FoodProcessingandAgribusinessAssocham Opt

KPMG IN INDIA

CONSUMER MARKETS

Food processing and Agri business

01

About the study

This is a briefing paper that was presented by KPMG at the International

Summit on Food Processing and Agribusiness organized by

ASSOCHAM. The document analyses the potential of the Indian Food

Processing sector in two dimensions - India as a Sourcing hub and India

as a huge potential market in itself.

The study starts with the market landscape of food processing sector in

India, the key trends in the value chain, growth drivers and the export

scenario. It then identifies the key opportunities for players across the

value chain.

The paper then focuses on key hurdles in the path to growth, and

explains by means of cases how to overcome the hurdles. The document

concludes with the expectations of the industry and recommendations.

2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

02

India's strong agricultural base and accelerating economic growth holds a significant

potential for the Food Processing Industry that provides a strong link between agriculture

and consumers. Government also has accorded a high priority to the sector and has

provided many fiscal incentives. An enviable share of the world's agri-produce and diverse

agro-climatic regions coupled with changing demographic patterns, food habits and rise in

income levels opens up numerous opportunities in the sector India as a large consumer

market and India as a potential sourcing hub to the world.

Yet India's share in the global food trade is just around 1.5 percent. What are the key

constraints that are slowing the growth of the sector and how are they being addressed?

What are the various opportunities that the Indian Food Processing Industry provides? What

are the trends in the food trade? How are the consumer food habits changing and how does

it affect the industry? What are the support initiatives taken by the government and what

opportunities do they provide in the value chain beyond just Processing? What is the

industry expecting from the government to further the growth? What further can be done to

help India reach the very deserving lead position in the global trade?

The report aims to answer all these questions on the Indian Food Processing Industry.

KPMG conducted extensive research based on information from both primary and

secondary sources various proprietary databases, our experience with various food

companies and interviews with players across the value chain to understand the sector,

the potential and various immediate and long term steps required. A summary of the key

findings of our analysis is outlined below.

Executive Summary


03

Food is the largest consumption category in india

India's Food Processing Industry is estimated to be around USD 67 billion of the USD 180

billion Food Industry and creates more employment opportunities per unit investment than

any other sector.

India has a diverse agro-climatic regions and soil types with optimum amount of sunshine

hours and day length suited for cultivating both food and commercial crops round the year.

Naturally, India is a leading producer of many agricultural products like fruits and vegetables,

cereals, pulses etc. India offers a huge potential in terms of rising consumption and as a

sourcing hub for the world due to its supply strength.

Introduction: India - Global Food processing Hub, explains the contribution of

Food Processing to GDP, India's supply strengths and rising consumption-led

demand, hurdles in terms of wastage and highlights the opportunities in the

sector for players and the government.

Common features across segments

Largely unorganised Though the unorganised segment varies across categories

mentioned above, approximately 75 percent of the market is still in the unorganised

segment.

CHAPTER

!

Significant opportunities exist across each segment

Food Consumption in India will grow at a CAGR of 5.32 percent

Source: BMI, Q1 2009 & CSO

151.7 157.7168.6

180.1 184.4191.4 198

50

100

150

200

250U

SD B

n

0

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

210.3229.7

CAGR: 5.32%

Food Processing Segments

Food Processing

Fruits &Vegetables

Meat &Poultry

Dairy MarineProducts

Grains Consumer Food

1


Source: KPMG Analysis

04

Level of Processing across Segments

Segment

Fruits and Vegetables

Fisheries

Poultry

Buffalo Meat

Milk

Level of Processing

2.2%

26%

6%

20%

35%

Comments

USA (65 %), Philippines (78%) and China (23%)

60-70% in developed countries


Source: UN COMTRADE

Export of processed food growing faster than exports of Food overall

18.75%

21.84%24.63% 25.44%23.63%

28.96%31.25%

28.78%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2005 2006 2007 2008

Export of Food and Beverages Export of Processed Food and Beverages

2


! The organised sector is relatively bigger in the secondary processing segment than the

primary processing segment. Also, the primary processing segment is highly

fragmented.

The level of processing in each segment is low relative to many other countries and India

accounts for just around 1.5 percent of the global processed food trade.

If India was to lift its share of global processed food trade to just 3 percent, the Ministry of

Food Processing estimates that some USD 24.7 billion worth of investment would be

needed to restructure the industry. Taking a cue from the global examples, India also should

invest in infrastructure and policy development that helps reduce waste across the supply

chain and increase the level of processing and overall value of output.

Food Processing Segments details each segment of the Food Processing

covering the supply, processing, bottlenecks, and opportunities and explains

the need for improved focus and investment in the sector.

According to Business Monitor International, Indias Food exports are expected to increase

by 72.8 percent over 2008 to USD 24.25 billion in 2013. However, in spite of vast natural

resources, import growth of food products in India is also expected to be strong over the

forecast period, to reach USD 12.3 billion

by 2013. At an overall Food and Beverage

level, the export of processed segments is

growing much faster.

During the period 1980-2007 Indias share

of the global food exports has increased

from 1.1 percent to 1.4 percent, with

majority of the increase coming during the

current decade. Countries like Germany,

which had large number of SMEs similar to

that of India, have focused significantly on

R&D and Innovations in the sector apart

CHAPTER

Export of processed foods is growing faster than food segment

Source: MoFPI Annual Report 2007-08

05

Source: UN COMTRADE; CEPII

India's exports are predominantly to the nearby countries

0

South Asia 34%

Middle East 29%

East Asia 17%

Western Europe 10%

Rest of the world 7%

Africa 1%

Shar

e of

Tra

de

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 4000 6000 8000 10000 12000 14000

Distance (Kms)

US and Canada 1%


from investing in infrastructure and supportive policy and legal framework that helped the

country to the top league of the exporters table. Joint research initiatives that helps SMEs

invest in a federal R&D lab promoted multiple product innovations in the country.

Indias trade in various segments in the Food Processing Sector has seen a good growth

driven by the Mango Pulp, Dried and Preserved vegetables, Pickles and Chutney in F&V,

Buffalo Meat in the Meat and Poultry, Basmati Rice in Grains and Shrimp in the Fisheries

segments. Indias exports, as is the case globally, are to the proximate geographies led by

South Asia at 34 percent and USA & Canada a poor 1 percent of total exports.

However, significant impediments exist hindering the export growth:

Poor quality and grading mechanisms for raw material leading to loss of consistency in

variety of raw material

High level of wastage across the value chain

Presence of too many intermediaries implying a high cost of raw material

High costs of packaging

Low technology equipment and knowledge

High costs and poor quality of distribution

Stringent Food Safety and Traceability norms from importing (developed) countries

India needs to take strong measures to promote growth:

Map demand with production capabilities Himachal Pradesh, is manufacturing

commercial crop in Kiwi, instead of Apples, due to the falling demand for Apples

Move towards non-traditional items A herbal beverage made from Sea-buckthorn

developed with DRDO technology opens up a huge market opportunity

Improve promotional activities for Indian food and market India as a food sourcing hub

Promote investment for increasing the level of processing in the sector

Upgrade agri-infrastructure to have a sustainable supply chain for consistent high

quality raw material

!

!

!

!

!

!

!

!

!

!

!

!

06

3

4


CHAPTER

CHAPTER

Provision for Training and Education on the safety and health regulations in export

markets

Market Diversification Move over the geographical distance barriers and initiate joint

efforts with potential partners in identifying the focus of trade and creation of

conducive regulatory policies. Chile has successfully overcome the distance barrier and

exports to far off geographies due to its focus on quality, exports promotion by regional

trade agreements and joint initiatives.

Indias Food Processing Trade details the trade statistics of India, Indias

position in global trade, segment level and geography-based trade, the

impediments to growth and key export promotion strategies.

Increasing urbanisation, consciousness on health and nutrition and changing lifestyle are

changing the consumption habits of India. The number of working women, single

students/professionals and nuclear families is increasing creating a demand for processed

Ready-to-eat foods. Growth of organised retail, which makes the processed food readily

available, is also driving growth of Food Processing.

Government has initiated several steps like setting up Mega Food Parks, Integrated Cold

Chains, Modernisation of Abattoirs, fiscal incentives for technology upgradation, R&D,

Training and Educational institutes etc to reduce wastage and boost the growth of the

sector.

Budget 2009 provides a fillip to agriculture in terms of cheaper finance, increased allocation

to irrigation, harmonisation of taxes by implementing GST and fiscal incentives for

investments in Cold Chain facilities.

Key Growth Drivers of Food Processing Sector in India details the demand-

side and policy-level drivers of the sector, including a section on Budget 2009

measures for Food Processing Sector.

The Food Processing sector offers many opportunities across the value chain right from the

farm equipment players to the retail/food services segment.

Urbanisation and supportive policy is driving growth

Significant opportunities exist across the food value chain

India's Forex Reserves: 2001-2008 (till March 2008)

07

CHAPTER Opportunities in the Food Processing Value Chain details the food value

chain and provides an analysis of various opportunities that exist across the

value chain.

FarmsInputs

Farming Marketing/Aggregator

Processing Logistics(Food)

Retail/FoodServices

Consumer

Financial & Business Services

Transport Services/Infrastructure

Quality Control Market Intelligence

Product Design

Distribution

Marketing

POLICY SUPPORT

A summary of the key opportunities is listed below

5

Summary of Opportunities across the value chain

Opportunity

Customised equipment for the local market

Processable variety of crops

Forward Linkages with the Processors

Contract Farming Arrangements

Consolidation of farm produce

Access to global markets

Forward linkages with Organised Retail

Backward linkages with farmer

Institutional segment business

Increase in integrated storage facilities requirement

Cold storage facilities

Mega Food Parks

Integrated Cold Chain

Quality Control and R&D labs

Food Safety management systems

Joint Research Initiatives

Training and Provision of Market Intelligence

Packaging and barcoding

Player

Farm Equipment

Farmer

Processor

Logistics provider

Investors

Enabling Segment


Food Processing Value Chain



Constraint Long and fragmented supply chain leading to high wastage and high costs especially due

to seasonality, perishability and variability of produce.

Supply Chain hindrances

08

Various constraints are impeding

the growth of the sector

The opportunity in Food Processing industry

is significant, but so are the challenges that

ail the sector. Certain limitations could be

seen as an opportunity waiting to be

exploited for the allied sectors and others as

a guiding light to a roadmap for

government's intervention. Below is a

summary of various constraints and strategic

measures.

Summary of Constraints and Strategies

R&D

Constraint Commodity-centric R&D

Compartmentalization of R&D agencies

Poor validation and feedback mechanisms

Strategy Need for a systems approach to R&D to enable a holistic research-development-

technology transfer continuum involving all stakeholders

Strategy Contract farming helps certainty of supply, reduction of costs, and high remuneration to the

farmers. Suguna Poultry successfully implemented contract farming creating a win-win

situation for the farmer and the integrator. Terminal markets, that operate on a hub-and-

spoke format, where in the terminal market (hub) is linked to a number of collection

centres (the spokes) help procurement of right quality produce at the right price.

Constraint Industry is in dire need of highly skilled and trained manpower across different levels to

handle various operations

Strategy Need for institutes and courses that provide managerial, safety and enforcements,

technology and production, warehousing and distribution trainings, and regulatory bodies

to focus on trade agreements

Human Resource Development

Constraint Low level of interaction between industry and research institutes

Strategy A few initiatives by CFTRI with industry (MTR, Rishang Keishing Foundation) have been

successful. Similar efforts needs to be encouraged

Industry Linkages

Constraint Indian Export related infrastructure for agri-produce is grossly inadequate, especially at sea

ports and airports. More than 30 percent of the produce from the fields is lost due to poor

post-harvesting facilities and lack of cold chain infrastructure.

Strategy India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10

Million Ton more. Supportive measures for infrastructure investments from the private

sector are required.

Infrastructure bottlenecks

Constraint Either unavailability of funds or availability of funds through unorganized sector at

unfavourable terms and conditions.

Strategy Some organizations have been exploring equity investments in SMEs that operate along the

food value chain. These investors place less emphasis on collateral or creditworthiness and more

on the capabilities of the entrepreneurs and viability of their business plans. Two such initiatives

are African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF).

Poor Financing Options


09

CHAPTER Constraints and strategies details various constraints and strategies, with

case studies on how some players have been approaching the constraints.

Constraint The packaging material is imported from China as the sector lacks government support.

Packaging

Constraint

Constraint

Constraint

Constraint

Multiple laws at state and centre level are applicable to the FPI.

Was to enable establishment of private markets, direct purchase centres and promotion of

PPPs, but there is no uniform implementation of the Act. Only 15 states have adopted the

model law.

India's overall agriculture productivity is still at approximately 2 percent

Urgent need to make the law uniform across states. Support e-choupal like initiatives that

encourage market reforms

Strategy Encourage the sector by extending the tax breaks and concessions to players setting up

packaging industry in India

Strategy

Strategy

Players need to device a twin pronged strategy of improving agricultural yields coupled

with delivering the right quality to different markets

Strategy

Ensure that the requisite controls are put in place across the agri-value chain-from farm

inputs to storage of produce to food processing techniques.

Strategy

Need for a consolidated law that removes the hassles of multiple departments and multiple

laws

Multiplicity of Laws and Stringent Regulations

Poor implementation of APMC Act

Productivity Issues

Low adherence to quality standards

Unavailability of basic standardization and certification infrastructure. Given the size of the

industry, there is a huge gap in the availability of laboratories, trained manpower, and

certification agencies.

6


10


Industry expects a lot more from the government

KPMG has interviewed various players across the value chain for the study and collated

their expectations. The expectations are as under:

100 percent tax breaks in R&D Large companies are willing to invest in R&D and also

support small scale industries provided the government provides incentives

Support for nutritional products The industry expects the government to differentiate a

nutritional product from a non-nutritional product and make laws for labelling and

incentives

Conducive policy for Contract Farming Need a change in the currently restrictive land

ceiling law

Harmonisation of taxes VAT is not uniform across states leading to different prices in

different states

More incentives in Infrastructure Development Government also needs to share the risks

of development and market

Focus on Skill Development Need for improved focus on establishing training and

education facilities for production technology, warehousing, testing, safety and quality

systems

Easier Financing to Food Processing Need to enable easier financing possibly with a

separate bank

KPMGs recommendations for the sector:

More Production of processable varieties to help minimise wastage, improve value addition

and improve farmer income. This requires more investments in quality systems, sorting,

grading etc.

Promotion of Indian Food in global markets to market India as a brand in Food Processing.

Infrastructure development through Private Sector Participation (PSP)

Implementation of GST (to remove the non-uniformity in indirect taxes)

Fiscal incentives for modernisation

Support in meeting export quality norms by training facilities and providing market

intelligence through private bodies and institutes like NIFTEM, CFTRI etc

Extend incentives to players who invest substantial amounts in backward integration as this

helps farmers earn remunerative prices by minimising middlemen.

Promotion of Nutrition Foods Need to make nutritional labelling a must and also

incentivise the players who produce nutrition foods.

Industry Expectations and Recommendations details the expectation of the

industry and KPMG recommendations for the sector.

A dynamic Food Processing sector will help India ensure higher value addition to agricultural

produce, generate employment, improve farmer income and create markets for domestic

consumption and export of agro foods.

!

?

?

?

?

?

?

?

?

?

?

?

?

?

?

CHAPTER

7

11

Contents

Introduction: India - Global Food processing Hub


Indias Food Processing Trade

Key Growth Drivers of Food Processing Sector in India

Opportunities in the Food Processing Value Chain

Constraints and Strategies

Industry Expectations and Recommendations

Conclusion

Abbreviations

12

16

26

41

46

51

64

68

69


12

With agriculture at the core of Indian economy and more than two-thirds of the population

dependent on farming, a developed Food Processing sector can be a strong link between

agriculture and the consumers. Government's high priority to the sector coupled with a

growing consumption-led demand is leading to a fast pace growth in the sector. A

developed Food Processing sector will help overcome the biggest challenges in front of

India

Low farmer income and high subsidies

High wastage along the value chain

Poor hygiene and safety standards

Food processing is the set of methods and techniques used to transform raw ingredients

into food or to transform food into other forms for consumption by humans or animals

either at home or by the food processing industry. Food processing is a large sector that

covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries.

It also includes other industries that use agriculture inputs for manufacturing of edible

products. The food processing industry is made up of primary, secondary and tertiary food

processors.

!

!

!

In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flour

mills, pulse mills and oil-seed mills. Also, there are several thousands of bakeries, traditional

food units and fruit & vegetable/spice processing units in unorganized sector.

Primary Food

Processors

Secondary Food

Processors

Tertiary Food

Processors

Primary industries process raw foods (wheat into flour, for example)

Secondary industries use primary products to manufacture other foods

(flour into bread).

Tertiary industries produce prepared convenience foods such as frozen

dinners or canned soup.

Introduction:

India - Global Food processing Hub


1. Ministry of Food Processing Industries, Annual Report 2007-08

2. IBEF Food Processing Report, June 2008

3. Changing lifestyle, thriving food processing; FFY Magazine June 2009

13

These numerous advantages and factor conditions like low cost of labour put India in an

enviable position to produce a wide variety of food crops and commercial crops for

domestic consumption as well as export.

Significant Contribution to GDP

and Employment

India's Strengths in Food

Processing

Indian food processing industry is estimated to

be around USD 67 billion, of the USD 180

1billion food industry, making it the fifth biggest .

The food industry expected to grow to USD

2280 billion by 2015 and generate an additional

employment for approximately 8.2 million

people. It has been observed that employment

potential of the food-processing sector is much

higher than other sectors. For instance, an

investment of INR 10 billion generates

employment for 54,000 people in the food-

processing sector, jobs for 48,000 people in

textiles and employment of 25,000 people in

the paper industry. There is also fourfold

generation of indirect employment in auxiliary

and other downstream activities on account of

investment in the food sector. Also, 60 percent

of the employment generation takes place in

3small towns and rural areas .

India is one of the key food producers of the

world and has access to several natural

resources. Diverse agro-climatic conditions

and wide ranging raw material base adds to

the huge advantage of a large untapped

domestic customer base.

Food processing industry in India is

supported by a great agri-climatic diversity

suitable for round the year cultivation of

crops. In terms of production, India is among

the world's major food producers India

accounts for 17 percent animal, 12 percent

plants and 10 percent fish genetic resources

of the globe; and 16 percent of cattle, 57

percent of buffalo, 17 percent of goats and 5

percent of sheep population of the world.

Diverse agri-supply

52% cultivable land compared

to 11% world averageLargest livestock population

All 15 major climates in the

world exist in India Largest producer of milk

46 out of 60 soil types exist

in IndiaLargest producer cereals

20 agri-climatic regionsSecond-largest fruit and

vegetable producer

Sunshine hours and day length

are ideally suited for round the

year cultivation

Among the top five producers

worldwide of rice, wheat,

groundnuts, tea, coffee, tobacco,

spices, sugar and oilseeds.

India has the largest area in the world

under pulse crops

India is the first in the world to evolve a

cotton hybrid

India grows more than half of the world's

mangoes and leads all countries in the

production of cashews, millet, peanuts,

pulses, sesame seeds, and tea

The nation ranks second in the production

of cauliflowers, jute, onions, rice,

sorghum, and sugar cane

India is also the world's largest grower of

betel nuts, which are palm nuts chewed

as a stimulant by many people in tropical

Asia. It is also a leading producer of such

spices as cardamom, ginger, pepper, and

turmeric.

Some Interesting facts on

Indian Agriculture


Source: Can India be the Food Basket for the World, An ISB Working Paper

Statistics Source - National Horticulture Board, FICCI, MoFPI

14

India's Rank relative to the world in various agri-products

Percent Share HighLow

Ran

kH

igh

Low

Pulses, 1 , 21

Buffalo, 1 , 57

Paddy (Rice), 2 , 21

Chicken, 6 , 3

Sheep, 5 , 5

Eggs Total (m) 5, 3

Cattle, 1, 16

Total Milk, 1, 14

Cereal, 3, 11

Potatoes, 3, 8

Wheat, 2 , 12

Onions, 2 , 11 Veg & Melons, 2, 10

Item, Rank, % of Global Share

Consumption-led demand

Source: BMI, Q1 2009 & CSO

Food Consumption in India

151.7 157.7168.6

USD

Bn

180.1 184.4191.4 198

210.3229.7

0

50

100

150

200

250

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

CAGR: 5.32%

India, with a population of more than 1.1 billion, is one of the largest consumer markets in

the world. Food consumption in India is expected to grow to 229.7 billion in dollar terms by

42013 from 168.6 billion in 2007 . Food and Beverages is largest category in Indian

5consumer spending and is expected to remain in the future . The country's highly favourable

demographic patterns, with more than 50 percent of the population below 30 years of age,

increasing disposable income, urbanisation and lifestyle change are likely to bring about

changes that will enforce shifts in the Indian food and drinks industry, as young populations

are one of the key drivers in the demand for processed and health foods.


4. Business Monitor International, Jan-Mar 2009

5. The Rise of the Indian Consumer Market, McKinsey 2005

Source: FAO, Kotak Securities

15

Hurdles in the growth path

In spite of the huge supply advantages, India's share in the global food trade is still around

1.5 percent. Huge losses across the value chain resulting in poor processing levels are

limiting the growth the India's share in the global processed food trade.

Processed food has a longer shelf life and reduces wastage. The lack of processing and

storage of fruits and vegetables results in huge wastages, as shown in the figure,

estimated at about 35 percent, the value of which is approximately INR 33,000 crore

6annually (Recent reports put the number at a much higher level). So, it is imperative for the

government and private players to invest in infrastructure to make India not only have

sustainable food production for its growing population but also export more to the world.

The low share of processed food and global trade is an opportunity waiting to be tapped.

Increasing urbanisation and rise in disposable incomes will further push demand for

processed food. This is an opportune time for companies to invest in quality facilities and

develop products with features that appeal to the growing Indian consumer base and the

export markets.

Also, from a government's point of view, Food Processing sector can help reduce the

burden of subsidies and raise the farmers' income simultaneously. Agricultural produce that

is processed for domestic consumption can not only fetch higher prices and hence higher

income for the farmers, but also generate direct and indirect employment helping alleviate

rural poverty. So, the government should continue to support the industry with an enabling

and growth oriented policy.

Significant Opportunity Domestic Market and Exports

Field Losses(Pest, Diseases, Rodents etc)

Pre-Processing(e.g. inefficient harvesting, drying, milling)

Transport(e.g. spillage, leakage)

Storage(e.g. technical deficiencies)

Processing & Packaging(e.g. excessive peeling, washing)

Marketing(e.g. spoilage, rotting in stores)

Wastage by Consumer(e.g. overeating, food wastage)

Developing CountriesRelatively high losses in

the initial parts of thevalue chain

Rich Countries Highlosses at a in the food chain

later stage

Field

Con

sum

er

Pro

duce

r

Fork Britt-Lousie Anderson, SIWI


6. Ministry of Food Processing Industries, Annual Report 2007-08

16


India's low level of processing is expected to change significantly in the future fuelled by

sustained economic growth and steady urbanisation. Processed food output is expected to

grow at a strong 7 percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.6

1billion USD in 2013 . Premiumisation, especially among the young and rich urban population,

is also a key factor helping value growth over the forecast period.

Source: BMI, Q1 2009

USD

Bn

CAGR: 7%

Processed Food Output

55.658.9

62.566.2

71.577.2

83.490.1

95.6

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f


A schematic diagram of the key segments in the industry is as shown below.

Food Processing

Fruits &Vegetables

Meat &Poultry

DairyMarine

ProductsGrains

Consumer Food


1. Business Monitor International, Jan-Mar 2009

17

Source: EXIM Bank

India's share of global production - F&V

41 23 24 36 10

59 77 76 64 90

0%

20%

40%

60%

80%

100%

Mango Banana Cashew Nuts Green Peas Onion

India Rest of the World

Common features across segments

Largely unorganised Though the unorganised segment varies across categories

mentioned above, approximately 75 percent of the market is still in the unorganised

segment.

The organised sector is relatively bigger in the secondary processing segment than the

primary processing segment. Also, the primary processing segment is highly

fragmented.

The following sub-sections provide a brief overview of the key segments. While the

opportunities and constraints at segment level are touched upon, a detailed analysis is

provided in later chapters.

Supply

Fruits and vegetables is one of the most important and fast growing sub-sectors of the food

processing sector, as fruits and

vegetables form an indispensable part of

healthy diet. India accounts for 13

percent of vegetables and 12percent of

fruits production globally, with an

enviable share in few categories like

Mango, Banana, Cashew, Green Peas

and Onion. The productivity has also

improved from 10.25 and 14.37 million

Tons/Hectare for Fruits and Vegetables in

2002-03 to 10.94 and 16.14 million

Tons/Hectare for Fruits and Vegetables

respectively.

Processing

The installed capacity for fruits and vegetable processing in India has increased from 11.08

2lakh tons in 1993 to 24.74 lakh tons in 2007 , mainly due to the increasing demand from

ready-to-serve beverage industry, fruit juices and pulps, dehydrated and frozen fruits and

vegetable products, pickles etc.

!

!

Fruits and Vegetables Processing

Year

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Fruits (Mn Ha)

5.1

5.3

5.3

5.6

5.8

4.8

Fruits Vegetables

Fruits - Production (Mn Tons)

49.8

52.8

55.4

59.6

63.5

49.2

Vegetables (Mn Ha)

5.9

6.7

7.1

7.2

7.5

7.8

Vegetables (Mn Tons)

84.8

101.4

108.2

111.4

115. 0

125.9

Source: National Horticulture Board


2. India's share in world fruit, veg market remains poor, Feb 14 2009, news.webindia123.com

18

3The share of the organised sector in Fruits and Vegetables processing is 48 percent .

Majority of the units are in the Small Scale sector, having low capacities up to 250 tons/year

though big Indian and multinational companies have capacities in the range of 30 tons/hr.

Currently, only 2.2 percent of the total produce in India is processed and the rest marketed

as fresh fruits and vegetables. Globally, developed countries process fruits and vegetables

in excess of 65 percent.

Bottlenecks

4In spite of the strong supply base, India has a low 1.38 percent share of global trade . India's

exports of fresh fruit and vegetable stood at INR 2,411.66 crore (534.97 million dollar) in

2006-07. It is estimated that around 30 percent of the produce is lost due to lack of

processing facilities (in flush season) and inadequate infrastructure for post-harvest

treatment, packing, storage and transportation.

The demand for processed fruits and vegetables is lower in India mainly on account of

higher costs that can be attributed to higher duties and taxes on packaging material,

inefficient supply chain with lot of intermediaries, absence of cost-effective latest

technologies for processing, infrastructural bottlenecks and high cost of finance. Smaller

units and their lack of marketing strength for end-products also is a major constraint for

expansion of domestic market.

Summary

Fruits and vegetables offer a significant potential for the organised processing players due

to the low level of processing and a vast supply base, coupled with considerable

international demand for certain fresh as well as processed fruits and vegetables. However,

inefficient domestic farming, higher costs of product delivery, exports protection and

demanding standards, intermediaries and inefficiencies in the supply chain are the biggest

bottlenecks in the growth of the sector. The recent emphasis on Fruits and Vegetables in

light of nutrition security, growing interest of food processors and more profitable land use

has brought in a significant change in the outlook of the producers who started using the

arid/semi-arid lands and the horticultural crops that have lesser demands on water and gives

three to four times more remuneration than field crops.

Supply

India's has the largest livestock population in the world, however, most animals are not bred

for meat, as a vast majority of the Indian population is vegetarian. Animals generally used

Meat and Poultry Processing

Dried fruits and vegetables

Fruit juice concentrates

Vegetable curries in restorable pouches

Mushroom products

Fruit pulps and juices

Ready-to-serve beverages

Canned/Frozen fruits, Pulp and vegetables

Jams, squashes, pickles, chutneys

Prominent

Processed

Fruits and

Vegetables

(India)


3. DGCIS

4. MoFPI Annual Report, 2007-08

As is evident from the figure, most of the broiler meat produced is used for domestic

consumption, while beef and veal meat is also exported.

Processing

5The level of processing in meat is just about 6 percent , as the Indian customers prefer

fresh meat from the market than

processed/frozen meat.. For this reason,

processing of large animal meat is

usually high in exports. Also, Indian

buffalo meat, due to its lean character

and nearly organic in nature, is highly

preferred in the export market. Poultry,

with advantages of being the most

economical source of animal protein,

acceptability to all non-vegetarian

population and with no religious taboo, is

the fastest growing segment.

Source: MOFPI

Meat and Poultry Processed Quantity in Tons and INR Crore

0

200000

400000

600000

800000

1000000

1200000

1400000

2003-04 2004-05 2006-07

Year

Met

rics

Ton

s

INR

Crore

0

500

1000

1500

2000

2500

3000

3500

4000

Processed Meat in Metric Tons Processed Meat in INR Crore

2005-06

19


for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for more

than half of the global buffalo population indicating a significantly high export opportunity.

India ranks among the top six egg producing and among the top five chicken producing

countries.

India - Broiler Meat and Beef Production Vs Consumption

19002000

2240

2490

2770

2,250

2,375

2,500

2,655

1,6331,694 1,735

1,845

1,975

2770

2490

2239

20001899

2,790

1300

1500

1700

1900

2100

2300

2500

2700

2900

2004 2005 2006 2007 2008 2009

2,130

16501648

1,638

Broiler Meat Production (1,000 Metric Tons (Ready to Cook Equivalent))

Broiler Meat Consumption (1,000 Metric Tons (Ready to Cook Equivalent)

Beef and Veal Production (1,000 Metric Tons (Carcass Weight Equivalent))

Beef and Veal Consumption (1,000 Metric Tons (Carcass Weight Equivalent))

Source: USDA-FAS, Oct 2008


20

Bottlenecks

There are a limited number of integrated poultry processing plants in the organized sector,

though the small poultry processing units are in plenty. Per capita consumption levels of

meat is very low in India, as there are religious taboos attached with consumption of beef

and pork. Also, exports in Poultry are hindered by the subsidies that developed countries

like USA and EU provide.

Summary

Apart from the huge opportunity for India in the buffalo meat export, the poultry segment

with the current low per-capita consumption and world class production infrastructure and

productivity offers a potential export opportunity. There is a large potential for setting up

modern slaughter facilities and development of cold chains in meat and poultry processing

sector. India needs to come up with strong support measures to increase its domestic

consumption levels, like for example, inclusion of eggs in the mid-day meal program and a

re-look at the taxes including VAT for poultry segment.

Supply

India is the largest producer of milk in the world

Milk. Milk products production is expected to

increase from 99.9 million tons equivalent in 2006 to

108.8 million tons in 2009 growing at a CAGR of 2.89

percent.

The milk surplus states in India are Uttar Pradesh,

Punjab, Haryana, Rajasthan, Gujarat, Maharashtra,

Andhra Pradesh, Karnataka and Tamil Nadu with

majority of the manufacturing of milk products also

concentrated in these states.

Dairy Processing

Source: USDA-FAS, Oct 2008

Source: FAO Food Outlook, June 2009

Consumption - India Vs Global - Poultry and Beef

22.8 22.6 22.5 23.0 22.9 22.8 22.5

1.4 1.5 1.7 1.8 2.0 2.2 2.4

17.9 17.7 17.6 18.2 17.9 17.9 17.7

1.4 1.5 1.5 1.5 1.5 1.6 1.7

0.0

5.0

10.0

15.0

20.0

25.0

2003

Kilo

gram

s pe

r Per

son

2004 2005 2006 2007 2008 2009

Global (Poultry) India (Poultry) Global (Beef) India (Beef)

India - Milk/Milk Products Production

99.9

102.9

105.8

108.8

94

96

98

100

102

104

106

108

110

Mill

ion

Tons

2006 2007 2008 2009 (f)

CAGR: 2.89%


21

Processing

India's unique pattern of production,

consumption, processing and marketing of

dairy products consist of over 11 million

farmers organised into about 0.1 million

village Dairy Cooperative Societies (DCS).

These cooperatives form part of a national

milk grid which links the milk producers

throughout India with consumers in more

than 700 towns and cities handling about 18

6million kg of milk per day . The dairy sector

ranks first in terms of processed food, with

37 percent of the produce being processed,

but the organised sector accounts for a

mere 15 percent, processing about 13 million tons annually while the unorganised sector

7processes about 22 million tons per annum

Ghee is the most widely marketed and branded product with a nation-wide penetration of

24.1 percent and growing at a rate of 8 percent per annum. The dairy whitener market

comprises of sweetened milk powders, condensed milk and creamers. The organised

cheese market is dominated by processed cheese which accounts for 74 percent market

share. In the Ice Cream segment, organised sector accounts for a high 70 percent and is

8growing at 20 percent per annum .

Bottlenecks

The packaged milk segment is dominated by the regional and national level Dairy

Cooperative Societies. These Dairy Cooperative Societies collect milk from the various

small-scale vendors, pack it and distribute it under their brand name. Despite the high

production, the per capita consumption of milk in India is still lower at 229g/day compared

6to the world average of 285g/day . The farmers are not allowed to sell milk to new players

outside the cooperatives preventing huge investments from large foreign players.

Summary

Less than 0.4 percent of the total milk and milk products are exported and virtually none

imported. Most of the production is consumed in the domestic market. Also, the organised

Source: MOFPI

Dairy Products Processing in India

Quantity Value

0

10000

20000

30000

40000

50000

60000

70000

Year

Qu

an

tity

in M

etr

ic T

on

s

Va

lue

in IN

R C

rore

0

100

200

300

400

500

600

2003-04 2004-05 2005-06 2006-07

Source: Diary India Yearbook, Rabobank

Share (%)

45%

19%

8%

5%

23%

Retention by rural consumers/ sale to rural non

Sold as loose milk in urban areas

Packed liquid milk

Value added milk products

Value added milk products

Type

Processed (Unorganized)

Processing Segment

Unprocessed

Processed (Organized)


6.

7. India Infoline

MoFPI Annual Report, 2007-08 8. IBEF Food Processing Report, 27-Jun-2008

segment accounts for a lower 15 percent share. There is tremendous potential for the

organised play if the restrictions on the sale from farmers are removed and a level playing

field is created for all.

Supply

India is the third largest producer of fish and second largest producer in terms of fresh

water fish. The fisheries sector is classified as marine, inland and aquaculture. The captured

fish consists of 62 percent of total fish production while the rest 38 percent is from

9aquaculture . The total production of fish and fishery products has grown from 7 million tons

10(live weight equivalent) in 2006 to 7.4 million tons in 2007 .

Processing

The infrastructural setup of the sea food processing industry indicates a distribution of

major fishing bases in Kerala, Tamil Nadu, Karnataka and Maharashtra whereas the

concentration of the processing plants, freezing and storage capacities are more in Kerala,

Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and West Bengal.

Utilised capacity is just 20 percent of the

installed capacity in the fish processing

industry due to raw material shortage,

inability to meet the market demand for

value added products and safety related

regulation of importing countries. The frozen

products propel sea food exports business

and hence need a strong emphasis on value

addition in addition to addressing problems

of idle capacity utilisation, technological

upgradation and compliance with safety

related regulations of buyers.

Bottlenecks

Majority of the Agri-Export Zones and Food Parks are related to horticulture products and

very few are ascribed to development of sea food processing industry although 25 percent

of the total agricultural export is on account of sea food. Although by volume, the major

share of marine fish rates is in the fresh form (70 percent), the major focus of the industry

11is on the frozen products which have a share of 7.5 percent of the total catch . This is mainly

because of the export demand for frozen products and consequent need for value addition.

Marines Products Processing

22

Marine Products Processing in India

0

100000

200000

300000

400000

500000

600000

700000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

INR Crore

Met

ric T

ons

Quantity (in Metric Tons) Value (in INR Crore)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07


9.

10. FAO Food Outlook, June 2009

MoFPI Annual Report, 2007-08 11.K.G.Karmakar, Managing Director, and Dr G.D. Banerjee, Deputy General Manager, NABARD

Value Addition by the Marine Fisheries Sector - Dr

Source: MoFPI Annual Report 2007-08

23

Source: Value addition by the marine fisheries sector - Dr K.G.Karmakar & Dr G.D.Banerjee, NABARD

The basic tenet on which the sea food industry is presently working is that there is no

demand for value added products in the domestic market as consumers prefer fresh fish.

Also, the infrastructure for handling, distribution and storage is not well developed in the

domestic market and hence the segment focuses heavily on exports.

Summary

Government needs to support the industry by developing technology for value addition and

infrastructure for exports in the form of food parks focused on marine products. Value

addition to a part of the fish catch can transform the domestic market which is experiencing

a sea change with an increasing demand for processed and ready-to-eat fish products like

Breaded and Battered fish items, Fish Burgers, Sea food mix, fish fillets, etc. Fish sauce,

silage and other fermented products are important areas of value addition at the lower end

of the chain. The segment focuses heavily on exports as the local demand in primarily in the

fresh fish. As the demand for processed marine products is increasing in India, the

government needs to encourage investment in infrastructure for distribution and storage.

Processed IQF (Instant Quality Freezer) marine products have a higher price in foreign

markets than conventional block-frozen material. So, products like shrimp, lobster, fish,

clams and fish fillets, provide opportunities for export.

Supply

India produces more than 200 million tons of different food grains every year - 209.32

million tons in 2005-06. India produces all major grains - rice, wheat, maize, barley and

12millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) . The major

segments within Grain Processing are Oil Milling and Pulse Milling & Flour Milling. Indian

Oilseed sector is one of the largest in the world, with a total turnover of INR 86,000 crore of

which INR 16,000 crore are import/exports. India is next only to European Union and China

in terms of vegetable oil imports.

Grain Processing

Fish Disposition in India

Fresh 70.00%

Frozen and Processed 7.50%

Cured Form (dried, saltedand smoked products)

12.50%

Canned 0.50%

Fish Oil 6.00%

Fish Meal & Manure 1% Miscellaneous 2.80%



24

Processing

The solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is

13reported at 115.4 lakh tons compared to 122.0 lakh tons in the previous year .

Grain processing is the biggest component of the food sector, with a share of 40 percent.

But the sector is predominantly into primary processing, sharing 96 percent of the total

value, while the secondary and the tertiary sectors add 4 percent.

Bottlenecks

The low level of technology modernisation in the sector with a high primary processing

leads to low value addition in the sector. India needs to promote the products for export

better, like Basmati.

Summary

Indian rice, especially Basmati rice, has gained international recognition, and is a premium

export product. The sector is recognised as a key for nutrition security in India and hence,

there is a need for improving the processing capabilities beyond the small scale/cottage

unorganised industries to the organised segment. So, for adequate and focused growth of

the sector the Ministry is providing financial assistance to the grain processing industries

for its setting up/ expansion/modernization in the form of grant.

Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages.

Packaged foods includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn

flakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread and biscuits

constitute the largest segment of consumer foods. The packaged food sales topped 13

billion USD in 2007 and are expected to reach 23.4 billion USD by 2013.

Consumer Food Processing

Source: BMI, Q1 2009

Packaged Food Industry Data

10.511.7

1314.2

15.517.3

19.5

21.723.4

9.610.6

11.5 12.413.5

14.816.5

18.119.3

0

5

10

15

20

25

USD

Bill

ion US D

ollar

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f0

5

10

15

20

25

Packaged food sales (USD Bn) Per-capita package food spending (USD)



25

Non-Alcoholic Beverages segment is broadly

divided into carbonated drinks, non-

carbonated drinks and hot beverages. The

carbonated drinks comprise the soft drinks

that are the colas. The non-carbonated drinks

category consists of fruit based/flavoured

beverages. In non-alcoholic beverages, India

is a small but competitive player in coffee.

India is the fifth largest coffee producer in

the world accounting for 4.07 percent of the

world production (2004-05). In Tea, India is

the largest producer in the world, which

contributes around 31 percent in the world.

But owing to high domestic demand, the

14share of exports for India is just 14 percent .

Alcoholic beverages segment is the largest

in the world and provides ample scope for

value addition and employment generation.

The estimated demand for spirits and beer is

around 373 million cases. Twelve joint

ventures companies having a licensed

capacity of 33919 Kilolitres per annum

produce grain based alcoholic beverages. 56

units are manufacturing beer under license

15from the Government .

Majority of the processing in the segment is

still under the unorganised sector 60

percent for Bread and 80 percent for Biscuits

15in terms of production . Manufacturing of

bread is reserved for small-scale industry

(SSI).

India accounts for less than 1.5 percent of

the global food trade, despite being the

world's leading producer of milk, live stock

and cereals, and ranked second in terms of

fruit and vegetables, the level of processing

Level of Food Processing in India

across segments is not comparable to the global levels. The following table shows the level

of processing across segments and the relative global levels for the segment.

India's agricultural production base is strong but at the same time wastage of agricultural

produce is massive. Even, within the country, share of fruits and vegetables processed is

much less when compared to other segments such as milk (35 percent) and Fisheries (26

percent). The high wastage levels across the value chain lead to a significant value loss. The

main reasons attributed to the loss are lack of proper infrastructure for handling,

transportation and storage. Another form of wastage is the high level of intermediation in

the supply chain that leads to higher costs as well.

Globally, countries and large companies have invested in disintermediation, developed

storage and transportation infrastructure and facilitated in bringing commercial/ technical

knowledge and market intelligence to the farmer. The hygiene/safety standards training and

certification facilities also were provided across the value chain. This resulted in

tremendously increasing the value of the output and reduction in costs of raw material for

the producers, while improving farmers' income levels. If India was to lift its share of global

processed food trade to just 3 percent, the Ministry of Food Processing estimates that

some USD 24.7 billion worth of investment would be needed to restructure the industry.

Taking a cue from the global examples, India also should invest in infrastructure and policy

development that helps reduce waste across the supply chain and increase the level of

processing and overall value of output.

Need for improved focus and investment

Level of Processing across segments (Source: MOFPI Annual Report 2007-08)

Segment


Fisheries

Poultry

Buffalo Meat

Milk

Level of Processing

2.2%

26%

6%

20%

35%

Comments

USA (65 %), Philippines (78%) and China (23%);




14.


Cygnus Research, Jan 2007

26

India's Food and Drink Trade

Supported by a committed government in improving the food trade and providing a

conducive atmosphere for agriculture, India is a net exporter of agricultural products. BMI

India Food and Drink Report for Q1 2009, expects India to be a net food exporter to 2013.

The report attributes the status to India's immense landmass and availability of a large

number of commodities. Over the forecast period to 2013, exports are expected to increase

by 72.8 percent over 2008 to USD 24.25 billion. However, in spite of vast natural resources,

import growth of food products in India is also expected to be strong over the forecast

period, to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export

1of processed segments is growing much faster as shown in the figure .

India's Food Processing Trade

Source: BMI, India Food & Drink Report Q1 2009

India - Food and Drink Trade

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

Exports Imports

10.8112.28

14.0315.58

17.27

19.49

21.92

24.25

4.586.14 6.82

7.538.67 9.44

10.42 11.2412.31

9.19


1. UNCOMTRADE

Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India.

MPEDA is responsible for overseeing all fish and fishery product exports; other processed

food product exports are the responsibility of APEDA. The Government of India (GOI) has

accorded high priority to the establishment of cold chains and encourages major initiatives

in this sector.

Foreign equity participation of 51 percent is permitted for cold chain projects.

There is no restriction on import of cold storage equipment or establishing cold

storages in India.

National Horticulture Board (NHB) operates a capital investment subsidy scheme (CISS)

that subsidises the promoter.

!

!

!

27

Source: UNCOMTRADE

Export Growth Rate: Food Vs Processed Food

18.75%

21.84%24.63% 25.44%23.63%

28.96%31.25%

28.78%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2005 2006 2007 2008

Export of Food and Beverages Export of Processed Food and Beverages


28

Role of APEDA

APEDA is the apex agency entrusted with the responsibility

of facilitating and promoting exports of agricultural and

processed food. APEDA is responsible for 40 percent of the

total agricultural exports from India. The remaining

commodities such as tea, coffee, tobacco, spices, marine

products and rubber are handled by separate boards.

! Promote exports to maximise foreign exchange

earnings

! Increase per unit value realisation to the farmers and

improve their income

! Promote value addition to farm produce and generate

employment opportunities

! Development of industries relating to scheduled

products for exports by providing financial assistance or

otherwise

! Fixing of standards and specifications for the scheduled

products for the purpose of exports

! Carrying out inspection of meat and meat products for

ensuring quality

! Improving of packaging and marketing of the scheduled

products outside India

! Collection of statistics from various sources and

publication of the statistics so collected or of any

portions thereof or extracts there from

! Training in various aspects of the industries connected

with the scheduled products

Goals of APEDA

Accordingly APEDA has been entrusted with the following

functions:

Case Study: Role of APEDA in developing exports from

North East Region (NER)

Benefits

APEDA identified the major horticultural products of the

NER with good export potential Citrus, Banana, Pineapple,

Papaya, Jack fruit. The following strategy was adopted by

APEDA to promote exports from the region

! Provision of Infrastructural facilities like pack houses,

cold storage and refrigerated transport

! Farmer Education on pre- and post-harvest measures in

local language and quality awareness

! Transport assistance for horticultural products from the

region

! Market linkages Establish linkages with major players

like ITC, HUL, Dabur etc

! Financial Assistance Sponsored delegations of

exporters every year to Aahaar, integrated packhouse

facility in Mizoram for INR 3.2 crore, 4 refrigerated

transport vans for NERMAC ltd and Government of

Tripura, INR 3.15 crore to AIDC, Guwahati, MoU with

CONCOR to operate and manage all infrastructure

projects

! Export Development Fund Increase in expenditure

from INR 38 lakhs in 2000-01 to INR 6.3 crore in 2005-06

for the NER

! Promotion of Agri-Export Zones 4 AEZs in Tripura,

Assam and Sikkim.

In Tripura, AEZ is expected to benefit more than 400 farmers

in the first phase and incremental exports are expected to

be INR 32 crore. Sikkim AEZ is expected to benefit a much

large section of the farmer community 5000 farmers in

addition to more than 500 in processing and value chain.


Source: APEDA

29

India's Position in the Global Trade

According to the WTO statistical database, the US is the world's leading food exporter

followed by Netherlands, Germany, France and Brazil in the top five. In spite of the supply

advantages, India stands a distant 21st for the year 2007, with a 1.4 percent share in the

global trade. India is a major exporter in the Food Industry and imports less. The exports are

growing at over 15 percent y-o-y with 2007 growth a high 29 percent. During the period

1980-2007, India's share in the global exports have increased from 1.1 percent to just 1.4

percent, the majority of the increase happening in this decade.

Annual percentage changeShare in world exportsValue

19

16

27

23

19

20

-2

42

45

9

29

45

13

20072006

9

12

12

13

13

15

5

16

14

17

14

23

15

2005

7

7

3

13

18

3

-5

15

-3

13

16

30

14

2000-07

12

10

7

19

14

9

5

17

17

9

14

19

12

2007

44.6

9.6

9.6

4.6

3.6

1.9

1.9

1.8

1.8

1.6

1.4

1.4

1.1

2000

43.8

10.7

12.6

3.0

3.1

2.3

2.9

1.3

1.3

1.9

1.2

0.9

1.0

1990

-

-

13.4

2.8

2.5

2.1

2.5

0.9

1.1

1.0

0.9

-

0.6

1980

-

-

17.6

4.2

1.4

1.3

3.3

0.7

0.9

0.9

1.1

-

0.3

2007

406.83

87.93

87.59

42.10

33.15

17.69

17.57

16.31

16.20

14.62

13.20

12.62

9.65

Exporters

European Union (27)

extra-EU (27) exports

United States

Brazil

China

Thailand

Australia

Indonesia

Malaysia

Mexico

India

Russian Federation

Chile

(Value In USD billion)

The food industry is one of the most important segments of Germany's

economy, with high relevance for employment and economic output. Novel

food, new scientific and technical approaches in food processing, the

impacts of structural changes in the food industry and in food retailing, the

effects of food scandals and socio-economic behaviour are having a far

reaching technical and economic impact on processing value chain.

Germany has taken several initiatives in R&D innovation to become a

leading food exporter.

Case Study: Food Industry

innovations in Germany


Source: FAO

30

Joint R&D Due to the predominantly large number of SMEs in the country, a joint research institute, FEI

(Forschungskreis der Ernhrungsindustrie e.V.) has been established to carry out joint applied research in

Food and Nutrition. In 2001, around 50 associations of the German food industry were members in FEI

which represented more than 4500 companies. There is a parallel private research activity as well. The

connectivity and the cluster for research for Food and Nutrition are as shown in the picture below.

R&D Financing The research activities of FEI are jointly financed by the member associations and

companies as well as the Federal Ministry for Economic Affairs. By 2001, the joint research projects

organised by FEI are financed to around 75 percent by the industry mainly in the filed of food structure

(Quality of food and ingredients) and process optimisation.

Innovation Activities Measured as the number of product innovations, Germany has consistently

launched more than 1000 food products every year. Process innovations of food SMEs are wide-ranging,

without a specific focus on a particular area Product quality, cost-saving aspects, higher flexibility and

faster production processes apart from improvement of the working conditions for employees.

Innovation in the food industry needs a strong multidisciplinary co-operation, the institutional framework

conditions and administrative competencies. The administrative bodies responsible for the food industry

in Germany cause significant delays in bringing scientific and technical innovations. A more flexible

framework for regulations is planned for newly emerging innovation fields which can be jointly formed by

public authorities and early innovators.

Industry Private ResearchInstitutes

Federal ResearchCentres

LeibnizCentres

HelmholtzCentres

FraunhoferSociety

Universities/Colleges

IndustrialR&D

departments

Combined

Research

IGV, DIL,

Natec

BFE, BAFF, BAfM

, BAGKF, BgW, RKI

DFA, IFE DKFZ, GSF IVV >50 institutes and

technical colleges

Food Industry

Flow of Funds

EconomyConsumer

Protection/AgricultureHealth Education/ Research Federal States EU

1

2

3

4

Source: Innovations in the food industry in Germany, K. Menrad; Department of Horticulture and Food Processing, University of Applied Sciences of Weihenstephan


The prominent export products are Fruit pulp & juices, Canned F&V, Jams, Squashes,

Dehydrated vegetables, Frozen pulps and vegetables, Frozen dried fruits, Vegetable curries,

Pickles and chutneys, Mushroom products etc

The main destinations for fruit exports are Middle East, UK, Europe and to some extent

Singapore and Malaysia. Mango Pulp is exported to Saudi Arab, Kuwait, UAE, Netherlands

and Hong Kong. In case of Pickles & Chutneys, the popular markets are USA, UK, UAE,

Germany, & Saudi Arabia. Other items like Tomato Paste, Jams and Jelly & Juices are

exported to USA, Russia, UK, UAE, Netherlands, etc. Vegetable exports are largely to

Middle East, Europe, UK and Singapore.

31

Export/Imports of Select Food Processing Segments


India's exports of processed fruits and vegetables have increased consistently over the last

few years, from USD 144 million in FY 04 to USD 278 million in FY 07. Exports of processed

vegetables have increased from USD 273.47 million in FY 04 to USD 420 million in FY 06

2and declined marginally to USD 396 million in Fy07 .

Key Export Product

Mango Pulp

Dried and Preserved vegetables

Pickles and Chutney

Export Value (2007-08) in INR crore

509

444

389

Source: Directorate General of Commercial Intelligence and Statistics

Source: DGCIS, MOCI

Exports of Processed Fruits and Vegetables

273.42 462.14 420.64 395.57

143.82

193.54 235.28 278.02

673.59655.92655.68

417.24

0

100

200

300

400

500

600

700

800

2004-05 2005-06 2006-07 2007-08

Processed Vegetables Processed Fruits

In Million USD

The growth of the processed

food segments has been faster

and has nearly doubled in terms

of value in a short span from FY

04 to FY 07. However, with

respect to the potential and

supply base of being the second

largest fruits and vegetables

producer in the world, India can

do much better at processed

food exports. The quality issues

and high costs of raw material,

packaging, wastage and

distribution are hindering the

growth of exports. India needs to

focus more on crops of

processing grade, diversify the

markets that it exports to and

improve promotional activities to

further trade.


2. DGCIS

32

Meat and Poultry Processing

India is predominantly an exporter of bovine meat, especially buffalo meat, which has high

demand in the developed countries, due to its lean and almost organic nature. The import of

meat and poultry is virtually non-existent. The production and export/import data of meat

and poultry is provided in the table below.

At present, poultry export from India is mostly to Maldives and Oman. Some other markets

like Japan, Malaysia, Indonesia and Singapore can be explored for export of poultry meat

products. Poultry production and egg processing industries have come up in the country in

a big way. The export products are egg powder, frozen egg yolk, albumin powder to Europe,

Japan and some other countries.

Indian Poultry has world class production infrastructure and boasts of high productivity with

Farm and hatchery automation systems, well networked disease diagnostic laboratories,

unique disease surveillance and monitoring model and genetic research and breeding.

Broilers are reared to achieve a body weight of 1.8 kg in 6 weeks.

Yet the poultry segment is faced with roadblocks to exports in the forms of

Subsidies by developed countries

Sanitary and Phyto-sanitary conditions

Increasing cost of production inputs

!

!

!


Imports ExportsProduction

million Tons

Total Meat

Bovine Meat

Ovine Meat

Pig Meat

Poultry Meat

2008

672

2854

775

500

2400

2009

7022

2997

780

500

2600

2008/09

1

1

-

-

-

2009/10

2

1

-

-

-

2008/09

534

523

8

1

2

2009/10

561

550

8

1

2

1000 tons (Carcass

Weight Equivalent)

Total Meat Statistics, India

In order to take advantage of the

exports opportunity in the

poultry segment, India should

take steps in increasing

production, providing assistance

in transportation and reduction in

taxes/duties to poultry by

including it under agriculture.

Also, quarantine and testing

facilities should be made

available at all ports of entry.

Also, market expansion into

Singapore, Malaysia, Japan and

Indonesia provide opportunities

for exports growth.

India also needs to set up more

slaughter houses, modern

abattoirs and cold storage

facilities to export the surplus

and much-in-demand buffalo

meat.


Grain Processing

The grain processing sector, with 96 percent Primary Processing, has a limited exports

focus. However, Basmati Rice is gaining traction in the Indian market and commands a

premium in the export market as well. The table below shows the key segments and the

production and Export/Import over the last two years.

The major exports segments are cereals and rice. Though production is expected to remain

stagnant during the year as compared to last year, the exports of cereals and rice is

expected to slightly increase.

India has expanded the basket for Basmati rice, by extending the classification. The Indian

government last year expanded the definition of basmati, and it now recognizes even those

rice varieties as 'evolved basmati' which have at least one traditional basmati grandparent.

Also, India had last year set the export floor for basmati at USD 1,200 per ton and also

imposed an export tax of USD 200 per ton to discourage exports and conserve domestic

supplies but has since revoked the export tax, and lowered the export floor to USD 1,100

3per ton . This is expected to further boost exports.


Grain Processing Statistics, India

Imports ExportsProduction

million Tons

Cereals

Wheat

Coarse grain

Maize

Barley

Sorghum

Rice

Total

2008

215.3

78.4

38

19.5

1.2

7.2

98.9

458.5

2009

214.9

77.6

37.8

18.5

1.5

7.5

99.5

457.3

2008/09

0.6

0.5

0.1

0.1

0

0

0.1

1.4

2009/10

0.6

0.5

0.1

0.1

0

0

0.1

1.4

2008/09

4.9

0.3

0.6

0.6

0

0

3.7

10.1

2009/10

5.7

1

0.6

0.6

0

0

4

11.9


Rice Exports, India

11 9 9 13 17 19 18 22 18 17 19 20

3 4

3719

17

44

14 8 13

36

21

38

0

10

20

30

40

50

60

70

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

Basmati Non-Basmati

INR

Bn

India needs to increase the

promotional activities for Basmati

and other cereals and continue to

provide tax breaks for exports.

The country also needs to

provide incentives for

modernisation of processing

equipment to improve the levels

of secondary and tertiary

processing so as to make the

quality of produce export worthy

and promote exports.

33


3. Commodity Online

Processed fish products for export include: conventional block frozen products, instant quick

frozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi,

textured products and dry fish, etc.

European Union, USA, Japan, China, South East Asia, Middle East etc. are the major export

destinations. The export has been strong with frozen shrimp continuing the largest item in

terms of volume.

In view of the supply and growth potential of the sector, Government of India has set a

target to increase fisheries export from INR 6000 crore to INR 14000 crore during the XI

Five Year Plan Period. Achieving the target for exports is dependent on the raw material

supply; optimum capacity utilisation of processing industries, product diversification; value

addition and adherence to quality control regulations. The share of export of shrimp in block

frozen form is around 22 percent as against 2.2 percent in IQF form. The unit value of IQF

products being INR 475 per kg as against INR 194 per kg for the block frozen shrimp, there

is considerable scope for boost of marine exports through value addition. Similarly, the

share of fish surimi which is priced at INR 68/kg, is only 3.2 percent of the total export as

compared to that of ribbon fish (which is the raw material for surimi) which is priced at INR

425/kg and enjoying an export share of 18.3 percent .

70 percent of Indian sea food exports constitute fish

and shrimp in various forms and shrimp alone accounts 4for 71.5 percent of the value of exports . However,

value added products comprise of a smaller share and

the major share of the present export in volumetric

terms is in bulk form. India needs to promote value

addition, be more export-driven by promoting products

like fresh surimi, and raise the share of IQF products

that claim a higher price to boost trade.

2006

3.8

2007

4

2006

3.2

2007

3.4

2006

1.8

2007

1.7

2008

1.7

Fish and Fisheries Products Processing Statistics, India

Capture fisheries production(million tons)

Aquaculture fisheries production(million tons)

Exports(USD billion)

Imports

-

Fisheries Products Processing

34


4.Director, and Dr G.D. Banerjee, Deputy General Manager, NABARDValue Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing

Milk and Milk Products Processing

Milk and Milk Products Statistics, India (in million tons milk equivalent)

Production ExportsImports

2006/07

102.9

2007/08

105.8

2008/09

108.8

2006/09

-

2006/07

0.4

2007/08

0.4

2008/09

0.4


Milk and milk products are produced for domestic consumption. Also, storage facilities

infrastructure bottleneck prevent the segment from growing in exports. India's share in

exports of dairy products in international market is insignificant. These markets are

dominated by OECD countries, some of whom provide a very high level of support to their

domestic producers which are unlikely to be scaled down in the near future. SPS and TBT

clauses are stringent and make the export markets protective. Therefore, even if India is

able to find fresh opportunities for exports, the gains may not be significantly high.

India's Food Processing Trade by Geography

The Indian food processing industry is primarily export oriented. India's geographical

situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,

Singapore, Thailand, Malaysia and Korea.

India exports mostly to the proximate

countries. Globally, most of the countries

import from countries that are geographically

closer. For example, 45 percent of USA

imports are from Canada and Mexico.

Documents

FoodProcessingandAgribusinessAssocham Opt