FICCI - Technopak Report On Indian Food Industry


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Report prepared by Sanjay Sethi, Vice President - Food and Agriculture, Technopak Advisors in association with FICCI and released by Minister of Food Processing Industries at Food World, Mumbai

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FICCI - Technopak Report On Indian Food Industry

  1. 1. LAND OF OPPORTUNITIES The Food Industry in India
  2. 2. 13 November, 2008 Copyright 2008, Technopak Advisors Pvt. Ltd. and Federation of Indian Chambers of Commerce and Industries. All material printed in this publication is a joint property of Technopak Advisors Pvt. Ltd. and Federation of Indian Chambers of Commerce and Industries. No part of this report covered by the copyright hereon may be reproduced or used in any form by any means – graphic, electronic or mechanical including photocopying, recording, taping, or information storage without prior consent of, and acknowledgment of credit to Technopak Advisors Pvt. Ltd. and Federation of Indian Chambers of Commerce and Industries. This is acknowledged that this Knowledge Paper has been prepared by Technopak Advisors Pvt. Ltd. and valuable inputs were provided by Mr. Sameer Barde, Mr. Sudhir Zutshi and Mr. Dhiraj Gyani from FICCI.
  3. 3. Foreword India is one of the fastest growing economies in the world. While we are moving towards becoming a services-led economy, agriculture still contributes 17 percent to the total GDP and employs 60 percent of population. The income enhancement of such a large section of society is possible only through adding value and removing inefficiencies in the food value chain. That is why the Food Industry has been accorded a high priority status by the government which is facilitating its growth by providing policy frameworks and initiatives at various levels. In the year 2006-07, the size of the Food Industry in India was estimated at around Rs 8,80,000 crores or US $ 200 billion, of which the Food Processing Industry accounts for about Rs 3,74,000 crores or US $ 85 billion. At present, Indian Food Processing Industry is growing at the rate of 13 percent per annum and it has higher potential to explore particularly in the sectors such as fruits and vegetables, packaged foods, beer and wine. Therefore, it offers tremendous opportunities for all stakeholders in the areas of production, processing, marketing, supply chain, infrastructure development, technology up gradation and education. The Indian Food Industry has not yet realized its potential and there is scope for further value creation by modernizing this sector. This report provides an understanding of the Indian Food Industry and focuses on the investment potential in the sector. We are confident that this publication will go a long way in demonstrating tremendous investment prospects and attractiveness of the Food Industry in India. FICCI and Technopak are committed to all stakeholders in developing strategic business partnerships to revolutionize the Food Industry.
  4. 4. Table of Contents Executive Summary 1 1 The Indian Food Industry: Overview and Key Segments 4 2 Key Growth Drivers 24 3 Challenges & Potential Stumbling Blocks 32 4 Growth Opportunities for Companies 36 5 Case Studies of Excellence 43 6 Recommendations for Key Stakeholders 48 Annexure: Indian Food Regulations 52
  5. 5. Executive Summary This report “Land Of Opportunities: The Food Industry in India” is jointly produced by Technopak Advisors Pvt. Ltd. and Federation of Indian Chambers of Commerce and Industry (FICCI) to highlight potential in Indian Food Industry. The report focuses on the potential areas of investment, key growth drivers, key challenges and opportunities for companies. It also includes recommendations to the government as well as to stakeholders to enhance the efficacy and trade in the sector. The diverse agro-climatic conditions in India offer huge potential for production of a wide variety of crops from cereals, pulses to fruits and vegetables all round the year. Apart from the huge production base, India has the advantage of the low cost of production, thus providing an unbeatable competitive edge in the global market place. With a growing population of 113 crores or 1.13 billion and increasing income levels, the demand for value added food products is rising at 13 percent1 per annum. n Industry Overview n nFood lThe size of the Indian Food Industry is estimated at Rs Growth Rate of the key sectors 8,80,000 crores (US $ 200 billion) in 2006-07 and is Beer 6% slated to reach Rs 1,320,000 crores (US $ 300 billion) by Buffalo Meat 6% 2015 with the increasing share of processed food (in Dairy 8% value terms) from 43 percent to 50 percent. Fruits and Vegetables 6% lThe Indian Food Industry is highly fragmented and is Marine and Fish 4% dominated by the unorganized sector. Packaged Foods 30% lThe Food Processing, being the major sector in the Indian Poultry 11% Food Industry stands at Rs 3,74,000 crores (US $ 85 billion) and gives direct Wine 30% employment to about 20 lakhs or 2 million workers. 1 Source: Ministry of Food Processing and Industries, Government of India Land Of Opportunities - The Food Industry in India 1
  6. 6. lThe organized food retailing and food services are other emerging areas growing with the annual growth rate of 25 percent. lFruits and vegetables, dairy products, marine and fish, meat and poultry, edible oils, staples, alcoholic and non alcoholic beverages, breads and bakery, confectionary and packaged foods are the key sectors in the industry, which offer tremendous growth potential and investment opportunities. n Growth Drivers n nKey lWith changing needs and lifestyles of consumers, global as well as Indian food consumption patterns are rapidly evolving. Higher disposable incomes have resulted in greater spending and consumption among consumers. lIncreased mobility, exposure, aspirations and availability of a substantially wider range and products have also contributed to shifts in spending orientation. lIn addition, openness to experimenting with processed and convenience food and the increased phenomenon of organized food retailing have also led to reorientation of the entire food business. lOther important drivers behind Industry growth are: o Huge production base o Increasing organized food retailing o Increased export opportunities o Favourable regulatory environment and government support o Augmented investment inflows n Challenges n nKey lThough the Indian Food Industry is growing fast yet the level of the food processing is still lower as compared to the other countries. lThe key challenges faced by the sector are low level of research and development, industry academia gap, skill gap, technology gap, meeting global quality standards, higher number of small and unorganized players and regulatory bottlenecks. lIn addition, lack of forward and backward linkages in the food value chain, inadequate agricultural and processing infrastructure and inefficient marketing system are adversely affecting the sector. n n n Opportunities Growth lThe integrated development of the entire food value chain offers many opportunities at every level. The report highlights the potential growth opportunities for the Indian as well as international companies entering into the Indian Food sector. lKey segments with the largest growth potential for processing are dairy, fruits and vegetables, wine, confectionary and poultry. lThe demand for segments like ready-to-eat, convenience foods, functional foods, health drinks, flavoured milk and fruit juices are growing very fast. lDue to the rising need for quality and value added products; opportunity lies in research & development and quality testing laboratories. Land Of Opportunities - The Food Industry in India 2
  7. 7. strengthening the backend of the food supply chain by investing in modernization of agricultural technologies, farm machineries, training and capacity building, research & development and quality testing laboratories. lTremendous potential for investment exists in setting up agricultural infrastructure – cold chain logistics, supply chain management, food parks and wholesale markets as well as up gradation of the existing market infrastructure. lOrganized food retailing and food services are the other fastest emerging opportunities, organized food retail is expected to grow Rs. 2,33,200 crores (US $ 53 billion) by 2013. lIndian farm produce offers a unique aroma, flavour and taste and if processed, packaged and marketed properly, will attract global consumers. Thus, promotion and branding is one of important areas where investment needs to be made. lExport demand is increasing for the food products like pickles, chutneys, fruits and vegetables (canned, frozen and dehydrated), concentrated pulps and juices, packaged meat and marine products. lTo realize the additional opportunity of Rs. 4,40,000 crores (US $ 100 billion) by 2014-2015, coordinated efforts among the government, industry and farmers are required. Promotion of Indian food items at international level by the government and the industry is essential. n n nRecommendations lThis report recommends collaborative efforts by both the government and industry to create and upgrade the existing agricultural infrastructure, while developing greater linkages to national and international markets. Policy level efforts should be initiated by the government in consultation with farmer groups and the industry to minimize the prevailing gaps amongst various stakeholders. lThere is an urgent need to create and augment strong at production infrastructure, processing infrastructure, distribution and market infrastructure, along with emphasis on augmenting support infrastructure at the same time. The increased investment needs to be seeking from the private sector for infrastructure development. lThe amendment of the APMC should be implemented in the original spirit to reduce the malfunctioning of the Indian marketing system. Efficient price discovery mechanism should be evolved to safeguard the interest of different stakeholders for agricultural produce such as web based spot exchanges - Safal National Exchange, will help in fair price discovery. lSystematic efforts should be made to brand Indian fresh and processed food products in the international market. lSincere efforts should be made by the government to help the Indian players to meet the global quality standards. lThe enabling regulatory environment through the initiatives like Food Safely and Standard Authority will continue to boost the pace of change in this sector. Though some initiatives have already been taken by the government, still there is urgent need to harmonize and standardize Indian quality standards to commonly accepted standards in the global markets. There is further scope in lifting restrictions on exports and imports, harmonization of the taxation system, smoothening tariff barriers and transparent merchandizing for price discovery of food products. Land Of Opportunities - The Food Industry in India 3
  8. 8. The Indian Food Industry 1 Overview & Key Segments The Indian Agriculture sector, which contributes 17 percent to the GDP and provides employment to 60 percent of the population, is going through a transformation phase. India has successfully managed to gain self- sufficiency in food with marginal surplus in production. India is among the leading global producers of cereals, fruits, vegetables and dairy products. The diverse agro-climatic conditions in the country are favorable for taking up production of a wide variety of crops from cereals and pulses to fruits and vegetables, rearing livestock all round the year. Increased income levels, cheap credit facilities, higher disposable income have resulted in greater spending and consumption among consumers. Increased mobility, exposure, increased aspirations and availability of a wider range and products, have also contributed to shifts in spending orientation. In the affluent and middle class, the percentage share of food expenditure vis-à-vis other products/ categories has dropped, the total expenditure on foods has increased across all the classes. Initially food expenditure was concentrated around basic food items like food grains, vegetable oils, and sugar; there is now an inclusion of fruits & vegetables, eggs, meat, beverages and processed food in their repertoire – contributed both by increased availability and affordability. There is an increasing trend of a shift from food security to nutritional security and convenience shopping in the recent past. The Indian Food Industry, which was estimated at Rs 8,80,000 crores (US $ 200 billion) in the year 2006 - 2007 is slated to reach Rs 13,20,000 crores (US $ 300 billion) by 2015 with share of processed food (in value terms) increasing from 43 percent to 50 percent. The Food Processing Industry comprises 43 percent (Rs 3,74,000 crores or US $ 85 billion) of the Indian Food Industry and gives direct employment to about 20 lakhs workers. It is highly fragmented and dominated by the unorganized sector with 75 percent units falling under it. The increasing contribution of food processing sector would largely come from the organized sector. Land Of Opportunities - The Food Industry in India 4
  9. 9. Indian Food Industry: Key Statistics (In Rs 000' crores) Years 2002-03 2006-07 2010-11* 2014-15* Food Industry Size 770 880 1,100 1,320 Food Processing Industry Size 308 374 484 660 Size of organized sector in Food Processing Industry 57 101 162 264 % Share of Food Processing Industry in total Food Industry 40 43 44 50 % Share of organized sector in Food Processsing Industry 19 27 36 40 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections Main sectors comprising of the Indian Food Processing Industry are fruits and vegetables, dairy products, marine and fish, meat and poultry, edible oils, staples, alcoholic and non alcoholic beverages, breads and bakery, confectionary and packaged foods, among others. In India, the food processing level under the organized & unorganized sector is at about 43 percent in value terms, which is much lower than most other countries. Contribution of main sectors to The Food Processing Industry is shown below: Indian Food Market: Sectoral Break-up, 2006-2007 (In Rs 000' crores) 1% 3% 1% 4% 11 38 24 0 Staples & Other Foods 23% 198 Fruits & Vegetables Dairy Fish & Marine 392 45% Buffalo Meat & Poultry Packaged Foods Beer & Wine 206 23% Source: Ministry of Food Processing Industries, Technopak Analysis In addition to the contribution of staples and other foods (includes food grains, edible oils, pulses, tea, coffee, spices and condiments etc.) major contributors to the Indian Food Industry in value terms are fruits & vegetables and dairy products having share of 23 percent each. It is interesting to note that in the last five years the packaged food sector is growing at the highest pace across sectors, though with a small contribution in value terms. Land Of Opportunities - The Food Industry in India 5
  10. 10. Some of the key subsectors of the Indian Food Industry are briefly discussed below: n n n & Vegetables 1. Fruits The total market size of fruits and vegetables was Rs 2,05,920 crores (US $ 47 billion) in the year 2006-07 and is estimated to grow up to Rs 3,28,516 crores (US $ 75 billion) by 2015. Though fruits & vegetables constitute 23 percent of the overall food Industry, its contribution to the total Food Processing Industry is only 4 percent. The value contribution of processed fruits and vegetables in total fruits and vegetables market is about 7 percent (Rs 14,202 crores or US $ 3.2 billion). Of the total processed fruits and vegetables, 38 percent (Rs 5,374 crores or US $ 1.2 billion) is contributed by organized sector and rest of the processing is undertaken by the unorganized sector. Value of fruits and vegetable exports from India in 2006-07 was Rs. 3,960 crores (US $ 0.9 billion), which is growing at Compound Annual Growth Rate (CAGR) of 13 percent whereas the imports for the stated period were to the tune of Rs. 1,760 crores (US $ 0.4 billion). Key statistics of fruits and vegetable sector is summarized as follows - Market Size and Composition of Fruits and Vegetables (value In Rs '000 crores) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 146 206 260 329 Processed 8 14 58 115 Non Processed 138 192 202 213 Processed Organized 3 5 24 47 Processed Unorganized 5 9 34 68 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections Fruits & vegetables are being consumed in both fresh and processed form. The prominent processed forms of Fruits & Vegetables are dried, frozen, dehydrated and canned products. The main processed items are fruit pulp, juices, drinks, jams, squash, pickles and chutney. Land Of Opportunities - The Food Industry in India 6
  11. 11. Some of the major players are listed below: Companies Key Brands Key Products Adani Agri Fresh Farm Pik Fresh fruits Bharti Field Fresh Fresh fruits & vegetables Chordia Foods Product Ltd. Navin, Pravin, Toofan Ketchups, pickles, sauces Desai brothers ltd Mother’s Recipe Pickles, pastes Frozen & dried fruits & vegetables, Flex Foods Chef’s Choice frozen mushroom & herbs Green Valley Food Corp. Frozen fruits and vegetables Jams, squashes, ketchup, sauces, HUL Kissan spreads Keventer Agro Appy, Njoi, Frooti Fruit juices MAHA Grapes MAHA Grapes Fresh packaged grapes Mahindra Shubhlab Service Cape Mahindra Fresh F&V Mapro Foods Pvt.Ltd Mapro Jams, squash, syrup Mother Dairy Safal Frozen processed F&V Mrs. Bector Foods Cremica Ketchup, sauces, dips Fresh and packaged fruits and Namdhari Seed Pvt Ltd Namdhari vegetables Nestle India Nestle Ketchup Priya Fruits and vegetables pickles, Priya Foods powder Temptation Foods Everfresh, Karen Anand, Delika Frozen fruits and vegetables The Global Green Company Global Green, Tiffy Gherkins, pepper, corns, cherries Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 7
  12. 12. n n n2. Dairy Dairy, one of the main contributors to the Indian Food Processing Industry, is leading in terms of growth prospects among various sectors. The total market size of the dairy industry was Rs. 1,98,000 crores (US $ 45 billion) in the year 2006-07 and is estimated to grow up to Rs. 3,66,484 crores (US $ 83 billion) by 2015. The major value in dairy industry comes from the processed category, which is 73 percent (Rs. I,44,681 crores or US $ 33 billion) in value terms and 35 percent in volume terms. Of the processed category, the organized sector contributes only 24 percent (Rs. 34,556 crores or US $ 8 billion) and the major contribution comes from unorganized sector in the form of sweets, homemade ghee and yoghurt, among others. The organized sector of the Dairy industry is growing faster than the unorganized sector. Dairy industry particularly packed liquid milk is dominated by various co-operatives. Co-operatives continue to play a major role in evolution of the Indian dairy sector. The states of Gujarat, Tamil Nadu, Kerala, Karnataka, Punjab and Haryana have established many dairy co-operatives running successfully. Most of the packed liquid-milk segment is dominated by the co-operatives which contributes about 70 percent of the total revenues of the co-operatives. In view of rising demand for processed dairy products which require huge investments and technology support in order to meet the processing and packaging requirements. Packaged liquid milk along with cheese, packaged paneer, khoya & other traditional dairy products are prospective areas of growth while skimmed milk powder & casein are potential export opportunities. The export of value added dairy products will rise if Indian dairy is able to meet global standards. Imports are small and are mostly for premium category products like parmesan cheese, soft cheese and other varieties of cheeses. Market Size and Composition of Dairy Products (value in Rs '000 Cr) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 169 198 269 366 Processed 116 144 190 255 Non Processed 53 53 79 112 Processed Organized 25 34 56 92 Processed Unorganized 91 110 134 163 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections Land Of Opportunities - The Food Industry in India 8
  13. 13. At present, India seems to be self-sufficient in meeting its requirement for milk and milk products. However, given that demand is growing faster than supply, there could be serious issues with respect to self-sufficiency in the near future. Farm gate prices have increased by more than 50 percent in the last three years. The recent rise in milk product prices has forced the government to impose a ban on skimmed milk products & reduce incentives for exports. The demand for value added milk products, such as cheese, butter, dahi (Indian yoghurt) and probiotic drinks is increasing at a double digit rate. There is a huge potential for processing and value addition in the organized sector, particularly in liquid milk and ethnic Indian sweets, which are largely sold in unbranded form in the market. Milk beverages have witnessed a huge growth as a result of growing health consciousness among consumers. Exports of UHT (Ultra Heat Treatment) milk from India to South East Asian countries have grown at a rapid pace. The ice cream industry, though a lucrative business, is suffering from shortage of cold chain infrastructure and lack of interest amongst big players in India. The major players of the dairy industry are listed as follows : Companies Key Brands Key Products Milk, butter, cheese, Ice cream, GCMMF Amul skimmed and buttermilk, curd, flavoured milk, ghee, khoya Milk, shrikhand, ghee, table butter, Gokul Dairy Gokul skimmed milk powder & white butter Haryana Dairy Development Flavored double toned milk, lassi, Co-operative Federation Vita butter, ghee, dahi, packaged milk Milk, butter, cheese, flavoured milk, Dynamix Dairy Industries Private label ghee, khoya, dairy whitener, infant foods Butter, ice cream, cream, lassi, paneer, Heritage Foods Heritage ghee, curd, milk Skimmed milk powder, dairy whitener, Kwality Dairy (India) Ltd. Indana, Kream, Kountry dairy mix, ice cream mix, ghee, lactose Milk powder, milk fat, dairy whitener, Mahaan Group Mahaan ghee, coffee creamers Milk powder, baby food, cheese & Milk Foods Ltd. Milk Food other milk products Milk, ghee, butter, cheese, paneer, MilkFed Verka icecream Milk, cheese, ice cream, curd, butter, NDDB Mother Dairy ghee, lassi, dairy whitener, flavored milk, probiotics Flavored milk, packaged milk, ghee, VRS Foods Paras dahi, paneer Milk, lassi, paneer, curd ghee, cheese Warana Dairy Warana butter, shrikhand Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 9
  14. 14. n n n3. Marine & Fish The total market size of marine & fish industry was Rs 38,200 crores (US $ 9 billion) in the year 2006-07 growing at 4 percent per annum. It is estimated to grow up to Rs. 52,279 crores (US $ 12 billion) by 2015. The processed segment comprises of Rs. 5,348 crores (US $ 1.2 billion) which is 13 percent of the total marine and fish industry size. The huge coast line of India offers plenty of opportunities for the growth of the marine industry. About 25 percent of marine & fish production is exported. Processing provides an opportunity for marine products and exotic fish. Conventional cleaning and cooking fish is slowly giving way to convenient products. Spray dried products, fish protein concentrate, battered and breaded fish and fish-paste based products are being demanded by consumers. Investments in packaged marine processing plant would be an ideal investment option due to the vast untapped marine resource and export potential. Market size and composition of Fish & Marine products (value in Rs ‘000 crores) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 34 38 45 52 Processed 4 5 7 9 Non Processed 30 33 38 43 Organized 3 3 5 7 Unorganized 31 35 40 45 Source: The Marine Products Export Development Authority (MPEDA), Technopak Analysis, * Projections In view of over exploitation and mounting operational costs of the fishing industry in the country, the focus areas are future management and conservation of resources, diversification of fishing effort and economic utilization of fishing units. The players are required to obtain Hazard Analysis Critical Control Point (HACCP) certification for its plants and also update the processing technology and quality assurance in accordance with the requirements of international institutions formulating quality systems such as Codex Alimentarius Commission. Land Of Opportunities - The Food Industry in India 10
  15. 15. Some of the major players in the industry include the following: Companies Key Brands Key Products Allanasons Allanasons Pomfrets, seer fish, squids, prawns, and cuttle fish ASF Seafoods ASF Seafoods Seafood Bell foods marine division Bell Foods Crab, cuttlefish, shrimps, squid, fish octopus Deep Sea Products Deep Sea Products Marine products Fish products, surimi crab claws, crab sticks, Gadre Marine Exports Gadre Marine shrimps, surimi crab patti, marine products, lobsters IFB Agro Pvt. Ltd. IFB Pomfrets, crabs, prawns & sea food Sea Sparkle OKK Fresh Octopus, squid, , crabs& tuna OKK Fresh Sea Sparkle Promfrets, crabs, prawns & octopus Sumero Sumero Pomfrets, crabs, prawns & sea food Source: Technopak Analysis n n n4. Non-Alcoholic Beverages Non-alcoholic beverages are broadly classified into carbonated drinks, non-carbonated drinks and hot beverages such as tea and coffee. The fruit juices and fruit-based drinks account for Rs. 5,000 crores (US $ 1.13 billion) with the annual growth rate of 35-40 percent and the market size of carbonated drinks is estimated at Rs. 6,000 crores (US $ 1.36 billion) with the annual growth rate of 10-12 percent. India is the largest producer of tea in the world accounting for 28 percent of the total global production, at 956 million kgs. The total turnover of the tea industry itself is above Rs. 8,000 crores (US $ 1.8 billion). Tea production in India has been growing at 1.2 percent per annum. India is the fourth largest exporter of tea in the world. India is the fifth largest producer of coffee accounting for 4 percent of the total production in the world and nearly 75 percent of India’s production is exported. Energy enhancing beverages are primarily classified into sports drinks and energy drinks. The Indian market for functional beverages is expected to reach a value of Rs. 1,518 crores (US $ 0.35 billion) in the year 2014. In this sector enhanced fruit beverages would remain the fastest growing segment and the prime revenue earner during the period 2008-2014. Land Of Opportunities - The Food Industry in India 11
  16. 16. At the same time, the packaged water industry in India is at Rs 1,500 crores (US $ 0.34 billion) and is growing at 40 percent CAGR. The major players are “Aquafina”, “Kinley” and “Bisleri” and in the premium segment it is "Evian", “Himalaya” and “Qua”. Out if this flavored packaged water is worth Rs. 11 crores (US $ 0.24 million), which is dominated by the DS Group’s brand “Catch”. India is a country that offers huge potential, even more so than China. Right now, India accounts for approximately 10 percent of global beverage consumption. That makes beverage consumption in India the third largest in the world, after the United States and China. When it comes to carbonated soft drinks, the market has not been properly tapped yet. The situation is similar in the case of bottled and packaged juices and water and PET packaging. Given its size, the Indian market is still in its infancy; therefore the investment opportunities in beverage plants and equipment are immense. Some of the main players in this industry are: Companies Brands Products Minute Maid Pulpy Oange, Coca Cola, Georgia, Thumsup, Juice, carbonated drinks, Coca Cola ltd Kinley, Sprite, Limca, Fanta, bottled water Maaza, Kinley Real, Real Active, Coolers, Fruit juice, fruit drinks Dabur Lemoneez Gatorade Gatorade, Propel Energy drink, fitness water Godrej Jumpin, XS Fruit drinks, fruit juice Hindustan Unilever Brooke Bond, Lipton, Bru Tea, coffee Nestle Nescafe, Nestle Mild, Sunrise Tea, coffee, milk Bailey, Frooti, Appy Classic, Parle Fruit drinks, bottled water Appy Fizz Bisleri International Bisleri Mineral water Tropicana, Tropicana Twister, Pepsico International Pepsi, Dew, Mirinda, 7-Up, Juice, carbonated drinks, Slice, Aquafina bottled water Red Bull Red Bull Energy drink Instant drink, milkshake mix, Rasna, Go Fruit, Shake Up, Rasna International soft drink concentrate, energy Body Fuel drink, syrup Tata café, Himalaya Packet tea, bulk & instant tea, Tata filter/ instant coffee Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 12
  17. 17. n n n5. Alcoholic Beverages Beer and wine is an emerging sector in the Indian Food Industry. While the consumption of beer is growing at 7 percent per annum, wine consumption in India is witnessing high growth of 30 percent in last few years. The total market size of the beer and wine industry was Rs. 10,000 crores (US $ 2.3 billion) in 2006-07 and is expected to grow up to Rs. 23,955 crores (US $ 5.4 billion) by 2015. India is a net importer of wine though some wine export has been initiated. Market Size and Composition of Beer and Wine (value in Rs ‘000 crores) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 7 10 15 24 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections The alcohol industry is witnessing the two way flux wherein many foreign players are targeting India, while their Indian counterparts are nurturing international ambitions. The industry is being fiercely competitive & dynamic, raising cost pressure on manufacturer & marketer. While price cut is being done to ensure the consumer loyalty by established brands, the imports are being replaced by setting up local production facility. Traditionally in bottles packing, the industry has started experimenting with alternate & attractive packaging. United Breweries has launched its four major brands in Tetra pack which is being leveraged on time, anywhere' benefit and infusing it with a young and trendy image. Liquor manufacturers are also bullish on promoting high-end brands through premium packaging or limited-edition gift packs. Some major players in the alcoholic industry are as follows: Companies Key Brands Key Products Cobra Bite, King Cobra, Cobra Light, Cobra Beer Cobra Zero %, Cobra 5.0%premium Beer Grover Vineyards La reserve and Sauvignon Blanc Wines Vinballet, Hammer, Vino Sparkling, Indage Wines Riviera, Ivy, Figueira, Bellingham, Trio Rum, beer, whisky, gin, Mohan Meakin Ltd Old Monk, Golden Eagle vodka Radico Khaitan Magic Moments, 8 PM Whisky, rum, vodka, gin Haywards 5000/2000/ Black, Knock Out, SAB Miller Beer, whisky Royal Challenge, Castle Lager and Fosters Sula Vineyards Sula Wines Bagpiper, McDowell's No.1,Director's Special, United Breweries Rum, brandy, whisky, beer Kingfisher Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 13
  18. 18. n n n6. Buffalo Meat and Poultry Products The total market size of buffalo meat and poultry products was Rs. 24,382 crores or US $ 5.54 billion (Rs. 9,422 crores or US $ 2.2 billion for buffalo meat and Rs. 14,960 crores or US $ 3.4 billion for poultry products) and is expected to grow up to Rs. 49,860 crores or US $ 11.3 billion by 2015. Since buffalo meat is not consumed on a large scale in India, it is processed and targeted for exports. Total export in this category is Rs. 3,520 crores or US $ 0.8 billion, which mainly comprises of buffalo meat. Investment in buffalo meat processing industry is required primarily to tap export opportunities. There is a great scope for processing of poultry meat for domestic consumption as well as for export markets. For speedy realization of export potential, traceability standards need to be implemented. This will improve control and response time to frequent outbreaks of diseases like Avian Influenza that have adversely affected the poultry industry in the recent years. Similarly, Food and Mouth disease is very evident in cattle in India. Despite being hampered by the outbreak of Avian Influenza, the poultry industry is estimated to grow at healthy pace in view of the favorable conditions like falling prices, rising income, increasing domestic demand from young and urban population. Indian poultry sector has the potential to be a major player in the global market, given the competitive edge it has. But so far its participation has been negligible. On the price front, poultry prices were declining, they were still higher than those for pork, beef and buffalo meat. Modernization of abattoirs, cold chain facilities and efficient implementation of quality & hygiene standards will give further impetus to the industry. The market size and composition of this sector is given as follows: Market Size and Composition of Buffalo Meat and Poultry Products (value in Rs ‘000 crores) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 14 24 35 50 Processed 3 5 11 21 Non processed 11 19 24 29 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections Companies Key Brands Key Products Al Kabeer Exports Limited Al Kabeer Frozen mutton, beef, chicken Allanasons Allanasons Frozen halal buffalo meat Frigo Refico Allana Allana Frozen buffalo and other meat Yummiez, Godrej Real Good Animal feeds, branded chicken, Godrej Agrovet Chicken innovative agricultural products & oil palm Innovative Foods Ltd. Sumeru Frozen Foods Seafood Suguna Poultry Farm Suguna Broiler chicken, value added eggs Processed chicken, poultry feed, VH Group Venky’s egg powder Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 14
  19. 19. n n n7. Packaged Foods Packaged food products are penetrating the large potential presented by Indian population. The demand has been rising at a good pace and there is enough latent market potential waiting to be exploited through developmental efforts. This demand for ready-to-eat meals has captured a large amount of the food retail market in India. Major factors driving the change are changing lifestyle, eating and cooking habits, increasing young population. The market for packaged food has grown from Rs. 4,005 crores or US $ 0.9 billion in 2002-03 to Rs. 11,440 crores or US $ 2.6 billion in 2006-07. It is expected to grow ten times its current size in the coming decade. Globalization has been the primary catalyst for the growth of the Indian food which is set to witness many more changes with newer offerings being available. The international markets have shown a positive response to Indian cuisine with Non-Resident Indian (NRI) communities and foreigners expecting to grow this market in the years to come. Another observation is that consumers are on the lookout for RTE foods that are offered to them in hygienic, nutritional and attractive packaging at an affordable cost. Great care is needed during their packing, so that they remain prevented from impurities. Among the emerging trends is that the consumer is looking for innovative flavors and new tastes, which is a big challenge for the food industry. The RTE foods industry has witnessed a growth in recent times with new combination of foods. Going hand-in-hand with the RTE food and mix and eat products, there is a major presence of the small players who are engaged in preparation of ready to eat foods like chapattis, parottas, rice rotis, ragi rotis, appams to name a few. With lack of time and fast paced life in Indian metros, the ready to eat foods and mix and eat food segments will only hold potential for even new entrants. The Packaged food could be basically classified into two categories - shelf stable packaged food and Frozen packaged food. Market Size and Composition of Packaged Foods (value in Rs ‘000 crores) Years 2002-03 2006-07 2010-11* 2014-15* Market Size 4.0 11.4 43.9 91.1 Organized 3.1 9.2 37.3 82.0 Unorganized 0.9 2.2 6.6 9.1 Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections Land Of Opportunities - The Food Industry in India 15
  20. 20. Some of the main players in this industry are: Companies Key Brands Key Products Banana chips, mixtures & chivdas, American Dry Fruits snacks, bhel, dry fruits Bindra Agro Range of 'Ready to Eat' Dr. Bindra's Industries Corp. Dr Bindra’s curried veg and non veg dishes Ready to eat, sauces, chinese Capital Foods Chings’ Secret, Smith & Jones ingredients Savouries, meals, desserts, biscuits, GITS Food Products Gits cookies Haldiram’s, Taka Tak, Range of ready to eat, packaged Haldiram’s Bolletos, Chips chaats Range of ready-to-eat ITC Kitchens of India cuisines Ready to eat curries, meals, cooking pastes, cook-in sauces, Kohinoor Food Ltd. Kohinoor spices & seasonings, frozen Indian breads & snacks and basmati rice Curries, gravies, rice, snacks, soups, MTR MTR Foods spices, pickles Potato chips, cheese snacks, Pepsico Ltd. Frito Lay’s , Cheeto’s, Dorrito’s tortilla chips Ready to eat curries and dishes Priya Foods Priya from south to north Indian, pastes, pickles, instant mix Curried vegetables (ready-to-eat), Vadilal group Vadilal Quick Treat ready-to-cook (frozen), canned and frozen vegetables, ice cream Namkeens, Sweets, Papad,Syrups, Bikanerwala Bikanerwala, Bikano Panipuri Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 16
  21. 21. n n n8. Staples and Other Products India is self sufficient in grain production with an annual production of about 2170 lakhs tons in 2006-07. The major food grains produced are paddy, wheat, maize, barley, jowar, bajra and ragi. India is the second largest producer of the wheat and rice in the world. Wheat and rice together constitute for the major staple diet of the entire population of the country. About 50 percent of the maize production is utilized for poultry feed purpose; the rest of production is either consumed as the staple food or for producing starch and starch based products. Therefore, the rice and wheat processing is the most important activity in food grains processing. More than 65 percent of the wheat is converted into wheat products such as atta, together by organized and unorganized sector. Rice is consumed primarily in the form of polished rice, parboiled rice, parched rice and flaked rice whereas the demand for branded rice (particularly basmati rice) is increasing in both the domestic as well as the export market. India is the second largest producer of sugarcane with a production of 185 lakhs tons and has also ranked at no. 1 position for white crystal sugar. The sugar industry is one of the leading agro processing industries, with an annual turnover of Rs 14,960 crores or US $ 3.4 billion, with more than 450 sugar factories located throughout the country. Being the second largest importer and third largest consumer of edible oil in the world, India is a leading player in this sector. The major consumption includes the palm oil and soybean oil followed mustard and ground nut oil. It includes the consumption of both branded and unbranded oil; the consumer demand for edible oil is growing at a CAGR of 7 percent, whereas the demand for branded edible oil is rising faster at 8 percent and estimated to increase in the years to come. Land Of Opportunities - The Food Industry in India 17
  22. 22. Some of the main players in this industry are: Companies Key Brands Key Products Agro Tech Foods Ltd. Sundrop, Act II, Sudham, Crystal Cooking oil, popcorn NDDB-DOFCO Dhara Refined oil Baggry’s Baggry’s Muesli , breakfast cereal Capital Foods Agro Pure Flour, lentils, besan HUL Annapurna Wheat flour ITC Aashirvaad Wheat Floor Kellogg’s, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Snacks, crackers, cereals, frosted Kellog’s Rice Krispies, Famous flakes, corn flakes Amos, Carr's, Ready Crust Kohinoor Foods Kohinoor Rice Marico Limited Saffola Refined oil & salt Rajdhani group Rajdhani Besan, pulses, maida, sooji Shakti Bhog Foods Wheat flour, rice, gram flour, Shakti Bhog Ltd. corn flour, pulses, porridge Indian rice, sugar, soybean meal, Shri Lal Mahal Shri Lal Mahal tea, wheat grains, salt , corn/yellow maize , sesame seeds Surya Food & Agro Surya Rice Ltd LT Overseas Daawat, Heritage, Orange Organic, flavored rice Tilda Tilda Basmati rice Source: Technopak Analysis Thus, this segment offers tremendous growth potential and investment opportunities in marketing of branded food grains as well as grains processing. Land Of Opportunities - The Food Industry in India 18
  23. 23. n n n9. Bakery & Biscuit Sector The bakery in India is one of largest segment of the food processing industry in which the annual turnover in value terms is approximately Rs. 3,960 crores or US $ 0.9 billion. The total bakery production is estimated at 15 lakhs tons in bread and 11 lakhs tons in biscuit production, whereas the cake industry is estimated at 4 lakhs tons. The bread market is estimated to be growing at around 7 percent per annum in volume terms and the biscuit industry at around 8-10 percent per annum. In the biscuit category, cream and specialty biscuits are growing at faster pace at 20 percent per annum. Breakfast palates at households, constitute bakery products that mainly consist of bread which is a growing preference not only in metros but also in Tier II cities. The fastest growing products in the bakery segment include pizzas, burgers, and pastries such as mousse cakes, fresh cream pastries, croissants, flavored muffins and flavored breads which are catching the fancy of people. Going by the growth of the bakery industry, there is need for lots of flavor enhancers, gluten enhancers and binders which give out softer or more flavored versions of the products. Higher disposable incomes and the willingness of consumers to try new brands have attracted a number of players to the bakery & biscuits industry, both at the national & local level and have generated intense activity in the marketplace. The market for branded biscuits grew around 15-16 percent last year. The confectionery industry is segmented into sugar-boiled confectionery, chocolates, mints and chewing gums. The sugar boiled confectionery is consisting of hard-boiled candy, toffees, accounts for the largest segments. The confectionery industry has a current capacity of 85,000 tons and the growth rate per annum is 10 -15 percent. Land Of Opportunities - The Food Industry in India 19
  24. 24. Some of the key players in the industry are mentioned below: Companies Key Brands Key Products Tiger, Good Day, 50 -50,Treat, Britannia Industries Milk Bikis, Marigold, Little Biscuits, soft rolls, breads, cake, Pvt Ltd. Hearts, Pure Magic, Tiger rusk Biscuits, breads n bun, ice creams, Cremica Cremica spreads, dips, salad dressing, dessert topping, jams Cream Magic, Marie Break, Sweet Glucose, See Saw, Salt Dukes Foods Biscuits, chocolates Kiss,Waffy Wafers, Big Bite, Meltz, Coffee Drive, Jadoo Sunfeast, Golden Bakery, Biscuits, cookies, candy ITC Ltd. Candyman, Mint-o Monaco, Hide n Seek, Milk Shakti, Melody, Mango Bite, Biscuit, snacks, cookies, drinks, Parle Products Kismi, Monaco Bites & toffee, candies Cheeslings, Parle- G, Krack Jack, Melody, Poppins, Surya Foods & Agro Priya Gold, Treat Biscuits Alpenliebe, Happydent, Chlor- Perftti Vanmelle Mint, Center Fresh, Marbels, Candy, chewing gum, mouth Mentos, Cofitos, Big Babol freshener Dairy Milk, 5 Star, Perk, Cadbury Celebrations. temptations, Chocolate, chewing gum, candy Eclairs, Gems, Bubbaloo, Halls Kitkat, Munch, Milkybar, Polo, Nestle Chocolate, candy Eclairs, Bar One, Tang Lottegum, Scotch Candy, Lotte Confectionery Gummy Jelly, Soft Candy, Ghana, Chewing gum, candy, chocolate Crunky, Sunfuns, Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 20
  25. 25. nFunctional Foods n n10. India is at the threshold of a new phase in the functional food industry. Functional foods are foods designed to provide a specific and beneficial physiological effect on health, performance and well-being extending beyond the provision of simple nutrients. This industry is said to comprise of functional beverages and teas, fortified cereals and breads, soya foods, functional snacks foods like cholesterol lowering enriched foods. The growth in the economy, coupled with a strong desire among the consumers to maintain a healthy lifestyle and the growing awareness of functional ingredients such as herbs, minerals, vitamins, omega fatty acids, and probiotics is driving the functional foods market. From today’s trends in food consumption it can be predicted that functional foods are likely to gain popularity and demand due to their specific health benefits. In India the functional food industry has earned revenues of more than Rs 1,166 crores or US $ 265 million in 2007-08 and with an estimated growth rate of 43 percent, it will reach Rs. 14,080 crores or US $ 3.2 billion in 2014-15 (Technopak Analysis). Some of the major players in this industry are: Companies Key Brands Key Products GlaxoSmithKline Boost, Horlicks Energy drink Godrej Sofit Soy milk Nestle Nestle, Milo Milk maid, fun shakes Roti mix, meal mix (sugar & Marico Saffola Functional Foods cholesterol management) Yakult Yakult Probiotic products – milk drink Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 21
  26. 26. nIndian Food Ingredients n n11. The various basic food ingredients used across all food and beverages are antioxidants, antimicrobial, color and flavor, enzymes, emulsifiers, stabilizers and probiotic, and sweeteners. This sector has witnessed a sharp growth over the past few years. To attract more players and investors towards this sector, the government should change its policies keeping in mind issues like safety, traceability and procedural hurdles for exports and imports. Consumer trend shows that there is an inclination towards natural foods with high nutritional value. The lifestyle of most of the urban population, in India as well as abroad, has led to an increasing demand for convenience and health of foods, with improved longetivity, shelf life and stability. The growth rate of this industry is 9 percent. The food ingredients market is increasing with a rapid growth rate, as consumers increasingly demand bigger, bolder tastes, foods that are healthy and ingredients that are natural or sustainable. Consumers are becoming more sophisticated and want more upscale flavors and ingredients. Such ingredients include essential oils and oleoresins, herbs, natural colors and flavors, natural gums and resins, spices, vegetable saps and extracts. These are used in the production of a range of food and beverage products. Currently, going by the demand in the industry, emulsifiers, lactose and lactose syrup, molasses, seaweed extracts pectin and starches, tapioca, sago, arrowroot starch, rosin products, chickpeas and broad & horse beans, kidney beans, onions, tomatoes, garlic, carrots and olives, vegetable saps and extracts, are showing good growth. Land Of Opportunities - The Food Industry in India 22
  27. 27. Some of the key players in this industry are Companies Key Brands Key Products CornSweet, NutriSoy, Acidulants, baking aids and mixes, cocoa NovaLipid, Fibersol-2, and chocolate, emulsifiers, texturants, ADM Novasoy, NovaXan, stabilizers, flours, nutrition ingredients, Ambrosia, Merckens oils and fats,protein products, sweeteners Citrates, dry corn ingredients, flour products, food starch, lecithin, malt products, oils & Cargill Foods Cargill shortenings, soy protein, sweeteners, emulsifiers, stabilizers Cultures, functional blends, enzymes and Chr Hansen Chr Hansen test kits , natural food colors, food microbials (probiotic ingredients) Antioxidants, betaine, colors, cultures, Danisco Danisco emulsifiers, enzymes, fermentation media, fibers, flavors & fragrance, food microbials Degussa Feed additives , exclusive synthesis & catalysts International Flavors Flavors and fragrances and Fragrances Inc. IFF Kerry Group Kerry Ingredients & flavors Sonarome Sonarome Oleoresins, essential oils, flavors, fragrances ROHA Dyechem Natraco, Idacol, Idalacol Synthetic food colors DSM DSM Antioxidants & antimicrobials, food colors Novozymes Enzymes Cadila Healthcare Sweeteners Source: Technopak Analysis Land Of Opportunities - The Food Industry in India 23
  28. 28. Key Growth Drivers 2 With changing needs and lifestyles of consumers, global as well as Indian food consumption patterns are rapidly evolving. Change in consumer demand, influenced by increased awareness levels about national and international food categories, brands, cuisine and openness to experimenting with processed and convenience food has also led to reorientation of the entire food business. Apart from the demand aspect, the production capacities and government support are the other important drivers behind Industry growth. Some of the key growth drivers are identified as follows – n Production Potential n nHuge The diverse agro-climatic conditions offers huge potential for production of a wide variety of crops from cereals, pulses to fruits and vegetables all round the year. India is the producer of various agricultural crops and varieties like basmati rice, alphonso mango, cumin, cardamom, tea, coriander, cashew, a range of vegetables and curries, among others that are popular world over. In addition, India has the advantage of the low cost of production, which provides an unbeatable competitive edge in the global market place. n n nChanging Consumers lRising Income Levels – In India, the per capita income has crossed Rs. 44,000 or US $ 1000 per annum. The top 20 Indian cities, accounting for only 10 percent of the country’s population are generating as much as 60 percent of its surplus income and 31 percent of its disposable income. The consistent rise in the middle class income has resulted in a consuming class with change in ‘basic lifestyle’, increasing life aspiration and higher disposable income. The huge population size of approximately 113 crores or 1.13 billion people are an added advantage that provides a large consumer market. Land Of Opportunities - The Food Industry in India 24
  29. 29. lChange in Food Habits – Rise in disposable incomes coupled with the boom in Internet, mass media and increased exposure to lifestyle in developed economies have significantly impacted consumer habits. With increasing inclination towards convenience shopping, increased awareness of balanced diet and health consciousness is resulting in a new generation of consumers with changing food habits. Indian consumers testify to the fact that they have become more sensitive to the health quotient of food consumed as compared to a couple of years ago. Moreover, consumers have started to demand safe food and abide by the maxim “No More Unsafe Food.” Change in Food Habits over the last couple of years % Become more health conscious now, regarding food consumed 51 Eat more junk food now 15 Eat less often at roadside eating joints or carts 15 Eat more food now 14 Eat out, at hotels more often now 5 Eat western cuisine more often now 5 Source: Technopak Research lEating Out Behaviour – Traditionally, eating out has been a phenomenon more popular in metros, larger cities and towns. Lately, the demand for eating out options has been percolating down to smaller cities and towns as well. Service providers in non metros are now getting bold enough to venture into these unexplored markets. Cheaper real estate is a natural pull e.g. Chokhidhani in Jaipur. Higher disposable incomes of consumers and mature service providers, with a better feel of the consumer pulse entering Tier II and Tier III cities, will be contributors to increased incidence of eating out in the near future. lExperimenting on Cuisines – While the core is still rooted to their local cuisine and cooking styles, a select group of consumers – the younger generation - is experimenting with new tastes. Preferences and tastes are getting diffused across geographies. Hence, regional cuisines are preferred all over India. ‘Indian Chinese’ food is most popular and among other regional cuisines South Indian cuisine is hugely popular in all parts of India. Preference for multiple cuisine is reflected not only when people go to eat outside but also in the kitchen. Pan-Indian cuisines as well as cuisines from other countries have also found their way into people’s kitchen across the country. lGrowing Need for Convenience – Increased income levels, urbanization and a greater proportion of urban working women in India is leading to increased convenience-seeking behaviour of Indian consumers. Due to busy schedules and unavailability of time on weekdays and recreational plans on weekends, the Indian society is looking for the convenient options to fulfil basic needs. This has generated increased demand for processed& convenience foods such as in ready-to-eat, ready-to-cook, ready-to-serve and ready-to heat categories. Land Of Opportunities - The Food Industry in India 25
  30. 30. n n nOrganized Retail and Food Retail India is marking a strong “footprint” on the world both as a producer and a consumer. The overall growth driver has been the strong GDP growth in the past few years, which has fuelled both the industry and consumption. Grocery sales are a close reflection of the food retail sales (refer to the graph below). Share of grocery retail sales in total retail sales (value in net per captia) 5000 Rs in '000 crores 4000 3000 2000 1000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Consumer spending Retail sales Grocery retail sales Source: Planet Retail and Technopak Analysis Shopping habits of Indian consumers, shopping priorities, decision-making approach and decision makers are changing. Riding on this phenomenon, consumers are shifting from traditional kirana stores (mom & pop stores) and street side vendors to malls, supermarkets and hypermarkets. The organized form of food retail accounts for less than one percent of food consumed in India. Organised food retailing has grown 25 percent per annum for last two years and the momentum is likely to increase with the entry of large corporate and possible relaxation in the Foreign Direct Investment (FDI) policy. The proliferation of organized retailing in India is also altering food consumption patterns, promoting imported foods, branded foods, processed foods and a wider assortment. Indian organized retail accounts for around 4 percent of the overall retail. However, in the coming years organized retail is projected to grow at a CAGR of around 30 percent and is estimated to account for 13 percent to the total Indian Retail by 2012. Some of the major players in urban retailing are as follows Land Of Opportunities - The Food Industry in India 26
  31. 31. Companies Key Brands Aditya Birla More Express Retail Services Pvt. Ltd Big Apple, Big Apple Fresh Future Group Pantaloon Retail, Big Bazaar, Food Bazaar, Chamosa, Brew Bar Reliance Reliance Mart, Reliance Super RPG Group Spencer’s Retail, Spencer’s Super, Spencer’s hyper, Spencer’s Fresh’ Spencer’s Express Subhiksha Trading Subhiksha Vishal Retail Ltd Foodmart Wadhawan Food Retail Spinach Source: Technopak Analysis Apart from this, food chains, restaurants, gourmets with novel delivery formats of food retails are also growing at a fast pace in the Industry. n n Opportunity nExport While global markets have started witnessing pressure in food supply, Indian production systems are not only witnessing continuous growth, but also increased marketable surplus. This surplus is here to stay, especially in high value sectors like fruits and vegetables, dairy products, fish and marine (processed). Increasing exposure of Indian exporters to the global market and frequent increasing interactions with global importers has increased the awareness and capability of Indian producers to produce quality food produce. Increasing willingness of Indian farmers and exporters to embrace global standards like CODEX and Global GAP, adoption of new technologies like irradiation, government focus through National Horticulture Mission, is further strengthening India’s case as processed food exporter. India has witnessed an increase in exports of fresh produce like grapes and mangoes and processed food - marine, buffalo meat and poultry products in the year 2006-07. Vegetables like gherkins, broccoli and coloured capsicum are cultivated exclusively for export value. As quality standard procedures and certification processes are observed with strict stringency, these products usually are accepted widely in foreign countries. Thus, it can be rightly said that the potential for producing and having the capacity to be able to obtain produce, process and export according to approved protocol and quality standards have changed the face of Indian exports. Land Of Opportunities - The Food Industry in India 27
  32. 32. n n nFavourable Regulatory Environment and Government Support The Ministry of Food Processing Industries (MOFPI) is the nodal agency responsible for the development of the Food Processing sector, while the Agricultural and Processed Food Products Export Development Authority (APEDA) and Marine Products Export Development Authority (MPEDA) are responsible for facilitating the domestic and international trading of food and food products. The Government has declared food processing a priority sector introducing a number of policy incentives and progressive measures to set up and modernize food processing units, create infrastructure, enhance investments, support research and development and human resource development. The government is inviting private participants and also encouraging private public partnerships to promote the growth of the processing industry. Government - Key Initiatives l National Horticultural Mission (NHM) to promote the production, post harvest management of horticultural crops. It also focuses on promotion of processing of horticultural produce and value addition by providing incentives for setting up of horticulture processing industries and food parks in potential areas and provides linkages between the markets, the horticulture producer/produce and the processing industry. e.g. Rs. 149.6 crores or US $ 34 million kept for viability gap funding to private sector in setting up Modern Terminal Markets for Perishables under the National Horticultural Mission (NHM) l Programs like National Horticulture Mission, Oilseed Mission, Food Security Mission etc. are aimed at increasing the efficiency and quality in production, incentives for setting up infrastructure like warehouses and cold chain l Food Parks, Modern Terminal Markets for perishables, up-gradation of Quality control Mega labs have resulted in increasing investment and processing capacity creation. The Government is also developing 30 mega food parks with the total investment of Rs 100-150 crores or US $ 22-35 million for each park in Public Private Partnership mode l Creating a favourable investment and regulatory atmosphere by controlling a single window clearance system - Food Safety and Standards Authority (FSSA) l Amendment of the Agricultural Produce Marketing Committee (APMC) Act to facilitate better marketing facilities ladditional central scheme i.e. Rashtriya Krishi Vikas Yojana (RKVY) has been announced in An the year 2007. It targets a total investment of about Rs 25,000 crores or US $ 5.68 billion for the XI Five Year Plan to incentivize states to increase public investment in Agriculture and allied sectors l Increased level of institutional crediting provided by banks and Financial Institutions l government has decided to give a boost to research and development e.g. setting up the The National Institute for Food Technology and Management in collaboration with Cornell University of the USA Land Of Opportunities - The Food Industry in India 28
  33. 33. Policy Initiatives & Incentives2 Apart from these initiatives, the government has taken several policy measures with regard to regulation & control, fiscal policy, export & import and taxation to high priority industries. Some of the important policy changes are as follows: lper extant policy FDI up to 100 percent is permitted under the automatic route in the food As infrastructure (Food Park, Cold Chain/ warehousing) In so far as food retail is concerned the FDI policy does not permit FDI into Retail sector except l Brand Product Retailing. This policy is uniform for all retailing activity Single l policy for manufacture of items reserved for the SSI sector is uniform for all items so FDI reserved and a separate dispensation for items in the food processing sector is not contemplated l up to 100 percent is permitted for distillation of alcohol though the automatic route FDI subject to licensing by the appropriate authority l industrial license is required for almost all of the food & agro processing industries except No for some items lto a maximum of 24 percent foreign equity is allowed in SSI sector Up l of foreign brand names are now freely permitted Use lMRTP (Monopolies & Restrictive Trade Practices Act) rules and FERA (Foreign Exchange Regulation Act) regulations have been relaxed to encourage investment and expansion by large corporate l of the items can be freely imported and exported except for items in the negative lists Most for imports & exports. Capital goods are also freely importable, including second hand ones in the food processing sector l & Import duty rates have been reduced substantially. Many processed food items are Excise totally exempt from excise duty lCustom duty rates have been substantially reduced on plant & equipments, as well as on raw materials and intermediates, especially for export production lCorporate taxes have been reduced and there is a shift towards market related interest rates. There are tax incentives for new manufacturing units for certain years, except for industries like beer, wine, aerated water using flavoring concentrates, confectionery & chocolates l trade zones (FTZ) and export processing zones (EPZ) have been set up with all Free infrastructure. Also, setting up of 100 percent Export oriented units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods lCapital goods, including spares up to 20 percent of the CIF value of the Capital goods may be imported at a concessional rate of Customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed l in EPZ/FTZ and 100 percent Export oriented units can retain 50 percent of foreign Units exchange receipts in foreign currency accounts 2 Source: Ministry of Food Processing Industries, Government of India Land Of Opportunities - The Food Industry in India 29
  34. 34. l50 percent of the production of EPZ/FTZ and 100 percent EOU units is saleable in domestic tariff area l profits from export sales are completely free from corporate taxes. Profits from such All exports are also exempt from Minimum Alternate Tax (MAT) n of Foreign Direct Investment (FDI)3 n nInflow The Food Processing Industry in India is on an assured track of growth and profitability for the next five years. It is estimated that food- processing market in India will attract a phenomenal investment, in the form of capital, technology and finance of over Rs. 3,667 crores or US $ 83.34 million by 2014-15.This has increased from 2002-03 (Rs.177 crores or US $ 0.02 million) at a CAGR of 35 percent. In the past decade, the government of India has approved 27,273 foreign collaboration (technical & financial) proposals, with a corresponding Foreign Direct Investment of Rs 26,896 crores or US $ 6.1 billion. Out of this, the total number of approvals for Food Processing Industries have been of the order of 960 (3.52 percent of the total approvals) with an equity participation of Rs. 9,826 crores or US $ 2.1 billion. Flow of FDI in INDIA - Food Sector on the Rise 4000 3500 3000 Rs in '000 crores 2500 Food Processing Industry 2000 Drugs & Pharmaceuticals 1500 1000 Chemicals(other than fertilizers) 500 0 2002-03 2006-07 2010-11* 2014-15* Source: Department of Industrial Policies and Promotion, GOI and Technopak Analysis Given the policy thrust and conducive investment framework by the Indian Government in the last few years, it has resulted into an increased inflow in FDI, thus the sectoral growth with an achieved participation of various national and international companies entering into the sector. The top investing companies in Indian Food Processing Industry are mentioned as follows: 3 Source: Department of Industrial Policies and Promotion, GOI and Technopak Analysis Land Of Opportunities - The Food Industry in India 30
  35. 35. Name of the collaborator Country Artal Foods Belgium C.P. Aquaculture Business Group Thailand Cerestar Holdings B.V. Netherlands Coca-Cola South Asia Holding Inc USA Groupe Danone France Heinz Italia, SPA Milan Italy Hindustan Coca-Cola Holdings USA Kellogg India P. Ltd USA Y.F. Asia Ltd. Mauritius Indian companies in Food Processing Industry to have received FDI inflows are Cadbury India Ltd, Metro Cash & Carry India Pvt., Balarampur Chini Mills Ltd, Nestle India Ltd, Kellogg's India P. Ltd, Cargil Foods India Ltd, and Britannia New Zealand Food P. Ltd. Moreover, there are many international companies which are in the process to get their steps in Indian Food Industry. Land Of Opportunities - The Food Industry in India 31
  36. 36. Challenges & Potential 3 Stumbling Blocks Growth potential of the Indian Food Processing Industry cannot be disputed; however, we need to overcome certain challenges in order to unleash this potential. These challenges include addressing current gaps in the value chain as well as leveraging on various advantages the country provides. Investors in the sector need to be aware of these factors and build required capabilities in their business to ensure success. Some key challenges are mentioned below – nnn Research and Technological Development l ak We Research & Development (R&D) – Research and Development is required in Food Processing to enormous magnitudes - beginning from varietal improvement, to the technology & machinery and production process till the stage for packaging and labelling. Latest developments in food science and focus on innovations in food technologies, nanotechnology and biotechnology; novel food concepts like functional foods, health food, innovative packaging are all a product of exhaustive R&D. Though, many government institutes like Indian Council of Agricultural research (ICAR), Central Food Technological Research Institute (CFTRI), Defence Food Research Laboratory Land Of Opportunities - The Food Industry in India 32
  37. 37. (DFRL), various State Agricultural Universities (SAUs) and other government bodies are doing a considerable amount of research on varietal improvement, procedure and machinery for processing, scientific and chemical research for preserving, manufacturing processes and new product development, but still there is a huge gap in this area which needs to be addressed. Some of the main food companies that invest heavily on their R&D requirements are Marico, ITC, Nestle and Cadbury, among others. l Processable Produce and Irregular Supply – Indian Agriculture is still dominated by Lack of the practice of production driven market supply instead of market driven production, which leads to inconsistency in quality of produce and supply. Varietal improvement is yet the prime area that needs to be given attention to reign supreme with relation to export markets. Varieties with preferred traits must be developed through the use of conventional techniques and by the aid of biotechnology to affect a larger and more diverse germ plasm in crops. There is a need to focus on processable variety of produce with the year round supply. Moreover due to non-grading of produce, the table purpose produce is mixed with one that is suitable for processing. This increases the price that processing sector has to pay. With the growth of processing sector a market for ‘B’ and ‘C’ grade fruits and vegetables will be created thus paving the way for grading that would fetch higher price for table purpose ‘A’ grade produce. This will also boost the varietal improvement programme which is more suitable for processing sector. l Technology and Equipments - India has been practicing various methods of food processing such as sun drying, pickling & fermentation. The quest is on for newer methods, technology and machinery of food processing with least change in sensory qualities. Therefore, the technological progress in emerging processing sectors, development and diffusion of quality-enhancing as well as yield-increasing technologies remain the key challenge to be addressed. n n n Global Standards of Quality Meeting Though Indian growers and exporters have now been able to match up to global standards, meeting these standards with up-scaled production will be big challenge. The challenge becomes much bigger where there are differences in standards and consumer preferences across potential markets. The issues of traceability in fresh produce and poor hygiene generated infections in packaged foods need to be addressed. n Gap n nSkill At each level in the value chain, there are strong deficiencies in technical knowhow and support. In comparison to the amount of research carried out in this field, there is still a gap in the transference of this from the laboratory to the industry. In addition, knowledge flows from the academic circles or centers to the commercial centers of manufacture of primary or tertiary processed food. While at the farm level, farmers are not aware about the types and timing of crops to be taken, chemicals to be used, channel managers are not aware of managing storage conditions and handling of the ultimate produce at the customer end. This gap needs to be bridged by finding the right balance between applied research, capacity building, training and development of policy and regulatory Land Of Opportunities - The Food Industry in India 33
  38. 38. frameworks, ensuring a strong, public-private partnership, identifying additional resources to support the initiative and by making technologies more accessible to farmers, i.e. moving them out of the laboratory and onto the field. n n nInadequate Infrastructure and Supply Chain Non-availability of core infrastructure like high tech controlled production facilities, grading, packaging, cold chains, logistics, warehousing; integrated processing units; inefficient supply chain; poor transportation and erratic power supply are the major concerns in the country across the food value chain. While India is the leading producer of many of the crops in the world, nearly 25-35 percent of this production is spoiled due to the lack of inadequate supply chain and poor infrastructure. Lack of specialized distribution companies for perishable produce/ processed food products is yet another problem that the sector urgently needs to address. Such specialized companies will provide refrigerated transport and warehouse facilities, along with timely distribution of products. n Regulations4 and Taxation Issues n nFood The food sector in India is governed by a multiplicity of laws under different authorities. The following food laws prevails in the country - i. Prevention of Food Adulteration Act 1954 ii. Essential Commodities Act, 1955 iii. Fruit Product Order, 1955 iv. Meat Food Products Order, 1973 v. Milk and Milk Products Order, 1992 vi. Agriculture Produce (Grading & Marking) Act vii. Standards of Weights and Measures Act, 1976 viii. The Warehousing (Development and Regulation) Bill, 2005 The Indian Food Industry and the processing industry are governed by multiple legislations. Dealing with an array of food laws & governing bodies is also a challenge. The government has realized the need for a single regulatory body and an integrated food law, by establishing a new authority - the Food Safety and Standards Act (FSSA), a new food law merging 8 separate acts and a new clarification of the relevant ministries’ responsibilities. The Food Safety & Standard Authority has already come into existence this year; the implementation of this progressive act remains a big challenge for the Government. In India, there is no uniformity in the taxation system across the states. Though many initiatives have already taken by the government, there is still need and scope for harmonization of taxation norms and systems across the country. 4 For more details on food regulations refer Annexure Land Of Opportunities - The Food Industry in India 34
  39. 39. n Market Linkages n nPoor The food value chain in India is highly fragmented and dominated by a large number of middlemen. This leads to increased inefficiencies in the marketing system, due to which production, processing and marketing of produce suffers from under investment. The poor forward integration has resulted into poor quality, lower price and increased wastage of produce at the farm level. Lack of adequate market place and market infrastructure such as weighting, auction platform, storage and packaging, among others have increased the complications of the problem. Improvement in the marketing infrastructure and also identification of new export markets for their produce are the two major issues faced by the government. Institutional mechanisms such as reforms in agricultural marketing and warehousing facilities coupled with increased participation from banks and extension agencies would go a long way in reducing the problems that a farmer faces in his business today. n n n of SMEs Growth Since Small and Medium Enterprises (SMEs) provide the essential link between the agriculture and industrial segments of the economy by enhancing the value of agricultural production, thereby ensuring better remuneration for farmers and larger employment opportunities. The main challenges faced by SMEs are increasing quality standards to be met from the export markets, shortage of technical grade manpower and lack of production and process knowledge. In addition, the SMEs are facing the survival challenge under the highly competitive market environment. Most of the SMEs are unable to deal with the need for product specific technology, availability of automated machinery & equipment and continuous availability of power in sub-urban & rural areas which have resulted into poor performance and non survival of these SMEs. For the success of the food industry, it is imperative that the small scale industries and unorganized sector should be developed. To achieve this, special arrangements need to be made to provide these sectors with access to efficient technology, knowledge of market and soft credit. Measures should be taken to ensure remunerative prices for farm produce, infrastructure development with emphasis on post harvest management, processing, transportation, marketing and exports. Developing efficient technologies for small scale, tiny & unorganised sector remain the key challenge for the government. Land Of Opportunities - The Food Industry in India 35