Overview

Food Processing is a highly diverse industry sector comprising ten major sub-sectors:
Fruits and vegetables, Grains, Milk and milk products, Fisheries, Meat and poultry,
Plantation products, Alcoholic and non-alcoholic beverages, Confectionary,
Packaged/Convenience foods and Health foods and supplements.

The growth of the sector is dependent upon high per capita disposable incomes, urban
lifestyles and consumer tastes and preferences in favour of ready to eat, easy to prepare
and hygienically prepared foods. As such, growth of the sector has been the highest in
developed economies, especially across Western Europe, North America, Japan and
Australia.

Even in respect to developing economies, the growth of food processing sector has
accelerated with increases in GDP, per capita income and the resultant changes in
lifestyle. Organized retailing and availability of better processing technologies too have
contributed to the accelerated growth of the sector.

India endowed with diverse agro-climatic conditions and large irrigated area, ranks as
the world’s second largest food producer, next only to China. From high dependence on
external sources to self-sufficiency in 60 years, India has achieved several distinctions in
food production. The country’s world ranking as a producer vis-à-vis other nations
improved considerably with respect to major products, as indicated in table.

India’s World Ranking as Producer of Major Agri-products

Sl, India’s Production India’s Rank
No (Million tonnes)
1 Wheat 72 2
2 Rice, Paddy 124 2
3 Coarse grains (including maize) 29 3
4 Milk 91 1
5 Fruits 47 2
6 Vegetables 82 2
7 Edible Oilseeds 25 3
8 Pulses 15 1
9 Sugarcane 245 2
10 Tea 0.85 1
The size of the Indian food industry is estimated at US$ 200 billion (2008) and expected
to grow to over US $ 310 billion (2015). India like China and Latin America is rising high
on world food demand curve as a mass market for processed fruits, dairy and meat
products as could be viewed from the following graph.

Evolution of Global Food Demand

Diet /
Functional / North America,
Japan, Western
Europe, Australia
CConvenienc
Foods Eastern
Europe
Snacks /
Prepared
Meals India , China,
Dairy, meat, Latin America
Fresh fruits
Fruit juices,
Beverages

Carbohydrate Africa
Staples (Sub- Saharan)

Surviving Mass Convenience Quality High Technology

Market Food Service Hygiene
Snacking
Notwithstanding its inherent advantages of possessing a large and diverse production
base and presence of a sizeable domestic and export markets, the growth of India’s food
processing sector remained small at least till the mid-1990s. Thereafter, with sustained
economic growth rates, rising urbanization and changing lifestyles, country’s food
processing sector has witnessed 7% CAGR. Fruits and vegetables have recorded the
highest growth, around 20% followed by meat processing (13%) and dairy processing
(4%). The trend is expected to continue into the future and the factors supporting the
view are:

- rapid urbanization;
- increasing participation of women in urban jobs and less time available for
kitchen chores;

- rising family disposable incomes;

- growing diet consciousness among the educated and affluent;
 - rising exposure of Indians to developed economies leading to their
experiencing and adopting new lifestyles and

- increased availability of branded processed foods driven by high propensity

to consume by youngsters.

To ensure the sustained growth of the sector, Vision 2015 of MoFPI envisages:

- a three fold growth in the size of country’s processed foods sector;

- increasing the level of processing of perishables from 6% to 20%;
- raising value addition from 20% to 35% and
- enhancing India’s share in global food trade from 1.5% to 3%.

Further, to realize the vision, MoFPI has initiated several measures, the most important
one being the establishment of 30 Mega Food Parks during the Eleventh Plan.

As a result of these initiatives, India’s processed foods output is likely to touch US $ 90

billion level while packaged foods will record sales of US $ 22 billion by 2012. On per
capita basis, it would imply US $ 18 by 2012.

Fruits and Vegetables Sub-sector

Global Scenario

Fruits and vegetables is one of the most important and fast growing sub-sectors of the
food processing sector, as fruits and vegetables form an indispensable part of healthy
diet. Medical research has established that intake of fruits and vegetables in the
requisite measure help prevent cardio vascular disease and obesity.

a) Production of Fruits
Global production of fruits has been hovering around 500 million tonnes level during the
last three years as could be seen from the data presented in Table.
 Estimated Global Production of Fruits
Sl.No Year Production
( Million Tonnes)
1. 2005 516.6
2 2006 496.3
3 2007 499.7

Apple, apricot, banana, grape, grapefruit, kiwi, lemon, mango, orange, peach, pear,
plum, pineapple, pomegranate and tangerine are the major fruit varieties grown. Citrus
varieties, account for more than 20% of total world fruit production.

China, India, Brazil, USA, Italy, Spain, Mexico, Iran the Philippines and France are the
top ten aggregate fruit producers in the world.
Worlds Leading Fruit Producing Nations
b) Production of Vegetables

World production of vegetables has been hovering around 890 million tonnes, as could
be noted from the data contained in table.

Estimated Global Production of Vegetables

Sl.No Year Production
( Million Tonnes)
1 2005 891.2
2 2006 889.7
3 2007 893.4

Over a hundred types of vegetables are grown across the world. Beans, beet, broccoli,
cabbage, capsicum, carrot, cauliflower, corn, cucumbers, onion, peas, potato and
tomatoes are the major vegetable varieties grown.

Asia dominates the world vegetables scene accounting for nearly 60% of global
production, with China and India ranking as 1st and 2nd. European Union and U.S.A
follow next.

c) World Trade in Fruits and Vegetables

The value of world trade in fresh fruits and vegetables has quadrupled in the last two
decades. World imports and export estimates of fruits and vegetables are presented in
table.
World Trade in Fruits and Vegetables
U.S $ billion
Year World Imports World Exports
2004 110.6 101.4
2005 118.9 112.8
2006 132.6 124.1
(source: FAO)
Fruit and vegetable products (both fresh and processed) accounted for 22% of total
agricultural exports from developing countries. Fruit trade is heavily concentrated in
Bananas, Citrus, Grapes and Apples.

Fresh produce comprising citrus, pears, peaches, nectarines, plums and kiwi fruit, and
processed produce comprising tomato based products, fruit juices and concentrates,
packed vegetables as well as tinned and frozen fruits are mostly certified under
Protected Geographical Indication status.

Over the last quarter of a century (1980-2004), the fruit and vegetable market has been
one of the fastest growing of all agricultural markets as could be observed from the data
presented in table.
Evolution of World Fruit and Vegetable Markets (million tonnes)
3 Year Average Production Consumption
1982 – 84 691 -
1992 – 94 899 782
2002 – 04 1342 1189

Global fruit and vegetables consumption increased by an average of 4.5% per annum
between 1990 and 2004. This was higher than the world population growth rate,
meaning that the global per capita consumption of fruit and vegetables has also
increased. According to World Health Organization, for the prevention of chronic
diseases such as heart diseases, cancer, diabetes and obesity, fruit and vegetable
consumption should be at least 400g per day per capita. If in 1992-94 only 40% of the
countries reached this level, almost half of them did so in 2002 – 04.

The quantity of fruit and vegetables traded as fresh products is more than 5% of the total
production, with fruit exports heading for the 10% mark, while the trade in vegetables
stagnates around 3%. In 2002-04, exports of fresh fruit and vegetables averaged 73
million tonnes, whereas exports of fruits and vegetables products (e.g. juices, dried,
preserved and prepared products) amounted to 30 million tonnes.
The list of large exporters of fresh fruits and vegetables starts with the USA. Mexico is
2nd, having overtaken EU in the past decade. Other big exporters are China, Chile,
Ecuador and South Africa. In total, the top 10 exporters account for 66% of the world's
fresh fruits and vegetables exports. On the import side, the EU is the world's largest
importer. The US follows closely behind, while other countries, like Canada, Japan and
China have significantly smaller imports. The top 2 importers (EU and USA) take in 50%.

Indian Scenario

India is the second largest producer of fruits and vegetables in the world, accounting for
about 16% of global vegetable production and 10% of world fruit production. India is a
front runner in many fruits and vegetables with share in world production as follows:
» 41% of mango
» 23% of banana
» 24 % of cashew nut
» 10% of onion
» 30% of cauliflower
» 36% of green peas
The trends in India’s fruits and vegetables production are presented in table.
Production of Fruits and Vegetables in India

Fruits Vegetables
Year Area Production Area Production
(Million Ha) (Million tonnes) (Million Ha) (Million
tonnes)
2002-03 4.8 49.2 5.9 84.8
2003-04 5.1 49.8 6.7 101.4
2004-05 5.3 52.8 7.1 108.2
2005-06 5.3 55.4 7.2 111.4
2006-07 5.6 59.6 7.5 115. 0
2007-08 5.8 63.5 7.8 125.9
[Source: NHB]
The leading fruits grown in India are presented in table.
Leading Fruits Produced in India
Category Major Fruits
Tropical Mango, Banana, Pineapple, Citrus and
Grapes
Sub- tropical Papaya, Guava, Litchi, Pomegranate
Temperate Apple, Strawberry, Peach, Plum

The leading vegetables grown in India are presented in table.

Leading Vegetables Produced in India
Category Major Vegetables
Leafy Vegetables Cabbage, Cauliflower, Lettuce, Mustard and
Spinach
Fruit and Flower vegetables Capsicum ,Cucumber, Gherkin, Parwal,
Pumpkin , Snake guard, Tinda and Tomato
Root and Tubers Beetroot, Carrot, Celery, Onion, Potato,
Radish, Sweet Potato, Turnip and Yam
Podded vegetables Broad bean, Chickpea, Drumstick, French
bean, Indian pea, Okra and Sweet corn
Fungi vegetables Cultivated Mushrooms, Oyster mushrooms
and Straw mushrooms

India is not a major exporter of fruits and vegetables, as it has a very large domestic
market. Details of exports of fruits and vegetables from India are presented in table.
 Exports of Fruits and Vegetables from India
( Rs. Lakhs)
Fruits & Vegetables 2004-05 2005-06 2006-07

I. Fresh Fruits
Fresh onions 64411.9 70815.88 116330.57
Other fresh vegetables 23376.54 217280.54 43002.06
Walnuts 9621.92 11447.33 11803.06
Fresh Mangoes 8901.06 12811.12 14193.95
Fresh Grapes 12844.57 21460.85 30192.45
Other Fresh Fruits 17155.36 22567.29 25643.64
Sub-Total 136311.35 356383.01 241165.73
II. Processed Fruits
Dried & Preserved 22736.78 36411.26 42406.20
Vegetables
Mango Pulp 31571.94 134613.2 50582.79
Pickles & Chutneys 12934.7 26098.14 29359.48
Other Processed fruits 28899.85 37021.34 50814.71
& vegetables
Sub-Total 96143.27 234143.94 173163.18
Total
232454.62 590526.95 414328.91
a) Status of Fruit and Vegetable Processing Sub- sector

Only 2.2 % of the total produce is processed and the rest marketed as fresh fruits and
vegetables. It is estimated that 20 to 25 % of the produce is lost due to lack of
processing facilities (in flush season) and inadequate infrastructure for post-harvest
treatment, packing, storage and transportation.

In the budget of 2004-05, the Government has allowed under Income Tax Act, a
deduction of 100% of profit for five years and 25% of profits for the next five years in
case of new agro processing industries set up to process, preserve and package fruits
and vegetables. In the budget of 2006-07, food processing sector was declared as a
priority sector for bank credit and was decided that would create a refinancing window
with a corpus of Rs.1,000 crore, especially for agro-processing infrastructure and market
development.

b) Growth of Fruit and Vegetable Processing Sub-sector

The installed capacity of fruits and vegetables processing industry has increased from
11.08 lakh tonnes in 1993 to 24.74 lakh tonnes by 2007. Over the last few years, there
has been a positive growth in ready to serve beverages, fruit juices and pulps,
dehydrated and frozen fruits and vegetable products, tomato products, pickles,
convenience veg-spice pastes, processed mushrooms and curried vegetables.
The domestic consumption of value added fruits and vegetable products however
continuous to be low compared to the primary processed food in general and fresh fruits
and vegetables in particular which is attributed to higher incidence of tax and duties
including that on packaging material, lower capacity utilization, non-adoption of cost
effective technology, high cost of finance, infrastructural constraints, inadequate farmers-
processors linkage leading to dependence upon intermediaries. The smallness of units
and their inability to market end products also is a constraint for expansion of the
domestic market.
With a view to accelerating the growth of fruit and vegetable processing sub-
sector, Govt. of India has initiated several measures. These measures, besides
encouraging fresh investment in-flows focus on strengthening critical infrastructure
development essential for value addition, quality assurance and post-harvest losses
minimisation.
c) Vision - 2015
A summary of growth perspectives and fresh investments envisaged in fruits and
vegetable sub-sector, as per Vision- 2015 of MoFPI, are presented in tables
Growth Perspective for Fruits and Vegetables Sub-sector

(INR
Current volume (Million

(Million

(Million
(INR/

% Growth Rate (2010 –

Value 2015 (INR Million)
Value 2010 (INR Million)

% Growth Rate (5 -10)

Current Growth (%)
Value
Price

Volume 2010

Volume 2015
Average
Tonnes)

Tonnes)

Tonnes)

Tonnes)
Current
Million)

2015)
Production 129 4 170 207 4 4
Processed
Organized 1.7 29500 11 17.0 254000 31.0 490000 39 13
Packed fresh 0.1 120000 12000 9 12.0 144000 20.0 240000 43 11
F&V
Other 0.7 250000 17500 13 4.4 11000 10.0 250000 30 18
Processed
Unorganized 0.1 20000 20000 9 1.8 36561 2.8 56253 30 9
(Other
processed)

Total 2.7 49500 10 19 290561 34 546253 9

Processed
Share of 2.1
Processed
(%) of which:

- Organized 1.3 10 15
sector (%)
- 0.8
Unorganized
Sector (%)
(Source: Vision 2015 – Strategy and Action plan for Food Processing Industries Report,
Rabo India Finance Pvt. Ltd.)
 Investment to be Channelised into Fruits and Vegetables Sub-Sector
Capacity Required Investment Required

Investment (2005

Investment (2005
Current Capacity

Total Investment
– 10) INR Million

– 15) INR Million

required (2005 –
10) Tonnes/ Day

required (2005 –
15) Tonnes/ Day
(Tonnes/ Day) &

(2005 – 10) INR

Utilization (%)

New Capacity

New Capacity

Million
Organized 11333 79778 51746 69889 40159 110048
Packed 6667 60000 28571 60000 28571 88571
fresh F&V
Other 4667 19778 23175 9889 11587 21476
processed
Capacity 50% 60% 70%
utilization

State Scenario

Andhra Pradesh is a major fruit and vegetable producing States of India. A variety of
tropical and sub-tropical fruits and vegetables are grown in the state. The state occupies
a distinct place in the national scenario in respect of some fruits and vegetables as
indicated in table.

Share of Andhra Pradesh in Production of Major Fruits and Vegetables

Sl.No Fruit/Vegetable %Share in India’s National Rank

Production
I. Fruits
1. Mango 28 1
2. Papaya 39 1
3 Sapota ( Chikku) 15 4
4 Citrus 42 2
5 Banana 10 5
II .Vegetables
1 Tomato 14 2
 2 Tapioca 5 4
3 Brinjal 4 6
4 Okra 11 4
5 Onions 5 6

Details of production of major fruits and vegetables in the state are given in table.

Production of Major Fruits and Vegetables in Andhra Pradesh

[Area: Ha production: M.Ts]
2004-05 2005-06 2006-07
A. FRUITS A P A P A P
Mango 256149 2049192 280669 2163416 285504 2341133
Banana 53465 1229695 65046 1626149 72444 2173320
Orange 109316 1421108 134157 1477917 168076 2218603
Sapota 13973 136935 15117 151170 18112 181120
Guava 10064 120763 10420 135465 9120 136800
Total Fruits 652042 7735445 782603 8696360 818068 10495989
B. VEGETABLES
Tomato 69502 1251036 84287 1601453 81069 1540311
Potato 3787 60592 4310 73270 4417 88340
Brinjal 24662 493240 29255 614355 28548 428220
Bendi 24094 301175 29533 383929 28269 424035
Chillies 224474 538738 122992 307480 208585 573609
Total Vegetables 258445 3861900 266904 4374090 251433 4210129
(Source: AP Horticulture Board)

There are 157 fruit and vegetable processing units in the state mainly in the small and
medium sector. Fruit processing activity is largely concentrated in Chittoor district. There
are 67 processing units with an aggregate installed capacity to produce about 2 lakh
tonnes of mango and other fruit pulps. Contract manufacturing for leading exporters and
food retail majors is most common. Own account production is low. 90% of the
production by these units is exported in the form of canned pulp or aseptic concentrate.
The remainder finds way to domestic markets in the form of RTS fruit juices and nectars,
jams and jellies and de-hydrated fruit bits.

Though the state’s fruit processing sector has attained a reasonable growth, it calls for
interventions to ensure a more planned and accelerated growth. Development of the
sector in the state assumes importance as it would:
- facilitate minimization of post-harvest losses (estimated to be around Rs.2500 crores
in the state);

- create sustainable employment especially in rural areas with relatively low per-capita
investment;

-
z
improve net returns to farmers and

- generate new demand on farm sector for the production of those varieties of fruits
and vegetables more suitable for processing.

Indian Food Processing Sector – Opportunities & Challenges

Opportunities
¾ India’s humungous market size ravenous appetite for food, with growing incomes
and changing life styles create incredible market opportunities for food producers,
machinery makers, and food technology and service providers.

¾ The Indian food sector estimated to be worth over $200 billion, expected to grow to
$310 billion by 2015. It also contributes to a major part of the retail basket. The
$6.1- billion Indian food retail chain is also growing a 9% and has invited FDI to the
tune of over $3 billion. India is emerging as major player in global food trade.

¾ Size of the semi-processed and ready to eat packaged food industry is over Rs.
4,000 crore (US$1 billion), growing at over 20%.

¾ Increased urbanization, improved standards of living and the convenience needs of

dual income families point to major market potential in the food processing and
marketing sectors. This is also evident from the presence of several global foods
giants and leading Indian MNCs in the country's food processing sector (--eg,)
Nestle India Ltd, Cadbury's India, Kellogg’s India, Hindustan Lever Ltd, ITC-Agro,
Godrej Foods and R Foods etc.,

¾ The segments with the largest growth potential have been identified as dairy,
wheat, fruits and vegetables, and poultry.

¾ Technological and human resources related to food industry are available aplenty
in the country. Recent initiatives taken to give a special focus to this industry in a
bid to provide logistics management and technology for increasing exports of fruits,
vegetables and processed foods as the next areas of growth for exports. The
proposed food parks would be equipped with facilities to sort and grade agriculture
produce for export.

¾ The surplus food production, as well as the increasing preference for Indian foods
in several regions of the world can be leveraged through exports.
¾ Post liberalization, (1991) the government has taken various steps to encourage
the sectoral growth like removal of price controls, dereservation from small scale
and reduction in import controls. The Government is also providing a fillip to
logistics and food retail, customs duty on refrigerated motor vehicles has been
reduced from 10% to zero and the excise duty/countervailing duty from 16% to 8%.

Challenges

The accomplishments of the green and white revolutions have, however, not been
matched by concurrent developments in supply chain management, and in new
technologies for better processing, preservation, and storage of food. Pockets of
shortages and near starvation, substantial wastages due to spoilage, quality
deficiencies, and inadequate returns to the farmer are still very much in evidence.

The challenges for the food preservation, distribution and processing sectors are diverse
and demanding, and need to be addressed on several fronts to derive maximum market
benefits. Presently, the organizations addressing the educational and R & D
requirements are too few, and there is a pressing need for supplementing their efforts.

Some of the major challenges are:

ƒ Disintegrated value chain

ƒ Inequitable price to farmers
ƒ Lack of sufficient warehousing and cold chain facilities
ƒ Inadequate dissemination of benefits of modern technology
ƒ Low price-elasticity for processed food products
ƒ Poor distribution network
ƒ Checkered backward-forward integration from farm to consumers
ƒ Development of sustainable and viable marketing channels
ƒ Development of linkages between industry, government and institutions
ƒ Low awareness on food laws
Conclusions

¾ Unprocessed foods are susceptible to spoilage by biochemical processes, microbial

attack and infestation.

¾ The right post-harvest practices such as good processing techniques, and proper
packaging, transportation and storage (of even processed foods) can play a
significant role in reducing spoilage and extending shelf life.
¾ The challenges in processing lie in retaining the nutritional value, flavour, aroma, and
texture of foods, and presenting them in near natural form with added convenience.
However, such qualities cannot be readily quantified and correlated with physic-
chemical parameters, sensory evaluations providing the only means of
benchmarking. Besides, processed foods need to be offered to the consumer in
hygienic and attractive packaging, and at low incremental costs.

¾ There is an urgent need to develop strong supply and value chain mechanisms to
reduce the production and supply costs and to mitigate the exploitation by some of
the actors across the chain and to boost the exports.

¾ There is an urgent need to identify and map the major horticulture/ agriculture
cultivated areas in the country, create a mechanism to strengthen the farmer-trader-
exporter-end user link like hub and spoke model with a Central Processing Centre as
hub and collection/ primary processing centres as spokes, provide post-harvest
facilities like grading, sorting, washing, cold storage, wear houses, creating value
added facilities like IQF, ascetic packaging etc.

¾ One of the major tools in addressing the above issues is establishment of food parks
in selected locations and equips them with all the facilities which can be used by all
the stakeholders like farmers, traders, entrepreneurs, exporters etc.