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Agriculture and Food Industry – India (Part VI)

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January 2011
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2
•Corporate Actions and Investments

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT


•Drivers and Challenges
•Executive Summary

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•Product Segments
•Market Overview
Food Processing Sector in India

•Competition
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AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR - EXECUTIVE SUMMARY

Executive Summary
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Market Overview
• The food processing industry is valued at INR 3.4 trillion (USD 70 bn) and is expected to witness a CAGR of 14% (2009-2012)
• States like Andhra Pradesh, Uttar Pradesh and Madhya Pradesh are highly attractive for food processing industry
Product Segments
• Diary products and fruits & vegetables are the most attractive segments for investments
• Packaged foods, beverages and staples are characterized by high volumes and low margins

Drivers & Challenges


Drivers: Challenges:
• Increasing consumer spend on processed foods • Lack of integrated supply chain and scale of operations
• India’s competitive edge • Limited use of technology in food processing
• Growing food retailing in India • High taxes on branded agricultural products
• Government support
• Growth in food processing exports
• Growth in terminal markets
• Low level of penetration in domestic market
Competition
• Indian food processing sector is highly competitive with many foreign players in the market
• More players are planning to tap the mass market in segments like fruits & vegetables, meat & poultry and fisheries
Conclusion
• Increasing retailing and higher consumer spend is expected to increase the penetration of processing food in India
• Low penetration in the sector offers immense opportunities for growth hence large PE investments is seen from 2007 to 2010

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 3


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – MARKET OVERVIEW

Food processing industry in India has huge untapped


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potential and offers scope for large investments
Food Processing Sector Overview
Food processing sector is expected to grow at a CAGR of 12%
1 from 2009 to 2012 … Market Overview

INR bn +12% • The industry is valued at INR 3.4 trillion (USD 70 bn) and is
5,000 4,784
4,186 expected to witness a CAGR of 14% in the period 2009-
4,000 3,680 2012E
3,430
3,000 • India is one of the top producers of milk, pulses,
2,000 sugarcane and tea in the world
1,000 • Government has taken major initiatives towards ensuring
0 multi-fold growth in this sector that has an investment
2009 2010e 2011e 2012e opportunity of about INR 1.1 trillion (USD 24 bn) by 2015

… with dairy sector having the highest penetration in the • Mega Food Parks are coming up in India to integrate the
2
market supply chain and promote food processing
Diary Sector 37% • Foreign direct investments was ~INR 6.3 bn (USD 143
mn) in 2007-08
Fruits & Vegetables 10%
• States like Andhra Pradesh, Uttar Pradesh and Madhya
Meat & Poultry 6% 10% Range 6 – 10% Pradesh are highly attractive for food processing industry

Fisheries 12% Scope: Food processing includes Diary Sector, Fruits & Vegetables,
Meat & Poultry, Fisheries, Packaged Foods, Beverages and Staples
Packaged Foods 3%

Source: Source: Ministry of Food Processing Industries, IBEF articles & KPMG Research

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 4


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – PRODUCT OVERVIEW

Diary products, fruits and vegetables are the most attractive


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segments for investments
Major product segments in food processing sector (1 of 2)
• India is the leading producer of milk in the world, and produced about 108 MT in 2007
 ~37% of the produced milk is processed and ~676 diary plants are registered with the
government Growth
Dairy Products • The major growing segment include- branded butter, cheese and ice cream and the total Rate
market is valued at ~INR 20.3 bn (USD 442 mn) and expected to grow at an average rate +15%
of ~13%
• Ultra Heated Treatment and flavored milk are other high growth market

• Globally, India is second and third largest producer of vegetables (100 MT) and fruits (50
MT) respectively
 India accounts for 8.4% of the world’s F&V production Growth
Fruits and • Less than 2% of total vegetables produced are processed commercially in India Rate
Vegetables • Share of organized sector in fruits processing is ~48% and ~20% of processed F&V are +20%
exported
 Mango and its other products alone constitute 50% of the total F&V exports

• India has the largest livestock population (470 mn) globally


• About 5 mn tonnes of meat is produced per year in India
• Per head consumption of fresh and processed meat is as low as 1.5 kg in India against
world average of 35.5 kg Growth
Meat and Poultry • Majority of animals in India are not bred for meat, the processing percentage for meat Rate
is as follows +10%
-Buffaloes (11%), Cattle (6%), Sheep (33%), Goat (38%)
• The annual poultry production in India is 450 mn broilers and 33 bn eggs growing at
20% and 16%
MT – Million Tonnes
Source: Press articles; Ministry of Food Processing website; IBEF & KPMG research report “Food Processing- market & opportunities”, Apr 2008

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 5


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – PRODUCT OVERVIEW

Packaged foods, beverages and staples are restricted to


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urban areas, characterized by high volumes and low margins
Major product segments in food processing sector (2 of 2)
• India ranks third in fish production in the world
• Frozen shrimp contributes to 34.62% of exports in terms of volume and 63.5% in value Growth
Fisheries • India has about 369 freezing units with daily processing capacity of 10,226 tonnes and Rate
499 frozen storage units with a capacity of 134,767 tonnes +20%

• India has around 60,000 bakeries; 20,000 traditional food units


• The growing segments in packaged foods include
Growth
 Soups market is at a nascent stage and is valued at INR 644 mn (USD 14 mn)
Packaged foods  Confectionaries market pegged at INR 22.3 bn (USD 484.3 mn) growing at 5.7% Rate
 Biscuit market is estimated to be INR 17.2 bn (USD 373.4 mn) and is growing at 7.5% +8%
 Culinary products; tomato ketchups and jams at 18-20% annually

• India is the largest tea producer in the world accounting for 28% of global production
and 5th largest coffee producer accounting for 4% of total production in the world Growth
Beverages • There are 100 plants across India under aerated soft drinks segment Rate
• Exports in soft drinks are valued at INR 7.2 bn (USD 156 mn) per annum +27%
• Attracted FDI of more than INR USD 1 bn

• India is the second largest wheat producer globally with an output of 70 MT valued at Growth
Staples INR 9 bn (USD 195 mn) Rate
• There are 10,000 pulse mills with 14 MT milling capacity per annum +85%

Note: Fisheries sector include marine, in-land and aquaculture; Packaged foods primarily include ready-to-eat snacks, chips, namkeen, bakery
products etc.; Beverages primarily comprises non-alcoholic beverages like aerated soft drinks, fruit juices and hot beverages
Conversion of USD to INR – average of that year from oanda.com
Source: Press articles; Ministry of Food Processing website; IBEF & KPMG research report “Food Processing- market & opportunities”, Apr 2008

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 6


Drivers & Challenges – Summary
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Drivers
Increasing consumer spend on
processed foods

India’s competitive edge


Challenges
Growing food retailing in India
Lack of integrated supply chain and
scale of operations
Government support
Limited use of technology in food
processing
Growth in food processing exports
High taxes on branded agricultural
products
Growth in terminal markets

Low level of penetration in domestic


market

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 7


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – DRIVERS

Increasing consumer spending on food and growing retail


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sector are the major drivers
Increasing consumer spend on processed foods India’s competitive edge

• In the last five years per capita consumption expenditure has • India has largest irrigated land and livestock population in the
gone up by 20% world
• Consumption of primary and secondary processed foods has • India is a favorable market to set-up large low cost production
grown rapidly over the past few years due to the following base with effective utilization of available cheap workforce
factors: • Cost of production in India is 40% lower than many of the
 Four-fold growth in size of households in middle-income to very locations in Europe and about 10-15% lower to that of United
rich segment Kingdom
 Increase in the youth (age group 15 – 25) in the country
 Growing migration of population from rural to urban India
Growing food retailing in India
Expenditure on Food by Indian Consumers
• The food retail business in India is growing at a 30% annual rate,
Milk & milk
and provides a huge scope for food processing players
products, meat Primary & secondary
& marine products processed foods • Food retailing formats are growing in India ranging from
30% neighborhood stores, supermarkets, hypermarkets to cash and
Others
34%
carry stores
 HUL, ITC and Dabur has already forayed in to this space and are
70% 66%
planning to increase their outlets
Agri-products
• Established players are planning to tap the backward linkages and
expand their geographies
 Players include Reliance Fresh, More, Spencer’s Daily, Food Bazaar,
Food World, Nilgiris etc.
Source: FICCI - E&Y study “‘Flavours of Incredible India – Opportunities in the Food Industry’, Oct 2009; Indian Brand Equity Foundation report 2008; Chilli Breeze article
“Food Retail in India – Growth, Growth and More Growth”; Business Line “Food retailing needs to perfect franchise recipe “, Apr 2009

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 8


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – DRIVERS

Government initiatives to achieve the target size of USD 210


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bn by 2015 to boost the industry
Government Support
• 100% FDI as well as technology transfer is allowed in this sector and grants are given by the
government for setting up common facilities in Agro Food Park
Foreign investment
• Plans to set up a dedicated venture capital fund to support the investment requirements
and VC funding
 The venture capital fund would be set up with a corpus of about INR 11.5 bn (USD 250 mn) by 2010
 Fund could be either a government initiative or under public-private-partnership model

• Government plans on establishing 30 mega food parks in all states enabling integration of the fruit
and vegetable sector from farm gate to the retail outlet
 Operations towards developing 10 parks has begun
Mega food parks  All parks are expected to be established by 2015
• Government to provide financial support by means of capital investment in Food Parks, subject to a
maximum of INR 506 bn (USD 11 bn)

• Government is planning to declare a tax holiday for all food processing units
• It also plans to extend 100% depreciation benefit for infrastructure projects in the sector from first
Tax rebates year onwards
• Income tax rebate is allowed for 100% of profits for first 5 years and 25% for next 5 years
• Reduced custom and excise duties on various products

• Government plans to design a curriculum for skill development programmes in consultation with
HRD ministry, Labour ministry and institutions
Skill development • Plans to collaborate with aid agencies like World Bank and Asian Development Bank to raise funds
plans for running large-scale skill development programs
• Prepare a blueprint for Skill Development Mission and collaborate with Industrial Training Institutes
(ITI) to focus on training the workers at various levels of food processing
Source: Ministry of Food Processing India; ET Interview with Food-processing minister “Food processing can create more jobs”, Jul 2009; The Financial Express “Food
processing min plans Rs 1,200-crore VC fund” Sep 2009 Note: Conversion of USD to INR – average of that year from oanda.com

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 9


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – DRIVERS

Development of terminal markets creating linkages with


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aggregators and logistics providers is driving growth
Growth in terminal markets

• The growth in terminal markets will lead to


stronger integration between food producers and Terminal Project Cost Handling Area
processors Markets (INR bn) Capacity Required
• In order to integrate the domestic produce with (Metric (Acres)
retail chains the government of India is promoting Tonnes)
terminal markets Mumbai 1.9-2.5 3000 125
 It plans to set-up 8 terminal markets with an investment
of USD 131 mn Nashik 0.6 1000 100
 Cities under consideration are Mumbai, Nashik, Nagpur,
Chandigarh, Rai, Patna, Bhopal and Kolkata Nagpur 0.6 750 100
 21 more terminal markets are proposed for future

Low level of penetration in domestic market

Processing % of Food Produced Across Countries


• The penetration levels in the domestic market are %
80% 78%
80
low in India because majority of processing units are 70%
60
export oriented 40%
40 30%
• India has large untapped domestic potential
20
5%
0
Malaysia Philippines Brazil China Thailand India

Source: Maharashtra State Agricultural Marketing Board “Projects: Terminal Markets”, IBEF and other press articles; Economic Times “Food processing can create more
jobs”, Jul 2009; igovernment article “India to set up 30 food parks”, May 2008; Yahoo news “High taxes hitting food processing sector: Assocham” Nov 2009

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 10


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – CHALLENGES

Lack of integrated supply chain, limited use of technology


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and higher taxes on branded food are major challenges
Challenges
• Lack of proper value chain and • Food processing in India is majorly a
technology for food processing in India: manual process
 Produce worth INR 460 bn (USD 10 bn) • Technology plays an important role for
is wasted every year in India storing fruits & vegetables for a long
 Nearly 20-25% of the fruits & period in order to enable further
vegetables production in India is lost in
processing
spoilage at various stages of harvesting Lack of
Limited • There are about 3600 licensed
• Lack of technology, poor quality of integrated
use of slaughter-houses in India but due to
seeds and planting material is one of supply
the reasons for this, scale of operations chain technology lack of technology, meat processing is
in food low in India
is also a key factor
processing
• About 90% of the units are small scale
and hence does not reap the benefits of
economies of scale

High taxes on
branded
agricultural
products

• Besides 12.5% of value-added tax, branded processed products are subject


to a 2% central sale tax and also attract local entry tax and octroi up to 4%
• On the other hand, unbranded products are in many cases exempted from
tax or often taxed at a 4% concessional rate, which adversely affects the
competitiveness of the sector

Source: Economic Times “Food processing can create more jobs”, Jul 2009; igovernment article “India to set up 30 food parks”, May 2008; Yahoo news “High taxes
hitting food processing sector: Assocham” Nov 2009; IBEF report 2008; igovernment article “India to set up 30 food parks”, May 2008

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 11


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – COMPETITION

Indian food processing sector is highly competitive with


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many foreign players in the market
Competition Market Segments
• It is competitive industry with many domestic players
Other products
and MNC fighting for market share Meat, Fish,
24% Fruits,
 Competitive pricing, expansions, aggressive advertising Vegetables,
40%
campaigns and efficient packaging are the strategies used by Oil
firms to gain the market share Diary Products 5%

• More players are planning to tap the mass market in 11%


Staples
segments like fruits & vegetables, meat & poultry and 20%
fisheries Beverages

Food processing units in organized sector Segment-wise organized share


Flour Mills 516
Packaged Foods 80%
Fish Processing 568
Beverages 77%
Food and Vegetable 5293
Meat Processing 171 Staple Foods 50%
Sweetened and Aerated Water 656
Fruits & Vegetables 48%
Milk Products 266
Diary Sector 15%
Sugar Mills 429
Solvent Extract 725 Meat & Poultry 5%
Rice Mills + Modernized Rice Mills 174,296
Note: Based on latest available data from the Ministry
Source: D&B articles “Emerging SMEs of India- Food Processing”; IBEF report “Food Processing- market & opportunities”, Apr 2008; Press articles

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 12


AGRICULTURE AND FOOD INDUSTRY IN INDIA FOOD PROCESSING SECTOR – CORPORATE ACTIONS AND INVESTMENTS

Low penetration in the sector offers immense opportunities


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for growth hence large PE investments seen from 2007-10
Mergers and Acquisitions
Amount (INR mn)
Date Acquired Company Acquirer
Stake(%)
Dec 2009 Vigo Biotech Aniol Group 220-250/ 90%

Jul 2008 Cream Bell Devyani Food Industries 26%

Sep 2007 Field Fresh Foods Pvt Ltd. Del Monte Pacific Ltd 4500-5500 /100%

May 2007 Karen’s Gourmet Kitchen (KGK) Temptation Foods 26%

Private Equity Investment


Date Investee Company Investor Amount / Stake (%)
Mar 2010 Global Green Company India Agri Business Fund 480 / 22%
Jan 2009 Tirumala Milk Products Carlyle Group 1100
Oct 2009 LT Foods and Subsidiary Daawat Rabo Equity Advisors 487/14.7% and 26.2%
Foods Ltd.
Feb 2008 Vallabhdas Kanji Limited (VKL) Argonaut Private Equity NA

Jun 2008 Parag Milk Foods Pvt. Ltd (“Parag/ Motilal Oswal Venture Capital Advisors 600
Gowardhan”) Private Limited
Jun 2007 Karuturi Networks Bennett, Coleman and Co Ltd (BCCL) NA

Source: PE India, VC Circle, Company Website, Press Articles

AGRICULTURE AND FOOD INDUSTRY IN INDIA 2011.PPT 13


Thank you for the attention
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