How to start a Food Processing Unit in India?

India is a nation that reaps most of its revenue via its agrarian economy. Our country is the 6th largest nation in the food & grocery market and the 5th large in terms of the retail marketplace globally. Food processing is a promising sector that adheres to limitless growth opportunities. In this write-up, we will walk you through an effective setup procedure for a food processing unit and recites some important aspects for the same. 

What Is the Concept of a Food Processing Unit?

Food processing units include all the methods and techniques involved in converting a raw material or a combination of raw materials into a consumable product. Food processing units are an integral part of practices such as agriculture, horticulture, plantation, animal husbandry, and fisheries. It also includes other industries that use agricultural inputs for manufacturing edible products. This manufacturing industry has become a site of investment and profits.

The net worth of the processed food industry is estimated to be around ₹1100 crore and it is fast accelerating at a rate of 10-15% per annum. The food processing units comprises nine categories based on the basic raw materials being used.

Importance of Food Processing Units

Food processing is an essential process that ensures we have food throughout the year irrespective of its seasonal nature or easily perishable variety. Mass production of these processed foods can be very profitable unlike those made by an individual. 

Food processing is a critical process that ensures consistent availability of food for the general public regardless of its perishable variety and its seasonal nature. Following pictorial representation reflects the pros of having a food processing sector in India.

Benefits of Investing in India

1. In India, this is a prospective industry due to the increased demand by the majority of the urban middle-class population
2. Availability of raw materials is abundant
3. Change in the consumption patterns
4. Comparatively low cost of production 
5. Attractive fiscal incentives that make India the best option.

How Do I Start a Food Processing Unit in India?

The Indian government has laid down many policies and schemes to help set up food processing units in India and to provide them with financial support to modernise the industry. In order to start any food-related business, an food & safety licence is mandatory. There are different types of FSSAI FoSCos licenses available and it varies according to the business type. However, there are certain procedures to be followed in order to legally safeguard the company, such as:

Business Research and Market Analysis

Understanding the market and choosing the product to be manufactured is the most crucial part of starting any business. ‘Know thy customer’ and ‘know thy market’ are two commandments if you are entering any industry. Gone are the days when manufacturing on a big scale was enough to run a successful business. These days, the market and the customers determine whether you succeed or not.

While choosing the product, the investor must keep in mind the viability of the product in the market. It is also important to research the economic and industrial outcomes of the current food processing industries, which will be useful in determining the market size, competitors and their trends. 

So, before starting a business you must conduct research on the market. You should answer the following questions to know if your business idea is viable:

• Who is your target market?
• Who are your competitors?
• What are the entry barriers?
• Is there a demand for your product?
• What are the trends in the food industry?
• What is the market selling price for similar products?
• How long will it take to break even?
• What is the cost of manufacturing your product?
• How can you procure raw materials?
• What will be your distribution channels?

These are some of the many questions you need to ask while doing market research.

Once the basic market research is done, the business must be structured according to the needs to make it legally stable. There are options such as private limited company, public limited company, partnership firm, limited liability partnership, etc. with their own pros and cons. These choices can be made on the basis of the size of the manufacturing industry and the yearly turnover and other mandatory criteria. It is recommended to seek help from legal professionals who can advise on the types of companies. 

Location of the Factory

Deciding upon the market size is necessary to find a suitable location for the factory. It is advisable to determine a location that has feasible and easily accessible resources such as manpower, raw materials, electricity sources, transportation facilities, etc. Another important factor to consider is the government provided subsidies and tax exemption in some states of India. An ideal location can be derived by analysing these factors along with the availability of raw materials in a certain location. The perishable nature of food and duration must be taken into consideration in order to maintain good produce throughout the year.

Business Plan and Strategies

All the research and analysis made at the beginning must then be streamlined as per the requirements of the processing units. New policies and strategies must be formulated for the company to generate a blueprint of how the company should function and the future plans must be roughly decided. In the case of food processing units, one needs to bear in mind the future outcomes of the industry and the growing trends too.

Funding

Every business needs to be funded for bringing in the materials and maintaining the value chain once the industry grows. The funds also tend to vary according to the size and nature of the industry. So it is important to have shareholders and to find a constant source of funding for the company.

Legal Implications

Once a company is formed, it has to be registered with the relevant authorities before the business is set into motion. The Companies Act 2013 specifies that the companies must be registered by submitting certain documents and requisite forms in order to get themselves registered as a company in India. The company must also get registered for the various taxes such as PAN, Sales Tax, Excise & Customs Registration, Service Tax, etc. the trademark must also be protected from being claimed by others, so an IPR registration which includes patents, copyrights, etc. is mandatory. Other acts such as Food Safety and Standards Act, 2006 and the Standard and Weight Measure Act must be followed and various licenses for operating in India, such as trade license, food license, industrial license, etc. is necessary.

Implementation

With all the necessary steps to start a food processing unit ready, it is important to strategically implement all the mandatory requirements. Everything needs to be put into place. The human resources and infrastructure must be regulated and separate divisions of workers must be used to improve the sales and quality of the product.

For all entrepreneurs, the food industry is a lucrative one. This is because, no matter what everyone has to eat. Besides, the various challenges that a food industry would face, one really needs to follow a lot of rules and regulations at both Centre and state level. The regulations are stringent because any negligence in a food industry may be fatal for consumers. In some cases, it may also lead to large-scale epidemic. To avoid troubles later, here is some information that one needs to know to make planning for food industry easy, quick, and hassle free:

FSSAI/ Food license: The first and foremost pre-requisite for starting a food business in India is obtaining a food license from the Food Safety and Standards Authority of India (FSSAI) for the purpose of preparing, manufacturing, distributing and transporting food products. FSSAI is the supreme authority in India which is responsible for regulating and supervising the food safety. The licensing and registration procedure is regulated by the Food Safety & Standards (Licensing and Registration of Food Business) Regulation, 2011. Food Safety and Standards Authority of India is the primary regulatory body to govern the food business in India. It ensures high-quality standards for consumer safety.  FSSAI is a statutory body governing food safety and regulation in India. FSSAI license is an approval that provides for food safety and a sense of safety to the customers. This also stands as a reputation for being a restaurant which has followed all the protocols.

FSSAI registration can be obtained either offline or online. For obtaining the license offline, the food business owner needs to send an application to the Licensing Authority along with requisite fees. However, the license can be obtained online via FSSAI Food Safety Compliance System (FoSCoS) which is a more hassle free and convenient form of registration. 

The types of licenses are based on the annual turnover of the particular food business. There are three types of FoSCoS food licence as follows:

Basic FSSAI license – Annual turnover of less than Rs. 12 Lakhs.

State FSSAI license – Annual turnover between Rs. 12 Lakhs to Rs. 20 Crores.

Central FSSAI license – Annual turnover of more than Rs. 20 Crores

An application form is sent to the Licensing Authority along with registration fees, which can now be paid online as well. On registration, a FSSAI number is given to the business. On completion of the registration process, a fourteen-digit FSSAI license number is provided to the food business operator. This number is printed on every food package manufactured or processed by the business. . FSSAI License is issued with varying validity from 1 year to 5 years and its non-registration attracts penalties under the Food Safety and Standards Act, 2006.

The Food Safety and Standards Authority also efficiently inspects the food industry start-ups to ensure and identify the level of compliance that is set out in the regulation.

 Packaging and Labelling of food products: There are food packaging compliances that are specified according to the regulations provided for pre-packaged, proprietary, and other specific products. It claims that the food should be packed in a manner such that its contents remain unchanged until its consumption. For this purpose, every food industry starts up must comply with the Food Safety and Standards (Packaging and Labelling) Regulations, 2011.

Compliances related to food contamination: Food Safety and Standards (Contaminants, Toxins, and Residues) Regulations, 2011provide FSSAI compliances that have been further extended to provide food quality to avoid food adulteration. Contamination of food at any point in time, before it reaches the consumer is a major issue.

 Environment and pollution-related clearances: Various clearances required are:

• Pollution control: A No Objection Certificate (NOC) has to be obtained from the State Pollution Control Board (SPCB) before the commencement of construction of the food industry. In case, the industry lies in the high-pollution category, a full-fledged Environment Impact Assessment (EIA) is required. It is submitted to SPCB for approval. Only then the construction can begin.
• Industries that require water and effluent disposal: NOC from the designated SPCB must be obtained before the commencement of the construction.
• Industrial units functioning outside industrial area: This requires permissions from local bodies, including; municipal corporation and panchayats. In case of purchase of private agricultural land, the land has to be rezoned to be recognized as an industrial zone. Such permissions are obtained from the local office of the Directorate of Town & Country Planning.
• Registration and licensing of a boiler: The safety clearance of the boilers is required before the commencement of the operations. The Chief Electrical Inspector and Chief Inspector of Boilers will provide clearances related to electrical and pressure vessels (boilers) respectively.
• For 100% export oriented units, additional concessions can only be enjoyed after the clearance is obtained from the Development Commissioner of the Export Processing Zone (EPZ). In case the equity shares are offered to the public to raise funds, one must get the clearance from the Stock Exchange Board of India (SEBI).

GST Registration: Tax registration is one of the most important registrations in any business. Firstly, the business, for the purpose of income tax, shall have a Permanent Identification Number (PAN) and Tax Account Number (TAN) mandatorily, under the name of the business or the owner, if the business is a sole-proprietorship. 

Secondly, Goods and Service Tax (GST) registration is mandatory for all businesses like trade, commerce, manufacture and all food businesses, be it a sole-proprietorship, partnership, limited liability partnership, company or firm, irrespective of their scale, volume, or frequency. This also includes the supply of goods and services for the start and termination of any business. GST registration is required where the financial turnover (“Aggregate turnover”) of the business is more than Rs. 20 Lakhs (Rs. 10 Lakhs for special category states as categorized under the GST Act, 2017) in a financial year which includes aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services, and inter-State supplies. Businesses which do not cross the statutory threshold are exempt from GST registration. Under the recently adopted Goods and Service Tax regime, all business with an annual turnover of INR 20 lakh are required to register and pay GST.  FSSAI has now decided to reclassify food businesses on the basis of the turnover in order to align with the new GST regime

Land Registration: For setting up agro-processing clusters, land acquisition is difficult. The government provides aids to acquire at least 10 acres of land is required to be arranged either b purchase or on lease for at least 50 years.

Fire Department: Another pre-requisite for setting up a food business is No Objection Certificate (NOC) from the fire department of the concerned area. In order to obtain a fire security NOC, an application has to be made to the concerned fire department along with necessary documents such as building plans, model of the building and certificate from the architect and also fill out a questionnaire related to compliance with fire safety rules and regulations. Post verification of the application, an inspection will be carried out by the officials of the fire department.  According to Fire Services Act in the state, one must acquire a NOC from the Chief Fire Officer. For this purpose, one share requires 2 sets of the building plan and a duly filed questionnaire provided by the Fire Department. Also, a model of the building and checklist with certification from the Architect are mandatory to present here.

Health Trade License: A health trade license allows a business to trade in any items or services which have a direct impact on public health. A food business that has this license from the Municipal Corporation, is certified to be in compliance with hygiene and safety standards. A Health Trade license is issued by the Municipal Corporation or the health department of the State in which the business carries out its trade activities. Since every state has its own municipality laws, one can apply for this license through local municipality office.

Labour Law Registrations

• Employees State Insurance (ESI) registration: The Employees State Insurance Act, 1848 provides certain benefits to employees. All factories within employees more than 25 members shall provide self-financing social security and health insurance for Indian workers. Medical, sickness, maternity, and disability benefit are provided against any mis-happening that may happen with a worker during the course of work.
• Employees Provident Fund (EPF) registration – Businesses with more than 20 employees have to obtain EPF registration. Employees who earn less than Rs. 15,000 per month have to be mandatorily covered under the EPF.
• Contract Labour registration – Businesses which employ more than 20 employees sourced from a manpower supplying agency like waiters, guards, housekeeping etc. have to obtain a registration as a principal employer to those employees.

Electricity meters: Factory built buildings and homes shall meet meters and metering requirements. This includes meter sockets and electrical wiring. Provisions shall be made such that the electrical consumption is minimum and safe. Only commercial units suitable for the electrical load of the industry can be used in a factory.

On one hand, all these compliances are mandatory, there are also schemes available under the Ministry of Food Processing Industries. The schemes aim to provide development of modern infrastructure and common facilities. Agro-processing clusters can receive benefits in enabling basic infrastructure and core infrastructure. Besides this Mega Food Parks have been developed under the Pradhan Mantri Kisan Sampada Yojana. Efforts have been put in place in order to develop skills. While compliances are difficult to follow, these schemes offer respite to food industry start-ups to develop and nurture their growth.