SME's in Food Processing Sector

7/28/2019 SME's in Food Processing Sector

1/28

1

Project Report

On

SMEs in Food Processing Sector


2/28

2

Executive Summary

India is one of the worlds largest producers as well as consumer of food products, with thesector playing an important role in contributing to the development of the economy. Food andfood products are the largest consumption category in India, with a market size of USD 181

billion. Domestically, the spending on food and food products amounts to nearly 21% of thegross domestic product of the country and constitutes the largest portion of the Indian consumerspending more than a 31% share of wallet. Going forward, the Indian domestic food market isexpected to grow by nearly 40% of the current market size by 2015, to touch USD 258 billion by2015. (FICCI-EY report, 2009)

Food processing industry in India is increasingly seen as a potential source for driving the ruraleconomy as it brings about synergy between the consumer, industry and agriculture. A well-developed food processing industry is expected to increase farm gate prices, reduce wastages,ensure value addition, promote crop diversification, generate employment opportunities as wellas export earnings. In order to facilitate and exploit the growth potential of the sector, the

government on its part has initiated extensive reforms. Some of the key measures undertaken bythe Government include: amendment of the Agriculture Produce Marketing Committee Act,rationalization of food laws, implementation of the National Horticulture mission etc. Thegovernment has also outlined a plan to address the low scale of processing activity in the countryby setting up the mega food parks, with integrated facilities for procurement, processing, storageand transport. To promote private sector activity and invite foreign investments in the sector theGovernment allows 100% FDI in the food processing & cold chain infrastructure. The recentbudget has announced several policy measures, especially for the cold chain infrastructure, toencourage private sector activity across the entire value chain.

However, despite of continual efforts and initiatives of the Government to provide the required

stimulus to the sector, processing activity is still at a nascent stage in India with low penetration.At the same time, though India is a key producer of food products, having an adequateproduction base for inputs, productivity levels are very low in the country. While India remains atop producer of food, production yield levels are among the lowest amongst the BRIC countries.Also, the Indian export market, at USD 13.7 billion, has a share of only 1.4% of the world foodtrade.


3/28

3

Industry Overview

India is one of the worlds largest producers as well as consumer of food products, with the

sector playing an important role in contributing to the development of the economy. Food and

food products are the largest consumption category in India, with a market size of USD 181

billion. Domestically, the spending on food and food products amounts to nearly 21% of thegross domestic product of the country and constitutes the largest portion of the Indian consumer

spending more than a 31% share of wallet. Going forward, the Indian domestic food market is

expected to grow by nearly 40% of the current market size by 2015, to touch USD 258 billion by

2015. (FICCI-EY report, 2009).

With a population of more than one billion individuals and food constituting a major part of the

consumers budget, this sector has a prominence next to no other businesses in the country.

Moreover the importance of this sector to Indias economy becomes all the more relevant,

considering the fact that this sector continued to perform well, despite fall in GDP number and

poor performance by many other industries, during recession in 2008-09.

The industry encompasses a gamut of activities involved in reaching the final product to the

consumer, starting with farming activity to produce inputs, processing of the inputs to create

products and the associated supply chain involved in delivering the products.

Food processing industry in India is increasingly seen as a potential source for driving the rural

economy as it brings about synergy between the consumer, industry and agriculture. A well-

developed food processing industry is expected to increase farm gate prices, reduce wastages,

ensure value addition, promote crop diversification, generate employment opportunities as well

as export earnings. This sector is also capable of addressing critical issues of food security andproviding wholesome, nutritious food to our people.

Food Processing has emerged as the sunrise sector in India, having huge growth potential and

opportunities that are still untapped. In order to facilitate and exploit the growth potential of the

sector, the government on its part has initiated extensive reforms. Some of the key measures

undertaken by the Government include: amendment of the Agriculture Produce Marketing

Committee Act, rationalization of food laws, implementation of the National Horticulture

mission etc. The government has also outlined a plan to address the low scale of processing

activity in the country by setting up the mega food parks, with integrated facilities for

procurement, processing, storage and transport. To promote private sector activity and inviteforeign investments in the sector the Government allows 100% FDI in the food processing &

cold chain infrastructure. The recent budget has announced several policy measures, especially

for the cold chain infrastructure, to encourage private sector activity across the entire value

chain.


4/28

4

In order to raise Indias processed-product quality to international standards, to address health

concerns and harness the export opportunity, the government is establishing a network of quality

control and testing laboratories and testing centers across India, supported by R&D through

research institutes.

However, despite of continual efforts and initiatives of the Government to provide the requiredstimulus to the sector, processing activity is still at a nascent stage in India with low penetration.

The level of processing is currently low across the product categories. For example, only 2.2% of

the total production of food and vegetables is processed, as compared to 65% in the US or China.

At the same time, though India is a key producer of food products, having an adequate

production base for inputs etc, productivity levels are very low in the country. While India

remains a top producer of food, production yield levels are among the lowest amongst the BRIC

countries. Also, the Indian export market, at USD 13.7 billion, has a share of only 1.4% of the

world food trade.

The challenges for the food processing sector are diverse and demanding, and need to beaddressed on several fronts to derive maximum market benefits. A combination of uncontrollable

and controllable factors has affected the growth of the sector and has acted as a hindrance in

achieving its potential.

The Uncontrollable factors include fragmentation of land holdings which has resulted in lack of

scale and has made investments in automation unviable; regional climatic variations which

impact the production; and the constraints in land availability due to competing pressure from

urbanization, constructions and industrialization. These factors are difficult to address and hence

have to be discounted for while accounting for the inadequate growth of the sector.

It is the controllable factors which can be addressed by companies and the Government, which

impact the production levels and hence need proper actions. Even today we are grappling with

issues of quality and quantity of raw produce, low labor productivity with slow adoption of

technology. On the Infrastructure front, we have supply chain and wastage related problems and

low levels of value addition etc. The other issues of concern, holding this sector back are

impaired access to credit; inconsistency in state and central polices, which requires all of us, at

the Center and at the State level to work as one single cohesive unit.


5/28

5

Ministry of Food Processing Industries

The Ministry was set up in 1998 and the industry segments that come under its purview are:

Fruit & Vegetable processing (including freezing and dehydration) Grain Processing Processing of Fish (including canning and freezing) Processing and refrigeration of certain agricultural products, dairy products, poultry and

eggs, meat and meat products

Industries related to bread, oilseeds, meals (edible), breakfast foods, biscuits,confectionery, malt extract, protein isolate, high protein food, weaning food and

extruded food products (including other ready-to-eat foods)

Beer, including non-alcoholic beer Alcoholic drinks from non-molasses base Aerated water and soft drinks Specialised packaging for food processing industries.

An extensive and highly fragmented industry, the food processing sector largely comprises ofthe following sub-segments: fruits & vegetables, milk and milk products, beer & alcoholicbeverages, meat and poultry, marine products, grain processing, packaged/convenience foodand packaged drinks. A large number of players in this industry are small sized companies, andare largely concentrated in the unorganised segment. This segment accounts for more than 70%of the output in volume terms and 50% in value terms. However, though the organized sector iscomparatively small, it is growing at a much faster pace.

Source: D&B Research


6/28

6

Structure of the Indian Food Processing Industry

Food Processing Units in Organised Sector (numbers)

Source: Ministry of Food Processing Industries, Annual Report 2003-04

Major Food Processing Companies in India


7/28

7

Indian Food Processing Industry: Structure and Composition

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 Ministry of Food Processing, Government of India has defined the following segments

within the Food Processing industry:

Dairy, fruits & vegetable processing Grain processing Meat & poultry processing Fisheries Consumer foods including packaged foods, beverages and packaged drinking water.

The highest share of processed food is in the Dairy sector, where 37 per cent of the total produce

is processed, of which 15 per cent is processed by the organised sector. Primary food processing

(packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60

per cent of processed foods. It has a highly fragmented structure that includes thousands of rice-

mills and hullers, flour mills, pulse mills and oil-seed mills, several thousands of bakeries,

traditional food units and fruits, vegetable and spice processing units in unorganised sector.

Dairy Sector:

India stands first in the world in terms of milk production .The output is expected to be more

than 108 million tonnes, growing at a compounded annual growth rate of 4 per cent.

Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas) and iscurrently valued at more than US$ 16 billion. The dairy sector ranks first in terms of processed

foods with 37 per cent of the produce being processed. The organised sector processes an

estimated 15 per cent of the total milk output in India. There are 676 dairy plants registered with

Government of India, which come under the organised sector.

Milk and milk products contribute to a significant 17 per cent of the country's total expenditure

on food. Traditional dairy products account for about 50 per cent of the total milk produced. The

market for dairy products is expected to grow at 15-20 per cent over the next three years.

Ghee is the most widely marketed and branded product with a nation-wide penetration of 24.1per cent. It is estimated to be growing at a rate of 8 per cent per annum

The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers.

Its market size is estimated at US$ 450 million for 2005-06


8/28

8

The cheese market is estimated at US$ 2.49 million for 2005-06 (54000 tonnes in volume terms),

growing at a rate of nearly 10 per cent per annum. The organised cheese market is dominated by

processed cheese which accounts for 74 per cent market share

The ice-cream market in India is estimated at US$ 226 million in 2005-06, with the organised

market at US$ 158.2 billion. This is currently growing at 20 per cent

Fruits and Vegetables:

India produces the widest range of fruits and vegetables in the world. It is the second largest

vegetable and third largest fruit producer accounting for 8.4 per cent of the world's food and

vegetable production.

The share of organised sector in fruit processing is estimated to be nearly 48 per cent. Fruit

production in India registered a growth of 3.9 percent during the period 2000-05 whereas the

fruit processing sector grew several times faster at 20 per cent over the same period. The total

area under fruit cultivation is estimated at 4.18 million hectares. The total area under vegetable

cultivation is estimated at 7.59 million hectares.

However less than 2 percent of the total vegetables produced in the country are commercially

processed, as compared to nearly 70 per cent in Brazil and 65 per cent in USA.

India's installed capacity for fruits and vegetable processing nearly doubled during the 1990s,

from 1.1 million tonnes in 1993 to 2.33 million tonnes in 2004.

About 20 per cent of processed fruits and vegetables are exported. Major products exported

include fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and

vegetables. Fruit exports have registered a growth of 16 per cent in volume and 25 per cent in

value terms in 2005-06. Mango and mango based products alone constitute 50 per cent of the

exports.

Grain Processing:

India produced nearly 209.32 million tonnes of grains in 2005- 06. India's production covers all

major grains rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the

production of grains in the world. With a share of 40 per cent, grain processing is the biggest

component of food sector.

Primary processing constitutes 96 per cent with the remaining accounted for by the secondary

and tertiary sectors. Total rice milling capacity in the country is 186 million tonnes. There are

about 516 large flour mills in the country, as well as about 10,000 pulse mills.


9/28

9

Meat and Poultry Processing:

India has the largest number of livestock population in the world accounting for 50 per cent of

buffaloes and 16 per cent of the goat population. Meat production grew at a CAGR of 34 per

cent during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood

at US$ 0.104 million in 2005-06.

Most of the animals in India are not bred for meat. Animals generally used for production of

meat are cattle, buffaloes, sheep, pigs and poultry. Only 11 per cent of the buffalo population, 6

per cent of the cattle, 33 per cent of the sheep and 38 per cent of the goat population is culled for

meat. Consumption per head of both fresh and processed meat is very low at 1.5 kg compared

with world average of 35.5 kg.

Indian poultry meat market was approximately US$ 2.03 billion in 2005. Indian broiler industry

has seen a rapid growth in the last few years - CAGR of more than 10 per cent a year since 1998.

Fisheries:

India is the third largest fish producer in the world and second in in-land fish production. The

Fisheries sector in India has been classified into marine, inland and aquaculture. The fisheries

sector contributes 1.1 per cent to the country's GDP.

This segment also provides employment to 11 million people engaged fully, partially or in

subsidiary activities pertaining to the sector. India's fish production stood at a level of 6.4 million

tons in 2004-05. Of this, about 60 per cent (3.9 million tons) came from marine resources.

Currently fish processing is mostly targeted for export markets. There are over 369 freezing units

with a daily processing capacity of 10,266 tonnes and 499 frozen storage units with a capacity of134,767 tonnes.

Processed fish product exports include conventional block frozen products, individual quick

frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc.

Export of marine fish products touched of US$ 1.48 billion during 2004-05. Exports showed an

increase of 11.97 per cent in volume and 11.1 per cent in value realisation. Frozen shrimp is the

largest item in terms of value contributing to 63.5 per cent of the total exports, and frozen fish is

the largest in terms of volume contributing to 34.62 per cent.


10/28

10

Consumer Foods Including Packaged foods, Beverages and Packaged Drinking Water

Packaged Foods:

Packaged foods segment in India registered a growth of 8 per cent in 2005-06.

Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15 per cent.The market for branded noodles is estimated at 230 million servings per year.

The Soups market is still small and nascent in India and is approximately US$ 14 million in

value. The market for culinary products is estimated at US$ 475,000 and estimated to grow at 18

to 20 per cent per annum.

Products like Tomato Ketchup and Jams currently have low penetration levels, but are growing

rapidly. Ketchups, for example, have a penetration of just 3 per cent in India; however this

category is estimated to be growing at 20 per cent per annum.

Beverages:

The beverages market primarily consists of non-alcoholic beverages which can be broadly

classified into carbonated drinks, non-carbonated drinks and hot beverages. This segment is

estimated at US$ 155 million out of which fruit juices and fruit-based drinks account for US$ 60

million.

The market size of organised carbonated drinks is estimated at US$ 119 million. In the past

decade the carbonated drinks market registered a healthy growth rate of 20 per cent, driven by

the positive changes in India's consumer profile. Hot beverages include health drinks such as

white beverages (Horlicks' etc) and brown beverages such as tea/coffee as well as branded drinks

(Eg: Boost').

The total size of this market is estimated at US$ 333 million by value and 85,000 tonnes by

volume. White beverages account for 65 per cent of the market and brown beverages constitute

the remaining 35 per cent India is the largest producer of tea in the world accounting for 28 per

cent of the total global production, at 857 million kgs.

Tea production in India has been growing at 1.2 per cent per annum and India is the fourth

largest exporter of tea in the world with estimated exports of US$ 5 million in 2002-03. India is

also the fifth largest producer of coffee accounting for 4 per cent of the total production in the

world. Nearly 75 per cent of India's production is exported and coffee exports stood at US$ 5.2million in 2005-06.


11/28

11

Staples Bread, Wheat Flour, Salt and Sugar:

Bread is slowly coming to be a staple product consumed by people of all economic classes in

India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons,

growing at 7.5 per cent. About 55 per cent of bread production comes from the organised sector.

India is the second largest producer of wheat in the world with an output of more than 70 million

tonnes. Branded atta' (wheat flour) is an important item in this segment with an estimated market

of US$ 195 million.

Ready to Eat Foods Market:

Ready-to-eat food can be defined as food in a form that is edible without washing, cooking, oradditional preparation by the food establishment or the consumer. It is a category of convenience

food where the preparation time is extremely short and convenient, to where the product isprepared in advance and can be eaten as sold depending upon the requirement of the users andthe weather conditions. These foods meet the specific needs of convenience, nutritionaladequacy, shelf stability, storage, distribution to the centers and have become very popular afterthe year 2002. The pioneer introduction of retorting technology has made the sale of Ready-to-Eat food products commercially viable with great taste.

Concept of RTE:

Ready to Eat Meals like already cooked or prepared lunch & dinner are relatively new

products which came in market only a few years back and are now sold through retail generalstores in especially made sealed aluminum laminates.

The retorting or sterilization process ensures the stability of the Ready-to-Eat foods in retortpouches, on the shelf and at room temperature. The application of sterilization technologycompletely destroys all potentially harmful micro-organisms, thereby making sure that the foodproduct has a very long shelf life of over 12 months and needed no refrigeration.

When customer needs to eat, the food item pouch is either put in microwave oven to warm it

or keep in heated water for a few minutes and then serve to eat.

Such ready to eat meals have been especially given to soldiers in army of many countries whorequire carrying their rations while on war front or while located far away from their main unit.

The advertisements like, "Hungry Kyaa" are adding zest to the market by popularizingsuch food items which are pre-cooked and free from any preservative, and yet have a long shelflife of over 12-months. These food items are normally sold in pouches, well packed in cardboardprinted boxes of small book size and carry about 300 grams of cooked food at a price of about


12/28

12

Rs. 40 to 200 in foreign market depending upon the type of dish packed. One packet of vegetabledish is normally sufficient for one meal for three persons and therefore falls in economic zone ofconsumers preferences.

SWOT Analysis of FoodProcessing Industry

Strengths

Abundant availability of raw material Priority sector status for agro-processing given by the central Government Vast network of manufacturing facilities all over the country Vast domestic market

Weaknesses

Low availability of adequate infrastructural facilities Lack of adequate quality control & testing methods as per international standards Inefficient supply chain due to a large number of intermediaries High requirement of working capital. Inadequately developed linkages between R&D labs and industry. Seasonality of raw material

Opportunities

Large crop and material base offering a vast potential for agro processing activities Setting of SEZ/AEZ and food parks for providing added incentive to develop greenfield

projects Rising income levels and changing consumption patterns Favourable demographic profile and changing lifestyles Integration of development in contemporary technologies such as electronics, material

science, bio-technology etc. offer vast scope for rapid improvement and progress Opening of global markets

Threats

Affordability and cultural preferences of fresh food High inventory carrying cost High taxation High packaging cost


13/28

13

SMEs in the Food Processing Sector

The Food Processing Industry in India is a sunrise sector that has gained prominence in recentyears. It is 5th largest sector in the Indian economy. At present, the contribution of agricultureto GDP is about 18%, but it still engages about 70% of population and Food Processing Sector

employs about 13 million people directly and about 35 million people indirectly.A huge numberof entrepreneurs in this industry are small in terms of their production and operations, and arelargely concentrated in the unorganized segment. Food Processing Sector(FPS) contributes over6.3% to the countrys GDP.Of this the unorganised sector accounted for more than 70% ofproduction in terms of volume and 50% in terms of value.

The Ministry of Food Processing Industries (MFPI) has formulated a vision 2015 with anobjective of trebling the size of the Industry, increasing the level of processing from 6% to 20%,value addition from 20% to 35% and share in global food trade from 1.5% to 3% by 2015.MFPI has identified priority areas for implementation of the strategic goals, prominent amongthemSME Capacity Building, Human Resource Development. In the view of above, Ministry

of Food Processing Industries has taken initiative to develop the unorganised sector of FoodProcessing industries to increase the level of processing from 6% to 20%. In the FPS, Small andMicro Enterprises (SMEs) constitute bulk of production, processing and employment. Most ofthese SMEs are in the unorganized sector. But unless these SMEs develop at a faster pace, theFood Processing Sector would not be able to develop at all and this would ultimately affect theviability of our agriculture sector threatening our food security.In addition to the governmentsthrust towards promoting the SME segment, several latent business opportunities have alsoopened up with globalisation and the sustained growth of Indias economy. However, there is a

lack of structured information on Indias SME sector.

Challenges identified by NIFTEM which are faced by SMEs in Food Processing Sector

Lack of access to technology resulting in low efficiency and low productivity. Highly inadequate credit flow. Non-exposure to best management practices in manufacturing, marketing,

distribution and branding. Lack of access to modern packaging material and packaging technologies. Poor brand image. Lack of access to Government regarding potential of entrepreneurs due to lack of

information & data. Lack of Market access: the market in unorganized sector is scattered and far from

Govt. access, identification of new markets is quite difficult to them.

Lack of Skilled Human Resources in various area/sub sectors in FPI sector. Low involvement by state Governments in developing the clusters. Absence of adequate and timely banking finance resulting in limited credit flow.


14/28

14

Why SMEs in Food Processing sector needs to be developed?

Emerging Food Processing SMEs of India is come into the limelight, with increased focus fromseveral government institutions, corporate bodies and banks, and is rightly viewed as an agentof economic growth. In addition to the governments thrust towards promoting the SME

segment, several latent business opportunities have also opened up with globalisation and thesustained growth of Indias economy. However, there is a lack of structured information onIndias SME sector. It is estimated that SMEs account for over 90% of industrial units in India

and 40% of value addition in the manufacturing sector. They contribute 35% to Indiasmerchandise exports.

The food processing sector in India serves the vital function of linking the agriculture andindustrial segments of the economy. It has the potential to transform the rural landscape of Indiaby improving the value of agricultural produce, ensuring better remuneration to farmers and atthe same time creating favourable demand for Indian agricultural products in the world market.Growing urbanization, consistent exports growth, increasing disposable income, emergence of

organised food retail, changing lifestyles and food consumption patterns are the key factorsdriving growth of processed foods in India. The industry is expected to move up the growthcurve quickly, considering the still nascent levels of processing at present and investment in thissector has been on the upswing. Small and medium enterprises continue to constitute a majorpresence in the sector and will drive many of the changes we expect in the near future.

The food processing industry, due to its diverse nature and a policy of SSI reservations, hasordained a predominant role for small enterprises. The organised sector, consisting of mostlylarge companies, accounts for only 25% of the market while the remaining 75% of the market isdivided between the small scale and the unorganised sectors. The micro and local communitybased food processing enterprises have dominated the primary processing segment of the

industry. Small and medium firms are mostly operating in niche markets.

The food processing industry is among the sectors reserved for the small scale industry. Thoughde-reservation of food products began during the 1990s, there are still around 12 productsreserved for manufacturing in the small scale sector. These products include bread, pastries,confectioneries, rapeseed oil (except solvent extracted), mustard oil, sesame oil, groundnut oil,sweetened cashewnut products, ground and processed spices other than spice oil and Oleo resinspice, tapioca sago and tapioca flour.

Prominent food processing companies like Priya Foods, MTR, Surya Food & Agro andHaldirams were for long well-known names in their respective regions, with limited nationalpresence. However, lately these companies have changed their strategy towards expanding theirmarket reach. This phenomenon among the food processing companies received impetusfollowing the entry of Indian large business enterprises like ITC, Godrej, Venkys India,

Marico, etc, into the branded foods segment,. Another factor has been growth of retail stores,which are emerging as a driving factor for food processing, though they account for just 1% offood sales at present.


15/28

15

UNIDO has identified over 60 clusters of small and medium enterprises across India existing inthe food processing sector. The state-wise distribution of the clusters shows the largestconcentration of companies in Maharashtra and Gujarat followed by Andhra Pradesh, Punjaband Orissa. UNIDOs study of Indian food processing clusters identified some common deficits

in these areas. These include:

Inadequate knowledge of technical standards, packaging facilities, food laws andregulations

Quality raw material supplies Weak information channels with regards to price and quality Lack of infrastructure facilities in terms of facilities for testing and research.

For perishable food items, sub-contracting relationships among processing firms does notappear to be a conducive arrangement. As a result, cooperation among the small units is limited.Also, linking with larger processing firms will be to a limited scale. Thus, unlike in the autocomponents and textile industries, where supply chain plays a critical role in the development of

the SME segment, it may not be very relevant to the food processing segment, especially in theshort-shelf life products. However, being part of the supply chain for retail outlets could be adriving factor for the growth of SMEs. In the light of these realities, the Government will haveto continue playing a critical role in supporting SMEs in the food processing sector.


16/28

16

Indian Food Processing Clusters

Source: D&B Research, UNIDO, SIDO


17/28

17

Some of the SMEs and their Brands

Brands Description

Amul Gujarat Cooperative Milk Marketing Federation (GCMMF)is India's largest food products marketing organization.Apart from being known for its dairy products, Amul hasventured into the ready-to-eat industry and includesProcessed Cheese, Pure Ghee, Shrikhand, Nutramul andMithaee Gulab Jamuns among its offerings.

Gits Gits produces the selected range of popular ready to cookand instant foods that cover a range of ethnic Indian cuisine-and where the recipes have "Global pallete acceptance".

Haldirams The traditional Indian Sweet-Maker from a small set up hastransformed into a full-fledged processing food industry and

taking its wares beyond the domestic frontiers to theWestern World. Offers packaged Bhel puri chats such asSev Puri, Chana Masala, Samosa, Pakoras, Alu Tikki, PaoBhaji, Gol Gappa, Dhokla among others.

Kitchens Of India, ITCITC's Flagship brand 'Kitchens of India ' has begun to carrythis exotic taste of Indian cuisine beyond the shores of India. Connoisseurs of Indian food in the US, UK, Switzerland,Bhutan, Bangladesh, Hong Kong, Tanzania, Canada andAustralia now have the opportunity to taste these deliciousrecipes.

MTR Amongst the top five processed food manufacturers in India,the company claims to "market and export a wide range ofpackaged foods to global markets" that include USA, UK,Australia, New Zealand, Malaysia, Singapore, UAE andOman. MTR foods currently comprises twenty-twodelicious and completely authentic Indian curries, graviesand rice.

Priyafoods Priya has a range of popular traditional recipes starting fromDal Makhani, Navaratan Kurma to Palak Paneer, PaneerButter Masala, Punjabi Chhole and Rajma Masala alongwith true southern delicacies like Andhra Veg Pulav, MangoDal, Gongura Dal. Priya's products are available in USA,Canada, West Indies, UAE, Saudi Arabia, Kuwait,Bahrain, Qatar, Oman, Singapore, Malaysia, Australia,U.K., New Zealand etc.


18/28

18

Rainbow Foods IndiaExporters, manufacturers & suppliers of all types of IndianFrozen Vegetables, Meals & Snacks to USA and UK. Theyprocure Frozen Vegetables, Meals, Fruits, Parathas,Punjabi Veg Curries, vegetables, fruits, pickles,pastes and Snacks.Reputed professionals from 5-star

hotels. Supply of Indian Frozen Vegetables, Meals &Snacks food.

Satnam Overseas Ltd Kohinoor Heat & Eat Indian Curries are a range of ready -to - eat Indian delicacies. Kohinoor claims that "Heat & Eatrange of curries use the well- established retort technologyto offer extended shelf life to the products through steamsterilization."

Tasty BiteTasty Bite has a range of entres and Ready Meals. Theyhave exceptional retort pouches which was developed forthe Apollo space program. Tested to withstand extreme

temperatures and heights from well below sea level to ashigh as the moon, this retort packaging has made TastyBite a favorite with campers, mountain climbers, sailingexpeditions, desert safaris.

Veekay Impex.com Exporters of Fresh Fruit Juice, ready to eat foodproducts; kairameen Moliee(Pearl-spot fish), Motha Fishcurry, see Fish Curry,Chilly Chicken (boneless).

Ashoka Ready to Eat Ashoka is a Brand owned and managed by ADF FoodsLimited (a BSE listed Company) in India. Ashoka is our

Flagship Brand and the leading Ethnic Indian food brandmade in India. It is among the widely distributed ethnicIndian brand. Its range includes ready-to-eat curries (Heat &Eat), Frozen Foods (Indian Breads & Snacks), pickles,condiment pastes, mango pulp/slices, chutneys, pappadums,IQF ready-to-cook vegetables, and Microwaveable rice.


19/28

19

Research By FICCI in the year 2010:

FICCI through its internal research identified 15 major factors hampering the growth of food

processing sector and holding it back. (Mentioned below)

Comprehensive national level policy on food processing sector Availability of trained manpower Processing plants with cost effective technologies Cost effective food machinery & packaging technologies Constraints in raw material production Inadequate infrastructural facilities Access to Credit Market Intelligence Inconsistency in central and state policies Lack of Applied research Adequate value addition Lack of specific plan to attract private sector investment across the value chain Food safety Laws Weights & measures Act & Packaging commodity rules Taxation

FICCI survey identified top five challenges which need immediate action to stimulate the growthof the sector:

Inadequate Infrastructure Facilities:

The inadequate support infrastructure which is the biggest bottleneck in expanding the foodprocessing sector, in terms of both investment and exports includes: long and fragmented supplychain, inadequate cold storage and warehousing facilities, road, rail and port infrastructure. Also,lack of modern logistics infrastructure such as logistics parks, integrated cold chain solutions,last mile connectivity, dependence on road over rail, customized transportation, technologyadoption (barcoding, RFIDs) and government support via incentivizing private publicpartnerships are some of the lacunae that exist in supply chain & logistics sector in India.

Absence of Comprehensive national level policy on food processing sector:

The food processing sector is governed by statues rather than a single comprehensive policy onfood processing. India urgently needs a national food processing policy which incorporates taxbreaks for the sector. The policy to be effective will have to be comprehensive and adopt anumber of legislative, administrative and promotional measures. The survey showed absence ofcomprehensive national level policy on food processing sector as the second most critical factorhampering Industrys growth. The respondents felt that policy should evolve through detailed


20/28

20

discussions between all the stakeholders across the entire value chain on pan India basis andshould promote the development of viable agri-business and agro-industry models based ondifferent agro-climates and regions.

Food Safety Laws & Inconsistency in State and Central policies:

The Indian food regulations comprise various food policies that have been enacted at differentpoints of time, and are under the ambit of various ministries of Government of India (GOI).Historically they were introduced to complement and supplement each other in achieving totalfood sufficiency, safety and quality. The result is that the food sector in India is governed by anumber of different statutes rather than a single comprehensive enactment. This incrementalapproach has led to incoherence and inconsistency in the food sector regulatory scenario. Inaddition the multiplicity of ministries and administering authorities at both the central and statelevel has resulted in a complex regulatory system that is not well integrated adding an additionalburden on the food industry.

Lack of adequate trained manpower:

Many positive developments in the food processing sector have also resulted in the apprehensionabout the emerging skill shortages due to mismatch between the demand for specific skills andavailable supply. In fact, of late, shortage of skilled, semi-skilled and unskilled workers hasemerged as a critical factor impacting the competitiveness of Indian food industry. The FICCIsurvey showed that lack of adequate trained manpower was also a major hindrance to the growthof the sector. At each level in the value chain, there are strong deficiencies in technical knowhowand support. According to recent FICCI survey on skill demand in food processing industry, ithas been observed that a majority percentage of organizations are dissatisfied with the skills ofthe available trained manpower.

Apart from the above five major areas of concern, there are other issues which are serious causeof alarm for the industry and need to be addressed in proper course of time:

Some of these are:

A) Constraints in raw material production:

India is the second largest of producer of fruits & vegetables, and rice. However, availability ofright quality of produce at the right time and the required quantity to the industry are the majorconstraints.

The survey results show that constraint in raw material production in a big hurdle for the sector.The root causes of this include inferior quality planting materials/seeds, lack of HYV ofindustrial importance crops, improper practices of cultivation, inadequate availability of inputs,and lack of modern farm machinery, inadequate extension efforts and unclean harvestingmethods.


21/28

21

B) Lack of applied research:

Though Central institutes, like CFTRI, CIPHET, IIHR, selected IITS and IIMs and StateAgricultural University offer specialized courses on food technology and also undertake appliedresearch but most of the R&D institutions have not been able to develop innovative products,

processes and machinery ofglobal stature as reflected in Indias share in global trade. The keyreasons for this are segregation of academics from applied research, inadequate industryinterface, low commercial orientation and lack of collaborative efforts with global peers.

Lack of applied research is another important area of concern for the sector. Technology is stillbeing imported for establishment of large scale exported-oriented units for production of itemslike banana paste, concentrates of various fruit juices, sorting, cleaning, washing, waxing andpackaging of raw fruits and vegetables. It is this gap which needs to be addressed and Indiashould move towards self-sufficiency in above technologies as well.

C) Taxation issues:

The applicable taxation regime for secondary and tertiary food products has affected pricinglevels which in turn has impacted its consumption. The tax component typically accounts forabout 12-14% of the maximum retail price of processed food products. These high rates oftaxation translate into high consumer prices which in turn impacts consumption. Non-uniformityin tax structure and high excise duties on various products are big cause of worry for theindustry, and the survey has highlighted it as a predicament for the food industry, accounting for21.70 % of weighted responses.

D) Access to credit:

Setting up of the food processing units is capital intensive due to huge initial capital costrequirements. Therefore in order to assist this burgeoning industry to realize its potential, GoIhas declared the financing of food processing sector as a priority sector. However, the processingindustry is not complacent with the way the scheme is being implemented and procedural hurdlesthat are involved in realizing loans/subsidy from financial institutions and supporting agencieslike APEDA, NHB and other state government promotional agencies.

Volatility of farm loan advances, combined with the high transaction costs involved indisbursement (typically 6% to 7% of the loan amount) has limited the activity of privateorganized institutions largely to top section of the farmers, thus choking credit for marginalfarmers at the bottom of the pyramid.

This forces the marginal farmer to accept loans from private money lenders at exorbitant interestrates, affecting cash flow. The lack of credit access to farmers limits the working capitalavailable, hindering investments in technology and high yielding inputs.


22/28

22

E) Processing plants with obsolete technologies:

Many of the food processing plants are old and use traditional technologies, resulting in lowprocessing efficiency realization. This increases the per unit operational cost of processing. Mostof the enterprises are run on a small scale and have limited ability to do product development by

themselves, or the technology for improving their quality. Many enterprises experiencedifficulties in coping rapidly with market changes, owing to lack of new technology anddevelopment of new products and improvement of processing technology. Therefore, a majormodernization drive needs to be initiated among the processors. Awareness about the scaling upof operational capabilities, new technologies and their advantages, institutional support toprocessing units for the adoption of these technologies, also needs to be created among theprocessors.

Whilst, the Government initiatives aimed to bring about regulatory reforms and infrastructuredevelopment in agriculture marketing; and private sector investment in infrastructure creation

have created the much desired vibrancy in the sector in recent times, however, there is aparamount need to take big ticket measures to catapult the growth of food processing sector andtake it to the high growth trajectory.


23/28

23

Measures that could be taken to spur the growth of the sector are as follows:

Address Infrastructure bottlenecks to give further impetus to the sector

a)Overcoming long & fragmented supply chain:

To overcome the long and fragmented supply chain, contract farming can emerge as a significantopportunity for companies whereby they can create direct farm linkages to source appropriatequality, quantity and varieties of inputs. Currently, contract farming is supported by thegovernments of few key producing states in India. A few companies have been successful inlinking up with farmers, and some models of contract farming based on profit sharing or socialinvestment may emerge in the future.

b) Providing impetus to logistics & supply chain sector:

1. Dedicated freight corridors in rail supplemented by concretized dual carriageways for the State

& National highways, will directly reduce the cost of goods supplied.

2. There is a need to develop a single entity of all multi-modal transportation, instead of splittinginto rail, surface and air as separate Ministries & entities. This entity needs to remain customer &industry centric rather than as the Governmental control mechanism.

3. Support to private rail operators by providing access to infrastructure of Indian railways atconcessional rates; tax holidays for purchase of wagons and creation of infrastructure, especiallythat of rail terminals for cargo consolidation and aggregation.

4. Provide further incentives to FTWZs, one of the major drivers of warehousing business.

5. The Government should provide industry status to this sector and formulate a separateMinistry for Supply Chain & Logistics sector.

6. Support development of organized strategic logistics hubs by helping in land acquisition andby providing tax incentives/ tax holidays

7. Tax incentives to Multi modal Logistical Centres which also have manufacturing/exportingcapabilities.

8. Incentivize 3PL operators in setting up end-to-end logistics and warehousing set-up

9. Incentives for setting up warehousing/cold storage infrastructure and customizedtransportation network development.


24/28

24

Formulation of Comprehensive National Level policy on Food Processing

The comprehensive policy will ensure private sector investment in infrastructure development,increased farm productivity and up gradation of quality and give further impetus to the foodprocessing sector. The comprehensive national level food processing policy would also ensure

institutional strengthening , capacity building across the value chain and would also seek topromote innovation in general and technological innovation in particular.

Need for Second Green Revolution in Agriculture

The first Green Revolution has run its course. Cereal yields are rising very slowly, water tablesare plunging, and agricultural growth is also low. India needs a second Green Revolution whichtakes rice and wheat cultivators beyond the grain production stage to agro-food processing andgives value addition and would also solve the issue of constraints in raw material procurement.This high end initiative requires commitment from all the stakeholders in the food value chain.

Inter Ministerial Working Group to Address the Issues

The Government should set up Inter Ministerial Working Group (IMWG) under the leadership ofMinistry of Food Processing to look at comprehensively addressing various issues that areholding this sector back.

Undertake appropriate measures to address the skill Gap Issue in the sector:

a) The government should allocate separate budget for human resource development for foodprocessing sector for enhancing and up gradation of the skills and implementation of the variousschemes for skill development. All the skills development cells and other organizations andministries should work in tandem for effective implementation of the objectives set.

b) There is a need for immediate adoption of ITIs by the food processing industry in variousclusters across the country to upgrade the lower end skills. The candidates after training could bedirectly employed by the industry; this model is already prevalent in some parts of the country ata small scale, but now it needs a big push from the industry.

c) Food processing Industry should partner with few food technology/processing institutes on apilot basis for up gradation of higher end skills, and the same could be replicated for more andmore institutions. However, the government needs to address the regulatory/policy issues tofacilitate this engagement at a broader scale rather than on piece meal basis.


25/28

25

Implementation of GST as per the set deadline

Government should ensure timely implementation of GST to provide incentive to the foodprocessing sector, while removing subjectivity in treatment and classification of various foodproducts. Some packaged foods which are of daily necessities, be classified at lower rate of

taxation. The key impacts foreseen are:

a) Location of manufacturing plants would be determined on the basis of demand ratherthan tax implications This means that total landed costs and infrastructure considerationswould govern the location of manufacturing plants rather than tax implications. This wouldtherebyspurt growth for infrastructure as well as transportation and logistics.

b) Distribution networks may undergo significant change - With the onset of GST, companieswould not require setting up of warehouses in each state. Tax dynamics will no longer shapesupply-chain networks. Economies of scale and larger operations would be possible, and itwould also enable the development of a hub-and-spoke system of delivery for outbound

movements.

c) GST is first and foremost expected to remove disparities in taxes across states hence makeIndia as one market helping free movement of goods with minimum Logistics resources spend.

Implementation of Food Safety and Standards Act (FSS Act)

Government should ensure the enforcement of the Food Safety and Standards Act in spiritincluding increasing radically the number of trained inspectors and state of the art lab facilities.Given the objective of the FSSA and the mandated transparency, it is important that thefollowing Principles are adopted to have world class rules which would foster innovation andserve the interest of the consumers at large.

- Science should get the preeminence.

- Proper risk Assessment based on the available science, before any standards are framed.

- Constituted bodies such as Food Authority, Scientific Panels & Scientific Committees must be

given defined tasks with specified object of rulemaking.

- Public and Industry participation at an early date.

- Public hearings to achieve transparency.

Any adhoc and haste approach to adopt old PFA Rules, must be avoided.

Implementation of all the provisions of Model Act across all States/UTs.

One of the major issues holding the sector back is the non-implementation of all the provisionsof the Model Act across all the States/UTs. The Government should ensure speedyimplementation of all the provisions of the act.


26/28

26

Credit Access to Food Processing Industries

The Government should establish a National bank, on the lines of NABARD, to lend credit tofood processing industries. This will ensure speedy disbursals of the funds to food processingsector, always grappling, with the issue of lack of access to credit from banks. Also, the state

governments should play a catalytic role in partnership with banks, financial institutions andtechnical and management institutions so that small and unorganized players become globallycompetitive.

All Industry incentives under single window clearance

Government should bring all Industry incentive policies under single window clearance. A nodalbody under Food processing Industry with single window clearance of all issues, must be createdso that no separate rules and regulations comes from different ministries to impact the sectorwithout due deliberations.

Open up multi brand retail to bring in more global investments in the infrastructure andlogistics domain; and in turn contribute to the growth of supply chain & logistics sector inparticular and economy in general

Multi brand retail is an easier way of creating ideal environment for the use of modern logisticsinfrastructure like transportation, hubs, IT, cold chain etc. The organized retail is expected togrow from current 4% to 10% by 2010-11, thereby creating a huge demand for the availability ofmodern logistics infrastructure. However, the use of modern infrastructure can also beaccelerated through various other initiatives, such as supporting modernization of general tradesuch as supporting star retail outlets etc. These outlets can be served by organized modern supplychain players.

Create a state specific plan to attract domestic and foreign investment in this sector.

Promote agri-food parks by involving industry participation for better functioning of

these parks.

Make concerted efforts to enhance private sector investment in infrastructure

development, increasing farm productivity and up gradation of quality.


27/28

27

Conclusion

The Indian food industry presents a very large opportunity to every stakeholder. This is primarilydriven by a robust consumer demand, the changing nature of the Indian consumer, who is moreinformed and willing to try new products; and the strong production base of the country.

Needless to add, the several gaps in the current production and delivery systems actually presenta huge opportunity for the growth of companies willing to bet long term in this sector. However,the growth of food processing companies has been sub-optimal because of high cost, low level ofproductivity, high wastage and lack of competitiveness of Indian food products in the globalmarket. Therefore, to fully leverage the growth potential of the sector, current challenges that arebeing faced by the industry need to be properly addressed and steps need to be taken to removethe bottlenecks hampering the sectoral growth. FICCI survey has thus acted as a first step inidentifying these challenges, thus providing a roadmap for all the stakeholders to work on, andthus contributing in realizing the immense potential of this industry.


28/28

28

References

http://mofpi.nic.in/ http://www.niftem.ac.in/NIFTEM/smeDivision.jsp http://www.financialexpress.com/news/lack-of-infrastructure-hinders-food-

processing-sme-growth/190906

http://www.dnb.co.in/food%20processing/smes.asp Food-Processing-Bottlenecks-study.pdf- Survey Report by FICCI. Year 2010

Documents

SME's in Food Processing Sector