The Future of Food Processing in India: Growth, Opportunities and Challenges

The food processing industry in India is rapidly emerging as a vital cog in the nation's economy. The industry has been significantly contributing to the country’s gross domestic product (GDP), employment and exports, growing at an AAGR (annual average growth rate) of about 7.26% per annum for the past seven years. Food processing increases the value of agricultural products and reduces wastage, while also creating job opportunities and enhancing food security. MoFPI (Ministry of Food Processing Industries), for its part, hasn't been behind the curve, incentivizing this growth through initiatives such as the Pradhan Mantri Kisan Sampada Yojana and the Production Linked Incentive (PLI) Scheme. It targets infrastructure building in modern terms, efficiently organizes supply chains, and makes Indian food brands competitive at the world level. Food processing is the mainstay of driving agricultural and economic development in India. It is also strategically placed to boost innovation that would work towards raising the livelihoods of millions in the country.

Current growth trends in India’s food processing industry

• Overview of recent growth in the food processing sector

The food processing industry in India has witnessed rapid growth in the recent past, with the sector emerging as one of the most promising industries driving the economic growth of the country. The food processing industry in India reached a value of US$ 336.4 billion in 2023 and is expected to reach US$ 735.5 billion, at a CAGR of 8.8% during 2023-2032, according to IMARC (International Market Analysis Research and Consulting Group).

Source - IMARC, Note - F-Forecasted

• Contribution to India's GDP

Food processing has immense potential to contribute significantly to the GDP of India. Food processing has been recognized as one of the priority industries in the "Make in India" policy initiative for the promotion of domestic manufacturing and attracting investments. The industry, besides being relevant for ensuring economic growth, provides opportunities for gainful employment, thus supporting the livelihood of millions of people across the country. Recent statistics reveal that the sector has achieved an AAGR of around 7.26% in the past seven years, thus transforming it into a vital segment of the country's economy.

Source - Grant and Thornton

Note - 2022-23E - Estimated

• Growing domestic demand and export potential

Backed by changes in consumer lifestyle and preference, the demand for processed food has increased in the Indian market. These factors coupled with an increasing urban population and busy work schedules promote the consumption of RTE (ready-to-eat) meals and packaged foods. The Government of India's efforts to unclog regulatory bottlenecks toward ensuring ease of doing business have also encouraged an increasing number of new players into the market. This also gives the country a great opportunity to export food items. However, food processing products currently constitute only 16% of India's Agri-exports-the comparative figures for the US and China are 25% and 49%, respectively. This gap offers a tremendous chance for development, notably in processed fruits and vegetables, seafood, and dairy sectors. With the right investments in technology and infrastructure, India can certainly fulfil the global appetite for high-end and value-added food products, positioning itself for a larger role in the world’s food processing market.

Key opportunities in the food processing sector

The food processing sector in India is currently experiencing significant transformation, influenced by evolving consumer preferences and advancements in technology. These trends not only highlight the sector's potential for growth but also its critical role in India's broader economic framework.

• Rising urbanisation and changing consumption patterns
  Approximately 35% of India's population resides in urban areas. This number is projected to rise to 50% by 2047 (according to the United Nations). This urbanisation in turn is driving a notable shift in consumption habits, with demand for ready-to-eat and packaged foods expected to reach Rs. 12 lakh crore (approximately US$ 150 billion) by 2025 (according to ResearchAndMarkets). Urban dwellers prioritise products that offer time-saving solutions while still meeting their nutritional requirements, driving innovation and diversification within the food processing industry.
• Focus on health and organic products
  The growing emphasis on health and wellness among consumers has led to an increased demand for organic and plant-based foods. The organic food market in India is projected to reach Rs. 75,000 crore (US$ 9 billion) by 2025, growing at a CAGR of 20% (according to the Indian Organic Market Report 2022). A survey indicated that 60% of Indian consumers are willing to pay a premium for organic products. This shift has prompted food processors to expand their offerings to include a wider range of organic fruits, vegetables and plant-based alternatives.
• Integration of Technology
  Technological advancements are revolutionising the food processing landscape. The market for food processing technology is projected to grow to Rs. 2.5 lakh crore (US$ 30 billion) by 2024 (according to the Indian Food Processing Industry report). Automation and Artificial Intelligence (AI) are increasingly being integrated into processing plants, with over 60% of food manufacturers in India expected to adopt these technologies by 2025 (according to McKinsey & Company). This integration of technology not only boosts productivity but also favourably positions India's food processing firms in the competitive global market.
• Export potential and demand for Indian ethnic food
  India's food exports are expected to reach US$ 61 billion by 2024, with ethnic foods, including spices and snacks, accounting for a significant portion of this growth (according to the Ministry of Commerce and Industry, Government of India). The global demand for Indian cuisine has been increasing, with exports of processed food products growing at a CAGR of 15% over the past five years. The government’s initiatives aim to boost food processing exports by US$ 10 billion by 2025 (according to the Department of Food Processing Industries).
• MSMEs and startups in rural areas
  The food processing sector presents significant opportunities for micro, small, and medium enterprises (MSMEs) and startups, especially in rural regions. As of 2023, there were approximately 63 million MSMEs in India, contributing to 30% of the country's GDP (according to the Ministry of Micro, Small and Medium Enterprises). Government schemes, such as the PM Formalisation of Micro Food Processing Enterprises Scheme, have supported over 200,000 MSMEs (according to the Ministry of Food Processing Industries). By improving market access for farmers and fostering local entrepreneurship, these businesses can empower communities and stimulate economic development.

Government initiatives supporting the industry

The Indian government has implemented several key initiatives to bolster the food processing sector. Here are some of the major policies and programs:

• PLI Scheme 
  The PLI Scheme was announced with an outlay of Rs. 10,900 crore (US$ 1.31 billion) to give a fillip to the food processing sector. The program is aimed at generating employment opportunities for 250,000 individuals by 2026-27, enhancing exports, and raising food processing capacity resulting in processed food output of Rs. 33,494 crore (US$ 4.02 billion), the Ministry of Food Processing Industries said. The scheme supports food manufacturing entities with minimum sales and investment requirements, incentivising the emergence of strong Indian brands in response to rising global demand for ready-to-eat and organic products.
• Mega food parks
  The Mega Food Park Scheme would create integrated infrastructure for storing and processing requirements of the food processing industry. The government supports projects, with funding up to Rs. 50 crore (US$ 4.80 million) per project, as declared by the Ministry of Food Processing Industries. Such parks adopt the cluster approach, whereby support services in the form of cold storage and food testing labs help create employment opportunities and reduce wastage at the supply stage.
• PM Formalisation of Micro Food Processing Enterprises
  The PM Formalisation of Micro Food Processing Enterprises scheme helps the small micro-units engaged in the food processing industry by providing a subsidy of 35% on project costs, up to a maximum of Rs. 10 lakh (US$ 11,980) per the Ministry of Food Processing Industries. This scheme recognises that grassroots businesses play a crucial role not only in linking up with farmers but also in helping improve local food production.
• Foreign Direct Investment (FDI) opportunities
  The government of India has liberalized the FDI norms to allow as high as 100% FDI in food products e-commerce through an automatic route issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. It is perceived as an intentional and positive act in allowing foreign investments to take place in the sector and to ensure ease of doing business for new startups in the food processing industry. The food processing industry of India is growing phenomenally, having roped in more than Rs. 70 billion (US$ 839 million) in investments under the PLI Scheme.

Food processing industry challenges

• Infrastructure bottlenecks
  The lack of adequate infrastructure is one of the most pressing challenges for India's food processing sector. For instance, there is a significant issue with cold chain and storage facilities, with more than 30% of agricultural produce lost due to inadequate cold chain infrastructure. The NITI Aayog has estimated annual post-harvest losses to be around Rs. 90,000 crore (US$ 10.79 billion). Additionally, poor connectivity and the absence of all-weather roads lead to erratic supply chains, making it difficult to transport perishable goods efficiently. This situation increases costs and reduces the overall quality of food products.
• Limited access to technology for small and medium-sized enterprises (SMEs)
  SMEs often lack access to the latest technology and modern processing equipment. This limitation negatively impacts their ability to compete effectively with larger firms that can invest in advanced machinery and processes. The high costs associated with upgrading facilities further exacerbate this issue, restricting innovation and efficiency in production.
• Regulatory and quality compliance issues for exports
  The food processing industry faces numerous regulatory hurdles that complicate compliance with quality standards, especially for exports. The diversity of regulations under different ministries creates confusion and inconsistencies in food safety specifications and guidelines. Ensuring adherence to international quality standards is challenging, which can limit the ability to export processed food products effectively.
• Need for skilled labor and better R&D for innovation
  The industry suffers from a shortage of skilled labor and a lack of Research and Development (R&D) initiatives. There is a pressing need for training programs to equip the workforce with necessary skills in food processing and technology. The National Skill Development Corporation (NSDC) estimates a requirement to skill 17.8 million individuals in the food processing sector by 2022. Increased focus on R&D is essential for fostering innovation and developing new products that meet changing consumer preferences. The current level of investment in R&D is insufficient to drive significant advancements in the sector.

Conclusion - A bright future for India’s food processing industry

The food processing industry in India is at the threshold of a major transformation due to a host of reasons: growing urbanization, changing consumer preferences, and above all, a government framework that is supportive of business pursuits. As the domestic processing capacity has reached 20 million metric tonnes since 2014, there are ample opportunities open for innovation as well as investment. The introduction of the PLI Scheme is proving to be a turning point in modernizing the agro-industry ecosystem by incentivizing the manufacturing of ready-to-eat products, processed fruits, and vegetables; and dairy products, among others, thereby creating infrastructure, attracting technology, enhancing exports, and positioning India as a competitive player in the food market globally.