Demand for processed foods in India
The processed food segment of the food sector in India consists of a variety of items like:
- Dairy products (butter, cheese, paneer/ cottage cheese, cream, milk, etc.)
- Fruits and vegetables (jams, pulps, concentrate, etc.)
- Grains (whole wheat, oat, bran, etc.)
- Meat and Poultry
- Sea food
- Packaged/ convenience food
- Packaged drinking water/ beverages
Rapid globalization and development of economy has taken a toll on the lives of consumers, particularly those residing in urban areas. Employment growth and increased work pressure in organisations leaves consumers with little time for personal care. Additionally, more product offerings by food companies and marketing on a large scale has altered people’s appetite- they demand more and more processed food items everyday. These are some of the reasons for the steady growth of food processing industry in India in the past few years. Some of the biggest companies making their presence felt in the Indian market are Unilever, Dabur, Nestle, Nissin, Cadbury’s, Kelloggs’, Godrej, and MTR Foods.
The market size of processed food industry is estimated to reach USD 330 billion by 2015, growing at a CAGR of 25%. About 500 million consumers consume processed food every day (as of December 2010).
India accounts for only about 1.5% of the total international food trade, despite its rich heritage in agriculture and agricultural products. This signals tremendous potential for exporters and investors. The share is expected to grow to 3% by 2015 (CCI, 2010).
FICCI estimates that India is either the largest or the second largest producer of key food items such as wheat, pulses, milk, tea, spices, basmati rice, fruits, sugarcane, coarse grains and edible oilseeds in the world. This signifies that there is a huge gap between production and processing which needs to be tapped.
According to FAIDA/ Ministry of Food Processing Industries, about 33% of the industry is occupied by Small Scale Industries while only 25% is organized. Major share i.e. 42% is occupied by unorganized sector.
India has extremely low levels of food processing as compared to other countries. Only about 2.2% of the total fruits and vegetables are processed, as compared to 70% in Brazil, a competing global power.
Although the demand for processed food is huge, the demand-supply gap is one of the major reasons for unimpressive statistics. Government estimates that an investment of Rs. 1,000 billion is needed to develop the food processing industry across all segments like supply chain, storage and cold storage, etc.
Reasons for growth in demand of processed food in India
- Increasing Urbanisation: Growth in urban population and increase in employment are egging the consumer to live a fast-paced life. They hardly have time for personal health and hygiene. Processed foods like ready-to-eat and snacks have become a rage; particularly in cities and towns.
- Increasing number of working women: 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. They substitute healthy and wholesome/ fresh meals with processed foods in order to squeeze in their chores during the day.
- Increased disposable income: Growth in economy directly results in the growth of income. This means consumers have more income at their disposal. Today, Indian consumers opt for purchases like cars, clothing, travel and most particularly, food.
- Increase in Organized retail: Increase in private label penetration like Reliance processed food, Vishal food label, Spencer Retail, etc. are offering more easy options to consumers. They are tempted to try new food items everyday due to easy availability and access to such food.
The road ahead
A number of government initiatives have been launched to develop this sector, such as luring entrepreneurs for investment in supply chain and value chain aspects through attractive tax schemes. The Ministry is offering attractive schemes for set up of machinery and product processes. The industry will continue to grow at an attractive rate for the next 25 years.
- CCI (2010). Food processing in India. [online]. Available at http://www.cci.in/pdf/surveys_reports/food-processing-india.pdf Last accessed on 10th March 2012.