Kpmg assocham - india food processing - 2009

1,147
-1

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,147
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
61
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Kpmg assocham - india food processing - 2009

  1. 1. KPMG IN INDIACONSUMER MARKETSFood processing and Agri business
  2. 2. 01About the studyThis is a briefing paper that was presented by KPMG at the “InternationalSummit on Food Processing and Agribusiness” organized byASSOCHAM. The document analyses the potential of the Indian FoodProcessing sector in two dimensions - India as a Sourcing hub and Indiaas a huge potential market in itself.The study starts with the market landscape of food processing sector inIndia, the key trends in the value chain, growth drivers and the exportscenario. It then identifies the key opportunities for players across thevalue chain.The paper then focuses on key hurdles in the path to growth, andexplains by means of cases how to overcome the hurdles. The documentconcludes with the expectations of the industry and recommendations.© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  3. 3. 02Indias strong agricultural base and accelerating economic growth holds a significantpotential for the Food Processing Industry that provides a strong link between agricultureand consumers. Government also has accorded a high priority to the sector and hasprovided many fiscal incentives. An enviable share of the worlds agri-produce and diverseagro-climatic regions coupled with changing demographic patterns, food habits and rise inincome levels opens up numerous opportunities in the sector – India as a large consumermarket and India as a potential sourcing hub to the world.Yet Indias share in the global food trade is just around 1.5 percent. What are the keyconstraints that are slowing the growth of the sector and how are they being addressed?What are the various opportunities that the Indian Food Processing Industry provides? Whatare the trends in the food trade? How are the consumer food habits changing and how doesit affect the industry? What are the support initiatives taken by the government and whatopportunities do they provide in the value chain beyond just Processing? What is theindustry expecting from the government to further the growth? What further can be done tohelp India reach the very deserving lead position in the global trade?The report aims to answer all these questions on the Indian Food Processing Industry.KPMG conducted extensive research based on information from both primary andsecondary sources – various proprietary databases, our experience with various foodcompanies and interviews with players across the value chain – to understand the sector,the potential and various immediate and long term steps required. A summary of the keyfindings of our analysis is outlined below.Executive Summary© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  4. 4. 03Food is the largest consumption category in indiaIndias Food Processing Industry is estimated to be around USD 67 billion of the USD 180billion Food Industry and creates more employment opportunities per unit investment thanany other sector.India has a diverse agro-climatic regions and soil types with optimum amount of sunshinehours and day length suited for cultivating both food and commercial crops round the year.Naturally, India is a leading producer of many agricultural products like fruits and vegetables,cereals, pulses etc. India offers a huge potential in terms of rising consumption and as asourcing hub for the world due to its supply strength.– Introduction: India - Global Food processing Hub, explains the contribution ofFood Processing to GDP, Indias supply strengths and rising consumption-leddemand, hurdles in terms of wastage and highlights the opportunities in thesector for players and the government.Common features across segments –Largely unorganised – Though the unorganised segment varies across categoriesmentioned above, approximately 75 percent of the market is still in the unorganisedsegment.CHAPTER!Significant opportunities exist across each segmentFood Consumption in India will grow at a CAGR of 5.32 percentSource: BMI, Q1 2009 & CSO151.7 157.7168.6180.1 184.4 191.4 19850100150200250USDBn02005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f210.3229.7CAGR: 5.32%Food Processing SegmentsFood ProcessingFruits &VegetablesMeat &PoultryDairy MarineProductsGrains ConsumerFood1© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Source: KPMG Analysis
  5. 5. 04Level of Processing across SegmentsSegmentFruits and VegetablesFisheriesPoultryBuffalo MeatMilkLevel of Processing2.2%26%6%20%35%CommentsUSA (65 %), Philippines (78%) and China (23%)60-70% in developed countries60-75% in developed countriesSource: UN COMTRADEExport of processed food growing faster than exports of Food overall18.75%21.84%24.63% 25.44%23.63%28.96%31.25%28.78%0.00%5.00%10.00%15.00%20.00%25.00%30.00%35.00%2005 2006 2007 2008Export of Food and Beverages Export of Processed Food and Beverages2© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.! The organised sector is relatively bigger in the secondary processing segment than theprimary processing segment. Also, the primary processing segment is highlyfragmented.The level of processing in each segment is low relative to many other countries and Indiaaccounts for just around 1.5 percent of the global processed food trade.If India was to lift its share of global processed food trade to just 3 percent, the Ministry ofFood Processing estimates that some USD 24.7 billion worth of investment would beneeded to restructure the industry. Taking a cue from the global examples, India also shouldinvest in infrastructure and policy development that helps reduce waste across the supplychain and increase the level of processing and overall value of output.– Food Processing Segments – details each segment of the Food Processingcovering the supply, processing, bottlenecks, and opportunities and explainsthe need for improved focus and investment in the sector.According to Business Monitor International, India’s Food exports are expected to increaseby 72.8 percent over 2008 to USD 24.25 billion in 2013. However, in spite of vast naturalresources, import growth of food products in India is also expected to be strong over theforecast period, to reach USD 12.3 billionby 2013. At an overall Food and Beveragelevel, the export of processed segments isgrowing much faster.During the period 1980-2007 India’s shareof the global food exports has increasedfrom 1.1 percent to 1.4 percent, withmajority of the increase coming during thecurrent decade. Countries like Germany,which had large number of SMEs similar tothat of India, have focused significantly onR&D and Innovations in the sector apartCHAPTERExport of processed foods is growing faster than food segmentSource: MoFPI Annual Report 2007-08
  6. 6. 05Source: UN COMTRADE; CEPIIIndias exports are predominantly to the nearby countries0South Asia 34%Middle East 29%East Asia 17%Western Europe 10%Rest of the world 7%Africa 1%ShareofTrade0%5%10%15%20%25%30%35%40%2000 4000 6000 8000 10000 12000 14000Distance (Kms)US and Canada 1%© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.from investing in infrastructure and supportive policy and legal framework that helped thecountry to the top league of the exporters table. Joint research initiatives that helps SMEsinvest in a federal R&D lab promoted multiple product innovations in the country.India’s trade in various segments in the Food Processing Sector has seen a good growthdriven by the Mango Pulp, Dried and Preserved vegetables, Pickles and Chutney in F&V,Buffalo Meat in the Meat and Poultry, Basmati Rice in Grains and Shrimp in the Fisheriessegments. India’s exports, as is the case globally, are to the proximate geographies led bySouth Asia at 34 percent and USA & Canada a poor 1 percent of total exports.However, significant impediments exist hindering the export growth:Poor quality and grading mechanisms for raw material leading to loss of consistency invariety of raw materialHigh level of wastage across the value chainPresence of too many intermediaries implying a high cost of raw materialHigh costs of packagingLow technology equipment and knowledgeHigh costs and poor quality of distributionStringent Food Safety and Traceability norms from importing (developed) countriesIndia needs to take strong measures to promote growth:Map demand with production capabilities – Himachal Pradesh, is manufacturingcommercial crop in Kiwi, instead of Apples, due to the falling demand for ApplesMove towards non-traditional items – A herbal beverage made from Sea-buckthorndeveloped with DRDO technology opens up a huge market opportunityImprove promotional activities for Indian food and market India as a food sourcing hubPromote investment for increasing the level of processing in the sectorUpgrade agri-infrastructure to have a sustainable supply chain for consistent highquality raw material!!!!!!!!!!!!
  7. 7. 0634© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.••CHAPTERCHAPTERProvision for Training and Education on the safety and health regulations in exportmarketsMarket Diversification – Move over the geographical distance barriers and initiate jointefforts with potential partners in identifying the focus of trade and creation ofconducive regulatory policies. Chile has successfully overcome the distance barrier andexports to far off geographies due to its focus on quality, exports promotion by regionaltrade agreements and joint initiatives.– India’s Food Processing Trade – details the trade statistics of India, India’sposition in global trade, segment level and geography-based trade, theimpediments to growth and key export promotion strategies.Increasing urbanisation, consciousness on health and nutrition and changing lifestyle arechanging the consumption habits of India. The number of working women, singlestudents/professionals and nuclear families is increasing creating a demand for processedReady-to-eat foods. Growth of organised retail, which makes the processed food readilyavailable, is also driving growth of Food Processing.Government has initiated several steps like setting up Mega Food Parks, Integrated ColdChains, Modernisation of Abattoirs, fiscal incentives for technology upgradation, R&D,Training and Educational institutes etc to reduce wastage and boost the growth of thesector.Budget 2009 provides a fillip to agriculture in terms of cheaper finance, increased allocationto irrigation, harmonisation of taxes by implementing GST and fiscal incentives forinvestments in Cold Chain facilities.– Key Growth Drivers of Food Processing Sector in India – details the demand-side and policy-level drivers of the sector, including a section on Budget 2009measures for Food Processing Sector.The Food Processing sector offers many opportunities across the value chain right from thefarm equipment players to the retail/food services segment.Urbanisation and supportive policy is driving growthSignificant opportunities exist across the food value chain
  8. 8. Indias Forex Reserves: 2001-2008 (till March 2008)07CHAPTER – Opportunities in the Food Processing Value Chain – details the food valuechain and provides an analysis of various opportunities that exist across thevalue chain.FarmsInputsFarming Marketing/AggregatorProcessing Logistics(Food)Retail/FoodServicesConsumerFinancial & BusinessServicesTransportServices/InfrastructureQuality Control Market IntelligenceProduct DesignDistributionMarketingPOLICY SUPPORTA summary of the key opportunities is listed below5Summary of Opportunities across the value chainOpportunityCustomised equipment for the local marketProcessable variety of cropsForward Linkages with the ProcessorsContract Farming ArrangementsConsolidation of farm produceAccess to global marketsForward linkages with Organised RetailBackward linkages with farmerInstitutional segment businessIncrease in integrated storage facilities requirementCold storage facilitiesMega Food ParksIntegrated Cold ChainQuality Control and R&D labsFood Safety management systemsJoint Research InitiativesTraining and Provision of Market IntelligencePackaging and barcodingPlayerFarm EquipmentFarmerProcessorLogistics providerInvestorsEnabling Segment© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Food Processing Value ChainSource: KPMG AnalysisSource: KPMG Analysis
  9. 9. Constraint Long and fragmented supply chain leading to high wastage and high costs especially dueto seasonality, perishability and variability of produce.Supply Chain hindrances08Various constraints are impedingthe growth of the sectorThe opportunity in Food Processing industryis significant, but so are the challenges thatail the sector. Certain limitations could beseen as an opportunity waiting to beexploited for the allied sectors and others asa guiding light to a roadmap forgovernments intervention. Below is asummary of various constraints and strategicmeasures.Summary of Constraints and StrategiesR&DConstraint Commodity-centric R&DCompartmentalization of R&D agenciesPoor validation and feedback mechanismsStrategy Need for a systems approach to R&D to enable a holistic research-development-technology transfer continuum involving all stakeholdersStrategy Contract farming helps certainty of supply, reduction of costs, and high remuneration to thefarmers. Suguna Poultry successfully implemented contract farming creating a win-winsituation for the farmer and the integrator. Terminal markets, that operate on a hub-and-spoke format, where in the terminal market (hub) is linked to a number of collectioncentres (the spokes) help procurement of right quality produce at the right price.Constraint Industry is in dire need of highly skilled and trained manpower across different levels tohandle various operationsStrategy Need for institutes and courses that provide managerial, safety and enforcements,technology and production, warehousing and distribution trainings, and regulatory bodiesto focus on trade agreementsHuman Resource DevelopmentConstraint Low level of interaction between industry and research institutesStrategy A few initiatives by CFTRI with industry (MTR, Rishang Keishing Foundation) have beensuccessful. Similar efforts needs to be encouragedIndustry LinkagesConstraint Indian Export related infrastructure for agri-produce is grossly inadequate, especially at seaports and airports. More than 30 percent of the produce from the fields is lost due to poorpost-harvesting facilities and lack of cold chain infrastructure.Strategy India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10Million Ton more. Supportive measures for infrastructure investments from the privatesector are required.Infrastructure bottlenecksConstraint Either unavailability of funds or availability of funds through unorganized sector atunfavourable terms and conditions.Strategy Some organizations have been exploring equity investments in SMEs that operate along thefood value chain. These investors place less emphasis on collateral or creditworthiness and moreon the capabilities of the entrepreneurs and viability of their business plans. Two such initiativesare African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF).Poor Financing Options© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  10. 10. 09CHAPTER – Constraints and strategies – details various constraints and strategies, withcase studies on how some players have been approaching the constraints.Constraint The packaging material is imported from China as the sector lacks government support.PackagingConstraintConstraintConstraintConstraintMultiple laws at state and centre level are applicable to the FPI.Was to enable establishment of private markets, direct purchase centres and promotion ofPPPs, but there is no uniform implementation of the Act. Only 15 states have adopted themodel law.Indias overall agriculture productivity is still at approximately 2 percentUrgent need to make the law uniform across states. Support e-choupal like initiatives thatencourage market reformsStrategy Encourage the sector by extending the tax breaks and concessions to players setting uppackaging industry in IndiaStrategyStrategyPlayers need to device a twin pronged strategy of improving agricultural yields coupledwith delivering the right quality to different marketsStrategyEnsure that the requisite controls are put in place across the agri-value chain-from farminputs to storage of produce to food processing techniques.StrategyNeed for a consolidated law that removes the hassles of multiple departments and multiplelawsMultiplicity of Laws and Stringent RegulationsPoor implementation of APMC ActProductivity IssuesLow adherence to quality standardsUnavailability of basic standardization and certification infrastructure. Given the size of theindustry, there is a huge gap in the availability of laboratories, trained manpower, andcertification agencies.6© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  11. 11. 10© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Industry expects a lot more from the governmentKPMG has interviewed various players across the value chain for the study and collatedtheir expectations. The expectations are as under:100 percent tax breaks in R&D – Large companies are willing to invest in R&D and alsosupport small scale industries provided the government provides incentivesSupport for nutritional products – The industry expects the government to differentiate anutritional product from a non-nutritional product and make laws for labelling andincentivesConducive policy for Contract Farming – Need a change in the currently restrictive landceiling lawHarmonisation of taxes – VAT is not uniform across states leading to different prices indifferent statesMore incentives in Infrastructure Development – Government also needs to share the risksof development and marketFocus on Skill Development – Need for improved focus on establishing training andeducation facilities for production technology, warehousing, testing, safety and qualitysystemsEasier Financing to Food Processing – Need to enable easier financing possibly with aseparate bankKPMG’s recommendations for the sector:More Production of processable varieties to help minimise wastage, improve value additionand improve farmer income. This requires more investments in quality systems, sorting,grading etc.Promotion of Indian Food in global markets to market India as a brand in Food Processing.Infrastructure development through Private Sector Participation (PSP)Implementation of GST (to remove the non-uniformity in indirect taxes)Fiscal incentives for modernisationSupport in meeting export quality norms by training facilities and providing marketintelligence through private bodies and institutes like NIFTEM, CFTRI etcExtend incentives to players who invest substantial amounts in backward integration as thishelps farmers earn remunerative prices by minimising middlemen.Promotion of Nutrition Foods – Need to make nutritional labelling a must and alsoincentivise the players who produce nutrition foods.– Industry Expectations and Recommendations – details the expectation of theindustry and KPMG recommendations for the sector.A dynamic Food Processing sector will help India ensure higher value addition to agriculturalproduce, generate employment, improve farmer income and create markets for domesticconsumption and export of agro foods.!??????????????CHAPTER7
  12. 12. 11ContentsIntroduction: India - Global Food processing HubFood Processing SegmentsIndia’s Food Processing TradeKey Growth Drivers of Food Processing Sector in IndiaOpportunities in the Food Processing Value ChainConstraints and StrategiesIndustry Expectations and RecommendationsConclusionAbbreviations121626414651646869© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  13. 13. 12With agriculture at the core of Indian economy and more than two-thirds of the populationdependent on farming, a developed Food Processing sector can be a strong link betweenagriculture and the consumers. Governments high priority to the sector coupled with agrowing consumption-led demand is leading to a fast pace growth in the sector. Adeveloped Food Processing sector will help overcome the biggest challenges in front ofIndiaLow farmer income and high subsidiesHigh wastage along the value chainPoor hygiene and safety standardsFood processing is the set of methods and techniques used to transform raw ingredientsinto food or to transform food into other forms for consumption by humans or animalseither at home or by the food processing industry. Food processing is a large sector thatcovers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries.It also includes other industries that use agriculture inputs for manufacturing of edibleproducts. The food processing industry is made up of primary, secondary and tertiary foodprocessors.!!!In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flourmills, pulse mills and oil-seed mills. Also, there are several thousands of bakeries, traditionalfood units and fruit & vegetable/spice processing units in unorganized sector.Primary FoodProcessorsSecondary FoodProcessorsTertiary FoodProcessorsPrimary industries process raw foods (wheat into flour, for example)Secondary industries use primary products to manufacture other foods(flour into bread).Tertiary industries produce prepared convenience foods such as frozendinners or canned soup.Introduction:India - Global Food processing Hub© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  14. 14. 1. Ministry of Food Processing Industries, Annual Report 2007-082. IBEF Food Processing Report, June 20083. Changing lifestyle, thriving food processing; FFYMagazine June 200913These numerous advantages and factor conditions like low cost of labour put India in anenviable position to produce a wide variety of food crops and commercial crops fordomestic consumption as well as export.Significant Contribution to GDPand EmploymentIndias Strengths in FoodProcessingIndian food processing industry is estimated tobe around USD 67 billion, of the USD 1801billion food industry, making it the fifth biggest .The food industry expected to grow to USD2280 billion by 2015 and generate an additionalemployment for approximately 8.2 millionpeople. It has been observed that employmentpotential of the food-processing sector is muchhigher than other sectors. For instance, aninvestment of INR 10 billion generatesemployment for 54,000 people in the food-processing sector, jobs for 48,000 people intextiles and employment of 25,000 people inthe paper industry.There is also fourfoldgeneration of indirect employment in auxiliaryand other downstream activities on account ofinvestment in the food sector. Also, 60 percentof the employment generation takes place in3small towns and rural areas .India is one of the key food producers of theworld and has access to several naturalresources. Diverse agro-climatic conditionsand wide ranging raw material base adds tothe huge advantage of a large untappeddomestic customer base.Food processing industry in India issupported by a great agri-climatic diversitysuitable for round the year cultivation ofcrops. In terms of production, India is amongthe worlds major food producers – Indiaaccounts for 17 percent animal, 12 percentplants and 10 percent fish genetic resourcesof the globe; and 16 percent of cattle, 57percent of buffalo, 17 percent of goats and 5percent of sheep population of the world.Diverse agri-supply52% cultivable land comparedto 11% world averageLargest livestock populationAll 15 major climates in theworld exist in IndiaLargest producer of milk46 out of 60 soil types existin IndiaLargest producer cereals20 agri-climatic regionsSecond-largest fruit andvegetable producerSunshine hours and day lengthare ideally suited for round theyear cultivationAmong the top five producersworldwide of rice, wheat,groundnuts, tea, coffee, tobacco,spices, sugar and oilseeds.India has the largest area in the worldunder pulse cropsIndia is the first in the world to evolve acotton hybridIndia grows more than half of the worldsmangoes and leads all countries in theproduction of cashews, millet, peanuts,pulses, sesame seeds, and teaThe nation ranks second in the productionof cauliflowers, jute, onions, rice,sorghum, and sugar caneIndia is also the worlds largest grower ofbetel nuts, which are palm nuts chewedas a stimulant by many people in tropicalAsia. It is also a leading producer of suchspices as cardamom, ginger, pepper, andturmeric.Some Interesting facts onIndian Agriculture© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Source: Can India be the Food Basket for the World, An ISB Working PaperStatistics Source - National Horticulture Board, FICCI, MoFPI
  15. 15. 14Indias Rank relative to the world in various agri-productsPercent Share HighLowRankHighLowPulses, 1 , 21Buffalo, 1 , 57Paddy (Rice), 2 , 21Chicken, 6 , 3Sheep, 5 , 5Eggs Total (m) 5, 3Cattle, 1, 16Total Milk, 1, 14Cereal, 3, 11Potatoes, 3, 8Wheat, 2 , 12Onions, 2 , 11Veg & Melons,2, 10Item, Rank, % of Global ShareConsumption-led demandSource: BMI, Q1 2009 & CSOFood Consumption in India151.7 157.7168.6USDBn180.1 184.4 191.4 198210.3229.70501001502002502005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013fCAGR: 5.32%India, with a population of more than 1.1 billion, is one of the largest consumer markets inthe world. Food consumption in India is expected to grow to 229.7 billion in dollar terms by42013 from 168.6 billion in 2007 . Food and Beverages is largest category in Indian5consumer spending and is expected to remain in the future . The countrys highly favourabledemographic patterns, with more than 50 percent of the population below 30 years of age,increasing disposable income, urbanisation and lifestyle change are likely to bring aboutchanges that will enforce shifts in the Indian food and drinks industry, as young populationsare one of the key drivers in the demand for processed and health foods.© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.4. Business Monitor International, Jan-Mar 20095. The Rise of the Indian Consumer Market, McKinsey 2005Source: FAO, Kotak Securities
  16. 16. 15Hurdles in the growth pathIn spite of the huge supply advantages, Indias share in the global food trade is still around1.5 percent. Huge losses across the value chain resulting in poor processing levels arelimiting the growth the Indias share in the global processed food trade.Processed food has a longer shelf life and reduces wastage. The lack of processing andstorage of fruits and vegetables results in huge wastages, as shown in the figure,estimated at about 35 percent, the value of which is approximately INR 33,000 crore6annually (Recent reports put the number at a much higher level). So, it is imperative for thegovernment and private players to invest in infrastructure to make India not only havesustainable food production for its growing population but also export more to the world.The low share of processed food and global trade is an opportunity waiting to be tapped.Increasing urbanisation and rise in disposable incomes will further push demand forprocessed food. This is an opportune time for companies to invest in quality facilities anddevelop products with features that appeal to the growing Indian consumer base and theexport markets.Also, from a governments point of view, Food Processing sector can help reduce theburden of subsidies and raise the farmers income simultaneously. Agricultural produce thatis processed for domestic consumption can not only fetch higher prices and hence higherincome for the farmers, but also generate direct and indirect employment helping alleviaterural poverty. So, the government should continue to support the industry with an enablingand growth oriented policy.Significant Opportunity – Domestic Market and ExportsField Losses(Pest, Diseases, Rodents etc)Pre-Processing(e.g. inefficient harvesting, drying, milling)Transport(e.g. spillage, leakage)Storage(e.g. technical deficiencies)Processing & Packaging(e.g. excessive peeling, washing)Marketing(e.g. spoilage, rotting in stores)Wastage by Consumer(e.g. overeating, food wastage)Developing CountriesRelatively high losses inthe initial parts of thevalue chainRich Countries Highlosses at ain the food chainlater stageFieldConsumerProducerFork Britt-Lousie Anderson, SIWI© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.6. Ministry of Food Processing Industries, Annual Report 2007-08
  17. 17. 16Food Processing SegmentsIndias low level of processing is expected to change significantly in the future fuelled bysustained economic growth and steady urbanisation. Processed food output is expected togrow at a strong 7 percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.61billion USD in 2013 . Premiumisation, especially among the young and rich urban population,is also a key factor helping value growth over the forecast period.Source: BMI, Q1 2009USDBnCAGR: 7%Processed Food Output55.658.962.566.271.577.283.490.195.601020304050607080901002005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013fFood Processing SegmentsA schematic diagram of the key segments in the industry is as shown below.Food ProcessingFruits &VegetablesMeat &PoultryDairyMarineProductsGrainsConsumerFood© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.1. Business Monitor International, Jan-Mar 2009
  18. 18. 17Source: EXIM BankIndias share of global production - F&V41 23 24 36 1059 77 76 64 900%20%40%60%80%100%Mango Banana Cashew Nuts Green Peas OnionIndia Rest of the WorldCommon features across segments –Largely unorganised – Though the unorganised segment varies across categoriesmentioned above, approximately 75 percent of the market is still in the unorganisedsegment.The organised sector is relatively bigger in the secondary processing segment than theprimary processing segment. Also, the primary processing segment is highlyfragmented.The following sub-sections provide a brief overview of the key segments. While theopportunities and constraints at segment level are touched upon, a detailed analysis isprovided in later chapters.SupplyFruits and vegetables is one of the most important and fast growing sub-sectors of the foodprocessing sector, as fruits andvegetables form an indispensable part ofhealthy diet. India accounts for 13percent of vegetables and 12percent offruits production globally, with anenviable share in few categories likeMango, Banana, Cashew, Green Peasand Onion. The productivity has alsoimproved from 10.25 and 14.37 millionTons/Hectare for Fruits and Vegetables in2002-03 to 10.94 and 16.14 millionTons/Hectare for Fruits and Vegetablesrespectively.ProcessingThe installed capacity for fruits and vegetable processing in India has increased from 11.082lakh tons in 1993 to 24.74 lakh tons in 2007 , mainly due to the increasing demand fromready-to-serve beverage industry, fruit juices and pulps, dehydrated and frozen fruits andvegetable products, pickles etc.!!Fruits and Vegetables ProcessingYear2002-032003-042004-052005-062006-072007-08Fruits – (Mn Ha)5.15.35.35.65.84.8Fruits VegetablesFruits - Production (Mn Tons)49.852.855.459.663.549.2Vegetables – (Mn Ha)5.96.77.17.27.57.8Vegetables – (Mn Tons)84.8101.4108.2111.4115. 0125.9Source: National Horticulture Board© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.2. Indias share in world fruit, veg market remains poor, Feb 14 2009, news.webindia123.com
  19. 19. 183The share of the organised sector in Fruits and Vegetables processing is 48 percent .Majority of the units are in the Small Scale sector, having low capacities up to 250 tons/yearthough big Indian and multinational companies have capacities in the range of 30 tons/hr.Currently, only 2.2 percent of the total produce in India is processed and the rest marketedas fresh fruits and vegetables. Globally, developed countries process fruits and vegetablesin excess of 65 percent.Bottlenecks4In spite of the strong supply base, India has a low 1.38 percent share of global trade . Indiasexports of fresh fruit and vegetable stood at INR 2,411.66 crore (534.97 million dollar) in2006-07. It is estimated that around 30 percent of the produce is lost due to lack ofprocessing facilities (in flush season) and inadequate infrastructure for post-harvesttreatment, packing, storage and transportation.The demand for processed fruits and vegetables is lower in India mainly on account ofhigher costs that can be attributed to higher duties and taxes on packaging material,inefficient supply chain with lot of intermediaries, absence of cost-effective latesttechnologies for processing, infrastructural bottlenecks and high cost of finance. Smallerunits and their lack of marketing strength for end-products also is a major constraint forexpansion of domestic market.SummaryFruits and vegetables offer a significant potential for the organised processing players dueto the low level of processing and a vast supply base, coupled with considerableinternational demand for certain fresh as well as processed fruits and vegetables. However,inefficient domestic farming, higher costs of product delivery, exports protection anddemanding standards, intermediaries and inefficiencies in the supply chain are the biggestbottlenecks in the growth of the sector. The recent emphasis on Fruits and Vegetables inlight of nutrition security, growing interest of food processors and more profitable land usehas brought in a significant change in the outlook of the producers who started using thearid/semi-arid lands and the horticultural crops that have lesser demands on water and givesthree to four times more remuneration than field crops.SupplyIndias has the largest livestock population in the world, however, most animals are not bredfor meat, as a vast majority of the Indian population is vegetarian. Animals generally usedMeat and Poultry ProcessingDried fruits and vegetablesFruit juice concentratesVegetable curries in restorable pouchesMushroom productsFruit pulps and juicesReady-to-serve beveragesCanned/Frozen fruits, Pulp and vegetablesJams, squashes, pickles, chutneysProminentProcessedFruits andVegetables(India)© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.3. DGCIS4. MoFPI Annual Report, 2007-08
  20. 20. As is evident from the figure, most of the broiler meat produced is used for domesticconsumption, while beef and veal meat is also exported.Processing5The level of processing in meat is just about 6 percent , as the Indian customers preferfresh meat from the market thanprocessed/frozen meat.. For this reason,processing of large animal meat isusually high in exports. Also, Indianbuffalo meat, due to its lean characterand nearly organic in nature, is highlypreferred in the export market. Poultry,with advantages of being the mosteconomical source of animal protein,acceptability to all non-vegetarianpopulation and with no religious taboo, isthe fastest growing segment.Source: MOFPIMeat and Poultry Processed Quantity in Tons and INR Crore02000004000006000008000001000000120000014000002003-04 2004-05 2006-07YearMetricsTonsINRCrore05001000150020002500300035004000Processed Meat in Metric Tons Processed Meat in INR Crore2005-06195. MoFPI Annual Report, 2007-08for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for morethan half of the global buffalo population indicating a significantly high export opportunity.India ranks among the top six egg producing and among the top five chicken producingcountries.India - Broiler Meat and Beef Production Vs Consumption190020002240249027702,2502,3752,5002,6551,6331,694 1,7351,8451,975277024902239200018992,7901300150017001900210023002500270029002004 2005 2006 2007 2008 20092,130165016481,638Broiler Meat Production (1,000 Metric Tons (Ready to Cook Equivalent))Broiler Meat Consumption (1,000 Metric Tons (Ready to Cook Equivalent)Beef and Veal Production (1,000 Metric Tons (Carcass Weight Equivalent))Beef and Veal Consumption (1,000 Metric Tons (Carcass Weight Equivalent))Source: USDA-FAS, Oct 2008© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  21. 21. 20BottlenecksThere are a limited number of integrated poultry processing plants in the organized sector,though the small poultry processing units are in plenty. Per capita consumption levels ofmeat is very low in India, as there are religious taboos attached with consumption of beefand pork. Also, exports in Poultry are hindered by the subsidies that developed countrieslike USA and EU provide.SummaryApart from the huge opportunity for India in the buffalo meat export, the poultry segmentwith the current low per-capita consumption and world class production infrastructure andproductivity offers a potential export opportunity. There is a large potential for setting upmodern slaughter facilities and development of cold chains in meat and poultry processingsector. India needs to come up with strong support measures to increase its domesticconsumption levels, like for example, inclusion of eggs in the mid-day meal program and are-look at the taxes including VAT for poultry segment.SupplyIndia is the largest producer of milk in the world –Milk. Milk products production is expected toincrease from 99.9 million tons equivalent in 2006 to108.8 million tons in 2009 growing at a CAGR of 2.89percent.The milk surplus states in India are Uttar Pradesh,Punjab, Haryana, Rajasthan, Gujarat, Maharashtra,Andhra Pradesh, Karnataka and Tamil Nadu withmajority of the manufacturing of milk products alsoconcentrated in these states.Dairy ProcessingSource: USDA-FAS, Oct 2008Source: FAO Food Outlook, June 2009Consumption - India Vs Global - Poultry and Beef22.8 22.6 22.5 23.0 22.9 22.8 22.51.4 1.5 1.7 1.8 2.0 2.2 2.417.9 17.7 17.6 18.2 17.9 17.9 17.71.4 1.5 1.5 1.5 1.5 1.6 1.70.05.010.015.020.025.02003KilogramsperPerson2004 2005 2006 2007 2008 2009Global (Poultry) India (Poultry) Global (Beef) India (Beef)India - Milk/Milk Products Production99.9102.9105.8108.8949698100102104106108110MillionTons2006 2007 2008 2009 (f)CAGR: 2.89%© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  22. 22. 21ProcessingIndias unique pattern of production,consumption, processing and marketing ofdairy products consist of over 11 millionfarmers organised into about 0.1 millionvillage Dairy Cooperative Societies (DCS).These cooperatives form part of a nationalmilk grid which links the milk producersthroughout India with consumers in morethan 700 towns and cities handling about 186million kg of milk per day . The dairy sectorranks first in terms of processed food, with37 percent of the produce being processed,but the organised sector accounts for amere 15 percent, processing about 13 million tons annually while the unorganised sector7processes about 22 million tons per annumGhee is the most widely marketed and branded product with a nation-wide penetration of24.1 percent and growing at a rate of 8 percent per annum. The dairy whitener marketcomprises of sweetened milk powders, condensed milk and creamers. The organisedcheese market is dominated by processed cheese which accounts for 74 percent marketshare. In the Ice Cream segment, organised sector accounts for a high 70 percent and is8growing at 20 percent per annum .BottlenecksThe packaged milk segment is dominated by the regional and national level DairyCooperative Societies. These Dairy Cooperative Societies collect milk from the varioussmall-scale vendors, pack it and distribute it under their brand name. Despite the highproduction, the per capita consumption of milk in India is still lower at 229g/day compared6to the world average of 285g/day . The farmers are not allowed to sell milk to new playersoutside the cooperatives preventing huge investments from large foreign players.SummaryLess than 0.4 percent of the total milk and milk products are exported and virtually noneimported. Most of the production is consumed in the domestic market. Also, the organisedSource: MOFPIDairy Products Processing in IndiaQuantity Value010000200003000040000500006000070000YearQuantityinMetricTonsValueinINRCrore01002003004005006002003-04 2004-05 2005-06 2006-07Source: Diary India Yearbook, RabobankShare (%)45%19%8%5%23%Retention by rural consumers/ sale to rural nonSold as loose milk in urban areasPacked liquid milkValue added milk productsValue added milk productsTypeProcessed (Unorganized)Processing SegmentUnprocessedProcessed (Organized)© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.6.7. India InfolineMoFPI Annual Report, 2007-08 8. IBEF Food Processing Report, 27-Jun-2008
  23. 23. segment accounts for a lower 15 percent share. There is tremendous potential for theorganised play if the restrictions on the sale from farmers are removed and a level playingfield is created for all.SupplyIndia is the third largest producer of fish and second largest producer in terms of freshwater fish. The fisheries sector is classified as marine, inland and aquaculture. The capturedfish consists of 62 percent of total fish production while the rest 38 percent is from9aquaculture . The total production of fish and fishery products has grown from 7 million tons10(live weight equivalent) in 2006 to 7.4 million tons in 2007 .ProcessingThe infrastructural setup of the sea food processing industry indicates a distribution ofmajor fishing bases in Kerala, Tamil Nadu, Karnataka and Maharashtra whereas theconcentration of the processing plants, freezing and storage capacities are more in Kerala,Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and West Bengal.Utilised capacity is just 20 percent of theinstalled capacity in the fish processingindustry due to raw material shortage,inability to meet the market demand forvalue added products and safety relatedregulation of importing countries. The frozenproducts propel sea food exports businessand hence need a strong emphasis on valueaddition in addition to addressing problemsof idle capacity utilisation, technologicalupgradation and compliance with safetyrelated regulations of buyers.BottlenecksMajority of the Agri-Export Zones and Food Parks are related to horticulture products andvery few are ascribed to development of sea food processing industry although 25 percentof the total agricultural export is on account of sea food. Although by volume, the majorshare of marine fish rates is in the fresh form (70 percent), the major focus of the industry11is on the frozen products which have a share of 7.5 percent of the total catch . This is mainlybecause of the export demand for frozen products and consequent need for value addition.Marines Products Processing22Marine Products Processing in India01000002000003000004000005000006000007000000100020003000400050006000700080009000INRCroreMetricTonsQuantity (in Metric Tons) Value (in INR Crore)2001-02 2002-03 2003-04 2004-05 2005-06 2006-07© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.9.10. FAO Food Outlook, June 2009MoFPI Annual Report, 2007-08 11.K.G.Karmakar, Managing Director, and Dr G.D. Banerjee,Deputy General Manager, NABARDValue Addition by the Marine Fisheries Sector - DrSource: MoFPI Annual Report 2007-08
  24. 24. 23Source: Value addition by the marine fisheries sector - Dr K.G.Karmakar & Dr G.D.Banerjee, NABARDThe basic tenet on which the sea food industry is presently working is that there is nodemand for value added products in the domestic market as consumers prefer fresh fish.Also, the infrastructure for handling, distribution and storage is not well developed in thedomestic market and hence the segment focuses heavily on exports.SummaryGovernment needs to support the industry by developing technology for value addition andinfrastructure for exports in the form of food parks focused on marine products. Valueaddition to a part of the fish catch can transform the domestic market which is experiencinga sea change with an increasing demand for processed and ready-to-eat fish products likeBreaded and Battered fish items, Fish Burgers, Sea food mix, fish fillets, etc. Fish sauce,silage and other fermented products are important areas of value addition at the lower endof the chain. The segment focuses heavily on exports as the local demand in primarily in thefresh fish. As the demand for processed marine products is increasing in India, thegovernment needs to encourage investment in infrastructure for distribution and storage.Processed IQF (Instant Quality Freezer) marine products have a higher price in foreignmarkets than conventional block-frozen material. So, products like shrimp, lobster, fish,clams and fish fillets, provide opportunities for export.SupplyIndia produces more than 200 million tons of different food grains every year - 209.32million tons in 2005-06. India produces all major grains - rice, wheat, maize, barley and12millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) . The majorsegments within Grain Processing are Oil Milling and Pulse Milling & Flour Milling. IndianOilseed sector is one of the largest in the world, with a total turnover of INR 86,000 crore ofwhich INR 16,000 crore are import/exports. India is next only to European Union and Chinain terms of vegetable oil imports.Grain ProcessingFish Disposition in IndiaFresh 70.00%Frozen and Processed 7.50%Cured Form (dried, saltedand smoked products)12.50%Canned 0.50%Fish Oil 6.00%Fish Meal & Manure 1% Miscellaneous 2.80%© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.12. MoFPI Annual Report, 2007-08
  25. 25. 24ProcessingThe solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is13reported at 115.4 lakh tons compared to 122.0 lakh tons in the previous year .Grain processing is the biggest component of the food sector, with a share of 40 percent.But the sector is predominantly into primary processing, sharing 96 percent of the totalvalue, while the secondary and the tertiary sectors add 4 percent.BottlenecksThe low level of technology modernisation in the sector with a high primary processingleads to low value addition in the sector. India needs to promote the products for exportbetter, like Basmati.SummaryIndian rice, especially Basmati rice, has gained international recognition, and is a premiumexport product. The sector is recognised as a key for nutrition security in India and hence,there is a need for improving the processing capabilities beyond the small scale/cottageunorganised industries to the organised segment. So, for adequate and focused growth ofthe sector the Ministry is providing financial assistance to the grain processing industriesfor its setting up/ expansion/modernization in the form of grant.Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages.Packaged foods includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, cornflakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread and biscuitsconstitute the largest segment of consumer foods. The packaged food sales topped 13billion USD in 2007 and are expected to reach 23.4 billion USD by 2013.Consumer Food ProcessingSource: BMI, Q1 2009Packaged Food Industry Data10.511.71314.215.517.319.521.723.49.610.611.5 12.413.514.816.518.119.30510152025USDBillionUSDollar2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f0510152025Packaged food sales (USD Bn) Per-capita package food spending (USD)© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.13. MoFPI Annual Report, 2007-08
  26. 26. 25Non-Alcoholic Beverages segment is broadlydivided into carbonated drinks, non-carbonated drinks and hot beverages. Thecarbonated drinks comprise the soft drinksthat are the colas. The non-carbonated drinkscategory consists of fruit based/flavouredbeverages. In non-alcoholic beverages, Indiais a small but competitive player in coffee.India is the fifth largest coffee producer inthe world accounting for 4.07 percent of theworld production (2004-05). In Tea, India isthe largest producer in the world, whichcontributes around 31 percent in the world.But owing to high domestic demand, the14share of exports for India is just 14 percent .Alcoholic beverages segment is the largestin the world and provides ample scope forvalue addition and employment generation.The estimated demand for spirits and beer isaround 373 million cases. Twelve jointventures companies having a licensedcapacity of 33919 Kilolitres per annumproduce grain based alcoholic beverages. 56units are manufacturing beer under license15from the Government .Majority of the processing in the segment isstill under the unorganised sector – 60percent for Bread and 80 percent for Biscuits15in terms of production . Manufacturing ofbread is reserved for small-scale industry(SSI).India accounts for less than 1.5 percent ofthe global food trade, despite being theworlds leading producer of milk, live stockand cereals, and ranked second in terms offruit and vegetables, the level of processingLevel of Food Processing in Indiaacross segments is not comparable to the global levels. The following table shows the levelof processing across segments and the relative global levels for the segment.Indias agricultural production base is strong but at the same time wastage of agriculturalproduce is massive. Even, within the country, share of fruits and vegetables processed ismuch less when compared to other segments such as milk (35 percent) and Fisheries (26percent). The high wastage levels across the value chain lead to a significant value loss. Themain reasons attributed to the loss are lack of proper infrastructure for handling,transportation and storage. Another form of wastage is the high level of intermediation inthe supply chain that leads to higher costs as well.Globally, countries and large companies have invested in disintermediation, developedstorage and transportation infrastructure and facilitated in bringing commercial/ technicalknowledge and market intelligence to the farmer. The hygiene/safety standards training andcertification facilities also were provided across the value chain. This resulted intremendously increasing the value of the output and reduction in costs of raw material forthe producers, while improving farmers income levels. If India was to lift its share of globalprocessed food trade to just 3 percent, the Ministry of Food Processing estimates thatsome USD 24.7 billion worth of investment would be needed to restructure the industry.Taking a cue from the global examples, India also should invest in infrastructure and policydevelopment that helps reduce waste across the supply chain and increase the level ofprocessing and overall value of output.Need for improved focus and investmentLevel of Processing across segments (Source: MOFPI Annual Report 2007-08)SegmentFruits and VegetablesFisheriesPoultryBuffalo MeatMilkLevel of Processing2.2%26%6%20%35%CommentsUSA (65 %), Philippines (78%) and China (23%);60-70% in developed countries60-75% in developed countries© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.14.15. MoFPI Annual Report, 2007-08Cygnus Research, Jan 2007
  27. 27. 26Indias Food and Drink TradeSupported by a committed government in improving the food trade and providing aconducive atmosphere for agriculture, India is a net exporter of agricultural products. BMIIndia Food and Drink Report for Q1 2009, expects India to be a net food exporter to 2013.The report attributes the status to Indias immense landmass and availability of a largenumber of commodities. Over the forecast period to 2013, exports are expected to increaseby 72.8 percent over 2008 to USD 24.25 billion. However, in spite of vast natural resources,import growth of food products in India is also expected to be strong over the forecastperiod, to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export1of processed segments is growing much faster as shown in the figure .Indias Food Processing TradeSource: BMI, India Food & Drink Report Q1 2009India - Food and Drink Trade0.005.0010.0015.0020.0025.0030.002005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013fExports Imports10.8112.2814.0315.5817.2719.4921.9224.254.586.14 6.82 7.538.67 9.4410.42 11.2412.319.19© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.1. UNCOMTRADE
  28. 28. Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India.MPEDA is responsible for overseeing all fish and fishery product exports; other processedfood product exports are the responsibility of APEDA. The Government of India (GOI) hasaccorded high priority to the establishment of cold chains and encourages major initiativesin this sector.Foreign equity participation of 51 percent is permitted for cold chain projects.There is no restriction on import of cold storage equipment or establishing coldstorages in India.National Horticulture Board (NHB) operates a capital investment subsidy scheme (CISS)that subsidises the promoter.!!!27Source: UNCOMTRADEExport Growth Rate: Food Vs Processed Food18.75%21.84%24.63% 25.44%23.63%28.96%31.25%28.78%0.00%5.00%10.00%15.00%20.00%25.00%30.00%35.00%2005 2006 2007 2008Export of Food and Beverages Export of Processed Food and Beverages© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  29. 29. 28Role of APEDAAPEDA is the apex agency entrusted with the responsibilityof facilitating and promoting exports of agricultural andprocessed food. APEDA is responsible for 40 percent of thetotal agricultural exports from India.The remainingcommodities such as tea, coffee, tobacco, spices, marineproducts and rubber are handled by separate boards.! Promote exports to maximise foreign exchangeearnings! Increase per unit value realisation to the farmers andimprove their income! Promote value addition to farm produce and generateemployment opportunities! Development of industries relating to scheduledproducts for exports by providing financial assistance orotherwise! Fixing of standards and specifications for the scheduledproducts for the purpose of exports! Carrying out inspection of meat and meat products forensuring quality! Improving of packaging and marketing of the scheduledproducts outside India! Collection of statistics from various sources andpublication of the statistics so collected or of anyportions thereof or extracts there from! Training in various aspects of the industries connectedwith the scheduled productsGoals of APEDAAccordingly APEDA has been entrusted with the followingfunctions:Case Study: Role of APEDA in developing exports fromNorth East Region (NER)BenefitsAPEDA identified the major horticultural products of theNER with good export potential – Citrus, Banana, Pineapple,Papaya, Jack fruit.The following strategy was adopted byAPEDA to promote exports from the region! Provision of Infrastructural facilities like pack houses,cold storage and refrigerated transport! Farmer Education on pre- and post-harvest measures inlocal language and quality awareness! Transport assistance for horticultural products from theregion! Market linkages – Establish linkages with major playerslike ITC, HUL, Dabur etc! Financial Assistance – Sponsored delegations ofexporters every year to Aahaar, integrated packhousefacility in Mizoram for INR 3.2 crore, 4 refrigeratedtransport vans for NERMAC ltd and Government ofTripura, INR 3.15 crore to AIDC, Guwahati, MoU withCONCOR to operate and manage all infrastructureprojects! Export Development Fund – Increase in expenditurefrom INR 38 lakhs in 2000-01 to INR 6.3 crore in 2005-06for the NER! Promotion of Agri-Export Zones – 4 AEZs inTripura,Assam and Sikkim.InTripura, AEZ is expected to benefit more than 400 farmersin the first phase and incremental exports are expected tobe INR 32 crore. Sikkim AEZ is expected to benefit a muchlarge section of the farmer community – 5000 farmers inaddition to more than 500 in processing and value chain.© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Source: APEDA
  30. 30. 29Indias Position in the Global TradeAccording to the WTO statistical database, the US is the worlds leading food exporterfollowed by Netherlands, Germany, France and Brazil in the top five. In spite of the supplyadvantages, India stands a distant 21st for the year 2007, with a 1.4 percent share in theglobal trade. India is a major exporter in the Food Industry and imports less. The exports aregrowing at over 15 percent y-o-y with 2007 growth a high 29 percent. During the period1980-2007, Indias share in the global exports have increased from 1.1 percent to just 1.4percent, the majority of the increase happening in this decade.Annual percentage changeShare in world exportsValue191627231920-24245929451320072006912121313155161417142315200577313183-515-3131630142000-071210719149517179141912200744.69.69.64.63.61.91.91.81.81.61.41.41.1200043.810.712.63.03.12.32.91.31.31.91.20.91.01990--13.42.82.52.12.50.91.11.00.9-0.61980--17.64.21.41.33.30.70.90.91.1-0.32007406.8387.9387.5942.1033.1517.6917.5716.3116.2014.6213.2012.629.65ExportersEuropean Union (27)extra-EU (27) exportsUnited StatesBrazilChinaThailandAustraliaIndonesiaMalaysiaMexicoIndiaRussian FederationChile(Value In USD billion)The food industry is one of the most important segments of Germanyseconomy, with high relevance for employment and economic output. Novelfood, new scientific and technical approaches in food processing, theimpacts of structural changes in the food industry and in food retailing, theeffects of food scandals and socio-economic behaviour are having a farreaching technical and economic impact on processing value chain.Germany has taken several initiatives in R&D innovation to become aleading food exporter.Case Study: Food Industryinnovations in Germany© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.Source: FAO
  31. 31. 30Joint R&D – Due to the predominantly large number of SMEs in the country, a joint research institute, FEI(Forschungskreis der Ernährungsindustrie e.V.) has been established to carry out joint applied research inFood and Nutrition. In 2001, around 50 associations of the German food industry were members in FEIwhich represented more than 4500 companies.There is a parallel private research activity as well.Theconnectivity and the cluster for research for Food and Nutrition are as shown in the picture below.R&D Financing –The research activities of FEI are jointly financed by the member associations andcompanies as well as the Federal Ministry for Economic Affairs. By 2001, the joint research projectsorganised by FEI are financed to around 75 percent by the industry – mainly in the filed of food structure(Quality of food and ingredients) and process optimisation.Innovation Activities – Measured as the number of product innovations, Germany has consistentlylaunched more than 1000 food products every year. Process innovations of food SMEs are wide-ranging,without a specific focus on a particular area – Product quality, cost-saving aspects, higher flexibility andfaster production processes apart from improvement of the working conditions for employees.Innovation in the food industry needs a strong multidisciplinary co-operation, the institutional frameworkconditions and administrative competencies.The administrative bodies responsible for the food industryin Germany cause significant delays in bringing scientific and technical innovations. A more flexibleframework for regulations is planned for newly emerging innovation fields which can be jointly formed bypublic authorities and early innovators.Industry Private ResearchInstitutesFederal ResearchCentresLeibnizCentresHelmholtzCentresFraunhoferSocietyUniversities/CollegesIndustrialR&DdepartmentsCombinedResearchIGV, DIL,NatecBFE, BAFF, BAfM, BAGKF, BgW, RKIDFA, IFE DKFZ, GSF IVV >50 institutes andtechnical collegesFood IndustryFlow of FundsEconomyConsumerProtection/AgricultureHealth Education/ Research Federal States EU1234Source: Innovations in the food industry in Germany, K. Menrad; Department of Horticulture and Food Processing, University of Applied Sciences of Weihenstephan© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  32. 32. The prominent export products are Fruit pulp & juices, Canned F&V, Jams, Squashes,Dehydrated vegetables, Frozen pulps and vegetables, Frozen dried fruits, Vegetable curries,Pickles and chutneys, Mushroom products etcThe main destinations for fruit exports are Middle East, UK, Europe and to some extentSingapore and Malaysia. Mango Pulp is exported to Saudi Arab, Kuwait, UAE, Netherlandsand Hong Kong. In case of Pickles & Chutneys, the popular markets are USA, UK, UAE,Germany, & Saudi Arabia. Other items like Tomato Paste, Jams and Jelly & Juices areexported to USA, Russia, UK, UAE, Netherlands, etc. Vegetable exports are largely toMiddle East, Europe, UK and Singapore.31Export/Imports of Select Food Processing SegmentsFruits and VegetablesIndias exports of processed fruits and vegetables have increased consistently over the lastfew years, from USD 144 million in FY 04 to USD 278 million in FY 07. Exports of processedvegetables have increased from USD 273.47 million in FY 04 to USD 420 million in FY 062and declined marginally to USD 396 million in Fy07 .Key Export ProductMango PulpDried and Preserved vegetablesPickles and ChutneyExport Value (2007-08) in INR crore509444389Source: Directorate General of Commercial Intelligence and StatisticsSource: DGCIS, MOCIExports of Processed Fruits and Vegetables273.42 462.14 420.64 395.57143.82193.54 235.28 278.02673.59655.92655.68417.2401002003004005006007008002004-05 2005-06 2006-07 2007-08Processed Vegetables Processed FruitsIn Million USDThe growth of the processedfood segments has been fasterand has nearly doubled in termsof value in a short span from FY04 to FY 07. However, withrespect to the potential andsupply base of being the secondlargest fruits and vegetablesproducer in the world, India cando much better at processedfood exports. The quality issuesand high costs of raw material,packaging, wastage anddistribution are hindering thegrowth of exports. India needs tofocus more on crops ofprocessing grade, diversify themarkets that it exports to andimprove promotional activities tofurther trade.© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.2. DGCIS
  33. 33. 32Meat and Poultry ProcessingIndia is predominantly an exporter of bovine meat, especially buffalo meat, which has highdemand in the developed countries, due to its lean and almost organic nature. The import ofmeat and poultry is virtually non-existent. The production and export/import data of meatand poultry is provided in the table below.At present, poultry export from India is mostly to Maldives and Oman. Some other marketslike Japan, Malaysia, Indonesia and Singapore can be explored for export of poultry meatproducts. Poultry production and egg processing industries have come up in the country ina big way. The export products are egg powder, frozen egg yolk, albumin powder to Europe,Japan and some other countries.Indian Poultry has world class production infrastructure and boasts of high productivity withFarm and hatchery automation systems, well networked disease diagnostic laboratories,unique disease surveillance and monitoring model and genetic research and breeding.Broilers are reared to achieve a body weight of 1.8 kg in 6 weeks.Yet the poultry segment is faced with roadblocks to exports in the forms ofSubsidies by developed countriesSanitary and Phyto-sanitary conditionsIncreasing cost of production inputs!!!Source: FAO Food Outlook, June 2009Imports ExportsProductionmillion TonsTotal MeatBovine MeatOvine MeatPig MeatPoultry Meat20086722854775500240020097022299778050026002008/0911---2009/1021---2008/095345238122009/105615508121000 tons (CarcassWeight Equivalent)Total Meat Statistics, IndiaIn order to take advantage of theexports opportunity in thepoultry segment, India shouldtake steps in increasingproduction, providing assistancein transportation and reduction intaxes/duties to poultry byincluding it under agriculture.Also, quarantine and testingfacilities should be madeavailable at all ports of entry.Also, market expansion intoSingapore, Malaysia, Japan andIndonesia provide opportunitiesfor exports growth.India also needs to set up moreslaughter houses, modernabattoirs and cold storagefacilities to export the surplusand much-in-demand buffalomeat.© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  34. 34. Grain ProcessingThe grain processing sector, with 96 percent Primary Processing, has a limited exportsfocus. However, Basmati Rice is gaining traction in the Indian market and commands apremium in the export market as well. The table below shows the key segments and theproduction and Export/Import over the last two years.The major exports segments are cereals and rice. Though production is expected to remainstagnant during the year as compared to last year, the exports of cereals and rice isexpected to slightly increase.India has expanded the basket for Basmati rice, by extending the classification. The Indiangovernment last year expanded the definition of basmati, and it now recognizes even thoserice varieties as evolved basmati which have at least one traditional basmati grandparent.Also, India had last year set the export floor for basmati at USD 1,200 per ton and alsoimposed an export tax of USD 200 per ton to discourage exports and conserve domesticsupplies but has since revoked the export tax, and lowered the export floor to USD 1,1003per ton . This is expected to further boost exports.Source: FAO Food Outlook, June 2009Grain Processing Statistics, IndiaImports ExportsProductionmillion TonsCerealsWheatCoarse grainMaizeBarleySorghumRiceTotal2008215.378.43819.51.27.298.9458.52009214.977.637.818.51.57.599.5457.32008/090.60.50.10.1000.11.42009/100.60.50.10.1000.11.42008/094.90.30.60.6003.710.12009/105.710.60.600411.9Source: FAO Food Outlook, June 2009Rice Exports, India11 9 9 13 17 19 18 22 18 17 19 203 43719174414 8 133621380102030405060701993-941994-951995-961996-971997-981998-991999-002000-012001-022002-032003-042004-05Basmati Non-BasmatiINRBnIndia needs to increase thepromotional activities for Basmatiand other cereals and continue toprovide tax breaks for exports.The country also needs toprovide incentives formodernisation of processingequipment to improve the levelsof secondary and tertiaryprocessing so as to make thequality of produce export worthyand promote exports.33© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.3. Commodity Online
  35. 35. Processed fish products for export include: conventional block frozen products, instant quickfrozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi,textured products and dry fish, etc.European Union, USA, Japan, China, South East Asia, Middle East etc. are the major exportdestinations. The export has been strong with frozen shrimp continuing the largest item interms of volume.In view of the supply and growth potential of the sector, Government of India has set atarget to increase fisheries export from INR 6000 crore to INR 14000 crore during the XIFive Year Plan Period. Achieving the target for exports is dependent on the raw materialsupply; optimum capacity utilisation of processing industries, product diversification; valueaddition and adherence to quality control regulations. The share of export of shrimp in blockfrozen form is around 22 percent as against 2.2 percent in IQF form. The unit value of IQFproducts being INR 475 per kg as against INR 194 per kg for the block frozen shrimp, thereis considerable scope for boost of marine exports through value addition. Similarly, theshare of fish surimi which is priced at INR 68/kg, is only 3.2 percent of the total export ascompared to that of ribbon fish (which is the raw material for surimi) which is priced at INR425/kg and enjoying an export share of 18.3 percent .70 percent of Indian sea food exports constitute fishand shrimp in various forms and shrimp alone accounts4for 71.5 percent of the value of exports . However,value added products comprise of a smaller share andthe major share of the present export in volumetricterms is in bulk form. India needs to promote valueaddition, be more export-driven by promoting productslike fresh surimi, and raise the share of IQF productsthat claim a higher price to boost trade.20063.82007420063.220073.420061.820071.720081.7Fish and Fisheries Products Processing Statistics, IndiaCapture fisheriesproduction(million tons)Aquaculture fisheriesproduction(million tons)Exports(USD billion)Imports-Fisheries Products Processing34© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.4.Director, and Dr G.D. Banerjee, Deputy General Manager, NABARDValue Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing
  36. 36. Milk and Milk Products ProcessingMilk and Milk Products Statistics, India (in million tons milk equivalent)Production ExportsImports2006/07102.92007/08105.82008/09108.82006/09-2006/070.42007/080.42008/090.4Source: FAO Food Outlook, June 2009Milk and milk products are produced for domestic consumption. Also, storage facilitiesinfrastructure bottleneck prevent the segment from growing in exports. Indias share inexports of dairy products in international market is insignificant. These markets aredominated by OECD countries, some of whom provide a very high level of support to theirdomestic producers which are unlikely to be scaled down in the near future. SPS and TBTclauses are stringent and make the export markets protective. Therefore, even if India isable to find fresh opportunities for exports, the gains may not be significantly high.Indias Food Processing Trade by GeographyThe Indian food processing industry is primarily export oriented. Indias geographicalsituation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,Singapore, Thailand, Malaysia and Korea.India exports mostly to the proximatecountries. Globally, most of the countriesimport from countries that are geographicallycloser. For example, 45 percent of USAimports are from Canada and Mexico.Another 50 percent is accounted by selectCairns group countries. EU imports 50percent from Spain, Netherlands, France,Italy, Belgium and Germany, while another25 percent is accounted by select Cairnsgroup countries.In the current scenario, where the sector is stronglycontrolled by cooperatives, an export-oriented growthstrategy will need to support the private players at theexpense of the Dairy Cooperative Societies. Privatesector targets very narrow segment of exports andemerging urban areas. This would seriously affect thedairy farmers unless government comes up withinnovative measures to produce surplus milk at low costat global quality standards.Source: UN COMTRADE; CEPIIIndias Exports - By Geography0South Asia 34%Middle East 29%East Asia 17%Western Europe 10%Rest of the world 7%Africa 1%ShareofTrade0%5%10%15%20%25%30%35%40%2000 4000 6000 8000 10000 12000 14000Distance (Kms)US and Canada 1%35© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  37. 37. Impediments to Export Growth!!India is still a production-supply driven market and not a market-demand driven. For example, the apples produced in Himachal Pradeshare of table variety and not of the processing grade. There are notenough grading facilities in India that can separate class A productsfrom the rest. This not only leads to wastage and higher costs forprocessors, but also low level of processing and value addition, leadingto lower realisation for farmers. Improved knowledge on processinggrade will improve supply of such products and fetch remunerativeprices for the farmers.!!!!Indias products are a lot cheaper but the high costs of transportationand distribution leads to low level of exports. Indias grapes are 40percent cheaper than Chiles, but by the time they reach Netherlands,they cost the same. Poor infrastructure and lack of governmentsupport is making the exports uncompetitive in certain cases andneeds to be looked into.!Value added processed food exports need to satisfy two necessary conditions -1. A threshold base of manufacturing and other infrastructure facilities and,2. A reasonable level of marketable surplus in those primary products that enter as crucialinputs into food processing (industrial activity) chain.A successful and viable business enterprise must be able to harness economies ofscale. Large volumes of raw material of adequate quality are a paramount for theeconomics to be favourable.India faces challenges on this front:Poor quality and grading mechanisms for raw material leading to loss of consistencyin variety of raw materialHigh level of wastage across the value chainPresence of too many intermediaries implying a high cost of raw materialHigh costs of packagingLow technology equipment and knowledgeHigh costs and poor quality of distributionStringent Food Safety and Traceability norms from importing (developed) countriesDeveloped countries, with better access to advanced technology and packaginginnovations, have a distinct edge over the developing countries in the manufacturing.The distribution network to cater to the changing dietary patterns globally, makes themnimble and responsive. Hence, the developed countries account for a majority of worldprocessed food. For India to increase its share in the global trade, the barriers acrossthe value chain need to be removed quickly.36© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  38. 38. Exports promotion strategy!!!!1. India needs to map demand with production capabilitiesHimachal Pradesh, known as the fruit bowl of the country, has approximately200,000 hectares of land under horticulture cultivation yielding about half a milliontons of different kinds of fruit. The state earns more than INR 25 billion fromcultivation of fruits and vegetables. While apple is the main fruit crop, other fruitslike pears, peaches, cherries, apricots, almonds and plums are the majorcommercial crops of Himachal Pradesh. Recently the production of apple has beenseverely affected by adverse climatic changes. As an alternate, farmers in HimachalPradesh are increasingly moving towards commercial cultivation amongst whichkiwi is one of the most preferred crops.Apple orchards require 1,000 to 1,600 hours of chill, while kiwi requires just 200 hoursof chill for a favourable crop. Fruit growers in the areas where the chilling hours are notstatic now have opted for kiwi cultivation as a cash crop.ImpactAs per horticulture department estimates, at least 200 farmers in the Kullu valleyalone have taken up kiwi cultivation.In 2008, the total kiwi yield in Himachal Pradesh was 137 tonsDifferent varieties of kiwi such as Hayward, Abbot, Allison and Bruno are cultivatedon almost 120 hectares of landKiwi typically needs temperate climate to grow, but Indian farmers have beensuccessful in growing it even at extremely low temperatures. Some of the farmersare growing kiwi at an altitude of 8,500 feet2. Move towards non-traditional items.About Sea-buckthorn: Sea-buckthorn is a shrub which has 6 species and 12 subspeciesnative over a wide area of Europe and Asia. More than 90 percent or about 1.5 million hectaresof the world’s sea buckthorn resources can be found in China where the plant is exploited forsoil water conservation purposes. The shrub’s fruit can be used to make pies, jams, lotions andliquors. The juice or pulp has other potential applications in foods or beveragesDefence Research & Development Organisation (DRDO), Field Research Laboratory (FRL), Lehundertook serious research studies on the product to harness its vast potential in facilitatinghuman adaption to extreme cold and hypoxic environmental conditions prevalent ininhospitable mountainous region with special reference to the world’s highest battle field,Siachin.Leh Berry: Unleashing the potential of Sea-buckthorn37© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  39. 39. Aim: To find Seabuckthorn preparations for improving physical and mental performanceunder hypoxic environment, prevention and treatment of cold injuries, and as an immun-modulatory agent.Result: The research let to the development of an herbal beverage whose trials weresuccessfully concluded in high altitude areas including Siachin under varying environmentalconditions. These trials revealed that the fruit extract did not freeze even at temperatures aslow as minus 15 degrees CelsiusChallenges: The juice could not be stored more than a day, limiting commercial viability.The FRL technology has enabled the juice to be transported from Leh to Madhya Preadesh,for packagingMarket Opportunity:A INR 3,000 crore market for Seabuckthorn exists in Chine alone, combined with globalprospects amounting to INR 5,000 crore.Seabuckthorn fruit, with its vast intrinsic properties offers manifold opportunities formanufacturing a variety of products. The entire Seabuckthorn plant can be judiciouslyutilized to produce high value food and medicinal products. With as many as 180 keyproducts already lined up and other categories like pharmaceuticals. cosmeceuticals,natraceuticals, poultry & cattle feed and the pisciculture segment waiting to beexplored!!Export Growth in BrazilBrazil is a formidable food-producing country owing to its vast agricultural wealth, andowing to the application of modern techniques, food production also has risen strongly inrecent years. Food production and processing accounts for nearly 25 percent of the GDP. Interms of exports, Brazil is ranked fourth globally. Key factors responsible for export growthare as listed below:Strong government-funded agricultural research programme, together with heavyprivate investment led to the higher food production growth than the overall economy.Legalisation of commercial production of genetically modified (GM) crops. Though it!!383. Improve promotional activities for Indian food and market India as a food sourcing hub4. Promote investment for increasing the level of processing in the sector© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  40. 40. 39was started off for research, the cultivation spread to officially illegal commercialproduction. As the sale of GM products was allowed, the rules on cultivation werebeing flouted on a large scale. Inspite of some protests from environmentalists andpotential loss of market in Europe, the GM crops was legalised.! Food exports grew by a huge 25 percent due to currency depreciation and despite astronger Real in 2004, Food exports grew by another 30 percent to some USD 18.5bn.! Market consolidation is a continuing trend and FDI in the Food and Beverages sectorsurged to USD 5.3bn, or 26 percent of total FDI, in 2004.! Economic liberalisation was also responsible for improved productivity during the1990s resulting in a significant increase in foreign participation in key sectors, such asdairy and coffee, through joint ventures and acquisitions of local companies.! An expanding food-service sector also led to a faster food production growth.Chiles strategy to become an Export HubChiles export strategy is to promote itself as a reliable supplier of a range of high-quality,affordable goods and services. Other basic campaign points are: ease of trade, with fewtariff walls or bureaucratic hindrances, low risk, due to political stability and a solideconomy, a respect for quality and environmental protection standards, and a qualifiedworkforce.Special emphasis is being given to projects that diversify exports and aid small- andmedium-size companies. Chile also encourages exports through a simplified duty drawbacksystem that refunds duties paid on imports without an excessive documentation burden.Within the past decade Chile has entered into a growing network of trade agreements,including accords with Bolivia, Brunei Darussalam, Canada, Central America, China,5. Upgrade agri-infrastructure to have a sustainable supply chain for consistent highquality raw material6. Provision for Training and Education on the safety and health regulations in exportmarkets7. Market Diversification – Move over the geographical distance barriers and initiate jointefforts with potential partners in identifying the focus of trade and creation ofconducive regulatory policies© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  41. 41. Colombia, Cuba, Ecuador, the European Union, Iceland, India, Liechtenstein, Mercosur,Mexico, New Zealand, Norway, Peru, Singapore, South Korea, Switzerland, the UnitedStates and Venezuela. In excess of 76 percent of all Chilean trade is conducted with thesecountries, which account for 87 percent of world GDP.These agreements plus regional accords with most of Latin America have provided Chilewith a unique degree of access to markets encompassing more than 3.8 billion consumersworldwide. As a result, Chile stands as a natural gateway for trade with both Latin Americaand Asia-Pacific.An Export-Oriented Economy: Export diversification is one of the key factors of Chileansuccess. Noting the growing volume and sophistication of its trade, the EconomistIntelligence Unit ranked Chile as the No. 1 Latin American country in which to do businessfor the period 2005-2009. Trade figures show that export performance has been nothingshort of spectacular.1550USDBillionNumberofCountries(ExportMarkets)0204060010015020058.91811975 19752006 2006Encourage an internationally competitive environmentBalance unilateral trade liberalization with open regionalismLower export transaction costsLong-term view of enterprise-level supportCoordinate export support programmes through a central technical agencyFacilitate foreign direct investmentPromote private sector involvement in infrastructure developmentEncourage innovationChile’s strategic approach to boost exportsImpact40x 3.6xTrade Promotion Institute(ProChile) established todevelop the country’snon-traditional exports,design and introduceexport incentives andmodernise administrativeproceduresInternational investorextended non-discriminatory treatment© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.40Source:KPMG AnalysisChile: Product and market development through international standards of competitiveness (http://www.intracen.org/wedf/ef1999/chile.pdf),
  42. 42. 41Demand-side Drivers!!Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are leadingto significant changes in food habits of Indians. The key trends are as listed below:Increasing spends on health and nutritional foods – Consumers are more focused onhealth. Any packaged food that has sugar, salt, oil, preservatives etc beyond a“healthy” level are becoming a no-no. Companies already are targeting this segmentwith numerous product launches – Pepsicos “100 percent” juice and usage of ricebran oil to reduce saturated fat in its products; Amuls energy drink “Stamina” are afew examples towards this trend.Increasing Nuclear Families and Working Women – Increasing nuclear families,students and single employees staying alone on work/education and increasing womenemployees are leading to rise in consumption of processed read-to-eat canned andfrozen foods. The number of upper and middle class Indians consuming packaged foodKey Growth Drivers of FoodProcessing Sector in IndiaSource: EuromonitorEmployed Female Population111,910126,510129,705131,424134,207 135,370100,000105,000110,000115,000120,000125,000130,000135,000140,0001995 2000 2002 2004 2006 2007Year‘000sEmployed© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.
  43. 43. •••Functional Foods – Functional Foods, Fresh or Processed Foods that claim to providehealth benefits apart from serving the basic function of nutrition, are on the fast-growthpath in India. Fabindia Organics, Organic Food retail outlets like 24 Letter Mantra andGodrej Agrovet’s Nature Basket have big plans in this segment.Organised Retail and Private Labelpenetration – Organised retailcomprises of less than 5percent of thetotal retail market in India, but isgrowing at over 20 percent. Foodretailing, which constitutes 14 percentof the organised retailing, is alsoexpected to benefit from the growth oforganised retail and the demand for3processed foods is expected to rise .With increasing trend of major retailerstowards private labels, the demand fromretail market for processed foods is alsoexpected to increase significantly.Changing demographics and rising disposable incomes – This is the most importantdemand booster for the processed food in India. The proportion of the “productive” ageis expected to rise to 200 million in 2012 from the current 30 million . ITC, MTR, Amul,etc are quick to capitalise on this trend with products like Dal Bukhara, Murg Methi,Sunfeast Pasta Treat, Shrikhand, Pure Ghee, Nutramul etcUrbanisation – Changing lifestyle and increasing spend for snack-on-the-go is2responsible for a USD 3 billion and growing snack market . Haldiram’s, Frito Lays, ITCare quick to capture this market with products such as Masala Peanuts, Chips, Bhujiaand Chats.1•Source: EuromonitorSource: Euromonitor
  44. 44. group (15-59 years) is nearly 80 in India . This age group’s propensity and abilityto spend on quality processed food is higher. Higher incomes as more Indians join tomiddle class and upper class also impact the demand of processed food positively.4percentPolicy Drivers5Indian government recognised the potential of Food Processing sector to the economy andhas come up several initiatives to boost the quantity and quality of output in the sector. Thevast discrepancy in output between the agriculture and food processing is a major cause forconcern and government has increased the spending from INR 72.77 crore in 2002-03 to159.78 crore in 2006-07 to increase the value of the output, share of global processedmarket and provide a fillip to the farmer’s income.Scheme for Infrastructure development- The government plans to set up Mega Food Parks so as to integrate the valuechain comprising of farmers, processors and retailers. The move will help reducewastage, maximise value addition and increase farmer’s income as they get achance to sell the produce directly. 30 mega food parks are planned in the XI five-year plan.- Government plans to support Integrated Cold Chains including a value addedcentre to ensure that there is no missing link from farm gate toretailers/consumers, by increasing the grant assistance.- Modernisation of Abattoirs for supply of hygienic raw material for meatprocessing industry.- In a bid to develop the food processing units, the government is ready to offer agrant of INR 10 crore for projects providing backward integration for foodprocessing units and INR 50 crore to modernise meat processing units.•Source: MoFPI Annual Report 2007-08
  45. 45. ••••Scheme for Technology Upgradation/ Establishment/ Modernisation- Government provides a grant of 25 percent of the cost of plant & machineryand technical civil works subject to a maximum of INR 50 lakhs in general areasand INR 75 lakhs in difficult areas.Scheme for setting up/ Upgradation of Quality Control/ Food testing Laboratory, R&D &promotional activities- Setting up a network of laboratories to help in implementing quality regime forprocessed food.- Higher level of assistance to research institutes like IITs and other central/statelevel institutes- Assistance for organising promotional activities like workshops, seminars,exhibitions, fairs, surveys etc- 50 percent subsidy to private companies, which set up quality testinglaboratories and 100 percent subsidy for State governments that install newtesting laboratories.Scheme for HR Development- Financial assistance to set up training centres, Degree/Diploma courses onFood Processing in Institutes, Entrepreneurship Development Programs andtraining programs sponsored by the ministryScheme for strengthening of institutions- Establishment of National Institute of Food Technology, Entrepreneurship &Management (NIFTEM).- Strengthening of State Nodal Agencies (SNA)- Information TechnologyThe challenge in front of the players in the food value chain is to leverage the demand andpolicy push effectively to deliver to the growing Indian/Global demand and give continuousfeedback to the government on further improvement measures. Meanwhile, thegovernment should ensure a smooth policy implementation by investing time and money ininstitutional capacity building and in removing complications for the investors andmanufacturers due to multiplicity of departments and regulations.44© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.

×