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The India opportunity in Food and Agribusiness

Final Report

prepared by

Rabo India Finance Ltd (a 100% subsidiary of Rabobank International)

March 2010

The information contained in this publication has been compiled, from sources which Rabo India Finance Limited, its

associates and other legal entities to which it belongs (Rabo) believes to be reliable, and Rabo does not guarantee its

accuracy or completeness. This publication is for private circulation and for the exclusive and confidential use of

addressee(s) only. Any other distribution, use or reproduction without Rabo’s prior consent is unauthorized and strictly

prohibited. Rabo does not accept any liability whatsoever direct or indirect that may arise from the use of the information

herein. Opinions expressed in this document are subject to change without notice. Rabo and its subsidiaries, associates,

agents, assigns, related parties, directors or employees may from time to time have interests in the securities or companies

mentioned in this document and / or investment banking or other professional relationship with such companies.

Materials and information provided during this presentation may contain ‘forward‐looking statements’. These statements

are based on current expectation, forecasts and assumptions that are subject to risks and uncertainties which would cause

actual outcomes and results to differ materially from these statements. Rabo disclaims any intention or obligation to

update or revise any forward‐looking statements whether as a result of new information, future events or otherwise.



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The India opportunity in select Food and Agribusiness sectors 2

Executive

summary

The team from Rabo India undertook a detailed study for the Embassy of the Kingdom of the

Netherlands (RNE) in select Food and Agribusiness (F&A) sectors in India. This was with the objective

of strengthening the F&A corridor between India and the Netherlands by identifying mutually

beneficial opportunities for industry players as well as other stakeholders in both countries. The four

specific sectors of interest include Dairy and Dairy equipments, Fresh Produce Supply chain,

Floriculture, and Bakery equipments.

The summary of the findings and opportunities in various sectors are highlighted below.

Dairy and Dairy equipments

Milk production in India currently stands at 108.5 million tonnes and is growing at 4% per annum for

the last one decade. India has the largest population of bovine animals in the world. The productivity

of Indian cattle (944 kg/annum) is low as compared to that of the EU. This is mainly because of the

poor feeding of milch animals at farm level. Also, the average size of herd in India is 3‐4 milch

animals as compared to 70‐80 in Netherlands. Lack of transport infrastructure, cold chain facilities

(bulk coolers, chilling centres) and refrigerated vehicles has restricted the reach of quality dairy

products to larger towns. Pricing the milk and giving due weightage to fat, SNF and also to the

bacteriological quality is essential for attaining good end product quality. Low productivity and

fragmented dairy farms open up opportunity for setting up of integrated dairy farms. Players from

the Netherlands can enter into a Joint Venture with an Indian company to improve farm

management practices.

India is

one

of

the

fastest

growing

markets

for

milk

and

milk

products.

The

market

size

for

milk

and

milk products (formal + informal sector) is INR 2000 bn (EUR 30.8 bn). The organized market is

growing at nearly 10 percent in value terms annually. With increasing urbanization, demand for

value‐added products is increasing. Some product segments like UHT milk, yoghurt etc are still a

nascent category catering largely to the high income households. Product innovation and pricing

holds the key in this market.

There are very few brands in the Indian dairy sector with a pan‐India reach. There is immense scope

for branded players, particular international brands, in the Indian market. Products of international brands have entered the Indian market either through importers or through grey market channels.



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The high prices of these products restrict their consumption largely to high income households.

Opportunities exist to join hands with a local manufacturer in production for making value‐added

products.

The increase in processing levels in the organized market from 20% (of total milk produced) to 30%

in the next 5 years should lead to building up of new capacities. India has made considerable

progress in the manufacture of dairy equipments with the emergence of several equipment

manufacturers. Some of them have exclusive tie‐ups with foreign players for providing advanced

dairy equipments. The industry is showing growth in certain categories such as bulk milk coolers,

small homogenizes, milk pasteurizers, milk vending machine and liquid milk packaging system etc.

There is ample scope for manufacturing equipments for basic products like paneer, khoa etc. Further

value added products like ice cream, cheese, yoghurt, UHT milk plants (Tetrapak) require specific

equipments and machineries for setting up of the plant. However, the entry of foreign player is

dependent on the price competitiveness with the local manufacturers. A JV with an existing player is

recommended for getting a foothold in this market.

India is currently an insignificant player in the international market owing to poor quality of products

as compared to Oceania, EU and USA. Also, there has been a policy pursued by the Government of

India to ban exports of dairy products from time to time. There is huge demand for milk powder and

butter oil in lean season. There exists an opportunity to export these products from the Netherlands,

provided the price is competitive vis‐à‐vis countries such as New Zealand and Australia.

Finally, the key to success of any joint venture in India lies in the ability to procure milk. It is

therefore essential to have a local partner to enter India to ensure consistent supply of raw milk.

Companies from the Netherlands could also invest in the supply chain infrastructure to ensure

availability of high quality milk on a sustainable basis.

Fresh produce supply chain

India is the world’s second largest producer of fruits and vegetables. It is bestowed with favourable

agro‐climatic conditions for growing a large variety of fruits and vegetables. India is the largest

producer of several fruit crops such as mango, banana, sapota and acid lime. Among vegetables,

India is a large producer of tomato, onion, brinjal, cabbage, cauliflower, okra and pea. Increasing

income and the growth of organised food retail holds promise for the fresh produce industry in the



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future. Nevertheless, despite a huge planted base for horticulture, India lags behind in several areas

such as yields, pre and post harvest practices as well as cold chain infrastructure.

There are clear opportunities for increasing farm productivity through developing high yielding

varieties, replacement of old and uneconomical orchards, high density planting (HDP), protected

cultivation and low cost green house technology, adoption of improved technologies in orchard

management and training in good agriculture practices. Also, there are opportunities to develop

processing varieties with high shelf life. India offers a seasonal window of opportunity for imports of

fruits such as apples and pears into India. Separately, there exists a strong export potential for

several fruits such as grapes, pomegranates and bananas. In fact, the export opportunity has

increased the need for implementation of quality standards and cold chain.

Players from the Netherlands can also collaborate/invest in the development of fresh produce retail

chains in backend aggregation, cold chain logistics, demand forecasting, resource planning and

advanced management systems. In fact, the required infrastructure in the fresh produce supply

chain is estimated at EUR 1211 million. This covers terminal markets, integrated pack houses, cold

storage/controlled atmosphere technology and installations, ripening chambers, refrigerated

transport and multimodal logistics network. Also collaboration opportunities exist with various

government institutions spanning the entire value chain in terms training, technology transfer and

advisory opportunities. For instance, Research and Development assistance could be explored to

State Agricultural Universities (SAUs) and other reputed institutions

Floriculture

Cut flowers and ornamental plants play an important role in the floriculture industry. The wide range

of climatic conditions in India makes it a suitable destination for production of flowers throughout

the year. The domestic flower production (loose, cut and dried) as well as consumption is increasing

year on year. The area under cultivation of flowers is at 160,700 ha (2007‐08) and has grown at an

average of close to eight percent per year over the last fourteen years.

The Government of India has recently undertaken a lot of steps to encourage further growth in the

floriculture sector. Apart from opening of flower auction centre and market facilitation centre, it has

provided cold storage related infrastructure at key airports in India. While India has a negligible



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share of global exports, there has been a shift towards growing cut flowers for exports. India’s

exports in the floriculture sector are at EUR 56.7 million in 2008‐09. EU remains an important

destination for India’s cut flowers which is evident from the fact that Europe together with Japan,

accounts for 76% of the total Indian cut flower export realizations. Floriculture exports are likely to

rise at a CAGR of 15% over the next 5 years. Trade liberalization has not only facilitated imports of

latest technology, but also encouraged and enhanced import of internationally acclaimed planting

material of different varieties. Along with the export industry, the demand in the domestic market is

also enormous and holds promise for the future. The present market is estimated at EUR 154 million

(2007‐08) and growing at 21 percent per year.

There are many opportunities in floriculture sector in India where players in the Netherlands can

collaborate besides fresh cut flower exports from India. For instance, there are significant

opportunities in the production and marketing of dry flowers and the production of high‐value oil

extracts and perfumes, dyes and other products, such as rose water etc. In fact, dry flowers already

form a sizeable chunk of Indian floriculture exports. In addition, as the cost of production in India is

comparatively lower than that in other developed countries, outsourcing flower production to India

could be a good business model for Netherlands. There is also an opportunity for using India as a

production base for cactus. There is also an opportunity to explore an association of Indian institutes

with the universities in the Netherlands to cater to these needs for the industry in the areas of

variety development, best practices for cultivation etc. Companies from the Netherlands can also

explore providing end to end solutions to the floriculture players i.e. from selection of land,

infrastructure development (green house structures etc), training, planting material, project

management and customers.

Bakery equipments

The bakery market in India is estimated at more than EUR 3.2 billion (INR 210 billion). India is the

second largest producer of biscuits after the U.S. The two major bakery industries, viz. bread and

biscuit account for about 90 percent of the total bakery products. The estimated size of organised

bread industry is about EUR 0.77 billion (INR 50 billion). In volume terms bread is projected to grow

at 1.9 percent where as value added breads are expected to grow at 18‐20 percent. In biscuit

segment, organized sector accounts for almost 50% of the production. The estimated size of

organized biscuit industry is about EUR 1.1 billion (INR 69 billion). It is estimated that the biscuit

market would grow at 8 percent per annum over the next five years. Other bakery products such as



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breakfast cereals, cakes and pastries are growing at around 8‐11 percent annually. These products

are largely limited to urban areas.

With increasing number urbanisation and need for sheer convenience has resulted in Indian breads

gaining market share. Consumers are upgrading from unpacked/artisanal cake to packed industrial

alternatives. Increasing health awareness is giving a push to consumption of healthier options like

brown bread, multigrain bread, whole wheat bread, multivitamin bread etc. Also, modern

supermarkets are instrumental in bakery growth in India. Also, the organized food service sector in

India is growing at 12‐15% annually. International chains such as Subway, Dominos, Pizza Hut are

expanding their franchise to Tier‐II cities. The growth of fast food/café chains would result in

increased consumption of baked products across the country.

The Indian bakery equipments industry, estimated at EUR 23 million, can be divided into industrial

line (required by bread and biscuit companies for mass production) and non‐industrial lines

(required by individual bakeries). About 85% of the bakers use domestic made low‐end equipments.

These equipments are of average quality and priced lower than imported equipments from

developed countries. After sales service is one of the biggest hindrances in the success of imported

machineries.

Most of the foreign players prefer to use existing manufacturers or traders network as the cost of

setting up own dealer network is high. In India, bakery equipments are largely imported from EU,

South Africa, China and Taiwan. Shift from handmade to mechanization‐technology is yet to make a

big impact in the bakery industry. Demand is rising for equipments that can produce convenient high

quality bakery products. Consumers have started to appreciate quality.

Organized players, modern retail and food service chains would be key targets for equipment

manufacturer. Considering the growth rate of various segments of bakery industry it is estimated

that besides the current market there is a potential new market for equipment capacity equivalent

to 1.2 million tonnes of baked product over the next 5 years. In order to penetrate the India market,

it is extremely important for equipment suppliers to provide excellent after sales service. In fact, the

initial cost of machine is not such a big factor as is the after sales service. Since having their own set

up in India may require a certain scale, foreign companies should have JVs with some of the Indian

players

with

proper

focus

on

the

after

sales

service.



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Chapter 1

Background

The Embassy of the Kingdom of the Netherlands (RNE) has sought assistance from Rabo India

Finance Ltd (RIF), a 100% subsidiary of Rabobank International, to provide strategic advice pertaining

to the food and agribusiness landscape in India and to identify mutually beneficial opportunities for

companies in India as well as the Netherlands. The four specific sectors of interest include Fresh

Produce Supply chain, Floriculture, Dairy and Dairy equipments as well as Bakery equipments.

This study entails a detailed supply chain analysis of the selected sectors in India, with focus on the

gaps and opportunities in the sector. The sector studies have been conducted through secondary

data research, meetings and discussions with stakeholders, some of whom include food processing

companies, technology providers / equipment suppliers, industry associations, importers/exporters

as well as various government bodies.

A focused workshop was also organized by RNE in the Netherlands to share the findings of the draft

study and validate the opportunities identified in the sectors. Leading industry players and

companies/organizations with interests in the above sectors were invited for this workshop. Based

on the feedback received at the workshop, this final report has been prepared, which documents the

findings of the supply chain analysis and the identified opportunities across the four sectors of study.



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Chapter 2

Dairy and Dairy Equipments

2.1 Introduction

Milk production in India currently stands at 108.5 million tonnes and is growing at 3.5% per annum

over the last eight years. India ranks second in terms of milk production after EU‐ 27 and accounts

for c. 16% of global production. The average size of herd in India is 2‐3 milch animals compared to

70‐80 in Netherlands. For a subsistence farmer, milch animals have multipurpose utility: draught

animal, fuel provider (dried manure) etc.

Exhibit 2.1 Milk Production in India (million tonnes)

Source: National Dairy Development Board, India

Since India is a tropical country, climate has an effect on the production pattern of milk in India.

There are two seasons for milk production viz. the lean (from April to September) and flush season

(from October to March). Milk production is higher in flush season and lower (~60% of flush season)

in lean season. The market for milk and milk products are still largely dominated by the informal

sector. Most of the milk produced in India is still retained by the producers.

Exhibit 2.2 : Milk Processing in India (2009‐10)

Degree of Processing Type % milk handled

Raw Retention by rural consumers / sale to rural non‐producers 41

Sold as loose milk in urban areas 17

Processed (formal) Packed liquid milk 15



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Degree of Processing Type % milk handled

Value‐added milk products 5

Processed (informal) Value‐added milk products

(mostly traditional Indian milk products)

22

Total 100

Source: Rabobank Analysis

2.2 Milk Production

Three

tier

system

of

dairy/Amul

1

Model

India has a unique pattern of milk production and collection – the three tier system/Amul model

followed by the dairy cooperatives. The Dairy Cooperatives have been organised into a three‐tier

structure with the Dairy Cooperative Societies (DCS) at the village level coming under a Milk Union or

District Union at the district level and a Federation of member Unions at the state level. The 13.41

million farmer members of the dairy cooperative societies at the village level are a part of 128,799

villages Dairy Cooperative Societies (DCS) also known as Primary Milk Producer Societies (about 130

farmers per DCS) which are connected to 180 district milk cooperatives (Milk Union) and 17 State

Federations. DCS handles about 27 million kg of milk per day. Presently the co‐operatives handle c.

10% of the total milk produced in the country. The cooperatives form part of a national milk grid that

links milk producers throughout India with consumers in more than 800 towns and cities and bridges

seasonal and regional variations in the availability of milk.

The activities of the DCS include:

Milk collection, testing quality of raw milk and fat and solid non fat (SNF) content determination

Sale of cattle feed

Provide micro‐level inputs such as Artificial Insemination (AI) service and Veterinary First Aid

(VFA) to the members’ animals.

The DCS also markets nutritionally balanced compounded cattle feed produced by the cattle

feed plant owned and operated by the District Union as well as fodder seeds.

In general the Union carries out four important functions:

Milk procurement

1 Amul is the largest co‐operative movement in India with 2.8 million milk producers organized in 13,328 co‐operative societies in 2008‐

2009. Amul follows a business model, which aims at providing 'value for money' products to its consumers, while protecting the interests

of the milk‐producing farmers who are its suppliers as well as its owners.



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Milk processing and marketing

Providing technical inputs and extension services for enhancing milk production and productivity

Strengthening the milk cooperative movement

The Federations are responsible for:

Evolving and implementing policies on cooperative marketing of member Unions’ milk and milk

products

Deciding the products‐price mix

Managing centralized input services (artificial insemination, breeding) on behalf of the Union

Milk procurement by private players

The three tier system followed by the cooperatives is quite different from the milk procurement

structure followed by the private players. The private dairies have a loose arrangement for

procurement of milk wherein the milk is procured from the agents/contractors who in turn procure

milk from the producers. Each agent typically would procure from 20‐25 producers. Some milk is also

procured from the DCS of the co‐operative structure. In northern India, the use of

agents/contractors is more prevalent than in other parts of India largely as the cooperative system is

not that strong in this region. The agents are responsible for guaranteeing the quality of milk given

to the private dairies. The private dairies handle c.10% of the total milk produced in the country.

2.3 Market Potential

India is one of the fastest growing markets for milk and milk products. The market size for milk and

milk products (formal + informal sector) is INR 2000 bn (EUR 30.8 bn). The organized market is

growing

at

nearly

10

percent

in

value

terms

annually.

The

demand

for

value

added

milk

products

viz.

cheese, dahi (Indian yoghurt); probiotic drinks etc. is increasing at a double digit rate.

At present India seems to be largely self sufficient in its requirement for milk and milk products.

However, given that demand in organized dairy segment is growing faster than growth in milk

production, there could be issues with respect to self sufficiency in the medium to long term.

Focused efforts would be required on two fronts viz. increasing farm size (currently the average size

of animal per producer is 2‐3) and increasing productivity of milch animals so as to catch up with the

increasing demand of milk and milk products.



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Liquid milk

The packed liquid milk constitutes the largest segment in dairy, followed by ghee2

in value terms.

Indian consumers prefer fresh milk which is sold in pouches with a shelf life close to two days. Safety

and quality concerns have prompted urban consumers to shift from loose liquid milk to pasteurized

packaged milk. Dairy co‐operatives have a major presence in this segment in their respective state of

operation e.g. ‘Amul’ in Gujarat, ‘Verka’ in Punjab, ‘Nandini’ in Karnataka, ‘Aavin’ in Tamilnadu,

‘Saras’ in Rajasthan. Private players like Hatsun Agro, Creamline Dairy are also having a sizeable

market share in liquid milk. Some of the domestic corporates such as Reliance, DSCL and CavinKare

have also started their milk operations recently.

Exhibit 2.3 : Organized market size and growth rates for various dairy products (2008‐09)

Organized market

value (EUR Mn)

Growth rate

(%)

Liquid Milk 5,000 20

Butter 200 8

Ice‐cream 246 20

Cheese (incl. cheese spread) 85 25

Ghee (Anhydrous Milk Fat) 538 8‐10

Dahi (Yoghurt) 100 20

Paneer (Indian soft cheese) 38 10‐12

Flavoured Milk 92 20

Dairy whitener /Milk powder /UHT /sweets etc 577 10‐15

Source : Rabobank estimates

Butter

This is used mainly for traditional food preparations. Amul is the market leader in this segment with

a market share of c.80%. Growth in food services sector is key to increasing demand for this product.

Other strong regional players in the market include Mother Dairy, Parag Dairy (Gowardhan), Verka,

Vijaya etc.

Ice‐cream

This is one of the fastest growing segments in dairy with a CAGR of c. 20% in the last five years.

Around 70% of the total ice‐cream sold in India is through organized format and the rest is sold

through unorganised formats. GCMMF (Amul) is the market leader in ice cream with 25% of market

share followed by Kwality Walls (HUL) and Vadilal at 15% and 10% respectively. Other players

2 clarified butter



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manufacturing ice‐cream include Mother Dairy and Hatsun Dairy, Dinshaw etc. There are many small

players manufacturing ice‐cream in India catering mainly to the needs of the local market. Product

innovation and pricing holds the key in this market. Basic flavors like vanilla, butterscotch and

chocolate sell the most. Cold chain distribution along with product innovation is key to future

growth of the ice‐cream market. Ice cream consumption is cyclical in nature and peaks around

summer season.

Cheese

Cheese is the fastest growing market among milk products. Traditionally India has been a paneer

(soft cheese) consuming market which is dominated by unorganised players. Rise in food service

outlets (e.g. Pizza Hut, Domino’s etc.) across the country and changing food habits has triggered the

increase in demand for this product. The various varieties of cheese available in this segment include

cheddar, mozzarella, gouda, piccolo and processed cheese. Different variants of cheese spread

(estimated market size EUR 16 mn) like plain, garlic, pepper etc. are also available in the market.

Processed cheese has around 70% market share of the total cheese sold in the country. GCMMF

(‘Amul’) is the market leader in this segment with c. 70% of market share. Bongrain (from France) is

also present in this sector through their Indian subsidiary Dabon International Pvt. Ltd. It is selling

basic and premium cheese variants of cheese and cheese spreads under their international brand

Milkana ‐ though their presence is currently restricted to metropolitan cities.

Ghee

Ghee is the largest consumed item among milk and milk products after liquid milk. Ghee has been

traditionally used for cooking purposes in Indian households. Traditional Indian sweets like Peda,

Gulabjamun etc. are made using ghee as a cooking medium. ‘Amul’ and ‘Sagar’ are two well known

brands (both from GCMMF) in this category with pan‐Indian footprints. Other strong regional brands

include ‘Saras’, ‘Verka’, ‘Nandini’, and ‘Madhusudhan’ etc.

Curd (‘dahi’ )

Curd (Indian yoghurt) is one of the fastest growing milk product segments in India. It is a traditional

home made product but with increasing urbanization, demand for packaged curd is increasing. In

most parts of India the local name for curd is ‘dahi’. This product is available in two forms viz. set

dahi in plastic cups and stirred dahi in plastic pouches. In North India, mostly set dahi is consumed

while in South India stirred dahi is a bigger market. Karnataka Dairy Co‐operative (brand ‘Nandini’) is

the market leader in pouch dahi selling close to 100000 litres of pouch curd daily. Amul is the leader

in set curd segment with pan‐India presence. Mother Dairy and private players like Nestle, Britannia



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and regional players like Parag (‘Gowardhan’) are aggressively marketing their products in the

market.

Paneer

Paneer (Indian soft cheese ) is a traditional product consumed largely in northern and western parts

of India. This product is very similar to cottage cheese and is manufactured using acid coagulant

(lemon juice). In the past, demand for this product was catered mostly by the unorganised sector.

However, since 2000, many organized players like GCMMF, Mother Dairy and Punjab MilkFed have

started focusing on this product. The market share of GCMMF (brand ‘Amul’) is close to 50% while

Mother Dairy and MilkFed (brand ‘Verka’) have 20% share each. Recently, Reliance Industries, India’s

largest private sector company, has also entered this category.

Flavoured Milk

Flavored milk has the fastest growing market among various milk products. This product is mainly

consumed as a beverage and competes with other beverages including the carbonated ones. The

product is consumed more in the summer. Flavored milk is mostly sold in sterilized glass bottles.

Other forms of packaging include polythene pouches and tetrapak and tin cans. GCMMF (brand

‘Amul’) is the market leader in this category with close to 75% market share. Other brands include

Mother Dairy (7%), Verka, Nandini, Vijaya, Saras etc

UHT milk

At present , UHT milk is a nascent category catering largely to the high income households. It is

growing at a robust growth rate of 25% per annum. It is mainly promoted on the platform of safety,

health and convenience. At present, UHT milk directly competes with loose / fresh pouch milk which

is an extremely price sensitive category.

Khoa

Khoa is a traditional Indian product made by heat desiccation of milk. In ancient times the pricing of

milk was done based on the quantity of khoa produced from milk. An estimated 7% of the total milk

produced in the country goes for preparation of khoa, which forms a base for many traditional

Indian sweets such as Gulabjamun, peda, kalakand etc. Currently there are no organized players

manufacturing khoa due to lack of appropriate technologies for manufacturing at a continuous level.

Probiotic products

With health consciousness gaining ground among consumers, the demand for probiotic products is

increasing. For example, GCMMF has launched a range of probiotic products (‘Amul Prolife’). The



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acceptability of probiotic product is well supported by the fact that fermented and cultured dairy

products are traditionally consumed in India. However, the challenge for probiotic products lies in

distribution as the product carries live organisms that have to be preserved in specific numbers till

final consumption. Yakult (from Japan) and Danone (from France) have joined hands to market

probiotic fermented milk drinks in India.

There is also a growing demand for dairy products as ingredients for pharmaceutical and allied

industries. Indigenous milk products like shrikhand, gulab jamun, rassogulla, paneer, peda etc have a

market worth INR 5 billion (EUR 77 mn) in North America, Canada, Europe and Middle East. These

indigenous products offer scope for intervention of right technology and packing for longer shelf life.

2.4 Export market

India has been self sufficient in milk production and consumption. The exports of milk and milk

products from India form less than 1% of the total international trade. Also, exports account for less

than 1% of the total milk produced in India. The export market used to be mostly concentrated in

Asia and more to neighbouring countries and Middle East primarily due to low cost of end products.

Concentrated milk products (skim milk powder) form bulk of exports from India (78%).

India has failed to become a major player in the international market owing to poor quality products

as compared to Oceania, EU and USA. Also, lately there has been a decline in export competitiveness

owing to higher farm gate prices (especially against New Zealand and Australia). Moreover, the

increasing demand of milk and milk products in India has resulted in increased domestic prices of

SMP and butter. However, India is surrounded by countries/regions which are gross milk deficient

viz. Middle East, China, South Asia, South East Asia etc. There is still some scope for exports of value

added milk products viz. skim milk powder, whole milk powder, butter etc. in these regions.

In recent years there has been a policy pursued by the Government of India to ban exports of skim

milk powder and whole milk powder. This was intended to discourage exports of milk powder so as

to reduce domestic inflationary pressures. However, export of milk by‐products like casein, whey

protein, lactose etc. were not banned during this period, thereby offering a small window of

opportunity.



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2.5 Challenges in dairy sector

India has the largest population of bovine animals in the world. India has 57% of world buffalo

population and 16% of world cattle population. The productivity of Indian cattle (980 kg/annum) is

low as compared to that of European Countries and USA (approx. 8000 kg/annum). This is mainly

because of the poor feeding of milch naimals at farm level. Cattle feed and concentrates are rarely

fed to animals. It is green fodder, dry fodder and left over of household foods that is given to the

animals. Also, the logistics cost of handling milk is high owing to fragmented farm size. The increase

in average size of herd and productivity would help in reducing logistic costs and provide good

quality raw milk on a consistent basis to the dairy plants.

Cattle rearing and breeding techniques

The main technical constraints to increasing milk yields are the inability of dairy farmers to feed

cattle adequately throughout the year coupled with poor quality of dairy animals. Artificial

Insemination services for breeding better cattle breed also has a limited reach with current coverage

of bovines at only 34%. Moreover milk producers in India do not follow good hygienic practices while

milking. Milch animals are milked using hands in more than 95% of cases instead of a milking

machine. This result in poor quality of raw milk received at the dairy plant.

Fragmented farm size

The average size of milch animals per producer in India is 2‐3 as compared to 35 for EU 15. Handling

and managing logistics of fragmented farms is quite costly and complex. Due to tropical climate in

India, the raw milk quality is also not so good. Moreover due to the bottlenecks in infrastructure;

milk collection is undertaken twice a day. This makes it difficult to manage the entire back end of the

supply

chain.

Milk

is

transported

both

in

chilled

and

raw

form

to

the

dairy

plant.

Poor state of infrastructure

Poor roads and inefficient transport infrastructure has led to an inefficient procurement system.

Moreover, the present distribution network has its limitation both in terms of reach and capacity.

Lack of transport infrastructure, cold chain facilities (bulk coolers, chilling centres) and refrigerated

vehicles have restricted the reach of quality dairy products to larger towns. The percentage of milk

handled by the organized sector can be improved further if these bottle necks are resolved.

However, dairy companies are reluctant to make upfront investments in infrastructure owing to

concerns on return on investments.



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Adulteration of milk

At many places milk is subjected to adulteration before it reaches the dairy. Though the figures are

not too high (<5%); the issue is of great concern from a consumer safety point of view. The forms of

adulteration include addition of water, mixing of caustic soda in milk to mask the acidity, and

adulteration with animal fat to increase the fat content of the milk. Adulteration is more common in

North India as the cooperative structure is not as strong in North India as compared to West and

South India. Poor cooperative structure has led to the proliferation of small private dairy companies,

many of whom do not adhere to quality standards. There is a need for the inspection officers to

become stricter in monitoring the implementation of the rules under various acts. Food inspectors

should be trained on various aspects of adulteration and ways to test adulteration.

Retention of producers

The success of dairy units is entirely dependent on the way they procure milk from the farmers and

their strong backward integration in particular at farm level thereby ensuring a loyal consumer base.

Farmers would be willing to sell their milk to dairies providing veterinary services, cattle feed, loan

for purchase of milch cattle, insurance etc. There is an extra cost incurred in providing these inputs

to farmers at subsidized rates. Many cooperative companies provide such inputs to producers.

Moreover, many private companies have also started focusing on these aspects on the lines of other

more progressive private dairies like Nestle, Hatsun, Parag Milk etc.

Pricing of milk at farmer level

The pricing of milk in India is mainly done on the basis of fat. Generally the milk coming to the dairy

unit is graded as good milk and poor quality milk. Internationally the price of milk is based on both

the fat as well as SNF value of milk. The price of milk in some countries is also based on the

bacteriological quality of milk with a premium being offered for good quality milk. The quality of raw

milk is very important for the end product quality. Pricing the milk and giving due weightage to fat,

SNF and also to the bacteriological quality is essential for attaining good end product quality. NDDB

(National Dairy Development Board) has started the concept of ‘Clean Milk Production’ which

educates and encourages the producers’ to maintain hygiene levels during milking of cow.



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2.6 Legal and Taxation Issues

There are no excise duties on any of the dairy products manufactured in India. There are state‐level

taxes for inter‐state movement of milk and milk products which are levied only on the organized

players. This creates a non‐level playing field vis‐a‐vis the unorganized players, who in turn can price

their products lower since there is no outflow on account of such levies. There is high level of

taxation on dairy equipment and machinery with the exception of a few products which are exempt.

This is primarily done by the government to encourage the domestic equipment manufacturing

industry.

2.7 Dairy Equipment Sector

Of late, India has made considerable progress in the manufacture of dairy equipments with the

emergence of several euipment manufacturers. Some of them have exclusive tie‐ups with foreign

equipment players for providing advanced dairy equipment for the Indian dairy industry. The growth

of the dairy equipment sector has picked up mainly because of growth in the organized dairy sector

over the last decade. The industry is showing growth in certain categories such as road tankers,

storage tanks, bulk milk coolers, small homogenizes, milk pasteurizers, milk vending machine and

liquid milk packaging system etc. Equipments for packaging of butter, cheese, paneer and other

traditional products needs focused attention for tapping small and medium scale operations.

Milk Collection and logistics (upto milk plant)

Milking machines

A large percentage of dairy farmers still do manual milking with hands. Machine milking is slowly

picking up due to some inherent advantages over manual milking. Machine milking scores over

manual miking as it reduces cost of labour and ensures complete milking of cattle. Many domestic

companies as well as a few MNC players like Delaval, Westfalia operate in this space. The MNC

players offer better quality products as compared to domestic products, albeit at a premium pricing.

Automatic Milk Collection Unit (AMCU)

AMCU is a combination of software and applications and allied components such as PC, UPS system,

printer, and milk tester automation unit. AMCU is used for collecting milk, capturing the data

(quantity, fat%, SNF% and other additional information per transaction), whenever a farmer delivers

the raw milk at the village pooling point (VPP). AMCU helps in making the overall transaction process



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more transparent and trustworthy as it reduces human errors, transaction time and wastage as

compared to the traditional manual way of collection, recording and billing. Imported products

would not have a major technological advantage, given that they would be significantly costlier. A

tie‐up with a local manufacturer can be the best option for a player from the Netherlands.

Milk testing equipments

Milk analyzer is used to measure % fat content in the milk at village pooling point level. The

electronic milkotester which has been developed by Indian Dairy Equipment Company Ltd. is widely

used. The lactometer is used for solid non fat content testing in the milk. There are many companies

in India which are manufacturing milk analyzer instruments e.g. milkotester, milkoscan etc. There

are also a few companies which sell these products under a technical collaboration with a foreign

company, but the market for such products is negligible. There is limited scope for foreign players in

this segment. However a tie‐up with a local manufacturer might work.

Weighing scales

There are no inherent advantages in this segment for any foreign player over indigenously made

weighing macines. Local companies manufacturing weighing scales are fairly accurate and rigid to

Indian conditions. There is no technological advantage attached ‐ hence limited scope for players

from the Netherlands.

Milk transportation vehicles/milk cans

Milk is transported in milk cans of 20 or 40 litre capacity from farm to Bulk cooling point. These are

made of aluminum or stainless steel. There are many private players manufacturing cans in India.

The market leader is Khambete Kothari Cans and Allied Products Pvt. Ltd (KKCAP), the largest

manufacturer of aluminium alloy milk cans in India. There are a number of small private players

selling aluminium, plastic and stainless steel (SS) cans. No foreign player is present in this business.

Milk tankers / Bulk Milk coolers

Milk is transported to the dairy plant either in the form of raw milk (using cans) or raw chilled milk

(using milk tankers). Also processed milk is transported using milk tankers. The milk tankers used in

India are all insulated ones. Refrigerated tankers are still not used in India. This is because the time

of transit generally varies from 1 hr to 2 hr in case of raw milk and the cost attached with

refrigeration does not make a business case to move raw milk in refrigerated tankers. These milk

tankers are made of stainless steel mainly and are manufactured by local fabricators in India.



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Bulk milk coolers are used in the supply chain mainly if the distance between Village Pooling Point

(VPP) and MCC is very large as transporting cans over large distance under ambient temperature

would lead to deterioration or spoilage of milk. Bulk milk coolers used in India vary from 1 kl to 5 kl

capacity. Both local and foreign manufacturers are present in the market for bulk milk coolers. The

local manufacturers dominate bulk of the market (around 90%). The difference in price between

local and foreign players is the main reason for higher market share of local manufacturers. The

market for bulk milk is expected to grow at the rate of 25% every year for the next five years. This is

also facilitated by the initiatives taken by dairy co‐operatives of several states like Gujarat, Punjab,

Karnataka, Tamil Nadu, Rajasthan etc. to install bulk milk coolers at strategic locations.

Entry of foreign player is dependent on the price competitiveness with the local manufacturers.

Option of setting up own plant or a JV with an existing player would help in getting a foothold in this

market.

Processing equipments

India has made considerable progress in the manufacturing of dairy equipments in last decade. The

increase in processing levels in the organized sector from 20% currently to 30% in the next 5 years

should lead to building up of new capacities. There is ample scope for manufacturing equipments for

basic products like ghee, paneer, indigenous sweets (khoa, peda) etc. Further value added products

like ice cream, cheese, powder, yoghurt, UHT milk plants require specific equipments and

machineries for setting up of the plant.

Also, the dairy equipment sector in India is highly protected with customs duty of 7.5% along with

counter veiling duty and SAD (Special Additional Duty) on almost all dairy equipments (other than

milk clarifiers). Clarifiers are exempted from import duty with an intention to boost clean milk

production in the country. The fresh packed liquid milk requires basic processing and packing

technology at

plant

level.

Cost

of

the

equipments

and

after

sales

maintenance

service

will

remain

key drivers for future growth.

The range of equipments presently manufactured by the indigenous manufacturers include stainless

steel dairy equipments, evaporators, milk refrigerators and storage tanks, centrifuges, clarifiers,

homogenisers, spray dryers and heat exchangers (tubular and plate type) etc. In recent years many

dairy plants have been commissioned by NDDB and the majority of equipments have been supplied

by indigenous manufacturers. Advanced equipment like spray dryers, plate type heat exchanger and

other core equipments require advanced technology to manufacture a good quality product

bacteriologically.



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Technology innovations

The processing technology for manufacture of yoghurt and traditional Indian sweets plant

equipment is deficient. The high speed machines for ice‐cream manufacturing are also not presently

manufactured in India. The modernization of the manufacturing process of traditional dairy products

is long overdue. However, there is no need to reinvent the wheel because some of the food

processing methods available in the developed nations can be usefully adapted to mass produce

traditional products. Some process modifications may, however, become necessary.

The production of traditional products through modern technology can ensure utilizing larger

quantities of milk during the flush season, thus helping in stabilizing farmer prices. The technology of

recombining milk constituents can also help in making these products available in the lean season

and in far‐off places. Shrikhand 3

is being manufactured in the winter for consumption in the summer

months, reducing the pressure on limited milk supplies during the lean period. The advent of

convenience foods and their increased acceptability will further support the modernization in this

sector.

While some of the basic products like khoa4

based sweets (burfi, kalakand, and peda etc.) have huge

volume sales in Indian market, the presence of loose products at cheaper price limits the

opportunity for development of high technology products. Khoa based sweets are available in Indian

streets where local halwais (sweet‐mart shop) make it an open kadhaai (kettle), employ little or

negligible processing cost except heating and labour. Continuous khoa making machine has been

developed in India and some dairy plants have started using the same. However, a huge potential

exists in this segment since there is a lot of adulteration of this product to reduce the price.

Export Potential in dairy equipments

While most of the equipment manufacturing companies in developed countries focus on the needs

of large dairy units, Indian companies are targeting the small and midsize operations in the US,

Canada and other countries. Indian companies export equipments and accessories like cream

separators and milk cans and also work on turnkey projects. They are specifically targeting small

farmers and dairy units in the US, Europe and also the neighboring countries in South Asia. Indian

companies are also exploring opportunities in Africa and the Middle East. India’s dairy equipment

exports are estimated at around INR 1 billion (EUR 14.3 million).

3 Indian sweet dish made of strained yogurt

4 is a milk food, made of either dried whole milk or milk thickened by heating in an open iron pan



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Overall the dairy equipment segment is expected to have a modest growth owing to growing

organized dairy sector (25‐30%). Cost effective equipment manufacturers are expected to dominate

the market.

The following table provides data on the players in the dairy equipment market:

Exhibit 2.4 : Dairy equipment players in India

Name of the equipment Price

(EUR)

Manufacturers Comments

Pasteurizers

5Kl 30,500 GEA Ecoflex,

Tetrapak, IDMC

These are the three reputed

manufacturers 10kl 46,000

20kl 77,000

30kl 92,000

Seperators These are two reputed

manufacturers 20kl 1,84,000 GEA Westfalia,

Tetrapak 30kl 2,60,000

Bactofuge

20kl 2,22,000 GEA Westfalia,

Tetrapak

Not all plants use bactofuge

30kl 3,14000

Pneumatic Valves

600 Gea Tuchenhagen,

Alfa Laval and IDMC

Powder Plant equipments

Evaporator calaindrias (30kl) 26,000 GEA Niro,

Anhydro+Alfa Laval

These are the individual costs of

equipments used in powder plant Concentrate preheater (30kl) 26,000

Drying chamber(30 tones/day) 2,30000

Vibro fluidizer 15,000

Atomizer assembly 77,000

Powder plant 10 tons per day 7,70,000 GEA Niro,

Anhydro+Alfa Laval

Total cost i.e. evaporation section

+drying section Powder plant 30 tons per day 15,40,000

Casein Plant equipments GEA Barr Rosin,

Anhydro

The equipments include

disintegrator, hammer mill,

clasifier and huge tube type shape

ring dryer

30 tons per day ring dryer 4,60,000

Lactose plant equipments Cost same as that of powder plant

plus addition cost of crystalization

tanks (each cost 16,000 USD)

10 tons per day 7,70,000 GEA Niro,

Anhydro+Alfa Laval 30 tons per day 7,70,000

Whey powder plant equipments

10 tons per day 9,20,000 GEA Niro,

Anhydro+Alfa Laval

The cost is 20% more than the

powder plant since SS316 is used

instead of SS304

30 tons per day 18,40,000

Dairy Farm equipments



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Name of the equipment Price

(EUR)

Manufacturers Comments

Bulk coolers (1000 lt) 8,5000 IDMC Foreign players are practically

absent in this segment Bulk coolers (2000 lt) 13,000

Bulk coolers (5000 ls) 15,400

Source : Rabobank research

GEA, Tetrapak, Alfa‐Laval and IDMC (Indian Dairy Machinery Corporation) are the prominent dairy

equipment players in India. GEA, Tetrapak and Alfa‐Laval are foreign players and IDMC is an Indian

player. IDMC is the largest equipment manufacturer in the country and has tie‐ups with various

MNCs including GEA, Alfa‐Laval and other equipment manufacturers to provide engineering

solutions to the dairy plants.

2.8 Opportunities in India for dairy players from the Netherlands

India is one of the largest producers of milk. It is also, one of the cheapest farm gate producers of

milk. The demand for value added milk products viz. UHT, dairy whitener, flavoured milk, dahi,

cheese etc. is growing at a double digit rate, with most dairy companies expanding their business in

these segments.

The opportunity areas for dairy players in the Netherlands are as follows

Farm related

Given the low productivity and fragmented dairy farms opportunities exist for setting up of

integrated large scale dairy farms to eliminate farm level inefficiencies. There is huge possibility of

increasing the productivity of milch animals and increasing the size of herd thereby making dairying

less fragmented. Presently there are few large scale dairy farms (i.e. more than 20 animals). Players

from the

Netherlands

can

enter

into

a Joint

Venture

with

an

Indian

company

to

improve

farm

management practices. Many dairy players are investing in setting up cold chain infrastructure for

procurement of raw milk. Bulk milk coolers are being set up to enhance the quality of raw milk and

to reduce the logistics cost in transportation of milk to the processing plants.

Procurement

The key to success of any joint venture in India lies in the ability to procure milk, which is a complex

process. Previously the dairy sector was highly protected and procurement areas were demarcated.

It has increasingly become liberalized with more involvement of private players. This has led to more



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competition for procurement. There is no foreign player other than Nestle who has set up its own

back‐end for procurement. Setting up own procurement network is not only costly but also time

consuming for any foreign player entering India. It is therefore essential to have a local partner to

enter India to ensure consistent supply of raw milk to the dairy plant.

There are several dairies in India having well‐build procurement network but have a weak brand.

Most of these companies act as co‐packers to big dairy giants viz. Amul, Mother Dairy. Players from

the Netherlands can tie up with such companies either by entering into a Joint Venture with them

or by

acquiring

strategic

stake

in

such

companies. The Dutch players can add a lot of value in terms

of quality and safety of the product to the urban customers catered by these retail companies.

The pricing of milk in India is based on fat percentage in milk. Farm gate price of milk is lower in India

as compared to most of the European countries. Fat price per kg is more than twice that of SNF in

India. This clearly presents an opportunity for companies in the Netherlands to explore export

opportunities by setting up procurement / processing base in India for feeding its existing market

worldwide.

Milk production in India is cyclical in nature. The production of milk in the lean season/summer

months (April‐Sept) is 65% of flush season/winter months (Oct‐March). This creates a mismatch in

supply and demand during lean and flush months. There is huge demand for milk powder and butter

oil in the summer months mainly for reconstitution purposes. There exists an opportunity to export

these products from the Netherlands mainly during the lean season.

Infrastructure

There are a number of infrastructure related bottle necks in both the back end (procurement) and

front end (marketing) of the supply chain. Investments in back end are not undertaken by many

dairies partly due to long gestation period /uncertainty for returns. This is further compounded by a

lack of availability of BMCs (Bulk Milk Chillers), milking machines as well as know‐how on

management of large dairy farms. Huge investments are required to set up the infrastructure for

improving the back end network. However Amul and Nestle are two dairy companies in India which

have well‐established back end network. As part of the JV mentioned in farm related /procurement

related (above) players from the Netherlands could also invest in the supply chain infrastructure

to ensure availability of high quality milk on a sustainable basis.



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Value‐added products and brand development

There are very few brands in the Indian dairy sector with a pan‐India reach. Nestle’s product range

comprises baby foods, dairy whitener, curd, yoghurt, UHT milk (white milk and flavored milk). Amul

has the entire range of milk and milk products. There is immense scope for branded players,

particular international brands, in the Indian market. Products of international brands like Kraft,

Friesland‐Campina, Land O’Lakes and others have entered the Indian market either through

importers or through grey market channels. Some of the recent initiatives by foreign players in India

include Yakult and Danone for fermented milk products, Danone for nutritional milk drinks, Bongrain

through Dabon for cheese products etc

The high prices of these products restrict their consumption largely to high income households. For

example, Indian cheese from Amul sells at INR 350 (approx. EUR 5.4) per kg as compared to

imported cheese which has a price point of INR 1200 (EUR 18.5). Opportunities exist for European

companies to join hands with a local manufacturer in production for making value‐added products

customised for the Indian domestic market at an appropriate price band.

Dairy Equipments

Common dairy equipments used are plate heat exchangers, homogenizers, cream separators,

packaging machines, storage tanks etc. All these equipments are widely available in India and are the

mainstay of any dairy company dealing in selling fresh milk. For large scale plants (they usually prefer

a mix of domestic and foreign equipments), foreign players might be a preferred partner.

Some of the domestic companies in India are already exporting their products (e.g. milking

equipments, cans, milk testing instruments, bulk milk coolers etc.) to African and neighboring

countries in South Asia. This segment is growing at double digit rate. This can be an opportunity

worth exploring for players in the Netherlands.



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Chapter 3

Fresh produce supply chain

3.1 Production and demand for fresh fruits & vegetables (FF&V)

India is bestowed with varied agro‐climatic conditions in different regions, which is highly favourable

for growing a large number of horticultural crops such as fruits and vegetables. India is the world’s

second largest producer of fruits and vegetables. As per the latest available data (2007‐08), the

production of fruits and vegetables has been estimated at 63.5 million tonnes and 126 million

tonnes respectively. India’s share in worldwide fruit and vegetable production is about 10 per cent

and 13 per cent respectively.

Fruits

A wide range of fruits are produced in India.

Tropical and sub‐tropical Mango, banana, citrus, pineapple, papaya, guava, chiku, jackfruit,

litchi and grape

Temperate Apple, pear, peach, plum, apricot, almond and walnut

Arid zone Aonla, ber, pomegranate, annona and fig

India is the largest producer of mango, banana, chiku and acid lime. About 39 per cent of world’s

mango and 23 per cent of world’s banana is produced in the country.

Exhibit 3.1 ‐ Fruit production in India (million tonnes)

Source: NHB



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Exhibit 3.2 ‐ Fruit production in India (2007‐08)

Source: National Horticulture Board (NHB)

Vegetables

India is next only to China in area and production of vegetables and occupies prime position in the

production of cauliflower, second in onion and third in cabbage in the world. Important vegetable

crops grown in the country are tomato, onion, brinjal, cabbage, cauliflower, okra and peas.

Exhibit 3.3 – Vegetable production in India (millon tonnes)

Source : NHB

Fruits Area

(‘000 ha)

Production

(‘000 tons)

Share in total production

Banana 647 23205 37%

Mango 2205 13792 22%

Citrus 843 7574 12%

Papaya 80 2686 4%

Apple 264 2001 3%

Guava 178 1975 3%

Grapes

64 1677 3%

Pineapple 80 1216 2%

Sapota 150 1238 2%

Litichi 69 418 1%

Pomegranate 122 858 1%

Others 1071 6862 11%

Total 5775 63503



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Exhibit 3.4 ‐ Vegetable production in India (2007‐08)

Source : NHB

As per studies conducted in 2007 by ICRIER5

on the Indian horticulture sector, several Indian fruit

and vegetables are fairly competitive in the global market. These include fruits such as mango,

banana, grapes, papaya and guava, and vegetables such as onion, potatoes, peas and tomatoes.

Demand

A major shift in consumption patterns of fresh and processed fruits and vegetables is expected in the

coming decade. Demographic profiles of the consumers have been changing and their level of

disposable income and standard of living is on the rise. As per NCAER (National Council of Applied

Economic Research) surveys, about one third of the rural households could move to the middle

income group and above by 2010, leading to more demand for fruits and vegetables. As against the

recommended dose of per capita consumption of 120 gm of fruits/day and 280 gm of

vegetables/day, the present consumption is 97 gm and 195 gm respectively. The emerging food

retail sector, where F&V retail would account for c. 1% (1 million tonnes), has brought in a lot of

opportunities in the domestic sector. Market liberalization and increasing consumer demand has

also offered attractive opportunities for agricultural exporters from India in selected products.

5 Indian Council for Research on International Economic Relations (www.icrier.org)

Vegetables Area

(‘000 ha)

Production

(‘000 tons)

Share in total

production

Potato 1786 34463 27%

Onion 805 12157 10%

Tomato 572 10261 8%

Brinjal 566 9596 8%

Tapioca 270 9054 7%

Cabbage 265 5888 5%

Cauliflower 321 5797 5%

Okra 409 4193 3%

Peas 314 2560 2%

Sweet Potato 126 1146 1%

Others 2370 30774 24%

Total 7803 125887



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Regional distribution of fresh produce production

Indian fruit and vegetable production is distributed over diverse agro climatic conditions across

different states (See Exhibit 3.5).

Exhibit 3.5(a) : Main fruit producing states (2007‐08)

Exhibit 3.5(b) : Main vegetable producing states (2007‐08)

Source : National Horticulture Board (NHB)

Seasonality of production

Production of fruits and vegetables in diverse agro climatic conditions across India leads to

seasonality in terms of availability. For instance, cauliflower and green peas are highly seasonal while

cabbage and okra are fairly seasonal. Potato and onions are among the few vegetables which are

available

right

through

the

year

for

consumers.

In

case

of

fruits,

there

is

extreme

seasonality

in

case



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of mango and apple. There are large variations in prices due to seasonality. In India the seasonality

effects are further accentuated as storage facilities are both limited and expensive.

Exhibit 3.6 : Main fruit seasons in India

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

Mango

Papaya

Custard Apple

Pineapple

Banana

Guava

Tomato

Sapota

Grapes

Litchi

Orange

Sweet Lime

Grapefruit

Apple

Cherry

Plum

Pear

Apricot

Peach

Source : Industry sources, Rabobank research



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Intervention opportunities in production

In India, the productivity of fruits has remained low as compared to world average in case of apple,

stone fruits and oranges. Some of the measures for increasing productivity would include

introduction of high yielding strains/varieties of temperate fruit crops as well as replacement of old

and uneconomical orchards. Further, adoption of improved technologies in orchard management,

which include quality planting material, balanced nutrients and timely protection against major

insect‐pests and diseases and economic use of inputs like fertilizers, growth regulator and pesticides,

is highly recommended.

Exhibit 3.7 : Productivity comparisons

Product India (tonnes/ha) World average

(tonnes/ha)

Apple 7.65 13

Plums 1.27 4

Peaches/Nectarines 2 11

Apricot 0.9 7

Cherries 2 5

Papaya 8.75 N.A

Orange 9 17

Onion 11 17

Source : FAO

High density planting (HDP) is one of the important methods to achieve high productivity per unit

area both in short duration and perennial horticultural crops. Further, micro irrigation and

fertigation practices could enhance productivity and ensure judicious use of water and fertilizers.

There is also a dearth of standardized rootstocks of perennial fruit trees. There is a clear opportunity

for research institutes from the Netherlands to work with private corporates and research bodies in

India in developing new varieties of fruit with high shelf life, amenability for processing, suitability

for exports etc. There is need to standardize techniques for rapid propagation, evolve agro‐

techniques, efficient water management, integrated plant nutrient management systems and

integrated disease and pest management for all commercial perennial crops.

Also, in vegetables there are limited varieties suited for protected cultivation, value addition, etc.

Production technologies need to be developed for organic cultivation based on scientific

experimentation involving different disciplines to derive complete packages. There is a need for



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development of post harvest handling protocols for various fruits and vegetables for exports, for

storage and processing systems, for product diversification and value addition.

Protected cultivation in greenhouses harnesses the optimum natural resources through artificial

means for increasing crop productivity. Of the 100 large green houses, 12 green houses are near

New Delhi (covering 50 hectares), where the climate is extreme during winter and summer. There

are nearly 38 green houses in Bangalore, covering 200 ha. The state of Maharashtra alone has 99

greenhouses, of which 15 large greenhouses cover 115 ha and 84 small greenhouses cover 35 ha.

Low cost greenhouse technology has been developed for high quality flower production in hilly

states of Jammu & Kashmir, Himachal Pradesh, Uttaranchal and North Eastern states. In fact, there

are c. 8000 green houses of 100 sq m and close to 1500 green houses of 500 sq m in these states.

There are 362 low cost green houses established in Jammu & Kashmir for promotion of protected

cultivation of off season vegetables and flowers.

The constraint in adoption of greenhouses is mainly the high investment required on equipments.

Since capital cost is high (EUR 10.7 per sq m for hi‐tech green house) due to high interest rate and

consumers are reluctant to pay a higher price for the end product, cultivation is viable only for a few

crops. However, considering the advantages of greenhouses, there is ample scope for increasing the

area under protected cultivation, especially for high value flowers and off ‐season /exotic vegetables.

To keep pace with improved production and productivity, different machines have to be developed

for effective cultivation, intercultural operations, harvesting, grading, packaging and value‐addition.

For instance, development of mango harvesters, kinnow6

clippers, potato diggers, coconut peelers,

etc. have improved the efficiency of the growers. Development of machines are also required for

different specialized uses like cool sterilization (irradiation) for sprouting in potato and onion,

dehydration of different produce, vapour heat treatment (VHT) in major mango growing belts,

packaging of coconut water, banana fig and chip making machine etc.

3.2 Import and export trade in fruits and vegetables

Import trends in fresh produce

Imports of fruit and vegetables which could be of interest to players from the Netherlands have

been provided in the table below. Increasing import opportunities are predominantly in the

6 Orange variety grown in parts of North India



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temperate fruits such as Apples and Pears. There is clear seasonal window available for apple

imports from of December to July.

Exhibit 3.8 : Imports of leading items of fresh produce into India

Product 2007‐2008 2008‐09

Volume tonnes

Apple 58401 71204

Pears and quinces 8183 9577

Brussels’s sprout 3188 NA

Grapes

2723 2967

Kiwi 1400 1889

Melon (other than water melon) 628 787

Plums and sloes 580 698

Pomegranates 838 1803

Figs 213 79

Source : Ministry of Commerce, Government of India

Trade in imported apples

Imports in apples have been growing steadily since 1999 (after the trade liberalization). As per

industry sources, apple imports were close to 80,000 tonnes in 2008‐09. Apple imports have a

seasonality window of December to July. Imports are mainly from United States (variety mainly

Washington Red Delicious) followed by China (Fuji variety) and other countries such as Chile, New

Zealand and South Africa (varieties such as Royal Galla, Granny Smith, Golden Delicious, Pacific

Series and Red Chief). Also, among the Australian apples, Tasmanian apple (Hi Early and Top Early) is

in high demand.

Exhibit 3.9: Retail prices of import apples

Apple variety Origin EUR /kg

Green Apples (Granny Smith) US, Australia 1.8 to 3

Fuji China 1.1 to 1.5

Red Delicious (Washington) United States 1.8 to 2.2

Royal Galla New Zealand 1.5 to 1.8

Golden Delicious, Red Chief, Pacific series Chile, South Africa, US NA

Source: Rabobank analysis



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Based on the information gathered through market visits and anecdotal information, the breakup of

various costs and margins on imported US apples is shown in Exhibit 3.10

Exhibit 3.10 : Marketing cost and margins for imported US apples, 2007

Description INR per box of 20 kg

Import unit price, CIF* 550

Expenses incurred by importer on: 500

Tariff 300

Clearing 30

Freight 70

Commission of agent 100

Importer's margin** 200

Realization at wholesale market 1250

Expenses of trader 50

Carriage/Handling 5

Cold Storage (15 days on an average) 25

Market fee/Commission 20

Wholesale trader's margin*** 200

Sub‐wholesaler's purchase price 1500

Sub‐wholesaler's margin*** 200

Retailer's purchase price 1700

Retailer's expenses 100

Carriage/Handling 20

Transportation 50

Wastages 30

Retail margins*** 600

Consumer price** 2400

*Source: DGCIS

**Observed

market

price

of

US

apple

in

Delhi,

2007

***Calculations based on field visit information, import unit values, and retail prices

The total margin in the supply chain amounts to about 50 percent of the end consumer price. In fact,

the 50 percent customs duty on imports amounts to only 11.5 per cent in the final consumer price.

At the same time, the 50 percent trader’s margin in end consumer price represents a tariff

equivalent of about 200 percent on C.I.F. import unit value The value addition to the apples in terms

of waxing, grading, better packaging, traceability (and ocean shipping) is already included in the

import unit values. The apples are merely transported and distributed in India. In this context, with

limited value addition, a trader’s margin is extremely healthy and may reflect imperfections in the



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market. The transit time to India from various origins of imports and the CIF prices/20 kg box is as

provided below.

Exhibit 3.11 : Transit time for import apples


Exhibit 3.12 : CIF prices of import apples


Local levies and taxes such as VAT, Central Sales Tax in the respective states are applicable. In

addition to quarantine restrictions, the imported produce are required to mainly comply with PFA

(Prevention of Food Adulteration Act) which stipulates Maximum residue levels (MRL’s) for

particular pesticide residues. In case the relevant pesticide is absent, Codex Standard is followed.

Opportunities to import to India

Imports of fruits have shown a consistently increasing trend in the last eight years. For instance,

apple imports have been increasing at a CAGR7 of 50% for the last three years. Pears and stone fruits

trade has also seen rapid growth in the last few years. Other fruits with import prospects are grapes

and citrus. The demand for imported fresh fruit and vegetables is growing rapidly amongst urban

consumers, despite the fact that these products are two to three times more expensive than their

domestic counterparts. These consumers are also seeking a variety of vegetables such as iceberg

lettuce and brussel’s sprouts which has also seen high growth in imports, albeit on a small base.

Though the high perishability of the product is the limiting factor for regular import supplies, there is

certainly a huge potential for products which are amenable to longer shelf life through proper cold

7 Compounded Annual Growth Rate

Country Transit Time

Australia 24 days

USA 30 days

Chile 50 days

Country CIF price/20 kg box

US, Australia EUR 11‐15

Chile EUR 9.5 – 13.5

China EUR 9‐11.5



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chain management. This would present an opportunity for players in the Netherlands to adopt a

production tie‐up route for building the market in India.

Export trends in fresh produce

The major fruits exported in terms of quantity are grapes, mangoes, apples, pomegranates, bananas

and oranges. In value terms grapes and mangoes are the main fruits exported from India. Among

fresh vegetables, onion and potato are the most important ones both in terms of volume and value.

Tomatoes and pumpkins are other major fresh vegetables exported to the world. However, their

volumes are quite low. The main export destinations for fresh fruit and vegetables are neighbouring

countries such as Bangladesh, Nepal, the Middle East as well as South East Asia (Malaysia,

Singapore). Brinjal is exported mainly to European markets such as UK, Netherlands and France.

Exhibit 3.13 : Exports of fresh produce from India

Product Volume

(tonnes)

2007‐08

Value

(EUR Mn)

2007‐08

Volume

(tonnes)

2008‐09

Value

(EUR Mn)

2008‐09

Onions 1,008,606 188 1,670,186 291

Grapes 96,723 58 118,132 59

Pumpkins

45,829

21

71,283

33

Mangoes 54,351 23 83,703 27

Tomatoes 134,845 28 12,467 20

Potatoes 78,451 8 184,960 18

Pomegranates 35,175 17 34,811 18

Bananas 16,663 5 30,401 9

Apples 32,655 6 44,552 8

Green chillies 26,895 8 30,198 8

Lemons 16,223 3 29,493 6

Oranges 29,261 5 25,330 4

Papaya 10,880 2 13,834 3

Source: APEDA, 2009

Opportunities for exports of grapes, pomegranates, mangoes, bananas have increased the need for

implementation of scientific production and post harvest practices at the farm level. There is a huge

opportunity for players in the Netherlands to help Indian growers/exporters focus on improved

quality standards across the entire chain and cater to the import requirements in developed regions

such as the EU, US, Japan etc.



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3.3 Fresh fruit and vegetable supply chain in India

Multi‐layered marketing chain for FF&V

A typical supply chain for fruits and vegetables is multilayered with multiple intermediaries (range

from 4‐7). Fresh produce in India is marketed mostly through state government regulated

Agricultural Produce Marketing Committee (APMC) markets. APMC regulations require that the

purchasing of fresh produce takes place in a notified market and with registered traders

(commission agents). There are two charges levied on the marketed produce. First is the commission

paid to the commission agent and second is the market tax which goes to the market committee as a

payment towards using the premises and other capital works related to market development.

Exhibit 3.14: Fresh produce supply chain

Rabobank research


The local traders are the traders close to the farmers who procure the produce from the farms and

bring it to the market. Wholesalers at the APMC market sell the produce to the semi‐wholesalers /

retailers. These retailers include roadside and neighbourhood stalls and kiosks and doorstep delivery

by hand carts. The last link in the chain is the consumer. Marketing through traditional means is

characterized by little attention to grading, sorting and storage, weak institutions and poor handling

during loading, unloading and transport. The high percent of post‐harvest damage can largely be

explained by such poor handling of the produce. The fruit and vegetable supply chain differs

according to the type of the crop, nature of market which is being serviced and the proximity of

production to the market. The high profit margin of intermediaries is quite disproportionate to their

services as seen in Exhibit 3.15 below. The mark‐ups by each participant in the chain cause the

farmer to receive as little as 25‐35% of the price paid by the consumer.

Farmer

Trader /

Transporter

Village

Commission

Agent

Wholesaler Sub-

Wholesaler

Hand Cart Vendor

Roadside

Vendor

Retailer

Supermarket

Consumer

Market

Commission

Agent

Contract

Cultivation

Intermediate

Processor

Final

Processor

F&V Marketing Company



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Exhibit 3.15: Price build up for tomatoes (INR/kg)


Contract production in case of fruit and vegetables amounts to less than 1% of total production in

India. Amendment of the APMC act by several states has facilitated contract farming. There are

many success stories on Contract Farming which has helped growers increase their realizations.

Fresh produce retailing in India

Indian market for Fresh Fruit and Vegetables (F&V) is estimated at EUR 25 bn (INR 1.6 trillion).

Organised retailing of Fresh F&V is estimated at c. 1% of total production and is growing at the rate

of 30‐40%. With the modernisation of the Indian food retail and the entry of large organised players

(national and international), huge investments are being made in developing the back‐end. For

instance, large conglomerates such as Reliance, AV Birla and Bharti Group are increasingly working

with farmers directly and offering them an assured market, at profitable rates. Some are going

further by helping farmers to adopt better farming practices, and providing financial assistance to

help in improving production, productivity and quality.

Exhibit 3.16 : Initiatives taken in back‐end development

Player Initiative

Reliance Retail Reliance Retail has taken over a large number of farms in Maharashtra and Karnataka; has its own

cargo carriers for moving produce from the farm to food processing plants or retail outlets: has

invested in tracking systems to monitor the movement of goods and plan inventories; and has



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Player Initiative

entered into tie‐ups with food processing plants to ensure quantity and quality of output. Reliance

Retail is also evaluating setting up terminal markets across India. These would enable large back‐

end operations and create captive agricultural bases, either for their own retail outlets or for

supplying to others.

Bharti Wal‐Mart

Private Ltd.

Bharti Wal‐Mart Private Limited, is a joint venture between Bharti Enterprises and Wal‐Mart Stores

Inc. for wholesale cash‐and‐carry and back‐end supply chain management operations in India. This

would serve kirana stores, fruit and vegetable resellers, restaurants and other business owners. It

also will serve other retailers such as Bharti Retail, which is setting up a chain of stores in India that

are 100 percent owned and operated by Bharti Enterprises. Also, Bharti Retail has taken over a

number of farms in various parts of the country where it will undertake contract farming. Wal‐Mart

is expected to build up the back‐end extensively and bring in state‐of ‐the‐art technology to

strengthen the back end.

Choupal Fresh ITC’s Choupal Fresh has set up a complete cold chain to ensure the availability of fresh products in

the market, besides direct linkages with the farmers for sourcing farm fresh produce.

Aadhar (Future

Group)

Aadhar has formed tie‐ups with farmers for fresh produce supplies. The farmers come to its

distribution centers, do sorting and grading of fruits and vegetables. It is then transported to

Aadhar outlets.

DSCL (Business

house)

DSCL is sourcing and supplying fresh fruits and vegetables to various organized retail chains

through its established back‐end.

Khet‐Se

Agriproduce

India (P) Ltd

This is a joint‐venture between Total Produce, Ireland, one of Europe 's largest fresh produce

providers and Tata Chemicals, India’s leading chemicals and crop‐nutrition Company. Khet‐Se is a B‐

to‐B cash and carry business which has state‐of ‐the‐art facilities for fresh fruit and vegetables

sourcing, packaging and distribution across India Khet‐Se has plans to set up cash‐and‐carry

distribution centres across India. The company will buy fresh fruits and vegetables directly from

farmers at market price and distribute through the distribution centres to the wholesalers.

Mahindra

ShubhLabh

Services Ltd

(MSSL)

MSSL is supplying fresh produce to global retailers like Carrefour, Tesco, Albert Heijn, and

Sainsburry's; and Indian retailers like Reliance. It is now exploring growth opportunities in the fresh

produce supply chain space as well as joint ventures with major international supply‐chain

companies. This would help offer a bouquet of supply‐chain services and develop capabilities for

strong supply chain, logistics support and the infrastructure to back a successful retail venture.

MMSL has tied up with farmers for procurement and some farmer groups have formed grower

societies to sell to MSSL.

Source: Industry sources

The business models of these private players are based on investing in the complete chain from the

input level to the front end retail. The main components of this model are:

(i) rural facility (collection center / rural retail / agri service centre)

(ii)

distribution

centre,

and

(iii) retail end.



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The rural facility is essentially set up in semi‐urban and rural areas which has multiple functions: (i)

provide inputs and farm support services including seeds, fertilizers, plant protection chemicals,

extension support and other services such as lab testing, water testing, etc; (ii) retailing of fast

movable consumer goods (FMCGs), food items and consumer durables to the rural consumers; and

(iii) procurement centres for fruits and vegetables. The rural hubs of different retail firms have

different names such as Choupal Sagar (ITC) or Aadhar (Future Group).

The distribution centre or collection centre is usually located in an urban area close to the stores.

FFVs

procured

from

the

various

rural

hubs

are

collected

at

the

distribution

centre

where

the

produce is graded, sorted, packed and sent to the retail outlets. As the retail chains are relatively

new, the produce is procured from multiple sources including direct procurement from farmers,

regional APMC markets and other preferred suppliers. Over time, as the supermarkets develop their

backend linkages, the tendency will be to source directly from farmers or preferred suppliers

because it is difficult to have control over the quality of produce procured from APMC markets.

Finally, the last step in the chain is the retail store in urban areas. This has been set up by players

such as Godrej (Nature’s Basket), Reliance Industries (Reliance Fresh), ITC (Choupal Fresh). Target

customers in certain cases would also be wholesalers and/or direct consumers.

Organized wholesaling in Fresh produce

Other cases of investments in the back end infrastructure have been in “back end aggregation”,

specializing and investing to be able to source and supply quality produce to supermarkets, retailers

and institutions. Here the business model is focused on procuring, storing and distribution.

Adani Agri Fresh Ltd (AAFL)

AAFL has set up state‐of ‐the‐art infrastructure for grading, sorting and controlled atmosphere

storage of apples (18000 tonnes) in three locations in Himachal Pradesh, one of the main apple

producing regions. They procure directly from farmers and store the fruit to capture the off ‐season

demand.

Metro Cash & Carry India Pvt. Ltd

Their operations include wholesaling of all consumer items including food products. Fresh fruit and

vegetables is also a part of their operations. Currently, they have stores in Bangalore and Hyderabad

and plan to open stores in other metropolitan areas including Kolkata.



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Export chains

A seasonal window from April‐May has provided huge opportunity for export of grapes from India.

Compliance to GLOBALGAP had been a critical success factor in this trade. Major initiatives on this

front are MSSL (Mahindra Shubhlabh Services Limited), Namdhari’s Fresh, Field Fresh, Freshtrop and

Euro Fruits. The firms have developed tight quality control chains to meet the export requirements.

As the trade is highly knowledge intensive, these players had been able to build up a loyal captive

farmer base consistently supplying high quality produce to them. These players have also invested in

state‐of ‐the‐art cold chain infrastructure, packing and grading houses, cold stores and refrigerated

trucks, along with highly skilled post‐harvest manpower to meet the quality parameters of the

importers.

Value addition in FF&V chain

Primary processing in FF&V

Grading of horticultural commodities is an important aspect particularly from marketing point of

view to get better returns. However, it is largely not being followed at the farm end in India due to

the lack of awareness and knowledge. Manual grading to a certain extent is usually undertaken by

sub‐wholesaler or retailers.

Some states Governments have taken steps in setting up grading and sorting facilities. For example,

the Government of Andhra Pradesh is providing financial support for establishment of packing

houses and packing materials. In Himachal Pradesh and Jammu and Kashmir, grading/packing

centres particularly for apple have been established. There are 11 grading and packing centres in

Himachal Pradesh with an installed capacity of 37,500 tonnes. However, most of these packing

houses need to be upgraded technologically. Maharashtra, a leading state in production of

important fruits like mango, banana, grapes, orange, pomegranate, onion etc, has set up various

post‐harvest infrastructure facilities such as The Post‐harvest Technology Institute in 1993, a pre‐

cooling‐cum‐cold storage facility along with a packing house with mechanized grading/packing

facility for the promotion of export of fresh mangoes and vegetables. Similarly, in Punjab, PAGREXCO

(Punjab Agri Export Corporation Ltd.) has set up five mechanical sorting, grading, waxing centres

with a capacity of 2 tonnes/hour for kinnow.



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APEDA8, New Delhi, has also recognized 106 pack houses in different states which have facilities of

international standards for grading and packing of fruits and vegetable particularly for exports. After

due verification recognition certificates have been issued by APEDA to these pack houses.

Exhibit 3.17 : State‐wise number of pack houses recognised by APEDA

Maharashtra 97

Andhra Pradesh 5

Uttar Pradesh 2

Karnataka 1

Gujarat 1

Total 106

Source: Planning commission

Terminal markets

Due to reforms in the APMC (Agricultural Produce Marketing Act) act, many state governments are

in the process of developing terminal markets in collaboration with private players. These markets

have been planned in Mumbai, Nasik, Nagpur, Chandigarh, Rai (Haryana), Patna, Bhopal and Kolkata.

They are based on the “hub and spoke” model, with a number of collection centers where the

farmer’s produce will be collected, cleaned and graded according to its quality. They would also have

electronic auction halls, display areas, viewing galleries, transportation corridors, cold storage units,

and loading and unloading areas. The farmers would have a choice for sale of their produce: through

electronic auctioning or direct sale to exporters, processors or retail chain network. Produce from

the terminal market is either sold to retailers/consumers or processors, or assembled for despatch

to distant markets and export. Facilities for forward trading in specific commodities also take place.

Many private players have expressed interest for developing terminal markets.

Cold Chain in FF&V

As per the latest data available with the Government of India, there were 5,101 cold stores in India

with a total capacity of 21.7 million MT. Out of the total cold storage capacity in the country, nearly

66 per cent (14.3 million MT) is confined to two states i.e. Uttar Pradesh and West Bengal.

Development in cold chain infrastructure during the last decade has been driven primarily by

proteins such as meat, fish and dairy products. However, it is still largely inadequate to meet the

current requirements.

8 Agriculture and Processed Food Products Export Development Authority



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Exhibit 3.18: Summary of number of cold storage in India – State wise (Dec 2006)

States

No. of

Units

Capacity

(‘000

MT)

Share

of

total

capacity (%)

Average

capacity (MT)

Uttar Pradesh 1567 8932 41.0 5700

West Bengal 434 5340 24.5 12304

Gujarat 374 974 4.4 2604

Bihar 238 910 4.1 3825

Andhra Pradesh 276 821 3.7 2974

Madhya Pradesh 179 762 3.5 4261

Maharashtra 437 511 2.3 1169

Rajasthan

106 312 1.4 2944

Karnataka 138 253 1.1 1835

Other States 1352 2878 16.0 2802

TOTAL 5101 21693 100.0 4253

Source: DMI

The private sector is the largest segment accounting for over 90 percent of total number of cold

storages and c. 95 percent of the total cold storage capacity in India. There are 4,609 private cold

storages with a total capacity of c. 20 million MT.

In India, more than 80% of the capacities are utilized for potatoes only and 17% under multi

commodity. UP, West Bengal and Punjab are the top ranking states in terms of cold storage capacity

for potatoes. Even with such large tonnages for potato, these are still estimated to be inadequate

and cater to only 40‐42 per cent of the total cold storage requirements for potato.

Multi‐purpose cold storages account for ~26% of the total number of cold storages. These are also

used for potato storage besides chilies, dry fruits, fruits, spices, vegetables etc. Karnataka has the

largest number of multi‐purpose cold storages followed by Andhra Pradesh and Maharashtra. Cold

storages storing fruits and vegetables account for less than 1 percent of the total cold storage

capacity.

Most of the cold stores are single chambered, and the technology in use has also been largely based

on old technology resulting in high energy wastages and escalation in cost of storage. The

government had been supporting the construction of these large single chambered cold storages

through various schemes including those through the National Horticulture Board (NHB).



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Controlled Atmosphere (CA) storage capacity in India currently is about c. 25000‐30000 tonnes and

is limited due to prohibitive set up cost (EUR 1200/MT). The technology which has been put to use in

the last two years by few private players has enabled apple farmers to reduce the wastage as well as

distress selling. There has been a clear increase in realisation, thanks to CA storage and marketing

the apples during off season times.

There is also limited use and availability of ripening chambers to ensure uniform ripening in fruits

particularly banana, mango etc. At present, ripening of certain fruits like banana, papaya and chikoo

are largely through traditional methods with use of calcium carbide. This results in degradation in

quality of fruits besides creating health hazards for the consumers. Further, the FF&V industry also

uses blankets and packaged pellet sachets of an ethylene adsorbent to control ripening.

Agri logistics infrastructure and refrigerated transport

The diverse agro climatic production regions and ensuing seasonality, coupled with limited storage

facilities leads to high variation in prices and significant value loss in the Indian fruit and vegetable

sector. A multi‐modal logistics network between various production centres and consumption

centres that reduces transportation time and temperature abuse is totally absent in India.

The refrigerated container market in India has been dominated by a handful of medium sized

companies and is at a nascent stage of development. It is estimated that only about 2 million tonnes

fresh fruits and vegetables goes through the reefer mode. This leads to huge quality and value loss.

Private players have been reluctant to invest in refrigerated transportation infrastructure due to a

number of reasons

A refrigerated truck costs double that of a normal truck for a 10 tonne capacity depending on

level of technology (USD 0.03‐0.05 mn Vs USD 0.01‐0.02 mn per truck).

Also the costs of operating the refrigeration system is high given that it has to be diesel based in

absence of charging points. Further the lower speeds for travel and numerous stoppages add to

the cost.

There is an increase in non‐productive movement due to absence of return perishable cargo.

Due to high operating cost (nearly two and half times that of dry product transportation)

transporters are unable to tap the F&V market that is price sensitive.

There is low awareness among the farmers/consumers regarding the benefit of transporting

perishable through reefer containers.



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Reefer trucks are not in use throughout the year due to seasonal nature of perishable

produce/products.

3.4 Institutional framework governing the horticulture in India

Foreign Direct Investment

FDI has been permitted up to 100 percent under the automatic route for floriculture, horticulture,

cultivation of vegetables and mushrooms under controlled conditions and services related to agro

and allied sectors, animal husbandry, pisciculture and aquaculture etc. Also, FDI up to 100 percent

under automatic route is allowed for infrastructure facilities like cold storage, transportation,

warehousing and also for infrastructure development in processing /storage activities. Ever since the

government permitted 100 percent FDI in cash and carry formats, the sector has attracted

investments from foreign players such as Metro and Wal‐Mart.

Department of Agriculture & Co‐operation, Ministry of Agriculture (DAC)

This department is the nodal agency for the development of the horticulture sector in India. The

horticulture division under this department implements its programmes through the state

departments of horticulture. At present, horticulture crop programmes forms around 30 per cent of

the total outlay for agriculture development of DAC. A Central Institute of Horticulture has been set

up at Mediziphema, Nagaland for effective dissemination of technologies and capacity building.

Indirect organizational support for horticulture development is also being provided by two agencies

in the Ministry of Agriculture, viz., National Cooperative Development Corporation (NCDC) and

National Agricultural Cooperative Marketing Federation (NAFED)

National Horticulture mission (NHM)

NHM was launched in 2005‐06 by the Government of India to promote integrated development in

horticulture, to help in coordinating, stimulating and sustaining the production and processing of

fruits and vegetables and to establish a sound infrastructure in the field of production, processing

and marketing with a focus on post‐harvest management to reduce losses. The NHM provides

support for the setting up of different types of markets viz. wholesale markets, rural markets, direct

markets. The setting up of the terminal markets has also been conceptualised under NHM.



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National Horticulture Board (NHB)

NHB promotes integrated development in horticulture, assists in development of post harvest

management infrastructure, promotes production and processing of fruits and vegetables,

strengthening of market information systems and assists in R&D programs in cultivation and

processing. NHB’s financial schemes are directed towards commercial horticulture and infrastructure

related to post harvest techniques.

Technology Mission for Integrated Development of Horticulture in North East Region & Himalayan

States (TMNE)

The Technology Mission was launched during the financial year 2001‐02 to achieve overall

development of horticulture in various states to harness the potential in the above region.

Agri‐Export Zones (AEZs)

APEDA9

under the Ministry of Commerce is implementing the scheme of Agri Export Zones with a

view to promote agricultural exports from the country and ensure remunerative returns to the

farming community in a sustained manner. AEZs are intended to take full advantage of a particular

produce/ product located in a contiguous area for the purpose of developing and sourcing the raw

materials, their processing/ packaging, leading finally to exports.

Ministry of Food Processing Industries (MOFPI)

MOFPI is the main central agency of the Government responsible for developing a strong and vibrant

food processing sector. There are various financial schemes for technology

upgradation/establishment/modernization of fruit and vegetable units.

Ministry of Rural Development

This ministry implements expansion of area of horticultural crops under employment guarantee

scheme.

NABARD10

NABARD is an apex institution accredited with all matters concerning policy, planning and operations

in the field of credit for agriculture and other economic activities in rural areas. It is an apex

9 Agriculture and Processed Food Products Export Development Authority

10 National Bank for Agriculture and Rural Development



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refinancing agency with refinance facilities for horticulture production, food processing and other

agri infrastructure.

Currently there are multiple departments engaged in horticultural activity in various ministries e.g.

Ministry of Agriculture (NHM, TMNE, Micro irrigation, NHM, NHB, CDB11

& NBB12

), Ministry of

Commerce (APEDA, Coffee Board, Rubber Board, Spices Board & Tea Board), Ministry of Food

Processing Industries and Ministry of Rural Development.

Schemes and programmes from these Central Government ministries and other schemes from the

state department of agriculture cover a broad range of activities in horticulture which include

-

Production (Hi Tech horticulture, Micro irrigation)

-

Processing (Capital investment subsidies)

-

Exports (Transport assistance)

In case of certain schemes, departments under different ministries coordinate their efforts. For

example, the Ministry of Food Processing Industries and APEDA are jointly working to realise

possible synergies and convergence between Mega Food Parks and AEZs.

3.5 Opportunities for intervention in value addition in the FF&V chain

Organised retail

Organised fresh produce retail in India has a tremendous potential for companies in the

Netherlands. Opportunities exist for collaborating / investing in development of fresh produce retail

chains in backend aggregation, cold chain logistics, demand forecasting, resource planning and

advanced management systems.

Infrastructure requirement

Developing an efficient supply chain for perishable horticulture crop is a pre‐condition for the

growth of the sector. Fruit, vegetable and flowers require sorting, grading and then pre‐cooling

before these are transported to far away destinations. This requires huge investment in post harvest

management infrastructure.

11 Coconut Development Board

12 National Biodiesel Board



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A.

Terminal markets

As per a Planning commission report in 2007, it has been proposed that at least one terminal market

complex (highly capital‐intensive projects with investments ranging between USD 18‐23 mn

including all post harvest infrastructure) be established in each state. In addition to the above, it is

also been recommended that a total of thirty terminal markets be established across cities with a

population of 0.5 million or more. Each of these would be set up at an outlay of USD 11 mn. The

above terminal markets are expected to be set up with private sector participation and would serve

as export hubs as well as supply centres for the local market .

B.

Integrated pack houses

There is increasing demand for integrated pack houses with primary processing facilities for washing,

sorting, grading, packing, cold storing etc. They also need to be equipped to handle various fruits

and vegetables products with multiple grading and sorting lines.

C.

Cold storage/Controlled Atmosphere

The development of adequate pre‐cooling/cold storage capacity/cool chain would help not only in

increasing the shelf ‐life and minimizing post‐harvest losses through proper storage but also help

farmers in taking timely marketing decisions, overcoming seasonality factor by enhancing marketing

season, avoid gluts, help in price stabilization, prolong supply of raw material to processing

industries, besides reducing post‐harvest losses. Modified and controlled atmosphere technologies

for storage of produce for a longer period are essential for effective marketing of the perishable

horticultural produce.

D. Ripening Chambers

In

order

to

ensure

uniform

ripening

of

the

produce,

optimal

and

controlled

ripening

conditions

have

to be initiated and maintained in efficient ripening chambers which have to be created near bigger

consumption centers. This would add considerable market value to the produce.

E. Refrigerated transport

India is estimated to need about 5,000‐14,000 refrigerated containers of standard TEU size (with

about 0.24 million sq. meters using solar PV panels fixed on their rooftops to be totally independent

of the power grid or DG sets using fossil fuels), valued at EUR 390 million, to transport the freshly

harvested produce, placed strategically at various locations in the farms all across the country.



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Refrigerated containers score substantially over conventional refrigerated trucks in terms of

suitability for this application in Indian terrain.

F. Multimodal logistics network

An end‐to‐end transport network linking the production centres and the consumption centres would

reduce the seasonal and regional price variations considerably, besides improved quality and shelf

life of the produce. This network should be developed on the basis of multi modal logistics concepts

i.e. by using different modes such road‐rail‐sea‐air according to the different target markets.

Estimated investments required along the fresh produce supply chain

The envisaged investments in the end‐to‐end value chain of fruits and vegetables is covered in the

following table. This offers a potential opportunity for the companies from the Netherlands to invest

and/or provide technology:

Exhibit 3.19: Region wise estimate of capacity requirement for infrastructure

Type of Infrastructure Capacity (MT) Rate

(INR /MT)

Rate

(EUR/MT)

Total cost

EUR Mn

North Zone

Integrated Pack House 2160 800000 13049 28

Integrated Ripening chambers 1635 750000 12234 20

Upgradation (including pre‐cooling,

sorting and grading) Creation, and

revival of Potato Cold Stores

1786400 6000 98 174

Deep Freezer 36000 35000 571 21

Total Cost in EUR mn 243

South Zone Integrated Pack House 2715 800000 13049 35

Integrated

Ripening

chambers

3615

750000

12234

44


East Zone Integrated Pack House 3335 800000 13049 44


Upgradation (incl.pre‐cooling,

sorting and grading) Creation, &

revival of Potato Cold Stores

1250000 6000 98 122

Total Cost in EUR Mn 178



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----------------------------------------------------------------------------------------------------------------


Source : Ministry of Agriculture, Rabobank research

Reefer transport

Establishment of a fleet of 1,000 refrigerated containers of various size and capacities is required at

an average investment of EUR 40000 per container (including facilities for its movement and co‐

Type of Infrastructure Capacity (MT) Rate

(INR /MT)

Rate

(EUR/MT)

Total cost

EUR Mn

West Zone Integrated Pack House 6540 800000 13049 85


Upgradation (including pre‐

cooling, sorting and grading)

Creation, and revival of Potato

Cold Stores

347200 6000 98 34


Hilly

Areas


Controlled Atmosphere Chambers 100000 70000 1142 114


Tribal

Areas



North East


CA Chamber 3000 70000 1142 3


Establishment of Mega Perishable Commodity Complex at major

consumption cum export centers

Integrated Multi Product Multi

Purpose Commodity Complex (6

numbers, one each in Delhi,

Mumbai, Kolkata, Chennai,

Bangalore and Nagpur)

300000 40000 652 195

10000 70000 1142 11


Grand Total in EUR mn 1026



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----------------------------------------------------------------------------------------------------------------


ordination etc). It is also proposed that 1,000 mobile cooling units (EUR 40000 per unit) be set up for

providing on‐farm/farm based cooling facilities to reduce the temperature of the produce and make

it amenable for climate controlled storage thereby enhancing shelf life and quality. This would lead

to a total investment of EUR 80 mn, with significant share from private players.

Other investment envisaged in the development of supply chain infrastructure

1)

Capacity Building in pre‐harvest and post‐harvest management for farmers

2) Human Resource Development (training to various personnel in various government

departments) to manage infrastructure

3)

Research and Development assistance to State Agricultural Universities (SAUs) and other

reputed institutions

National Centre for Cold Chain Development (NCCD)

It has been proposed that a National Centre for Cold Chain Development be set up under the

National Horticulture Board.

Thus, a total investment of EUR 1211 mn is projected for the supply chain infrastructure

development up to 2012 including contribution of private sector. As a result, companies from the

Netherlands involved in global sourcing and trade of fruits and vegetable, technology providers and

equipments manufacturers in cold chain would have potential business opportunities in the areas

mentioned above. Moreover, the National Centre for Cold Chain Development and Multi modal

logistics network set up would lead to potential advisory opportunities for organisations/ institutions

in the Netherlands which are involved in consultancy, research and education in the agri logistics

and cold chain development.

Conclusion and road map for players from the Netherlands

With favourable policy on foreign investment in India, players from the Netherlands have substantial

opportunities in fresh fruit and vegetable industry in India. In view of increasing demand in

streamlining the supply chain in FF&V from the emerging organised retail business and also various

initiatives from the government machinery to develop horticulture in India, expertise of the

Netherlands in the sector could be optimally used.



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An indicative road map would be as follows

a)

Opportunity identification

Identify potential industry players in the Netherlands with matching competencies to offer in the

FF&V infrastructure development in India

b)

Partner Search

Identify potential partners for collaboration in the intervention areas in the entire gamut of supply

chain from production to markets. This could include

Private sector players with focus and initiatives in quality improvement and aggregation

Central government bodies

State departments

State Agricultural universities

c) Partnering for value creation

Various options for value creation in FF&V chain exists such as;

Offering technological expertise in specific area

Offering products/equipment/software in FF&V chain

Tie up with local players for market entry in FF&V market

o Modern retail

o

Institutional markets

o Exports



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Chapter 4

Floriculture

4.1 Introduction to the Indian floriculture market

The INR 10 bn13

Indian floriculture industry is growing at a rate of 21% per year (2007‐08). The Indian

floriculture industry has transformed itself from a small scale household gardening business to a

commercially viable enterprise in the last decade. Currently, floriculture is recognized as a lucrative

profession. It is an important income generating activity for small farmers and offers an

economically viable diversification option for corporates in the agribusiness sector.

Cut flowers and ornamental plants play an important role in the floriculture industry. Though India’s

contribution to the cut‐flower market is negligible as of now, it has been growing steadily for the last

couple of years. The chain which includes flower growers in India (especially for fresh cut flowers like

gerbera, gladiolus, tuberose, lilium and rose), flower exporters of fresh cut flowers, flower

wholesalers and wholesale suppliers of cut flowers, is being built rapidly across regions leading to an

intricate network of interdependent individuals and companies.

4.2 Production

The major flowers grown in India are marigold, aster, roses, tuberose, gladiolus, jasmine, crossandra

in open field and gerbera, carnation, roses, anthurium, orchids etc. under green house conditions.

The wide range of climatic conditions in India makes it a suitable destination for production of

flowers throughout the year. More than 50% of the floriculture units are based in South zone mainly

in Karnataka, Andhra Pradesh, Tamil Nadu. (Refer Annexure for a map of India showing the various

states.) Also West Bengal, Maharashtra, Rajasthan have large areas under floriculture. The domestic

flower production (loose, cut and dried) is increasing year on year. Moreover, India has a strong and

rapidly growing domestic market.

13 ANI, December 2008



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----------------------------------------------------------------------------------------------------------------


Exhibit 4.1 Area and production of flowers

Year

Area (000'ha)

Production

Loose14flowers (000' tonnes) Cut flowers (million numbers)

2000‐01 98 556 804

2001‐02 106 535 2565

2002‐03 70 735 2060

2003‐04 101 580 1793

2004‐05 116 659 2071

2005‐06 126 694 2762

2007‐08 160 870 4341

Source: National Horticulture Board (NHB); APEDA

As of 2007‐08, the area under cultivation of flowers is 160,000 hectares and has grown at a CAGR of

8.2% since 1993‐94. Of this, 500 ha of greenhouse based cultivation produces around 5% of total

domestic flower consumption. In fact, EUR 72 million worth of investments have been made in the

Indian floriculture industry during the last decade.

The economic growth and high‐income elasticity for exotic flowers is expected to result in greater

demand in the near future. Analyzing this future need, enterprising farmers and corporate houses

have ventured into hi‐tech horticulture viz. protected cultivation under poly houses. The protected

cultivation of flowers is a widely practiced technology of temperate origin and has made its entry in

the other parts of the world, where this technology is less known.

Key crops under protected cultivation in India are roses, gerbera, orchids etc. Gerbera cultivation is

an area where there is a huge opportunity in the domestic market. States like Karnataka, Tamil Nadu

etc are the leading gerbera producing states in the country. Orchids have also been grown under

poly houses in India. Majority of the cultivated orchids are native of tropical climates and are found

in abundance in the state of Assam, Meghalaya, West Bengal, Karnataka and Kerala. Kalimpong,

Shillong, Trivandrum, Bangalore, Yercaud and almost all the coastal areas of India are suitable for the

cultivation of orchids. The domestic market for orchids is currently small but growing at a rapid rate.

The current business model prevalent in India is that of forging Joint Ventures with foreign players

for technology (equipments, varieties, planting materials etc) and market linkages. The secured

14 Loose flowers are the traditional flowers like marigold and chrysanthemum which are grown and sold loose by weight. In most parts of

the country only local varieties are grown for generations. Jasmine flowers, known for its aroma, are also quite popular as loose flowers.



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----------------------------------------------------------------------------------------------------------------


supply of quality produce is offered by the Indian partner in the JV model. Some of the global players

who have presence in Indian markets are Pressman, Schreurs, Kordes etc. These players provide

planting materials to Indian growers along with the required market linkage for the end product.

Cactus is another product which offers a huge opportunity in India. At present, there are very few

large cactus nurseries in India. They have large collection of Indian succulents, including the species

belonging to the extremely rare Genus Caralluma family. There are also some private nurseries

operating in North India (Kalimpong). Though the domestic demand for cactus is currently small, it is

growing at a rapid pace in the last few years.

State wise production trends for cut and loose flowers

Several states have emerged as major flower‐producing zones. These include Maharashtra,

Karnataka, Tamil Nadu, Andhra Pradesh, West Bengal, Uttar Pradesh, Haryana and New Delhi. While

Tamil Nadu has the highest acreage under flowers, Bihar has the highest productivity (it is a small

producer though), followed by Haryana. Moreover, many other states, notably the southern ones,

excel in the production of high‐quality flowers which are in greater demand in the domestic and

export markets.

Exhibit 4.2 State wise area under floriculture (2007‐08) – (total area of 160,000 ha)

Source: NHB, 2008

In terms of volume, Tamil Nadu and West Bengal are the leading states in terms of loose flowers and

cut flower production respectively.



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----------------------------------------------------------------------------------------------------------------


Exhibit 4.3 Major loose flower producing states ‐ (total production of 870370 MT)

Source: NHB,2008

Exhibit 4.4 Major cut flower producing states ‐ (total production of 4341 million numbers)

Source: NHB,2008

The

Pune

/Lonavala

region

in

Maharashtra,

is

the

leading

rose

exporting

region

in

the

country.

The

region exports about 4.5 to 5 million rose stems during the Valentine's Day season.

4.3 Demand trends

The export of cut flowers from India has added an important dimension to the flower trade in the

country. Another dimension of this growth has been the increase in flower retail shops across the

country. In addition to the small vendors selling flowers from buckets on roadsides, there are many

up‐market shops and flower boutiques in major metros. The large supermarket/hypermarket retail

chains across the country are expected to further stimulate growth. The key markets for flowers



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include Bangalore, Mumbai, Delhi, Chennai and Chandigarh. This kind of home market is a unique

strength for India. Many of the other developing countries producing flowers for export, such as

Ethiopia and Kenya, do not have such an advantage. The Indian floriculture industry is emerging as

an attractive sector for investments, in view of high returns per unit area15

.

4.4 Legal and taxation aspects

There is currently no excise duty16

and Cenvat17

(Central Value Added Tax) for fresh flowers, roses,

carnations, orchids, chrysanthemums, cut flowers, flower buds for boutique or ornamental purpose,

fresh, dried, dyed, bleached, impregnated or otherwise prepared. For decorative plants made of

artificial flowers and products manufactured out of artificial flowers there is an excise duty of 3%

and Cenvat of 10%. Overall customs duty on imports is 60% and there is cess (tax) as below:

• Carnations 3%

• Roses 3% (cut, fresh, dried, bleached, dyed etc.)

• Flowering plants (excluding roses and rhododendrons) 3%

• Grafted roses 3%

• Carnations, orchids, chrysanthemum cess 3%

•

Cess for flowers other than mentioned above is nil

There is no export duty on floriculture products. Indian cut flowers face a higher import duty in

Europe during May‐October.

4.5 Government initiatives

Some of the initiatives taken by the Government of India in the floriculture space are :

Flower Auction Centre at Bangalore

The auction market in Bangalore is spread across 5.11 acres. There is an automatic cold storage

system with a capacity of handling 250,000 stems. The centre is equipped with an internet enabled

auction process linked to an online accounting process. It is run by the International Flower Auction

15 Estimated returns (Internal Rate of Return) as high as 45‐50% as per industry sources, 2008

16 tax levied on manufacture, sale, or use of locally produced goods 17

paid on the products manufactured, the tax paid on inputs, raw materials, capital goods and input services‐ utilized in manufacture of

final products of a manufacturer



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----------------------------------------------------------------------------------------------------------------


Bangalore Ltd (IFAB Ltd). There are six new Agri Export zones for floriculture been planned; two in

Tamil Nadu, one each in Uttaranchal, Maharashtra, Sikkim and Karnataka.

Cold storage facility at key Indian airports

The Government has provided infrastructure required for the cold storage facility at the key airports

namely New Delhi, Mumbai, Hyderabad, Bangalore, Chennai, Trivandrum and Cochin.

Market Facilitation Centre at Aalsmeer, The Netherlands

To provide visibility for various floricultural products from India to international buyers, Government

of India has established a market facilitation centre at Aalsmeer. The Government provides

assistance in designing experiments to simulate the perfect logistics chain from farm to market. The

centre also provides assistance to new entrants for fresh registrations at various European auctions.

4.6 The India advantage in floriculture

Due to the technological advancements, especially in the Northern Hemisphere, the flower

production

was

perfected

under

protected

environments

with

state‐

of ‐

the‐

art‐

facilities

for

micro‐

climate management. On the other hand, favorable environmental conditions in other parts of the

world helped promote flower production without much microclimatic manipulation. Increasing

energy and labor costs coupled with stringent environmental regulations are encouraging leading

producers from the developed countries to enter into off ‐shore production centers in the developing

world. As a result of this trend, Indian entrepreneurs ventured into floriculture business, especially in

sourcing technology, and forming alliances with some of the leading global players or entering into

buy–back agreements. Several large and medium corporate houses ventured into this activity in late

1980s and early 1990s.

The significant advantages that India has to offer are:

The diversity of agro climatic zones available in the country presents it with a capability to

cultivate a variety of tropical and temperate flowers.

India has wide variety of soils suitable for growing various crops, which reduces the dependency

on costly artificial media.



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India enjoys the advantage of a favorable agro climate, cheap and skilled labour, and cheap

arable land

Abundant sunshine throughout the year especially in autumn and winter is perhaps a blessing for

year‐round production of the crop without depending on artificial light and related cost

escalation due to additional energy inputs.

There is good growth potential in the domestic market on the back of the consumerism boom in

urban India.

India is relatively close to large markets like Japan, Australia and emerging markets like the

Middle‐East.

In rose (main cut flower for India in export trade), India has a shorter production cycle (only 45

days) of pruning to harvesting compared to 55‐60 days in Kenya and Ecuador. Hence precise

programming of flowering is possible in Indian conditions that meet peak market demands.

During the peak demand worldwide in November‐March (Christmas, New Year Day, Valentine’s

Day etc.), the weather in India is quite conducive for top quality flower production. At the same

time unlike other African countries, this period is free from adverse climatic disturbances like

unpredictable monsoon or rain storms.

4.7 International market

Europe, North America and Far East have been the major consumers and suppliers of floriculture

products in the world. However, in recent times while the demand continues to remain firm in the

western world, cheaper imports are becoming a major source of supply. This is due to high costs in

setting up floriculture projects in these western markets involving expensive glass houses, heating

and lighting equipment, less‐labour oriented technology and catering to environmental regulations.

These high investments may not be applicable in many tropical countries with higher altitudes like

India, where the climate is naturally conducive to grow year around (warm days, cool nights, longer

hours of sunshine etc). This has led to production base shifting to third world countries in South

America, Africa and Asia (Ecuador and Colombia in South America for North American markets;



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----------------------------------------------------------------------------------------------------------------


Kenya and Ethiopia in Africa for European markets; India, Thailand, Korea in Asia for Far East Asian

and European markets). Cross‐continent trade is limited because of high air freight costs.

During the year 2007, European countries imported a total USD 13.6 billion worth of floriculture

products of which about 17% came from outside of Europe. New areas of demand are also emerging

in fast developing countries in Eastern Europe and Asia. This huge market space highlights the

growth opportunities in the sector for Indian floriculture companies.

At present, India’s share in the world trade is about 0.18%. Indian floriculture industry has been

shifting from traditional flowers to cut flowers for export purposes. India’s export of floriculture has

increased from INR 2900 million (EUR 45 million) in 2005‐06 to INR 3688 million (EUR 57 million) in

2008‐09. India majorly exports to US, Japan, U.K, Netherlands and Germany. Trade liberalization has

not only facilitated imports of latest technology, but also encouraged and enhanced import of

internationally acclaimed planting material of different varieties. The Government of India has made

various provisions and introduced a variety of incentives helping to establish 100% Export‐Oriented‐

Units (EOU’s) resulting in a vibrant floriculture industry in India. The increasing corporatization of the

sector could help India become a big player in the global floriculture market in the long term.

Along with the export industry, the growing demand in the domestic market also holds promise for

the future. The present market is estimated to be c. INR 10 Billion (EUR 153.8 Million) and its further

progression can facilitate absorption of technology and experimenting with new products.

Target market for floriculture exports

Previously most exporters have focused only on the EU as a preferred market for sale through the

auctions. However, over the past few years exporting units have developed and increased their

concentration in the Japanese and Australian markets. Export realizations over the past five years

from the EU have displayed a declining trend whereas realizations from Japan, Australia and New

Zealand have been increasing.

While the focus is slowly shifting to different markets, EU remains an important destination for

India’s cut flowers which is evident in the fact that Europe together with Japan, accounts for 76% of

the total Indian cut flower export realizations and 88% of the total cut‐flower export volumes.



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Exports from India

Floriculture exports from India during 2008‐09 were INR 3688 Million (EUR 57 million).

Exhibit 4.5: Top five export destinations for Indian flowers

Country Volume (MT) Value (EUR Million)

USA 7111 11.5

Netherlands 4640 9.5

U.K 4370 6.8

Germany 3590 6.3

Italy 1268 2.2

Source: APEDA, 2009

Despite 25% of the global production area under floriculture, India accounts for only 0.18% of global

trade in value terms. India has replaced the Netherlands as the second‐largest exporter of cut

flowers to the Far‐East nations. Floriculture exports are expected to increase at a CAGR of 15% over

the next 5 years.

In the two key export markets, viz. Europe and Japan, India faces intense competition from East

African countries like Kenya, Tanzania, etc. (in the EU market) and from South Korea, Thailand and

Australia/ New Zealand (in the Japanese market). These countries have immense production

capacities and provide the varieties which match international standards.

4.8 Key issues pertaining to the Indian floriculture sector

Import duty disadvantage

India suffers an import duty disadvantage in exports of floriculture products to EU. On the other

hand most other countries enjoy duty exemptions; Columbia, Ecuador, Israel, Poland and Hungary

enjoy zero duty on imports from them.

Period Import duty in EU pertaining to imports from India

If certificate of origin is not sent If certificate of origin is sent

Summer 12% 10%

Winter 8.5% 7.2%

A high import duty in Europe during the non peak months (May–October) makes it uneconomical for

Indian players to cater to the market in the off season. This has prevented Indian floriculture

products from having market access during the crucial months in Europe. Given the fact that the



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----------------------------------------------------------------------------------------------------------------


prices of the cut roses in Dutch auctions have been falling since 1994, and more so in the May‐

October period, a higher import tariff during low price seasons will severely constrain India’s efforts

to establish a steady annual market in Europe across seasons.

Therefore, due to the higher net return, it is not surprising that over half of the Indian roses are

shipped to Japan. Apart from roses which are exported mainly to the Netherlands or Japan, the

Indian dry flowers (statice, helichrysum, bottle gourd, cane and bamboo strips, wheat, corn and

barley strips and a diverse basket of wild native species) are exported to a wide array of countries.

Freight cost disadvantages

Air freight from African destinations to Europe is EUR 1.2 /kg. Air freight from Israel to Europe is

currently at EUR 0.56 /kg. Costs of Indian roses run from INR 1.86 to INR 4.6 per stem packed and at

the airport ready to ship (depending whether interest and royalty costs are included). Freight to

Europe is EUR 1.60 to 1.82 per kg or EUR 0.054 per rose or about the same as the rose production

cost. As a result, the average return for exported Indian roses during the September–March shipping

season, including the benefits of the Valentine’s Day export flush, is around EUR 0.20 per stem. In

Japan, the average price for Indian roses is Yen 25‐35 per stem (EUR 0.17). Freight to Japan is about

EUR 1.09 per kg or only 60% of the freight cost per kg to Europe, even though the actual distance to

Japan is greater.

Indian fresh cut flower exporters face a 50‐60% airfreight cost disadvantage vis‐à‐vis their

competitors from East Africa. This disadvantage is a result of the following reasons:

- India has a geographical disadvantage resulting into higher freight rates for the Europe and

Japanese markets as compared to their competitors.

-

Inability

of

Indian

exporters

to

get

either

airfreight

discounts

to

charter

a

full

aircraft

load

due

to low volumes.

- Frequent airfreight rate increases due to sharp hikes of rate in jet fuel prices.

-

Fall in airfreight rates for competitors (mainly east Africa) due to economies of scale and use of

dedicated aircrafts/charter flights.

For India to increase its exports, it needs to focus either on having adequate capacity to fill a

dedicated air plane or restrict itself to available cheap air transport facility and negotiate lower

transport fares to use air capacity on regular flights.



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Scale of operations

In an increasingly competitive market and with an expanding market width, it is imperative that the

focus should be on achieving economies of scale. This would not only reduce per unit cost but also

help players gain access to a larger market. Indian players are at a disadvantage compared with most

growers in East Africa. This is mainly due to their larger scale of operations vis‐à‐vis India. This

enables them to have economies of scale and to offer a wide range and color of flowers, in the

quantities/batch sizes as desired by international customers. Increase in size also enables units to

integrate and move up the value chain. Vertical integration between producers and buyers for

instance, has helped East African units to effectively control the distribution and marketing process

i.e. large African farms having direct ‘farm to market’ linkage with their buyers.

Inability to adapt to changing consumer trends

The consumption markets for floriculture exports are gradually shifting from specialty shops/ florist

shops to the super market chains, mainly in Europe and the US. Chains like TESCO, Salisbury, Wal‐

Mart, Sear, K‐Mart etc., are mass consumers and require large quantities of uniform flowers, with

well‐defined and strict specifications, and reliable and fast delivery.

Floriculture is also a ‘fashion’ product and the international market continuously demands the latest

varieties, fresh/new colors, novelty flowers etc. In order to produce the latest varieties /colours that

are in demand in the international market and to compete with other exporting countries, it is

imperative that high quality planting material of the latest varieties are used and also replanted

periodically in order to maintain the acceptable freshness in variety and quality.

Ageing plantations

The plantations (greenhouse floriculture) in India, which, over 90% are roses, are mostly of the older

varieties. Also, there are old plants of over 6 years, whereas the peak productive phase of the plants

on an average is only 3‐5 years. This leads to the quality of the cut flower being severely affected.

Only 40% of the units in India equipped with the requisite resources, have restored to plantation.

Difficulties in catering to year‐round supply

Currently, India exports mainly six months a year. Due to high temperatures faced in many parts of

the country, production is affected during the summer months of March‐May each year. During this

period

the

crops

are

rested

and

the

bud

sizes

fall

sharply.

As

a

result,

the

production

is

severely

affected and an export opportunity such as, Mother’s day (May) cannot be fully capitalized upon. In



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----------------------------------------------------------------------------------------------------------------


contrast, units from East Africa are able to supply flowers and meet the demand requirements

throughout the year.

Quality‐related issues

Units in India often face quality issues for their produce. This is mainly due to poor/ ageing planting

material, lack of timely availability of chemicals and fertilizers, etc. Further, post harvest methods

need constant upgradation to ensure that the quality required by international markets is

maintained. This necessitates investments in post‐harvest infrastructure like forced cooling systems,

clean and constant temperature monitoring mechanisms, material handling systems etc. However,

most units are under immense financial strain and are thus unable to invest in such facilities.

Consuming markets for flowers require consistency and quality of the supplies, which Indian

suppliers sometimes fail to deliver. In the Netherlands growers with a good reputation fetch a higher

price. Indian growers are too small and their names are not easy to remember.

Quality certification is essential for export sales and offers exporters a competitive advantage over

other suppliers from competing countries. Most international buyers are also beginning to demand

quality control certificates. The super‐markets in the UK for instance will be making such certification

mandatory for its suppliers.

4.9 Opportunities for Dutch floriculture companies in India

Fresh cut flower exports

India’s share in global (export) cut flower trade is less than 1% currently. The fresh cut flower (95%

of it is Rose) exports have increased at 13% annually since last ten years. In India the focus states for

fresh cut flowers exports are Tamil Nadu, Karnataka and Maharashtra.

Dried flower /foliage and high value oil extracts exports

The fresh flower trade constitutes only one aspect of the overall floriculture sector. There are other

equally, if not more, important segments of this sector which are doing well and have the potential

to grow. Notable among them are the production and marketing of dry flowers and the production

of high‐value oil extracts and perfumes, dyes and other products, such as rose water etc. Dry flowers

already

form

a

sizeable

chunk

of

Indian

floriculture

exports.

Dried

flower

exports

constitute

60%

of

the export basket currently. Dried flowers are exported mainly from Tamil Nadu and West Bengal.



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Unfortunately, the dry‐flower industry is not well organized and relies, to a substantial extent, on

gathering of flowers from the wild and drying them using conventional methods. However, some

fresh flowers are also converted to dry flowers for better returns. These include dahlias, marigold,

jute flowers, wood roses, lotus pods and lilies among others.

Flower extracts offer another great opportunity for value‐addition and enhancing of returns as these

enjoy a good domestic as well as export market. The cultivation of the Damask rose owes its

popularity largely to its demand for extraction of oil and preparation of rose water and gulkand18

.

Products made of jasmine, tuberose and vanilla also find a ready market in the cosmetics industry.

Several flowers, like marigold, have good use in the production of natural dyes, the demand for

which is rapidly increasing due to growing preference for natural products. In fact, the pigment

produced from marigold has found a new use in the poultry industry, where it is fed to chickens to

impart a tempting colour to their meat and egg yolk.

Outsourcing of flower production to India

As the cost of production in India is relatively lower than that in other developed countries,

outsourcing flower production to India could be a good business model. JVs / technology tie‐up

arrangements could be explored wherein sourcing technology and quality planting material could be

provided by companies in the Netherlands who in turn would enter into buy back agreement with

floriculture players. For example, KF Bioplants, a domestic company in India was set up as a JV

between Kumar Gen Tech and Tissue Culture Company (KGTC) and Florist de kwakel b.v., Holland.

There is also an opportunity for using India as a production base for cactus. The private nurseries

have developed various varieties of cactus and are capable for propagation in large number to be

exported to other countries. Companies from the Netherlands can explore opportunities with

domestic players in India.

Potential for association of Indian institutes with universities in the Netherlands

In India, sector research on floriculture has been scattered over a large number of agricultural

research institutes and farm universities. Most of the research is focused on areas like variety

development, best practices for cultivation etc. The existing floriculture players solely rely on

independent

external

consultants

from

countries

like

Israel,

The

Netherlands

etc.

There

is

an

18 a sweet preserve of rose petals



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----------------------------------------------------------------------------------------------------------------


opportunity to explore an association of Indian institutes with the universities in the Netherlands to

cater to these needs for the industry.

This could involve the following areas

- Training of trainers for supply chain management, value chain management etc. This is already

happening to a certain extent.

-

Post Harvest Management

-

Development of course curriculum.

-

A PhD programme in the Netherlands

-

Consultants from the Netherlands are needed for understanding proper techniques for

growing of flowers. Training tie‐ups for bulb production, forcing of bulbs (production of

flowers from bulbs) and seedling production is another area for collaboration.

-

Technology tie‐up for packaging of floriculture produces for export and domestic market.

Standardization of packaging for export consignments.

Supplying technology to growers and other players in the chain

There

are

very

few

quality

players

who

provide

end

to

end

solutions

to

the

floriculture

players

i.e.

from selection of land, infrastructure development, training, planting material, project management

and customers. Also, there are few players supplying green house structures and allied materials to

the industry. Most of them import the materials from countries like Israel etc. Companies from the

Netherlands might look at exploring opportunities with them.



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Chapter 5

Bakery equipments

While the focus of this chapter is on bakery equipments, a brief overview has also been provided of

the Indian bakery industry to provide the right context.

5.1 Introduction to the bakery industry

The bakery market in India is estimated at more than EUR 3.2 billion (INR 210 billion) and is still the

cheapest form of ready‐to‐eat food. The bakery industry is one of the largest among the processed

food industries in India. In fact, India is the second largest producer of biscuits after the U.S. The two

major bakery products, viz. bread and biscuits account for c. 90 percent of the total bakery products.

The annual production of bakery products (organized sector), which includes bread, biscuits,

pastries, cakes, buns, rusk etc., is estimated at c. 4.7 million tonnes.

Exhibit 5.1: Market volume of bakery products in India (million tonnes)

Products Organised Unorganised Total

Bread 2.6 2.6 5.2

Biscuit 1.7 1.1 2.8

Cakes and pastries 0.4 0.5 0.9

Total 4.7 4.2 8.9

Source: Euromonitor, Industry estimates 2009

5.2 Industry structure

The bakery industry in India is mainly concentrated in the states of Andhra Pradesh, Maharashtra,

West Bengal, Karnataka and Uttar Pradesh. (Refer Annexure for a map of India showing the various

states.) About 60 percent of production takes place in the unorganised sector. There are around two

million unorganised bakeries operational across the country, comprising small bakery units, cottage

and household type manufacturing, characterized by low levels of packing and distribution mainly in

neighboring areas. The organized sector consists of large, medium and small‐scale manufacturers

producing bread and biscuits. A large proportion of sales of bakery products are made through

numerous regional manufacturers, who largely compete on the basis of price. Bread and biscuits are



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15%

3%

73%

4% 5%

Brown bread

Multi grain bread

White

Wholewheat bread

Others

39%

61%

Packed/industrial

unpacked/artisanal

low margin ‐ high volume businesses. Moreover, about 40 percent of bread and 50 percent of

biscuits are sold in the rural market.

Bread

About 50% of this segment is organized and is growing at 4‐5 percent per year. The estimated size of

the organised bread industry is about EUR 0.77 billion (INR 50 billion). Breads are not a significant

part of Indian meals so far (except breakfast). However, there has been an increasing acceptance of

breads especially in urban areas on the back of increasing income levels and lifestyle shifts.

Hindustan Unilever Ltd. (HUL) through its acquisition of Modern Foods, has become the largest

player in the branded bread segment followed by Britannia Industries Ltd. Together, these two

companies’ account for around 90% of the branded bread market, catering to the high and medium

price segments. Local manufacturers armed with numerous local brands tend to target the mass

market segment and contribute substantially in the bread segment. The bread industry is

characterised by miniscule profits margins and high levels of fragmentation.

Exhibit 5.2: Value share in bread (organized market)

Source: Euromonitor, 2009

A number of small players use outdated technologies and traditional methods of manufacturing

baked goods. In order to keep costs to a minimum, these players tend to compromise on the quality

of the end product and packaging. Thus, most bakery products are positioned in the lower end

economy segment.

White bread is the most popular type of packaged/industrial bread in India with a 73 percent retail

value share in 2009. Most consumers tend to buy white bread due to its wide availability, product

familiarity, and economical price. However, increasing health consciousness has led to the growing



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popularity of brown, multi grain, and whole wheat bread. Fortified/functional and naturally healthy

bread is slowly making its presence felt in urban areas and these are sold as premium products. In

volume terms bread is projected to grow at 1.9 percent where as value added breads are expected

to grow at 18‐20 percent.

Biscuits

In terms of volume, the market for biscuits has a near equal split between the organized and the

unorganised segment. The major players from the organized sector are Britannia, Parle, and ITC. The

estimated size of organised biscuit industry is about EUR 1.1 billion (INR 69 billion).

Exhibit 5.3: Volume share of biscuits (organised)

44%

13%

10%

13%

12%

8%Glucose

Marie

Cream

Crackers

Milk

Others

Source: Federation of Biscuit Manufacturers’ of India, 2008‐09

The popular glucose category provides volumes while the other segments provide higher margins.

Biscuits in India are increasingly being positioned as premium products, with manufacturers moving

away from low margin, high volume glucose and salty biscuits and introducing cookies, cream

biscuits, as well as health based offerings.

The per capita consumption of biscuits is c. 2.4 kg in India as compared to more than 10 kg in the US,

UK and the Western European countries and above 4.25 kg in South East Asian countries like

Singapore, Hong Kong, Thailand and Indonesia. This shows the huge untapped potential of the

biscuit industry in India.



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40%

60%

Packed/industrial unpacked/artisanal

10%

90%

Packed/industrial unpacked/artisanal

The leading players, Britannia and Parle Products, account for a combined retail value share of c. 63

percent19

, followed by a strong third ranked player, ITC. In addition, there are a number of regional

players in biscuits, such as Surya Food & Agro Pvt Ltd, Saj Industries Pvt. Ltd, Anmol and Dukes.

Artisanal products sold through bakeries also account for a major share of sales.

In recent years, the biscuit market is growing at the rate of 9.9 percent per annum in volume terms.

The cream and specialty biscuits have grown at a faster rate of 15‐20 percent per annum. It is

estimated that the biscuit market would grow at 8 percent per annum over the next five years.

Other bakery products

Other bakery products such as cakes and pastries are growing at around 8‐10 percent annually.

These products are largely limited to urban areas. The revenue realization in terms of unit volume is

higher in this product category due to higher value addition. About 90 percent of pastries are sold in

unpacked/artisanal form. Companies such as Britannia have launched single portion packs, which

has boosted the sale of packed cakes.

Exhibit 5.4: Volume share of pastries and cakes (organised market)

Pastries Cakes

Source: Euromonitor, 2009

Breakfast cereals

The organised breakfast cereals market is estimated at 10,000 tonnes and contributes about EUR 29

million (INR 1.9 billion) to bakery products by value. The segment is growing at 11 percent annually.

Factors such as cultural differences, easy availability of low priced traditional breakfast options are

19 Euromonitor report, 2009



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seen as challenges in this sector. However, players such as Kellogg’s have been steadily attempting

to overcome these challenges through innovative offerings, catchy advertising, efficient supply chain

network and customized products.

5.3 Key drivers

A. Changing lifestyles

With increasing number of families in urban areas where both spouses are working and the

availability of ready‐to‐eat bakery products at reasonable prices, many urban households have

started eating bread based products at lunch and dinner as well. The sheer convenience offered

by bakery products has resulted in Indian breads gaining market share. Also consumers today

are seeking a variety of baked foods and are ready to experiment. With ease of availability of

different ingredients used in baking value added products, consumers are also seeking premium,

gourmet and exotic products to satisfy their desire to indulge. This shift has resulted in

innovative products development such as ‘masala’ bread, cheese bread, cheese cakes, subs etc

B.

Increasing preference for branded and packed cakes

Consumers are upgrading from unpacked/artisanal cakes to packed industrial alternatives. As

compared to multi‐portion cakes, single portion cakes are typically much more affordable and

enable consumers to eat the product in one go. Furthermore, single portion cakes are available

in a wide variety of variants /flavours. Single portion cakes also benefit from a wider distribution

reach, from rural retail outlets to urban supermarkets, whereas the distribution of multi‐portion

cakes remains largely restricted to urban areas.

C.

Health

consciousness

Increasing health awareness is giving a push to consumption of brown bread, multigrain bread,

whole wheat bread, multivitamin bread etc. Fortified/functional products are also gaining in

market share in the urban areas. Moreover, there are an increasing number of ‘baked‐not‐fried’

snacks being launched which aim to take share away from the traditional potato chips.

D.

Favourable tax structure

The various taxes levied on the industry have come down in last couple of years. The reduction

of excise duty on bakery product from 16 percent to 8 percent coupled with ‘zero’ excise duty on

biscuits priced below INR 100/kg has made bakery products more affordable to consumers.



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Going forward, the industry has proposed to the Government for reduction of VAT (value added

tax) from current 12.5 percent to 4 percent.

E. Growth in organized retail

The proliferation of modern supermarket chains across India has greatly helped in leveraging

innovation in the bakery products because consumers who shop in modern stores expect

greater variety and convenience. Many of these modern stores also sell their own private label

bakery products. However, in‐store bakery sales have yet to account for substantial sales in

India, as traditional kirana20

stores dominate retailing. Moreover, independent bakeries, which

produce fresh products, remain the preferred choice for consumers of baked goods. Currently,

very few private labels are available and account for less than 1% of value sale of bakery

products. However private label share is expected to increase due to entry of international

chains and overall growth in organized retail.

F.

Food service

The organized food service sector in India is growing at 12‐15% annually. Current sale from retail

in‐store bakery and food service outlets is about 1‐2 percent of the total market. Various fast

food outlets and cafe formats serving baked products are growing across India (refer Exhibit 5.5).

International chains such as Subway, Dominos, Pizza Hut are expanding their franchise to Tier‐II

cities. The growth of fast food/café chains would result in increased consumption of baked

products across the country.

Exhibit 5.5: Fast food/café chains serving baked product

Chains Outlets21

Product offerings in the bakery segment Future plan

(outlets)

Café Coffee

Day

854 Value added gourmet baked product 1000

Barista 220 Value added gourmet baked product 500

Costa coffee 40 Value added gourmet baked product 300

Pizza Hut 147 Pizza 400

Domino’s 274 Pizza 400

20 similar to Mom and Pop stores

21 estimates as of February 2010



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Chains Outlets21

Product offerings in the bakery segment Future plan

(outlets)

Pizza corner 47 Pizza NA

Monginis 430 Cakes & pastries NA

Bread talk 7 Exotic value added breads and baked products NA

Daily bread 36 Bread, cakes and value added baked products 250

Hot breads 40 Bread, cakes and value added baked products NA

Fresh choice 14 Bread, cakes and value added baked products 100

Cookie‐man 41 Premium end cookies 250

McDonalds 170 Burgers 210

Subway 156 Subs 200

Source – Rabobank research

5.4 Bakery Equipments

Equipments can be divided into industrial line (required by bread and biscuit companies for mass

production) and non‐industrial lines (required by individual bakeries). Ovens (rack and deck),

sheeters, mixer, divider & rounder, freezer, biscuit moulding and cutting machines and bread slicer

are some of the key equipments used by the industry. Current size of the equipment industry is

estimated at EUR 23 million (INR 1500 million). About 80% of the bakers are small scale bakers who

use domestic make low‐end equipments for their day‐to‐day operations. These equipments are

‘average quality‐low price’ vis‐à‐vis imported equipments from developed countries (refer Exhibit

5.6). About 85% of equipments used by the industry are from domestic manufacturers. The Indian

bakers prefer domestic equipment because they neither have the required scale to justify the higher

investment in high end machinery nor do they have a significant customer base who are ready to

pay for the premium products.



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Exhibit 5.6: Price comparison of equipments (landed price in India)

Equipments

Indian Made

(EUR)

Chinese

made

(EUR)

European made

(EUR)

Planetary mixer (60 Ltrs) 9000 2000 27500

Spiral Mixer (20 Kg) 750 675 4500

Divider/rounders 4500 2200 15500

Rotatory oven 8900 6000 30000

Source: Industry

Players

(prices

are

estimated

values,

2008

‐09)

Key issues with bakery equipments

A.

After sales service

After sales service is one of the biggest hindrances in the success of imported machineries. Most

of the domestic manufacturers do not have a good after sales service programme. The after

sales service of imported machineries is undertaken by importers in India who often fail to

satisfy the customers. Merely appointing dealers in India is not adequate for foreign players.

They need to also provide an excellent service network to compete with domestic players. Day‐

to‐day running and maintenance is seen as a bigger issue by the industry than the initial cost of

the machines.

B. Old and inefficient equipments

Old and inefficient set of equipments are still being used by most of the traditional bakers. This

significantly impact the quality and efficiency of the bakers resulting in higher operating costs.

C.

Reverse engineering (‘copying’) of imported machines

Indian manufacturers often copy the imported machines and develop them locally. These are

largely similar to imported machines in look, feel and functioning with prices being significantly

lower as compared to imported ones.

D.

Training

Investment in training of manpower is required for handling of imported equipments. Since the

after sales service is an issue, foreign players have to ensure that people are adequately trained

for good upkeep of equipments and obtaining optimum results.



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E.

Costly maintenance of imported machines

The lack of an organized set up in India by foreign players leaves Indian customers with little

choice but to deal with importers for after sales service. Importers charge exorbitant rates for

maintenance. Lack of multiple avenues for after sales service makes the Indian buyer vulnerable

to the terms and conditions imposed by the importer. Also, the spare parts of imported

machines are not easily available. Keeping a full time technician is a costly affair and can only be

afforded by large scale players (institutional players, food chains etc).

Marketing channels

Domestic

Domestic equipment manufacturers operate through a network of dealers and sub‐dealers across

the country for selling their products. Dealers can be exclusive or non exclusive and are responsible

for selling and marketing of products in the designated region. Dealers take orders for equipments

and also take part payment as advance before the manufacturing of equipment. The network

operates with low inventory and equipments are manufactured after undertaking order from the

customer. There are many manufacturers of bakery equipments across India, many of whom also

import equipments from other countries. (refer Exhibit 5.7)

Exhibit 5.7: List of some of the equipment manufacturers and traders in India

S.no. Company Manufacturer Exporter Importer

1 Growthways Technology √

2 Rolex tin & Metal Works √ √

3 Naik oven Manufacturing √ √

4

Soni Engineering works √ √ √

5 Asifo √

6 Baker Enterprise √

7 Maxheat Furnace √

8 HCS Enterprise √ √

9 Besto Oven √ √

10 A.V. Engineering works √

11

Arun Machinery √ √



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S.no. Company Manufacturer Exporter Importer

12 Prima Engineering √ √

13 Indian foods Pvt Ltd √

14 JMB bakery equipments √ √

15 Apple Bakery machinery √ √

Source: Rabobank research

Import

The importing channel is very similar to domestic channel with importers also having dealers in

various regions. In some cases importers are also domestic equipment manufacturers. The importer

usually places an order on exporting destination once a confirmed order has been obtained from the

customer. The lead time is relatively higher in the import channel compared to domestic channel.

Most of the foreign players prefer to use existing manufacturers or traders network as the cost of

setting up own dealer network is high. In India, bakery equipments are largely imported from EU,

South Africa, China and Taiwan. Some of the equipments which are imported in India are highlighted

in Exhibit 5.8

Exhibit 5.8:

Currently

imported

equipments

Companies Country Product

Bearvarimixer Denmark Mixer

Rondodage Switzerland Dough Sheeter

Revent Sweden Oven

Sveba‐dahlen Sweden Oven

JKV Holland Moulding machines

Kaak Holland Bread lines

Salva Spain Oven

Sancassio Italy Mixer

Erika Record Germany Bun Divider

Macadams South Africa Oven

Sinmag Taiwan Oven

Source: Industry sources, 2009

Of late, there is an increasing demand for equipments made in Taiwan as they provide a slightly

superior quality at slightly higher price point. EU and South African machines are largely imported by

large institutional players, hotel chains and international food service chains. Other domestic bakers

import Chinese or Taiwanese machines based on the right fit for their requirements.



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Exhibit 5.9: Comparison of imported machines

Features

EU & South Africa Costs almost 3 times the domestic products

Quality of final product improves significantly

Support usage of better ingredients resulting in better final product

China Cost is same or lower than domestic product

Poor quality and durability

Taiwan Better quality then Indian and Chinese product

Price marginally higher (10‐20%) than Indian products

Source: Rabobank research

Duties and taxes

Import duty on bakery equipments range from 21% to 37% (import of capital goods). The high duties

further increase the cost of the imported goods. For the equipments produced locally, there are

various taxes like excise, CST (central State tax) and Value‐added‐tax (VAT) ‐ refer Exhibit 5.10

Exhibit 5.10: Duty and tax structure on bakery equipments

Import Duty on bakery equipments 21% ‐ 37.6%, under capital goods import

Domestic Taxes

Excise

Central State tax (CST)

Value added tax (VAT)

9%

2%

12.5%

Source: Industry sources, 2009

5.5 Opportunity for bakery equipments

Over the past few years, bakery products have shown a marked improvement in volumes and

customer base due to growth in bread and biscuits segment. In the long run, the bakery segment

could witness intense competition as more organized players enter the market. The number of high‐

end products will increase, improving the margins of the companies. The changing lifestyles of Indian

population will also result in higher offtake of bakery products.

Shift from handmade to mechanization‐technology is yet to make a big impact in the bakery

industry. Bakers are trying to maintain a balance between mechanization and labor. Organized

retail’s in‐house bakeries, food service chain and institutional players are also driving the change

towards mechanization. Demand is rising for equipments that can produce convenient high quality



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bakery products. Consumers have started to appreciate quality. However, the base of consumers

ready to pay a premium is still very small (1‐2 percent).

Key targets would be organized players, modern retail and food service chains. Considering the

growth rate of various segments of bakery industry it is estimated that besides the current market

there is a potential new market for equipment capacity equivalent to 1.2 million tonnes of baked

product (refer Exhibit 5.11). In order to penetrate the India market, it is important to focus on after

sales service. As suggested by some of the industry players, initial cost of machine is not such a big

factor as is the after sales service. Foreign companies can either have their own setup for servicing

clients or have JVs with some of the Indian players with proper focus on the after sales service as

having own setup may need a minimum scale.

Exhibit 5.11: Estimated potential market for bakery equipment

Organised market Growth rate Current target market

(tonnes)

A

After 5 years

(tonnes)

B

Opportunity

(tonnes)

B‐A

Bread 50% 1.9% 2,600,000 2,856,566 230,909

Cakes &

Pastries

40% (Industrial

production)

7% 400,000 561,021 161,021

Biscuit 50% 8% 1,700,000 2,497,858 563,194

star hotels

(3,4,5)

10% of Total

hotels

7% 2,190 3,072 882

Food service <1% 15% 2,920 5,873 2,953

Breakfast

cereals 100% 9.5% 10,000 15,742 5,742

Total

4,715,110

5,940,132

1,225,022

Source: Euromonitor, industry estimates, Rabobank analysis, 2009



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Annexure – I

Map of India showing the various states

Documents

V.imp - Agribusiness - RABO