• How-to

The processed food market accounts for Rs.1,40,715 crore in a total estimated food market of Rs.4,38,652 crore. According to CII, the sector has the potential to attract Rs.1,57,908 crore investment in next 10 years and generate employment of 90 lakh person days. The food processing industry includes fruit, vegetables (dried, preserved, processed and canned), pulps, pickles, chutneys, milk, dairy products, ready-to-drink milk products, ice cream, frozen desserts, meat, poultry, marine products, grain processing, beer and alcoholic beverages, consumer, convenience and packaged food, soft drinks and cocoa products.

With 75 percent industries being unorganized and small scale, food processing has been the perfect recipe for many entrepreneurs. The business canvas is limitless and, with right resources and management, it is not tough to attain success.

Sustainable advantage will be based on the ability to procure raw material at a low cost during harvest and process, store and supply it during peak demand. Value adding, packaging and brand building certainly improve the ability to get higher margins.

Investment Required
Food processing units range from being home-based businesses to large-scale MNCs. Business investment can start from a few thousands and run in to billions. A typical unit with 10,000 to 30,000 units of production will require an investment between Rs.10 lakh and Rs.40 lakh for plant and machinery. In case of dairy and related products, the investment required can be anywhere between Rs.20 lakh and Rs.30 lakh, approximately Rs.10 lakh for fruit and vegetables processing unit and Rs.10 lakh for meat and poultry unit.

Infrastructure
You can start a unit from a mere 1,000 sq. ft location. Good transportation facility and storage capacity are essential. Investment required can be substantially reduced if these components are outsourced. Despite mechanizing, you would require 10–20 employees.

Financial Assistance
NABARD and other government financial institutions lend towards setting up the units. Since requirement is modest, many angel investors are willing to support entrepreneurs.

Business Insurance
Almost everything—plant, machinery, stock and inventory—is insured for natural calamities and burglary. However, insurance against perishability and seasonality is limited.

Licenses and Incorporations
 Most of the processed food items are exempt from the purview of licensing under the Industries (Development and regulation) Act, 1951. Items reserved for small-scale sector and alcoholic beverages are an exception.
 Automatic approval for foreign equity of up to 100 percent is available for most of the processed food items. Approval for alcohol, beer and items reserved for small-scale sector is subject to certain conditions.
 Food processing industries are included in the list of priority sector for bank lending.
 Excise duty on processed fruit and vegetables has been brought down from 16 percent to zero level in the Budget of 2001-2002.
 Income tax holiday and other concessions have been announced in the Budget of 2004-2005 for certain food processing sectors.
 Licensing powers have been delegated to regional offices under Full Product Order, 1955.

Basic needs
 Sales tax registration—VAT No.
 PAN card for the business.
 Trade license.
 Food license from the health department.

Competition
The food processing sector is a highly fragmented industry. Many entrepreneurs in this industry are small in terms of production and operations and largely concentrated in the unorganized segment. This segment accounts for more than 70 percent of the output in terms of volume and 50 percent in terms of value.

Though the organized sector seems comparatively small, it is growing at a very fast pace. For a first generation entrepreneur to succeed, it’s critical to find the product gap in the market, offer differentiated products and packaging, and distribute and visualize. With the advent of organized retail, there is better opportunity to place the product closer to the consumer.

Word of mouth and first few happy customers/retailers will be the biggest advertisers. Attention to detail and listening to them will determine the success rate. While newspapers, radio and television will spread awareness about the product quickly, having a website
and a page on Facebook is a must. However, nothing can match ground promotion and product trials at outlets.

You Must Know
 All India Food Processing Association.
 Food Safety and Standards (Food Import) Regulations, 2011.
 Draft Food Safety and Standards Regulations, 2010.
 Manuals of methods of analysis for different food products.
 Standard for potable water.
 Food Safety and Standards Rules, 2011.
 Highlights of Legal Metrology Act, 2009.
Legal Metrology (Packaged Commodities) Rules, 2011.
 Plastic Waste (Management and Handling) Amendment.

Rules 2011
Gestation period for setting up a food processing unit is around six months to a year. It takes about three years to break even EBIDTA.
With an investment of Rs.20 to 40 lakh, a unit can generate a revenue of about Rs.1-5 crore in three to five years. Net profit of 10-15 percent can be expected during the initial period.

Vijay Geddam is the Chief Happiness Officer at Geddy’s Gourmet Icecream.

©Entrepreneur October 2011

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cold storage, food, food processing, vijay geddam