Global Standing of the Indian Food Processing Sector

Sugar

United Arab Emirates

Published Nov 10, 2023

The Indian food processing sector is a significant contributor to the country's economy, with India being the world's leading producer of spices, milk, and pulses, as well as the world's second-largest producer of tea, sugarcane, food grains, fruits, and vegetables. The sector has grown significantly over the years, with the industry expected to reach USD 535 billion by 2025/26 at a CAGR of 15.2%. However, the industry faces several obstacles, such as better organization, formalization of micro-food processing businesses, and more efficient supply chain management. To address these difficulties and improve domestic production and exports, the government has launched initiatives such as the PMKSY and the PMFME.

India is the world's leading producer of spices, milk, and pulses, as well as the world's second-largest producer of tea, sugarcane, food grains, fruits, and vegetables. Compared to the same period last year, processed and agro-based food product exports increased by 14.76% year-on-year (YoY) to USD 33.88 in 2022. The main markets for these exports were the United States (US), China, the United Arab Emirates (UAE), Saudi Arabia, and Bangladesh.

Accounting for 32% of the entire food market in the country, the food processing business is poised for significant expansion. Foodgrain production in India reached 330.5 million metric tons (mmt) in 2022/23, making it the world's second-largest producer of food grains. The food processing industry in India has grown significantly over the years, and it is expected to reach USD 535 billion by 2025/26 at a compound annual growth rate (CAGR) of 15.2%. This expansion is being pushed by the sector's pivotal role in connecting Indian farmers to customers in both domestic and foreign markets. The Ministry of Food Processing Industries (MoFPI) has fostered value-chain investments, resulting in modern infrastructure and efficient supply chain management.

However, the industry faces several obstacles. Despite being one of the largest in the world, the sector requires better organization. The formalization of micro-food processing businesses is a critical concern. To address these difficulties and improve domestic production and exports, the government has launched initiatives such as the Pradhan Mantri Kisan Sampada Yojana (PMKSY) and the Pradhan Mantri Formalisation of Micro Food Processing Enterprises Scheme (PMFME). The PM Kisan SAMPADA Yojana aims to provide modern infrastructure and effective supply chain management, raise food processing sector growth, improve farmer returns, generate job opportunities, reduce agricultural waste, increase processing, and boost food exports, particularly in rural areas.

Another challenge is the need for more efficient supply chain management. While the government has approved numerous Mega Food Park projects and Agro Processing Cluster projects, more integrated and efficient supply chains are needed to reduce post-harvest losses and ensure better returns for farmers.

Despite these challenges, the sector has shown persistence and adaptability. For example, online food retail in India has risen at a CAGR of more than 50% and is predicted to reach USD 10 to 12 billion by 2025. Furthermore, in the current fiscal year, India's agricultural and processed food product exports climbed by 13% YoY.

Source: TradeMap, Tridge

The US market is one of the most significant for India’s processed food and agro-based product traders, with a total export value of USD 4.52 billion in 2022, according to TradeMap data. Although the export value of processed commodities to the US dropped 6.41% YoY, the US is still leading in export destinations, with the most substantial growth increasing by USD 2.32 billion since 2018. On the other hand, China, the UAE, and Saudi Arabia recorded increased YoY growth, marking 22.86%, 16.92%, and 36.18% rise in export value, respectively.

In H1-23, the declining trend in export value continued for the US, which plummeted 21.49% YoY to USD 1.86 billion. The drop in China was even more pronounced, with a 30.79% YoY decrease to USD 1.07 billion. Rising ingredient costs, the worst drought in decades, and labor shortages were the main reasons for the export decline to primary markets.

In terms of raw commodities exports, the sector has grown significantly in the last year. In 2022/23, India's agricultural and processed food product exports were valued at USD 53.12 billion.

The following commodities were exported from Apr-23 to Jun-24:

Wheat and Other Cereals: USD 253.19 million
Non-Basmati Rice: USD 1.52 billion
Oil Meal: USD 445.79 million
Raw Cotton: USD 231.26 million
Sugar: USD 711.43 million
Spices: USD 1.11 million

The government has also taken initiatives to boost the industry, such as allowing 100% foreign direct investment (FDI) under the automatic route in food processing industries and through government approval for trading in food products manufactured or produced in India, including e-commerce.

Because of its massive manufacturing capacity, expanding export markets, and supportive government regulations, the Indian food processing sector has a robust global status. The sector has grown significantly over the years despite certain setbacks caused by adverse weather conditions impacting raw commodities. Tridge expects further growth of the processing sector in India driven by increasing demand from both domestic and foreign markets, and at the same time, government support.