Food processing to reduce wastage of agricultural produce and diversify food product offerings for end-consumers
Food processing to reduce wastage of agricultural produce and diversify food product offerings for end-consumers
Business Model Description
Food processing units under large brands or newer processing units focused on crops that are easily grown in India, like pulses, millets, etc. Such units can help offer a variety of food products for end-consumers, and also ensure better utilisation of farm produce while reducing food wastage.
Expected Impact
Reduction in food wastage at farm level, positively impacting food security and improving farmer incomes by diversifying sources of income from agri-produce.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- India: Countrywide
Sector Classification
Food and Beverage
Development need
As per the SDG India Index report by Niti Aayog (4.2), India’s progress on SDG 2 (Zero Hunger) is lagging with a cumulative score of 35 on 100, since the score of 20 states and 3 UTs is under 50 points. This is due to low gross value added (GVA) in agriculture per worker of ~68000, in comparison to the targeted GVA in agriculture per worker of 136,000 in accordance with UN SDG target 2.3. (4.2)
The government aims to double farmers’ incomes by 2022 (4.3). In order to achieve this target, farmers’ income, which increased at an annual growth rate of 3.31% during 1993-1994 to 2015-16, is required to grow at 10.4% in order for it to double between 2015-16 and 2022-23. (4.4)
In 2019, India ranked 72nd in 113 countries [in comparison to 76th in 2018 (4.5)], as assessed by The Global Food Security Index (GFSI) based on four parameters—affordability, availability and quality and safety (4.6). As per the Global Hunger Index, 2018, India was ranked 103rd out of 119 qualifying countries. (4.7)
Policy priority
The Public Distribution System has been revamped under the National Food Security Act (NFSA), 2013. Key features include:
- This system implements a paradigm shift in the approach towards the issue of food security at the household level, from welfare to a rights-based approach.
- This Act covers about two-thirds of the population with 75% of rural and 50% of urban population to receive subsidised food grains – rice, wheat, and coarse grains at affordable prices per kg.
- The Act has been implemented in all States/ UTs and has reached around 807 million people.
- Under the “Antyodaya Anna Yojana” (AAY), the poorest from amongst the Below Poverty Line families are entitled to 35 kg of food grains per month at more subsidised rates. (4.2)
The National Mission for Sustainable Agriculture, in tandem with other missions under the National Action Plan on Climate Change, addresses the climate change risks and aims to increase agriculture productivity especially in rainfed areas focusing on integrated farming, soil health management, and synergising resource conservation.
GOI has proposed the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 with the objective to transform Indian agriculture by offering farmers freedom to sell anywhere and to attract private investment in Indian agriculture. (4.10)
Gender inequalities and marginalization issues
While agriculture employs about half of India's workforce (58% of India’s population), it contributes less than 20% to GDP. There is, thus, a pressing need to increase agricultural productivity, and create alternative channels of employment so that many of those currently employed in agriculture can obtain better opportunities of work. (4.2)
As of 2018, 81.1 percent of the dairy and milk processing market was part of the unorganized sector and 71 percent of total participants in the sector are women. (15.1)
Investment opportunities introduction
The market size of agriculture and allied services in India stood at ~USD 283.68 billion in 2018 (4.1).
Food and Agriculture
Development need
The growing consumption of food in India is expected to reach USD 1.2 trillion by 2026. (13.11) By 2030, Indian annual household consumption is expected to treble, making India the 5th largest consumer. (14.1)
Food processing has an important role to play in linking Indian farmers to consumers in the domestic and international markets.
Policy priority
Under Pradhan Mantri Kisan Sampada Yojana, financing of mega food parks, infrastructure of agro-processing clusters, and integrated cold chain and value addition infrastructure are undertaken, in addition to other components. (4.2)
Gender inequalities and marginalization issues
By 2024, the Food Processing industry will potentially attract USD 33 billion investments and generate employment for 9 million people. By 2025, India’s food processing sector is expected to be worth over half a trillion dollars. (14.1) The industry engages approximately 1.85 million people in around 39,748 registered units, with fixed capital of USD 32.75 billion and aggregate output of around USD 158.69 billion. (14.1)
Investment opportunities introduction
According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about USD 9.98 billion between April 2000 and March 2020. (12.11) (and ~USD 4.18 billion in foreign direct investment between April 2014-March 2020). (13.11)
Key bottlenecks introduction
Seasonal supply of farm produce to processing units and high cost of raw materials constitute one of the most important constraints affecting the growth of small-scale food processing businesses, which subsequently results in shortage and higher pricing of raw materials.
Processed Foods
Pipeline Opportunity
Food processing to reduce wastage of agricultural produce and diversify food product offerings for end-consumers
Food processing units under large brands or newer processing units focused on crops that are easily grown in India, like pulses, millets, etc. Such units can help offer a variety of food products for end-consumers, and also ensure better utilisation of farm produce while reducing food wastage.
Business Case
Market Size and Environment
> USD 1 billion
India’s food processing sector's output is expected to reach USD 535 billion by 2026 (13.11) (from USD 322 billion in 2016) (14.6) Rising household incomes, urbanization and the growth of organized retail are currently some of the major drivers of this market. (13.11)
With large capacities, India has a highly decentralized fruit and vegetables processing industry. Currently, the industry’s retail sales see a 12% value growth and a 7% volume growth as compared to 2018 numbers. The industry was valued at USD 204 million and exhibited a production of 62,900 tonnes in 2019. (13.11)
Indicative Return
> 25%
As per investors: - VC investors focus on building brands, and expect high gross margins of ~60% in order to absorb the marketing cost which branding would entail - Food and food processing units operate at EBITDA margins of 8-10%
Business models engaged in niche market foods, snack foods, ready-to-make foods and packaged foods, entail high volumes and low margins. Penetration levels are yet quite low in this segment, with product acceptance largely restricted to the urban population. (14.5)
Food processing companies which raised funding in the last 5 years reported average EBITDA margins of 8.3%.
Investment Timeframe
Long Term (10+ years)
Food processing units typically operate with large volumes and low margins. This is because product development, market testing and subsequent capture, require a long gestation period.
A majority of companies reporting profits are more than 15-20 years old. However, Megastar Foods Limited was started in 2011 and has been able to report a profit of ~6% in FY2019.
Ticket Size
PE and VC deal values in the food and beverage sector stood at USD 881 million, through 83 deals in 2019. (12.22)
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Business - Supply Chain Constraints
Lack of product quality standardization
Impact Case
Sustainable Development Need
The growing consumption of food in India is expected to reach USD 1.2 trillion by 2026. (13.11) By 2030, Indian annual household consumption is expected to treble, making India the 5th largest consumer. (14.1)
Food processing has an important role to play in linking Indian farmers to consumers in the domestic and international markets.
According to the latest Annual Survey of Industries (2016-17), food processing accounted for: (13.11) - 15.95% of the total number of factories - Employment of 11.36% of the workforce - 14.09% of the output - 16.78% of the operational factories
The food processing sector constitutes 8.83% and 10.66% of gross value added in the manufacturing and agriculture sector respectively. (13.11)
In spite of a large production base, the level of processing is low (less than 10% of total farm produce is processed). Approximately with only ~2 percent of fruits and vegetables, 6 percent poultry, 21 percent meat, 23 percent marine, and 35 percent milk produce being processed. Lack of adequate processable varieties continues to pose a significant challenge to this sector. (14.2)
Most processing in India can be classified as primary processing (conversion of raw materials into food commodities; for example, milling wheat into flour), which has lower value-addition compared to secondary processing (conversions of primary product to another product; for example, turning wheat flour into bread). There is a need to move up the value chain in processed food products to boost farmer incomes. For instance, horticulture products, such as fruits and vegetables, carry the potential for higher value-addition when compared to cereal crops.
Covid-19 - The nationwide lockdown started at a time which is the procurement season for the food processing industry. Several MSMEs have been struggling to procure raw material due to a liquidity crunch, which ultimately also affects their manufacturing capacity. (14.3)
Gender & Marginalisation
While agriculture employs about half of India's workforce (58% of India’s population), it contributes less than 20% to GDP. There is, thus, a pressing need to increase agricultural productivity, and create alternative channels of employment so that many of those currently employed in agriculture can obtain better opportunities of work. (4.2) As of 2018, 81.1 percent of the dairy and milk processing market was part of the unorganized sector and 71 percent of total participants in the sector are women. (15.1)
Expected Development Outcome
Reduce wastage, increase value addition and ensure better prices for farmers, while ensuring availability of affordable and quality produce for consumers. Address the challenges of malnourishment and malnutrition by ensuring availability of nutritionally balanced foods.
Make food processing more competitive and future ready through the creation of adequate infrastructure facilities along the supply chain, use of modern technology and innovation, promoting traceability, food safety, and encouraging optimum capacity utilization of assets and resources.
Generate more opportunities for the development of the agribusiness and Food Processing Industry, and create employment.
Gender & Marginalisation
Primary SDGs addressed
2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size
2.3.2 Average income of small-scale food producers, by sex and indigenous status
12.3.1 (a) Food loss index and (b) food waste index
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Outcome Risks
Extensive use of fertilizers, pesticides and other chemicals can impact the quality of food which we consume. Further, protection is needed from unfair and hazardous practices such as adulteration.
Impact Classification
What
Creation of large scale processed food manufacturing and food chain facilities, will uplift the agricultural economy by creating employment and potential export earnings.
Risk
Extensive use of fertilizers, pesticides and other chemicals can impact the quality of food which we consume. Further, protection is needed from unfair and hazardous practices such adulteration.
Impact Thesis
Reduction in food wastage at farm level, positively impacting food security and improving farmer incomes by diversifying sources of income from agri-produce.
Enabling Environment
Policy Environment
GoI launched Pradhan Mantri Kisan Sampada Yojana (PMKSY), a USD 936.38 billion project, which offers financing facilities for mega food parks, infrastructure for agro-processing clusters, integrated cold chain and value addition infrastructure (14.7). Under this scheme, GoI plans to triple the capacity of food processing sector in India from the current level of 10 percent of agriculture produce. (14.7) It includes the following initiatives: - Scheme for Mega Food Parks - Mega Food Parks are based on a ‘cluster’ approach and focus on the creation of state-of-the-art support infrastructure in a well-defined agri/horticultural zone, for setting up of modern food processing units in the industrial plots provided in the park, along with well-established supply chains. (13.11) - Scheme for creation/ expansion of Food Processing and Preservation Capacities - Creation of processing and preservation capacities and modernization/ expansion of existing food processing units, with a view to increasing the level of processing and value addition, and leading to reduction of wastage. (13.11)
Financial Environment
Other incentives: Government plans to triple the capacity of the food processing sector in India from the current 10% of agriculture produce and has also committed USD 936.38 billion as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA). (12.11) Pradhan Mantri Kisan Sampada Yojna (PMKSY) offers the following financial support: (13.11) - Scheme for Mega Food Parks - Grant-in-aid – at 50% of eligible project cost in general areas and at 75% of eligible project cost in North-East region and difficult areas (subject to maximum of USD 6.62 million per project). - Scheme for creation/ expansion of Food Processing and Preservation Capacities - Grant-in-aid – at 35% of cost of plant and machinery and technical civil works in general areas and at 50% of cost of plant and machinery and technical civil works in North Eastern states and difficult areas (North East including Sikkim and Jammu & Kashmir, Himachal Pradesh and Uttarakhand). > As per Union Budget 2020-21, USD 176.42 million has been allocated to the Ministry of Food Processing. (12.11) > New initiatives like a planned infrastructure spend of around USD 1 trillion and USD 331 billion to boost the rural economy have put the food processing sector on a high growth trajectory. (13.11) > More recently, boosting Prime Minister Modi’s Atmanirbhar Bharat vision, the scheme of Formalization of Micro Food Processing Enterprises (FME) is being rolled out with an outlay of USD 1 billion. (13.11) > Covid-19 schemes and impact: (13.11) - USD 1.32 billion scheme for formalization of Micro Food Enterprises (FME) - Possible impact of agriculture reforms amendments to the Essential Commodities Act.
Regulatory Environment
The Ministry of Agriculture and Farmers' Welfare (formerly Ministry of Agriculture), a branch of the Government of India, is the apex body for the formulation and administration of the rules and regulations and laws related to agriculture in India. The three broad areas of scope for the Ministry are agriculture, food processing and co-operation.
The Ministry of Food Processing Industries is a ministry of the Government of India responsible for the formulation and administration of the rules and regulations and laws relating to food processing in India.
The Agricultural and Processed Food Products Export Development Authority (APEDA) was established by the Government of India under the Agricultural and Processed Food Products Export Development Authority Act passed by the Parliament in December 1985, this department comes under the Ministry of Commerce and Industry, Government of India. APEDA is mandated with the responsibility of export promotion and development of the scheduled products viz. fruits, vegetables and their products; meat and meat products; poultry and poultry products; dairy products; confectionery, biscuits and bakery products etc.
Marketplace Participants
Private Sector
Investors: Gujarat Venture Finance Ltd., Aavishkaar Venture Management, Omnivore, CX Partners; Gateway Partners Limited, Sixth Sense Ventures; Convergent Finance LLP, Vanity Case India Private Limited.
Private Sector
Corporations: All that Dips, Kottaram Agro Foods Pvt Ltd., Ycook, Oceanic Foods Limited, Mrs. Bectors Food Specialities Limited, Megastar Foods Limited, LT Foods Limited, Kovilpatti Lakshmi Roller Flour Mills Limited, Hindustan Foods Limited, Cape Flour Mills Private Limited.
Non-Profit
National Institute of Food Technology and Indian Institute of Food Processing Technology (IIFPT) (13.11)
Target Locations
India: Countrywide
References
- (4.1 https://www.ibef.org/industry/agriculture-india/infographic 4.2 https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf 4.3 https://asia.nikkei.com/Business/Startups/Indian-agritech-startup-targets-10m-users-in-nationwide-expansion#:~:text=Sheth%20said%20AgroStar%27s%20goal%20is,become%20more%20profitable%20and%20prosperous. 4.4 https://www.drishtiias.com/summary-of-important-reports/strategy-for-new-india-at-75 4.5 https://www.thehindubusinessline.com/economy/agri-business/agri-tech-platform-ninjacart-expands-operations-to-delhi-mumbai-pune-strengthens-headcount-by-600/article26600072.ece 4.6 https://foodsecurityindex.eiu.com/Country/Details#India 4.7 https://www.drishtiias.com/to-the-points/paper3/food-security-1 4.8 https://www.ibef.org/economy/union-budget-2020-21 4.9 https://www.hindustantimes.com/india-news/govt-to-announce-changes-in-essential-commodities-act-dismantling-of-apmc-sources/story-TOBYYq5XvLW2fNMz0mUIYL.html#:~:text=Amendments%20in%20the%20essential%20commodities,meeting%20on%20Monday%2C%20sources%20said. 4.10 https://indianexpress.com/article/explained/an-expert-explains-farm-acts-and-federalism-6622769/ 4.11 https://www.wbcsd.org/Overview/News-Insights/WBCSD-insights/Impact-of-COVID-19-on-smallholder-farmers-in-India#:~:text=Prices%20of%20sugar%20rose%20in,places%20due%20to%20over%2Dsupply.&text=However%2C%20the%20COVID%2D19%20induced,marginal%20farmers%20in%20the%20country.
- (14.1 https://www.investindia.gov.in/sector/food-processing#:~:text=Major%20industries%20constituting%20the%20Food,%2C%20Fisheries%2C%20Food%20retail%20etc. 14.2 http://face-cii.in/sites/default/files/food_processing_report_2019.pdf 14.3 https://indifoodbev.com/agriculture/covid-19-crisis-challenges-and-solutions-for-food-beverage-industry/ 14.4 http://agricoop.gov.in/sites/default/files/Monthly%20Report%20on%20Tomato%20for%20January%202018.pdf 14.5 https://www.ibef.org/download/Food_Processing_270608.pdf 14.6 https://www.investindia.gov.in/sector/food-processing#:~:text=The%20Processed%20food%20market%20is,the%20domestic%20and%20international%20markets. 14.7 https://www.ibef.org/industry/agriculture-india.aspx