Food Processing October 2012

Industry Comment Food Processing

www.imacs.in

ICRA Management Consulting Services Limited

Ind

us

try C

om

men

t

IMaC

S R

ese

arc

h &

An

aly

tics

THE INDIAN FOOD PROCESSING INDUSTRY

October 2012

www.imacs.in

http://www.imacs.in/


www.imacs.in

Contacts:

Swati Jain Senior Research Officer

[email protected]

Vineet Nigam Principal (Research & Analytics)

[email protected]

0120-4515831

Disclaimer

All information contained in this document has been obtained by IMaCS from sources believed

by it to be accurate and reliable. Although reasonable care has been taken to ensure that the

information herein is true, such information is provided ‘as is’ without any warranty of any kind,

and IMaCS in particular, makes no representation or warranty, express or implied, as to the

accuracy, timeliness or completeness of any such information. All information contained herein

must be construed solely as statements of opinion, and IMaCS shall not be liable for any losses

incurred by users from any use of this document or its contents in any manner. Opinions

expressed in this document are not the opinions of our holding company, ICRA Limited (ICRA),

and should not be construed as any indication of credit rating or grading of ICRA for any

instruments that have been issued or are to be issued by any entity.

mailto:[email protected]

mailto:[email protected]


www.imacs.in

TABLE OF CONTENTS

SCOPE OF REPORT ..................................................................................................................4

OVERVIEW AND OUTLOOK .....................................................................................................4

EXECUTIVE SUMMARY ...........................................................................................................5

INDUSTRY OVERVIEW ............................................................................................................7

INDUSTRY CHARACTERISTICS................................................................................................ 12 IMPORTANCE TO ECONOMY ............................................................................................................. 12 CYCLICALITY .................................................................................................................................. 14 SENSITIVITY OF INDUSTRY TO GOVERNMENT POLICIES .......................................................................... 16

SUB-SECTORS IN THE FOOD PROCESSING INDUSTRY ............................................................. 21 FRUITS AND VEGETABLES ................................................................................................................. 21 MEAT AND POULTRY ...................................................................................................................... 27 GRAINS AND CEREALS ..................................................................................................................... 29 DAIRY .......................................................................................................................................... 35 FISHERIES...................................................................................................................................... 38 AERATED SOFT DRINKS ................................................................................................................... 42

DEMAND ............................................................................................................................. 44 GROWTH FACTORS ......................................................................................................................... 44 FACTORS CONSTRAINING DEMAND ................................................................................................... 45

COMPETITIVE FORCES .......................................................................................................... 46 EXTENT OF COMPETITION ................................................................................................................ 46 INTERNATIONAL COMPETITIVENESS ................................................................................................... 50 BARRIERS TO ENTRY FOR NEW PLAYERS ............................................................................................. 52 FLUCTUATIONS IN DEMAND-SUPPLY GAP ........................................................................................... 52

GOVERNMENT POLICY GUIDELINES ...................................................................................... 52 FOOD SAFETY AND STANDARD BILL 2005 - FSS ACT, 2006 .................................................................. 52 FOREIGN DIRECT INVESTMENT POLICY ............................................................................................... 53 STATE INITIATIVES .......................................................................................................................... 54 INFRASTRUCTURE DEVELOPMENT IN THE FOOD PROCESSING INDUSTRY ................................................... 55 NATIONAL MISSION ON FOOD PROCESSING (NMFP) ........................................................................... 58

CRITICAL SUCCESS FACTORS ................................................................................................. 59

FINANCIAL PERFORMANCE ................................................................................................... 60 ROCE AND OPERATING MARGINS .................................................................................................... 60 KEY RATIOS ................................................................................................................................... 60 REVIEW OF LATEST FINANCIALS ........................................................................................................ 61

KEY ISSUES IN THE FOOD PROCESSING SECTOR ..................................................................... 62 ISSUES AGAINST ............................................................................................................................. 62 FAVOURABLE FACTORS .................................................................................................................... 63

GROWTH POTENTIAL/OUTLOOK ........................................................................................... 64

ANNEXURE .......................................................................................................................... 67


www.imacs.in 4

SCOPE OF REPORT

This report analyses the various segments of the Indian food processing industry, like fruits and

vegetables, meat and poultry, grains and cereals, dairy, fisheries and aerated soft drinks. It

covers the government policy guidelines governing the sector and the demand and supply

situation at present.

OVERVIEW AND OUTLOOK

At present the Indian food processing industry is considered to be the fifth largest industry in

the country in terms of production, consumption, exports and growth. The industry has been

valued at around USD 156 billion and is expected to increase to USD 250-280 billion by the

year 2016.

The sector is expected to generate an additional employment for about 8.2 million people.

Consumption of food in India is estimated to grow at a CAGR of 5.3% by 2013.

In order to increase the level of processing and to promote the food processing industry in

India and to exploit both the domestic and international market potential for processed food

products, Vision 2015 document has been prepared by the Ministry of Food Processing

Industries, which envisages tripling the size of the processed food sector by increasing the

level of processing of perishables from 6% to 20%, value addition from 20% to 35% and the

share in global food trade from 1.5% to 3% by 2015.

The growth of the Indian food processing industry will be mainly in the States of Andhra

Pradesh, Gujarat, Karnataka, Maharashtra, Uttar Pradesh and Madhya Pradesh.

Twelfth Five Year Plan: The total budgetary requirement for the Twelfth Five Year Plan has

been estimated at Rs. 150.7 billion. This includes Rs. 52.2 billion for the Infrastructure

Development Scheme, Rs. 65 billion for the National Mission on Food Processing (NMFP), Rs.

14.2 billion for the Strengthening of Institutions including Skill Development Programme, Rs.

7.9 billion for the Food Safety, R&D and Promotional Activities, Rs. 1.9 billion for Innovation

Fund Scheme, Rs. 5 billion for the Venture Capital Fund and Rs. 4 billion for the Eleventh Five

Year Plan Commitments. The total financial outlay of Rs. 150.7 billion will have an aggregate

component of around Rs. 103 billion towards providing capital assistance to projects such as

food parks, cold chains, abattoirs, on-farm infrastructure and other food processing units.

Based on the design of the schemes for supporting these projects, the proposed capital

assistance of Rs. 103 billion during the Twelfth Plan, may be able to attract a total investment

of around Rs. 350 billion (as per the Planning Commission’s estimates) in the food processing

sector.


www.imacs.in 5

EXECUTIVE SUMMARY

On a global scale, India ranks first in the production of fresh fruits and pulses and second in rice

paddy and vegetables. Despite being a major food producer, India's share in world food trade is

less than 2%. At present, around 10% of the food items produced in India are processed in

contrast to the developed nations where 60% to 80% of the food items are processed. While the

sector has been growing at about 13%, it is expected that the National Food Processing Policy will

provide the necessary boost to the sector.

In October 2009, government delineated the path to enhancing the economic value of the sector

by methods such as simplifying the tax structure, formulating a National Food Processing Policy

and improving the rural infrastructure. Not only does the sector have potential for exploiting

emerging commercial opportunities, but also, to dramatically enhance rural livelihood

opportunities and employment, bridge the rural-urban divide and improve farming methods and

practices. The tax incidence on food items varies across the country because of the numerous

taxes levied at varying rates. While primary agricultural commodities are mostly exempt from tax,

processed commodities attract heavy taxes including a central sales tax of 3% and value added tax

of 12.5%. Additionally, these products are subject to other state and local level taxes like entry tax

and octroi. Also, the central excise duty is levied on all branded products.

The food processing industry employs about 13 million workers directly and about 35 million

people indirectly. However currently, a major hurdle for development of food processing sector is

prevention of loss due to poor post-harvest management and, inadequate infrastructure and

programmes for processing of agricultural produce.

The key government provisions for developing the industry are as follows:

Most of the processed food items have been exempted from the purview of licensing under the Industries (Development & Regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.

To ensure easy availability of credit, the government included the industry in the list of priority sector for bank lending in 1999.

The National Bank for Agriculture and Rural Development (NABARD) has created a refinancing window with a corpus of Rs. 10 billion, especially, for agro-processing infrastructure and market development.

Automatic approval for foreign equity up to 100% is available for most of the processed food items, excepting alcohol and beer and those reserved for small scale sector subject to certain conditions.

Excise duty on processed fruit and vegetables was brought down from 16% to zero level in the Union Budget, 2001-02.

In the Union Budget, 2004-05, income tax holiday and other concessions announced for certain categories of food processing industries.

In the Union Budget, 2006-07, excise duty has been waived on condensed milk, ice-cream, preparations of meat, fish and poultry, pectins, pasta and yeast. Excise duty on ready to eat packaged foods and instant food mixes, like dosa and idli mixes have been reduced from 16% to 8%. Excise duty on aerated drinks has been reduced from 24% to 16%. The fruit and vegetable processing units are exempt from payment of excise duty.


www.imacs.in 6

In the Union Budget, 2007-08, excise duty has been waived on all kinds of food mixes including instant mixes, soya bari (food supplement) and ready to eat packaged foods and biscuits.

Excise duty on reefer vans (refrigerated motor vehicles) has been reduced from 16% to 8%. Exemption limit on excise duty for small scale industry has been raised from Rs. 10 million to

Rs. 15 million. Customs duty on refrigerated motor vehicles has been waived, while customs duty on food

processing machinery reduced from 7.5% to 5%. Customs duty on sunflower oil (crude) reduced from 65% to 50% and on sunflower oil (refined) reduced from 75% to 60%.

Special additional duty of 4% has been waived in the case of refined edible oil. All services provided by Technology Business Incubators and their incubatees whose annual

business turnovers do not exceed Rs. 5 million have been exempt from the service tax for the first three years.

Under Income Tax Act, a deduction of 100% of profit for five years and 25% of profits for the next five years will be allowed in case of new agro-processing industries set up to process, preserve and package fruits and vegetables.

At present the food processing industry is growing at about 13%, against 6-7% growth rate in

2003-04. The industry received foreign direct investments (FDI) totalling Rs. 8,610 million in 2010-

11 against Rs. 9,537 million in the previous year. The food processing industry received FDI of

about Rs. 8,590 million in FY2012, and total FDI received from FY2001 up to June 2012 was Rs.

67,454 million.

India’s share in exports of processed food in global trade is only 1.5%, whereas the size of the

global processed-food market is estimated at USD 3.2 trillion and nearly 80% of agricultural

products in the developed countries get processed and packaged.

The government’s Vision-2015 action plan, under which specific targets have been set, was

formulated to help the industry achieve higher growth. This includes tripling the size of the food

processing industry, raising the level of processing of perishables from 6% to 20%, increasing value

addition from 20% to 35%, and enhancing India’s share in global food trade from 1.5% to 3%. The

ministry of food processing also plans to set up 350 new food processing units.

The food and grocery market in India is the sixth-largest in the world. Food and grocery retail

contributes to 70% of the total retail sales. According to industry estimates, the segment is

growing at a rate of 104% and is expected to grow to USD 482 billion by 2020. According to a

Business Monitor International (BMI) forecast, India is likely to see a significant 443% increase in

mass grocery retail sales in the period, 2007-12. 99% of this segment is unorganised, and

therefore, there is immense scope for growth for the organised sector. The organised food retail

sector is largely dominated by restaurants, fast food outlets and coffee shops.

Another critical objective for the industry is to achieve international standards of food safety and

quality. This calls for a sustained campaign to educate consumers and promote quality assurance


www.imacs.in 7

in industry, establish world-class food testing laboratories in both the public and private sectors

and harmonise Indian food standards with codex standards1.

Also, the high level of presence of fragmentation in the industry with most of the players are small

and unorganised, poses a special challenge to the development of the industry as a whole. The

small scale sector will require hand-holding to make them profitable and competitive in the world

market. The state governments have an important role to play as a catalyst between bankers,

financial institutions and, technical and management institutions. They could also help establish

industry clusters and identify those requiring up-gradation in terms of latest technology, new

packaging methods and adequate marketing support. While some states have devised specific

policies for the sector, there are many more who can formulate such policies to exploit their

agricultural and processing capabilities to the maximum.

The food processing ministry urges the state governments to implement the Amendments to the Agriculture Produce Marketing Committee (APMC) Act. Also, important would be to implement early, the Goods and Services Tax (GST) while removing subjectivity in treatment and classification of food products. Enforcement food laws by increasing the number of trained inspectors and lab facilities is another area where states can step up their activities. All the more important is for both the central and the state governments to work together.

INDUSTRY OVERVIEW

Food processing is a growing industry of the Indian economy and has been identified as a “sunrise

industry” for development due to its vital linkage between the urban and rural economies. India

has immense potential for production and export of various food items because of sufficient

resources, available markets and a favourable business environment. Moreover, with the

emergence of a market economy, the demand for food items has undergone significant changes

during the last two decades due to increase per-capita income, urbanisation, growing number of

nuclear families versus joint ones, higher employment levels, change in food habits, and

awareness about health and nutrition. The consumption pattern in both rural and urban

households has diversified, over time, towards high value and packaged food products.

Food processing involves any type of value addition to the agricultural produce starting the post

harvest level. The processed food industry provides safe convenience foods to consumers, and

promotes diversification and commercialisation of agriculture by providing effective linkages

between the farmer and consumers in both domestic as well as international markets.

The extent of processing can be categorised as follows:

Primary Processing: cleaning, grading, powdering and refining of agricultural produce,

1 The Codex Alimentarius Commission was created in 1963 by FAO and WHO to develop food standards, guidelines and related texts such as

codes of practice under the Joint FAO/WHO Food Standards Programme. Codex India, the National Codex Contact Point (NCCP) for India, is

located at the Directorate General Of Health Services, Ministry of Health and Family Welfare (MOH&FW), Government of India. It coordinates

and promotes Codex activities in India in association with the National Codex Committee.


www.imacs.in 8

e.g., grinding wheat into flour.

Secondary Processing: basic value addition, e.g., tomato-puree, ground coffee, cleaning

and processing of meat products.

Tertiary Processing: high value addition products like jams, sauces, biscuits and other

bakery products that are ready for consumption at the point of sale.

The industry employs over 13 million workers directly and has a wide scope covering activities

such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other

industries that use agriculture inputs for manufacturing of edible products. The Ministry of Food

Processing Industries (MoFPI), Government of India (GOI), classifies the following under processed

food industry:

Dairy, fruits and vegetables

Grains

Meat and poultry

Fisheries

Consumer foods including packaged foods, beverages and packaged drinking water

Segmentat ion of Different Sectors in the Food Processing Industry

Sectors Products

Dairy Whole milk powder, skimmed milk powder, condensed milk, ice cream, butter and ghee, cheese

Fruits and

Vegetables

Beverages, juices, concentrates, pulps, slices, frozen and dehydrated products, potato wafers,

potato chips

Grains and Cereals Flour, bakeries, starch glucose, cornflakes, malted foods, vermicelli, beer and malt extracts, grain-

based alcohol

Fisheries Frozen and canned products

Meat and Poultry Frozen and packed products, egg powder

Consumer Foods Snack food, namkeen, biscuits, ready-to-eat food, alcoholic and non-alcoholic beverages,

confectionery

India with a population of 1.2 billion (representing almost 17.3% of the world’s population)

provides a large and growing market for food products. India is amongst the three largest

producers of agricultural commodities in the world. In addition, food is the single largest

component of private consumption expenditure, accounting for almost one-third of the total

spending. An overview of the Indian agricultural sector is given in the table below.


www.imacs.in 9

Indian Agriculture – A Snapshot

Area/Production

Area under horticulture crops (million hectares) 21.3

Food grains (million tonnes) 241.5

Milk (million tonnes) 121.8

Fruits and vegetables (million MT) 213.5

Fish (million tonnes) 8.2

Edible oilseeds (million tonnes) 31.1

Pulses (million tonnes) 18.0

Sugarcane (million tonnes) 339.1

Jute and Mesta 10.5

Eggs (million no.) 63,024

Cotton (million bales) 33.4

Livestock (million no.) 529.7

Poultry (million no.) 648.9

Source: Department of Agriculture & Cooperation, Department of Animal Husbandry and IMaCS Research

All data pertains to the year 2010-11, except poultry and livestock data, which is as per the 18th

Livestock Census, 2007

The area under horticulture crops is about 21.3 million hectares. India produces 121.8 million

tonnes of milk annually, 213.5 million metric tonnes of fruits and vegetables, 241.5 million tonnes

food grains, 8.2 million tonnes of fish, 63,024 million eggs, and has a population of about 529

million livestock and over 648 million poultry animals.

India ranks among the top 20 countries in the world in terms of production of the following

commodities: wheat, vegetables, rice (paddy), cow and goat milk, barley, grapes, maize, potato,

watermelons, sheep milk and meat, cattle meat, fresh fruits, pulses, sugarcane, berries, goat

meat, cottonseed, and almonds (with shell). In 2010, India was the largest producer of fresh fruits,

spices, mango (mangosteen and guava), buffalo meat and milk, castor oil, jute and many other

commodities in the world. Among the top ten produced commodities were fresh fruits and

vegetables, soyabean, wool, rapeseed, coffee, natural rubber and honey. India was also the

largest producer of cow, buffalo and goat milk in the world.


www.imacs.in 10

Global Ranking by Agricultural/Processed Product s

Product Rank Product Rank

Fresh fruits 1 Vegetables 2

Chickpea 1 Hen eggs in shell 3

Chilly and pepper dry 1 Coconut 3

Mango, mangosteen, guava

1 Linseed 3

Anise, badian, fennel, coriander

1 Rapeseed 3

Buffalo milk 1 Tomatoes 3

Castor oil seed 1 Natural rubber 4

Pulses 1 Soyabean 4

Jute 1 Coffee, green 5

Sesame seed 1 Oilseed 6

Cow milk 2 Apples 6

Rice paddy 2 Maize 7

Onions dry 2 Natural honey 10

Cashew nuts 2 Wool 10

Despite being the one of the largest producers of agricultural commodities, India does not figure

among the top twenty exporters of such commodities or their processed products. For example,

the country is amongst the largest producers of the primary products listed above but is not a

large exporter of cereal preparations, cheese of skimmed cow milk, chicken meat, citrus fruits,

fresh cream, wheat flour or food preparations, frozen potatoes, fruit juices and preparations,

tropical dried fruits, ice cream and edible ice, juices of tomatoes and vegetables, concentrated

lemon juices, lemons and limes or even mango juice.

While agricultural production is significant, the food processing industry is still under developed.

Of the country’s total agricultural and food produce, only around 2% is processed. The highest

share of the processed food is in the dairy sector, where 35% of the total produce is processed, of

which only 13% is processed by the organised sector. The processing level is around 2.2% in fruits

and vegetables, 21% in meat and 6% in poultry products.

Level of Processing in the Food Sector

Level of Processing in

the Organised Sector

Level of Processing in

the Unorganised Sector

Total

Processing

Fruits & vegetables 1.2% 1.0% 2.2%

Dairy 13.0% 22.0% 35.0%

Meat 21.0% - 21.0%

Poultry 6.0% - 6.0%

Marine fisheries 1.8% 9.0% 10.7%

Shrimps 0.4% 1.0% 1.4%

Source: Ministry of Food Processing


www.imacs.in 11

Processing Level in Frui ts and Vegetables Sector in Various Countries

Country Level of Processing

Malaysia 80%

Philippines 78%

Brazil 70%

USA 65%

Thailand 30%

China 23%

India 2.2%

The processing level in fruits and vegetable segment in India is low at 2.2%, as compared to 80% in

Malaysia and 78% in Philippines. China has about 23% processing in this segment, which is almost

ten times the level of processing in India.

A nation-wise study on quantitative assessment of harvest and post-harvest losses for 46

agricultural produces in 106 randomly selected districts was carried out by Central Institute of

Post-Harvest Engineering and Technology (CIPHET). As per the data and results majority of the

wastage is in the fruits and vegetables and pulses and cereals segment. With adequate processing

facilities, much of this waste can be reduced thus increasing remuneration to the producer as well

as ensuring greater supply to the consumer.

Percentage of Losses Estimated for Major Produces

Crop Cumulative Wastage (%)

Cereals 3.9-6.0%

Pulses 4.3-6.1%

Oil seeds 6.0%

Fruits and Vegetables 5.8-18.0%

Milk 0.8%

Fisheries 2.9%

Meat 2.3%

Poultry 3.7%


www.imacs.in 12

Major Frui ts and Vegetables Producing Countries in the World in 2009-10 Area in million hectares - LHS; production in million tonnes - RHS

The chart above shows the major fruits and vegetables producing countries in the world in the year 2009-10. By producing 109 million tonnes of fruits and 458 million tonnes of vegetables, China led the fruits and vegetables production in the world. India followed it by producing 72 million tonnes of fruits and 134 million tonnes of vegetables. Among the top ten producers of fruits and vegetables in the world were Brazil, the US, Italy, Mexico, Indonesia, Spain, Philippines and Iran. There is immense potential for investment in this sector. Upward mobility of income classes and increasing need for convenience and hygiene is driving demand for perishables, non-food staples and processed foods. Also, eating out has become a common practice in urban India and processed foods are more acceptable as alternatives to the home cooked food because of the convenience they offer. In addition, with the globalisation of trade and availability of high-speed logistics, food retailers in developed countries have started sourcing fruits and vegetables from developing countries, round-the-year. Thus, both for local consumption as well for export, there is ample business opportunity for fruits and vegetables, meat and poultry products, and ready-to-eat processed foods.

INDUSTRY CHARACTERISTICS

Impor tance to Economy

India’s food sector, though still developing, contributes around 7-8% to the manufacturing GDP

and employs 35 million people indirectly. During FY2011, the GDP from food products in

registered manufacturing sector aggregated to Rs. 577.9 billion at current prices and Rs. 404.4

billion at constant prices.

-

50

100

150

200

250

300

350

400

450

500

-

5

10

15

20

25

30C

hin

a

Ind

ia

Bra

zil

US

Ital

y

Mex

ico

Ind

on

esia

Spai

n

Ph

ilip

pin

es

Iran

Oth

ers

Area - Fruits Area - Vegetables Production - Fruits Production - Vegetables


www.imacs.in 13

Besides its contribution to GDP and employment, the food processing industry in India holds

considerable significance because of the linkages and synergies that it promotes between the two

key sectors of the economy – industry and agriculture. Fast growth in the food processing sector

and progressive improvement in the value addition chain are also important for achieving

favourable terms of trade for Indian agriculture both, in the domestic and international markets.

The Gross Bank Credit (GBC) to the food processing industry increased by 14.2% (on a y-o-y basis)

from Rs. 873.2 billon in July 2011 to Rs. 996.9 billion in July 2012. In FY2011 the Private Final

Consumption Expenditure (PFCE) on food and beverage products, aggregated to Rs. 8,683 billion,

accounting for around 28.1% of the total PFCE at constant prices.

GDP from Food Products in Registered Manufacturing (Rs. billion)

FY 2005 2006 2007 2008 2009 2010 2011

Current Prices 221.2 276.7 332.9 385.4 474.9 518.5 577.9

Meat, fish, fruits,

vegetables, and oils 36.8 42.6 56.8 72.5 87.5 85.1 95.4

Dairy products 25.2 33.3 34.9 41.0 41.3 49.8 45.6

Grain mill products 36.9 42.4 52.5 66.5 94.1 100.1 111.6

Other food products 95.7 117.8 135.5 135.3 147.6 197.3 225.7

Beverages 26.6 40.6 53.2 70.1 104.4 86.2 99.6

Share of

registered

manufacturing

7.1% 7.5% 7.3% 7.4% 7.9% 7.8% 7.5%

Constant Prices 221.4 267.8 306.9 347.3 392.5 378.0 404.4

Meat, fish, fruits,

vegetables, and oils 36.8 44.8 55.4 62.6 71.1 69.9 74.9

Dairy products 25.2 33.5 33.1 35.2 33.6 35.9 30.0

Grain mill products 36.9 40.5 43.7 53.2 72.4 72.5 76.5

Other food products 95.7 111.3 127.9 135.9 130.4 132.8 149.4

Beverages 26.6 37.5 46.8 60.4 85.0 66.9 73.6

Share of

registered

manufacturing

7.1% 7.6% 7.5% 7.7% 8.1% 7.0% 6.9%

Source: Ministry of Statistics and Programme Implementation (MOSPI)

The PFCE on major items of food are as follows:


www.imacs.in 14

PFCE on Major Food Products (At constant prices, Rs. billion)

FY 2005 2006 2007 2008 2009 2010 2011

Cereals & bread 1,655 1,714 1,760 1,856 1,856 1,737 1,881

Pulses 159 163 167 179 181 179 212

Sugar & jaggery 333 335 357 398 396 380 422

Oils & oilseeds 378 364 338 359 368 366 433 Fruits &

vegetables 1,509 1,606 1,721 1,789 1,863 1,892 2,024

Potato & other

tubers 170 178 163 209 156 245 263

Milk & milk

products 1,341 1,421 1,440 1,552 1,689 1,682 1,624

Meat, egg & fish 624 653 694 726 758 788 823 Coffee, tea &

cocoa 62 64 65 64 65 70 64

Spices 182 211 160 168 174 158 154

Other food 91 113 135 131 137 163 180 Beverages, pan

and intoxicants 392 424 462 544 561 531 604

Total 6,896 7,246 7,461 7,975 8,202 8,191 8,683

Share in

Total PFCE

(%)

35.8% 34.7% 32.9% 32.2% 30.9% 28.7% 28.1%

Source: Ministry of Statistics and Programme Implementation (MOSPI)

Cycl ica l i ty

Although the industry is exposed to agricultural and livestock prices on the raw material front,

volume demand tends to be non-cyclical. It may be cyclical in value terms as consumers tend to

switch to lower priced brands during recessionary periods.

Globally, non-fuel commodity prices firmed up during 2007 led by metals and food prices but

declined after mid-2008. Food prices firmed up led by wheat and edible oils on reports of

shortfalls in production and increased demand for non-food uses. After peaking in June-July 2008,

food and beverage prices declined for about a year and showed signs of recovery since April 2010.

In FY2012, the prices declined (on a y-o-y basis) through the year, except in the last quarter where

the average annual increase was 2%.


www.imacs.in 15

World Food and Beverage Price Index 2005=100

Source: Commodity Price Index, IMF

In India, inflationary pressures on food products and articles have continued since February 2008.

These prices reflect the impact of both supply side and demand side pressures. Prices of primary

food articles have increased for fruits and vegetable, rice, wheat, cereals, breads and buns,

biscuits, milk and dairy products. In FY2012, the wholesale price index (WPI) for food articles

increased in the range of 8-10% (on a y-o-y basis) between May and November 2011.

WPI for Food Articles 2004-05=100

Source: MOSPI

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Index y-o-y change (%)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

0

50

100

150

200

250Ja

n-0

6

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12



www.imacs.in 16

Sens it iv i ty o f Indust ry to Government Po l ic ies

Food processing has been declared a priority sector by the GOI. No industrial license is required

for food processing, except for alcoholic beverages and a few items reserved for the small scale

industries (SSI). Foreign direct investment of 100% is allowed except in alcoholic beverages and

items reserved for the SSI. Agro-based units established in special economic zones and 100% EOUs

are allowed (a) sales up to 50% in domestic tariff area, and (b) import of capital goods and raw

materials at 0% duty. The Government announced a new centrally sponsored scheme, ‘National

Mission on Food Processing’ which will be started in cooperation with the State governments.

Support Available to the Food Processing Industry

Investment linked deduction of capital expenditure incurred in the following businesses is

proposed to be provided at the enhanced rate of 150%, as against the current rate of

100%

• Cold chain facility

• Warehouses for storage of food grains

The following new sectors are proposed to be added for the purposes of investment linked

deduction:

• Bee keeping and production of honey and beeswax

• Container freight station and inland container depots

• Warehousing for storage of sugar

Basic customs duty on Soya protein concentrate and isolated Soya protein has been

reduced from 30% and 15% respectively to 10%. Simultaneously, excise duty on all

processed Soya food products has been reduced to the merit rate of 6%.

The basic customs duty on Probotics has been reduced from 10% to 5%.

National Mission for Protein Supplement - To improve productivity in the dairy sector, a

Rs. 22 billion project is being launched with World Bank assistance. To broaden the scope

of production of fish to coastal aquaculture, apart from fresh water aquaculture, the

outlay in 2012-13 is being stepped up to Rs. 5 billion. Suitable allocations are also being

made for poultry, piggery and goat rearing.

The food processing sector has been growing at an average rate of over 8% over the past

5 years. In order to have a better outreach and to provide more flexibility to suit local

needs, it has been decided that a new centrally sponsored scheme titled “National

Mission on Food Processing” would be started, in cooperation with the State

Governments in 2012-13.

The Government has taken steps to create additional food grain storage capacity in the

country. Creation of 2 million tonnes of storage capacity in the form of modern silos has

already been approved. Nearly 15 million tonnes capacity is being created under the

Private Entrepreneur’s Guarantee Scheme, of which 3 million tonnes of storage capacity

will be added by the end of 2011-12 and 5 million would be added next year.

Basic customs duty has been reduced from 7.5% to 2.5% on:

• Sugarcane planter, root or tuber crop harvesting machine and rotary tiller and weeder.

• Parts for the manufacture of these.

Basic customs duty has been reduced from 7.5% to 5% on:

• Specified coffee plantation and processing machinery.

It is proposed to extend project import benefit to green house and protected cultivation


www.imacs.in 17

for horticulture and floriculture at concessional basic customs duty of 5%.

It has been proposed to reduce basic customs duty on some water soluble fertilisers and

liquid fertilisers, other than urea, from 7.5% to 5% and from 5% to 2.5%.

It has been proposed to extend concessional import duty available for installation of

Mechanised Handling Systems and Pallet Racking Systems in Mandis or warehouses for

horticultural produce.

Food processing identified as an industry with employment potential.

Most of the processed food items exempted from under the Industries (Development & Regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.

Food processing industries with investment up to Rs. 100 million were included in the priority sector list for bank lending in the year 1999.

Automatic approval for foreign equity up to 100% available for most of the processed food items except alcohol and beer, and those reserved for the SSI, subject to certain conditions.

Excise duty on processed fruits and vegetables was brought down from 16% to 0%.

Income tax holiday and other concessions for certain categories of food processing industries.

Income tax deduction on 100% of profit for five years and 25% of profits for the next five years allowed in case of new agro-processing industries set up to process, preserve and package fruits and vegetables.

Exemption limit of excise duty for small scale Industry increased from Rs. 10 million to Rs. 15 million.

Excise duty on biscuits reduced from 8% to 0% whose retail price does not exceed Rs. 100 per kg.

Excise duty reduced from 8% to 0% on all kinds of food mixes including instant mixes.

Soya nuggets (food supplements) and ready to eat packaged foods fully exempt from excise duty.

Excise duty on reefer vans (refrigerated motor vehicles) reduced from 16% to 8%.

Custom duty on food processing machinery reduced from 7.5% to 5%.

Custom duty on sunflower oil (crude) reduced from 65% to 50%.

Duty on sunflower oil (refined) reduced from 75% to 60%.

Special additional duty of 4% waived off on refined edible oil.

Central sales tax reduced from 4% to 3%.

All services provided by Technology Business Incubators exempted from service tax.

Similarly their incubators whose annual business turnover does not exceed Rs. 5 million, exempted from service tax for the first three years.

Customs duty on bacto-fuges from 7.5% to 0%.

Customs duty on ‘mechanical harvester’ for coffee plantation reduced from 7.5% to 5%.

In the interim Union Budget 2009-10, the minimum support price (MSP) for common variety of paddy was increased from Rs. 550 per quintal in 2003-04 to Rs. 900 per quintal for the crop year 2008-09.

For wheat, the increase was from Rs. 630 per quintal in 2003-04 to Rs. 1,080 per quintal for the year 2009.

In the Union Budget, 2009-10, provisions, allocation for Market Development Assistance Scheme for exports was enhanced to Rs. 1,240 million in B.E. 2009-10.

Sun-set clauses for deduction in respect of export profits under sections 10A and 10B of the Income-tax Act was extended by one more year i.e. for the financial year 2010-11.

Businesses to be incentivised by providing investment linked tax exemptions rather than profit linked exemptions. Investment linked tax incentives to be provided, to begin with, to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments to be fully allowable as deduction.

Excise duty rate on items attracting 4% to be raised to 8% with the exception of specified food items including biscuits, sharbats, cakes and pastries.

In the Union Budget, 2010-11, measures have been announced for improving investment environment by simplifying the FDI regime, clearly defining the methodology for calculation of indirect foreign investment in Indian companies and complete liberalisation of pricing and payment of technology transfer fee and trademark, brand name and royalty payments.

To facilitate reduction in wastage of agricultural produce the government has announced plans to address the


www.imacs.in 18

issue of opening up of retail trade to help bring down the considerable difference between farm gate, wholesale and retail prices.

Deficit in the storage capacity to be met through an ongoing scheme for private sector participation and the Food Corporation of India (FCI) to hire godowns from private parties for a guaranteed period of seven years.

External commercial borrowings (ECB) to be available for cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

For the micro, small and medium enterprises the allocation increased from Rs. 17.9 billion to Rs. 24 billion for the year 2010-11.

Surcharge of 10% on domestic companies reduced to 7.5%. However, the rate of Minimum Alternate Tax (MAT) increased from the current rate of 15% to 18% of book profits.

Project import status at a concessional customs duty of 5% with full exemption from service tax to the initial setting up and expansion of cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce and processing units for such produce.

Full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

Concessional customs duty of 5% to specified agricultural machinery not manufactured in India.

Central excise exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their produce and full exemption from excise duty to trailers and semi-trailers used in agriculture.

Exemption on testing and certification of agricultural seeds from service tax.

Transportation by road of cereals, and pulses to be exempted from service tax. Transportation by rail to remain exempt.

To ease the cash flow position for small-scale manufacturers, they would be permitted to take full credit of central excise duty paid on capital goods in a single instalment in the year of their receipt. Secondly, they would be permitted to pay central excise duty on a quarterly, rather than monthly, basis.

Recognising the enormous benefits that the food processing industry can bring to agriculture and

job creation, and to consumers, food processing industries were included in the list of priority

sector for bank lending in 1999. Excise duty on processed fruits and vegetables was brought down

from 16% to 0% in the Union Budget for 2001-02. The Union Budget for 2004-05 announced

income tax holiday and other concessions for certain categories of food processing industries. The

Union Budget, 2006-07, proposed to set up the National Institute of Food Technology

Entrepreneurship and Management (NIFTEM). The Budget also reduced customs duty on

packaging machines from 15% to 5%. Further, excise duty is now fully exempt on condensed milk,

ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast. Excise duty on ready-

to-eat packaged foods and instant food mixes, like dosa and idli mixes, was reduced from 16% to

8%. While customs duty cut on packaging machines and priority sector financing is likely to ease

setting up of new projects and expansions, reduction in excise duty is likely to reduce costs and

increase competitiveness, especially of the organised sector.

The Union Budget, 2007-08, exempted additional duty of customs of 4% on all edible oils – crude

and refined; reduced customs duty on food processing machinery from 7.5% to 5%; provided for

concessional customs duty rate of 5% and zero countervailing duty(CVD)/excise duty presently

available to specified plantation machinery up to April 2007, to be extended up to April 2009;

reduced customs duty on crude sunflower oil from 65% to 50% and on refined sunflower oil from

75% to 60%; fully exempted excise duty on packed biscuits of maximum retail sale price (MRP),

not exceeding, Rs. 50 per kg; and increased excise exemption limit for SSI scheme from Rs. 10

million to Rs. 15 million.


www.imacs.in 19

The Union Budget, 2008-09, reduced customs duty on bacto-fuges from 7.5% to zero, helpful for

the dairy industry in increasing product shelf life. It also proposed the setting up of a special

purpose tea fund for re-plantation and rejuvenation of Rs. 400 million in 2008-09. Similar support

proposed for cardamom, rubber and coffee. It also proposed a crop insurance scheme for tea,

rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom. The budget provided an outlay of

Rs. 11 billion in 2008-09, to the national horticulture mission, covering 340 districts in 18 states

and two union territories.

In the Union Budget, 2009-10, the concessional customs duty of 5% on specified machinery for

tea, coffee and rubber plantations was reintroduced for one year, i.e., up to July 2010. Customs

duty on ‘mechanical harvester’ for coffee plantation was reduced from 7.5% to 5%.

In the Union Budget, 2011-12, storage capacity of 2 million metric tonnes under the Public

Entrepreneurs Guarantee (PEG) Scheme will be created through modern silos. The government is

expecting to add 4 million metric tonnes by March 2012. During 2010-11, 2.4 million metric

tonnes of storage capacity has been created under the Rural Godown Scheme. The target of credit

flow to farmers has been raised from Rs. 3,750 billion in 2010-11 to Rs. 4,750 billion in 2011-12.

The National Mission for Protein Supplements has being launched in 2011-12 with an allocation of

Rs. 3 billion. It will take up activities to promote animal based protein production through

livestock development, dairy farming, piggery, goat rearing and fisheries in selected blocks.

During the Eleventh Five-Year Plan period (2007-12), the food processing ministry proposed to

launch a revamped infrastructure scheme to promote setting up of Mega Food Parks (MFP), cold

chains, value-added and packaging centres. A park would be a well-defined agri-horticulture

processing zone containing state of the art processing facilities with support infrastructure and

well established supply chain. The primary objective of the proposed scheme is to facilitate

establishment of an integrated value chain.

Investment in cold storage projects is now gaining momentum. In total 49 projects/units have

been approved. During 2011-12 (up to December 2011), the Ministry has released grants in aid of

Rs. 440 million to 14 integrated cold chain projects in the country. The 10 projects approved

during 2008-09, and 39 proposals approved during 2011-12 will add 232,628 MT of cold chain,

CA/MA, deep freezer capacity, 234 reefer carriers and 24 MT per hour of IQF capacity. So far a

capacity of 25,705 MT of cold chain, CA/MA, deep freezer, 29 reefer carriers and 1.5 MT per hour

of IQF capacity has already been created. To attract investment in this sector, henceforth, capital

investment in the creation of modern storage capacity will be eligible for viability gap funding

scheme of the Finance Ministry. It is also proposed to recognise cold chains and post-harvest

storage as an infrastructure sub-sector.

During FY2009, setting up of 9 new abattoirs had been approved and 1 new abattoir was

approved during the year FY2011. Grants-in-aid amounting to Rs. 372 million have been

disbursed. Till now two of the abattoirs have been completed which are located at Dimapur

(Nagaland) and Ahmednagar (Maharashtra).

In the Mega Food Park scheme, the emphasis would be on building strong linkages with

agriculture and horticulture, enhancing project implementation capabilities, increasing private


www.imacs.in 20

sector investment, and supporting the creation of rural infrastructure for steady supply of good

quality agri-horticulture produce. It would provide a mechanism to bring farmers, processors and

retailers together and link agricultural production to the market, ensure maximum value addition,

minimise wastage and improve farmers' income. Project implementation would be assisted by

professional project management agencies from concept to commissioning. During the financial

year 2011-12, Ministry released grant-in-aid of Rs.450 million (up to December 2011) to 10

ongoing Mega Food Park projects approved during the first phase.

The Ministry (MoFPI) has also prepared a Vision-2015, document for putting down a strategy and

action plan on giving boost to growth in the food processing sector for generation of income,

employment and foreign exchange. The Cabinet approved the integrated strategy in June 2007,

based on the recommendations made by a group of designated ministers. The objective is to

transition from a supply driven to a demand driven market by reducing costs, improving safety

standards, developing markets, creating efficient supply chains, introduce technology, and

promote synergies between the really big and relatively smaller players for generation of

employment and export revenues.

The targets are to increase processing of perishable items of food from 6% to 20%, value addition

from 20% to 35%, and share in global food trade from 1.6% to 3%. Specifically, the level of

processing for fruits and vegetables is targeted to increase, significantly, from 2.2% to 15% by

2015. To achieve these, the vision document proposes to provide a single window approach to all

stake-holders. Specific policy thrust is proposed for increase in cost effective raw materials,

greater infrastructure development, smoother credit availability, greater use of technology in

existing processing units, modern marketing and retail methods, rationalised taxation, modern

integrated food law for food safety and testing, market creation and intelligence, and special

attention to the SSI sector.

The Ministry’s scheme for Cold-chain, Value addition and Preservation Infrastructure aims to

provide integrated cold chain and preservation infrastructure facilities without a break from farm

gate to the consumer. The objective is to link the producers to the processors and market through

well-equipped cold chain infrastructure. The scheme will include:

Minimal Processing Centre at farm level for weighing, sorting, packing, pre-cooling,

Controlled Atmosphere (CA)/Modified Atmosphere (MA) cold storage, etc

Mobile pre cooling vans and reefer trucks

Irradiation facility

Distribution hubs with multi product and CA/MA chambers, packing facility etc.


www.imacs.in 21

Focus Sector In October 2009, the Prime Minister of India stressed on the need for developing the huge potential that the

country’s nascent food processing industry presents. He reiterated that the food processing ministry is in the process

of formulating a national policy on food processing, which will be comprehensive and adopt a number of legislative,

administrative, and promotional measures. He said that the policy should evolve through discussions with the states

and industry both in the public and private sector. It should promote the development of viable agri-business and

agro-industry models based on different agro-climates and regions of this vast country. Its aim must be institutional

strengthening and capacity building across the value chain.

The policy should seek to promote innovation and technological development. Improved technologies to prolong the

shelf life of vegetables and fruits, better packaging machinery and cold storage systems are just some of the areas

where more work is needed. The Central Food Technology Research Institute should play a more central and pro-

active role in promoting the knowledge base of the industry through greater public private partnerships in technology

development.

According to the Prime Minister, the research and development base of the industry also needs considerable

strengthening. While basic agricultural research has a very strong and large institutional network in the country, there

is inadequate focus on the food processing sector. He urged the agricultural universities, premier technological

institutes and the private sector to actively undertake collaborative strategic research in this important sector. He

also called for an initiative on international collaborations in this field.

SUB-SECTORS IN THE FOOD PROCESSING INDUSTRY

Fru i ts and Vegetables

The diverse agro-climatic zones make it possible to grow almost all varieties of fresh fruits and

green vegetables in India. The fruits and vegetables segment includes beverages, juices,

concentrates, pulps, and slices, frozen and dehydrated products, and potato wafers/chips among

others.

Fruits

India produced 75.8 million metric tonnes of fruits in 2010-11 and the five year Compound Annual

Growth Rate (CAGR) was 6.5%. India accounted for 12.3% of the total production of fruits in the

world in 2009-10. While there are almost 180 families of fruits that are grown all over the world,

citrus fruits constitute around 20% of total global fruit production. The fruits are processed into

various products such as fruit juices & concentrates, canned fruit, dehydrated fruit, jams and

jellies, etc. International trade in processed fruit products is around USD 9,200 million.

Although India is among the largest producers of fruits in the world, the production per capita is

only about 100 grams per day. However, it is estimated that around 20-22% of the total

production of fruits is lost due to spoilage at various post harvest stages. Thus the per capita

availability of fruits is further reduced to around 80 grams per day, which is almost half the

requirement for a balanced diet.

The fruit production in India has recorded a growth rate of 7%, whereas the fruit-processing

sector has grown at about 20% per annum. However, the growth rates have been extensively

higher for frozen fruits and vegetables and dehydrated fruits and vegetables. There exist over

4,000 fruit processing units in India with an aggregate capacity of more than 1.2 million MT (about


www.imacs.in 22

2% of total fruits produced). It is estimated that around 20% of the production of processed fruits

is meant for exports, the rest caters to the defence, institutional and household sectors.

Manual harvesting is widely practiced for fruits due to abundant supply of surplus agricultural

labour. Fresh fruits are mostly harvested by hand or hand tools, sorting and grading of fruits are

done on a very limited scale and that too are based on visual inspection only. Limited pre-cooling

facilities are available for grapes, strawberries, etc., only in the exports sector. Consequently,

Indian farmers are averse to growing fruits as it requires high initial investment and long gestation

period. Poor quality of seeds and other planting material available affect the yield of fruits and

thereby provide returns to the farmers. For low educational level coupled with poor technical

training/extension facilities available to the farmers, adoption of new technologies has always

been a problem area. These factors result in non-uniform quality of fruits processed in India.

The following table shows the major Tropical, Sub-Tropical, and Temperate fruits grown in India.

Major Frui ts Grown in India

Category Major Fruits

Tropical Mango, Banana, Pineapple, Citrus and Grapes

Sub-Tropical Papaya, Guava, Litchi, Pomegranate

Temperate Apple, Strawberry, Peach, Plum

Vegetables

India is the second largest producer of vegetables in the world after China. It accounted for 13.7%

of the world’s production of fresh vegetables in 2009-10. At a production level of over 137 million

metric tonnes and the total area under vegetable cultivation is around 8 million hectares which is

about 3.5% of the total area under cultivation in the country and around 38% of the area under

horticulture crops.

In India, less than 2% of the total vegetables produced in the country are commercially processed

as compared to 80% in Malaysia and 70% in Brazil. India exported 826 million kilograms of

processed fruits and vegetables at Rs. 34 billion in 2010-11. Exports of dried and preserved

vegetables were 110,173 metric tonnes, which were valued at Rs. 5,169 million in 2010-11. Onions

account for about 65% (in volume) of the total export of fresh fruits and vegetables from India.

The other major items of export are Potato, Tomato, Brinjal, Beans, Carrots, Chillies, Capsicum etc.

The major export markets are Gulf Countries, UK, Sri Lanka, Malaysia and Singapore. Though India

ranks second in the vegetable production in the world, the average yield for various vegetables

are low compared to those experienced in other countries of the world.

Land ceiling has been a major deterrent for large-scale cultivation of fruits and vegetables

especially in the organized sector. The small captive orchards are insufficient to meet the

requirements of the fruit processing industry. In case of vegetables, potato, tomato, onion,

cabbage and cauliflower account for around 60% of the total vegetable production in the country.

Vegetables are typically grown in India in field conditions as opposed to the cultivation of

vegetables in green houses as practiced in developed countries for high yields. The vegetables

sector also suffers from lack of availability of good quality planting material and low use of hybrid


www.imacs.in 23

seeds. Poor farm management and manual harvesting practices also apply to the vegetables

cultivation.

The following table shows the major categories of vegetables grown in India.

Major Vegetables Grown in India

Category Major Vegetables

Leafy Vegetables Cabbage, Cauliflower, Lettuce, Mustard and Spinach

Fruit and Flower

Vegetables

Capsicum ,Cucumber, Gherkin, Parwal, Pumpkin, Snake

guard, Tinda and Tomato

Root and Tubers

Beetroot, Carrot, Celery, Onion, Potato, Radish, Sweet

Potato, Turnip and Yam

Podded Vegetables

Broad bean, Chickpea, Drumstick, French bean, Indian pea,

Okra and Sweet corn

Fungi Vegetables

Cultivated Mushrooms, Oyster mushrooms

and Straw mushrooms

Major Frui ts and Vegetables Producing States in India

Fruits Vegetables

States Share States Share

Andhra Pradesh 18.1% Bihar 10.4%

Gujarat 9.8% Orissa 6.7%

Karnataka 8.0% Uttar Pradesh 16.8%

Maharashtra 14.5% West Bengal 16.4%

Tamil Nadu 8.9% Tamil Nadu 5.7%

Rest of India 40.7% Rest of India 44.0%

Year 2009-10

In 2010, almost 60% fruits were produced by Andhra Pradesh, Gujarat, Karnataka, Maharashtra

and Tamil Nadu. Out of these the maximum production was from Andhra Pradesh (18.1%), and

Maharashtra (14.5%). In terms of vegetables, 56% was produced in the states of West Bengal,

Uttar Pradesh, Bihar, Orissa, and Tamil Nadu. Major share was produced by Uttar Pradesh (16.8%)

and West Bengal (16.4%).

Trends

Fruits and vegetables would continue to be harvested manually in the future. While small land

holdings and non-availability of good quality planting material have been the major issues of

concern, it is expected that quality of planting material would improve in the long run due to

selection, hybridisation, breeding and tissue culture. For poor farm management practices, there

exists strong need for extension education and training for the growers. Cooperative and contract

farming may solve the problems for small land holdings towards improved yield and quality in the

long run.

Application of fungicides/pesticides and chemical preservatives are likely to be replaced by more

environment friendly technologies in the long run. While pre-cooling (cold chain) and surface

coating are expected to dominate in the short run, controlled or modified atmosphere (CA/MA)


www.imacs.in 24

packaging and irradiation technologies are expected to emerge in the long run for preservation

and extension of shelf life. Also, while marketing of fruits and vegetables is expected to be

dominated by cooperatives and middle men in short term, organised direct sourcing supermarkets

have also emerged and are likely to grow. Dehydrated products, fruit juices, pickles and other

forms of preserves are likely to emerge as popular processed products. Change in consumer taste,

food habits and life style, convenience, nutritional value and purchasing power are the likely

reasons for preference of processed products. While the level of processing is expected to be

around 5-10% in the next 10 years, the volume of processing is expected to increase by 15-20% of

fruits and vegetables in the long term. While the small scale processing units would dominate in

the short term, entry of more large/medium scale units is likely in the long term. The installed

licensed capacity of fruits and vegetables increased from 1.1 million tonnes in 1993 to 2.1 million

tonnes in 2006 and 3 million tonnes in 2009.

The share of sectoral consumption for processed fruits and vegetables in the long term is likely to

be as follows:

Domestic - 30%

Institutions - 40% (including defence)

Exports - 30%

Some of the key points regarding the fruits and vegetables segment are as follows:

There has been a positive growth in ready to serve beverages, fruit juices, pulps,

dehydrated and frozen fruits and vegetable products, tomato products, pickles,

convenience vegetable spice pastes, processed mushrooms and curried vegetables.

In order to promote the processing of fruits and vegetables, in 2004-05, the government

under the Income Tax Act allowed a deduction of 100% of profit for the first five years for

new upcoming fruits and vegetables processing units. As of December 2011 (April 2011-

December 2011), the Ministry has released a grant of Rs. 373.6 million to 220 applicants.

Organised segment accounts for 48% of the processing with major products like juices and

pulp concentrates. The unorganised segment accounting for the rest mainly processes

traditional products like pickles, sauces and squashes.

Growth areas are ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen

fruits and vegetable products, pickles, processed mushrooms and curried vegetables.

Domestic consumption is low compared to the primary processed food in general and

fresh fruits and vegetables in particular due to higher incidence of tax and duties including

that on packaging material, lower capacity utilization, non-adoption of cost effective

technology, high cost of finance, infrastructural constraints and inadequate farmers-

processors linkage leading to dependence upon intermediaries.

About 35% of the total fruits and vegetables valued at Rs. 500 billion are wasted annually

due to poor post harvesting technology and inadequate storage and transportation.


www.imacs.in 25

Key Industry Players – Fruits and Vegetables Processing

Products Key Players in the Organised Sector

Jam HLL, Marico, Mapro, Malas

Pickles Priya Foods, Preveen, Desai Brothers, Cavin Kare, GD Foods

Sauce/ketchup HLL, Nestle, Heinz, GD Foods, Bector Food Specialties

Pulp/concentrate Foods and Inns, BEC, Claen Foods, Jain Irrigation, Usha

International

Juices/fruit drinks Pepsi, Dabur, Parle, Godrej, Mother Dairy

Squashes HLL, Haldiram, Mapro

Ready-to-eat vegetables ITC, MTR, Tasty Bite

Potato chips Pepsi, Haldiram

Cooking paste Dabur, HLL

Trends in Production of Fruits and Vegetables (‘000 MT)

Source: National Horticulture Board; Department of Agriculture & Cooperation, GOI

-10%

-5%

0%

5%

10%

15%

20%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

19

99

-20

00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

Fruits Vegetables Growth in fruits (%) Growth in vegetables (%)


www.imacs.in 26

Trends in Exports of Processed Fruits and Vegetables

Source: APEDA

WPI of Frui ts and Vegetables

Source: MOSPI

Government Policy

No industrial license required for setting up fruits and vegetable processing industries and

100% export oriented unit, however, specific government approvals are needed.

Many fruits and vegetable processing industries are eligible for automatic approval of

foreign technology agreement and up to 51% foreign equity participation including

tomatoes, mushrooms and other frozen vegetables, fruit, nuts, fruit-peel, fruit jellies,

marmalades, fruit juices and vegetable juices etc.

0

5

10

15

20

25

30

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

19

99

-20

00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

Quantity (MT) Value (Rs. billion)

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0

50

100

150

200

250

Jan

-06

May

-06

Sep

-06

Jan

-07

May

-07

Sep

-07

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12



www.imacs.in 27

This sector is regulated by the Fruit Products Order, 1955 (FPO), issued under the Essential

Commodities Act. All processing units are required to obtain a license under this order.

Some items like pickles and chutneys, tapioca sago and tapioca flour are reserved for

exclusive manufacture in the small scale sector.

Export of fruit and vegetable products is freely allowed.

Meat and Poult ry

The main features of meat and poultry industry are:

It includes frozen and packed meat mainly in fresh form and egg powder among others.

The total livestock population is 530 million. There are 2,531 registered slaughter houses,

131 government egg hatcheries and, 315 private hatcheries. About 6,038 poultry breeding

farms exist, of which 212 belong to the Animal Husbandry department.

Total milk production was 121.8 million tonnes in FY2011.

Meat production including poultry was 4.9 million tonnes in FY2011.

The level of processing is 21% for buffalo meat, 6% for poultry and 8% for marine

products.

Production was 63 billion eggs in 2010-11. The per capita availability of eggs has increased

from 42 eggs per annum in 2004-05 to 53 eggs per annum in 2010-11. During the year the

highest producer of eggs was Andhra Pradesh with 20.1 billion eggs, followed by Tamil

Nadu with 11.5 billion eggs production.

Most of the production of meat and meat products is in the unorganised sector.

The Ministry provides financial assistance in the form of grants in aid, as follows:

Financial Assistance by Ministry to Meat Processing Units

Year

No. of units

assisted

Grants in Aid Disbursed

(Rs. million)

2008-09 8 18

2009-10 10 23

2010-11 20 45


www.imacs.in 28

WPI of Meat and Poultry

Source: MOSPI

In meat and meat processing sector, poultry meat is the fastest growing animal protein segment

in India. India produced about 2,193 thousand tonnes of poultry meat and 402 thousand tonnes of

pig meat in FY2011. Buffalo meat production during FY2011 was 805 thousand tonnes and cattle

meat was 211 thousand tonnes. Mutton and lamb was relatively small segment where demand

exceeded supply, which explains the high prices in domestic market. Total goat meat produced

during the year was 846 thousand tonnes. Per capita consumption has grown from 870 grams in

2000 to about 2 kg at present.

Exports of Processed Meat

Source: APEDA

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Mutton Beef & buffalo meat

Poultry chicken y-o-y change (%) in mutton

y-o-y change (%) in beef & buffalo meat y-o-y change (%) in poultry chicken

0

50

100

150

200

250

-

200

400

600

800

1,000

1,200

1,400

1,600

19

98

-99

19

99

-20

00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

Quantity (MT) Value (Rs. million)


www.imacs.in 29

Indian consumer prefers to buy freshly cut meat from the wet market, rather than processed or

frozen meat. A mere 6% of production of poultry meat is sold in processed form. Of this, only

about 1% undergoes processing into value added products (ready-to-eat/ready-to-cook).

Processing of large animals is largely for the purpose of exports. The total processing capacity in

India is over 1 million metric tonne (MT) per annum, of which 40-50% is utilised.

The exports of processed meat in FY2011, was Rs. 1,366 metric tonnes worth Rs. 210 million, and

it was 716 metric tonnes in FY2010, worth Rs. 95 million. The increase in FY2011 is more than 90%

in terms of quantity and more than 100% in terms of value.

India is one of the largest producers of buffalo meat in the world. Indian buffalo meat is

witnessing strong demand in international markets due to its lean character and near organic

nature. India is the 5th largest exporter of bovine meat in the world. Indian buffalo meat exports

have the potential to grow significantly. Due to emerging health threats of the diseases

communicable to human through meat, the meat consumers are more vigilant towards the

wholesomeness of the meat and demanding meat and poultry products processed in clean and

sanitary environment. In metros and urban areas there are upcoming demands for “convenience

items” such as semi cooked, ready-to-eat, ready-to-cook meat food products.

Government Policy

The Meat Products Control Order, 1973 under the Essential Commodities Act, 1954

regulates the manufacture, quality and sale of all meat products.

A license is required under this order to set up of a factory for producing/processing meat

products.

Permission from the civic bodies/state Government (Department of Animal Husbandry) is

also required before setting up a meat-processing unit integrated with a slaughterhouse.

Export of meat is subjected to pre-shipment inspection and a certificate is required from

State Animal Husbandry Department/Directorate of Marketing and Inspection.

A No Objection Certificate (NOC) has to be obtained from the district administration for

the slaughter of cattle, buffaloes etc. Slaughter of cows is banned in most of the states.

Export of beef is prohibited.

Grains and Cereals

India produces more than 241 million tonnes of food grains every year. All major grains – rice,

wheat, maize, barley and millets like jowar (great millet), bajra (pearl millet) and ragi (finger

millet) are produced in the country. About 15% of the annual production of wheat is converted

into wheat products. There are 10,000 pulse mills in the country with a milling capacity of 14

million tonnes, milling about 75% of annual pulse production of 14.6 million tonnes.


www.imacs.in 30

The country is self sufficient in grain production and is the second largest rice producer in the

world with a 20% global share. Primary milling of rice, wheat and pulses is the most important

activity in food grains processing. Branded rice is becoming popular in both the domestic as well

as the export market. Indian Basmati rice commands a premium in the international market. This

segment thus offers opportunities in marketing of branded grains, as well as grain processing.

Oil Milling Sector

Oil seeds and edible oils have become two essential commodities as India is among the largest

producers of oilseeds in the world. Due to climatic conditions a variety of oilseeds are produced in

the country, like, groundnut, mustard/rapeseed, sesame, safflower oil, linseed and

nigerseed/castor. Soyabean and sunflower have gained importance in recent years and coconut is

a major plantation crop.

India contributes about 6-7% of the world oilseeds production. Export of oil meals, oilseeds and

minor oils has increased from 5 million tonnes in FY2006 to 7.3 million tonnes in FY2007. In terms

of value, the realisation has gone up from Rs. 55.1 billion to Rs. 79.9 million. India accounted for

6.4% of the world oil meal export.

The Ministry of Food Processing Industries provides financial assistance to the edible oil milling

sector under the Scheme of Technology Upgradation/Modernisation/Expansion.

Financial Assistance by Ministry to the Oil Mill ing Sector

FY No. of units assisted

Grants in aid

disbursed (Rs.

million)

2009 8 18.0

2010 10 23.3

2011 20 45.5

2012 (up to December 2011) 89 133.9

Rice, Pulse and Flour Milling Sector

The Ministry provides financial assistance to the rice, pulse and flour milling units. The position of

grants released by MoFPI during FY2008-FY2012 (up to December, 2011) is as follows:


www.imacs.in 31

Financial Assistance by Ministry to the Rice, Pulse and Flour Milling Units

FY No. of Units Assisted

Grants in Aid Disbursed

(Rs. million)

Rice mills

Pulse mills

Flour mills

Rice mills

Pulse mills

Flour mills

2008 17 13 14 28.0 18.3 43.3

2009 91 34 39 121.1 68.8 99.8

2010 24 23 29 26.8 16.2 39.3

2011 58 52 57 78.4 45.1 10.5

2012 (up to December 2011)

166 80 45 184.7 92.7 96.0

The main features of grains and cereals are:

It includes flour, bakeries, biscuits, starch glucose, corn flakes, malted foods, vermicelli,

pasta foods, beer and malt extracts and grain-based alcohol among others.

The ready eat cereal market is around Rs. 4,000 million, and is growing at the rate of 20-

30%.

The country has over 60,000 bakeries, 20,000 traditional food units and several pasta food

units.

India ranks first in the production of rice (paddy).

WPI of Grains

Source: MOSPI

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Cereals Rice Wheat

y-o-y change (%) in cereals y-o-y change (%) in rice y-o-y change (%) in wheat


www.imacs.in 32

Government Policy

The Rice Milling Industry (Regulation) Act 1958 and Rice Milling Industry (Regulation and

Licensing) Rules 1959 have been repealed from May 1997.

Rice milling and pulse milling sectors, which were earlier reserved for the small scale

sector, have now been de-reserved.

Since liberalization, there is no license requirement for setting up or capacity expansion of

roller flour-mills. The mills can obtain their wheat supply from any source.

There is no license requirement or price/distribution control on manufacture of wheat

products.

The setting up of 100 % export oriented units requires specific government approval.

The packaging laws and regulations affecting food products are mainly covered under the

Standards of Weights and Measures Act, 1976, and the Standards of Weights and

Measures (Packaged Commodities) Rules, 1977 (SWMA) specifying the quantity and

package labelling regulations for all products.

The Prevention of Food Adulteration Act, 1954, and the Prevention of Food Adulteration

rules, 1955 (PFA) specify food adulteration/contamination norms and permissible

ingredients from consumer health and safety point of view.

The Agmark Rules relate to the quality specifications and needs of certain agricultural

products to be eligible for Agmark certification.

Bakery and Biscuits

The main features of bakery sector are:

Bakery products include bread, biscuits, pastries, cakes, buns, rusks, etc.

Bread and biscuits are a major part of the bakery industry, covering around 80% of the

total bakery products in India.

Manufacture of bread is reserved for the small scale sector.

Out of the total production of bread, 40% is produced in the organised sector and 60% in

the unorganised sector.

India is the second largest manufacturer of biscuits after the US.

Around 70% of the biscuit industry is organised and the remaining 30% is unorganised.


www.imacs.in 33

Per capita consumption of biscuits at 1.8 kg per annum is very low as compared to other

countries.

Penetration of biscuits in urban market is between 75% and 85% and in rural markets is

between 50% and 65%.

The biscuit industry grew at 11% in the last two years.

MoFPI provided financial assistance to the bakery sector under the Scheme of Technology

Upgradation/Modernisation/Expansion. In FY2012 (up to December 2011), Rs. 227.9 million was

provided to 168 units.

Financial Assistance by Ministry to the Bakery Sector

FY No. of units assisted

Grants in aid

disbursed (Rs.

million)

2008 156 320.5

2009 112 183.7

2010 145 224.7

2011 (up to December 2010) 111 196.7

2012 (up to December 2011) 168 227.9

In FY2011, around 1,615 MT of biscuits were produced, which is a 6.1% increase from FY2010.

Trends in Biscuit Production (‘000 Tonnes)

Source: IMaCS Resources

652

673

621

608

704

780

883

920

945

969

1,071

1,143

1,236

1,252

1,416

1,522

1,615

- 200 400 600 800 1,000 1,200 1,400 1,600 1,800

1994-95

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11


www.imacs.in 34

Market Share of Biscuit Manufactur ing Companies (2009-10)

For quite a long time, more than one-third of the market share had been with Parle and a similar

proportion with Britannia, and remaining with the other players like ITC, and Surya Food and Agro

Ltd. Some famous biscuit brands are Britannia’s Good-Day, 50-50 and Milk Bikis, Parle’s Parle-G,

Krackjack, and Hide & Seek, ITC’s Sunfeast, and Surya Food’s Butter Bite.

In India, states with a higher intake of biscuits are Maharashtra, West Bengal, Andhra Pradesh,

Karnataka and Uttar Pradesh. Maharashtra and West Bengal have the highest consumption of

biscuits in the country.

Per Capita Consumption of Biscu its

Source: Indian Biscuit Manufacturers’ Association

Parle Products Pvt. Ltd. 36%

Britannia Industries Ltd. 35%

ITC Ltd 12%

Surya Food & Agro Pvt. Ltd.

5%

Cadbury India Ltd., Saj industries and GlaxoSmithKline

each had 1% share Others 10%

1.8 2.5

5.5

7.5

0

1

2

3

4

5

6

7

8

India South Eatsern countries Europe US


www.imacs.in 35

WPI of Bakery and Related Products

Source: MOSPI

Dairy

India ranks first in the world in terms of milk production. Milk and milk products account for a

significant 15% of India’s total expenditure on food. World milk production is estimated at around

700 million tonnes. In FY2011, India produced 121.8 million tonnes, which is an increase of about

9% on a y-o-y basis. The per capita availability of milk has increased from 233 grams per day in

2004-05, to 281 grams per day in 2010-11. The share of milk production in 2010-11 by exotic/cross

bred cows, indigenous/non-descript cows and buffaloes and goats, was 29.5 million tonnes, 25.3

million tonnes, 62.3 million tonnes and 4.5 million tonnes respectively. Out of the total milk

produced in FY2011, majority, i.e., 51.2% was buffalo milk, 45.1% was cow milk and the remaining

was goat milk.

India has a unique pattern of production, processing and marketing/consumption of milk, which is

not comparable with any large milk producing country. Approximately 70 million rural households

(primarily, small and marginal farmers and landless labourers) in the country are engaged in milk

production. Over 14 million farmers are organised into about 0.1 million village Dairy Cooperative

Societies (DCS). There are about 110 farmers per DCS. The cumulative milk handled by DCS across

the country is about 18 million kg of milk per day. These cooperatives form part of a national milk

grid which links the milk producers throughout India with consumers in more than 700 towns and

cities bridging the gaps on account of seasonal and regional variations in the availability of milk.

In India current annual growth rate in milk production is pegged between 4-6%. This is primarily

due to the initiatives taken by the Operation flood programmes in the organizing milk producers

into cooperatives; building infrastructure for milk procurement, processing and marketing; and

providing financial, technical and management inputs by the Ministry of Agriculture & Ministry of

-10%

-5%

0%

5%

10%

15%

20%

0

20

40

60

80

100

120

140

160

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Biscuit/Cookies Bread & buns

y-o-y change (%) in biscuit/cookies y-o-y change (%) in bread & buns


www.imacs.in 36

Food processing Industries to turn the dairy sector into viable self-sustaining organised sector.

About 35% of milk produced in India is processed. The organised sector (large scale dairy plants)

processes about 13 million tonnes annually, while the unorganised sector (halwais and vendors)

processes about 22 million tonnes per annum. In the organised sector, there are 676 dairy plants

in the cooperative, private and government sectors registered with the GOI and the state

governments. The main features of dairy are:

It includes whole milk powder, skimmed milk powder, condensed milk, ice cream, butter

and ghee.

India is the largest producer of milk in the world. The unorganised sector accounts for 77%

of the production.

The projected national demand by 2021-22 is 180 million tonnes, and to meet this, Rs.

1,730 billion National Dairy Plan, has been formulated which aims at boosting cattle

productivity to 65%.

More than 90% of the milk output in the country is produced in rural areas.

Milk processing level is 35% in India.

Milk production in India has been growing at the rate of 3.2 million tonne annually in the

last 15 years.

In 2010-11, Uttar Pradesh was the largest producer (21.0 million tonnes) of milk, followed

by Rajasthan (13.2 million tonnes), Andhra Pradesh (11.2 million tonnes), Punjab (9.4

million tonnes) and Gujarat (9.3 million tonnes).

The dairy processing market in India is estimated to be around Rs. 50 billion.

India’s Milk Product Mix

Milk/Milk Product

Share

(%)

Fluid Milk 46%

Ghee 27.5%

Butter 6.5%

Curd 7.0%

Khoa (partially dehydrated condensed milk) 6.5%

Milk powders 3.5%

Paneer and Chhana (Cottage cheese) 2.0%

Others, including cream, ice-cream 1.0%

Total 100%

Due to 25-30% increase in the prices of cattle feed ingredients, which includes, de-oiled bran,

Jowar, molasses, etc., there has been tremendous cost burden on the milk producers. The average


www.imacs.in 37

price of cattle-feed charged by dairy co-operatives has increased from Rs. 6,600 per metric tonne

(MT) in April 2008 to Rs. 10,000 per MT in March, 2010. This has led to increase in cost of

production of milk and milk products, because dairy farmers are also consumers of these

agricultural commodities.

Governments all across the world keep buffer stocks of milk powders, butter, etc. in order to

support milk producers and check price inflation. These systems are very well established in US

and European countries, but India has this set up only for agricultural commodities like wheat, rice

etc. but not for milk and milk products.

Industry Players – Dairy Products

Products Key Players in the Organised Sector

Packaged milk Mother Dairy, Amul, State cooperatives, Paras Dairy

Ethnic sweets Mother Dairy, Amul, State cooperatives, Haldiram, Bikanerwala

Yogurt Mother Dairy, Amul, Nestle

Cheese Amul, Vijaya, Britannia, Dynamaix Dairy

Ice Cream HLL, Mother Dairy, Vadilal

Butter Amul, Mother Dairy, Vijaya

Ghee Amul, Vijaya, State cooperatives, Paras

Milk powder Amul, Nestle

Trends in Milk Powder Production (‘000 tonnes)

Source: IMaCS Resources

82 86

98 94

133 166

144 129

155 147 147 148

151 162 163

143 134

- 20 40 60 80 100 120 140 160 180

1994-951995-961996-971997-981998-99

1999-20002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11


www.imacs.in 38

WPI of Milk and Dairy Products

Source: MOSPI

Government Policy

Milk and Milk Products Order (MMPO) regulates milk and milk products production in the

country. The order requires no permission for units handling less than 10,000 litres of

liquid milk per day or milk solids up to 500 tonnes p.a.

Foreign equity participation up to 51% is automatically allowed in all milk products except

malted foods.

Ice cream, which was earlier reserved for manufacturing in the small-scale sector, has now

been de-reserved. As such, no license is required for setting up of large-scale production

facilities for manufacture of ice cream.

Subsequent to de-canalisation, exports of some milk-based products are freely allowed

provided these units comply with the compulsory inspection requirements of concerned

agencies like: National Dairy Development Board, Export Inspection Council etc.

Grant of Rs. 107.4 billion to 54 applicants (up to December 2011) has been released in

FY2012.

F isher ies

The main features of Fisheries are:

India has 8,041 km long coastline, 50,600 sq. km of continental shelf, 2.2 million sq. km of

exclusive economic zone leading to abundant fishery resources.

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50

100

150

200

250

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Dairy products Powder milk

Ghee y-o-y change (%) in dairy products

y-o-y change (%) in powder milk y-o-y change (%) in ghee


www.imacs.in 39

India is the 3rd largest fish producer (2nd largest for fresh fish) in the world.

Fisheries sector provides employment to over 9 lakh full time and 11 lakh part time

fishermen.

There are over 402 freezing units with a daily processing capacity of 10,266 tonnes and

499 frozen storages with a capacity of 134,767 tonnes. There are also 12 surimi units, 473

pre-processing centres and 236 other storages.

Processing of fish into canned and frozen forms is carried out almost entirely for the export market.

Trends in Fish Production (‘000 Tonnes)

Source: Department of Agriculture & Cooperation

WPI of Marine and Inland Fish

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-20

00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

(P

)

Marine Inland Total

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50

100

150

200

250

300

Jan

-06

Ap

r-0

6

Jul-

06

Oct

-06

Jan

-07

Ap

r-0

7

Jul-

07

Oct

-07

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Inland Marine y-o-y change (%) in inland fish y-o-y change (%) in marine fish


www.imacs.in 40

Source: MOSPI

Considerable infrastructure facilities for processing of marine products have been developed over

a period of 50 years. Ministry of Food Processing Industries extends financial assistance for setting

up/technology up-gradation/modernization of fish processing units. During the year FY2012 (up to

December 2011), 27 fish processing units have been assisted with a grant of Rs. 57.5 million.

429 Fresh Farmer’s Development Agencies (FFDA) have been established to propagate freshwater

aquaculture in potential states and Union Territories. Due to improved technology of fish farming

and efforts of FFDA, the national average productivity of ponds and tanks covered under the

programme has reached 2,600 Kg per hectare annually.

The following table shows the export quantity and value of processed marine products. In FY2011,

around 813,091 tonnes of processed marine products were exported, which was worth Rs. 129

billion. The increase was 19.8% in quantity terms and 28.4% in terms of value.

Export Quantity and Value of Indian Marine Products

FY Quantity (tonnes)

y-o-y

change

Value

(Rs.

million)

y-o-y

change

2000-01 440,473 28.4% 64,438 25.9%

2001-02 424,470 -3.6% 59,570 -7.6%

2002-03 467,297 10.1% 68.813 15.5%

2003-04 412,017 -11.8% 60,919 -11.4%

2004-05 461,329 12.0% 66,466 9.1%

2005-06 512,164 11.0% 72,453 9.0%

2006-07 612,641 19.6% 83,635 15.4%

2007-08 541,701 -11.6% 76,209 -8.9%

2008-09 602,835 11.3% 86,079 13.0%

2009-10 678,436 12.5% 100,485 16.7%

2010-11 813,091 19.8% 129,014 28.4%

Source: MPEDA


www.imacs.in 41

Major I tems of Exports – 2010-11

Source: MPEDA

The chart above shows the exports of various marine products in quantity terms in FY2011. The

total export quantity in FY2011 was 813,091 MT, of which frozen fish was exported the maximum,

i.e, 38%, frozen shrimp at 19%, and frozen squid and cuttle accounted for about 11% and 7%

respectively.

Government Policy

Foreign equity is permitted in fish processing sector.

Fish processing projects with a minimum of 20% value addition can be set up as 100%

Export Oriented Units.

All items can be exported freely except for silver pomfrets of weight less than 300 gms.

Export of marine products is allowed only after registration of the units as an exporter

with the Marine Products Export Development Authority (MPEDA), Cochin.

The Foreign Trade Policy 2008-09 for the marine sector allows duty-free import of

specified specialized inputs/chemicals and flavouring oils to the extent of 1% of FOB value

of preceding financial year’s export.

It also allows import of monofilament long line system for tuna fishing at a concessional

rate of duty and Bait Fish for tuna fishing, duty free.

19%

38%

7%

11%

10%

1%

3%

12%

Frozen Shrimp

Frozen Fish

Frozen Cuttle Fish

Frozen Squid

Dried Item

Live Item

Chilled Item

Others


www.imacs.in 42

Selected towns producing goods of Rs. 10 billion or more will be notified as towns of

export excellence (TEE) based on potential for growth in exports. For the handloom,

handicraft, agriculture and fisheries sectors, the TEE threshold limit would be Rs. 2.5

billion.

Aerated Sof t Dr inks

The main features of Aerated Soft Drinks are:

It is 3rd largest packaged food industry after tea and biscuits in India.

It provides direct or indirect employment to over 125,000 employees and contributes over

Rs. 12 billion annually to excise duty, sale tax and other related taxes.

It has attracted one of the highest foreign direct investments in the country.

Aerated drinks account for 28% of the non-alcoholic beverage market in India, which is

the second largest in this segment.

Coca Cola and Pepsi Co have been the market leaders and they constitute about 90-95%

of the market share of aerated drinks.

Functional drinks which include, energy, sport, and neutraceutical drinks are also gaining

momentum. The global market size was Rs. 1,815 billion (USD 40 billion) in 2009, and has grown at

9.7% from 2005 to 2009. Energy drinks have a market share of about 58%.

Production of Soft Drinks and Soda

Source: IMaCS Sources

1,500

1,573

1,627

1,406

-14%

5% 3%

-14%

-20%

-15%

-10%

-5%

0%

5%

10%

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

2007-08 2008-09 2009-10 2010-11

Million bottles y-o-y change (%)


www.imacs.in 43

Soft Drinks Sales – by Volume

Soft Drinks Sales – by Value

The Ministry of Food Processing Industries also supports the alcoholic beverages industry, which

includes alcoholic drinks from non-molasses base and beer including non-alcoholic beer. It

provided financial support for setting up/Modernisation/Expansion of wine and beer units, at 25%

of the total cost of plant and machinery and technical civil work subject to a limit of Rs. 5 million

for general areas and 33.3% of plant and machinery and technical civil work, subject to a limit of

Rs. 7.5 million for difficult areas. In FY2012 (up to December 2011), 12 units were provided Rs. 30

million as assistance.

Bottled water, 61.9%

Carbonated drinks, 29.9%

Concentrates, 0.2%

Fruit/Vegetable Juice, 7.7%

Ready to drink tea, 0.1% Sports and energy

drinks, 0.2%

Bottled water, 33.4%

Carbonated drinks, 48.6%

Concentrates, 1.1%

Fruit/Vegetable Juice, 14.7%

Ready to drink tea, 0.2%

Sports and energy drinks, 1.9%


www.imacs.in 44

Packaged Drinking Water

The main features of Packaged Drinking Water are:

The Indian market size is estimated at Rs. 10,000 million and is growing at 40% per

annum.

218 companies have been granted licence for manufacturing packaged drinking water and

packaged natural mineral water.

80% of the packaged water sale comes from the bulk containers (5 litres and above).

Factors like shortage of drinking water, changes in consumer lifestyles leading to demand

for convenience, and availability of various packaged sizes to suit different needs have led

to a spurt in growth.

The per capita consumption of mineral water in India is 0.5 litres compared to 45 litres in

USA, and 111 litres in Europe.

India has around 200 bottled water brands, 80% of which are local.

Bottled water business can be broadly divided into premium natural mineral water, natural

mineral water, and packaged drinking water. Parle was the first major Indian company to enter

the bottled water market in India with Bisleri, and then came brands like Pepsi, Coca Cola, and

Nestle, Manikchand, and Kingfisher. Premium products like the Qua+ by Narang Group and Vedica

by Parle Bisleri have been launched in this category.

DEMAND

Growth Fac tors

It is well-known that the Indian economy is driven by domestic consumption and growth across all

sectors, namely agriculture, industry and services. As a consequence of low per-capita income and

wide disparities in income distribution, India has had very low penetration of consumer goods and

services. However it is clear that the economy is changing, fundamentally, triggered by far

reaching changes in socio-economic variables. These variables will have a significant impact on

economic growth, savings rates, consumption patterns and product and services penetration.

In contrast to world trends, the mix of the Indian population is changing in favour of the working

age group. The United Nations Population Division (UNPD) estimates that India’s working age (15-

64 years) population proportion, which was lowest at 55.3% in 1965, has increased steadily to

reach 63% today. Going forward, the demographic transition is likely to be even sharper, with the

proportion of working age population likely to reach 69% by 2035 – an increase of 0.23% every

year. This demographic dividend will have a positive impact on India’s average income levels and


www.imacs.in 45

consumption patterns as allocation of incomes on staples will be supplemented by larger spends

on discretionary items.

It is estimated by the National Council of Applied Economic Research (NCAER) that the

proportions of the two lowest income category households i.e. low income households (USD 0-

3,000) and aspirants (USD 3,000-6,000) will drop from 14.6% and 41% to 6.4% and 25%

respectively. Effectively, by 2016, NCAER estimates that 68% of Indian households are likely to be

middle class or high-income households. This change in income distribution will appreciably boost

consumption of branded consumer goods.

Similarly the pace of India’s urbanisation is expected to be faster than that of the rest of the

world. The mix of urban population is expected to increase from about 29% currently to about

44% by 2035 as per estimates of the UNPD. This will lead to increased number of nuclear families

and the proportion of working women, which in turn will provide a fillip to the growth of branded

consumer goods. The industry is expected to capitalise on these opportunities especially, in the

business segments of branded packaged foods and retailing.

The foods business is to be supported with investments in manufacturing and distribution

infrastructure capable of handling larger scale to derive benefits of growing business volumes in

the future. Supply chain logistics for competitive freshness and cost efficiencies is critical to this

business. Till requisite scale is achieved, the companies in the sector would have to bear a high

cost base as the benefits of distributed product to service closer markets are yet to be fully

exploited. The businesses need to build competitiveness by scaling up whilst enhancing process

and supply chain efficiencies.

Brand building will assume importance in the coming years to drive sales and enhance consumer

recall. Innovative campaigns with high buzz factors, supported by focused consumer activation,

will be essential for building strong consumer franchise and trade loyalty. Well researched and

robust product development processes will be required for the launch of differentiated offerings

across segments.

The product platforms of taste, energy, health and wellness are expected to provide the next level momentum in sales growth. Affordability will be a key determinant of the growth of the branded foods business in India.

Factors Const ra in ing Demand

Most food products are sold to the end consumer in a basic, non value-added form. Value

addition is currently restricted mainly to household kitchens. The growth of the food processing

industry has been restricted in the past by demand as well as supply related constraints.

A vast majority of the population cannot afford processed/branded foods.

The flourishing of the processed foods industry is correlated to the proportion of working

women in the economy. This proportion remains low in India.


www.imacs.in 46

India being a labour surplus economy, middle and higher income consumers can

comfortably afford servants/cooks to prepare food. There is no particular incentive to buy

convenience foods.

Indians generally prefer fresh foods, and the concept of buying and freezing food in bulk is

relatively uncommon. As a result, the purchase cycle for a variety of food products such as

milk, dairy items, and vegetables, among others, tends to be small, with only small

quantities being bought each time. Packaged foods, because of the time involved in

shipping from factory to the retailers' shelves, are viewed as stale. Moreover given that

unorganized players have traditionally dominated the foods sector, there is a perception

that purchased foods may be detrimental to health, as several of these players are not

seen to invest adequately in maintaining quality/hygiene standards.

Like everything else in the country, Indian food habits are diverse. Not only does the cuisine differ, but the ingredients, the composition and the cooking style also tend to vary across States. This makes the country a fundamentally difficult market to address with a standardised product.

COMPETITIVE FORCES

Extent o f Compet i t ion

The food processing sector in India is multi-segmented, with each segment being highly

fragmented. Some multinational companies and a few local players enjoy nation-wide recognition

in specific product segments. The unorganised sector dominates each of the above segments,

although market leadership may be vested with large organised manufacturers. The high level of

fragmentation in the industry is reflected in the large number of food processing units in the

organised sector alone. The table below shows the number of food processing industries

functioning in the country. As per the competitiveness report of National Manufacturing

Competitiveness Council (NMCC) there are 25,367 registered food processing units in the country.


www.imacs.in 47

State-wise Details of Registered Food Processing Units

State

No. of Factories in

Operation

Capital

Invested

Total

Output

Rs. billion

Andhra Pradesh 6,402 97 273

Tamil Nadu 3,736 63 142

Maharashtra 2,238 161 287

Uttar Pradesh 1,719 140 245

Punjab 1,628 42 116

Karnataka 1,390 63 113

Gujarat 1,307 66 260

West Bengal 1,147 29 76

Kerala 1,059 20 68

Assam 897 16 42

Haryana 564 32 62

Chattisgarh 561 11 32

Orissa 535 10 22

Madhya Pradesh 517 30 133

Rajasthan 506 17 62

Uttaranchal 274 13 23

Bihar 191 9 12

Jharkhand 108 1 3

Delhi 103 6 34

Himachal Pradesh 97 4 7

Jammu & Kashmir 93 3 5

Goa 80 4 8

Puducherry 55 2 10

Tripura 50 0 1

Daman & Diu 28 1 2

Chandigarh (U.T.) 27 0 2

Nagaland 16 0 0

Meghalaya 13 0 1

Manipur 12 0 0

Dadra & Nagar Haveli 10 0 2

Andaman & Nicobar Islands 4 0 0

Total 25,367 840.9 2,042.6


www.imacs.in 48

Unorganised, small players are estimated to account for more than 70% percent of the industry’s

output in volume and 50% in value terms. Most of them operate locally, add little if any value to

products, and use outdated technologies. The government’s policy of reserving the food-

processing sector for small-scale units, effective until 1991 discouraged large-scale domestic and

foreign direct investment. However, following economic liberalisation in 1991, the food-

processing industry was opened, resulting in increased investment in this sector, both domestic

and foreign. Over the last few years, several large companies, both Indian and foreign, have

invested in the food-processing business in India, resulting in significant growth in this sector.

Low entry barriers and apparently attractive economics of industry continuously attract new

entrants. Significant variations in food habits and culinary traditions across the country translate

into a competitive advantage for small and medium local players, who are familiar with local food

habits and markets. Some Indian food-processing companies have increased market share by

decreasing product prices. Besides some product categories that enjoy country-wide

consumption, high variance in products profile, tastes and preferences has led to creation of

regional niche markets in some product categories which have been successfully addressed by

regional players and have led to a flourishing unorganised segment in the industry. Large number

of players and largely undifferentiated nature of most products leads to price competition, often

losses, because of which staying power gives competitive advantage.

The installed capacity and levels of processing in various industries is quite low:

Installed capacity of fruits and vegetables processing industry has increased from 1.1 mtpa

in 1993 to 2.5 mtpa in 2007 and 3 mtpa in 2009. The utilisation of fruits and vegetables

processing is estimated to be around 2.2% of the total production. Over the last few years,

there has been a positive growth in ready to serve beverages, fruit juices and pulps,

dehydrated and frozen fruits and vegetable products, tomato products, pickles,

convenience vegetarian spice pastes, processed mushrooms and curried vegetables. The

domestic consumption of value added fruits and vegetable products is also low compared

to the primary processed food in general and fresh fruits and vegetables in particular

which is attributed to higher incidence of tax and duties including that on packaging

material, lower capacity utilisation, non-adoption of cost effective technology, high cost of

finance, infrastructural constraints, inadequate farmers-processors linkage leading to

dependence upon intermediaries. The smallness of units and their inability for market

promotion is also other main reasons for inadequate expansion of the domestic market.

In meat and meat processing sector, poultry meat is the fastest growing animal protein in

India. Mutton and lamb is a relatively small segment where demand is outstripping supply,

which explains the high prices in domestic market. The production levels have been

almost constant, which has restricted large processing companies from developing

capacities in this sector. Indian consumer prefers to buy freshly cut meat from the market,

rather than processed or frozen meat. A mere 6% of production of poultry meat is sold in

processed form. Of this, only about 1% undergoes processing into value added products

(ready-to-eat/ready-to-cook). Processing of large animals is largely for the purpose of

exports.


www.imacs.in 49

For dairy products, around 70 million rural households (primarily, small and marginal

farmers and landless labourers) in the country are engaged in milk production. Over 11

million farmers are organised into about 0.1 million village Dairy Cooperative Societies,

handling around 18 million kg of milk per day. In India, current annual growth rate in milk

production is estimated at around 4-6%. About 35% of milk produced in India is

processed. The organised sector (large scale dairy plants) processes about 13 mtpa, while

the unorganised sector (halwaiis and vendors) process about 22 mtpa.

The grain processing industries include milling of rice, wheat and pulses. Considering that

rice/pulses/flour are consumed in the processed form only and primary processing in

these sectors add little to shelf life, wastage control and value addition, the government is

not accepting fresh proposals for these sectors viz., rice, flour and pulse milling from the

financial year 2004-05.

Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles,

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

biscuits constitute the largest segment of consumer foods, but biscuits stand at a higher

value and production level than bread. Manufacturing of bread is reserved for SSI sector.

Out of the total production of bread, 40% is produced in the organised sector and the

remaining 60% in the organised sector.

Leading Food Processing Companies

Company Products

Hindustan Lever Limited Ice creams, packaged wheat flour, salt, tea, bread, oils, fats and dairy products

Haldirams Snack food traditional Indian sweets

MTR Foods Convenience food, ice creams, snack food

Cadbury India Chocolates, sugar confectionery, malt drinks

Ruchi Group Soya products, palmolein oil, sunflower oil, hydrogenated vegetable fat and oil

Dabur Fruit juices, cooking paste and sauces

GlaxoSmithKline Malt drinks

Gujarat Co-operative Milk

Marketing Federation

Ice creams, butter, cheese, milk powder, traditional Indian sweets, chocolates

Godrej Foods Fruit juices, tomato puree, nuts, groundnut oil, refined palmolein oil and

hydrogenated oil

Pepsi Foods India Soft drinks but also large consumer of tomatoes and chillies for preparing pastes for

exports

Britannia Industries Biscuits, milk products like cheese and butter

Parle Foods Biscuits and other related products

Mother Dairy Ice creams, butter, cheese, milk powder, traditional Indian sweets, chocolates

Venkateshwara Hatcheries Frozen chicken

Nestle India Chocolates, sugar confectionery, malt drinks, milk powder

Vadilal Group Ice-creams, canned and frozen products

Gitz Food Products Snack foods, dairy products, namkeens, pure ghee, dairy whitner, milk powder

Agro Tech Foods Edible oils and branded foods (popcorn, dried peas)

Typically, margins are low, with profitability being volume driven. Market leaders have been able

to distinguish themselves primarily through brand promotion and distribution strengths. The large

size of the Indian market, along with gradual liberalization of the sector has prompted


www.imacs.in 50

investments of more than Rs. 600 billion by multinationals such as Kellogg's and Heinz. However,

given the deeply entrenched food habits and restricted affordability of the Indian consumer, such

forays are likely to be largely restricted to the top end of the market. The serious volumes in the

foods business are to be found at the lower end, and in traditional foods. This has prompted

companies to look with renewed interest at niches such as glucose biscuits and packaged wheat

flour respectively.

In ternat ional Compet i t iveness

India is one of the largest producers of fruits, vegetables, poultry, and livestock. Indian prices of

processed food are also substantially lower than world prices. However, India accounts for around

1.5% of world’s processed food exports. India’s exports of processed foods were Rs. 436 billion in

FY2011.

India’s Processed Food Exports (Rs. million)

2005-06 2006-07 2007-08 2008-09

2009-

10

2010-

11

5-yr

CAGR

Floriculture 3,015 6,527 3,401 3,688 2,945 2,865 -1.0%

Fruits & vegetable seeds 930 1,216 1,421 1,200 1,451 1,752 13.5%

Floriculture & seeds 3,944 7,743 4,823 4,888 4,395 4,616 3.2%

Fresh onions 7,082 11,633 10,358 18,275 23,194 17,416 19.7%

Other fresh vegetables 2,683 4,331 4,895 6,802 7,319 8,929 27.2%

Walnuts 1,145 1,180 1,621 1,412 1,979 1,565 6.5%

Fresh mangoes 1,281 1,419 1,274 1,707 2,005 1,629 4.9%

Fresh grapes 2,146 3,019 3,178 4,086 5,453 4,121 13.9%

Other fresh fruits 2,637 3,100 3,045 4,309 5,228 4,896 13.2%

Fresh fruits & vegetables 16,974 24,683 24,371 36,592 45,179 38,556 17.8%

Dried & preserved vegetables

3,970 4,275 4,299 4,964 5,321 5,170 5.4%

Mango pulp 3,642 5,058 5,097 7,530 7,446 8,140 17.4%

Pickle & chutney NA NA NA NA NA NA NA

Other processed fruits & vegetables

7,409 9,555 9,628 13,718 14,355 13,164 12.2%

Pulses 11,247 7,900 5,490 5,423 4,083 8,531 -5.4%

Processed fruits & vegetables

26,268 26,789 24,515 31,635 31,205 35,004 5.9%

Buffalo meat 26,339 32,138 35,498 48,397 54,806 84,127 26.1%

Sheep/goat meat 810 659 1,341 4,934 7,472 2,532 25.6%

Poultry products 3,165 3,182 4,411 4,221 3,721 3,013 -1.0%

Dairy products 6,767 4,346 8,666 9,809 4,027 5,339 -4.6%

Animal casings 175 95 68 88 315 351 14.9%

Processed meat 72 71 130 101 96 210 23.8%

Natural honey 1,162 609 933 1,490 1,467 2,496 16.5%

Swine meat 21 87 246 92 104 105 38.4%

Animal products 38,512 41,186 51,293 69,131 72,007 98,173 20.6%


www.imacs.in 51

2005-06 2006-07 2007-08 2008-09

2009-

10

2010-

11

5-yr

CAGR

Groundnuts 5,137 7,985 10,541 12,390 14,259 20,941 32.5%

Guargum 10,492 11,258 11,258 13,390 11,333 28,119 21.8%

Jaggery & confectionery 2,650 8,735 28,107 20,048 2,332 34,957 67.5%

Cocoa products 243 401 423 840 970 1,315 40.2%

Cereal preparations 5,423 5,988 6,774 11,009 10,135 12,268 17.7%

Alcoholic & non-alcoholic beverages

2,090 2,219 3,386 5,425 5,895 7,902 30.5%

Miscellaneous preparations 3,057 3,369 4,745 5,917 6,943 8,743 23.4%

Other processed foods 29,092 39,955 65,232 69,021 51,868 114,245 31.5%

Basmati rice 30,431 27,928 43,446 94,770 108,891 105,787 28.3%

Non-basmati rice 31,782 42,431 74,098 16,874 3,653 2,222 -41.3%

Wheat 5,575 354 2 15 1 6 -74.6%

Other cereals 4,538 5,993 30,023 39,206 29,731 36,044 51.4%

Milled products 714 1,000 904 813 1,322 1,613 17.7%

Cereals 73,040 77,704 148,474 151,678 143,598 145,673 14.8%

Grand Total 187,830 218,059 318,706 362,944 348,252 436,267 18.4%

Source: APEDA

The exports of processed foods grew at a CAGR of 18.4% over the five year period from FY2006 to

FY2011. During 2006-07, India’s exports of processed foods increased at a healthy rate of 16.5%

(y-o-y) to Rs. 218 billion. However, exports of poultry and dairy products declined 27% (y-o-y)

mainly because of lower milk production. It however, picked up in 2008.

Low levels of processing have also resulted in India’s low share of around 1.5% in global trade in

processed foods. Competitiveness has been constrained by non-availability of adequate critical

infrastructural facilities like cold chain, packing and grading centres, lack of adequate quality

control and testing infrastructure, inefficient supply chain, lack of processed varieties of farm

produce, seasonality of raw material, high inventory carrying cost, high taxation, high packaging

cost, affordability and cultural preference of fresh food. Inefficiencies in the Indian agricultural

sector (low yields and poor quality of products) and the fragmented and inefficient agri-product

farm to factory and factory to port supply chain coupled with relatively under-developed nature of

the domestic market have translated into low competitiveness of the Indian industry. The

infrastructure for marketing of perishables is poor with poor quality certification systems (which is

important for meeting the international norms like the Codex Standards). Indian exporters are

largely small scale, often undercut each other, export low value-added products to small

traders/agents overseas or bulk packaged commodities for re-processing and re-packaging

overseas where real value addition takes place.

Besides the scale of operations and cost competitiveness, issues in exports relate to quality

conforming to international standards, continuous product innovation, brand and market building

on global scale, ability to deal in volumes and consistency in supply. These require global scale of

operations and financial strength, which is missing in the fragmented Indian industry.


www.imacs.in 52

Barr ie rs to Ent ry for New P layers

Easy availability of raw material, technology and processing equipment; and low capital intensive

nature of the industry attracts new entrants. Entry barriers can be medium to high in certain

categories, especially at higher price points, but such categories account for a small share of the

total processed food market.

F luc tuat ions in Demand -Supp ly Gap

Strongly positive outlook for the industry since the mid-1990s has attracted a lot of players in the

market causing over-supplies in most product categories. Demand, on the other hand, has

however grown at a moderate rate owing to the preference of Indian households for fresh-foods.

Processing of foods is also known to affect carbohydrate and micronutrient content and

bioavailability in different ways with either desirable or adverse effects on the nutritional value.

Increased consumption of processed highly-calorific and more energy-dense food could lead to

increased incidence of obesity and diet-related diseases, like diabetes, coronary heart disease and

certain types of cancer. Already changes in dietary patterns are contributing to a clear change in

the trends of chronic diseases and obesity, particularly in the urban areas. A diet that is

particularly unhealthy, for instance, because it includes a high proportion of processed food, could

result in a higher risk of illnesses especially cardiovascular diseases (CVD) and diabetes. The

worsening of health could result in a larger medicinal and health care expenditure, and lower

future consumption of processed foods.

GOVERNMENT POLICY GUIDELINES

The Government of India has been working to develop the food processing industry in India

through several policies.

Food Safe ty and Standard B i l l 2005 - FSS Ac t , 2006

The Food Safety and Standards Bill, 2005, aims to integrate the food safety laws in the country in

order to systematically and scientifically develop the food processing industry and shift from a

regulatory regime to self-compliance. As part of the process of consolidation, the bill proposes to

repeal eight existing laws related to food safety.

The salient features of the bill are:

Establishment of Food Safety and Standards Authority of India (FSSA), to lay down

scientific standards of food safety and ensure safe and wholesome food. The FSSA set up

in 2008 would be assisted by a central advisory committee, a scientific committee and a

number of scientific panels in specifying standards. These standards would be enforced by

the Commissioner of Food Safety of each state through designated officers and food

safety officers.

Prohibiting use of food additives, processing aid, contaminants, heavy metals, insecticides,


www.imacs.in 53

pesticides, veterinary drugs residue, antibiotic residues, or solvent residues unless they

are in accordance with specified regulations. Certain food items such as irradiated food,

genetically modified food, organic food, health supplements and proprietary food cannot

be manufactured, processed or sold without adhering to specific regulations.

It is mandatory for the distributor of a food article to identify the manufacturer and the

seller to identify either the manufacturer or the distributor of a food item.

Every packaged food product has to be labelled as per regulations in the bill. The

packaging and labelling of a food product should not mislead consumers about its quality,

quantity or usefulness.

In case a food business operator (i.e., anyone owning or carrying out a business relating to

food) considers that a food item is not in compliance with the specified standards, he has

to initiate procedures to withdraw the food in question and inform the competent

authorities.

Every food business operator is required to have a licence in order to operate his food

business. Petty manufacturers who make their own food, hawkers, vendors or temporary

stall holders do not require a licence. Instead, they need to get their businesses registered

with the local municipality or Panchayat.

The bill empowers the FSSA and State Food Safety Authorities to monitor and regulate the

food business operators. The Commissioner of Food Safety of each state appoints a

Designated Officer (DO), not below the level of sub-divisional officer, for a specific district

whose duties include issuing or cancelling licences, prohibiting sale of food articles that

violate specified standards, receiving report and samples of food articles from Food Safety

Officers and getting them analysed. The DO also has the power to serve an 'improvement

notice' on any food operator and suspend his license in case of failure in compliance with

such a notice. The DO also investigates any complaint made in writing against food safety

officers. These officers are appointed for a specified local area and their duties include

taking samples of food articles, seizing food articles that are of suspect quality or

inspecting any place where food articles are stored or manufactured.

The Ministry of Commerce has established Spice Parks in spice producing states, to provide

common infrastructure facilities at the growing centres. It would facilitate establishment of

processing centres close to the production centres, leading to better price realisation by farmers

and enhanced quality of spices.

Fore ign Direc t Inves tment Pol icy

Automatic investment approval (including foreign technology agreements within specified norms),

up to 100% foreign equity or 100% for NRI and Overseas Corporate Bodies (OCBs) investment, is

allowed for most of the food processing sector except malted food, alcoholic beverages and those

reserved for small scale industries. 24% foreign equity is permitted in the small-scale sector.


www.imacs.in 54

Temporary approvals for imports for test marketing can also be obtained from the Director

General of Foreign Trade.

State In i t ia t ives

Various states governments like Himachal Pradesh, Uttaranchal and Jammu and Kashmir have

encouraged companies to set up manufacturing facilities in their regions through a package of

fiscal incentives. Jammu & Kashmir offers incentives such as allotment of land at concessional

rates, 100% subsidy on project reports and 30% capital investment subsidy on fixed capital

investment up to USD 63,000. The Himachal Pradesh government offers sales tax and power

concessions, capital subsidies and other incentives for setting up a plant in its tax free zones.

The total inflow of FDI in food processing sector up to 2007-08 (up to November 2007) was Rs.

27.8 billion. Nearly 30% of FDI in this sector comes from EU countries such as Netherlands,

Germany, Italy and France. Some of the successful ventures from EU countries are Perfetti,

Cadbury, Godrej-Pilsbury, Nutricia International, Manjini Comaco, etc. The food processing

industry received FDI of about Rs. 8,590 million in FY2012, and total FDI received from FY2001 up

to June 2012 was Rs. 67,454 million. Major investments have come from Pepsi Co (which

constituted about 40% of the FDI in FY2010), and other companies engaged in dairy and meat

processing, and confectionaries.

FDI Inflows (Rs. million)

Source: DIPP

The Schemes under the Twelfth-Five Year Plan

The Planning Commission’s Working Group for the Twelfth Five Year Plan has proposed the

following budgetary requirements.

1,980

10,360

1,770

5,110

1,741 1,829

4,410

6,320

4,620

9,537 8,610 8,590

-

2,000

4,000

6,000

8,000

10,000

12,000

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12


www.imacs.in 55

Budgetary Requirement for Schemes Under the Twelfth-Five Year Plan

Twelfth-Five Year Plan Schemes

Approved

Outlay (Rs.

billion)

Mega Scheme for Infrastructure Development

Food Park

52.2

Packaging Centre

Modernised Abattoirs

Integrated Cold Chain Facilities

Irradiation Facilities

Value Added Centres

National Mission on Food Processing 65.3

Strengthening of Institutions including Skill Development Programme 14.2

Food Safety, R&D and Promotional Activities 7.9

Innovation Fund Scheme 1.9

Venture Capital Fund 5.0

Financial Commitments for 11th Plan projects, now proposed to be implemented under NFPM*

4.1

Total 150.7

* These include Rs. 4 billion of grant funds committed under Scheme for Technology Upgradation/Setting

up/Modernisation/Expansion of Food Processing Industries and Rs. 120 million under HRD initiatives.

In f ras t ruc ture Development in the Food Process ing Indust ry

The major factor standing in the way of agro/food processing in the country is inadequate

Infrastructure. Thus, infrastructure development has been identified as a thrust area for

intervention. The Ministry of Food Processing Industries has implemented various schemes for

infrastructure development comprising the following components to address different aspects of

food related infrastructure.


www.imacs.in 56

Mega Food Parks

The Mega Food Parks Scheme, an initiative aimed at achieving the Vision 2015 of MoFPI to

increase, the processing of perishables, value addition and share in global food trade in the

country. The scheme aims at providing infrastructure facilities for food processing along the value

chain from farm to the market. This includes creation of infrastructure near the farm,

transportation, logistics and Centralised Processing Centres (CPC). Under the scheme the food

processing units will be located at the CPC with processing, packaging, environmental protection

systems, quality control labs, trade facilitation centres, etc. The ultimate objective is to link the

farmer with the retail market or the consumer thereby reducing the intermediaries in between. It

aims to provide a mechanism to bring together farmers, processors and retailers, and link

agricultural production to the market to ensure maximisation of value addition, minimisation of

wastages, and improving farmers’ income. The idea behind the mega food parks scheme is to

make India’s farm sector more market-driven than supply-driven and the farmers produce will be

based on the demand of products in the market. It will include creation of infrastructure near the

farm, transportation, logistics and centralized processing centres. This would make available

common infrastructure facilities for the food processing Industry especially SMEs. Also, the

farmers will be getting more market information, and would be informed about what has to be

produced and what is needed in the market. The food parks are expected to generate 30,000

direct jobs and many times more of this number as indirect jobs.

Under the scheme for food parks, a grant of 50% of the project cost is provided, excluding the land

component in general areas and 75% in North-Eastern regions and difficult areas, subject to a

maximum of Rs. 500 million. A total of 30 food parks were planned under the Eleventh Five Year

Plan and these were to be implemented in phases. Thus, in the first phase, proposals were invited

in October, 2008 for setting up 10 Mega Food Parks, one each in 10 different States. Of these 10

projects, final approval has been given to 8 projects so far, one project each in Andhra Pradesh,

Assam, Jharkhand, Karnataka, Tamil Nadu, Punjab, West Bengal and Uttarakhand. These projects


www.imacs.in 57

are presently under various stages of implementation with projects in Andhra Pradesh and

Uttarakhand also starting partial commercial operations. The CCEA in November 2010 has

approved setting up of five new Mega Food Parks in addition to the ongoing projects.

During the second phase of scheme implementation, five more Mega Food Parks have been

approved and in principle approval has been accorded to all the five projects. Final approval has

been accorded to three projects. In the Union Budget, 2011-12, announcement for setting up of

15 new Mega Parks was made.

The status of implementation of the 15 ongoing projects is as under:

Status of Project Implementation of 15 Ongoing Mega Food Park Projects

Mega Food Park

Project Cost

(Rs. million)

Amount of

Grant

Released

(Rs. million)

Patanjali Food and Herbal Park Ltd. 950 300

Srini Food Park Pvt. Ltd. 1,265 300

North East Mega Food Park 759 150

Jharkhand Mega Food Park Pvt. Ltd. 1,139 50

Tamil Nadu Mega Food Park Ltd. 1,334 50

Jangipur Bengal Mega Food Park Pvt Ltd. 1,110 50

M/s Integrated Food Park Pvt. Ltd. 1,443 50

M/s International Mega Food Park Ltd. 1,534 50

M/s Keventer Food Park Infra Ltd. 1,533 50

M/s Sikaria Infra Projects Pvt. Ltd. 852 50

M/s Anil Mega Food Park Pvt. Ltd. 1,793 -

M/s Shaktiman Mega Food Park Pvt. Ltd. 1,686

Detailed Project Report (DPR) has been submitted and appraised

M/s Paithan Mega Food Park Ltd. 1,207

In-principle

approval was

accorded and

DPR has been

submitted

M/s MITS Mega Food Park Ltd. 1,167

The submitted DPR has been appraised and scrutinised

M/s, Madhya Pradesh Mega Food Park Ltd. 1,617

In-principle approval has

been accorded and DPR is

awaited

Integrated Cold Chain Facili ty

The objective is to improve viability of cold storages and enhance cold storage capacity. Assistance

is provided to the following types of cold storages:


www.imacs.in 58

Cold storage for non-horticulture produce

Where cold storage is an integral part of processing unit or of the common facilities in

food parks

Special types of cold storages with CA/MA facility

The scheme seeks to provide financial assistance in the form of grant-in-aid at 50% of the total

cost of the plant and machinery and technical civil works in genera areas and 75% in North-

Eastern regions and difficult areas, subject to a maximum of Rs. 100 million. During the financial

year 2011-12, MoFPI has released grants- in-aid of Rs. 440 million (up to December 2011) to 14

integrated cold chain projects in the country. The details of the assisted units are given in the

annexure at the end of this report. Modernised Abattoir

It aims at scientific and hygienic slaughter, causing least pain to the cattle and ensuring better by

product utilization as well as availability of better grade meat for the consumers. It will also ensure

modern technology for slaughter waste management and pollution control, humane treatment of

animals, value addition, chilling facility to prevent microbial activity in slaughtered animals, better

cold chain management and linking the finished meat and meat products to the retail market. An

assistance of 50% of the project cost in general areas and 75% in difficult areas subject to a

maximum of Rs. 150 million for each project will be provided.

Scheme for Technology Up-gradation/Establishment/Modernisation

The scheme for technology up-gradation/establishment/modernisation/expansion of food

processing industries is aimed at creating and upgrading existing processing capabilities. The

scheme provides 25% of the cost of the plant and machinery and technical civil works subject to a

maximum of Rs. 5 million in general areas and 33.3% up to a maximum of Rs. 7.5 million in difficult

areas.

Nat iona l Miss ion on Food Process ing (NMFP)

Objectives of NMFP as charted out by the Working Group of Planning Commission

To spread the message of significance of food processing for enhancing agricultural

productivity and farmers income in the country.

To assist the state governments in creating requisite synergy between their agricultural

plans and development of food processing sector.

To assist the state governments in addressing both institutional and infrastructural gaps

along the Value Chains and thus create efficient Supply Chains for agricultural produces.

To promote initiatives for skill development, training and entrepreneurship which would

meet needs of both post-harvest management and food processing industry.

To assist Micro, Small and Medium Enterprises (MSMEs) in setting up/modernisation of

food processing units by providing need based support in terms of capital/technology/skill

etc.

To assist food processing industry to meet requisite standards in terms of food safety laws

and market demand, both domestic and international.

The guiding principles for the Mission are:

Organising the unorganised food processors, including Self-Help Groups (SHGs) to help


www.imacs.in 59

them reap advantages of the Mission initiatives.

Ensuring advantages of programmes/schemes/institutions/infrastructure of NMFP reach

Micro, Small and Medium Enterprises on preferential basis.

Dedicated, professional, sensitive and accountable support structure to initiate and

implement the Mission initiatives in a transparent manner.

Mission initiatives to be shaped and driven by proposed beneficiaries.

Adoption of best practices for scaling up programmes/initiatives

The NMFP schemes would be implemented as centrally sponsored schemes or through additional

Central assistance route by giving the responsibility of implementation to the State Governments.

The detailed guidelines of these schemes would though be drawn up in discussion with the

Planning Commission and State Governments. NMFP will also take into account the need for

specific initiatives of State Governments. In case of State plan to take up other additional

activities, same may also form a part of admissible components of NMFP, subject to prior approval

of MoFPI.

CRITICAL SUCCESS FACTORS

The critical success factors for the Food Processing Sector are as follows:

Product Selection

From the perspective of the food companies in India, foods can be classified into four categories:

1) products which are entirely new to the Indian palate and for which new demand has to be

created (for instance instant noodles), 2) products which are currently made in-house but where

consumption can be shifted to packaged products (for instance soup mixes), 3) products which

seek to replace existing categories (for instance mineral water), and 4) products which seek to

upgrade current users from existing products (for instance, packaged, iodized salt). Each of these

categories poses a different developmental challenge and therefore calls for careful selection of

product.

Distr ibution Network

Extensive retail presence is imperative. Geographical coverage and number of retail outlets

become critical to a company’s ability to sell in large volumes. For some products such as ice

cream and cold desserts, availability of an efficient cold chain is also imperative for being able to

service consumers in geographically distant areas.

Raw Material Sourcing

The raw material intensive nature of the industry necessitates having access to wide raw material

supplier base, in order to capitalize on regional demand supply imbalances and price fluctuations.

The importance of raw material sourcing increases for upstream activities such as sugar

manufacturing, where a company’s profitability is highly dependent on the assured supply of

sugar cane.


www.imacs.in 60

Quali ty

The importance of quality and hygiene standards cannot be overemphasized, particularly in the

exports market where companies are expected to meet the relatively stringent standards of the

appropriate authorities. As quality and hygiene generally imply a higher degree of mechanization,

companies that are able to invest in the appropriate equipment are likely to gain an advantage

over the competition.

FINANCIAL PERFORMANCE

ROCE and Operat ing Marg ins

Owing to high competitive intensity and high price sensitivity, operating margins tend to be

relatively low, mainly because of high cost of sales and competition. The pressure on margins is

also indicated by slower moving raw materials in each successive year. The food processing

industry’s operating and net margin increased slightly by 0.3% and 0.1% in FY2011 in comparison

to FY2010. The RONW and the ROCE declined during the year.

Profi tabil i ty Indicators for Food Processing Industry

FY 2007 2008 2009 2010 2011

Operating Margins 9.4% 12.1% 12.0% 9.6% 9.9%

Net Margins 5.8% 7.3% 6.4% 5.4% 5.5%

Return on Capital Employed (ROCE) 21.1% 23.2% 21.9% 21.4% 19.8%

Return on Net Worth (RONW) 18.7% 20.8% 19.1% 20.6% 18.4%

The key ratios for the year FY2011 indicate a reasonable liquidity position of the industry. The

current ratio was 2.5. The debt-equity ratio was 0.8, indicating greater use of equity in financing

the assets. The net sales (OI) growth was -7.4% during the year.

Key Rat ios

FY2011, unless otherwise stated

Item FY2011

PBDIT/Net Sales 11.4%

PAT/Net Sales 5.5%

Debt-Equity Ratio 0.8

Current Ratio 2.5

Sales (OI) Growth -7.4%

Net Working Capital Cycle

Debtors Velocity 14.9

Holding Period of Raw Material 69

Holding Period of Work-in-Process

Holding Period of Finished Goods 29

No. of Companies Taken in Preparing the Report 51


www.imacs.in 61

Rev iew of Lates t F inancia ls

An analysis of the financials of a sample of the major food processing companies, suggests that

there has been an increase of 12.6% in the net sales in 12MFY2012, and a simultaneous increase

of 13.3% and 7.5% in the cost of sales and operating profit before interest, tax and depreciation

respectively during the period. The overall net profits of the industry increased by 5.2% during the

period. The interest and depreciation paid by the food processing industry increased by 34.4% and

15.4% respectively during the period. The other incomes earned by the industry increased from

Rs. 4,356 million in 12MFY2011 to Rs. 6,307 million in 12MFY2012.

Financial Performance Rs. million, except percentages

Rs. Million Change

(%)

% of OI

12MFY 2012 2011 2012 2011

Net Sales/OI 344,561 306,070 12.6 100.0 100.0

Raw Material Cost 219,897 197,274 11.5 63.8 64.5

Employee Costs 14,732 12,477 18.1 4.3 4.1

Power & Fuel 695 627 10.7 0.2 0.2

Other Operating Costs 67,138 56,539 18.7 19.5 18.5

Cost of Sales 302,462 266,917 13.3 87.8 87.2

OPBDIT 42,099 39,153 7.5 12.2 12.8

Interest 11,452 8,522 34.4 3.3 2.8

Depreciation 6,402 5,548 15.4 1.9 1.8

OPBT 24,246 25,083 -3.3 7.0 8.2

Other Income 6,307 4,356 44.8 1.8 1.4

PBT 30,553 29,438 3.8 8.9 9.6

Tax 8,887 8,844 0.5 2.6 2.9

PAT 21,666 20,594 5.2 6.3 6.7

The operating margin of the sector increased only slightly at 11.9% in Q3FY2012 in comparison to

11.7% in Q2FY2012. During Q4FY2012 it was 12.2%.


www.imacs.in 62

Trends in Operating Income and Operating Margins

Earnings Stabili ty

The food processing industry is expected to maintain steady annual growth of around 15% over

the long term. With a population of over 1.2 billion, growing at 1.4% per annum, India is a large

market for food products. Changing consumer preferences (as reflected by the increasing sales of

ready-to-eat food, juices and processed fruits and vegetables), boom in the retail sector,

favourable government policies, and investments by international and domestic companies are

likely to provide impetus to growth.

KEY ISSUES IN THE FOOD PROCESSING SECTOR

Issues Agains t

Following are the main issues in the Indian agricultural sector:

Inefficient Food Chain

The differential between the farmer’s realization and the final consumer price is relatively high. In

processed food products the high price on account of cumulative effect of low productivity, high

cost of raw material, spoilage due to poor infrastructure, inefficient and costly transportation,

high cost of finance and high incidence of taxes and duties, leads to the vicious cycle of low

demand, low capacity utilisation, high per unit cost low demand.

Estimated Cost in Indian Food-grain Chain

Farmer Trader Commission

Agent

Wholesaler Retailer

Additional Cost - 5% 2.5% 5% 10%

Wastage - 10% - 10% 25%

Mark-up - 25% 5% 50% 75%

Price 100 125 131 197 344

Source: KSA Technopak Estimates

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

20,000

40,000

60,000

80,000

100,000

120,000

Q1

FY0

7

Q2

FY0

7

Q3

FY0

7

Q4

FY0

7

Q1

FY0

8

Q2

FY0

8

Q3

FY0

8

Q4

FY0

8

Q1

FY0

9

Q2

FY0

9

Q3

FY0

9

Q4

FY0

9

Q1

FY1

0

Q2

FY1

0

Q3

FY1

0

Q4

FY1

0

Q1

FY1

1

Q2

FY1

1

Q3

FY1

1

Q4

FY1

1

Q1

FY1

2

Q2

FY1

2

Q3

FY1

2

Q4

FY1

2

OI (Rs. million) Operating margin


www.imacs.in 63

The backward linkage between the farmer and the processor is yet to take proper shape to tide

over the impediments which exist on account of fragmented and small land holdings, erratic

production due to natural factors, non uniformity and inconsistent supply of raw material and

longer chain of intermediaries. Prevailing packaging system lacks requisite quality and

presentation parameters creating handicap as compared to the imported products.

Weak Linkage with R&D institution

Despite the existence of a strong and wide network of R&D institutions (CSIR labs, ICAR

institutions, ICMR Establishments, Universities and Private institutions), their linkage with the

users like farmers and industry, is not well established resulting in lack of technology flow, pure

and academic research rather than applied and commercial, lack of involvement of industry in

research work, and resource crunch.

Weak Database and Lack of Market Intell igence

There is no efficient system of information (price, demand, and supply) dissemination to the

farmer. This results in farmer not being able to produce and sells goods at the market determined

prices. Though the government and the industry have made efforts to fill this knowledge gap, the

network is still not widespread to reach to all nooks of the country.

Low Yields

Indian agriculture suffers from low productivity. Main reasons for this are as follows:

Fragmented land holdings.

Dependence on monsoons for irrigation. Although the number of tube wells and pump

sets used has increased, their use is restricted due to lack of regular power supply.

Large amounts of land are being rendered unusable due to water logging, land

degradation and salinity.

Rather than being determined by the size of land, funds available and soil nutrients and fertility,

the cropping patterns in Indian agriculture are determined by the farmer’s perception of risk. This

again is a function of the price expectation held by the farmer. Naturally, then crops that face

consistent demand, a lucrative export market or have a support price are chosen.

High Levels of Wastage

Every year around 35% of fruits and vegetables valued at around Rs. 500 billion are wasted. Major reasons for this are inefficient transportation chain, absence of warehousing facilities and manual handling of perishable goods.

Favourable Fac tors

Raw Material Availabili ty

India has a diverse agro-climatic condition due to which there exists a wide-ranging and large raw

material base suitable for food processing industries. India is the largest producer of livestock,

milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and

fruits and vegetables. India also has an ample supply of caustic soda and soda ash, the raw


www.imacs.in 64

materials in the production of soaps and detergents. The availability of these raw materials gives

India the location advantage.

Cost Competitiveness

Labour cost in India is amongst the lowest in Asian countries. Easy raw material availability and

low labour costs have resulted in a lower cost of production. Many multi-nationals have set up

large low cost production bases in India to outsource for domestic as well as export markets.

Labour Cost Per Worker (USD/year)

Source: IMaCS Research

Presence across Value Chain

Indian firms also have a presence across the entire value chain of the FMCG industry from supply

of raw material to final processed and packaged goods, both in the personal care products and in

the food-processing sector. For instance, Indian firm Amul's product portfolio includes supply of

milk as well as the supply of processed dairy products like cheese and butter. This makes the firms

located in India more cost competitive.

GROWTH POTENTIAL/OUTLOOK

India’s demand for processed foods has been constrained by the almost year-round availability of

fresh products across the country, combined with the consumers’ preference for fresh products

and freshly cooked foods. The level of processing varies across segments, from 2% in the case of

fruits and vegetables to over 90% in non-perishable products such as cereals and pulses. In the

latter, however, processing involves very little value addition, and is mostly confined to grading,

cleaning, milling, and packing; with negligible use of additives, preservatives, and flavours.

Low penetration of processed foods is largely because of the fact that Indians generally prefer

fresh foods, and the concept of buying and frozen food in bulk is relatively uncommon. As a result,

the purchase cycle for a variety of food products such as milk, dairy items, and vegetables, among

729 1,008 1,192 2,450 2,705 3,429

10,743

21,317

-

5,000

10,000

15,000

20,000

25,000

China Indonesia India Phillipines Thailand Malaysia Korea Singapore


www.imacs.in 65

others, tends to be small, with only small quantities being bought each time. Packaged foods,

because of the time involved in shipping from factory to the retailers' shelves, are viewed as stale.

Moreover given that unorganised players have traditionally dominated the foods sector, there is a

perception that purchased foods may be detrimental to health, as several of these players are not

seen to invest adequately in maintaining quality/hygiene standards. The food habits of the Indian

population are also diverse and each ethnic group has its own unique culture and its own unique

food preferences. Although Indian cuisine is largely associated with the pronounced use of some

key ingredients and spices, differences in region, culture, climate, and religion dictate the

variations in the use of these ingredients.

However, with an estimated population of over 1.2 billion, rising disposable incomes, exposure to

western lifestyle, increase in the population of working women and prevalence of nuclear double

income families, especially in urban areas; India is rapidly becoming a key market for processed,

ready-to-cook and ready-to-eat food, leading to high growth in food processing sector. Busy

lifestyle, heightened awareness, and a desire to achieve western standards of living make India a

very suitable market for prepared foods. Significantly, increased urbanisation has seen the rise of

the middle classes and it is predominantly the lifestyle preferences of this group that mark a

change with the past. Moreover, economic growth has altered the structure of the labour force in

urban areas characterized by increased female participation with important consequences for the

family diet. The growing number of food retail chains in the large and smaller cities is also

expected to impact the sector positively.

The consumption of readymade meals, or foods that cut the long preparation time of traditional

dishes, have increased and are likely to be a more common feature of the diet for families where

there is a high female participation rate. This is expected to increase demand for processed food

products, giving a boost to the domestic food-processing industry, and providing opportunities for

increased imports of processed foods and food ingredients. The Indian food-processing industry

has started looking outward to acquire the latest food ingredients and technology. An indication

of this is the presence of numerous multinational food flavour, ingredient, and machinery

companies in India. Health consciousness is popularizing sugar-free low calorie diet foods and

natural foods containing dietary ingredients.

The government has earmarked considerable investments in rural infrastructure and components

of the supply chain by way of grading and packing centres, controlled atmosphere storage

facilities, reefer vans, testing laboratories, etc., which may not come from private sources. It is,

therefore, essential that public investment is significantly increased to fund these components of

rural infrastructure to enable private enterprise to take up the remaining components of the

supply chain which can be undertaken commercially. This is borne out by the experience of

developed countries where the state has stepped in to build rural infrastructure in a big way.

The failure to direct significant public investment into storage and processing infrastructure, which

could then be managed on a public private partnership basis involving all stakeholders, may be the

reason for low levels of investment in processing facilities, lack of value addition and the inability

of the farmer to obtain better prices and incomes. The management of the supply chain is better

undertaken with the involvement of all stakeholders on a PPP basis. Public investment in the

supply chain providing backward linkages to the farm with processors and retailers is to be given

the due importance.


www.imacs.in 66

The Planning Commission’s, Working Group has estimated the total financial requirement of Rs.

150 billion in the Twelfth Five Year Plan.

Budgetary Requirement for the Twelf th Five Year Plan (Rs. Crores)

* These include Rs. 4 billion of grant funds committed under Scheme for Technology Upgradation/ Setting up/

Modernisation/ Expansion of Food Processing Industries and Rs. 120 million under HRD initiatives


www.imacs.in 67

ANNEXURE

Integrated Cold Chain Projects in India


www.imacs.in 68


www.imacs.in 69

Intellectual Property Rights

The Intellectual Property Rights of this document vest entirely with ICRA Management

Consulting Services Limited (IMaCS). None of the information contained herein may be

copied, otherwise reproduced, repackaged, further transmitted, disseminated, redistributed,

or resold, or stored for subsequent use for any purpose, in whole or in part, in any form or

manner or by means whatsoever, by any entity without IMaCS’ prior written permission.

Media may, however, quote from this publication with due acknowledgement to IMaCS.

Copyright, ICRA Management Consulting Services Limited,

1105, 11th Floor, Kailash Building, 26 Kasturba Gandhi Marg, New Delhi 110 001

Food Processing October 2012

Documents

Transcript of Food Processing October 2012