How To Start Food Processing Business?

Food processing business and food processing industry

The food processing industry in India is one of the fastest-growing sectors which is projected to reach INR 53,400 Bn by 2024, growing at a CAGR of 12.07% during the FY 2020-FY 2024 period. As food manufacturing units play an important role in linking Indian farmers to consumers, the Ministry of Food Processing Industries (MOFPI) is providing huge support for entrepreneurs to start food processing business by providing subsidies and bank loans. The food manufacturing industry accounts for 12.5% of the country’s total GDP and provides employment to more than 7.3 million people. The central government has allowed 100% FDI under the automatic route to boost the sector. Almost 52% of the Indian household budget is spent on food items which propel the growth of the industry. Major segments of the food processing industry are dairy processing, fisheries, fruits processing and vegetables processing, packaged foods, beverages, and meat and poultry processing. Read on this blog to know how to start a food processing business in India.

Food Processing Business Segmentation

Advantages of Starting a Food Processing Business in India

1) Growing Consumer Base :

With a population in excess of 1.3 billion, India provides a massive market for food processing industries. As India has one of the largest working populations in the world, this segment of the population is driving the processed foods market by leaps and bounds. Due to the rise in the number of working women and limited time available for cooking, there is a surge in demand for ready-to-eat products. This makes the food processing business as one of the best business to start in India.

2) Availability of Raw Materials :

Enormous agricultural production, a broad range of crops, a gigantic livestock base, and a long coastline for marine production provide abundant raw materials for food processing industries to manufacture a wide range of food products. India ranks first in the production of fruits such as mangoes, bananas, guavas, and papayas. Additionally, as India is the largest producer of milk, it has provided a plethora of opportunities for dairy processing industries.

3) Huge Export Opportunities :

Indian food processing industries enjoy the benefit of convenient connectivity to the Middle East, Europe, Thailand, Singapore, Malaysia, etc. due to the strategic geographical location of India. India exported processed foods worth INR 36,946.20 Crores in 2021. The top 5 processed food products exported from India are pulses, spices, processed fruits and vegetables, spices, and groundnuts.

Food Processing Business Export Opportunities

4) Favorable Government Policies :

To encourage food manufacturing units, the Ministry of Food Processing Industries (MOFPI) provides numerous financial assistance under the umbrella scheme of Pradhan Mantri Kisan Sampada Yojana (PMKSY) including mega food parks, warehousing facilities, cold storage facilities, specialized packaging units, etc.

Steps To Start Food Processing Business :

1) Product Selection and Conceptualisation :

To succeed as an entrepreneur it is extremely important to choose the right product to manufacture according to budget, location, availability of raw materials, passion, market demand, etc. Focusing on a specific niche or type of food production makes your product stand out and grab the attention of consumers. It is important to know the market trends and manufacture the products accordingly.

Some of the major market trends to consider for product selection: 

    1. Low-calorie and high-protein foods
    2. Chemical-free and organic food products
    3. Immunity-boosting foods and beverages
    4. Plant-based proteins and meat replacement food
    5. Innovative flavor combinations
Food Processing Business Product Selection and Conceptualisation

2) Market Research and Analysis :

Before launching a food processing business, it is important to do market research to understand the feasibility of the product and also to get insights into economic outcomes. Market research refers to the collection and analysis of data related to a particular industry. It helps you build the right strategies to compound the growth of your food processing business.

Benefits of market research report :

    1. Provides valuable data to make calculated decisions.
    2. Assists you in gathering deep insights into the industry quickly.
    3. Focuses on customer demands and market trends.
    4. Helps you to determine your competitor’s strengths and weaknesses.
    5. Minimizes investment risks.
    6. Helps you identify potential threats and opportunities.
Food Processing Business Market Research Report

3) Product Development :

Constant innovations are happening in food processing industries to develop innovative products as per market trends and consumer preferences. Food processing industries must ensure that their products are having good shelf life and follow the guidelines of FSSAI (Food Safety and Standards Authority of India).

Here are the steps involved in food product development :

    1. Idea generation and screening
    2. Market Research
    3. Product specifications
    4. Process development
    5. Prototype development
    6. Consumer testing
    7. Commercialization
Food Processing Business Product Selection

4) Registration and Licenses:

To start the food processing industry, an FSSAI license is mandatory as per the Food Safety and Standards Act, 2006 (FSS Act). The license will be valid for up to 5 years and it needs to be renewed at least 30 days before the expiry date. Food processing industries are granted licenses in a three-tier system:  FSSAI license, State license, and Central license.

Steps to get an FSSAI food license :

    1. Fill out the form and submit it on the official FSSAI website.
    2. Pay FSSAI registration fees
    3. Attach required documents
    4. Food industries receive UARN (Unique Application Reference Number).
    5. Inspection of the premises
    6. Issuance of FSSAI license certificate
Food Processing Business FSSAI License

5) Infrastructure and Machinery:

As the consumers are shifting toward value-added food products, food industries have to buy various types of machinery to develop a wide range of products. As technological advancements are necessary to improve efficiency and increase production capacity, food processing industries need to allocate a good budget for machinery procurement.

Food Processing Business Machinery and Infrastructure

6) Workforce Recruitment and Training:

An educated workforce plays a vital role in the success of food manufacturing industries. Some of the types of training include Machine operating training, quality check, industrial safety, maintenance, In-plant instructions, compliance training, etc.

Advantages of having a trained workforce in the food processing industry :

    1. Better product quality
    2. Fewer mistakes
    3. Higher efficiency
    4. Better food safety
    5. Higher employee morale
    6. Fewer worker injuries

7) Product Prototyping, Lab Testing, and First Production Run:

A prototype is an example of a product to be manufactured to test the quality and ensure specifications are met. After developing the prototype, it has to be tested by multiple consumers and opinions should be collected. A certified lab testing report has to be included as well.

Reasons to conduct prototype testing :

    1. To check all the specifications have been met.
    2. To compare the product against competitors.
    3. To determine the shelf life of the product.
    4. To collect opinions on taste, flavor, texture, etc.
Food Processing Business Product Prototype

8) Packaging :

Packaging is an inseparable part of a product, and it has the ability to gain the attention of the consumer. There are 3 levels of packaging: primary, secondary, and tertiary packaging. Primary packaging is important for branding while secondary packaging is important for protection.

Types of packaging materials used by food industries :

    1. Paper and cardboard
    2. Metal containers
    3. Glass
    4. Plastic containers
    5. Flexible plastic films
    6. Polyethylene
Food Processing Business Packaging

9) Marketing:

Brand positioning and eco-friendly packaging play a huge role in boosting sales of food and beverage products. Food industries should position their products well in the market according to ongoing market trends. The rise of E-commerce platforms has increased the sales of processed foods exponentially. D2C marketing provides opportunities for food processing businesses to sell their products directly to consumers through online channels by eliminating intermediaries and retailers.

Why food processing businesses should choose D2C marketing?

    1. Direct access to consumers and their data.
    2. Control over brand messaging and brand positioning.
    3. Higher consumer engagement.
    4. Increased profit margins.
    5. Personalized customer experience.
Food Processing Business D2C marketing

Top 5 Food Processing Business Ideas:

1) Ready to Eat Foods:

Demand for ready-to-eat foods is increasing exponentially due to an increase in the number of working women and changes in the lifestyle of consumers. As ready-to-eat foods can be consumed as breakfast, lunch, or dinner consumers are considering them as substitutes for everyday food making the ready-to-eat food business one of the fastest-growing businesses in the world.

Segments in ready-to-eat foods:

    1. Instant Breakfast/Cereals
    2. Bakery products and confectioneries
    3. Instant Soups and Snacks
    4. Ready Meals
    5. Processed Meat Products
Food processing business Ready to eat foods processing

2) Millet Based Foods:

As millets contain nutrients such as vitamins, proteins, minerals, carbohydrates, etc. urban population is shifting towards millet-based foods. More than 6,500 varieties of millets are available in the world and there has been a gradual increase in the production of millets in India to fulfill the consumer demand.

Here are the best millet-based food business ideas:

    1. Instant mixes such as dosa, idli, upma, and pongal mix
    2. Millet pizza base
    3. Millet cookies
    4. Millet bread/bun
    5. Millet based namkeen and snacks
    6. Millet pasta
Food processing business millets processing

3) Beverages:

The non-alcoholic beverages market in India is expected to reach INR 1,200 billion by 2028. Rapid urbanization and rising disposable income fuelling the growth of the beverage industry in India. Due to the outbreak of the pandemic, immunity-boosting beverages have emerged as one of the best business in the beverages sector.

Major segments in the beverage industry are :

    1. Fruit Juices
    2. Carbonated Drinks
    3. Functional Drinks
    4. Packaged Drinking Water
    5. Ethnic Drinks
    6. Dairy-Based Drinks
Food Processing Business Beverages

4) Plant-Based Foods:

As 35% of Indians are vegetarians plant-based food industry is growing leaps and bounds in India and reached a volume of about 11,300 tons in 2020 and is expected to reach 16,000 tons by 2023. Soy, almonds, wheat, pea, and rice are used as the main sources of proteins in the industry.

Major segments in the plant-based food industry are :

    1. Dairy Alternatives
    2. Meat Alternatives
    3. Egg Substitutes and Condiments
    4. Baked Goods
    5. Meals
    6. Confectionery
    7. Ready-to-drink beverages
    8. Others
Food Processing Business Plant Based Foods

5) Dairy Processing:

As India has the largest livestock population in the world, there are a plethora of opportunities in the dairy processing industry for entrepreneurs to produce a wide array of products. The dairy processing industry in India is projected to reach USD 95 billion by 2025. There is a huge demand for Indian dairy products from countries such as Bhutan, United Arab Emirates, Afghanistan, Egypt, and Canada.

Some of the value-added products of the dairy processing industry are :

    1. Paneer
    2. Ice cream
    3. Cheese
    4. Flavored milk
    5. Khova
    6. Lassi
    7. Skimmed milk
    8. Ghee
    9. Milk powder
Food Processsing Business Dairy Processing

Investment Required To Start Food Processing Business:

Investment required to start the food processing industry depends on several factors such as the product you want to manufacture, production capacity, location, and technology you want to use. A small food manufacturing unit requires a minimum investment of INR 30 lakh (Excluding land and infrastructure cost).

Basic Licenses Required To Start Food Processing Industry:

Some of the basic licenses required by entrepreneurs to start food processing business are :

    1. FSSAI license
    2. Environment and pollution clearance such as No Objection Certificate (NOC)
    3. GST registration and shops and commercial establishment license.
    4. Trademark registration
    5. Food packaging compliances
    6. ESI for employees
    7. Water testing certificate
    8. License for exporting food products (if required)

Government Initiatives and Policies to Encourage Food Processing Business in India:

1) PM Formalisation of Micro Food Processing Enterprises Scheme (PM FME scheme):

The main objective of the PM FME scheme is to increase the competitiveness of the existing individual food processing industries by increasing access to credit. Credit linked capital subsidy at 35%  of the total project cost will be given to existing food processing industries with a maximum grant up to INR 10 lakh for up-gradation. With a total outlay of INR 10,000 crore, the PM FME  scheme is implemented for five years from 2020 to 2025. Existing micro food processing industries, FPOs, and Self-help groups are eligible borrowers for this scheme.

2)PLI scheme for food processing industry (PLISFPI):

The union cabinet approved the PLI scheme for food processing industries with an outlay of INR 10,900 Crore over 5 years from 2021 to 2027. The main objective of this scheme is to encourage Indian brands of value-added food products in the international market, boost the creation of global food processing industry champions, and also to create employment opportunities. The first component of this PLI scheme is to incentivize the manufacturing of ready-to-eat foods, marine products, processed vegetables and fruits, and mozzarella cheese. Egg and poultry products are also covered under the first component. The second component of this scheme is to provide support for branding and marketing. But its focused at industries with large investment capacity as of now.

3) Mega Food Parks:

The objective of creating mega food parks is to bring farmers, food processing industries, and retailers together to increase value addition, to increase farmer’s income, and minimize wastage by bridging the gap between agriculture production and the market. It works on a cluster-based approach and it includes Primary Processing Centres (PPCs) and Collection Centres (CCs) which act as storage points to feed raw material to the processing units. Special Purpose Vehicle (SPV) takes the responsibility for implementing the Mega Food Park project. So far 19 mega food parks are operating across India and proposals for seeking assistance under this scheme are invited. Most of the mega food parks have food testing laboratories, cold storage, warehousing, packaging, drying chambers for spices, etc.

4) One District One Product Scheme (ODOP):

This scheme aims to turn every district in India into an export hub by identifying, promoting, and branding a product from one district to help districts to reach their fullest potential, foster economic growth, and create employment opportunities. This scheme was adopted by the central government after it found success in Uttar Pradesh. ODOP scheme is also raising awareness of GI-tagged products.

5) Pradhan Manti Kisan Sampada Yojana (PMKSY) :

The main objective of the PMKSY scheme is to encourage entrepreneurs to set up food processing industries nearer to agricultural areas and it provides a grant in aid of 35% of the project cost in most states of India and 50% to Northeastern states. Development of cold storage facilities, warehousing, packaging units, etc. eligible for grants under the scheme. 284 state-wise proposals were approved under the CEFPPC scheme of Pradhan Mantri Kisan Sampada Yojana by the Ministry of Food Processing Industries. In the union budget 2022-23 the central government allocated INR 2941.99 crore to the Ministry of Food Processing Industries.

6) Agro Processing Cluster Scheme :

The main objective of this scheme is to develop sophisticated infrastructure to encourage entrepreneurs to start food processing industries based on a cluster approach. The idea is to create a link between farmers and food processing units to increase the income of farmers. The Project Execution Agency (PEA) has taken the responsibility of setting up agro processing clusters which include facilities such as warehouses, cold storage, roads, drainage facilities, ETP, etc.

7) Cold Chain :

The main goal of the cold chain scheme is to provide integrated cold chain and preservation facilities from farmland till it reaches consumers’ hands. It includes various facilities such as weighing, pre-cooling, grading, sorting, packing, etc. It also includes waxing facilities at farm level and mobile cooling units for facilitating the distribution of agricultural produce.

8) Operation Greens :

The objective of this scheme is to bring stability in the supply of Tomato, Onion, and Potato (TOP) to make sure that consumers get the supply of these crops throughout the year without price volatility. This scheme also ensures creation of storage facilities to reduce post-harvest losses. Additionally, collection of real-time data on production of these crops is done by market intelligence network.

Future of Food Processing Industry In India :

The future of the food manufacturing industry in India looks extremely promising due to several factors such as an increase in the working population, rising disposable income, urbanization, and the emergence of e-commerce platforms. Due to constant changes in consumer preferences and behaviors lot of innovations are happening in food industries and have opened plenty of opportunities for entrepreneurs to enter the market. In the next 3 years, India is expected to attract USD 10 billion in the food processing industry. Due to strong domestic and international demand food processing business in India witnessing rapid growth.

Are you Looking To Start Food Processing Business?

If you are an entrepreneur looking to start a food processing business, register to SolutionBuggy and get all the services ranging from concept ideation to complete industrial implementation. SolutionBuggy being India’s largest food consulting platform has more than 1,500 food industry consultants and provides complete assistance to set up any type of food processing industry such as fruits and vegetables processing, dairy processing, marine products, beverages, packaged foods, meat, and poultry processing.

Food processing business and food processing industry

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