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With processed foods, demand for ingredients will proliferate
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Saturday, 01 February, 2025, 08 : 00 AM [IST]
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Priti Jha
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The Indian food ingredients market comprising additives, nutrition, colours, enzymes, preservatives and so on is growing at a staggering pace. The overall size of the food ingredient market is close to US$700 million. Although it constitutes a minor toehold in the global market, which is sized at around US$400 billion, the segment stands at a strong footing.
The food retail is growing fast and the overall consumer preferences are evolving in India, which is pushing demand for various kinds of ingredients. Surge in disposable income and change in lifestyles preferences is resulting in increased propensity for processed foods, frozen & chilled foods, super foods and so on. Apart from food the textures, colour, tastes, nutrition, shelf life are also becoming important. This is naturally resulting in accelerated demand for various kinds of food ingredients.
Growth Drivers of Food Ingredients in India
There are multiple factors that are driving the food processing industry in India at a scorching pace.
Robust structural fundamentals: Large population, growth in middle income households, trend of nuclear families is pushing the food retail ahead in India. In addition, other favourable social factors such as rise in Internet penetration, large portion of millennial population (65% population in India is aged below 35) are also fostering positive growth.
Expansive modern retail: The modern retail industry in India is valued at US$250-300 billion (total retail is pegged at around US$1.3 trillion) and is growing fast. Around 31% of the retail basket comprise of foods. Across India, malls, shopping centres, hyper markets, super markets are growing fast. Interestingly, not just in metros but also in tier 2 and 3 cities, modern retail is expanding its foothold.
Rise in food e-commerce: The food e-commerce segment is growing at a scorching pace in India. Recent years have seen proliferation in numerous horizontals (Amazon, Flipkart and so on), verticals (Dunzo, Blinkit, Big Basket, Milk Basket and so on), food delivery platforms (Swiggy, Zomato and so on). Likewise, multiple cloud kitchens have mushroomed throughout the length and breadth of India such as Faasos, Rebel Food, Box8, Oven Story and Fresh Menu.
Food processing industry is thriving: The Indian food processing industry is thriving. The demand is picking up for various processed foods such as confectioneries, bakeries, patties, soft drinks & other beverages, sauces, dressings & condiments, sweet snacks, processed dairy products and frozen meats & vegetables.
FDIs in food sector on a rise: The Indian food industry features highly on the radar of global FDI. During April 2000 to March 2024, the food processing industry has received an FDI of around US$12.58 billion, which is around ~ 2% of the overall FDI received. India’s burgeoning food processing industry is a high growth market for global investors and hence they are betting big on it.
Change in lifestyle: As the middle-income households are expanding fast, there is a notable change in lifestyle. Earlier the preference was more towards consuming freshly cooked foods. However, this is changing with increased demand for fast foods, frozen foods, packaged foods, bakeries, snacks and so on. The changes are also rooted in numerous social parameters such as migrant workforce, increased participation of women in workforce, trends of nuclear families, and much more. The rise in migrant workforce is also driving demand for local foods, pickles, sauces and so on.
Challenges Ahead
Despite a high potential market, the industry is fraught with multiple challenges. This has undermined growth of the Indian food ingredient sector.
Lower rates of food processing: No doubt the food processing industry in India is expanding its footprint, the overall segment is small in size compared to other countries. The overall processed food in India is lower than 10%. Even emerging economies such as Brazil, China and Thailand has a much higher percentages, when it comes to processed food in the overall food basket.
In adequate infrastructure: India’s food processing industry is marred by inadequate infrastructure. There is a limited presence of warehouses, cold chains, all weather roads and so on in the country, especially in the rural hinterlands. This also undermines the growth of the overall food value chain including ingredient industry in India.
Cumbersome regulatory processes: The food processing industry in India lacks a unified regulatory, safety, and licensing processes. There are multiple regulations spanning across numerous ministries and departments.
Unorganised nature of the industry: The industry remains unorganised with organised sector comprising a modest 20-25%. High rate of inorganisation leads to poor technologies and lack of relevant manpower, affecting the growth of the overall industry.
The Sector will Continue to Gain Momentum in Foreseeable Future
The food ingredient industry in India will continue to grow fast despite challenges. Demand for processed food is rising in India with various categories such as processed dairy, jams, jellies, fruit juices and beverages becoming popular across all income groups. Similarly, demand is picking for a host of other segments such as chocolates, soya products, tonic water and millet products are also rising fast.
This will drive demand for ingredients, which are used across the value chain of food processing from production, packaging, and storage. In fact the growth of processed food and ingredients, both will renew each other.
As India’s processed food segment is growing, naturally the demand for numerous kinds of ingredients will also proliferate. There will be plenty of new opportunities in instant soups mixes, milkshake mixes, taste making spices. Health-consciousness is rising amongst Indians across all age groups. This will naturally translate into higher demand for protein isolates, caseins and so on. Other minor ingredients such as flavours, preservatives, additives, spices, condiments will also continue to see heightened demand.
(The author is co-founder and managing partner, The India Watch. She can be contacted at priti@theindiawatch.com)
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