Efficiency and related technological aspects of the Indian food processing industry: A non-parametric analysis

With a continuously growing population, India faces a real challenge in fulfilling the target of food security for all of her citizen. Parallel to increment of food production, better processing of it as well plays a vital role in ensuring nutrient food to all in a sustainable fashion. Food processing industry may plays a vital role in this direction and, therefore, occupies an important place in India’s overall economic growth, in general and that of her manufacturing sector, in particular. For its significant share to the industrial output and both direct and indirect employment generating capacity, food processing industry is considered to be a remarkable pooling factor for the prosperity of agricultural sector as well. In this study, we explore the performance of the production units of this industry. We have analyzed data on Annual Financial Statements of food processing companies, collected through Prowess database of Centre for Monitoring Indian Economy (CMIE) during 2000-2015. We use a two stage methodology for our analyses. Using data envelopment analysis (DEA) method in the first stage, we obtain technical efficiency (TE) score of the individual production units of the industry. In this connection, we also examine the extent of diverse technologies used across its various sub-sectors, through a measure called technology closeness ratio (TCR), which we explain in the paper in details. We then explain such TE scores in terms of certain company -specific variables using simple ordinary least squares (OLS) regression method, to have an idea on the factors that may influence such performance. Results suggest that the units producing dairy products and sugar recorded relatively lower level of TE, whereas those producing vegetable oil and products are more technically efficient as compared to other sub-sectors within the industry. Overall TCR varies from 0.63 (for sugar and dairy products) to 0.93 (for vegetable oil and products), implying thereby that the former two have an opportunity to improve their overall performance to a sizeable extent through technological upgradation, whereas the latter does not have much scope to improve themselves in this regard, and can improve their overall performance only through more efficient utilization of available resources! Moreover, observed evidence of positive impact of R and D intensity and infrastructural factor on performance have a remarkable implication on the role of the government for providing necessary infrastructural facilities and (probably) initiating innovative scheme(s) to make research and development activities more attractive to them!