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Detail Study of Indian Food Processing Industry

A Detail S tudy of I ndian Food Processing I ndustry Submitted By: Avaneet Dwivedi (Roll

Submitted By:

Avaneet Dwivedi (Roll No. 09)

Preface

India is the world's 2nd largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. With India's food production likely to double in the next decade, there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk

& Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks

and Grains are important sub-sectors of the food processing industry. Health food and health food supplements are other rapidly rising segments of this industry.

India is the 2nd largest vegetable and 3rd largest fruit producer in the world India will register the highest increase in rice production in the world over the next 10 years, as per the US Department of Agriculture. India's annual rice production would increase by 16.3 million tonnes (mt) by 2016, from 91 mt now. India ranks second only to Japan in inland sector fish production. India produces about 6.57 million metric tonne fish every year. Spices exports will cross US$ 1 billion in the current financial year and touch US$ 10 billion by 2017, according to V J Kurien, chairman, Spices Board. Of the world's total annual spice trade of 850,000 tonnes, India accounts for 44 per cent in quantity and 36 per cent in value India aims at doubling marine exports including that of tuna fish to US$ 4 billion by 2012; 53 per cent of the marine exports comprise of shrimps. Food Processing

The growth of food processing sector has nearly doubled to 13.7 per cent during the last four years, according to the Minister of State for Food Processing Industries Subodh Kant Sahai, who added that India has set a target of growing at 20 per cent by 2015.

A dominant segment of the food industry, food processing is estimated to be worth US$ 70 billion

with a 32 per cent share. It comprises agriculture, horticulture, animal husbandries, and plantation. Experts estimate the industry GDP at 6-8 per cent with value addition of food products to increase from 8 per cent to 35 per cent by the end of 2025.

According to the 'India Food Report 2008', investments to the tune of US$ 23.5 billion are in the pipeline to be made in the food processing industry over the next three years. The opportunity for growth is huge when seen against the fact that while a mere 1.3 per cent of food is processed in India, nearly 80 per cent of food is processed in the developed world.

Significantly, processed food exports have increased from US$ 6.98 billion in 2002-03 to US$ 20.51 billion in 2006-07, recording a whopping 193.83 per cent growth rate. To realise India's potential in this industry, the Government has set an investment target of US$ 25.07 billion by 2015 to double India's share in global food trade from 1.6 per cent to 3 per cent, increase processing of perishable food from 6 per cent to 20 per cent and value addition from 20 per cent to 35 per cent.

Acknowledgement

It is pleasure to acknowledge those who have contributed to this project directly or indirectly, though it will be still an inadequate appreciation of their contribution, we here by acknowledge the names of the people to whom we shall always remain grateful.

we would sincerely like to express our gratitude to Dr Mahendra sharma who gave us the grand opportunity to have Report Project.

we are also very thankful to Prof. Maurvi pandya who performed as a guide for this project. We are thankful for her constant guidance, support and inspiration.

We would also like to sincerely express our gratitude to our all the faculty members who have been time & again directly or indirectly helped us in relation to the Grand Project. Without the theoretical knowledge imparted by them during 3 th Semester of M.B.A. course it was not possible to have it applied in practical life.

Every successful work is completed not without the help and support of the people around us.

I always welcome some suggestions and help from the readers.

Avaneet Dwivedi

Shivang Vyas

Divin Patel

Anil Chauhan

Executive Summary

The Food Processing Industry sector in India is one of the largest in terms of production, consumption, export and growth prospects. The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce; for minimising pre/post harvest wastage, generating employment and export growth.

Important sub sectors in food processing industries are:- Fruit & Vegetable Processing, Fish- processing, Milk Processing, Meat & Poultry Processing, Packaged/Convenience Foods, Alcoholic beverages & Soft drinks and Grain Processing etc.

As a result of several POLICY INITIATIVES undertaken since liberalisation in August 1991, the industry has witnessed fast growth in most of the segments. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs.250,000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80,000 crores (US $ 22.2 billion)

Since liberalisation in Aug'91 and up-till Feb 2000 proposals for projects of over Rs.53,800 crores (US.13.4 billion) have been proposed in various segments of the food and agro-processing industry. Besides this, Govt. has also approved proposals for joint ventures, foreign collaboration, industrial licenses and 100%export oriented units envisaging an investment of Rs.19,100 crores (US $ 4.80 billion) during the same period. Out of this, foreign investment is over Rs. 9100 crores (US $ 18.2 billion).

Processed food exports were at over Rs.13,500 crores (US $ 3.2 billion ) in 1998-99. Out of these exports, rice accounted for 46%, whereas marine products accounted for over 34%.

Primary food processing is a major industry with lakhs of rice-mills/hullers, flour mills, pulse mills and oil-seed mills. There are several thousands of bakeries, traditional food units and fruit/veg./spice processing units in unorganised sector.

In the organised sector, there are over 820 flour mills, 418 fish processing units, 5198 fruit/veg processing units, 171 meat processing units.

India is the world's second largest producer of fruits & vegetables, but hardly 2% of the produce is processed. India is the land of spices producing all varieties worth over Rs. 3500 crores (US $ 900million) amounting to 25-30% of world production, which is processed for value-addition and export. It grows 22 million tonnes of oilseeds covering most of the varieties. Other important plantation products include tea, coffee, cocoa and cashew.

It has large marine product and processing potential with varied fish resources along the 8041 km. long coastline, 28000 km. of rivers and millions of hectares of reservoirs & brackish water. India's livestock population is largest in the world with 50% of world's buffaloes and 20% of cattles, but only about 1% of total meat production is converted to value added products.

India is the largest milk producer in the world and about 15% of the total milk production is processed through the organised sector.

Size of the semi-processed and ready to eat packaged food industry is over Rs. 4000 crores (US $ 1 billion) and is growing at over 20%.

Introduction Of Food Processing Industry

India is the world's second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. A health food and health food supplement is another rapidly rising segment of this industry which is gaining vast popularity amongst the health conscious. India is one of the world’s major food producers but accounts for less than 1.5 per cent of international food trade. This indicates vast scope for both investors and exporters. Food exports in 1998 stood at US $5.8 billion whereas the world total was US $438 billion. The Indian food industries sales turnover is Rs 140,000 crore (1 crore = 10 million) annually as at the start of year 2000. The industry has the highest number of plants approved by the US Food and Drug Administration (FDA)outside the USA

India's food processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya-based products, mineral water, high protein foods etc. We cover an exhaustive database of an array of suppliers, manufacturers, exporters and importers widely dealing in sectors like the -Food Industry, Dairy processing, Indian beverage industry etc. We also cover sectors like dairy plants, canning, bottling plants, packaging industries, process machinery etc. The most promising sub-sectors includes -Soft-drink bottling, Confectionery manufacture, Fishing, aquaculture, Grain-milling and grain-based products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-food, Ready-to-eat breakfast cereals, Food additives, flavors etc.

This section analyses the performance of the Indian food processing industry. Currently, processed food accounts for merely 2% of total food production in India, which is very low as compared to the western countries. Taking market forces such as rising income level and changing consumer behavior due to rapid economic growth into consideration, it is expected to reach a growth rate of 10% in 2010 & 25% in 2020. In food processing sector, dairy products (includes milk, Ethnic sweets etc) and packed food provides immense opportunities for investment.

Currently, the Indian food processing industry is basically export oriented. Although domestic consumption of processed food is low but it is fast picking up with rising income levels & changing consumer behavior due to economic growth.

Indian processed food industry provides competitive advantages over other countries due to cheap workforce, government initiatives (tax holidays) & availability of raw materials. Existence of untapped large consumer base with rising income levels.

Indian food processing level as compared to countries like USA, France & Malaysia continues to

remain very low. However, with the emerging positive market forces, it is all

set to boom.

During the period 2006-07, the Indian food processing industry witnessed growth from 7% to 13.1%. As a result it is hailed as the ‘sunshine industry’ in India. The food processing industry has emerged as one of the major driver of economic growth and is expected to continue in future. Growing economy, surplus food and a shift in the consumption pattern, from cereals to more varied and nutritious diet of fruit and vegetables, milk, fish, meat and poultry products has been the key factors behind the growth of the sector. At present, the industry is seeking for investments to create necessary infrastructure, state-of-the-art-technology and expand production facilities to match the international quality and standards. Additionally, Indian Government’s proactive measures like de-licensing of the sector, several duty and tax relief, financial assistance for infrastructure building and setting up of food processing units is expected to benefit the sector.

Overview of Global Food Processing Industry

Food industry is not a formally defined term; however, it is usually used in a broadly inclusive way to cover all aspects of food production and sale. The Food Standards Agency, a government body in the UK, describes it thus:

whole food industry – from farming and food production, packaging and distribution, to retail

and catering."

The Economic Research Service of the USDA uses the term food system to describe the same thing:

"The world food system is a complex network of farmers and the industries that link to them. Those links include makers of farm equipment and chemicals as well as firms that provide services to agribusinesses, such as providers of transportation and financial services. The system also includes the food marketing industries that link farms to consumers, and which include food and fiber processors, wholesalers, retailers, and foodservice establishments." As shown in figure

the "

establishments." As shown in figure the " Supply chains and value chains in the food and

Supply chains and value chains in the food and drink processing sector

World Food processing Industry size

Processed food sales worldwide are approximately US$3.2 trillion (2007).

In the world, consumers spend approximately US$10 trillion annually for food. Over 16.5 million people are employed in the food industry all over world. Nearly 10 percent of the world Gross Domestic Product (GDP)

Agriculture Agriculture is the process of producing food, feed, fiber and other desired products by

Agriculture

Agriculture is the process of producing food, feed, fiber and other desired products by the cultivation of certain plants and the raising of domesticated animals (livestock). The practice of agriculture is also known as "farming", while scientists, inventors and others devoted to improving farming methods and implements are also said to be engaged in agriculture. More people in the world are involved in agriculture as their primary economic activity than in any other, yet it only accounts for twelve percent of the world's GDP.

Total agricultural trade consists of food and non- food commodities in both raw and processed forms. Classification of agricultural trade is a breakdown of agricultural trade into four components:

bulk commodities,

processed intermediate products,

fresh horticultural products,

Processed consumer goods.

Over the years the share of bulk commodities in total agricultural trade has gone down. Decreased demand for bulk commodities has been compensated by the growth in intermediate processed products, which are essentially processed bulk commodities.

Processed intermediate products such as vegetable oils, flour etc. have contributed significantly to the total agriculture trade and their share in total agricultural trade is increasing.

The share of fresh horticultural products, i.e products that are consumed without further processing, in total agricultural trade is nearly constant. Recent improvements in transportation technology have played a role in promoting trade of fresh products.

The faster growing categories in agricultural trade are non-bulk packaged processed food products, which are marketed under different brands. Developed countries have played an important role in promoting trade in processed food products. Share of these countries in import of processed food products is more than developing countries, whereas in case of bulk commodities share of developing countries exceeds the import of developed countries.

Food processing

Food processing is the methods and techniques used to transform raw ingredients into food for human consumption. Food processing takes clean, harvested or slaughtered and butchered components and uses them to produce marketable food products. Consumer expenditure on processed food and drink 2001–07 (US$ billion),as shown in below table

marketable food products. Consumer expenditure on processed food and drink 2001–07 (US$ billion),as shown in below

The industry is composed of six key segments

Wholesale and distribution A vast global transportation network is required by the food industry in
Wholesale and distribution A vast global transportation network is required by the food industry in

Wholesale and distribution

A vast global transportation network is required by the food industry in order to connect its numerous parts. These include suppliers, manufacturers, warehousing, retailers and the end consumers. There are also those companies that, during the food processing process, add vitamins, minerals, and other necessary requrements usually lost during preparation.

the food processing process, add vitamins, minerals, and other necessary requrements usually lost during preparation.
It is the vertical coordination linking members of a distribution chain that is so important

It is the vertical coordination linking members of a distribution chain that is so important to each of those members. Previously, the way in which farmers and suppliers interacted with their markets was different: farmers would produce a product first and then set out to find a market for it, hoping that they had “struck lucky” and would find buyers – hoping too, that the price applying at the time they took the product to market would be a good one.

Depending on the length of the distribution channel, similar interactions might take place further on in the process of getting the product to the eventual consumer. The focus now has switched from what the distributor can offer to what the buyer requires. In a global food chain, farmers no longer produce first and then look for a market. Instead, those who control the supply chain decide what they believe the consumer needs, or can be enticed to want, and then proceed to design the supply chain required to deliver those products. Products can be tailored to consumer specifications right from the beginning.

Food delivery chains, in other words, are more and more demand-led; so much so that it might seem more appropriate to talk of “demand” rather than “supply” chains.To analyse these global food chains more closely, however, it may be useful to apply the evolving methodology of global value chain analysis. This approach looks at the value added to a product as it passes through all the stages of the supply chain, from raw material to finished product.

For example, the eventual price at which a litre of milk is sold to a consumer reflects the work that the farmer has done in maintaining a herd of dairy cattle. However, it also reflects the value added later in the supply chain, for example by the work of the milk wholesaler or consolidator, the packaging process, transportation, retailing and marketing.A value chain like this one is relatively short others

(particularly those involving processed food sourced globally) can be much longer and more complex. The principle, however, is the same: value is added to primary products at each stage

through human labour, the use of capital equipment, and the application of knowledge and information.

The benefits that accrue to members of a global distribution channel are highly skewed in favour of the lead firm in the chain.

Retail

With populations around the world concentrating in urban areas, [4] food buying is increasingly removed from all aspects food production. This is a relatively recent development, taking place mainly over the last 50 years. The supermarket is a defining retail element of the food industry, where tens of thousands of products are gathered in one location, in continuous, year-round supply.

Food preparation is another area where change in recent decades has been dramatic. Today, two food industry sectors are in apparent competition for the retail food dollar. The grocery industry sell fresh and largely raw products for consumers to use as ingredients in home cooking. The food service industry offers prepared food, either as finished products, or as partially prepared components for final "assembly".Top ten food retailers, by sales, 2005 as shown in table and share market all over world

2005 as shown in table and share market all over world Source: ETC Group: Oligopoly, Inc.

Source: ETC Group: Oligopoly, Inc. 2005, op. cit., quoted by S. Best and I. Mamic in Global agri-food chains, op. cit.

One of the key developments in global food processing industry over the past decade has

One of the key developments in global food processing industry over the past decade has been the rise of the food retail sector. By 2007, supermarkets and hypermarkets in the world accounted for at least 62 per cent of all food retail sales (some assessments place this even higher, at 70–80 per cent). Wal-Mart, one of the largest global companies in any sector,operates in the United States, Canada, China, Japan, Mexico, the United Kingdom and several other countries, and has just moved into the Indian market in partnership with Bharti (a leading local telecommunications service provider).

The French retailer Carrefour operates in over 30 countries, has a strong presence in Spain and Italy as well as France, with interests also in China and Latin America. The German company Metro has the majority of stores in its home market, but also has some operations in China, a strong and growing presence in Eastern Europe, and plans further expansion globally, including in India and China. Tesco, the leading British retailer, operates 75 per cent of its stores in the United Kingdom, 12 per cent in Eastern Europe and 9 per cent in China, and is also Other, 64% Wal-Mart, 8% Carrefour, 3% Metro-AG 2%Ahold, 2%Tesco, 2%Kroger, 2%Costco, 2% ITM, 1% Albertsons, 1%Edeka Zentrale, 1% Top 11–30 firms, 12% expanding steadily in East Asia and Eastern Europe.

Foods large chains are strongest in North America and Europe, the supermarket/hypermarket format is spreading to the rest of the world, and other countries have major operators that are becoming larger through acquisitions, one example being Ito Yakado in Japan. By 2000, supermarkets in Latin America had on average 50–60 per cent of national food retail business, with the highest levels of concentration in the two largest regional economies, Brazil and Argentina. The Latin American supermarket sector is increasingly dominated by foreign-owned companies, including Carrefour, Tesco and Wal-Mart.Although outside the range of this issues paper, it can be noted that these companies have considerable power in non-food as well as food

products. Wal-Mart, for instance, dominates global supply chains in areas such as leisure clothing and household utensils these supply chains operate in a way comparable to the global food chains. China is a particularly important source for Wal-Mart stock.

Food industry technologies

Sophisticated technologies define modern food production. They include many areas. Agricultural machinery, originally led by the tractor, has practically eliminated human labor in many areas of production. Biotechnology is driving much change, in areas as diverse as agrichemicals, plant breeding and food processing. Many other areas of technology are also involved, to the point where it is hard to find an area that does not have a direct impact on the food industry. Computer technology is also a central force, with computer networks and specialized software providing the support infrastructure to allow global movement of the myriad components involved.

Marketing

Marketing is all about selling and buying of goods and services in exchange for money. This is a very narrow view. There are three major facets of marketing. First is the production-driven approach where stress is laid on selling whatever is produced. This works during scarcity of goods. And the producer’s key function here is to sell goods available at affordable prices. Most small and micro enterprises follow this approach. The second is the sale-driven approach that revolves around personal selling and advertising to convince customers to buy your product. This approach is adopted when there is an abundance of supply in the market. The last is the consumer-driven approaches, which focus on promoting sale by meeting the customers’ expectations in terms of quality, looks, aesthetics, prices and after sales-service. The earlier two approaches where goods are tailor-made are producer-oriented and may not work satisfactorily as they require a proper understanding of the consumer behaviour, preferences, tastes and needs before undertaking production. The third being consumer-driven, lasts. This is why sales becomes a small part of an entire system called marketing that addresses planning, pricing, promotion and distribution of goods and services to satisfy customer needs.food processing industry is totally consumer driven.

Therefore, you must understand that marketing is not just selling, but much more, and includes:

i. Market Assessment

ii. Market Segmentation

iii. Market Targeting

iv. Developing Market Mix

As consumers grow increasingly removed from food production, the role of product creation, advertising, publicity become the primary vehicles for information about food. With processed food as the dominant category, marketers have almost infinite possibilities in product creation so food processing industry have to focus on market assessment , market segmentation market targeting and develop market mix.

Labour and education

Until the last 100 years, agriculture was labor intensive. Farming was a common occupation. Food production flowed from millions of farms. Farmers, largely trained from generation to generation, carried on the family business. That situation has changed dramatically. In North America, over 50% of the population were farm families only a few decades ago; now, that figure is around 1-2%, and some 80% of the population lives in cities. The food industry as a complex whole requires an incredibly wide range of skills. Several hundred occupation types exist within the food industry.

Research and development

Research in agricultural and food processing technologies happens in great part in university research environments. Projects are often funded by companies from the food industry. There is

therefore a direct relationship between the academic and commercial sectors, as far as scientific

research.

Prominent Food Companies

The Food World is the biggest directory for food, beverage and agriculture industries, worldwide. DuPont and Monsanto are the leading producers of pesticide, seeds, and other farming products.

Both Archer Daniels Midland and Cargill process grain into animal feed and a diverse group of products. ADM also provides agricultural storage and transportation services, while Cargill operates a finance wing.

Bunge is a global soybean exporter and is also involved in food processing, grain trading, and fertilizer. Dole is the world's largest fruit company. Chiquita Brands International, another US based fruit company, is the leading distributor of bananas in the United States. Sunkist Growers, Incorporated is a U.S. based grower’s cooperative.

Tyson Foods is the world’s largest processor and marketer of chicken and the largest beef exporter from the United States. Smithfield is the world's largest pork processor and hog producer.

Nestlé is the world's largest food and beverage company. Kraft Foods is the largest U.S. based food and Beverage Company. Unilever is an Anglo-Dutch company that owns many of the world's consumer product brands in foods and beverages.

Sysco Corporation, mainly catering to North America and Canada, is one of the world's largest food distributors.

Global Processed food export and import

The widespread adoption by developing countries of export-led growth strategies has drawn attention to the economic potential of their food processing sectors, particularly in the light of the crisis facing many traditional primary commodity export markets. Food processing can be understood as postharvest activities that add value to the agricultural product prior to marketing. In addition to the primary processing of food ingredients, it includes, therefore, final food production on the one hand and the preparation and packaging of fresh products, especially horticulture and fish. Non-traditional exports, particularly of these latter two categories of products, have become the focus of considerable

debate. For some, they represent a strategic opportunity for developing countries not only for new sources of revenue but also for employment generation and the internalization of new knowledge and technology. Others argue that they are the reflection of the outsourcing tendencies of global value chains dominated by transnational’s taking advantage of low wages and less stringent environmental regulation, with little potential for internal upgrading.

At the same time, processed food exports from the developed countries were accompanied in the 1990s by waves of foreign direct investment (FDI) into the food processing sectors of developed and developing countries alike. Here again, evaluation in the literature varies widely with regard to the impact of these investments. On the one hand, they are seen as a driving force behind the surge of nontraditional food exports from developing countries. Other analysts would focus on the impact of FDI on the recipient’s domestic markets for productivity, innovation and industry concentration issues. These discussions have been complemented by recent attention to the dietary implications for developing countries, with FDI being seen as accelerating the adoption of a food regime based on animal protein and highly processed foods, leading to new forms of malnutrition: poverty is now often combined with obesity in developing countries. Transformations in the food processing sectors of developing countries, therefore, are increasingly seen as strategic, whether analyzed from the point of view of export earnings, domestic industry restructuring or dietary issues. In this article, we review a selection of the literature and secondary data sources on these themes. Our analysis begins with a discussion of the main trends identifiable in the food processing industries of the three regional blocs of the developed world (the North American Free Trade Area, NAFTA, the European Union and Japan), since it is their combined impact that determines the complex patterns of globalization. This is followed by a discussion of the importance of non-traditional food processing exports by developing countries and the different interpretations to which it has given rise. The internal transformations of the food processing sector of developing countries under the combined impact of imports and FDI are then considered. We conclude with a discussion of the heterogeneous dynamic of food processing in developing countries and the different possibilities for strengthening the participation of small and medium enterprises.

SOURCE:-e-JOURNAL OF AGRICULTURAL AND DEVELOPMENT ECONOMICS Vol. 1, No. 2, pp. 184-201, 2006

To analyses the global trade in food products that are covered under the following HS Codes

• HS Code 02: Meat and edible meat offal

• HS Code 03: Fish and crustaceans, molluscs and other aquatic invertebrates

• HS Code 04: Dairy produce; birds eggs; natural honey;

• HS Code 05: Products of animal origin, not elsewhere specified

• HS Code 06: Live trees and other plants;

• HS Code 07: Edible vegetables and certain roots and tubers

• HS Code 08: Edible fruit and nuts; peel of citrus fruit or melons

• HS Code 09: Coffee, tea, mate and spices

• HS Code 10: Cereals

• HS Code 11: Products of the milling industry; malt; starches; inulin

• HS Code 12: Oil seeds and oleaginous fruits

• HS Code 13: Lac; gums, resins and other vegetable saps and extracts

• HS Code 14: Vegetable plaiting materials; vegetable products nes

• HS Code 15: Animal or vegetable fats and oils

• HS Code 16: Preparations of meat, of fish or of crustaceans

• HS Code 17: Sugars and sugar confectionery

• HS Code 18: Cocoa and cocoa preparations

• HS Code 19: Preparations of cereals, flour, starch or milk; bakers' wares

• HS Code 20: Preparations of vegetables, fruit or nuts

• HS Code 21: Miscellaneous edible preparations

• HS Code 22: Beverages, spirits and vinegar

Global Import

Total Global import of food products covered under HS Code 02 – 22 is to the tune of 595.52 bn USD (Chart 1) Top 3 items of global import are Fish and crustaceans, molluscs and other aquatic invertebrates (HS Code 03, 10.23% share), Meat and edible meat offal (HS Code 02, 9.76% share) and Beverages, spirits and vinegar (HS Code, 9.58% share)

Chart 1: Composition of Global Import of Food Products covered under HS Code 02 – 22 Year (2007)

of Food Products covered under HS Code 02 – 22 Year (2007) Source: COMTRADE Global Export

Source: COMTRADE

Global Export

Total Global export of food products covered under HS Code 02 – 22 is to the tune of 580.74 bn USD (Chart 2) Top 3 items of global export are Meat and edible meat offal (HS Code 02, 10.78% share), Beverages, spirits and vinegar (HS Code 22, 9.89% share) and Fish and crustaceans, molluscs and other aquatic invertebrates (HS Code 03, 8.26% share) Chart 2: Composition of Global Export of Food Products covered under HS Code 02 – 22 Year(2007)

Source: COMTRAD I ndian F ood P rocessing I ndustry MARKET OVERVIEW India is a

Source: COMTRAD

Indian Food Processing Industry

MARKET OVERVIEW

India is a country of striking contrasts and enormous ethnic, linguistic, and cultural diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven Union Territories (under federal government rule). The states differ vastly in resources, culture, food habits, living standards, and languages. Vast disparities in per-capita income levels exist between and within India’s states. About

75 percent of the country’s people live in its 550,000 villages; the rest in 200 towns and cities. There are 27 cities with a population above one million people.

India has the largest number of poor, with 35 percent of the population surviving on less than $1 per day, and 80 percent of the population surviving on less than $2 per day1. Nearly 51 percent of Indians’ consumption expenditures go for food (54 percent in rural area and 42 in urban areas)2; mostly for basic items like grains, vegetable oils, and sugar; very little goes for value added food items. In recent years, however, there has been an increased shift towards vegetables, eggs, fruits, meat, and beverages. Religion has a major influence on eating habits and, along with low purchasing power, supports a predominantly vegetarian diet.

Some observers of India’s economic scene are, however, highly optimistic about consumption growth potential, and believe that rising income levels, increasing urbanization, a changing age profile (more young people), increasing consumerism, a significant rise in the number of single men and women professionals, and the availability of cheap credit will push India onto a new growth trajectory. These segments of the population are aware of quality differences, insist on world standards, and are willing to pay a premium for quality. Nonetheless, a major share of Indian consumers has to sacrifice quality for affordable prices. Potential US exporters should also bear in mind that India’s diverse agro- industrial base already offers many items at competitive prices. Results of the “Market Information Survey of Households,” conducted by the National Council of Applied Economic Research, show that the share of households in the upper middle/high income group (annual household income > Rs. 90,000, or $11,200 on purchasing power parity basis) has grown from 14% in 1989-90 to 28% in 2001-02, and is projected at 48 percent in 2009-10. Correspondingly, there has been a decline in the low-income group.

Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010. By 2025, 40 percent of Indians are expected to be urban dwellers. Structural reforms and stabilization programs during the 1990s have contributed to India’s sustained economic growth, which has been relatively strong over the past two decades, averaging 6 percent annually. Since 1996, the Indian government has gradually lifted import-licensing restrictions, which had effectively prohibited imports. On April 1, 2001, all remaining quantitative restrictions were removed, putting India in compliance with its WTO commitment. Nonetheless, the government continues to discourage imports, particularly agricultural products, with the use of high tariffs and non-tariff barriers. Import tariffs on most

consumer products, although declining, are still high, ranging from 30.6 to 52.2 percent. Some sensitive items, such as alcoholic beverages, poultry meat, raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Nontariff barriers include unwarranted sanitary and phytosanitary restrictions and onerous labeling requirements for pre-packaged foods. Other factors adversely affecting imports include a poorly developed infrastructure (transportation and cold chain), a predominantly unorganized retail sector, and outdated food laws. However, some positive factors are:

• Rising disposable income levels

• Increasing urbanization and exposure to Western culture

• Growing health consciousness among the middle class

• Growing consumerism

• Changing age profile

• Increasing availability of cheap consumer credit

Sources: All India Food Processors Association http://www.aifpa.com/ Table 2.1 Status of Food Processing Industry in

Sources: All India Food Processors Association http://www.aifpa.com/

Table 2.1 Status of Food Processing Industry in India

During the period 2006-07, the Indian food processing industry witnessed growth from 7% to 13.1%. As a result it is hailed as the ‘sunshine industry’ in India. The food processing industry has emerged as one of the major driver of economic growth and is expected to continue in future. Growing economy, surplus food and a shift in the consumption pattern, from cereals to more varied and nutritious diet of fruit and vegetables, milk, fish, meat and poultry products has been the key factors behind the growth of the sector. At present, the industry is seeking for investments to create necessary infrastructure, state-of-the-art-technology and expand production facilities to match the international quality and standards. Additionally, Indian Government’s proactive measures like de-licensing of the sector, several duty and tax relief, financial assistance for infrastructure building and setting up of food processing units is expected to benefit the sector. India’s food processing sector primarily covers fruit and vegetables; meat and poultry; dairy products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya-based products, mineral water, high protein foods etc.

Indian Food Industry Performance

Market Definition

The market for food processing industry is the complex in nature, it is global collective of diverse businesses that together supply much of the food energy consumed by the population. Only subsistence farmers, those who survive on what they grow, can be considered outside of the scope of the modern food processing industry.

The food processing industry includes:

Regulation: local, regional, national and international rules and regulations for food production and sale, including food quality and food safety, and industry lobbying activities

Manufacturing: processed packed food, food processing machinery and supplies, food processing construction, etc.

Food processing technology: preparation of fresh products for market, manufacture of prepared food products

Marketing: promotion of generic products (e.g. milk board), new products, public opinion, through advertising, packaging, public relations, etc

Retail: supermarket chains and independent food stores, direct-to-consumer, restaurant, food services

Indian Consumers and Market potential for processed food

Around 45 per cent of the population in India is below 20 years of age in year 2007 and the young population is set to rise further. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset.

a latent demand with more money and a new mindset . So there are good chances

So there are good chances of acceptance of processed food by new generation in India

Indian Consumer Behavior changing based on:

Rapid urbanization

Increased literacy

Rising per capita income

Rapid growth and change in demand patterns of Indian consumer, leading to an explosion of new opportunities

Today Indian consumer are more literate and urbanized so they focused on quality, availability, conveniently and most important hygienic of the food product This create demand supply gap which indicates an untapped opportunity in areas such as packaged form, convenience food and drinks, milk products etc

Low penetration rate of processed food in the rural but high in urban areas because of the following reason

Rapid change in life style of Indian urban consumer indicates high a market potential in urban area of India.

Rising double-income families and proportion of women in the workforce

Decreasing prices of processed foods, making them more affordable thereby accessing a much larger market

Rapid growth in organized processed food retail (> 20% p.a.) with a variety of retail formats being developed

20% p.a.) with a variety of retail formats being developed There is good chance of increasing

There is good chance of increasing consumption level of process food in future.

Market Segments For Food Processing Industry

Food Processing Sector overview

Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The Ministry of Food Processing, Government of India has defined the following segments within the Food Processing industry:

• Dairy, fruits & vegetable processing

• Grain processing

• Meat & poultry processing

• Fisheries

• Consumer foods including packaged foods, beverages and packaged drinking water.

While the industry is large in terms of size, it is still at a nascent stage in terms of development. Out of the country’s total agriculture and food produce, only 2 per cent is processed. The highest share of

processed food is in the Dairy sector, where 37 per cent of the total produce is processed, of which 15 per cent is processed by the organised sector.Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around

milled flour and rice, tea, spices, etc.) constitutes around India’s food-processing sector, though still developing,

India’s food-processing sector, though still developing, contributes 14 percent to the manufacturing GDP (5.5 percent of aggregate GDP), produces goods worth rs. 2.8 trillion ($64 billion), and employs 13 million people 1 . Much of India’s food-processing industry is small-scale and involves very little value addition, although in recent years several multinational food-processing companies have started operations in India. A plethora of internal restrictions, including (a) prohibition on foreign direct investment in retail, (b) prohibitions on contract farming, (c) barriers to interstate commerce based on revenue and food security concerns, (d) some of the highest taxes on processed foods in the world, and (e) inefficient in infrastructure and marketing networks seriously constrain growth of the sector.

1 Food-processing Policy 2005, Ministry of Food-processing Industries, GOI; http://mofpi.nic.in/fpipolicy.htm

The almost year-round availability of fresh products across the country, combined with the consumers’ preference for fresh products and freshly cooked foods has dampened demand for processed food products. The level of processing varies across segments – ranging from less than 2 percent of the production in the case of fruits and vegetables to over 90 percent 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 flavors.

LEVEL OF PROCESSING IN PERISHABLE PRODUCTS IN YEAR 2007

Product

Level of Processing (% of total production)

Organized

Unorganized

Total

Sector

Sector 1/

Fruits & vegetables

1.2

0.5

1.7

Milk

15.0

22.0

37.0

Meat

21.0

0

21.0

Poultry

6.0

0

6.0

Marine fisheries

1.7

9.0

10.7

Shrimp

0.4

1.0

1.4

Source: Rabobank Analysis

1/ “Unorganized” in fruits and vegetables includes unbranded pickles, sauces, and potato chips, but excludes processing by street vendors; “unorganized” in dairy includes processing by sweet food makers; “unorganized” in marine products includes processing by small

At present, most inputs for the food-processing industry are sourced domestically, with the exception of some bulk commodities that are in short supply, such as pulses and vegetable oils, dried fruits and

nuts, and small but increasing quantities of food additives and ingredients such as soy proteins, whey,

and flavors and essence.

valued at $560 million. Imports of food ingredients were valued at $170 million in 2006/07, and include mostly spices and condiments, dairy products, cocoa products, fish and fish products, fruit juices, and other ingredients (yeasts, sauces, soft drink concentrates, flavoring materials, soy protein concentrates and isolates, etc.).

India annually imports vegetable oils valued at over $2.6 billion and pulses

Unorganized, small players account for more than 70 percent of the industry’s output in volume and 50 percent 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 in the food-processing sector. However, following economic liberalization 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. Some of the major players in India’s food-processing industry are listed in this report. There are hundreds of medium-sized

regional companies, some of them aspiring to emerge as national players with their own established brands, who pose some competition to large firms

The domestic organized processed-food market is expected to triple in the next 10 years from about $100 billion in FINACIAL YEAR 2004 to $310 billion in FINACIAL YEAR 2015. India aims to increase its share of world trade in this sector from 1.7% currently ($7.5 billion) to 3% by 2015 ($20 billion)

1.7% currently ($7.5 billion) to 3% by 2015 ($20 billion) So here we have estimated that

So here we have estimated that production of processed food is increasing linearly with respect to FMCG Market size till 2015 E ,its shows that very good potential of proceeds food in coming future.

India’s Import & Export Scenario

India’s Import of Food Products

Total import of food products of India covered under HS Code 02 – 22 is to the tune of 4.62 bn USD (Chart 3 and Table 3) Top 3 items of import are Animal or vegetable fats and oils (HS Code 15, 49.85% share), Edible fruit and nuts; peel of citrus fruit or melons (HS Code 08, 17.11% share) and Edible vegetables and certain roots and tubers (HS Code 07, 13.68% share)

Chart 3 : Composition of Total Import of Food Products by India in 2007 (covered under HS Code 02 – 22)

Products by India in 2007 (covered under HS Code 02 – 22) Sources:- www.apeda.com(Agricultural and Processed

Sources:- www.apeda.com(Agricultural and Processed Food Products Export Development Authority (APEDA))

India’s Export of Food Products

Total export of food products (covered under HS Code 02 – 22) by India in 2005 is to the tune of 8.36 bn USD (Chart 3 and Table 4) Top 3 items of Indian export are Cereals (HS Code 10, 19.56% share), Fish and crustaceans, molluscs and other aquatic invertebrates (HS Code 03, 17.01% share) and Coffee, tea, mate and spices (HS Code 09, 10.84% share)

Chart 3: Composition of Export of Food Products by India in 2005 (covered under HS Code 02 – 22)

Products by India in 2005 (covered under HS Code 02 – 22) Sources:- www.apeda.com(Agricultural and Processed

Sources:- www.apeda.com(Agricultural and Processed Food Products Export Development Authority (APEDA))

To analyses the global trade in food products that are covered under the following HS Codes

• HS Code 02: Meat and edible meat offal

• HS Code 03: Fish and crustaceans, molluscs and other aquatic invertebrates

• HS Code 04: Dairy produce; birds eggs; natural honey;

• HS Code 05: Products of animal origin, not elsewhere specified

• HS Code 06: Live trees and other plants;

• HS Code 07: Edible vegetables and certain roots and tubers

• HS Code 08: Edible fruit and nuts; peel of citrus fruit or melons

• HS Code 09: Coffee, tea, mate and spices

• HS Code 10: Cereals

• HS Code 11: Products of the milling industry; malt; starches; inulin

• HS Code 12: Oil seeds and oleaginous fruits

• HS Code 13: Lac; gums, resins and other vegetable saps and extracts

• HS Code 14: Vegetable plaiting materials; vegetable products nes

• HS Code 15: Animal or vegetable fats and oils

• HS Code 16: Preparations of meat, of fish or of crustaceans

• HS Code 17: Sugars and sugar confectionery

• HS Code 18: Cocoa and cocoa preparations

• HS Code 19: Preparations of cereals, flour, starch or milk; bakers' wares

• HS Code 20: Preparations of vegetables, fruit or nuts

• HS Code 21: Miscellaneous edible preparations

• HS Code 22: Beverages, spirits and vinegar

Food Processing Segment Analysis

Fruits And Vegetables processing

India produces the widest range of fruits and vegetables in the world. It is the second largest vegetable and third largest fruit producer accounting for 8.4 per cent of the world’s food and vegetable production. The share of organised sector in fruit processing is estimated to be nearly 48 per cent. Fruit production in India registered a growth of 3.9 per cent during the period 2003-2007 whereas the fruit processing sector grew several times faster at 20 per cent over the same period.

The total area under fruit cultivation is estimated at 4.18 million hectares. The total area under vegetable cultivation is estimated at7.59 million hectares.However less than 2 per cent of the total vegetables produced in the country are commercially processed, as compared to nearly 70 per cent in Brazil and 65 per cent in USA.

India’s installed capacity for fruits and vegetable processing nearly increase by 5 fold during the 1990s, from 1.1 million tones in 1993 to 5.33 million tones in 2007. About 20 per cent of processed fruits and vegetables are exported. Major products exported include fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and vegetables. Fruit exports have registered a growth of 16 per cent in volume and 25 per cent in value terms in 2006-07. Mango and mango based products alone constitute 50 per cent of the exports.

The growth trend from 2003 to 2007 remained upward, being 21.8% in the first year, 25.2% in the second and 11.76% in the third. During 2005–2006, this sector showed a negative trend of 4.2% over the preceding year and 2006–2007 registered a positive growth of 3.3%. Though the detailed reason for this trend could be ascertained by ground-level research, the factor responsible for negative growth in 2005–2006 was excise duty of 8% on processed (Fruit and Vegetables) F&V products, as against no duty in the preceding years.

Sources: - Web: www.ibef.org Out of the 5198 F&VP enterprises in 2007, 2002 (38%) were

Sources: - Web: www.ibef.org

Out of the 5198 F&VP enterprises in 2007, 2002 (38%) were home-scale (household) units, 1083 (21%) cottage, 834 (16%) small-scale, 598 (12%) large-scale and the remaining 681 (13%) were only relabellers

and the remaining 681 (13%) were only relabellers Sources: - Web: www.ibef.org The utilization of fruits

Sources: - Web: www.ibef.org

The utilization of fruits and vegetables for processing in the organized & unorganized sectors is estimated to be around 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 veg-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 utilization 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 another main reason for inadequate expansion of the domestic market. In order to give fresh impetus to processing of Fruit

and Vegetables Government has allowed under I.T.Act 100% deduction of profit for first five year and 25% deduction for another five years for new upcoming F & VP units.

Less than 2 percent of all fruits and vegetables produced in India are processed. The main products, the industry size, and major players are shown in the following table:

produced in India are processed. The main products, the industry size, and major players are shown

Export and Import of Fruits and Vegetables in Different Countries

Edible vegetables and certain roots and tubers

Top three Suppliers are Myanmar, Canada and Pakistan with 39.64%, 23.87% and 10.66% share

respectively.

Share of Focus Countries in Indian imports

• Australia 5.03%

• Netherlands 0.004%

• France 1.12%

• Italy 0.02%

• Germany 0.01%

• United Kingdom 0.01%

• UAE 0.01%

• USA 2.31%

• Belgium 0.01%

• Japan 0.01%

• Thailand 0.10%

Major Export Destinations Top three export destinations are Bangladesh, Sri Lanka and Malaysia with 24.02%, 9.69% and 8.78% share respectively. (Table 14 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 0.56%

• Netherlands 0.56%

• France 2.39%

• Italy 0.65%

• Germany 1.28%

• United Kingdom 2.49%

• UAE 7.85%

• USA 5.82%

• Belgium 0.74%

• Japan 0.21%

• Thailand 0.02%

Edible fruit and nuts; peel of citrus fruit or melons

Major Supplying Countries Top three Suppliers are USA, Cote d’Ivoire and Guinea- Bissau with 17.74%, 14.59% and 12.18% share respectively. (Table 15 of Annexure 2)

Share of Focus Countries in Indian imports

• Australia 1.48%

• Netherlands 0.01%

• France 0.04%

• Italy 0.12%

• Germany 0.001%

• United Kingdom 0.13%

• UAE 0.27%

• USA 17.74%

• Belgium 0.004%

• Japan 0.0004%

• Thailand 0.19%

Major Export Destinations

Top three export destinations are USA, Netherlands and UAE with 26.58%, 14.54% and 10.68% share respectively. (Table 16 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 0.75%

• Netherlands 14.54%

• France 2.45%

• Italy 0.68%

• Germany 2.17%

• United Kingdom 6.75%

• UAE 10.68%

• USA 26.58%

• Belgium 1.96%

• Japan 3.56%

• Thailand 0.33%

Dairy Processing

India stands first in the world in terms of milk production .The output is expected to be about 108 million tonnes (estimate for 2008), growing at a compounded annual growth rate of 4 per cent. Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas) and is currently valued at US$ 16 billion. The dairy sector ranks first in terms of processed foods with 37 per cent of the produce being processed. The organised sector processes an estimated 15 per cent of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organised sector. Milk and milk products contribute to a significant 17 per cent of the country’s total expenditure on food. Traditional dairy products account for about 50 per cent of the total milk produced.The market for dairy products is expected to grow at 15-20 per cent over the next three years.

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

• The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. Its market size is estimated at US$ 450 million for 2006-07

• The cheese market is estimated at US$ 2.49 million for 2006-07 (54000 tonnes in volume terms),

growing at a rate of nearly 10 per cent per annum. The organized cheese market is dominated by processed cheese which accounts for 74 per cent market share

• The ice-cream market in India is estimated at US$ 226 million in 2006-07, with the organised

market at US$ 158.2 billion This is currently growing at 20 per cent Organized dairy industry accounts for less than 15% of the milk produced in India. The rest of the milk is either consumed at farm level, or is sold as fresh, non-pasteurized milk through unorganised channel.

The share of organised industry is expected to rise rapidly especially in the urban regions. India, with its status as the largest milk producer in the world, is on the verge of assuming an important position in the global dairy industry. Many international dairy companies are viewing India with an eye to tapping its vast growing market for dairy products. Total milk production in the country is around 91

million tones. Per capita of milk consumption is 75 Kgs. (NDDB).19 units have been sanctioned financial assistance under the plan scheme of the Ministry during the year 2006-07.

Sources: Ministry of Food Processing Industries

About 37 percent of India’s milk production of 91 million tons is processed, 15 percent in the organized sector and 22 percent in the unorganized sector. A major share of the milk processed in the organized sector (mostly by dairy cooperatives) is in the form of packaged liquid milk. Other processed items include ethnic sweets, milk powder, ghee (melted, clarified butter), butter, cheese, and ice cream. In the unorganized sector, a major share is processed into milk-based sweets, and a smaller share for making yogurt, butter, and ghee. The main products, the industry size, and major players are shown in the following table:

making yogurt, butter, and ghee. The main products, the industry size, and major players are shown

Going by FAO estimates, while world milk production fell by 2% in the last three years, the Indian production galloped by 4%. While consumption of liquid milk accounts for 46% of the total production, the rest is converted into milk products. Of this, the share of the organised sector is less than 10%. The products manufactured by the organised sector are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk, infant foods, etc. The products also include casein, lactose and dairy whiteners.

products also include casein, lactose and dairy whiteners. Sources: Market Trends & Potentials of dairy sector

Sources: Market Trends & Potentials of dairy sector in India, FAO Study

Dairy produce Export &Import scenario

Major Supplying Countries

Top three Suppliers are Nepal, France and Denmark with 19.44%, 18.49% and 12.04% share respectively. Share of Focus Countries in Indian imports

• Australia 0.23%

• Netherlands 7.62%

• France 18.49%

Germany 9.59%

• United Kingdom 9.57%

• UAE 1.63%

• USA 5.49%

• Belgium 0.47%

• Japan 0.002%

• Thailand 0.01%

Major Export Destinations

Top three export destinations are UAE, USA and Bangladesh with 11.96%, 9.14% and 6.74% share respectively. Share of Focus Countries in India’s exports

• Australia 0.29%

• Netherlands 0.30%

• France 0.19%

• Italy 0.0001%

• Germany 4.65%

• United Kingdom 0.46%

• UAE 11.96%

• USA 9.14%

• Belgium 0.11%

• Japan 3.95%

• Thailand 1.66%

Meat Processing:

India has the world’s largest livestock population, accounting for 50% of buffaloes and 1/6th of the goat population. Such a large population represents a challenge to retain existing productivity traits by application of modern science and technology. Rigorous efforts are being made to improve the condition of livestock by providing basic infrastructure and latest technology. FAO has estimated the existing production of meat and poultry products at 4.42 million tonnes. Only 11% of the buffalo population, 6% of cattle, 33% of sheep and 38% of the goat population is culled for meat. Meat production grew at a CAGR of 34 per cent during the period 1999-2004 and stood at US$ 12.44 million in 2006-07. Meat exports stood at US$ 0.104 million in

2006-07.

2006-07. Meat exports stood at US$ 0.104 million in 2006-07. Sources:-Web

Production of meat & meat products is gradually increasing from the year 1995 onwards. Meat & Meat products are considered to be highly perishable commodities and can transmit diseases from animals to human-beings. Production of meat is governed under local by-laws as slaughtering is a state subject and Slaughterhouses are controlled by local health authorities. Processing of meat food

products is licensed under Meat Food Products Order, (MFPO), 1973 which was hitherto being implemented by the Directorate of Marketing & Inspection (DMI) has since been transferred to the Ministry of Food Processing Industries w.e.f 19.03.2004. The Ministry of Food Processing Industries during the year 2004-05 assisted eight units including 100% E.O.U. for manufacturing of lamb/ chicken/meat products.

Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world average of 35.5 kg. Indian poultry meat market was approximately US$ 2.03 billion in 2006. Indian broiler industry has seen a rapid growth in the last few years - CAGR of more than 10 per cent a year since 1998.

At present, only a small percentage of the meat produced is converted into value added products and most meat is purchased by consumers in the fresh/frozen form for conversion into products at home, restaurants, etc. Maximum conversion takes place in pork products. With growing urbanisation and increasing quality consciousness, the market for scientifically produced meat products is expected to grow rapidly. Demand is growing for ready-to-eat and semi- processed meat products because of changing life styles and increase in exports to neighbouring countries, especially the Middle East. India exports meat products worth Rs.8,000 million mainly to countries in the Middle East and South East Asia.

Meat processing is the new thrust sector for Indian industry with many processing centres being set up with advanced technology. Animals render extremely useful service in out transport system and agriculture. India needs technical cooperation to build up organised facilities for rearing meat producing animals, proper storage and refrigerated transport system. This sector has attracted an investment of Rs.9000 million, including foreign investment of Rs.5000 million, in the last six years since the initiation of the liberalization process.

Indian consumers prefer mostly fresh meat from the wet markets. Only a very small share of production is further processed into value added products, mostly for export. Major players include VH Group, Godrej, Sugunas, and Arambagh in the poultry processing sector, and Allana's, Hind Agro, Al Kabeer in the buffalo meat (“beefalo”) processing sector. Cow slaughter is prohibited in most states due to religious sentiments.

Sources:- Meat Food Products Order, (MFPO), web http://mofpi.ic.in/food&health/food%20law.htm . Meat Export and

Sources:- Meat Food Products Order, (MFPO), web http://mofpi.ic.in/food&health/food%20law.htm.

Meat Export and Import in India

Meat and edible meat offal Major Supplying Countries

Top three Suppliers are Italy, Singapore and Thailand with 34.08%, 9.91% and 8.66% share respectively. Share of Focus Countries in Indian imports

• Australia 7.54%

• Netherlands 4.21%

• France 3.39%

• Italy 34.08%

• Germany nil

• United Kingdom 8.18%

• UAE 0.30%

• USA 2.97%

• Belgium nil

• Japan nil

• Thailand 8.66%

Major Export Destinations Top three export destinations are Malaysia, Saudi Arabia and Philippines with 18.30%, 10.29% and 9.87% share respectively. Share of Focus Countries in India’s exports

Netherlands 0.01%

• France 0.005%

• Italy 0.01%

• Germany 0.08%

• United Kingdom 0.01%

• UAE 8.08%

• USA 0.02%

• Belgium 0.17%

• Japan 0.002%

• Thailand 0.02%

FISH PROCESSING

India is the third largest fish producer in the world and second in in-land fish production, India boasts of the seventh largest marine landing base in the world with an extensive 8,000 km coastline and an Exclusive Economic Zone (EEZ) of 2.2 million sq km, largely untapped, and a 29,000 km stretch of rivers and canals, 145 million hectares of reservoirs and 0.75 million hectares of tanks and ponds The Fisheries sector in India has been classified into

Marine,

Inland

Aquaculture.

The fisheries sector contributes 1.1 per cent to the country’s GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector.

India’s fish production stood at a level of 6.4 million tons in 2006-07. Of this, about 60 per cent (3.9 million tons) came from marine resources. Currently fish processing is mostly targeted for export markets. There are over 369 freezing units with a daily processing capacity of 10,266 tonnes and 499 frozen storage units with a capacity of 134,767 tonnes.

Though India’s fish potential from the EEZ has been estimated at 3.9 million tonnes, the harvest is only of 2.87 million tonnes. This can be increased to 3.37 million tonnes by intense tapping in offshore and deep-sea grounds using modern technology. There is also a good scope to improve fish

harvest from inland waters which, at present is 2.7 million tonnes. Besides, the fish potential in aquaculture and shrimp farming has also largely remained untapped. Though, traditionally, only local fishermen have tapped the vast marine and inland water resources to meet domestic demand, the organised corporate sector has become involved in preservation and export of coastal fish since the last decade

Marine fish found in India include prawns, shrimps, tuna, cuttlefish, squids, octopus, red snappers, ribbon fish, mackerel, lobsters, cat fish and countless other varieties. Domestic per capita consumption of fish is only 5 kg per annum against the world average of 12 kg. India’s per capita consumption is much lower than the Asian maritime countries (e.g. Japan–86 kg). India’s 60% fish production is from marine sources. However, coastal fishing i.e. from the continental shelf constitutes the bulk of the marine catch. It is estimated that only 10% of the marine catch is accounted by deep- sea resources. Processing of produce into canned and frozen form is done almost exclusively for the export market. Totally, there are 396 freezing units with a capacity of 2,170 tonnes, 23 canning units of 84.5 tonnes capacity, 131 ice-making units of 1820 tonnes, 24 fish meal units with a capacity of 419 tonnes and 297 cold storage units with a capacity of 2,03,448 tonnes. This sector has attracted domestic and foreign investment to the tune of Rs.30,000 million in the last six years, of which the foreign component is around Rs.7,000 million.

of which the foreign component is around Rs.7,000 million. Sources:- All India Food Processors Association

Sources:- All India Food Processors Association http://www.aifpa.com/

Considerable infrastructure facilities for processing of marine products have been developed over a period of 50 years. At present, there are over 369 freezing unit with a daily processing capacity of 10266 tons and 499 frozen storage with a capacity of 134767 tons. Apart from the above there are 12 surimi units, 471 pre processing and dry fish storages. 72 numbers of the freezing units mentioned above are having cooking facilities and 125 have IQF machinery. Ministry Food Processing Industries during the year 2006-07 (upto 31.12.04) assisted 18 processing units. The quantum of marine products processed and exported and revenue thereof during the last 5 years is as follows:

Sources:- APEDA. 2006-2007. Export Statistics and Annual Report, MPI . Processed fish product exports include

Sources:- APEDA. 2006-2007. Export Statistics and Annual Report, MPI.

Processed fish product exports include conventional block frozen products, individual quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc. Export of marine fish products touched of US$ 1.48 billion during 2004-05. Exports showed an increase of 11.97 per cent in volume and 11.1 per cent in value realisation. Frozen shrimp is the largest item in terms of value contributing to 63.5 per cent of the total exports, and frozen fish is the largest in terms of volume contributing to 34.62 per cent

Performance of Indian seafood exports in 2004-05 was not on the expected lines. There was a declining trend in exports due to the adverse market situation prevailing in the major markets like USA, Japan and European Union. The anti dumping procedure initiated by the US Government has affected the Indian shrimp exports to USA. Added to this production of fish from capture sources is likely to be down due to tsunami factor

As in the case of meat, most fish consumed comes from the wet markets. Processing is mostly for export, and includes conventional block-frozen and individual quick frozen products, minced fish items like sausage, cutlets, pastes, texturized foodstuffs, and dried fish. The frozen products usually undergo primary processing such as cleaning, deveining, descaling, peeling, etc.

Fish processing export import

Fish and crustaceans, molluscs and other aquatic invertebrates Major Supplying Countries

Top three Suppliers are Bangladesh, USA and Yemen with 45.47%, 12.01% and 5.07% share respectively. Share of Focus Countries in Indian imports

• Australia 0.22%

• Netherlands 0.03%

• France 0.68%

• Italy 0.46%

• Germany 0.23%

• United Kingdom 3.31%

• UAE 0.88%

Belgium 0.37%

• Japan 1.98%

• Thailand 0.79%

Major Export Destinations

Top three export destinations are USA, Japan and China with 23.99%, 15.74% and 9.75% share respectively. Share of Focus Countries in India’s exports

• Australia 1.33%

• Netherlands 0.57%

• France 2.13%

• Italy 2.56 %

• Germany 1.69%

• United Kingdom 5.07%

• UAE 3.25%

• USA 23.99%

• Belgium 6.36%

• Japan 15.74%

• Thailand 1.74%

Grain Processing

The grain processing industries include milling of rice, wheat and pulses and oilseeds. Financial assistance is provided for setting up/modernization/expansion of the units before their commissioning. The question of providing financial assistance under the Plan Scheme for setting up/modernization in the grain/rice/ pulses/flour milling sector has been reviewed. It was felt that priority should be given to processing and enhancing shelf life of perishable items so as to reduce wastage and encourage value addition in that sector. Considering that rice/pulses/flour are consumed in the processed form only and primary processing in these sectors adds little to shelf life, wastage control and value addition, it has been decided to not to accept fresh proposal for these sectors viz, Rice, Flour & Pulse Milling from the financial year 2004-05. However complete and viable cases relating to rice mill, flour mills and Pulses received by SNA till 31.03.2004 subject to prescribed conditions are being considered on merit for assistance. During this year upto 31st December, 2004, the Ministry has extended financial assistance for 27 rice milling, 13 flour milling, 21 edible oil milling and 8 in pulse milling sector.

India produced nearly 209.32 million tonnes of grains in 2006-07. India’s production covers all major grains – rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the production of grains in the world. With a share of 40 per cent, grain processing is the biggest component of food sector. Primary processing constitutes 96 per cent with the remaining accounted for by the secondary and tertiary sectors. Total rice milling capacity in the country is 186 million tonnes. There are about 516 large flour mills in the country, as well as about 10,000 pulse mills.

The country’s current foodgrain production (including rice, jowar, bajra, maize, ragi, wheat, barley, gram and pulses) has been put at 225 million tonnes a year. Food processing industries play a crucial role in reducing post-harvest losses. Since most operations of this industry are rural based, it has the

potential to generate high employment at low investment. Promotion of food processing also helps in energy conservation by reducing energy wastages in home cooking.

conservation by reducing energy wastages in home cooking. Grain processing, with a share of 40%, is

Grain processing, with a share of 40%, is the biggest component of the food sector. Its basic feature is pre-dominance of the primary processing sector, sharing 96% of the total value, with the secondary and tertiary sectors adding about 4%. This area needs to be viewed as a high growth potential area. Indian Basmati rice commands a premium in the international market. The export of Basmati and non-Basmati rice has been steadily increasing. From Rs.3538.3 million in 1988–1989, the exports increased to Rs.62,000 million in 1998–1999. The country has a total paddy milling capacity of 186 million tonnes, of which 85 m tonnes is of traditional mills and 101 of modern mills.

75 percent of India’s wheat production is milled into wheat flour (atta) to make rotis or chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in the unorganized sector. Branded atta is a relatively new segment, developed to provide consumers a more hygienic quality, as compared to chakki atta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods. Bakery products constitute the largest segment of grain-based processed foods. Small and medium unorganized local players, and a limited number of organized units dominate the industry. Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica. The grain-based snack market, comprising extruded snacks and savories, is estimated at around rs. 29 billion ($667 million). Of this, the organized segment contributes only 15 percent of sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc. Breakfast cereal production in the organized sector is very small, and is mainly confined to corn flakes. Major producers are Kellogg’s and Mohan Meakins. Pepsi is reportedly interested in investing in the breakfast segment over the next five years.

Grain Export And Import scenario

Cereals Major Supplying Countries

Top three Suppliers are Australia, Argentina and USA with 84.67%, 7.16% and 3.14% share respectively. (Table 19 of Annexure 2) Share of Focus Countries in Indian imports

• Australia 84.67%

• Netherlands nil

• France nil

• Italy nil

• Germany nil

• United Kingdom nil

• UAE 0.04%

• USA 3.14%

• Belgium nil

• Japan nil

• Thailand 0.001%

Major Export Destinations Top three export destinations are Saudi Arabia, Bangladesh and Nigeria with 26.03%, 16.50% and 7.68% share respectively. (Table 20 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 0.30%

• Netherlands 0.60%

• France 0.50%

• Italy 0.84%

• Germany 0.48%

• United Kingdom 3.18%

• UAE 5.90%

• USA 1.90%

• Belgium 1.07%

• Japan 0.02%

• Thailand 0.22%

Products of the milling industry; malt; starches; inulin Major Supplying Countries Top three Suppliers are France, Netherlands and UK with 11.63%, 10.41% and 9.80% share respectively. (Table 21 of Annexure 2) Share of Focus Countries in Indian imports

• Australia 4.52%

• Netherlands 10.41%

• France 11.63%

• Italy 5.40%

• Germany 7.84%

• United Kingdom 9.80%

• UAE 1.15%

• USA 3.26%

• Belgium 6.35%

• Japan 0.40%

Major Export Destinations Top three export destinations are USA, UAE and Indonesia with 13.66%, 9.58% and 9.31% share respectively. (Table 22 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 1.90%

• Netherlands 1.57%

• France 0.14%

• Italy 0.12%

• Germany 2.64%

• United Kingdom 7.60%

• UAE 9.58%

• USA 13.66%

• Belgium 0.25%

• Japan 4.73%

• Thailand 5.38%

Beverage Industry

The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. This segment is estimated at US$

155 million out of which fruit juices and fruit-based drinks account for US$ 60 million. The market

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

drinks market registered a healthy growth rate of 20 per cent, driven by the positive changes in India’s consumer profile. Hot beverages include health drinks such as white beverages (‘Horlicks’ etc) and brown beverages such as tea/coffee as well as branded drinks (Eg: ‘Boost’). The total size of this market is estimated at US$ 333 million by value and 85,000 tonnes by volume. White beverages account for 65 per cent of the market and brown beverages constitute the remaining 35 per cent India

is the largest producer of tea in the world accounting for 28 per cent of the total global production, at

857 million kgs.

Tea production in India has been growing at 1.2 per cent per annum and India is the fourth largest exporter of tea in the world with estimated exports of US$ 5 million in 2002-03. India is also the fifth largest producer of coffee accounting for 4 per cent of the total production in the world. Nearly 75 per cent of India’s production is exported and coffee exports stood at US$ 5.2 million in 2005-06.

Beverage industry classified in three broad categories

Alcoholic beverage

Non Alcoholic beverage

Aerated Soft drink beverage

Alcoholic beverage

India is the third largest market for alcoholic beverages in the world. The demand for spirits and beer is estimated to be around 373 million cases. There are 12 joint venture companies having a licensed capacity of 33919 Kilo-litres per annum for production of grain based alcoholic beverages. 56 units are manufacturing beer under licence from the Government of India The wine industry in India provides considerable opportunities for value addition and employment generation in the agroprocessing sector.

Liquor made in India is categorised as beer, country liquor and Indian Made Foreign Liquor (IMFL). Country liquor is made from a variety of raw materials and has different names in different parts of the country. IMFL production comprises wine, vodka, whisky, gin, rum, brandy, etc. Pre-mixed drinks like gin and lime, rum and cola are being introduced in India now. Draught beer is another recent introduction and has done well where introduced. Canned beer is also a recent introduction. Current production is over 300 million litres. In all, Rs. 11,000 million including Rs. 7,000 million of foreign investment, has been made in this sector in the last six years.

The Indian beer market, currently at Rs.7,000 million a year, has been growing by 15% and now all world famous brands of liquor are available in India. The country has 212 distilleries with a yearly installed capacity of 1,933 million litres. However, there are only 24 units producing IMFL and 31 making country liquor. Alcohol produced by the rest is either sold as industrial alcohol or in bulk as potable alcohol to other distilleries for bottling or for making bottled alcohol (estimated 927.82 million litres). Raw material like Molasses, barley, maize, potatoes, grapes, yeast and hops for beer and alcoholic products’ industry are abundantly available in India

Whisky, mostly low-priced, accounts for about 55 percent of the Indian spirit consumption, followed by rum, brandy, and vodka. Key players are UB, Shaw Wallace, Jagatjit Industries, Mohan Meakins, and International Distilleries. With the recent take-over of Shaw Wallace’s liquor business by the UB Group, the latter has emerged as the world’s second largest liquor producer. Major multinationals operating in India include Diageo, Seagram, and Baccardi Martini. UB, SABMiller, and Mohan Meakins are the major beer-producing companies. The wine market in India is nascent, having emerged as a distinct segment about a decade ago. Chateau Indage is the largest domestic player in wines, followed by Grover Wines and Sula Wines. Key international players who have a presence in India through distribution alliances include E&J Gallo, Hardy’s, Canandaigua, and Fetzer

Non-alcoholic beverages

India is the world’s largest tea-producing country with an annual production of around 860,000 tons and is also one of the world’s largest tea exporters. Tea processing includes withering, rolling, fermenting, drying, blending, packing, and branding. Instant tea production is limited. Major players are Tata Tea, HLL, Manjushree Plantations, Jay Shree, Goodricke, Harrison Malayalam, Eveready, and Warren. With an annual production of around 300,000 tons, India is a small but competitive producer of coffee. Traditionally a tea-drinking country, average annual coffee consumption in India is only ten cups per person. The instant coffee segment is entirely branded and packaged, and caters mostly to the export market. Major players are Tata Coffee, HLL, Nestle, Barista, Qwiky’s, Narasu, Leo, and ABCTC.

Soft drink

The aerated soft drinks industry in India comprises over 100 plants across all States. It provides direct and indirect industry related employment to over 150,000 employees. It has attracted one of the highest foreign direct investments in the country. It contributes over

Rs.1200 crore annually by way of excise duty, sales tax and related taxes. It has strong forward and backward linkages with over Rs.1000 crores relating to glass, plastic, refrigeration, sugar and transportation industry. The soft drinks constitute the 3rd largest packaged foods regularly consumed after packed tea and packed biscuits. The production of soft drinks have increased from 5670 million bottles in 2004-2005 to 6230 million bottles in 2006-2007 production of soft drinks has registered a gradual increase as follows:

soft drinks has registered a gradual increase as follows : Beverages export and import in India

Beverages export and import in India Beverages, spirits and vinegar

Major Supplying Countries Top three Suppliers are Brazil, UK and Nepal with 61.46%, 11.68% and 7.62% share respectively. Share of Focus Countries in Indian imports

• Australia 0.69%

• Netherlands 1.96%

• France 3.29%

• Italy 0.76%

• Germany 0.62%

• United Kingdom 11.68%

• UAE 1.75%

• USA 0.72%

• Belgium 0.39%

• Japan 1.02%

• Thailand 0.04%

Major Export Destinations

Top three export destinations are UAE, Jamaica and Thailand with 26.77%, 17.68% and 13.89% share respectively. (Table 44 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 0.09%

• Netherlands 0.72%

• France 0.96%

• Italy 0.16%

• Germany 0.20%

• United Kingdom 0.81%

• UAE 26.77%

• USA 3.17%

• Belgium 0.10%

• Thailand 13.89%

Consumer Foods Including Packaged foods,Packaged Drinking Water& Confectionary

This comprises product groups like confectionery, chocolates, cocoa products, soya-based products, ready-to-eat foods, mineral water, high protein foods etc. This sector has attracted a whopping investment of Rs. 1,28,000 million, including foreign investment of Rs.50,000 million, since liberalisation. Soft drinks enjoy the biggest share in this. The Indian soft drinks’ market is worth Rs.22,000 million a year. Statistically, this implies three bottles per Indian. Cola, orange and lemon are some of the accepted tastes in India. It is estimated that 65% prefer non-carbonated drinks. Lemon drinks continue to be very popular in the country.

India produces a large range of cocoa and non-cocoa based confectionery items, besides other cocoa- based products. The production of confectioneries, except chocolates, is reserved for the small-scale sector. However, there are several large companies with an established market presence and brands in cocoa and non-cocoa confectionery markets. Confectionery output grew at a compound rate of 6 to 7% in recent years. Chocolate production is growing at the rate of 10 to 15% a year. Among the ready-to-eat products, the installed capacity in the organised sector is 33,400 tonnes for manufacture of pasta products like noodles, macaroni, vermicelli, etc. Besides, there are 10 units with an annual capacity of 9,340 tonnes for corn flakes, oat flakes and pearl barley.

Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, cocoa products, biscuits, soft drinks, beer, alcoholic beverages (non-molasses based), mineral and packaged water. Bread and biscuits constitute the largest segment of consumer foods. Their production is about 4.00 million tons per year. Manufacturing of bread is reserved for SSI sector. Out of the total production of bread, 40% is produced in the organized sector and the remaining 60% in the unorganised sector. Similarly, production of biscuits in the organized sector is about 13.00 lakh tons and quantity of biscuits produced in the

unorganised sector is about 3.80 lakh tons.

According to available information, production of flakes is around 15,000 tons. Production of pasta products has registered a marginal growth in the organized sector but its growth in the unorganised sector is comparatively higher. During the year2006-07 (upto December 2006) 21consumer food processing units were sanctioned financial assistance by MFPI

Packaged food

Packaged foods segment in India registered a growth of 8 per cent in 2005-06. Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15 per cent. The market for branded noodles is estimated at 230 million servings per year. The Soups market is still small and nascent in India and is approximately US$ 14 million in value. The market for culinary products is estimated at US$ 475,000 and estimated to grow at 18 to 20 per cent per annum. Products like Tomato Ketchup and Jams currently have low penetration levels, but are growing rapidly. Ketchups, for example, have

a

penetration of just 3 per cent in India; however this category

is

estimated to be growing at 20 per cent per annum.

Packaged food products have been slow in penetrating the large potential presented by India's 250 million strong middle class. But due to growing urbanization and changing food habits, the demand has been rising at a good pace and there is enough latent market potential waiting to be exploited through developmental efforts. Soya food segment is also growing due to increased health consciousness and abundant production of quality soyabeen (3.72 million tons/year) in the country. Soya bean is grown mainly in Madhya Pradesh and measures are being taken to extend its cultivation further

Packaged drinking water

There are 215 companies, which have been granted licence for manufacturing packaged drinking water and 3 for manufacturing packaged natural mineral water. There has been a spurt in growth for the last 3-4 years, which can largely be attributed to a range of various packaged sizes to suit the consumers. 80% of the packaged water sale comes from the bulk containers (5 litres and above).

Confectionary: The size of the Indian confectionary market is estimated at rs.26.0 billion ($600 million). Sugar confectionary accounts for 61 percent of this market, with the balance being chocolates, mints, and gums. The confectionary market has been growing at over 6 percent annually over the last five years. The gum-based confectionary segment has grown even faster at over 10 percent. The confectionary market is highly fragmented with several local players such as Parle’s, Nutrine, and Ravalgaon. Key foreign companies are Nestle, Cadbury’s, Perfetti, Lotte, Wrigley, Candico, and Joyco

Confectionery Export and Import scenario Sugars and sugar confectionery

Major Supplying Countries Top three Suppliers are Brazil, South Africa and Australia with 67.12%, 7.55% and 4.32% share respectively. (Table 33 of Annexure 2) Share of Focus Countries in Indian imports

• Australia 4.32%

• Netherlands 2.20%

Italy 0.11%

• Germany 1.46%

• United Kingdom 0.32%

• UAE 0.98%

• USA 1.07%

• Belgium 0.19%

• Japan %

• Thailand 1.38%

Major Export Destinations

Top three export destinations are Pakistan, Sri Lanka and Bangladesh with 18.09%, 14.19% and 12.69% share respectively. (Table 34 of Annexure 2) Share of Focus Countries in India’s exports

• Australia 0.32%

• Netherlands 0.07%

• France 0.30%

• Italy 1.84%

• Germany 0.15%

• United Kingdom 0.90%

• UAE 2.72%

• USA 4.49%

• Belgium 2.16%

• Japan 0.02%

• Thailand 0.01%

Staples – Bread, Wheat Flour, Salt and Sugar Bread is slowly coming to be a staple product consumed by people of all economic classes in India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons, growing at 7.5 per cent. About 55 per cent of bread production comes from the organised sector. India is the second largest producer of wheat in the world with an output of more than 70 million tonnes. Branded ‘atta’ (wheat flour) is an important item in this segment with an estimated market of US$ 195 million.

75 percent of India’s wheat production is milled into wheat flour (atta) to make rotis or chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in the unorganized sector. Branded atta is a relatively new segment, developed to provide consumers a more hygienic quality, as compared to chakki atta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods.

Bakery products constitute the largest segment of grain-based processed foods. Small and medium unorganized local players, and a limited number of organized units dominate the industry. Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica.

The grain-based snack market, comprising extruded snacks and savories, is estimated at around rs. 29 billion ($667 million). Of this, the organized segment contributes only 15 percent of sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc. Breakfast cereal production in the organized sector is very small, and is mainly confined to corn flakes. Major producers are Kellogg’s

and Mohan Meakins. Pepsi is reportedly interested in investing in the breakfast segment over the next five years.

Porter Five Forces Analysis For Indian Food Processing Analysis

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're looking to move into.

With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit.

Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations too.

Threat of Entry(high) The threat of new entry is quite high: if anyone looks as

Threat of Entry(high)

The threat of new entry is quite high: if anyone looks as if they’re making a sustained profit, new competitors can come into the industry easily, reducing profits Profitable markets that yield high returns will draw firms. The results is many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition).

brand equity (low)

capital requirements (low)

government policies (high)

Capital Requirements(low)

The capital costs of getting established in an industry can be reduce because of the government subsidies provided to food processing sector. Financial disaster for most participants is that the initial setup costs of new ventures were typically very low. Startup costs are so low that individual, self-

financing entrepreneurs can enter. For example, in mineral water pouch business, costs for a company are around Rs 350,000 and reaming Rs 750,000 is subsidies by Government

Sources: - Interview of Mr. Praful Pathak (General Manager of Coca Cola India ltd district Keda, Goblage) on 2 nd November 2008

Economies of Scale(low)

In industries that are capital or research or advertising intensive, efficiency requires large-scale operation. The problem for new entrants is that they are faced with the choice of either entering on a small scale and accepting high unit costs, or entering on a large scale and running the risk of underutilized capacity while they build up sales volume.

These economies of scale have deterred entry into the industry so that the only new entrants in recent decades have been state-supported companies the main reason or source to achieve scale economies is new product development costs. Thus, developing and launching a new product is very costly.

Segment of the market for food processing Industry is very narrowly define so potential customer are very few that’s why companies are not able to achieve economies of scales.

Sources: - Interview of Mr. Rohit Bhatnager (General Manager of Reliance Fresh Ahmedabad) on 3 nd November

2008

Absolute Cost Advantages(high)

Apart from economies of scale, established firms may have a cost advantage over entrants simply because they entered earlier. Absolute cost advantages often result from the acquisition or alliances of low-cost sources of raw materials. Absolute cost advantages may also result from economies of learning. Amul cost advantage in Pasteurization milk results from its early entry into this market and its ability to move down the learning curve faster than local player and then making alliances with they produce milk but marketed by the brand name of Amul. So new enter company alliance with well establish large firm can easily enter in the company

Product Differentiation (high)

In an industry where products are differentiated, established firms possess the advantages of brand recognition and customer loyalty. New entrants to such markets must spend disproportionately heavily on advertising and promotion to gain levels of brand awareness and brand goodwill similar to that of established companies. One study found that, compared to early entrants, late entrants into consumer goods markets incurred additional advertising and promotional costs amounting to 2.12

percent of sales revenue * (Robert D. Buzz ell and Paul W. Farris, “Marketing Costs in Consumer Goods Industries,” in Hans Thorelli (ed.), Strategy + Structure = Performance (Bloomington, IN: Indiana University Press, 1977): 128–9.)

Alternatively, the new entrant can accept a niche position in the market or can seek to compete by cutting price. And in food processing industry there are many untapped market are available, so there are good opportunity for niche marketing in food processing industry e.g. sugar free is product that only targeting diabetic person and health conscious person only and it having 11% growth rate annually

Access to Channels of Distribution (low)

Whereas lack of brand awareness among consumers acts as a barrier to entry to new suppliers of consumer goods, a more immediate barrier for the new company is likely to be gaining distribution. Limited capacity within distribution channels (e.g., shelf space), risk aversion by retailers, and the fixed costs associated with carrying an additional product result in retailers being reluctant to carry a new manufacturer’s product. The battle for supermarket shelf space between the major food processors (typically involving lump-sum payments to retail chains in order to reserve shelf space) means that new entrants scarcely get a look in.

Governmental and Legal Barriers(high)

Some economists (Amitabha Sen) claim that the only effective barriers to entry are those created by government. In taxicabs, banking, telecommunications, and broadcasting, entry usually requires the granting of a license by a public authority. From medieval times to the present day, companies and favored individuals have benefited from governments granting them an exclusive right to ply a particular trade or offer a particular service. In knowledge-intensive industries, patents, copyrights, and other legally protected forms of intellectual property are major barriers to entry. Regulatory requirements and environmental and safety standards often put new entrants at a disadvantage to established firms, because compliance costs tend to weigh more heavily on newcomers .e.g. Prevention of Food Adulteration laws is not only stringent one but time consuming also. It is considered as an archaic and no industry friendly food law. It substantial varies from Codex standard. Harmonization of multiple food laws is an urgent necessity.

Retaliation (low)

Barriers to entry also depend on the entrants’ expectations as to possible retaliation by established firms. Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, sales promotion, or litigation. The major food processing company have a long history of retaliation against low-cost entrants. Parle and other budget food processing have alleged that selective price cuts by MNC and other major food processing like Britannia amounted to predatory pricing designed to prevent its entry into new routes.8 To avoid retaliation by incumbents, new entrants may seek initial small scale entry into less visible market segments. New entered company market and targeted the small segments partly because this segment had big opportunity and large profit (niche marketing)

Rivalry between Established Competitors (low)

For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc.

number of competitors(low)

rate of industry growth (high)

diversity of competitors (low)

level of advertising expense (high)

For most industries, the major determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry.In some industries, firms compete aggressively – sometimes to the extent that prices are pushed below the level of costs and industry- wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising, innovation, and other nonprice dimensions. Six factors play an important role in determining the

nature and intensity of competition between established firms: concentration, the diversity of competitors, product differentiation, excess capacity, exit barriers, and cost conditions.

Concentration(high)

Seller concentration refers to the number and size distribution of firms competing within a market. It is most commonly measured by the concentration ratio: the combined market share of the leading producers. Where a market is dominated by a small group of leading companies (an oligopoly), price competition may also be restrained, either by outright collusion, or more commonly through “parallelism” of pricing decisions. Thus, in markets dominated by two companies, such as soft drinks (Coke and Pepsi), prices tend to be similar and competition focuses on advertising, promotion, and product development.

Economists measure rivalry by indicators of industry concentration. The Concentration Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for major Standard Industrial Classifications (SIC's). The CR indicates the percent of market share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are available). A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.

In food processing industry concentration ratio is high that indicate high concentration of market share is held by the largest firms like ITC (tobacco), Cadbury (chocolates) etc.

As the number of firms supplying a market increases, coordination of prices becomes more difficult, and the likelihood that one firm will initiate price-cutting increases. However, despite the common observation that the elimination of a competitor typically reduces price competition, while the entry of a new competitor typically stimulates it, systematic evidence of the impact of seller concentration on profitability is surprisingly weak. Richard Schmalensee concluded that: “The relation, if any, between seller concentration and profitability is weak statistically and the estimated effect is usually small.”

In pursuing an advantage over its rivals, a firm can choose from several competitive moves:

Changing prices - raising or lowering prices to gain a temporary advantage.

Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself.

Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry.

Exploiting relationships with suppliers - set high quality standards and required suppliers to meet its demands for product specifications and price.

Diversity of Competitors (low)

The extent to which a group of firms can avoid price competition in favor of collusive pricing practices depends upon how similar they are in terms of origins, objectives, costs, and strategies. In food processing industry it is very low here firm always try to compete rival strategies and there product prices e.g. coke and Pepsi, maggi and top Ramon ,Amul ice cream and havmor ice cream etc

Product Differentiation

The more similar the offerings among rival firms, the more willing customers are to substitute and the greater the incentive for firms to cut prices to increase sales. Where the products of rival firms are virtually indistinguishable, the product is a commodity and price is the sole basis for competition. Commodity industries such as food processing agriculture, mining, and petrochemicals tend to be plagued by price wars and low profits. By contrast, in industries where products are highly differentiated (perfumes, pharmaceuticals, restaurants, management consulting services), price competition tends to be weak, even though there may be many firms competing. food processing industry it is very low here firm always try to compete rival strategies and there product prices because they have more or similer offering and there product are virtually indistinguishable e.g. coke and Pepsi, maggi and top Ramon ,Amul ice cream and havmor ice cream etc

Excess Capacity and Exit Barriers

Why does industry profitability tend to fall so drastically during periods of recession? The key is the balance between demand and capacity. Unused capacity encourages firms to offer price cuts to attract new business in order to spread fixed costs over a greater sales volume. Excess capacity may be cyclical (e.g. the boom–bust cycle in the semiconductor industry); it may also be part of a structural problem resulting from overinvestment and declining demand. In these latter situations, the key issue is whether excess capacity will leave the industry. Barriers to exit are costs associated with capacity leaving an industry. Where resources are durable and specialized, and where employees are entitled to job protection, barriers to exit may be substantial. Conversely, rapid demand growth creates capacity shortages that boost margins. On average, companies in growing industries earn higher profits than companies in slow growing or declining industries see figure 3.4. In food processing industry it will not effect because food demand is always increase or maintain because it is directly related to population growth, and in this industry some exit barrier are working because of Government policies

directly related to population growth, and in this industry some exit barrier are working because of

Bargaining Power of Buyers

Also described as the market of outputs. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes.

buyer concentration to firm concentration ratio(high)

bargaining leverage (low)

buyer volume (high)

buyer switching costs relative to firm switching costs (high)

buyer information availability (low)

“customer have enough option to switch so they have less bargaining power The firms in an industry operate in two types of markets: in the markets for inputs and the markets for outputs. In input markets firms purchase raw materials, components, and financial and labor services.

In the markets for outputs firms sell their goods and services to customers (who may be distributors, consumers, or other manufacturers). In both markets the transactions create value for both buyers and sellers. How this value is shared between them in terms of profitability depends on their relative economic power. Let us deal first with output markets. The strength of buying power that firms face from their customers depends on two sets of factors: buyers’ price sensitivity and relative bargaining power.

Buyers’ Price Sensitivity (low)

The extent to which buyers are sensitive to the prices charged by the firms in an industry depends on four main factors:

The greater the importance of an item as a proportion of total cost, the more sensitive buyers will be about the price they pay. Beverage manufacturers are highly sensitive to the costs of metal cans because this is one of their largest single cost items. Conversely, most companies are not sensitive to the fees charged by their auditors, since auditing costs are such a small proportion of overall company expenses.

The less differentiated the products of the supplying industry, the more willing the buyer is to switch suppliers on the basis of price.

The more intense the competition among buyers, the greater their eagerness for price reductions from their sellers. As competition in the world food processing industry has intensified, so component suppliers are subject to greater pressures for lower prices, higher quality, and faster delivery.

The greater the importance of the industry’s product to the quality of the buyer’s product or service, the less sensitive are buyers to the prices they are charged. The buying power of necessary processed food product like suger salt etc. is limited by the critical importance of these components to the functionality of their product.

Relative Bargaining Power (high)

Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of power between the two parties to a transaction depends on the credibility and effectiveness with which each makes this threat. The key issue is the relative cost that each party sustains as a result of the transaction not being consummated. A second issue is each party’s expertise in leveraging its position through gamesmanship. Several factors influence the bargaining power of buyers relative to that of sellers:

Size and concentration of buyers relative to suppliers. The smaller the number of buyers and the bigger their purchases, the greater the cost of losing one.

Buyers’ information. The better informed buyers are about suppliers and their prices and

costs, the better they are able to bargain

effective constraint on their buying power. But knowing prices is of little value if the quality of the product is unknown.it always work in food processing industry because people are not

having full information about the product like k special of Kellogg which reduce the cholesterol of the consumer.

Keeping customers ignorant of relative prices is an

Ability to integrate vertically. In refusing to deal with the other party, the alternative to finding another supplier or buyer is to do it yourself. Large food processing companies such as Heinz and Campbell Soup have reduced their dependence on the manufacturers of metal cans by manufacturing their own. The leading retail chains have increasingly displaced their suppliers’ brands with their own-brand products. Backward integration need not necessarily occur – a credible threat may suffice.

Buyers are Powerful because in food processing industry

Buyers are concentrated - there are a few buyers with significant market share

Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized

Buyers possess a credible backward integration threat - can threaten to buy producing firm or rival

Buyers are Weak because in food processing industry

Producers threaten forward integration - producer can take over own distribution/retailing

Significant buyer switching costs - products not standardized and buyer cannot easily switch to another product

Buyers are fragmented (many, different) - no buyer has any particular influence on product or price

Producers supply critical portions of buyers' input - distribution of purchases

Bargaining Power of Suppliers (low)

Also described as market of inputs. Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.

supplier switching costs relative to firm switching costs (high)

degree of differentiation of inputs (high)

presence of substitute inputs (high)

supplier concentration to firm concentration ratio (low)

Analysis of the determinants of relative power between the producers in an industry and their suppliers is precisely analogous to analysis of the relationship between producers and their buyers. The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party. Because raw materials, semi-finished products, and components are often commodities supplied by small companies to large manufacturing companies, their suppliers usually lack bargaining power. Hence, commodity suppliers often seek to boost their bargaining power through cartelization (e.g., OPEC, the International Coffee Organization, and farmers’ marketing cooperatives). The supplier power of Intel in microprocessors,. Forward integration by suppliers into a customer industry increases their supplier power and depresses profitability in the customer industry. Labor unions are important sources of supplier power. Where an food processing industry has a high percentage of its employees unionized – as in steel, airlines and automobiles

unionized – as in steel, airlines and automobiles Empirical evidence points to the tendency for buyer

Empirical evidence points to the tendency for buyer concentration to depress prices and profits in supplying industries. PIMS data show that the larger the average size of customers’ purchases and the larger the proportion of customers’ total purchases the item represents, the lower the profitability of supplying firms.

Suppliers are not Powerful because in food processing industry

Credible forward integration threat by suppliers

Suppliers concentrated Significant cost to switch suppliers Customers Powerful Suppliers are Weak because in food

Suppliers concentrated

Significant cost to switch suppliers

Customers Powerful

Suppliers are Weak because in food processing industry

Many competitive suppliers - product is standardized

Purchase commodity products

Credible backward integration threat by purchasers

Concentrated purchasers

Customers Weak

Threat of Substitutes (high)

In

Porter's model, substitute products refer to products in other industries. To the economist, a threat

of

substitutes exists when a product's demand is affected by the price change of a substitute product.

A

product's price elasticity is affected by substitute products - as more substitutes become available,

the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry.

The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand).

buyer propensity to substitute (low)

relative price performance of substitutes(low)

buyer switching costs (high)

Pressure from Substitutes Emerges Mainly From Two Factors

1. Switching costs for customers to the substitute.

2. Buyer willingness to search out for substitutes.

Also the threat of substitution may take four different forms, each of which we shall now discuss with reference to above factors.

Substitution of need We take switching from one product (e.g. natural drink of Dabur) to another (freash juice from local vendor or prepared at home). In this case, the buyers might be looking out for freashness and might not mind the nominal switching costs Food processing Industry will definitely remain, in one form or the other, as long as the manufacturers manufacture and consumers consume. Food processing industry does not seem to become extinct even in the future. The issue that remains to be addressed is just - what forms it keeps evolving into. Here the Substitutes of food processing industry are freash fruits and vegitables and food as araw material , but they are yet very well developed in India, so their threat are comparatively very high but food processing industry break the boundaries of food product availability in certain season and area that is why food industry will sustain for longer term.While the treat of substitutes

typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes.

Strengths

SWOT Analysis

Large and growing middle class Divergent food habits

Increasing exposure to American products and lifestyle

Preference for fresh products and traditional foods

A slow but steady transformation of the retail food sector in cities

Growing number of fast food chains by 9% annually

Increasing urbanization and growing

Diverse agro-industrial base offering many products at competitive prices

A growing food processing industry with 10% growth rate

Increasing disposable income;

changing life style of consumers

Growing health and hygiene awareness among the middle class

Government’s high priority on food-processing industry

Plentiful availability of raw materials

Increasing presence of multinational companies

Modernizing retail sector in big cities

Move towards a new “Food Safety and Standards” legislation by the government

(Sources-India Brand Equity Foundation Web: www.ibef.org)

Weaknesses

Difficulties in accessing vast untapped rural markets

Poor infrastructure or Inadequate infrastructure facilities, like cold storage and roads

High tariffs, dated food laws, and unscientific

They are lacking the availability of the trained manpower.

Increasing competition from local players

High tariffs and increasing non- tariff barriers , dated food laws, and unscientific sanitary and phytosanitary restrictions

Long and fragmented supply chain

Consumer preference for fresh foods

(Sources-India Brand Equity Foundation Web: www.ibef.org)

Opportunities

Food processing industry is rising at the rate of 8% yearly. It shows the potential of the industry to grow in the future.

India is given by a strong income growth, change in lifestylenucler family and both parent working culture and favorable demographic pattern for food processing industry.

Indian food processing Industry is the 5th largest industry in India.

Industry revenue is increasing at the rate of 5% per year.

It is the seventh largest country, with extensive administrative structure and independent judiciary, a sound financial & infrastructural network and above all a stable and thriving democracy.

Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products.

It is one of the biggest emerging markets, with over 900 million population and a 250 million strong middle class.

Rapid urbanisation, increased literacy and rising per capita income , have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50% of household expenditure on food items.

Demand for processed/convenience food is constantly on the rise.

India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets.

Liberalized overall policy regimes, with specific incentives for high priority food processing sector, provide a very conducive environment for investments and exports in the sector.

Very good investment opportunities exist in many areas of food processing industries, the important ones being : fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products etc.

(Source-Investment Opportunities in India for FPI)

Threats

Due to globalization threats from the MNC’s is increasing day by day.

The facilities that are given by the non branded local retailers will reduce the market

share of our store.

Technology is upgrading day by day due to which requirement of trained manpower is

also increasing.

Continuous improvement in the supply chain is required, if it is not done then it will

become difficult to survive in such a tough competition.

Consumer buying behavior and the whole format of purchasing is altering frequently.

A feeling of unstable government Self centered political leadership

Slow & Dysfunctional judiciary and corrupt law enforcers

Regulation, protection and restriction for processed food

To patent Indian intellectual property by outsider (unawareness about own research)

Fast change Internet-information technology& new Inventions-Technology-

Innovations

Regional-Religion-caste-culture conflicts

(Sources-Ministry of Food-processing Industry web:

ANALYZING INDUSTRY ATTRACTIVENESS

The profitability of different Indian industries. Some industries (such as tobacco, food processing, pharmaceuticals, and medical equipment) consistently earn high rates of profit; others (such as iron and steel, nonferrous metals, airlines, and basic building materials) have failed to cover their cost of capital. The basic premise that underlies industry analysis is that the level of industry profitability is neither random nor the result of entirely industry-specific influences – it is determined by the systematic influences of the industry’s structure. The Indian pharmaceutical industry and the Indian steel industry not only supply very different products, they also have very different structures, which make one highly profitable and the other a nightmare of price competition and weak margins The food processing industry produces a commodity product with inclining demand, strong substitute competition, massive overcapacity, and is squeezed on one side by powerful customers.

(Source: G. Hawawini, V. Subramanian, and P. Verdin, “Is Firms’ Profitability Driven by Industry or

(Source: G. Hawawini, V. Subramanian, and P. Verdin, “Is Firms’ Profitability Driven by Industry or Firm- Specific Factors? A New Look at the Evidence,” Strategic Management Journal 24 (January 2007): 1–16).

(Source: Fortune 1000 by Industry)

(Source: Fortune 1000 by Industry)

Segment-wise Attractiveness of Processed Foods

India presents several potential growth areas in the food processing sector. Based on our assessment of the potential growth opportunities and the enabling environment in terms of policy support, three key segments have been identified that indicate high attractiveness. These are discussed below:

indicate high attractiveness. These are discussed below: Mass market basi c foods – Fruits & Vegetab

Mass market basi c foods – Fruits & Vegetab les , Pou ltr y, Meat and Fis heries Fruits and Vegetables Segment Several factors make the fruits and vegetables sector in India attractive from a market size and

growth perspective. As mentioned, India is a significant producer of fruits in the world, contributing to 10 per cent of global production. The fruits and vegetables sector is growing rapidly at a healthy rate of 20 per cent per annum. It is however nascent, with penetration level of about 10 per cent. These factors indicate the high growth potential in the sector. This is also highly unorganized at present, with the unorganised sector at 48 per cent share, indicating the scope for organised players to make an impact Several policy measures have been undertaken by the Government to create the right stimulus for growth in this sector. Some of the key initiatives include:

• Foreign equity participation up to 51 per cent allowed. Initiatives like post-harvest management,

logistics given priority in attracting FDI

• Complete exemption from excise duty

• Income tax rebate of nearly 100 per cent of profits for new industries in fruits and vegetables sector

• Many fruits and vegetables processing industries eligible for automatic approval of technology upgradation

Meat, Poultry and Fisheries Segment The meat, poultry and fisheries segment is another high potential area that has the advantage of several favorable factor conditions. In terms of raw material, India has the best supply of livestock in the world, accounting for 50 per cent of buffaloes and 16 per cent of the goat population. India also ranks third in the world in production of fisheries. As mentioned earlier, the bulk of the livestock is not bred for slaughter. There is a large potential for setting up modern slaughter facilities and development of cold chains in meat and poultry processing

sector. In the fisheries segment also, India’s long coastline and network of inland waterways and lakes, offers plentiful availability of different types of fishes. Fishery resources in India are seriously under-utilised. The Government has also taken up several initiatives to encourage investment and growth in this segment. These include:

• Foreign Equity participation allowed in the fisheries sector subject to approval. Foreign investment proposals on nearly US$ 210 million have been approved in the sector

• Financial assistance given for setting up of processing infrastructure like IQF plants, refrigerating transport equipment, freezing plants

• Excise duty on meat poultry and fisheries reduced from 16 per cent to 8 per cent

Mass Market Value-Added Products- Dairy, Bakery India is the world’s largest milk producer and dairy is the one of the most promising segments of food processing. Demand for dairy products is expected to grow at a healty rate of 15 to 20 per cent over the next five years. The segment offers a high potential for value add – the level of processing value add, at 37 per cent, is amongst the highest in the food processing industry. At the same time the share of organised players

is still small, at 15 per cent, indicating the potential for growth for organised players. Bakery products is a related segment that has also been growing strongly, at about 7.5 per cent. The segment is still highly fragmented, though organised players have nearly 55 per cent share of output. Both these segments, while indicating attractive growth potential, have also been focus areas for policy support by the government.

• Foreign equity participation permitted to the extent of 51 per cent in dairy processing sector

• De-reservation of many segments like ice-cream and ghee from small-scale industries

• Excise duty of 16 per cent on dairy processing machinery fully waived for promotion of dairy processing

• Subsequent to decanalisation, exports of some milk based products are freely allowed provided

these units comply with the compulsory inspection requirements of concerned agencies like the National Dairy Development

Board, Export Inspection Council, etc.

Niche Market Foods - Snack Foods, Ready-to-Make Foods, Packaged Foods This business is characterised by high volumes and low margins. Penetration levels are yet quite low in this segment, with product acceptance largely restricted to the urban population. Product innovation and branding play a key role in success of these products. As such, this segment could be an attractive option for multinational companies with established brands and strengths in innovation, to enter and get established in India. The Government has been supporting this segment through policy initiatives such as:

• Automatic approval of foreign equity participation up to 51 per cent

• Income tax rebate of 100 per cent of profit for five years and 25 per cent of profits for the next year for packaging of Foods

Favourable Factor Conditions

India has access to several natural resources that provides it a competitive advantage in the food processing sector. Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products. The semi-processed and ready to eat packaged food segment is relatively new and evolving.

(Source: Cygnus report, India Food Processing Sector, 2007) India has the largest irrigated land in

(Source: Cygnus report, India Food Processing Sector, 2007)

India has the largest irrigated land in the world. It is also world’s largest producer of milk, tea and pulses. India has large marine product and processing potential with varied fish resources along the 8,041 km coastline, 28,000 km of rivers and millions of hectares of reservoirs and brackish water. India also possesses the largest livestock population in the world with 50 per cent of world’s buffaloes and 20 per cent of cattle.

India’s comparatively cheaper workforce can be effectively utilised to set up large low cost productionbases for domestic and export markets. Cost of production in India is lower by about 40 per cent over a comparable location in EU and 10-15 per cent over a location in UK. Along with these factor conditions, India has access to significant investments to facilitate food processing

industry. There have been increasing investments not only by domestic firms and Indian government, but also foreign direct investment

Related and Supporting Industries The Indian food processing industry has significant support from the well developed R&D and technical capabilities of Indian firms. India has a large number of research institutions like Central Food Technological Research Institute, Central Institute of Fisheries Technology, National Dairy Research Institute, National Research and Development Centre etc. to support the technology and development in the food processing sector in India.

Government Regulations and Support The Government of India has taken several iniatives to develop the food processing industry in India. One indication of the importance that the sector receives is the hiking of the present outlay for the sector from US$ 19.5 million in 2006-07 to US$ 41.35 million the next year, more than twice the earlier amount. The government has been developing agri-zones and the concept of mega food parks to promote food processing industry in India. It is considering investing US$ 22.97 million in at least 10 mega food parks in the country besides working towards offering 100 per cent foreign direct investment and income tax benefits in the sector.

In order to promote investment in the food processing sector, several policy initiatives have been taken during recent years. The national policy aims to increase the level of food processing from 2 per cent to 10 per cent in 2010 and to 25 per cent in 2025. Some of the initiatives include:

• The level of institutional credit to be provided by banks and FIs has been increased from US$ 17.41 billion during 2005-06 to about US$ 23.76 billion in 2006-07

• Allowing full repatriation of profits and capital

• Automatic approvals for foreign investment up to 100 per cent, except in few cases, and also

technology transfer

• Zero duty import of capital goods and raw material for 100 per cent export-oriented units. Customs duty on packaging machines reduced. Central excise duty on meat, poultry and fish reduced to 8 per

cent

• Income tax rebate allowed (100 per cent of profits for 5 years and 25 per cent of profits for the next 5 years) for new industries in fruits and vegetables besides institutional and credit support

• Allowing sales up to 50 per cent in domestic tariff area for agro-based, 100 per cent export oriented units

• Government grants given for setting up common facilities in Agro Food Park.

• Full duty exemption on all imports for units in export processing zones. The liberalised overall

policy regime, with specific incentives for high priority food processing sector, provides a very conducive environment for investments and exports in the sector.

Investments Required in the Food Processing Sector

India requires an investment of US$ 28 billion to bring the level of processing to 10-12 per cent by 2012. The following areas of investment have been identified by the Ministry of Food Processing:

• Mega food parks

• Agri-infrastructure and supply chain integration

• Logistics and cold chain infrastructure

• Fruit and vegetable products

• Animal products, meat and dairy

• Fisheries and sea food

• Cereals, consumer foods and ready-to-eat foods

• Wine and beer

• Machinery and packaging

Critical Key Success Factors for Food Processing Sector

The Indian food processing industry’s growth potential cannot be disputed; however, it requires certain competencies and success factors to fructify this potential. These include addressing the

current gaps in the value chain as well as leveraging on the various advantages the country provides. Investors in the sector need to be aware of these factors and build the required capabilities in their business to ensure success. Some of the key success factors are discussed below.

Integrated Supply Chain and Scale of Operations

While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this production is lost in spoilage in various stages of harvesting. The key issues are poor quality of seeds, planting material and lack of technology in improving yield. Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest. Good quality production also results in better quality of processed fruits. Hence there is a need to establish backward linkages with the farmers with the help of arrangements such as contract farming to improve the quality of the produce. Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable to exploit the advantages of economies of scale. This is also true with land holdings. The country has only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a limited number of pork- processing units. This is one of the reasons penetration of processed meat is extremely poor at 1 per cent in India. These figures indicate both the need for scale, and the potential for growth offered by the sector.

Processing Technology

Most of the processing in India is currently manual. There is limited use of technology like pre cooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for further processing. In the case of meat processing, despite the presence of over 3600 licensed slaughter-houses in India, the level of technology used in most of them is limited, resulting in low exploitation of animal population. Bringing in modern technology is an area that existing as well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product.

Increasing Penetration in Domestic Market

Most of the processing units are export oriented and hence their penetration levels in the domestic market are low. For example,

• Penetration of processed fruits and vegetables overall is at 10 per cent

• The relative share of branded milk products especially ghee is still low at 2 per cent

• Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros

• Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that for

Americans is 4 per cent However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes. Acceptance in the domestic market and hence higher penetration is driven by the following factors:

Competitive Pricing

Consumers of processed foods are extremely price sensitive even a small change in pricing can have significant impact on consumption. For instance, the launch of PET bottles, new price points and package sizes in non-carbonated drinks (such as Coca Cola) has increased in-home consumption from 30 per cent in 2006 to 80 per cent in 2007. Competitive pricing also enables penetration in the rural markets.

Brand Competitiveness

Share of branded products in purchases of Indian consumers has increased by 25 per cent to 35 per cent. This is especially true for urban consumers. Branded products like Basmati rice and KFC’s chicken have been very successful implying that there is a good demand for hygienic branded products at reasonable prices.

Product Innovation

Certain processed food categories such as snack foods are impulse purchase products where consumers look for novelty and new flavors and hence these categories lack brand loyalties. Visibility through attractive packaging boosts consumption. Increasing time constraints amongst the working middle class has boosted consumption of products like instant soups, noodles and ready-to-make products. Innovation in packaging and product usage is an important success factor for processed foods

Indian Food Processing Companies Profiles

Indian food processors may be divided into the following main categories:

• Large Indian companies that have their production base in India or neighboring countries (for tax- saving purposes)

• Multinational and joint-venture companies that have their production base in India

• Medium/small domestic food-processing companies with a local presence

• Small local players in the unorganized sector

The following table shows some of the major food-processing companies in India and their products. This list is neither exhaustive nor ranked according to the order of importance. The end use channels for most of them are retail and hotel, restaurant and institutional (HRI) markets.

Production:

• The food-processing industry in India has undergone big changes over the last six to seven years, in terms of types, variety, quality, and presentation of products, which is mainly a result of the liberalization that led to foreign direct investment (FDI) in the processed food sectors.

• Most food-processing sectors have been brought under the liberal, transparent, and investor-friendly FDI policy, which allows 100 percent FDI.

• However, the small-scale farming system in India, marketing problems, lack of grading and

standards, poor distribution channels, and onerous government policies continue to pose problems for the processing industry to source the right type of raw materials and to discourage more investment in the sector.

• Nevertheless, the proportion of FDI in the food-processing sector to total FDI into India is low, constituting about 4 percent of total FDI inflow from 1991 to 2004.

• Several multinational companies, including US-based companies like Pepsi, Coca Cola, ConAgra,

Cargill, Heinz, Kellogg’s, IFF, and Mars (pet food only) have entered the Indian food-processing

industry with significant investments.

• Indian food and beverage companies are expanding their operations to neighboring countries like

Bangladesh, Nepal, Sri Lanka, Commonwealth of Independent States countries, and the Middle East.

• Takeovers and mergers are beginning to occur in the Indian food-processing sector, leading to consolidation.

• The food-processing industry is beginning to focus on, and invest in, advertising and awareness campaigns about products and brands.

• Companies have added extras to their existing brands, including stylish packaging.

• The growth in the food-processing sector has generated increased interest in high quality food ingredients in order to produce high quality foods.

• The ready-to-eat food sector is growing at a high rate due to the changing lifestyles of the middle- class consumers (both partners working, etc.).

• Some previously unknown regional brands are gaining national acceptance because of consistent quality and product safety, thereby providing some competition to established companies.

• The GOI is in the process of enacting a Food Safety and Standards Bill, which if properly done and implemented, would provide increased transparency, better food safety management systems, and science-based standards.

Consumption:

The following factors influence the type and quality of inputs in processed foods:

• A large and an exceedingly wealthier middle class is creating growing demand for a wider variety of high quality processed foods.

• The changing age profile (sixty-five million people expected to enter 20-34 year age group by 2010) and increasing exposure to western-type products and lifestyles.

• The market entry of several multinational food-processing companies and ingredient suppliers.

• The increasing number of fast food chains.

• The recent trend toward a healthier lifestyle has generated a niche market for diet, healthy, low calorie, and non-fat food products.

• The increasing urbanization and growing number of working women.

• A slow but steady transformation of the retail food sector in cities.

Competition

India’s domestic industry is the primary competitor for FVG food-processing and ingredients suppliers in India. India, with diverse agro-climatic conditions, has a production advantage in many agricultural goods, with the potential to cultivate a large range of agricultural raw materials required by the food-processing industry. India is a major producer of spices, spice oils, essential oils, condiments, and fruit pulps. 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. High import duties on processed food and food ingredients make imports relatively costly. Existing domestic food laws restrict the use of several ingredients, flavors, colors, and additives, thus posing an additional challenge to FVG exporters interested in the Indian market. Foreign competition to the FVG is mostly from countries in closer geographic proximity to India, such as Australia and New Zealand. European suppliers are major competitors in the food ingredient sector. Several foreign firms, including some from the United States, have started operations in India.

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30. SBP, (2001), SBP Consultants and Engineers Private Limited Food and

Biotechnology for Corporates—New Delhi.

31. SBP, (2001), SBP Consultants and Engineers Private Limited Handbook

of Food and Agrobased Industries with High Tech Projects—New Delhi.

32. Shah, Narendra, (1998), Opportunities and Challenges in Agro-based

Industries: Food Processing, Journal of Rural Development.

33. SIDBI, (1994), Profiles on Food Processing and Agro-based Industries—

Lucknow.

34. Sivasankar, B, (2002), Food Processing and Preservation—New Delhi:

PHI.

35. Sohrab, (2002), Adoption of ISO 140001—A New Imperative for Food

Industry: A Practical Implementation Case Study, Beverage & Food

World.

36. The Amalgamated Press, (2001), Processed Foods and Beverages

Directory 2001–2003—4th ed.—Mumbai.

37. Vyas, Jaynarayan and Shah, Girish, (1998), Saket Food Processing

Handbook—Ahmedabad: Saket Projects Limited.

38. World Importers Directory, (1997), Process Food, Food Products,

Vegetables—New Delhi: Centre of Publication

Websites

Food Corporation of India http://fciweb.nic.in/

All India Food Processors Association http://www.aifpa.com/

APEDA. 1999-2000. Export Statistics and Annual Report, MPI. http://mofpi.nic.in/industryspecificinformation/index.htm.

The Banyan Tree: A Textbook for Holistic Practioners. Appropriate Nutrition: It’s Role in Health.

Gupta, M.S. Processed Food Industry. Comparison of International Food Legislation and Practices. http://www.pfionline.com/regulations/regulations.html.

Media Division - FICCI. 2002. FICCI Critical of EU’s New Food Safety Law.

Ministry of Food Processing Industries. http://mofpi.ic.in/food&health/food%20law.htm.

Shiva, Vandana. 2000. Stolen Harvest. Cambridge: South End Press.

USDA. GAIN Report #IN0050. 2000. India Food and Agricultural Import Regulations and Standards Country Report. New Delhi.

Whitman, Deborah. 2000. Cambridge Scientific Abstract: Genetically Modified Foods: Harmful or Helpful? http://www.csa.com/hottopics/gmfood/oview.html

Newspaper

(1) Times Of India (2) Economics Times (3) Business Standard

Magazine

Food processing : 22 nd June 2008

2 nd may 2008 7 th may 2008 11 th may 2008

Annexure

Appendix1: Profile of Key Players

Appendix1: Profile of Key Players

Major suppliers of selected product categories

Major suppliers of selected product categories Data relates to IFY 2006/07 (Apr-Mar) Source: Ministry of Commerce,

Data relates to IFY 2006/07 (Apr-Mar) Source: Ministry of Commerce, GOI

Retail sales, 2007, and sales growth of selected food items,2003-2007

Retail sales, 2007, and sales growth of selected food items,2003-2007

Cost Breakdown of Imported Processed Food Products (Approximate)

Cost Breakdown of Imported Processed Food Products (Approximate)

Indian Economic Overview

Expert:

Date:

Subject: Questions for interview

Expert Questioner

Question I am conducting an I-Search paper on Marketing Managers and need a credible source to ask a few questions for my personal interview. I would appreciate your time and help.

1. How did your education and experience prepare you for your position?

2. How did you get started in the food processing field?

3. What do you like most (and least) about your work?

4. What personal qualities does one need to succeed in the food processing field?

5. What skills are most valuable for someone just beginning in the food processing field?

6. What future do you see for the food processing industry?

7. What suggestions do you have for some companies wanting to enter in food processing industry?

8. What is the entry-level challenges and benefits face by companies entering in food processing

industry

9. What are the opportunities for advancement in food processing industry?

10. What needs to be included for a strong position company so that it maintain it’s position?

Is there anyone else you could suggest I talk with?

Feel free to answer any or all questions. Thank you for your time