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Food Industry - Last Updated: January 2010

The Indian food market is estimated at over US$ 182 billion, and accounts for about two thirds

of the total Indian retail market. Further, according to consultancy firm McKinsey & Co, the

retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billionby 2025, accounting for a large chunk of the world food industry, which would grow to US$ 400

billion from US$ 175 billion by 2025.

Exports

Exports of agricultural products from India are expected to more than double to top US$ 20.6

billion in the next five years, according to the commerce ministry.

According to estimates by the Agricultural and Processed Food Products Export Development

Authority (APEDA), the share of India's farm product exports in the global trade will grow from

2 per cent now to over 5 per cent.

Exports of fresh and processed vegetables, fruits, livestock and cereals rose 10 per cent to US$

8.67 billion in 2008-09.

Spices

Despite a global slowdown, Indian spice exports are growing. India exported 470,520 tonnes of

spices valued at US$ 11.68 billionan all-time highin 2008-09.

During the 2007-08, 444,250 tonnes valued at US$ 11.01 billion were exported. Compared with2007-08, exports had shown an increase of 19 per cent in rupee value and six per cent in dollar

terms.

Food Processing

The Indian packaged processed foods industry is estimated at US$ 10.87 billion US$ 13.05

billion, including biscuits, chocolates, ice-cream, confectionery, snacks, cheese and butter.

Growing at a healthy 14-15 per cent over the past two-three years, major players in the sector

include Britannia, Nestle, Amul, ITC Foods, Parle, Kelloggs, GlaxoSmithKline, Wrigley and Frito-

Lay, among others.

The industry received foreign direct investments (FDI) totalling US$ 143.80 million in 2007-08

against US$ 5.70 million in the previous fiscal. The cumulative FDI received by the industry from

April 2000-August 2009 stood at US$ 878.32 million.

However, Indias share in exports of processed food in global trade is only 1.5 per cent; whereas

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the size of the global processed-food market is estimated at US$ 3.2 trillion and nearly 80 per

cent of agricultural products in the developed countries get processed and packaged.

In order to further grow the food processing industry, the government has formulated a Vision-

2015 action plan under which specific targets have been set. This includes tripling the size of

the food processing industry from around US$ 70 billion to about US$ 210 billion, raising thelevel of processing of perishables from 6 per cent to 20 per cent, increasing value addition from

20 per cent to 35 per cent, and enhancing Indias share in global food trade from 1.5 per cent to

3 per cent. This would require an investment of US$ 20.6 billion.

According to an Ernst and Young (E&Y) presentation, the food processing industry in India will

grow 30-40 per cent as against the present 15 per cent in the next 10-years.

Prime Minister Dr Manmohan Singh on October 6, 2009 laid out a blueprint for rapid growth in

the countrys food processing sector. The Prime Minister said that this can be achieved by

simplifying the tax structure, formulating a National Food Processing Policy and improving rural

infrastructure.

Moreover, according to Union Minister for Food Processing Industries, Subodh Kant Sahai the

central government is envisaging an investment of US$ 21.50 billion in the food processing

industry over the next five years, a major chunk of which it plans to attract from the private

sector and financial institutions.

Snacks and Confectionery

The Indian market holds enormous growth potential for snack food, which is estimated to be

worth US$ 3 billion, with the branded snack market estimated to be around US$ 1.34 billion,growing at 15-20 per cent a year. While the growth rate of the US$ 1.56 billion unorganised

sector is 7-8 per cent.

Health Food

Recognising the growth potential of the branded health food sector in India, fast moving

consumer goods (FMCG) majors are foraying into this sector in a big way. As Hindustan Lever

Ltd (HUL) is test marketing its health food brand, Kissan Amaze, in three southern states in

India, Godrej Hershey Foods & Beverages Ltd (GHFBL), a joint venture between Godrej

Beverages & Foods Ltd and Hershey Company, is planning to introduce select brands from its

international portfolio in the domestic market.

Dairy

According to Dairy India 2007 estimates, the current size of the Indian dairy sector is US$ 62.67

billion and has been growing at a rate of 5 per cent a year. The dairy exports in 200708 rose to

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US$ 210.5 million against US$ 113.57 last fiscal, whereas the domestic dairy sector is slated to

cross US$ 108 billion in revenues by 2011.

India continues to be the largest producer of milk in the world. It produced 110 million tonne of

milk in 2008-09.

Beverages

According to industry experts, the market for carbonated drinks in India is worth US$ 1.5 billion

while the juice and juice-based drinks market accounts for US$ 0.25 billion. Growing at a rate of

25 per cent, the fruit-drinks category is one of the fastest growing in the beverages market.

Sports and energy drinks, which currently have a low penetration in the Indian market, have

sufficient potential to grow.

The market for alcoholic beverages has been growing consistently. 'The Future of Wine', a

report on the state of the wine industry over 50 years, suggests that the market for wine in

India was growing at over 25 per cent per year.

Major investments

Private investment has been one of the key drivers for growth of the Indian food industry. The

'India Food Report 2008', reveals that the total amount of investments in the food processing

sector in the pipeline for the next three years is about US$ 23 billion.

y The government has received around 40 expressions of interest (EoI) for the setting upof 10 MFPs with an investment of US$ 514.37 million.

y Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project.y Focusing on India as a rapidly growing market, US soft drinks giant Pepsico would pump

in an estimated US$ 152.30 million to set up four new food and beverages projects by

2012.

y Geneva-based food service chain Global Franchise Architects (GFA) aims to open 250stores around the world by March 2010, of which 100 will be in India.

Government Initiatives

The new trade policy places increased focus on agro-based industries.

y Food processing industries have been put in the list of priority sectors for bank lending.The Centre has also announced a series of new initiatives which include a separate

policy at the state level, thrust on contract farming and making the sector tax-free.

y The government plans to open 30 mega food parks by the end of the 11th five year plan(2007-2012).

y Fruit and vegetable processing units have been completely exempted from paying excise

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duty.

y Automatic approval for foreign equity up to 100 per cent is permitted for most of theprocessed food items.

y Items like fruits and vegetables products, condensed milk, ice cream, meat productionhave been completely exempted from Central Excise Duty.

y Excise duty on ready to eat packaged foods and instant food mixes has been broughtdown to 8 per cent from 16 per cent.

y Excise duty on aerated drinks has been reduced to 16 per cent from 24 per cent.y The Ministry of Food Processing Industry would assist in the setting up of more food

processing units so that the industry could create 10 million jobs by 2015, according to

Mr Subodh Kant Sahai, Union Minister for Food Processing.

Looking ahead

According to the India Food and Drink Report Q3 2008 by research analysis firm Research and

Markets, by 2012, Indias processed food output is likely to grow by 44.2 per cent to touch US$

90.1 billion, while packaged food sales will increase by 67.5 per cent to reach US$ 21.7 billion.

On a per capita basis, per capita packaged food spending is expected to grow by 56.5 per cent

to US$ 18.06 by 2012.

Moreover, according to a FICCI-E&Y study on the Indian food industry, investment

opportunities in the Indian food industry are set to shoot up by a huge 42.5 per cent to US$ 181

billion in 2015 and to US$ 318 billion by 2020.