FOOD PROCESSING

SUMMARY

  • 195.25 Million Hectares of Gross Cropped Area.
  • 65.26 Million Hectare of Net Irrigated Area.
  • 127 agro-climactic zones.
  • 42 mega food parks being set up with an allocated investment of INR 98 Billion.

REASONS TO INVEST

  • A rich agriculture resource base - India was ranked No.1 in the world in 2013 in terms of production of bananas, mangoes, papayas, chick peas, ginger, lemons & limes, whole fresh buffalo milk, goat milk and buffalo meat.
  • India ranks second in the world in the production of sugarcane, dry beans, lentils and safflower oil. Further, India is at third position in the production of cabbages, cashew nuts, cauliflower, coconuts, garlic, onions, green peas, potatoes, rice paddy, tea, wheat and tomatoes.
  • The country’s gross cropped area amounts to 195.25 Million Hectares, with cropping intensity of 139%. The net irrigated area is 65.26 Million Hectare.
  • A total of 127 agro-climatic zones have been identified in India.
  • Strategic geographic location and proximity to food-importing nations makes India favourable for the export of processed foods.
  • Extensive network of food processing training, academic and research institutes.
  • 42 mega food parks are being set up in Public Private Partnership (PPP) at an investment of INR 98 Billion. The parks have around 1,200 developed plots with basic infrastructure enabled that entrepreneurs can lease for the setting up of food processing and ancillary units.
  • The cost of skilled manpower is relatively low as compared to other countries.
  • Attractive fiscal incentives have been instated by central and state governments and these include capital subsidies, tax rebates, depreciation benefits, as well as reduced custom and excise duties for processed food and machinery.
  • Major global players in the food domain are already present in India.
  • 138 cold chain projects are being set up to develop supply chain infrastructure.

STATISTICS

  • India ranked sixth in the World in exports of agricultural products in 2013.
  • Major industries constituting the food processing sector are grain milling, sugar, edible oils, beverages, fruits & vegetables processing and dairy products.
  • The contribution of the food processing sector to the Gross Domestic Product (GDP) in 2012-13 amounts to INR 845.22 Billion. India’s food processing sector has grown at an average rate of 8.4% during last five years ending 2012-13.
  • The share of food processing sector in GDP of manufacturing sector was 9.8% in 2012-13.
  • Investment in fixed capital in registered food processing sector had grown annually at 18.8% during last five years ending 2012-13.
  • The number of registered food processing units has increased from 36,881in 2011-12 to 37,175 in 2012-13, marking a growth rate of 0.80%.
  • Food Processing Industry is one of the major employment intensive segments contributing 13.04% of employment generated in all Registered Factory sector in 2012-13.
  • Food is the biggest expense for an urban and rural Indian household constituting share of 38.5% and 48.6% of the total consumption expenditure of households in 2011-12 respectively.

GROWTH DRIVERS

  • Liberalisation and the growth of organised retail has made the Indian market more attractive for global players; with a large agricultural resource base, abundant livestock and cost competitiveness, India is fast emerging as a sourcing hub of processed foods
  • With a population size of 1.22 billion of which 604 million were under the age of 24 in 2011, this rising youth population is likely to increase India’s overall food consumption.
  • Rising income levels, affluence and a growing middle-class.
  • One-third of the population will be living in urban areas by 2020.
  • Increasing desire for branded food as well as increased spending power.
  • Large distinct consumer segments to support customised offerings/ new categories and brands within each segment.
  • Consumption in India is driven towards packaged and ready-to-eat foods.
  • Favourable economic & cultural transformation, shift in attitudes & lifestyles, consumers are experimenting with different cuisines, tastes and new brands. There is an increase in awareness and concern for wellness and health, high protein, low fat, wholegrain and organic food.
  • Exports of food items have been rising steadily, the main export destinations being Middle East and South East Asia.

FDI POLICY

  • 100% FDI is permitted in the automatic route for most food products.

SECTOR POLICY

  • Food processing is recognised as a priority sector in the new manufacturing policy in 2011.
  • Government had announced setting up of special fund of INR 2,000 Crore in the Financial year 2014-15 in NABARD for extending affordable credit to designated food parks and the individual processing units in the designated food parks at concessional rates. The fund is being continued in 2015-16.
  • Reserve Bank of India has classified loan to food & agro-based processing units and Cold Chain under Agriculture activities for Priority Sector Lending (PSL) subject to aggregate sanctioned limit of INR 100 Crore per borrower. It will ensure greater flow of credit to entrepreneurs for setting up of food processing units and attract investment in the sector.

FINANCIAL SUPPORT

KEY PROVISIONS OF THE 2O15-2O16 UNION BUDGET :

  • Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables have been exempted from Service Tax.
  • Exemption to transportation of ‘food stuff’ by rail, or vessels or road will be limited to transportation of food grains including rice and pulses, flours, milk and salt only. Transportation of agricultural produce is exempted.
  • For generating more employment, an amendment regarding eligibility threshold of minimum 100 workmen has been reduced to 50, is made in the provisions of section 80JJAA of the Income-Tax Act (w.e.f. 01/04/2016).
  • The entry “waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” in the Seventh Schedule to the Finance Act, 2005 related to levy of additional duty of excise @ 5% has been omitted.

INCOME TAX :

Deduction in expenditure:

  • Deduction for expenditure incurred on investment is allowed if the investment is wholly and exclusively for the purpose of any specified business (Details given below). However, this deduction is allowed only for the investment made in the previous year and prior to commencement of its operations.

1. Businesses allowed 150% deduction (provided the taxpayer has commenced its business on or after 01.04.2012)

a) Setting up and operating a cold chain facility.
b) Setting up and operating warehousing facilities for storage of agricultural produce.

2. Business allowed 100% deduction .

a) Bee-keeping and the production of honey and beeswax.
b) The setting up and operation of a warehousing facility for the storage of sugar.

DEDUCTION OF TAX FROM PROFIT :

  • This tax incentive is available as 100% tax exemption for the first five years’ of operation, and after that, at the rate of 25% of the profits being exempted from tax; 30% in case of a company. This benefit is available only for 10 years for new units (i.e. not formed by splitting up or by way of reconstruction of an existing business) in the business of processing, preservation and packaging of fruits or vegetables, meat & meat products, poultry, marine or dairy products provided such business had commenced on or after 1.04.2001
  • If any business relating to meat, meat products, poultry, marine products or dairy products has started after 1.4.2009, the above benefit would be available, but not to the unit operating in such business before 01.04.2009.

SERVICE TAX :

Negative List

  • Service Tax is not leviable on items contained in the Negative List. Services including processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market.

Exempted category

  • The following services are covered under exempted category from service tax:

1) Construction, erection, commissioning or installation of original works pertaining to post-harvest storage infrastructure for agricultural produce including cold storages for such purposes.
2) Mechanised Food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.
3) Services of loading, unloading, packing, storage or warehousing of agricultural produce.

CUSTOMS DUTY :

Government has extended Project Imports’ benefits to the following projects:

  • Projects for the installation of mechanised food grain handling systems and pallet racking systems in ‘mandis’ and warehouses for food grains and sugar.
  • Cold storage, cold room (including for farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat.
  • Consequently, all goods related to Food Processing, imported as part of the project, irrespective of their tariff classification, would be entitled to uniform assessment at concessional basic customs duty.

CENTRAL EXCISE DUTY :

Food Products:

  • Nil excise duty in milk, milk products, vegetables, nuts & fruits – both fresh and dried.
  • Against a standard excise duty of 12%, processed fruits and vegetables carries a merit rate of 2% without CENVAT or 6% with CENVAT.
  • Soya milk drinks, flavoured milk of animal origin also carry a duty of 2% without CENVAT or 6% with CENVAT.

Food Processing Machinery:

  • Excise duty on machinery for the preparation of meat, poultry, fruits, nuts or vegetables and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packing machinery is reduced from 10% to 6%
  • All refrigeration machinery and parts used for the installation of cold storage, cold room or refrigerated vehicles for the preservation, storage, transport or processing of agricultural, apiary, horticultural and marine produce as well as dairy and poultry, are exempt from excise duty.
  • Pasturing, drying, evaporating etc. machinery used in Dairy sector is exempted from excise duty.

INVESTMENT OPPORTUNITIES

  • Fruits and vegetables: preserved, candied, glazed and crystallised fruits and vegetables, juices, jams, jellies, purees, soups, powders, dehydrated vegetables, flakes, shreds and ready-to-eat curries.
  • Food preservation by fermentation: wine, beer, vinegar, yeast preparation, alcoholic beverages.
  • Beverages: fruit-based, cereal-based.
  • Dairy: liquid milk, curd, flavoured yoghurt, processed cheese, cottage cheese, Swiss cheese, blue cheese, ice cream, milk-based sweets.
  • Food additives and nutraceuticals.
  • Confectionery and bakery: cookies and crackers, biscuits, breads, cakes and frozen dough.
  • Meat and poultry: eggs, egg powder, cut meats, sausages and other value added products.
  • Fish, seafood and fish processing – processing and freezing units.
  • Grain processing – oil milling sector, rice, pulse milling and flour milling sectors.
  • Food preservation and packaging: metal cans, aseptic packs.
  • Food processing equipment: canning, dairy and food processing, specialty processing, packaging, frozen food/refrigeration and thermo-processing.
  • Consumer food: packaged food, aerated soft drinks and packaged drinking water.
  • Spice pastes.
  • Supply chain infrastructure – this niche has investment potential in food processing infrastructure, the government’s main focus is on supply chain related infrastructure like cold storage, abattoirs and food parks.
  • The establishment of food parks – a unique opportunity for entrepreneurs, including foreign investors to enter in the Indian food processing sector.

FOREIGN INVESTORS

  • Kraft (USA)
  • Mars (USA)
  • Nestle (Switzerland)
  • McCain (Canada)
  • Danone (France)
  • Ferrero (Italy)
  • Del Monte (USA)
  • Kagome (Japan)
  • Kelloggs (USA)
  • Pepsi (USA)
  • Unilever (Anglo Dutch)
  • Perfetti (Italy)
  • Cargill (USA)
  • Coca Cola (USA)
  • Hershey (USA)

AGENCIES