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Indian Food Processing Industry - A Synopsis


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This report will present an overview on the Indian food processing industry along with details on various segments, performance and the scope of business in the segment.

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Indian Food Processing Industry - A Synopsis

  1. 1. November 2013 Indian Food Processing Industry A Synopsis
  2. 2. Table of contents & figures Indian Food Processing Industry – A Synopsis Page 2
  3. 3. 1. Executive summary India is the world’s second largest producer of food next to China and has the potential of being the biggest in the World. Domestically, the spending on food and food products amounts to nearly 21% of the gross domestic product of the country and constitutes the largest portion of the Indian consumer spending more than a 31% share of wallet. Going forward, the Indian domestic food market is expected to grow by nearly 40% of the current market size by 2015, to touch US $258 billion by 2015. Some of the key measures undertaken by the Government include: amendment of the agriculture produce marketing committee act (APMC Act), rationalization of food laws, implementation of the national horticulture mission etc. The government has also outlined a plan to address the low scale of processing activity in the country by setting up the mega food parks, with integrated facilities for procurement, processing, storage and transport. To promote private sector activity and invite foreign investments in the sector the Government allows 100% FDI in the food processing & cold chain infrastructure. The recent budget has announced several policy measures, especially for the cold chain infrastructure, to encourage private sector activity across the entire value chain. A well developed food processing industry is expected to increase farm gate prices, reduce wastages, ensure value addition, promote crop diversification, generate employment opportunities as well as export earnings. This publication gives readers an opportunity to understand food processing industry in India better. It highlights various sectors and subsectors of the Indian food processing industry and also provides with the status of each sub sector independently. Indian Food Processing Industry – A Synopsis Page 3
  4. 4. 2. Global food processing industry Total estimated market value of food processing - US $4.4 billion. 19% Food processing accounts for 3/4th of the total food consumption. Indian Food Processing Industry – A Synopsis Europe Asia Pacific Rest of the world Source: Global food processing report, FAO USA France Thailand Malaysia Australia Netherland 1.50% 25% 30% 70% 80% Chart 2: Level of processing – country-wise 12% Countries in the Sub-Sahara African region, Latin America and parts of Asia are on the lower end of technology competence in food items. However, Europe, North America and Japan are in the higher-end of technology, with a sharper shift towards convenience and diet foods. USA 80% The scenario of the food industry has changed drastically due to the changing life style, food habits and change in demand for healthy and high value food items along with improved technology. Trade liberalization policies have generated great growth opportunities in the food processing industry. 10% One of the largest food processing market in the Asian region is Japan, though India and China are catching up fast and are likely to grow more rapidly. One of the most technically advanced food-processing industry globally is Australia as the products produced are of international standards and at comparatively lower prices 34% 37% Chart 1 : Share in global food industry India Source: Rabobank Page 4
  5. 5. 3. Indian Food Processing Industry 3.1 India as a emerging market for processed food - Chart 3: Untapped potential Nearly 1300 million people. 350 million strong urban middle class. Increasing disposable income. Fast changing lifestyles with ongoing urbanization. Increasing Number of working women. Health consciousness. Increasing number of small families with two earners. Increasing consumer base. Rapidly growing organized retail sector. High Investment Estimated investment by 2015Euro 22.9 Bn 3.2 India as a sourcing hub Annual milk production-105 million tones (highest in the world). 485 million live stock (highest in the world). 150 million tones of fruits & vegetables (2nd in the world). 230 million tones of food grains. 20 agro climatic zones. Out of 60 soil types 40 are found in India. 160 million hectares of arable land. Largest producer of spices. 3rd largest producer of oil seeds. Indian Food Processing Industry – A Synopsis High Returns in form of quality & brand loyalty. High Demand Growing corporate participation, improved infrastructure Source : Bizminder Research Page 5
  6. 6. 3. Indian Food Processing Industry Either retail directly after secondary processing or go for tertiary processing 3.3 Supply chain in food processing industry Production Inputs Procurement & storage Primary processing Secondary processing Tertiary processing Retailing 3.4 Sub-sectors in food processing industry Sub-sectors Primary processing Secondary processing Tertiary processing Examples of key products Indian Food Processing Fruits and vegetables Livestock products Ketchups, jam, juices, pickles, preserves, candies, chips, etc. Grains and cereals Sorting & grading Rice puff, flour, malt, rawa, brokens, etc. Biscuits, noodles, flakes, cakes, namkeen Sorting & grading Oil cakes Sunflower, groundnut, mustard, soya, olive oil, etc. Beverages Dairy Products Pulp, flakes, dried, flavored, preserved, paste, sliced, etc. Oilseeds Agri Products Cleaning, sorting, grading & cutting Sorting, bleaching & grading Powder, dust, leaf etc. Tea bags, flavored coffee, soft drinks, alcoholic Beverages Milk Grading & refrigeration Khoya, cottage cheese, cream, etc. Processed milk, spreadable fats (butter and cheese), yoghurt Sorting, refrigeration, chilling & freezing Cut, dried, preserved, frozen, chilled Eggs Preparation such as ready-to-eat meals Meat and poultry Marine products Indian Food Processing Industry – A Synopsis Page 6
  7. 7. 3. Indian Food Processing Industry Chart 4: Food processing sectors Chart 6: Level of processing of perishable products 25 22 21 20 25% 33% 13 15 10 5 42% 8 6 1.3 2.8 0.8 0.2 0.2 0 Organized Un-organized Fruits & vegetable Small scale industries Source: FAIDA/Ministry of food processing Industries Milk & milk products Organized Meat Poultry Marine Unorganized Source: Rabobank market research report, 2008 Chart 5: Food processing commodity exports from India 63733 70000 60000 43783 50000 40000 30000 26802 29211 49352 50759 34204 20000 India’s level of processing is still low Fruits & vegetables (F&V)- 2.2% Marine products-10.80% Meat -21.2% Poultry-6.02% Milk-35% As against 60-70 % in developed countries 10000 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Value of exports from food processing commodities (rs. in crores) Indian Food Processing Industry – A Synopsis 2010-11 Source: DGCIS Food wastage due to lack of processing infrastructure is estimated to be € 9 billion. Page 7
  8. 8. 3. Indian Food Processing Industry Chart 7: Consumption pattern across different categories and income class Number of households (in millions) Percentage consumption spend across categories 1.3 VERY RICH HOUSEHOLDS 2.4 RICH HOUSEHOLDS 22% 12% 66% 20% 12% Milk 18% Lower income and Milk Products 11% 68% Meat and Meat products 72% 10.9 M I D D L E I N Cmiddle Lower O M E 20% 19% 11% 11% 71% 72% 91.3 LOWER MIDDLE Middle income Rich households 20% 19% 20% 11% 11% 12% 71% 72% 68% LO Very W E Rhouseholds rich I N C O M E 18% 22% 11% 12% Agri Products 72% 66% 101.11 Source : Economic Survey of India 0% 20% 40% Milk & milk Products 60% Meat & marine products 80% 100% 120% Agri products Chart 8: The consumption patterns geographically Wheat forms the staple grain, with high consumption of milk and milk products. High consumption of meat products. North Mixed consumption of both rice and wheat as staple food. High consumption of vegetables and marine products. West INDIA East Mixed consumption of both rice and wheat with rice being more predominant in a few states of the region. South Rice forms the staple grain, with high consumption of fruits and vegetables. Consumption of both marine and meat products. Indian Food Processing Industry – A Synopsis Page 8
  9. 9. 4. Indian Food Processing Sub-sectors - Overview 4.1. Agri produce Grain processing Grain processing includes milling of wheat rice and pulses. There are 43000 modern rice mills, 10000 pulse mills, 820 large flour mills. The breakfast cereal market is growing at a rate of 7% and sales are expected to reach EUR 55million by 2015. Investments in the bakery and milling sector risen by 30.4% since 2007. This segment is expected to grow steadily at 15-20% for next 5 years. Indian basmati rice has high demand in International markets. Fruits and Vegetables India is the 2nd largest producer of fruits and vegetables. Expected to grow at 14-15% per annum between 2010 -2015. Major F&V products are fruit pulp & juices, fruit based ready to serve beverages, canned fruits and vegetables jams , quashes , pickles etc. Food & vegetable processing market growing at a rate of 11% per annum offers opportunities for high tech equipment manufacturers. Major players are Unilever, ITC, Dabur, MTR. Indian Food Processing Industry – A Synopsis Source : Ministry of Food Processing Industries Page 9
  10. 10. 4. Indian Food Processing Sub-sectors - Overview Chart 10: Agri produce supply chain Source : Government of India, Planning Commission, EY Analysis Indian Food Processing Industry – A Synopsis Page 10
  11. 11. 4. Indian Food Processing Sub-sectors - Overview 4.2. Dairy Milk and Milk products st India ranks 1 in the world in terms of milk production. The dairy sector has an estimated consumer demand of EUR 32 billion and growing at a rate of 8% per annum. Present level of processing in Dairy is 35%. Industry profitability is good and has high potential for introduction of new value added products. Manufacturing of CASEIN and LACTOSE has good scope in the country: at present these are generally imported. Market of yoghurt is growing at a rate of 18% and that of sour milk at 33%. Major players in Indian Dairy Industry are Nestle, Cadbury, Amul, H.J.Heinz, Smith Kline Beachem, Wockhardt. The key producing states of milk is concentrated in the north, west and south. For the eastern regions, the milk is converted into powder and then reconstituted for consumption. Source : Department of Animal Husbandry, Dairying & Fisheries Indian Food Processing Industry – A Synopsis Page 11
  12. 12. 4. Indian Food Processing Sub-sectors - Overview Chart 12: Dairy supply chain Source : Government of India, Planning Commission, EY Analysis Indian Food Processing Industry – A Synopsis Page 12
  13. 13. 4. Indian Food Processing Sub-sectors - Overview 4.3. Livestock Chart 13: Top five chicken producers (MT) Meat and Poultry Meat and poultry sector is expected t grow at a rate of 15% per annum. Large potential for setting up of modern slaughter houses and cold chains. Poultry is also witnessing strong growth. The newly upcoming modern retail sector has strong influence on the growth of processed meat and poultry. Major Players are Venkateshwara Hatcheries (Venky’s), Godrej Agrovet, Frigo Refico Allana Limited. Marine Products With 8000 Km coast line, 50600 sq km of continental shelf area & 2.2 million sq km of exclusive economic zone India is endowed with rich fisheries resources. Total marine products targeted for next 5 years EUR 2.82 bn. Government has plans to develop India as a major hub for outsourcing reprocessing of marine products. Key products are frozen shrimp, lobster, cattle fish, clams and fish fillets. Major Players in marine products are ASF sea foods, Bell foods, Deep Sea products. More than 200 units are approved by the EU for exports to the EU. 2.3 India 2.6 Mexico 9.2 Brazil 15 China 16.2 USA 0 5 Source : FAO 10 15 20 Chart 14: Top five meat producers (MT) 6.5 India 7.4 Germany 18.7 Brazil 42 USA 70.4 China 0 10 20 30 40 50 60 70 80 Source : FAO Indian Food Processing Industry – A Synopsis Page 13
  14. 14. 4. Indian Food Processing Sub-sectors - Overview Chart 15: Livestock supply chain Source : Government of India, Planning Commission, EY Analysis Indian Food Processing Industry – A Synopsis Page 14
  15. 15. 5. Factors impacting growth of food production There are restrictions about the size of land holding in the name of a single entity — regulations are dependent upon individual state policy. Holdings have become fragmented as the farms are divided through inheritance. Small operations make investments in automation unviable and also complicate coordination and integration between farmers, processors and the end consumer. 1. Fragmented land holding patterns An imbalance in the usage of fertilizers has resulted in the drop of fertilizer efficiency over the years from 17.1 in 1980 to 6.5 in 2000. The high dependence on labor for agricultural activity has affected the speed of technology adoption. In spite of efforts by the government in subsidizing new technology adoption, challenges in educating the farmers of their benefits has affected their adoption. Poor maintenance of natural resources and high dependence on monsoon which is not consistently favorable. 2. Low labor productivity with low adoption of technology Indian Food Processing Industry – A Synopsis The poor transport and storage infrastructure, along with use of labor for post harvest processing affects the farm productivity by reducing the quantity available for sale. The lack of credit access to farmers limits the working capital available, hindering investments in technology and high yielding inputs. Wastage due to post harvest/pre sale transport, processing and storage contributes to a loss of nearly 2.3% of the total produce quantity. 3. Inadequate support infrastructure There are several constraints of land availability for agriculture due to competing pressures from urbanization, constructions and industrialization. Each region has its own limitations for impacting agricultural productivity like soil erosion, floods etc. Land under cultivation is stagnant and yield growth is largely flat across major categories due to low productivity from agriculture. Other factors like non-availability of electricity, high population growth, poor road and communication infrastructure, etc. 4. Specific factors impacting productivity Page 15
  16. 16. 6. Improvement opportunities Technology up-gradation. Consolidation of creators for economies of scale. Bio-measures for pesticides and insecticides. Soil health and nutrition management. Indian Food Processing Industry – A Synopsis Better utilization of land. Educating the Indian farmer on modern farming practices. Water management. Seed management system. Page 16
  17. 17. 7. Some of the key business opportunities in food processing infrastructure Increase in demand for value added tertiary processed products especially frozen food will also drive the need for improved warehousing and cold storage facilities. The demand for cold chain infrastructure is set to increase with modern trade expected to grow at 2025% and the emergence of large Indian and international players in the food chain. In spite of being one of the worlds leading producers of food there is lack of proper storage and organized cold chain facilities, which leads to large scale wastages. Warehousing facilities Indian Food Processing Industry – A Synopsis Managing and providing common infrastructure for fees, that is required by a group of food processing small scale industries like common machineries, technology etc. which otherwise may not be affordable by individual processor. Considering this gap, companies , especially international companies present in Indian manage these processes in house with minimal intervention from third parties. There is currently a large gap in terms of availability of value added services like tagging, repacking, promotion packing, etc. Value added services There is a large opportunity in the sector as the Indian logistics space is currently dominated by unorganized players who provide very basic services with a very low use of technology. The use of information technology to integrate the point of sale systems with delivery chain to aid inventory management and forecasting is minimal. There is a growing need among retailers and manufacturers to obtain real time data to ensure proper order planning, stocking and manufacturing plans. Supply chain management Page 17
  18. 18. Bizminder Advisory Group Private Limited About Bizminder Bizminder is a team of expert professionals having experience of cater to the needs of new organizations with market entry strategies, project management & funding for expansions and existing organizations with performance management, organizational strategy & growth strategy. We help organizations design plans for improvement and also help them to implement it seamlessly across their organization. Our services Our Industrial practices This publication contains general information only and Bizminder is not, by means of this publication, rendering Business, Financial, Tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Bizminder shall not be responsible for any loss sustained by any person who relies on this publication. Bizminder does not by any means, warranty accuracy and completeness of information used and expressly disclaims any liability of any such information or omission therefrom. © 2013. Bizminder Advisory Group Private Limited | This is property of Bizminder. Any unauthorized reproduction of this document may lead to legal action. Indian Food Processing Industry – A Synopsis Page 18
  19. 19. Bizminder Advisory Group Private Limited For more information please contact Nandan Malu Director +91.94202.77000 Bizminder Advisory Group Private Limited 2/4, Omkar Complex, Near DAV Public School, DP Road, Aundh, Pune - 411007 +91.95457.17000 Bizminder House, Hanuman Chowk, Main Road, Latur – 413512 +91.95458.17000 Indian Food Processing Industry – A Synopsis Page 19