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Food Processing: Understanding Common Threads

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Economics of the Food Processing Industry

Part of the book series: Themes in Economics ((THIE))

Abstract

Food processing has been studied in mainstream economics from the standpoint of an industrial activity, which has strong backward linkages with agriculture. We start the generalized notion of arbitrage as the central economic theory for establishing a successful industry in food processing. This, we find, is not sufficient to explain different regional outcomes in this industry. The industry has many sub-sectors, such as grain or meat-based or those linked with fruit and vegetable processing. These subcomponents in the processed foods industry generate value as we move from basic to advanced processing. This chapter discusses in brief the history of this industry and goes on to introduce the notion of a product network in processed food manufacturing. It provides brief snapshots of a collection of these. Details regarding technologies, costs and other supply-side signatures in these networks are studied. This exercise is needed to understand the real challenge in starting a successful business in processed foods: moving through the value chain in these product networks. This is a general discussion on the processed foods industry, but we build the case for studying this industry through a more specific lens: that of particular product networks in specific regions. We also discuss some of the new advances in food processing: food parks, e-commerce in food, food safety standards and labelling. In passing, we introduce and discuss the role of the agents in this industry who actively shape outcomes in this industry: the government, the private entrepreneur as well as the consumer.

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Notes

  1. 1.

    http://theconversation.com/we-dont-need-to-double-world-food-production-by-2050-heres-why-74211.

  2. 2.

    United Nations World Water Development Report 4. UNESCO, UN-Water, WWAP. March 2012.

  3. 3.

    Estimates of Claro Energy available at https://claroenergy.in/5-most-water-intensive-crops/.

  4. 4.

    ibid.

  5. 5.

    This means not a mere transfer of agricultural raw material, but the movement of final processed goods from the South to the global North.

  6. 6.

    For Argentina, the data is from statista.com.

  7. 7.

    See the discussion on product networks in Sect. 2.3 later to link ‘non-controversial’ processed food items with basic processing.

  8. 8.

    Both food and feed are included in food processing.

  9. 9.

    Articles in the popular press, such as https://www.medicalnewstoday.com/articles/318630.php as well as academic literature, such as https://www.cambridge.org/core/journals/public-health-nutrition/article/increasing-consumption-of-ultraprocessed-foods-and-likely-impact-on-human-health-evidence-from-brazil/C36BB4F83B90629DA15CB0A3CBEBF6FA indicate the harmful effects of highly processed foods. Though there is value-addition, with advanced processing it is likely that health benefits of food will be lower.

  10. 10.

    The best example of this is the ITC (Indian Tobacco Company) Pvt. Ltd. in India, which began its existence during the British era as a tobacco product (cigarettes, etc.) manufacturer and at present has diversified into the production of food products, such as wheat flour (one of the largest selling brands being ITC’s Aashirvaad atta), various dairy items like liquid milk (under the Aashirvaad Svasti brand) and ghee as well as fruit juices under the B Natural brand.

  11. 11.

    Note, however, that the network has to include ingredients like salt/sugar, etc. for any higher value-addition products.

  12. 12.

    For instance, see the description of different machinery for flour milling provided by ABC Machinery (Anyang Best Complete Machinery Engineering Co., Ltd.), which supplies milling equipment in Africa, South America and Southeast Asia. Further details are at: http://www.bestflourmill.com/.

  13. 13.

    This analysis is silent about imports of processed food items, as the investigation is about manufacturing regionally available raw materials from agriculture and animal husbandry.

  14. 14.

    Though Barrett et al. (2011) mention reduced government presence in many parts of the FVC in developing and transition economies, we find evidence of significant involvement of government policy, particularly the MoFPI, in India’s food processing industries.

  15. 15.

    Sutton (2007) treats the service segment similarly.

  16. 16.

    Note that though this category is supposed not to include non-edible by-products, it does include the subclass ‘production of hides and skins originating from slaughterhouses’ (10107). We exclude this from our definition.

  17. 17.

    FutureBeef provides support on research and information for the North Australian Beef Industry and is linked with the North Australia Beef Research Council. Further details are at https://futurebeef.com.au/about-us/.

  18. 18.

    The alternative spelling is carcass, with the same meaning in the Merriam-Webster dictionary.

  19. 19.

    Arambagh Hatcheries is a large private hatchery initiative in West Bengal. Their online menu at https://arambagh.com/price/ itself lists 22 different raw chicken items and many more cooked food products.

  20. 20.

    https://www.licious.in/.

  21. 21.

    Available at http://www.fao.org/3/x6899e/X6899E01.htm.

  22. 22.

    Many online sellers, such as Licious, serve processed meat as well as fish-based meals.

  23. 23.

    This includes all differentiated milk varieties such as plain or flavoured sold in different packagings, such as bottles or cardboard packs.

  24. 24.

    This strain is trademarked by Yakult Honsha, Japan.

  25. 25.

    This is discussed in detail in Chap. 6.

  26. 26.

    Details are available on the makhana project profile for MSMEs at http://www.msmedinewdelhi.gov.in/PDF2016-17/Project%20Profile/Project%20profile%20on%20Makhana%20Processing.pdf.

  27. 27.

    Available at https://www.livemint.com/Leisure/mw1f95qKNTlU9WFJAsbw7L/Makhanas-moment.html.

  28. 28.

    We found some examples of this kind of cross-diversification in storage items for some cold storages in Nalanda in the southern part of Bihar during our survey in 2016.

  29. 29.

    These include handling costs, licence fees and clearances which are independent of the size of operations.

  30. 30.

    Refer to https://www.ams.usda.gov/grades-standards/organic-standards.

  31. 31.

    For instance, Caroli et al. (2010) notes that there is a significant presence of MNCs in the UK and French processed food markets, despite a relatively higher domestic protection provided to this sector than the automobile industry in these countries.

  32. 32.

    Refer to https://ifballiance.org/ about mentions Coca-Cola, Unilever, Mars, Danone, Ferrero, Kellogg’s, McDonalds, Mondelez, Nestle, Pepsico, General Mills and Grupo Bimbo as its members.

  33. 33.

    statista.com quotes a figure of 2.47 trillion USD for the latter.

  34. 34.

    https://info.foodprocessing.com/top-100-2017.

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Authors and Affiliations

  1. Faculty of Economics, South Asian University, New Delhi, Delhi, India

    Debdatta Saha

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Appendix

Appendix

(See Tables 2.1 and 2.2)

Table 2.1 ISIC versus NIC 2008
Full size table
Table 2.2 HSN 2-digit classification and net exports from India of processed food items
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Saha, D. (2020). Food Processing: Understanding Common Threads. In: Economics of the Food Processing Industry. Themes in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-8554-4_2

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