Agro-Economics

Formalization of micro food processing enterprises

Food processing is the transformation of agricultural products into food, or of one form of food into other forms.

Recently, Ministries of Food Processing Industries launched the PM Formalization of Micro Food Processing Enterprises (PM FME) scheme on 29^th June 2020 as a part of “Atma Nirbhar Bharat Abhiyan”.

Scheme would generate total investment of Rs 35,000 crore and generate 9 lakh skilled and semi-skilled employment and benefit 8 lakh units through:-

• Access to information,
• Training,
• Better exposure and formalization. 

Food products manufactured by the rural entrepreneurs in the villages have a long tradition of supplying Indian food products to the local population.

Challenges faced by food processing sector | UPSC – IAS

Challenges faced by food processing sector Unorganised food processing sector faces a number of challenges which limit their performance and their growth.

These challenges include:-

• Availability of raw materials: Agricultural produce is an important factor for sustaining food processing activities,
• High competition and Training,
• Lack of access to modern technology & equipment,
• Storage Constraints,
• Access institutional credit,
• lack of basic awareness on quality control of products; and
• Lack of branding & marketing skills etc.

Owing to these challenges, the unorganised food processing sector contributes much less in terms of value addition and output despite its huge potential.

• Unorganized food processing sector comprising nearly 25 lakh units contribute to 74% of employment in food processing sector.
• Nearly 66% of these units are located in rural areas and about 80% of them are family-based enterprises supporting livelihood rural household and minimizing their migration to urban areas. These units largely fall within the category of micro enterprises.

Objectives of the micro food processing enterprises  | UPSC – IAS

• Increase in access to finance by micro food processing units.
• Increase in revenues of target enterprises.
• Enhanced compliance with food quality and safety standards.
• Strengthening capacities of support systems.
• Transition from the unorganized sector to the formal sector.
• Special focus on women entrepreneurs and Aspirational districts.
• Focus on minor forest produce in Tribal Districts.

Details of the PM Formalization of micro food processing enterprises | UPSC – IAS

With a view to providing financial, technical and business support for upgradation of existing micro food processing enterprises, the Ministry of Food Processing Industries (MoFPI) has launched an all India “Centrally Sponsored PM Formalisation of Micro food processing Enterprises (PM FME) scheme” to be implemented over a period of five years from 2020-21 to 2024-25 with an outlay of Rs 10,000 crore.

The expenditure under the scheme would to be shared in 60:40 ratio between Central and State Governments, in 90:10 ratio with North Eastern and Himalayan States, 60:40 ratio with UTs with legislature and 100% by Centre for other UTs.

One District One Product (ODODP) | UPSC – IAS

• The Scheme adopts One District One Product (ODODP) approach to reap benefit of scale in terms of procurement of inputs, availing common services and marketing of products.
• The States would identify food product for a district keeping in view the existing clusters and availability of raw material.
• The ODOP product could be a perishable produce based product or cereal based products or a food product widely produced in a district and their allied sectors.
• Illustrative list of such products includes mango, potato, litchi, tomato, tapioca, kinnu, bhujia, petha, papad, pickle, millet based products, fisheries, poultry, meat as well as animal feed among others.
• Preference would be given to those producing ODOP products. However, units producing other products would also be supported. Support for common infrastructure and branding & marketing would be for ODOP products.
• The Scheme also place focus on waste to wealth products, minor forest products and Aspirational Districts.
• Existing Individual micro food processing units desirous of upgradation of their unit can avail credit-linked capital subsidy @35% of the eligible project cost with a maximum ceiling of Rs.10 lakh per unit. Seed capital @ Rs. 40,000/- per SHG member would be provided for working capital and purchase of small tools.
• FPOs/ SHGs/ producer cooperatives would be provided credit linked grant of 35% for capital investment along the value chain.
• Support would be provided through credit linked grant @ 35% for development of common infrastructure including common processing facility, lab, warehouse, cold storage, packaging and incubation center through FPOs/SHGs/cooperatives or state owned agencies or private enterprise to use by micro units in the cluster.
• Support for marketing & branding would be provided to develop brands for micro units and groups with 50% grant at State or regional level which could benefit large number of micro units in clusters.

The Scheme places special focus on capacity building and research. NIFTEM and IIFPT, two academic and research institutions under MOFPI along with State Level Technical Institutions selected by the States would be provided support for training of units, product development, appropriate packaging and machinery for micro units.

 

Extension of Operation Greens from TOP (Tomato-Onion-Potato) crops to all Perishable Fruits & Vegetables (TOP to Total)

• Operation Greens Scheme, being implemented by MoFPI has been extended from tomato, onion and potato (TOP) crops to other notified horticulture crops for providing subsidy for their transportation and storage from surplus production area to major consumption centres.
• The objective of intervention is to protect the growers of fruits and vegetables from making distress sale due to lockdown and reduce the post -harvest losses.

Eligible Crops:-

Fruits– Mango, Banana, Guava, Kiwi, Lichi, Papaya, Citrus, Pineapple, Pomegranate, Jackfruit; Vegetables: – French beans, Bitter Gourd, Brinjal, Capsicum, Carrot, Cauliflower, Chillies (Green), Okra, Onion, Potato and Tomato. Any other fruit/vegetable can be added in future on the basis of recommendation by Ministry of Agriculture or State Government

Eligible entities:-

Food Processors, FPO/FPC, Co-operative Societies, Individual farmers, Licensed Commission Agent, Exporters, State Marketing/Co-operative Federation, Retailers etc. engaged in processing/ marketing of fruits and vegetables.

Pattern of Assistance:-

Ministry will provide subsidy @ 50% of the cost of the following two components, subject to the cost norms:

• Transportation of eligible crops from surplus production cluster to consumption centre; and/or
• Hiring of appropriate storage facilities for eligible crops (for maximum period of 3 months);

Pradhan Mantri Fasal BIma Yojana (PMFBY) | UPSC – IAS

The Pradhan Mantri Fasal Bima Yojana was launched on 18 February 2016 by Prime Minister Narendra Modi is an insurance service for farmers for their yields.

More about  PMFBY| UPSC – IAS

• Out of Rs 1,400 crore earmarked annually for the north-eastern States under Pradhan Mantri Fasal Bima Yojana, only Rs 8 crore was actually spent in 2018. Arunachal Pradesh, Nagaland, Manipur and Mizoram are not covered under the scheme at all.
• States in the Northeast, as well as the Union Territory of Daman and Diu, face challenges such as the lack of interest by insurance companies and the lack of state budgetary resources to pay their share of the premium.
• Insurance companies have been reluctant to bid for these States, as the administrative costs are high. There are no proper land records. Historic yield data is not available for these States, particularly at the gram panchayat and block level.
• Insurance companies are also not interested because the coverage is so limited. There are low number of loanee farmers in the Northeast, except in Assam.
• Lack of forecasting infrastructure has also hampered the penetration of the weather-based insurance scheme in these states.
• Some large States like Bihar and West Bengal have withdrawn from PMFBY to set up their own State-level schemes and Punjab has never participated in the scheme.

Objectives of the PMFBY | UPSC – IAS

• To provide insurance coverage and financial support to the farmers in the event of natural calamities, pests & diseases.
• To stabilise the income of farmers to ensure their continuance in farming.
• To encourage farmers to adopt innovative and modern agricultural practices.
• To ensure flow of credit to the agriculture sector.

Features of PMFBY | UPSC – IAS

• It was launched in 2016 replacing the existing two schemes National Agricultural Insurance Scheme (NAIS) as well as Modified NAIS.
• A uniform premium of only 2% to be paid by farmers for all Kharif crops and 1.5% for all Rabi crops & oilseeds and 5% for horticultural crops.
• The balance premium was to be paid by state and central government in equal proportions.
• There is no upper limit on Government subsidy so farmers will get claim against full sum insured without any reduction.
• The PMFBY is compulsory for loanee farmers availing crop loans for notified crops in notified areas and voluntary for non-loanee farmers.
• The PMFBY operates on an area approach. Thus, all farmers in a particular area must pay the same premium and have the same claim payments.
• It encourages bidding amongst insurance companies before being allocated to a district to ensure fair competition.
• Yield Losses – Natural Fire and Lightning, Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado. Risks due to Flood, Inundation and Landslide, Drought, Dry spells, Pests/ Diseases. It also includes Post Harvest losses.
• It also includes mandatory use of technology such as smartphones, drones etc. while assessing losses.
• Public sector insurer (Agriculture Insurance Company of India, United India Insurance Company etc.) and private insurance companies are empanelled for implementation of the scheme.
• Recently, states have been allowed to set up their own insurance companies for implementing the scheme.
• Recently, Government has comprehensively revised the Operational Guidelines of the scheme.
  • The farmers will be paid 12% interest by insurance companies for the delay in settlement claims beyond two months of prescribed cut-off date.
  • State Governments will have to pay 12% interest for the delay in release of State share of subsidy beyond three months of prescribed cut-off date submission of requisition by insurance companies.
  • Inclusion of hailstorms in post-harvest losses, besides unseasonal and cyclonic rainfalls.
  • Separate Budget Allocation for Administrative expenses (at least 2% of budget of scheme).
  • Appointment of District Level Grievance Redressal Officer and creation of State and District Grievance Redressal Cells for fast redressal of grievances.

Food processing and related Industries in India | UPSC – IAS

Food processing is the transformation of agricultural products into food, or of one form of food into other forms. Food processing includes many forms of processing foods, from grinding grain to make raw flour to home cooking to complex industrial methods used to make convenience foods.

Food processing is a large sector that covers activities such as:-

• Agriculture,
• Horticulture,
• Plantation,
• Animal husbandry and
• Fisheries.

Food  processing also includes other industries that use agriculture inputs for manufacturing of edible products. Based on International Standard Industrial Classification, it has been assumed that the factories listed in the following groups can be summed up to constitute Food Processing industries.

Scope and Significance of the Food Processing Sector in India | UPSC – IAS

India is one of the world’s largest producers as well as consumer of food products, with the sector playing an important role in contributing to the development of the economy. It is the fifth largest industry in our country in terms of production, consumption, export and growth.

With a population of more than one billion individuals and food constituting a major part of the consumer’s budget, this sector has a prominence next to no other businesses in the country.

• Moreover the importance of this sector to India’s economy becomes all the more relevant, considering the fact that this sector continued to perform well, despite fall in GDP number and poor performance by many other industries, during recession in 2008-09.

The industry encompasses a gamut of activities involved in reaching the final product to the consumer, starting with farming activity to produce inputs, processing of the inputs to create products and the associated supply chain involved in delivering the products. It has increasingly come to be seen as a potential source for driving the rural economy as it brings about synergy between the consumer, industry and agriculture. A well developed food processing industry is expected to increase:-

• Farm gate prices,
• Reduce wastages,
• Ensure value addition,
• Promote crop diversification,
• Generate employment opportunities as well as export earnings.

This sector is also capable of addressing critical issues of food security and providing wholesome, nutritious food to our people.

• While the industry is large in terms of size, it is still at a nascent stage in terms of development. Out of the country’s total agriculture and food produce, only 2 per cent is processed.  However, the contribution of food processing sector to GDP has been growing faster than that of the agriculture sector.
• If the contribution to GDP of both agricultural sector and food processing sector were growing at the same rate, then it would mean that the growth in food processing sector is only due to increased agricultural raw material supply. However, more and more agricultural products are being converted (in value terms) to food products. This means that the level of processing in value terms has been increasing.
• Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60 percent of processed foods. It has a highly fragmented structure that includes thousands of rice-mills and hullers, flour mills, pulse mills and oilseed mills, several thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in unorganized sector.
• In comparison, the organized sector that includes flour mills, fish processing units, fruit and vegetable processing units, meat processing units and numerous dairy processing units at state and district levels is relatively much smaller.

India’s strengths in the Food Processing Sector | UPSC – IAS

Favourable-Factor Conditions

• India has access to several natural resources that provides it a competitive advantage in the food processing sector. Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products. The semi processed and ready to eat packaged food segment is still evolving.
• India’s comparatively cheaper workforce can be effectively utilized to set up large low cost production bases for domestic and export markets.
• Cost of production in India is lower by about 40 per cent over a comparable location in EU and 10-15 per cent over a location in UK. Along with these factor conditions, India has access to significant investments to facilitate food processing industry. There have been increasing investments not only by domestic firms and Indian government, but also foreign direct investment.

Related and Supporting Industries

• The Indian food processing industry has significant support from the well-developed R&D and technical capabilities of Indian firms. India has a large number of research institutions like Central Food Technological Research Institute, Central Institute of Fisheries Technology, National Dairy Research Institute, National Research and Development Centre etc. to support the technology and development in the food processing sector in India.

Government Regulations and Support

• The Government of India has taken several initiatives to develop the food processing industry in India. The government has been developing agri-zones and mega food parks to promote food processing industry in India. In order to promote investment in the food processing sector, several policy initiatives have been taken during recent years

In Short the Strengths of Food processing Industries in India are:-

• Round the year availability of raw materials.
• Social acceptability of food-processing as an important area and support from the central government.
• Vast network of manufacturing facilities all over the country.
• Vast domestic market.

Success Factors of Food Processing Industries in India | UPSC – IAS

The Indian food processing industry growth potential cannot be disputed; however, it requires certain competencies and success factors to fructify this potential. These include addressing the current gaps in the value chain as well as leveraging on the various advantages the country provides. Investors in the sector need to be aware of these factors and build the required capabilities in their business to ensure success. Some of the key success factors are discussed below.

Integrated Supply Chain and Scale of Operations

• While India ranks second in production of fruits & vegetables, nearly 20 to 25 percent of this production is lost in spoilage in various stages of harvesting. The key issues are poor quality of seeds, planting material and lack of technology in improving yield.
• Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest.
• Good quality production also results in better quality of processed fruits. Hence there is a need to establish backward linkages with the farmers with the help of arrangements such as contract farming to improve the quality of the produce.
• Small or large Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable to exploit the advantages of economies of scale. This is also true with land holdings.

Processing Technology

• Most of the processing in India is currently manual. There is limited use of technology like pre-cooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for further processing.
• In the case of meat processing, despite the presence of over 3600 licensed slaughterhouses in India, the level of technology used in most of them is limited, resulting in low exploitation of animal population.
• Bringing in modern technology is an area that existing as well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product.

Increasing Penetration in Domestic Markets

Most of the processing units are export oriented and hence their penetration levels in the domestic market are low. For example:-

• Penetration of processed fruits and vegetables overall is at 10 percent
• The relative share of branded milk products ,especially ghee is still low at 2 per cent
• Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros
• Consumption of packaged biscuits for indian consumers is still low at 0.48 percent while that for Americans is 4 percent

However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes. Acceptance in the domestic market and hence higher penetration is driven by the following factors:-

Competitive Pricing

• Consumers of processed foods are extremely price sensitive even a small change in pricing can have significant impact on consumption. For instance, the launch of PET bottles, new price points and package sizes in non carbonated drinks (such as by Coca Cola) increased in-home consumption from 30 per cent in 2002 to 80 per cent in 2003. Competitive pricing: also enables penetration in the rural markets.

Brand Competitiveness

• Share of branded products in purchases of Indian consumers has also increased substantially. This is especially true for urban consumers. Branded products like Basmati rice and KFC’s chicken have been very successful implying that there is a good demand for hygienic branded products at reasonable prices.

Product Innovation

• Certain processed food categories such as snack foods are impulse purchase products where consumers look for novelty and new flavours and hence these categories lack brand loyalties. Visibility through attractive packaging boosts consumption.
• Increasing time constraints amongst the working middle class has boosted consumption of products like instant soups, noodles and ready-to-make products.
• Innovation in packaging and product usage is an important success factor for processed foods..

Challenges for the Food Processing Sector in India | UPSC – IAS

(Problems and prospects of Food Processing Industry in India | UPSC – IAS)

The challenges for the food processing sector are diverse and demanding, and need to be addressed on several fronts to derive maximum market benefits. A combination of uncontrollable and controllable factors has affected the growth of the sector and has acted as a hindrance in achieving its potential.

• The uncontrollable factors include fragmentation of land holdings which has resulted in lack of scale and has made investments in automation unviable; regional climatic variations which impact the production; and the constraints in land availability due to competing pressure from urbanization, constructions and industrialization. These factors are difficult to address and hence have to be discounted for while accounting for the inadequate growth of the sector. It is the controllable factors which can be addressed by companies and the Government, which impact the production levels and hence need proper actions.
• Even today India is grappling with issues of quality and quantity of raw produce, low labor productivity with slow adoption of technology. On the Infrastructure front, we have supply chain and wastage related problems and low levels of value addition etc.
• The other issues of concern, holding this sector back are impaired access to credit; inconsistency in state and central policies, which requires both the Center and the State to work as one single cohesive unit.

There are a large number of players in the organized as well as unorganized sector. The organized sector is small but growing – for example, it forms less than 15 percent of the dairy sector and around 48 per cent of the fruits and vegetable processing. The sector offers potential for growth and a large number of Multinational Corporations have entered into India to leverage this opportunity.

Despite the above-mentioned strengths, the following areas have been identified by the Ministry of Food Processing Industries where investments are required:

• Mega food parks
• Agro-infrastructure and supply chain integration
• Logistics and cold chain infrastructure
• Fruit and vegetable products
• Animal products, meat and dairy
• Fisheries and seafood
• Cereals, consumer foods and ready-to-eat foods
• Wine and beer
• Machinery and packaging

What are the Weaknesses of Food processing and related Industries in India ?

• High requirement of working capital.
• Low availability of new, reliable and better accuracy instruments and equipments
• Inadequate automation w.r.t. information management.
• Remuneration is less attractive for talent in comparison to contemporary disciplines.
• Inadequately developed linkages between R&D I.abs and industry.

What are the Opportunities Food processing and related Industries in India ?

• Large crop and material base in the country due to agro-ecological variability offers vast potential for food processing activities.
• Integration of developments in contemporary technologies such as electronics, material science, computer, bio-technology etc. offer vast scope for rapid improvement and progress.
• Opening of global markets may lead to export of our developed technologies and facilitate generation of additional income and employment opportunities.

What are the Threats Food processing and related Industries in India ?

• Competition from global players
• Loss of trained manpower to other industries and other professions due to better working conditions prevailing there may lead to further shortage of manpower.
• Rapid developments in contemporary and requirements of the industry may lead to fast obsolescence.