Indian Food Processing Industry - A Synopsis

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Indian Food Processing Industry

A Synopsis

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Page 2Indian Food Processing Industry – A Synopsis

Table of contents & figures


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 andconstitutes 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 foodparks, 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, toencourage 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, promotecrop 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 andsubsectors of the Indian food processing industry and also provides with the status of each sub sector independently.


2. Global food processing industry

Total estimated market value of food processing - US $4.4billion.

Food processing accounts for 3/4th of the total foodconsumption.

One of the largest food processing market in the Asianregion is Japan, though India and China are catching upfast and are likely to grow more rapidly.

One of the most technically advanced food-processingindustry globally is Australia as the products produced areof international standards and at comparatively lower prices

The scenario of the food industry has changed drasticallydue to the changing life style, food habits and change indemand for healthy and high value food items along withimproved technology. Trade liberalization policies havegenerated great growth opportunities in the foodprocessing industry.

Countries in the Sub-Sahara African region, Latin Americaand parts of Asia are on the lower end of technologycompetence in food items. However, Europe, North Americaand Japan are in the higher-end of technology, with asharper shift towards convenience and diet foods.

19

%

37

%

34

%

10

%

U SA Europe As i a Pac i f i c Rest o f the w or l d

Chart 1 : Share in global food industry

Source: Global food processing report, FAO

80

%

70

%

30

%

80

%

25

%

12

%

1.5

0%

USA France Tha i land Ma lays ia Aus t ra l i a Nether land Ind ia

Chart 2: Level of processing – country-wise

Source: Rabobank


3. Indian Food Processing Industry

High Investment

High Returns in form of quality &

brand loyalty.High Demand

Estimated investment by 2015-

Euro 22.9 Bn

Growing corporate participation, improved infrastructure

Source : Bizminder Research

3.1 India as a emerging market for processed food -

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.

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.

Chart 3: Untapped potential



Inputs ProductionProcurement

& storagePrimary

processingSecondary processing

Tertiary processing Retailing

Either retail directly after secondary

processing or go for tertiary processing3.3 Supply chain in food processing industry

3.4 Sub-sectors in food processing industry

Sub-sectors Primary processing Secondary processing Tertiary processing

Fruits and vegetables

Cleaning, sorting, grading & cutting

Pulp, flakes, dried, flavored, preserved, paste, sliced, etc.

Ketchups, jam, juices, pickles, preserves, candies, chips, etc.

Grains and cereals

Sorting & gradingRice puff, flour, malt, rawa, brokens, etc.

Biscuits, noodles, flakes, cakes, namkeen

Oilseeds Sorting & grading Oil cakesSunflower, groundnut, mustard, soya, olive oil, etc.

Beverages Sorting, bleaching & grading Powder, dust, leaf etc.Tea bags, flavored coffee, soft drinks, alcoholic Beverages

Milk Grading & refrigerationKhoya, cottage cheese, cream, etc.

Processed milk, spreadable fats (butter and cheese), yoghurt

Meat and poultry Sorting, refrigeration, chilling &

freezing

Cut, dried, preserved, frozen, chilledEggs

Preparation such as ready-to-eat mealsMarine products

AgriProducts

DairyProducts

Livestockproducts

Examples of key products

Ind

ian

Fo

od

Pro

cess

ing


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

Food wastage due to lack of processing infrastructure is estimated to be € 9 billion.

1.3

13

21

68

0.8

22

0.2 0.22.8

0

5

10

15

20

25

Fruits &vegetable

Milk & milkproducts

Meat Poultry Marine

Chart 6: Level of processing of perishable products

Organized Unorganized

Source: Rabobank market research report, 2008

Source: FAIDA/Ministry of food processing Industries

25%

42%

33%

Chart 4: Food processing sectors

Organized Un-organized Small scale industries


0

10000

20000

30000

40000

50000

60000

70000

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

26802 2921134204

4378349352 50759

63733

Chart 5: Food processing commodity exports from India

Value of exports from food processing commodities (rs. in crores) Source: DGCIS


Wheat forms the staple grain, with high consumption of milk and milk products.High consumption of meat products.

Mixed consumption of both rice and wheat as staple food. High consumption of vegetables and marine products.

Mixed consumption of both rice and wheat with rice being more predominant in a few states of the region.

Rice forms the staple grain, with high consumption of fruits and vegetables. Consumption of both marine and meat products.

22%

20%

20%

19%

18%

12%

12%

11%

11%

11%

66%

68%

71%

72%

72%

0% 20% 40% 60% 80% 100% 120%

Very rich households

Rich households

Middle income

Lower middle

Lower incomeMilk and Milk Products Meat and Meat products Agri Products


INDIA

North

South

EastWest

Chart 8: The consumption patterns geographically

Number of households (in millions) Percentage consumption spend across categories

1.3

2.4

10.9

91.3

101.11 18%

19%

20%

20%

22%

11%

11%

11%

12%

12%

72%

72%

71%

68%

66%

LOWER I NCOME

LOWER MI DDLE

MI DDLE I NCOME

RI CH HOU SEHOLDS

VERY R I CH HOU SEHOLDS

Milk & milk Products Meat & marine products Agri products

Source : Economic Survey of India

Chart 7: Consumption pattern across different categories and income class


4. Indian Food Processing Sub-sectors - Overview

4.1. Agri produce

Grain processing

Grain processing includes milling of wheat rice andpulses.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 by30.4% since 2007.This segment is expected to grow steadily at 15-20% fornext 5 years.Indian basmati rice has high demand in Internationalmarkets.

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.

Source : Ministry of Food Processing Industries



Chart 10: Agri produce supply chain

Source : Government of India, Planning Commission, EY Analysis



Milk and Milk products

India ranks 1stin the world in terms of milk production.

The dairy sector has an estimated consumer demand of EUR32 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 forintroduction of new value added products.Manufacturing of CASEIN and LACTOSE has good scope inthe country: at present these are generally imported.Market of yoghurt is growing at a rate of 18% and that ofsour 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 thenorth, west and south. For the eastern regions, the milk isconverted into powder and then reconstituted forconsumption.

Source : Department of Animal Husbandry, Dairying & Fisheries

4.2. Dairy


Chart 12: Dairy supply chain





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 housesand cold chains.Poultry is also witnessing strong growth.The newly upcoming modern retail sector has stronginfluence 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 shelfarea & 2.2 million sq km of exclusive economic zone India isendowed 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 foroutsourcing reprocessing of marine products.Key products are frozen shrimp, lobster, cattle fish, clamsand fish fillets.Major Players in marine products are ASF sea foods, Bellfoods, Deep Sea products.More than 200 units are approved by the EU for exports tothe EU.

0 5 10 15 20

USA

China

Brazil

Mexico

India

16.2

15

9.2

2.6

2.3

Chart 13: Top five chicken producers (MT)

Source : FAO

0 10 20 30 40 50 60 70 80

China

USA

Brazil

Germany

India

70.4

42

18.7

7.4

6.5

Chart 14: Top five meat producers (MT)

Source : FAO

4.3. Livestock



Chart 15: Livestock supply chain



Holdings have become fragmented as the farms are divided through inheritance.

5. Factors impacting growth of food production

4. Specific factors impacting productivity

3. Inadequate support infrastructure

There are restrictions about the size of landholding in the name of a single entity —regulations are dependent upon individual state policy.

1. Fragmented land holding patterns

Small operations make investments in automation unviable and also complicate coordination and integration between farmers, processors and the end consumer.

2. Low labor productivity with low adoption of technology

The high dependence on labor for agricultural activity has affected the speed of technology adoption.

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.

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.

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.

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.

There are several constraints of land availability for agriculture due to competing pressures from urbanization, constructions and industrialization.

Land under cultivation is stagnant and yield growth is largely flat across major categories due to low productivity from agriculture.

Each region has its own limitations for impacting agricultural productivity like soil erosion, floods etc.

Other factors like non-availability of electricity, high population growth, poor road and communication infrastructure, etc.


6. Improvement opportunities

Seed management system.Soil health and nutrition management.

Water management.Bio-measures for pesticides and insecticides.

Technology up-gradation.

Consolidation of creators for economies of scale.

Better utilization of land.

Educating the Indian farmer on modern farming practices.


7. Some of the key business opportunities in food processing infrastructure

Warehousing facilities

Value addedservices

Supply chainmanagement

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.

The demand for cold chain infrastructure is set to increase with modern trade expected to grow at 20-25% and the emergence of large Indian and international players in the food chain.

Increase in demand for value added tertiary processed products especially frozen food will also drive the need for improved warehousing and cold storage facilities.

There is currently a large gap in terms of availability of value added services like tagging, repacking, promotion packing, etc.

Considering this gap, companies , especially international companies present in Indian manage these processes in house with minimal intervention from third parties.

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.

There is a growing need among retailers and manufacturers to obtain real time data to ensure proper order planning, stocking and manufacturing plans.

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 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.


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