Food Processing: Key to doubling farmers’ income
  • Mohit Bhasin, Leadership |

Agriculture is the backbone of India’s employing about 43% of the total workforce in India and contributing about 17% to the Indian economy in 2019 (GVA at current prices) . Agriculture and allied sectors are the largest sources of livelihood in India and more than 70% of rural households depend on agriculture as their main source of income . Majority of these farmers (82%) are small and marginal (owning less than two hectares of land).

It is widely known that despite being a leader in the production of several agricultural commodities, India’s Agriculture sector is primarily characterized by high wastage post-harvest (up to 16% in perishable products such as fruits and vegetables), lack of mechanization, low yield and lower levels of value addition compared to their global counterparts. This has prevented farmers from realizing the true potential of their crops resulting in significantly lower incomes.

The Ministry of Food Processing Industries is mandated to reduce post-harvest losses and enhance Food Processing levels in India. The Food Processing sector links agriculture, manufacturing sector and final consumers. The sector is critical to increasing the farmer’s income in India through value addition and reducing wastage, resulting in enhanced income for farmers in India.

As the 5th largest sector in India, Food Processing contributes about 9.5% to GVA and 13% to employment of manufacturing segment. A recently released report by KPMG in India titled Indian Food Processing Industry- Growth opportunities post the Covid-19 pandemic estimates that the sector is currently valued at USD 263 billion (2019) with a 5-year CAGR of 11%. The sector offers significant potential for increase of farmers’ income in India. There are two lenses to gauge this opportunity- first, there is significant demand potential (domestic/ export) and second, various interventions by Government and industry to increase processing capacities in India are expected to lead to higher value addition.

The above mentioned report also estimates that the Food Processing industry in India is expected to reach USD 535 billion by 2025 (CAGR 15%). Currently, Food Processing levels in India are only 10% which is significantly lower than its global peers (levels up to 55% in European countries). The inherent tastes of our multi-cultural society, propensity to consume fresh food and the traditional distrust of “outside” food and its quality have hampered growth in the Food Processing sector. However, increasing urbanization, rise in disposable income, availability of a greater variety of processed food, increasing demand from Tier 2/3 cities, and the emergence of E-commerce has brought a change in food consumption patterns of the country and propelled the Food Processing industry towards a growth trajectory leading to higher processing levels. The Covid-19 pandemic has led to increased acceptance of processed food. In addition, there is significant potential in the export market as well.

The increased demand for processed food is a potential opportunity for farmers in terms of increased production, greater demand for raw material for value-added products, diversification from grain-based crops to horticulture, production of high-value processable varieties - all of which can add to farmers’ income. There is a dire need for increasing and enhancing processing facilities at farm-gate level (currently very primitive), for farmers to rise higher in Food Processing value chain.

There have been multiple case studies that emphasize a change in cropping patterns and an increase in the prosperity of farmers when they are enabled to produce crops for profit rather than sustenance. In western Uttar Pradesh, farmers prefer to grow Sugarcane, in Madhya Pradesh they prefer Soyabean and the success of exports of pickled Cucumber & Gherkins has changed cropping patterns in more than 20 districts in Karnataka, which later spread to neighbouring States.

On the supply front, the lack of cold chain infrastructure, modern logistics and storage infrastructure are the primary reasons behind high levels of post-harvest wastage of Agriculture produce in India.

There have been multiple efforts from the Central Government as well as State Governments to reduce post-harvest wastage through the development of storage and supply chain infrastructure, development of processing infrastructure and subsidising of investments in the Food Processing Sector. Major schemes by Government of India include schemes such as Pradhan Mantri Kisan Sampada Yojana (PMKSY) which provides subsidy for the development of high-quality infrastructure such as Mega Food Park with world-class facilities and modern storage facilities, Cold Chain, testing laboratories etc. The scheme also envisages setting up of near farm infrastructure such as Agri Processing Clusters which are aimed at creating primary processing facilities.

Recently announced Agriculture Infra Fund worth INR 1 trillion - provides support to a large number of beneficiaries including Farmer Producers Organizations (FPOs), Self Help Group (SHG), Farmers, Joint Liability Groups (JLG), Multipurpose Cooperative Societies, Agri-entrepreneurs, startups etc. by way of interest subsidy.

However, efforts need to be made to ensure that the scheme benefits reach the intended beneficiaries - small & marginal farmers (82% of overall farmers) who have no bargaining strength and do not aggregate their produce.

On a policy front, several State Governments have identified Food Processing as a thrust /important/ focus sector for attracting investments in the State. This is expected to increase processing capacities and lead to higher raw material/ primary processed product sourcing opportunities from farmers.

Going forward, the Government needs to ensure fairness by producers so that farmers get a better realization of the money earned across the value chain. A policy intervention or regulation in this regard is the need of the hour.

In conclusion, the rise of the Food Processing sector provides several opportunities for increasing farmers' income. Several interventions have been planned by the Government but more are needed to ensure that their end objectives are met.

To sum up, the KPMG in India report mentioned above also highlights some of these interventions such as increasing adoption of technology, encouraging product innovation, high quality infrastructure in cold chains, quality testing & certification and focus on integrated inter-ministerial approach.

(A version of this article appeared in Agriculture Today Magazine, June 2021 issue)