific quality or varieties of crops because of old APMC (Agricultural Produce Market Committee) laws, farmers are forced to sell their produce in government mandis. This prevents food processing companies from supplying uniform seeds, giving inputs, and buying produce directly.
• Impact:
  • No control over quality
  • No steady supply
  • Farmers don’t get long-term price assurance
  • Companies can’t plan production smoothly
• States should relax APMC rules and allow contract farming. This way, companies can partner with farmers for better, uniform quality raw material.

3. Inadequate Cold Storage Facilities

• Fruits and vegetables are perishable by nature. Without proper cold storage, they start rotting within a few days. India faces a severe shortage of cold storage infrastructure.
• This leads to:
  • High post-harvest losses
  • Distress sales during harvest season
  • Seasonal price fluctuations

Solution:

• Provide subsidized loans, tax benefits, and affordable electricity rates for cold storage units.
• Encourage private sector participation.

4. Poor Transport Infrastructure

• Even after harvest, the transportation from farm to processing unit is full of hurdles owing to
  • Poor village roads
  • Lack of refrigerated vans (called Reefer Vans)
  • Railways don’t run enough special freight trains for horticulture products
• Solutions:
  • Improve rural road network
  • Offer easy loans to buy reefer trucks
  • Indian Railways should run more horticulture trains on priority routes.

Unless we fix these upstream issues, food processing companies will continue to struggle with poor quality inputs and erratic supply, leading to low capacity utilization and higher costs.

Processing Stage Challenges

Once the fruits and vegetables leave the farm and reach the food processing company, the next stage is “Processing”. This includes steps like cleaning, grading, cutting, freezing, juicing, preserving, and packaging. But the Indian Food Processing Industry (FPI), especially for fruits and vegetables, faces many challenges at this stage too.

1. Underutilized Processing Units

• Many food processing factories are running at less than full capacity. For example: A juice processing plant designed to process 100 tons per day may end up processing only 40-50 tons.
• Why? Because raw material doesn’t arrive in required quantity or quality at the right time.

2. Inconsistent Quality of Raw Material

• Even when raw material comes, quality is inconsistent. For example:
  • Tomatoes may have different water content
  • Potatoes may differ in size
  • Oranges may vary in taste and acidity
•  Why does this matter? Inconsistent quality makes it difficult to produce a uniform final product. For industries like chips, juices, or frozen vegetables, standardization is critical to meet consumer expectations and export standards.

3. Outdated Technology

• Many small and medium-sized food processing units use old machines, manual handling, and low-tech preservation techniques.

4. Food Safety Compliance Issues

• For food exports, companies need certifications like HACCP (Hazard Analysis and Critical Control Points). But most Indian processing units lack such certifications.
• Why?
  • Lack of trained manpower
  • Poor awareness
  • Expensive certification process
  • Lack of accredited testing labs nearby

Downstream Challenges

Once the fruits and vegetables are processed (like cut, frozen, juiced, packaged), the next challenge is getting them to the market or to the final consumer. This is called the “Downstream” stage. But in India, the downstream supply chain for processed fruits and vegetables faces several issues.

1. High Transportation and Export Costs

• For perishable fruits and vegetables like strawberries or mangoes, air transport is preferred for exports. However, in India:
  • Air cargo costs are very high
  • There are extra charges like fuel surcharge, handling fees, and terminal charges
• Even when the product is suitable for sea transport (like potatoes or onions), India’s port handling charges are very high compared to other countries.
• Result: Indian fruits become more expensive in foreign markets, reducing their demand.

2. Rejection in Foreign Markets due to Quality Issues

• Developed countries like EU and USA follow strict quality standards (Codex standards) for imported food products.
• Indian fruits and vegetables face frequent rejection in international markets due to non-compliance with Codex standards and WTO SPS measures.

3. Poor Domestic Marketing Channels

• Consumer Awareness is low:
  • Most Indian consumers still prefer fresh, unpackaged produce
  • There is lack of trust in packaged food, especially for fruits and vegetables
• Retail infrastructure for processed food is weak:
  • Few dedicated outlets for selling frozen peas, ready-to-cook veggies, or fruit pulps
  • Rural areas are still untapped markets for processed food

4. Limited Export Branding

• India has not built strong global brands for processed fruits and vegetables, like Del Monte or Dole from other countries.