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Importance of Food Processing Sector in India
No Chapter Page No
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
2 Importance of Food Processing sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02
3 Building effective agri infrastructure and strong supply chain logistics . . . . . . 11
4 Primary Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5 Processed Foods, Food service and food retail . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6 Role of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ntentsCo
Importance of Food Processing Sector in India
No Chapter Page No
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
2 Importance of Food Processing sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02
3 Building effective agri infrastructure and strong supply chain logistics . . . . . . 11
4 Primary Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5 Processed Foods, Food service and food retail . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6 Role of government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ntentsCo
Importance of Food Processing Sector in India
MESSAGE
Importance of Food Processing Sector in India
Disclaimer:
Copyright © 2015 Confederation of Indian Industry (CII). All rights reserved.
This report has been prepared exclusively for the benefit of the delegates at FOOD CONCLAVE 2015 organized by the Confederation of Indian Industry (CII) at New Delhi on 12th May 2015. Neither this report nor any of its contents may be used for any other purpose without the prior written consent of Rabo Equity Advisors Private Ltd.
The information in this report reflects prevailing conditions, all of which are accordingly subject to change. In preparing this report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. No one should act upon such information without taking appropriate additional professional advise and/or thorough examination of the particular situation. The report does not reflect the views of Rabobank.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi 110003, India, Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: [email protected]; Web: www.cii.in
Importance of Food Processing Sector in India
MESSAGE
Importance of Food Processing Sector in India
Disclaimer:
Copyright © 2015 Confederation of Indian Industry (CII). All rights reserved.
This report has been prepared exclusively for the benefit of the delegates at FOOD CONCLAVE 2015 organized by the Confederation of Indian Industry (CII) at New Delhi on 12th May 2015. Neither this report nor any of its contents may be used for any other purpose without the prior written consent of Rabo Equity Advisors Private Ltd.
The information in this report reflects prevailing conditions, all of which are accordingly subject to change. In preparing this report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. No one should act upon such information without taking appropriate additional professional advise and/or thorough examination of the particular situation. The report does not reflect the views of Rabobank.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi 110003, India, Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: [email protected]; Web: www.cii.in
Importance of Food Processing Sector in India Importance of Food Processing Sector in India
Foreword
Mr Rajesh SrivastavaChairman, Regional Committee on Agriculture, Food & WaterCII Northern Region & Chairman & Managing DirectorRabo Equity Advisors
I am very pleased to present a report on the importance of the Food Processing Sector in
India. After the new government has taken over, a lot more focus has been given on food
processing for all the right reasons. The criticality of the sector for meeting the demands
arising out of consumerism and the demographic changes in India cannot be over
emphasized. The catalytic effect of food processing migrates right up to the farmer who can
benefit from the distribution of the higher value his produce can command after processing.
Yet another collateral benefit of processing sector is its positive impact on the Agri supply
chain. The sector also drives growth in the food retail segment, with concomitant emphasis
on safety and traceability of food.
The recently announced guidelines on lending to the priority sector by RBI where food
processing has been included within the definition of agriculture is a welcome step. It
addresses the long pending demand of the sector for incentivizing the banking sector to
focus on food processing. The industry is now looking forward to the banks coming forward
aggressively and power growth of this sector. They will need, of course, to quickly ramp up
the appraisal skill set to be able to evaluate larger number of proposals they would receive.
We at Rabo Equity look at investing in the share capital of food processing companies
bringing in our knowledge and value-add to propel them into a higher growth phase.
We believe that food processing with 40 plus sub sectors offers a huge potential for
investment by PE & Venture Capital Funds. Across different sectors, the irreversible growth
and demand for processed and higher value foods offers a strong logic for such investments.
As a practitioner exclusively focused on food and agribusiness, I have plans to deploy large
pools of capital in this sector which is steadily acquiring scale and size. I am sure that in the
next 3 years we will see investments growing exponentially. Besides domestic capital, I see
FDI in food processing to cumulatively go up to at least USD 5 billion.
I wish the Conclave all success and hope that our report will be appreciated.
Foreword
Piruz Khambatta Chairman, CII National Committee on Food Processing &CMD, Rasna International Pvt. Ltd
The Food processing sector is the key link between Agriculture and Manufacturing. In a
developing economy like India, it contributes as much as 9 to 10 % of GDP, in Agriculture and
Manufacturing sector.
The growth of food processing sector would need to be a significant component of the
second green revolution, considering its possible role in achieving increased agricultural
production by ensuring better remuneration for farmers. The food processing sector makes it
possible by not only ensuring better market access to farmers but also by reducing high level
of wastages. A developed food processing industry will reduce wastages, ensure value
addition, generate additional employment opportunities as well as export earnings and
thus lead to better socio-economic condition of millions of farm families.
Given its significant contribution to the national economy, CII accords a top priority to the
growth and development of the food processing sector in the country. As part of the
'inclusive growth' agenda of CII, it is anticipated that the optimum development of the food
processing sector will contribute significantly in tackling several developmental concerns,
such as disguised unemployment in agriculture, rural poverty, food security, food inflation,
improved nutrition, prevention of wastage of food etc.
The CII National Committee on Food Processing works closely with farmers, companies,
developmental institutions, and the government with a THREE PRONGED APPROACH:
FIRST, Improving on and off-farm productivity through the introduction and dissemination of
global best practices and technological innovation; SECOND, Improve global
competitiveness of India's agricultural sector by investing in capacity building initiatives
and skill development for supply chain participants across the value chain, THIRD,
Strengthening linkages across the agriculture and food value chain with an objective of
reducing spoilage, increasing value add and farmer incomes
Our committee is fortunate to have worked with close partnership with Ministry of Food
Processing, APEDA, and other allied Government agencies in the past and would look
forward to continue to do so in future too. Towards this effort we are very happy to have
partnership with Rabo Equity Adviser to come out with CII Rabo Equity Report on the
importance of food processing sector which is going to be released as part of this food
conclave. This paper would bring out the interventions required from industry, academician
and government to make India food factory of the world which is the mission of our
committee.
Importance of Food Processing Sector in India Importance of Food Processing Sector in India
Foreword
Mr Rajesh SrivastavaChairman, Regional Committee on Agriculture, Food & WaterCII Northern Region & Chairman & Managing DirectorRabo Equity Advisors
I am very pleased to present a report on the importance of the Food Processing Sector in
India. After the new government has taken over, a lot more focus has been given on food
processing for all the right reasons. The criticality of the sector for meeting the demands
arising out of consumerism and the demographic changes in India cannot be over
emphasized. The catalytic effect of food processing migrates right up to the farmer who can
benefit from the distribution of the higher value his produce can command after processing.
Yet another collateral benefit of processing sector is its positive impact on the Agri supply
chain. The sector also drives growth in the food retail segment, with concomitant emphasis
on safety and traceability of food.
The recently announced guidelines on lending to the priority sector by RBI where food
processing has been included within the definition of agriculture is a welcome step. It
addresses the long pending demand of the sector for incentivizing the banking sector to
focus on food processing. The industry is now looking forward to the banks coming forward
aggressively and power growth of this sector. They will need, of course, to quickly ramp up
the appraisal skill set to be able to evaluate larger number of proposals they would receive.
We at Rabo Equity look at investing in the share capital of food processing companies
bringing in our knowledge and value-add to propel them into a higher growth phase.
We believe that food processing with 40 plus sub sectors offers a huge potential for
investment by PE & Venture Capital Funds. Across different sectors, the irreversible growth
and demand for processed and higher value foods offers a strong logic for such investments.
As a practitioner exclusively focused on food and agribusiness, I have plans to deploy large
pools of capital in this sector which is steadily acquiring scale and size. I am sure that in the
next 3 years we will see investments growing exponentially. Besides domestic capital, I see
FDI in food processing to cumulatively go up to at least USD 5 billion.
I wish the Conclave all success and hope that our report will be appreciated.
Foreword
Piruz Khambatta Chairman, CII National Committee on Food Processing &CMD, Rasna International Pvt. Ltd
The Food processing sector is the key link between Agriculture and Manufacturing. In a
developing economy like India, it contributes as much as 9 to 10 % of GDP, in Agriculture and
Manufacturing sector.
The growth of food processing sector would need to be a significant component of the
second green revolution, considering its possible role in achieving increased agricultural
production by ensuring better remuneration for farmers. The food processing sector makes it
possible by not only ensuring better market access to farmers but also by reducing high level
of wastages. A developed food processing industry will reduce wastages, ensure value
addition, generate additional employment opportunities as well as export earnings and
thus lead to better socio-economic condition of millions of farm families.
Given its significant contribution to the national economy, CII accords a top priority to the
growth and development of the food processing sector in the country. As part of the
'inclusive growth' agenda of CII, it is anticipated that the optimum development of the food
processing sector will contribute significantly in tackling several developmental concerns,
such as disguised unemployment in agriculture, rural poverty, food security, food inflation,
improved nutrition, prevention of wastage of food etc.
The CII National Committee on Food Processing works closely with farmers, companies,
developmental institutions, and the government with a THREE PRONGED APPROACH:
FIRST, Improving on and off-farm productivity through the introduction and dissemination of
global best practices and technological innovation; SECOND, Improve global
competitiveness of India's agricultural sector by investing in capacity building initiatives
and skill development for supply chain participants across the value chain, THIRD,
Strengthening linkages across the agriculture and food value chain with an objective of
reducing spoilage, increasing value add and farmer incomes
Our committee is fortunate to have worked with close partnership with Ministry of Food
Processing, APEDA, and other allied Government agencies in the past and would look
forward to continue to do so in future too. Towards this effort we are very happy to have
partnership with Rabo Equity Adviser to come out with CII Rabo Equity Report on the
importance of food processing sector which is going to be released as part of this food
conclave. This paper would bring out the interventions required from industry, academician
and government to make India food factory of the world which is the mission of our
committee.
Importance of Food Processing Sector in India Importance of Food Processing Sector in India01
INTRODUCTION
The food processing sector in India serves as a vital link between agriculture and
industry. Food processing helps improve the value of the agricultural produce; ensures
reduction in wastages, provides remunerative prices to farmers and at the same time
creates favourable demand for Indian agricultural products in the world market.
Further, food processing leads to significant employment generation - not only directly
but across the entire supply chain in production of raw materials, storage of produce and
finished products and distribution of food products to consumers. Also, a vibrant food
processing industry is an important catalyst for crop diversification.
However, the agri and food processing sector faces several challenges which hamper
realization of its true potential. On the supply side, there are issues with respect to
access to finance by the Small Scale Industries (SSI) and the unorganized sector; poor
levels of infrastructure facilities, including cold storage availability and management;
all leading to high costs, low value addition and low international competitiveness. On
the demand side, the high cost structure for many processed foods, largely due to the
lack of scale of operations and high tax structure, often leads to low consumer demand
at high prices. Moreover, in India there is a cultural preference for fresh foods. Although
significant initiatives have been taken by the government, regulatory distortions have
cumulatively resulted in several deficiencies. Comprehensive supply chain solutions
are critical for achieving sustainable development of the Food Processing sector in
India.
The Indian Government, having realized the potential of Food Processing to contribute
to GDP growth, employment generation and exports, has initiated extensive reforms to
remove legislative barriers and introduce facilitating measures to catalyse private
sector activity. The favourable policy environment and increasing interest of corporates
in food processing should ensure that India is well on track to becoming one of the
leading food nations of the world. It is making an important mark in the global food
arena - both as a large producer and exporter of agricultural products and as a very large
and growing market for processed food products.
Importance of Food Processing Sector in India Importance of Food Processing Sector in India01
INTRODUCTION
The food processing sector in India serves as a vital link between agriculture and
industry. Food processing helps improve the value of the agricultural produce; ensures
reduction in wastages, provides remunerative prices to farmers and at the same time
creates favourable demand for Indian agricultural products in the world market.
Further, food processing leads to significant employment generation - not only directly
but across the entire supply chain in production of raw materials, storage of produce and
finished products and distribution of food products to consumers. Also, a vibrant food
processing industry is an important catalyst for crop diversification.
However, the agri and food processing sector faces several challenges which hamper
realization of its true potential. On the supply side, there are issues with respect to
access to finance by the Small Scale Industries (SSI) and the unorganized sector; poor
levels of infrastructure facilities, including cold storage availability and management;
all leading to high costs, low value addition and low international competitiveness. On
the demand side, the high cost structure for many processed foods, largely due to the
lack of scale of operations and high tax structure, often leads to low consumer demand
at high prices. Moreover, in India there is a cultural preference for fresh foods. Although
significant initiatives have been taken by the government, regulatory distortions have
cumulatively resulted in several deficiencies. Comprehensive supply chain solutions
are critical for achieving sustainable development of the Food Processing sector in
India.
The Indian Government, having realized the potential of Food Processing to contribute
to GDP growth, employment generation and exports, has initiated extensive reforms to
remove legislative barriers and introduce facilitating measures to catalyse private
sector activity. The favourable policy environment and increasing interest of corporates
in food processing should ensure that India is well on track to becoming one of the
leading food nations of the world. It is making an important mark in the global food
arena - both as a large producer and exporter of agricultural products and as a very large
and growing market for processed food products.
02Importance of Food Processing Sector in India Importance of Food Processing Sector in India
03
IMPORTANCE OF FOOD PROCESSING SECTOR
The food processing sector has emerged as an important segment of the Indian
economy in terms of its contribution to GDP, employment and investment. During the
last 5 years ending 2012-13, Food processing industries has been growing at an Annual
Average Growth Rate (AAGR) of around 8.4 per cent as compared to 3.3 per cent in 1Agriculture and 6.6 per cent in manufacturing .
Exhibit 1: Principal characteristics of Registered Food Processing Units (2011-12)
Factories*(nos) engaged# (Rs Crores) (Rs Crore)
(nos)
Persons Fixed Capital^ Value of output
Food processing units@, of which 36,881 17,76,643 1,45,038 7,34,340
Grain milling and starch products 19,010 3,66,500 17,553 1,58,213
Vegetable & Animal oils and fats 3,394 1,21,232 18,409 1,97,325
Beverages 1,997 1,47,482 22,420 53,301
Dairy products 1,653 1,49,775 10,695 87,015
Fruit and Vegetable products 1,078 62,448 5,060 10,039
Prepared Animal Feeds 755 44,462 2,741 26,602
Fish, crustaceans etc 390 42,081 2,150 15,228
Meat processing & preserving 146 20,621 1,362 10,008
Source: Annual Survey of Industries
*Factory Registered under Factory Act 1948; # includes all persons employed directly or through an agency including family members; ̂ Depreciated value of fixed assets owned by factory; @includes food products and beverages (Division-10 & Division-11 of NIC 2008 classification)
The sector has a total of 36,881 registered units with fixed capital of nearly Rs 1.45 lakh
crore and producing end output of around Rs 7.34 lakh crore in value terms. Major
industries constituting food processing sector are grain milling, sugar, edible oils,
beverages and dairy products. As seen in Exhibit 2 below, the GDP of Food Processing
Industries (average for 5 years ending 2012-13) was 11% of the GDP in Agriculture and
9% of the GDP in Manufacturing.
1 Annual report 2013-14 Ministry of Food Processing, Government of India
Exhibit 2: Contribution of Food Processing Industries (FPI) to GDP, at 2004-05 prices
2012-13
Overall GDP at Factor cost in Rs Cr 54,82,111
of which
lGDP - Agriculture* 6,90,646
lGDP - Manufacturing 8,63,876
lGDP - Food Processing Industries 84,522
5 year AAGR growth 2008-09 to 2012-13
GDP at Factor cost 7.1%
lGDP - Agriculture 3.3%
lGDP - Manufacturing 6.6%
lGDP - Food Processing Industries 8.4%
Share of FPI in GDP (%) - 5 year average 2008-09 to 2012-13
lGDP FPI as a share of GDP in Agriculture 11.0
lGDP FPI as a share of GDP in Manufacturing 9.0
Source: National Accounts Statistics - 2014
*Excludes Forestry & Logging
GDP: Sum of GVA (value of output less the value of input used up in the process of production) of all resident producer units of the economy during the reference period
2Food processing in Micro, Small & Medium Enterprises (MSME) sector
The following table gives an overview of Food Processing Industries in MSME Sector:
Exhibit 3: Principal characteristics of Registered*units in FPI: MSME census – 2006-07
Working enterprises (nos) 2,23,018
Market value of Fixed Assets (Rs Crore) 60,196
Gross output (Rs Crore) 1,37,287
Total inputs (Rs Crore) 94,628
GVA (Rs Crore) 42,659
Employment (nos) 14,68,426
*includes all the enterprises registered upto 31.03.2007 with District Industries Centres (DICs) of the State /UT, KVIC, Coir Board and under section 2m (i) & 2m (ii) of the factories Act. 1948; Classification of industry is as per NIC-2004
2 Company website, Rabo Equity research
02Importance of Food Processing Sector in India Importance of Food Processing Sector in India
03
IMPORTANCE OF FOOD PROCESSING SECTOR
The food processing sector has emerged as an important segment of the Indian
economy in terms of its contribution to GDP, employment and investment. During the
last 5 years ending 2012-13, Food processing industries has been growing at an Annual
Average Growth Rate (AAGR) of around 8.4 per cent as compared to 3.3 per cent in 1Agriculture and 6.6 per cent in manufacturing .
Exhibit 1: Principal characteristics of Registered Food Processing Units (2011-12)
Factories*(nos) engaged# (Rs Crores) (Rs Crore)
(nos)
Persons Fixed Capital^ Value of output
Food processing units@, of which 36,881 17,76,643 1,45,038 7,34,340
Grain milling and starch products 19,010 3,66,500 17,553 1,58,213
Vegetable & Animal oils and fats 3,394 1,21,232 18,409 1,97,325
Beverages 1,997 1,47,482 22,420 53,301
Dairy products 1,653 1,49,775 10,695 87,015
Fruit and Vegetable products 1,078 62,448 5,060 10,039
Prepared Animal Feeds 755 44,462 2,741 26,602
Fish, crustaceans etc 390 42,081 2,150 15,228
Meat processing & preserving 146 20,621 1,362 10,008
Source: Annual Survey of Industries
*Factory Registered under Factory Act 1948; # includes all persons employed directly or through an agency including family members; ̂ Depreciated value of fixed assets owned by factory; @includes food products and beverages (Division-10 & Division-11 of NIC 2008 classification)
The sector has a total of 36,881 registered units with fixed capital of nearly Rs 1.45 lakh
crore and producing end output of around Rs 7.34 lakh crore in value terms. Major
industries constituting food processing sector are grain milling, sugar, edible oils,
beverages and dairy products. As seen in Exhibit 2 below, the GDP of Food Processing
Industries (average for 5 years ending 2012-13) was 11% of the GDP in Agriculture and
9% of the GDP in Manufacturing.
1 Annual report 2013-14 Ministry of Food Processing, Government of India
Exhibit 2: Contribution of Food Processing Industries (FPI) to GDP, at 2004-05 prices
2012-13
Overall GDP at Factor cost in Rs Cr 54,82,111
of which
lGDP - Agriculture* 6,90,646
lGDP - Manufacturing 8,63,876
lGDP - Food Processing Industries 84,522
5 year AAGR growth 2008-09 to 2012-13
GDP at Factor cost 7.1%
lGDP - Agriculture 3.3%
lGDP - Manufacturing 6.6%
lGDP - Food Processing Industries 8.4%
Share of FPI in GDP (%) - 5 year average 2008-09 to 2012-13
lGDP FPI as a share of GDP in Agriculture 11.0
lGDP FPI as a share of GDP in Manufacturing 9.0
Source: National Accounts Statistics - 2014
*Excludes Forestry & Logging
GDP: Sum of GVA (value of output less the value of input used up in the process of production) of all resident producer units of the economy during the reference period
2Food processing in Micro, Small & Medium Enterprises (MSME) sector
The following table gives an overview of Food Processing Industries in MSME Sector:
Exhibit 3: Principal characteristics of Registered*units in FPI: MSME census – 2006-07
Working enterprises (nos) 2,23,018
Market value of Fixed Assets (Rs Crore) 60,196
Gross output (Rs Crore) 1,37,287
Total inputs (Rs Crore) 94,628
GVA (Rs Crore) 42,659
Employment (nos) 14,68,426
*includes all the enterprises registered upto 31.03.2007 with District Industries Centres (DICs) of the State /UT, KVIC, Coir Board and under section 2m (i) & 2m (ii) of the factories Act. 1948; Classification of industry is as per NIC-2004
2 Company website, Rabo Equity research
04Importance of Food Processing Sector in India Importance of Food Processing Sector in India
05
The following points further highlight the importance of the Food Processing sector:
a) Food processing sector is highly labour absorptive and less capital intensive
2As per Annual Survey of Industries (ASI) 2011-12, among all industries, 'Food Products'
generated the highest employment (12.13 per cent) followed by 'Textiles' (10.86 per
cent), 'Basic Metals' (8.11 per cent) and 'Wearing apparel' (6.87 per cent). In terms of
capital requirement, fixed capital to output ratio for Food products is 0.18 implying food
products requires less capital for producing one unit of output, in value term, as
compared to other labour intensive industries. In addition to the data for the organized
sector (as captured by the ASI), there is also significant employment generated in the
MSMEs.
Exhibit 4: Employment data of Food Processing sector vs other sectors
Description Food products Beverages Textiles Apparel Leather All factoryUnit division division division division division
Division* 10 11 13 14 15
Factories (nos) 34,884 1,997 18,790 9,168 4,049 2,17,554
Employment (nos) 16,29,161 1,47,482 14,58,073 9,22,725 3,04,811 1,34,29,956
Share of total 12.13% 1.09% 10.86% 6.87% 2.26% 100%employment
Fixed capital to output 0.18 0.42 0.40 0.22 0.20 0.34
Output per employee 41,80,303 36,14,085 20,21,470 8,44,567 11,78,150 43,00,851(Rs)
Source: Annual Survey of Industries; *Divisions as per NIC-2008 classification adopted in ASI
As per the 12th Five year plan document, within the overall Manufacturing sector, the
sub-sector of Food products and beverages had an employment of 5.5 million (mln) in
2009-10. In fact, as per the 12th Five year plan, the Ministry of Food Processing
Industries (MoFPI) was one of the key sectors identified for employment generation as it
is dominated by MSMEs. The employment in this sub-sector has the potential to
increase to 7.29 mln (by 2016-17) and 9.5 mln (by 2024-25) if it grows at a GDP CAGR of
8.8% as per the manufacturing plan laid out in the 12th Five year Plan.
b) Food processing plays a key role in addressing inflation
Most agri commodities are seasonal with prices being quite low at time of harvest and
increasing in the off season. The produce could be purchased during adequate supply
and converted to a processed food product. The same could be sold in the off season and
provide a hedge against rising prices. An example of onion is highlighted in Exhibit 5.
2 Company website, Rabo Equity research
60
50
40
30
20
10
0
Jan-
09
Jun-
09
Nov
-09
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Wholesale (Lasalgaon) Retail (Mumbai)
Exhibit 5: Onion price trend (Rs /kg) - Wholesale and Retail
Source: NHB
While the onion prices have been fairly volatile, processing of onion and sale as
dehydrated onions can provide a good hedge against inflation. In India, there are 90
active onion dehydration units. Of these, 75 units are located in Gujarat mostly in
Bhavnagar, Mahuva, Vadodara and Gondal (Rajkot). The country has about 30 export
oriented units of onion dehydrated products while the rest are suppliers.
Companies such as Jain Irrigation (see Exhibit 6 below)have an integrated business
model and works closely with farmers, purchases produce from them and then
undertakes processing for sale in domestic and export markets.
2Exhibit 6: Example of Jain Irrigation
Jain Irrigation is one of the country's largest onion and vegetable processors, and the
world's second largest with three manufacturing units - two in India and one in the
United States. It is one of India's largest fruit processors and one of the world's
leading mango processors, with three manufacturing facilities in India. Jain
Irrigation has a business model, with a complete agri value chain which adds value
to the farmers' produce for export and local markets. The company works with more
than 10,000 small and marginal farmers to grow special varieties of onions, bananas,
mangoes and other processing by providing high yielding planting material,
technical support and irrigation systems, and buys back the produce at the minimum
assured price or the market price, whichever is higher. Jain Irrigation supplies
processed fruit and vegetables under the brand name Farm-Fresh to renowned
companies, including the Coca-Cola Company, Nestle, Premier Foods, Unilever and
Almarai. Its food processing business has grown at a compound annual growth rate
(CAGR) of15 per cent in the last five years.
2 Company website, Rabo Equity research
04Importance of Food Processing Sector in India Importance of Food Processing Sector in India
05
The following points further highlight the importance of the Food Processing sector:
a) Food processing sector is highly labour absorptive and less capital intensive
2As per Annual Survey of Industries (ASI) 2011-12, among all industries, 'Food Products'
generated the highest employment (12.13 per cent) followed by 'Textiles' (10.86 per
cent), 'Basic Metals' (8.11 per cent) and 'Wearing apparel' (6.87 per cent). In terms of
capital requirement, fixed capital to output ratio for Food products is 0.18 implying food
products requires less capital for producing one unit of output, in value term, as
compared to other labour intensive industries. In addition to the data for the organized
sector (as captured by the ASI), there is also significant employment generated in the
MSMEs.
Exhibit 4: Employment data of Food Processing sector vs other sectors
Description Food products Beverages Textiles Apparel Leather All factoryUnit division division division division division
Division* 10 11 13 14 15
Factories (nos) 34,884 1,997 18,790 9,168 4,049 2,17,554
Employment (nos) 16,29,161 1,47,482 14,58,073 9,22,725 3,04,811 1,34,29,956
Share of total 12.13% 1.09% 10.86% 6.87% 2.26% 100%employment
Fixed capital to output 0.18 0.42 0.40 0.22 0.20 0.34
Output per employee 41,80,303 36,14,085 20,21,470 8,44,567 11,78,150 43,00,851(Rs)
Source: Annual Survey of Industries; *Divisions as per NIC-2008 classification adopted in ASI
As per the 12th Five year plan document, within the overall Manufacturing sector, the
sub-sector of Food products and beverages had an employment of 5.5 million (mln) in
2009-10. In fact, as per the 12th Five year plan, the Ministry of Food Processing
Industries (MoFPI) was one of the key sectors identified for employment generation as it
is dominated by MSMEs. The employment in this sub-sector has the potential to
increase to 7.29 mln (by 2016-17) and 9.5 mln (by 2024-25) if it grows at a GDP CAGR of
8.8% as per the manufacturing plan laid out in the 12th Five year Plan.
b) Food processing plays a key role in addressing inflation
Most agri commodities are seasonal with prices being quite low at time of harvest and
increasing in the off season. The produce could be purchased during adequate supply
and converted to a processed food product. The same could be sold in the off season and
provide a hedge against rising prices. An example of onion is highlighted in Exhibit 5.
2 Company website, Rabo Equity research
60
50
40
30
20
10
0
Jan-
09
Jun-
09
Nov
-09
Apr
-10
Sep-
10
Feb-
11
Jul-1
1
Dec
-11
May
-12
Oct
-12
Mar
-13
Aug
-13
Jan-
14
Jun-
14
Nov
-14
Wholesale (Lasalgaon) Retail (Mumbai)
Exhibit 5: Onion price trend (Rs /kg) - Wholesale and Retail
Source: NHB
While the onion prices have been fairly volatile, processing of onion and sale as
dehydrated onions can provide a good hedge against inflation. In India, there are 90
active onion dehydration units. Of these, 75 units are located in Gujarat mostly in
Bhavnagar, Mahuva, Vadodara and Gondal (Rajkot). The country has about 30 export
oriented units of onion dehydrated products while the rest are suppliers.
Companies such as Jain Irrigation (see Exhibit 6 below)have an integrated business
model and works closely with farmers, purchases produce from them and then
undertakes processing for sale in domestic and export markets.
2Exhibit 6: Example of Jain Irrigation
Jain Irrigation is one of the country's largest onion and vegetable processors, and the
world's second largest with three manufacturing units - two in India and one in the
United States. It is one of India's largest fruit processors and one of the world's
leading mango processors, with three manufacturing facilities in India. Jain
Irrigation has a business model, with a complete agri value chain which adds value
to the farmers' produce for export and local markets. The company works with more
than 10,000 small and marginal farmers to grow special varieties of onions, bananas,
mangoes and other processing by providing high yielding planting material,
technical support and irrigation systems, and buys back the produce at the minimum
assured price or the market price, whichever is higher. Jain Irrigation supplies
processed fruit and vegetables under the brand name Farm-Fresh to renowned
companies, including the Coca-Cola Company, Nestle, Premier Foods, Unilever and
Almarai. Its food processing business has grown at a compound annual growth rate
(CAGR) of15 per cent in the last five years.
2 Company website, Rabo Equity research
06Importance of Food Processing Sector in India Importance of Food Processing Sector in India
07
Goods and Service Tax (GST) on food processing if kept at NIL or lowest slab would further help control food inflation and encourage consumption of processed food.
c) Food processing helps reduce wastages along the agri value chain
A nation-wise study on quantitative assessment of harvest and post-harvest losses for 46 agricultural produces in 106 randomly selected districts was carried out by CIPHET.
Exhibit 7: Extent of wastages across food and agri segments
Crop Cumulative wastage (%)
Cereals 3.9 - 6.0%
Pulses 4.3 - 6.1%
Oilseeds 2.8 - 10.1%
Fruits and Vegetables 5.8 - 18.0%
Milk 0.8%
Fisheries (Inland) 6.9%
Fisheries (Marine) 2.9%
Meat 2.3%
Poultry 3.7%
Source: CIPHET, 2010
It may be seen that most of the wastage is taking place in fruits and vegetables, pulses
and cereals. With improved focus on post-harvest practices and adequate processing
facilities, much of this waste can be reduced thereby increasing price realisations to the
producer as well as ensuring greater supply to the consumer. Thus, food processed is
food saved. This is extremely important in the context of India, where food and
nutritional security is a key concern. Processed foods ensure that consumers eat
healthy, safe and nutritious and packaged food.
Organised retail accounts for less than 1% of total sales of fruits and vegetables. As they
grow, they are likely to source from vendors who can set up the required back end
infrastructure for sorting/grading of produce and climate controlled transportation
thereby reducing the wastage /value loss.
d) Food processing leads to better farm incomes and higher rural growth
Agriculture is key to India's economy with more than half the people employed in
agriculture and allied sectors. The food processing industry through backward linkages
can help the farmers with inputs and better farm practices so that the industry gets
good quality raw material and farmers get better prices for their produce in a win-win
partnership. If processed food industry grows, agriculture GDP will grow which will
lead to inclusive growth. For example, oranges from Brazil, pineapples from Philippines,
palm oil from Malaysia and Indonesia, wine from Italy etc have had a multiplier effect on
the farm incomes and led to significant investment along the entire supply chain. Food
processing can do for rural India what Information Technology (IT) did for urban India.
Annual median per capita income in rural India went up at an average annual rate of
7.2% during FY2005-12, more than double the corresponding figure (3.2%) for urban 3
India . Since 2005, The Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) guarantees 100 days of wage-employment in a financial year to a rural
household. This along with other social sector schemes has led to increase in rural
incomes and higher spending power. As per the Union Budget (2014-15), wage
employment provided under MGNREGA will be substantially linked to agriculture and
allied activities. This is expected to provide a further fillip to rural incomes.
3 An inclusive growth policy, Hindu, April 20144 Company website, Rabo Equity Research
Exhibit 8: Rural India share as a percentage of All India Retail sales of Beverages
33
31
29
27
25
23
21
19
17
15
2008 2009 2010 2011 2012 2013% o
f O
ff-t
rad
e/R
eta
il V
olu
me
in
Ru
ral
Ind
ia
Hot Drinks Soft Drinks
Source: Euromonitor international, 2013
e) Food processing can tap into the vast potential of self help groups
Processing levels in food processing could be improved by setting up low cost
processing centres across India through use of the vast infrastructure of self-help
groups. These centres could focus on basic processing (packing /grading, basic
processing and packing). In fact in countries such as South Korea, the entire electronic
industry has been spread across self-help groups. Big industries outsource the routine
/low technology jobs to vast number of households which become part of the industry.
The 'Lijjat model (see Exhibit 9 below) has involved a large number of mass households
and is now a household name in India
4Exhibit 9: Example of Shri Mahila Griha Udyog Lijjat Papad
Shri Mahila Griha Udyog Lijjat Papad is a women's organisation of the women, by the women and for the women. It was started in 1959 with 7 lady members with a borrowed sum of Rs. 80/- at Girgaum in Mumbai. The objective of the Institution is to provide employment to the ladies to enable them to earn decent and dignified livelihood. Besides Lijjat Papad the Institution has other products like masala, chapaties, detergent powder and detergent cakes. At present it has 81 branches and 27 divisions and gives self-employment to about 43,000 sister members all over India. Lijjat was conferred the National Award as 'Best Village Industries Institution for 2012-13.
06Importance of Food Processing Sector in India Importance of Food Processing Sector in India
07
Goods and Service Tax (GST) on food processing if kept at NIL or lowest slab would further help control food inflation and encourage consumption of processed food.
c) Food processing helps reduce wastages along the agri value chain
A nation-wise study on quantitative assessment of harvest and post-harvest losses for 46 agricultural produces in 106 randomly selected districts was carried out by CIPHET.
Exhibit 7: Extent of wastages across food and agri segments
Crop Cumulative wastage (%)
Cereals 3.9 - 6.0%
Pulses 4.3 - 6.1%
Oilseeds 2.8 - 10.1%
Fruits and Vegetables 5.8 - 18.0%
Milk 0.8%
Fisheries (Inland) 6.9%
Fisheries (Marine) 2.9%
Meat 2.3%
Poultry 3.7%
Source: CIPHET, 2010
It may be seen that most of the wastage is taking place in fruits and vegetables, pulses
and cereals. With improved focus on post-harvest practices and adequate processing
facilities, much of this waste can be reduced thereby increasing price realisations to the
producer as well as ensuring greater supply to the consumer. Thus, food processed is
food saved. This is extremely important in the context of India, where food and
nutritional security is a key concern. Processed foods ensure that consumers eat
healthy, safe and nutritious and packaged food.
Organised retail accounts for less than 1% of total sales of fruits and vegetables. As they
grow, they are likely to source from vendors who can set up the required back end
infrastructure for sorting/grading of produce and climate controlled transportation
thereby reducing the wastage /value loss.
d) Food processing leads to better farm incomes and higher rural growth
Agriculture is key to India's economy with more than half the people employed in
agriculture and allied sectors. The food processing industry through backward linkages
can help the farmers with inputs and better farm practices so that the industry gets
good quality raw material and farmers get better prices for their produce in a win-win
partnership. If processed food industry grows, agriculture GDP will grow which will
lead to inclusive growth. For example, oranges from Brazil, pineapples from Philippines,
palm oil from Malaysia and Indonesia, wine from Italy etc have had a multiplier effect on
the farm incomes and led to significant investment along the entire supply chain. Food
processing can do for rural India what Information Technology (IT) did for urban India.
Annual median per capita income in rural India went up at an average annual rate of
7.2% during FY2005-12, more than double the corresponding figure (3.2%) for urban 3
India . Since 2005, The Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) guarantees 100 days of wage-employment in a financial year to a rural
household. This along with other social sector schemes has led to increase in rural
incomes and higher spending power. As per the Union Budget (2014-15), wage
employment provided under MGNREGA will be substantially linked to agriculture and
allied activities. This is expected to provide a further fillip to rural incomes.
3 An inclusive growth policy, Hindu, April 20144 Company website, Rabo Equity Research
Exhibit 8: Rural India share as a percentage of All India Retail sales of Beverages
33
31
29
27
25
23
21
19
17
15
2008 2009 2010 2011 2012 2013% o
f O
ff-t
rad
e/R
eta
il V
olu
me
in
Ru
ral
Ind
ia
Hot Drinks Soft Drinks
Source: Euromonitor international, 2013
e) Food processing can tap into the vast potential of self help groups
Processing levels in food processing could be improved by setting up low cost
processing centres across India through use of the vast infrastructure of self-help
groups. These centres could focus on basic processing (packing /grading, basic
processing and packing). In fact in countries such as South Korea, the entire electronic
industry has been spread across self-help groups. Big industries outsource the routine
/low technology jobs to vast number of households which become part of the industry.
The 'Lijjat model (see Exhibit 9 below) has involved a large number of mass households
and is now a household name in India
4Exhibit 9: Example of Shri Mahila Griha Udyog Lijjat Papad
Shri Mahila Griha Udyog Lijjat Papad is a women's organisation of the women, by the women and for the women. It was started in 1959 with 7 lady members with a borrowed sum of Rs. 80/- at Girgaum in Mumbai. The objective of the Institution is to provide employment to the ladies to enable them to earn decent and dignified livelihood. Besides Lijjat Papad the Institution has other products like masala, chapaties, detergent powder and detergent cakes. At present it has 81 branches and 27 divisions and gives self-employment to about 43,000 sister members all over India. Lijjat was conferred the National Award as 'Best Village Industries Institution for 2012-13.
08Importance of Food Processing Sector in India Importance of Food Processing Sector in India
09
f) Food processing can fuel "Value added" exports
All agricultural produce when exported undergo an element of processing. As seen in
Exhibit 10 below, the value of exports in the sector has been showing an increasing
trend with a CAGR of 26.4% over the last 4 years.
2009-10
14.79
2010-11
20.43
2011-12
31.76
2012-13
36.21
2013-14
37.80
Source: DGCI&S, Kolkata
Exhibit 10: Exports of processed food and retail commodities (USD Billion)
As seen in Exhibit 11 below, there has been a robust growth in export of marine
products, rice (basmati and non-basmati), meat related products and guar gum. India
has recently emerged as the world's largest exporter of rice, replacing Thailand and
Vietnam. Rice and wheat exports have also helped reduce huge stockpiles of over 50
mln tonnes. Agri exports (including marine products) as a share of total exports from
India has increased from 8.2% (2009-10) to 11.9% (2013-14 estimates). Also agri exports
as a share of Agri GDP has increased from 9.1% (2008-09) to 14.1% (2013-14).
Exhibit11: Export data of key commodities
Product group FY14 (US$ billion) 4 year CAGR
Marine products 5.01 24%
Basmati Rice 4.87 21%
Meat related 4.48 35%
Non-basmati rice 2.88 148%
Spices 2.3 18%
Guargum 1.98 69%
Oil meals 1.87 8%
Wheat 1.57 1800%
Source: APEDA, Ministry of Commerce
Strategic geographic and proximity to food importing nations, makes India a favorable
location for export of food and agricultural products. However, India still has a share of
just 2.7% of total global exports of agri and food products in 2013-14. Also, exports from
India are largely commodities with minimal value add. The main export destinations
have been Middle East and South Asia. The significant share of raw/primary processed
products in exports, renders India vulnerable to fluctuations in commodity cycles.
Indian players have not succeeded in establishing direct linkages with buyers
/consumers in importing countries, as a result of which a large proportion of exports are
being further processed and re-exported by other countries. Hence, there is a huge
opportunity for India to step up on 'value added' exports targeting developed nations.
With geographical indications (GI) and the academia-industry link, India has a chance
to carve a distinctive place in the food processing sector. Ginger, Basmati Rice, fennel,
Alphonso mangoes, saffron and black pepper are unique to India and could take the 5Indian food processing sector forward in a big way .
g) Food processing sector can drive Foreign Direct Investment (FDI) into India
Foreign Direct Investment (FDI) is permissible for all processed food products up to 100
per cent on automatic route except for items reserved for Micro and Small Enterprises
(MSEs) subject to applicable laws/regulatories, securities and other conditionalities.
The sector saw FDI of USD 401.5 mln in 2012-13, with potential to grow exponentially on
the back of increased domestic demand for branded packaged foods as well as export
demand for value added food, where India has a strong production advantage.
5 Dr S K Malhotra, Horticulture Commissioner, Ministry of Agriculture, Government of India
Exhibit 12: FDI in food processing sector (USD mln)
Source: Department of Industrial policy and promotion (DIPP)
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
70.2102.7
278.9
188.7 170.2
401.5
h) Food processing sector perfectly fits with the "Make in India" opportunity
"Make in India" is a national programme that is designed to facilitate investment, foster
innovation, enhance skill development and create world class manufacturing
infrastructure in India. The government's vision is to make India a food processing hub,
and not just an exporter of raw produce. In this scenario, the Ministry of Food processing
Industries (MoFPI) in association with other allied sectors is working on a new
comprehensive, all-inclusive National Food Processing Policy to provide a fillip to the
food processing sector in India as envisaged in the "Make in India" initiative.
08Importance of Food Processing Sector in India Importance of Food Processing Sector in India
09
f) Food processing can fuel "Value added" exports
All agricultural produce when exported undergo an element of processing. As seen in
Exhibit 10 below, the value of exports in the sector has been showing an increasing
trend with a CAGR of 26.4% over the last 4 years.
2009-10
14.79
2010-11
20.43
2011-12
31.76
2012-13
36.21
2013-14
37.80
Source: DGCI&S, Kolkata
Exhibit 10: Exports of processed food and retail commodities (USD Billion)
As seen in Exhibit 11 below, there has been a robust growth in export of marine
products, rice (basmati and non-basmati), meat related products and guar gum. India
has recently emerged as the world's largest exporter of rice, replacing Thailand and
Vietnam. Rice and wheat exports have also helped reduce huge stockpiles of over 50
mln tonnes. Agri exports (including marine products) as a share of total exports from
India has increased from 8.2% (2009-10) to 11.9% (2013-14 estimates). Also agri exports
as a share of Agri GDP has increased from 9.1% (2008-09) to 14.1% (2013-14).
Exhibit11: Export data of key commodities
Product group FY14 (US$ billion) 4 year CAGR
Marine products 5.01 24%
Basmati Rice 4.87 21%
Meat related 4.48 35%
Non-basmati rice 2.88 148%
Spices 2.3 18%
Guargum 1.98 69%
Oil meals 1.87 8%
Wheat 1.57 1800%
Source: APEDA, Ministry of Commerce
Strategic geographic and proximity to food importing nations, makes India a favorable
location for export of food and agricultural products. However, India still has a share of
just 2.7% of total global exports of agri and food products in 2013-14. Also, exports from
India are largely commodities with minimal value add. The main export destinations
have been Middle East and South Asia. The significant share of raw/primary processed
products in exports, renders India vulnerable to fluctuations in commodity cycles.
Indian players have not succeeded in establishing direct linkages with buyers
/consumers in importing countries, as a result of which a large proportion of exports are
being further processed and re-exported by other countries. Hence, there is a huge
opportunity for India to step up on 'value added' exports targeting developed nations.
With geographical indications (GI) and the academia-industry link, India has a chance
to carve a distinctive place in the food processing sector. Ginger, Basmati Rice, fennel,
Alphonso mangoes, saffron and black pepper are unique to India and could take the 5Indian food processing sector forward in a big way .
g) Food processing sector can drive Foreign Direct Investment (FDI) into India
Foreign Direct Investment (FDI) is permissible for all processed food products up to 100
per cent on automatic route except for items reserved for Micro and Small Enterprises
(MSEs) subject to applicable laws/regulatories, securities and other conditionalities.
The sector saw FDI of USD 401.5 mln in 2012-13, with potential to grow exponentially on
the back of increased domestic demand for branded packaged foods as well as export
demand for value added food, where India has a strong production advantage.
5 Dr S K Malhotra, Horticulture Commissioner, Ministry of Agriculture, Government of India
Exhibit 12: FDI in food processing sector (USD mln)
Source: Department of Industrial policy and promotion (DIPP)
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
70.2102.7
278.9
188.7 170.2
401.5
h) Food processing sector perfectly fits with the "Make in India" opportunity
"Make in India" is a national programme that is designed to facilitate investment, foster
innovation, enhance skill development and create world class manufacturing
infrastructure in India. The government's vision is to make India a food processing hub,
and not just an exporter of raw produce. In this scenario, the Ministry of Food processing
Industries (MoFPI) in association with other allied sectors is working on a new
comprehensive, all-inclusive National Food Processing Policy to provide a fillip to the
food processing sector in India as envisaged in the "Make in India" initiative.
10Importance of Food Processing Sector in India Importance of Food Processing Sector in India
11
Exhibit 13: Some ideas for the “Make in India” opportunity
Segment Opportunity
Herbal extracts, nutraceuticals Indian players can leverage raw material sourcing
oleoresins, colours, advantage with focus on traceability, efficient extraction
systems and customized solutions.
Tea India's exports largely comprise bulk tea. Production
/manufacturing and export of value added packaged tea such as
orthodox tea, green tea and organic tea could be encouraged.
Seafood There is huge potential for processed seafood in ready-to-eat form
such as breaded and battered products processed out of a variety
of fish and shellfish. Investment is required in fish processing, cold
chains, handling and packaging of value-added food.
Orange juice While India is the third largest producer of oranges globally, the
citrus processing industry is still at a nascent stage. Frozen
concentrated orange juice (FCOJ) for packaged orange juice is
largely imported from Brazil.
Oats At present, most of the oats is imported. There is opportunity for
import substitution wherein oats is produced and processed
domestically.
The "Make in India" programme could be further strengthened with assistance for
Market development, which could be extended to the Food Processing companies that
are involved in development of 'Made in India' brand abroad through export of processed
foods within the stipulated conditions of quality, distribution infrastructure and track
record.
i) Food processing has a key role in enhancing nutritional security
In India, food security focuses only on food availability (largely wheat and rice). India's
progress in improving nutrition has been unacceptably slow. Almost one in two Indian
children is stunted and 40% are underweight. One-third of all Indian women are
underweight. Rates of micronutrient deficiencies are extremely high, with almost 80% of
children and 56% of women being anaemic. Globally, food security index (based on a
report by the Economist Intelligence Unit) assesses food security across three
internationally designated dimensions: affordability, availability and nutritional
quality/safety of food. India is ranked 66th out of 105 countries on Global Food Security
Index. It is imperative that India focuses on the global definition of food security.
In this context Food processing has an important role to play in terms of enhancing
nutritional security e.g. food fortified with healthier ingredients, Iodized salt etc
Exhibit 14: Example of an initiative around finger millet (“Ragi”)
Ragi (Finger Millet) is an integral part of India's food culture; it is rich in fibre and helps in reducing cholesterol and sugar levels. Soulfull (a start-up company promoted by Kottaram Agro Foods) has introduced the nutritious ragi as a key ingredient in modern, ready-to-cook products such as Ragi Bytes, idli and dosa mixes and Ragi flakes. The company is also experimenting with various millets in order to foray into other food categories. For instance, cereals with fruits, and muesli and millet-based meal solutions are progressing in the company's R&D wing.
BUILDING EFFECTIVE AGRI INFRASTRUCTURE AND STRONG SUPPLY CHAIN LOGISTICS
Agri infrastructure is key to reducing wastages/value loss and enhancing food
availability. There is a significant opportunity unfolding in back end aggregation as well
as storage infrastructure and logistics. Consistent innovation that works in the Indian
environment will be the critical driver of the efficiency and effectiveness of food supply
chains in India.
3.1 Cold chain solutions
The cold chain solutions market can be further broken down into Cold storage and Cold
chain logistics.
a) Cold storage
The cold storage market (organized and unorganized) is estimated at Rs 14,100Cr in 6
FY13 growing at a CAGR of 13% over the last 3 years . India currently has 5000+ cold
storages with a capacity of ~30 million tonnes. Potatoes account for nearly three-fourths
of the material stored with multi-purpose stores accounting for the rest. In the organized
segment, imported fruits and high value produce are driving demand for cold storage
infrastructure. Controlled Atmosphere (CA) storage for apples has been picking up.
Also, there has been a steady shift towards palletized storage as well as multi chamber
storage. There is an emerging opportunity in managing backend storage and logistics,
especially in case of perishables. Also, there is an opportunity to augment cold chain
facilities and container handling facilities at major ports as well as at air cargo
complexes for targeting global markets.
b) Cold chain logistics
In terms of refrigerated transport, the total market size6 (organized and unorganized) is
estimated at Rs 1,300 Cr in FY13 growing at a CAGR of 15% over the last 3 years. There
are ~250 transport operators and ~30000 vehicles for perishable product. The
organized market is estimated at 20% of the total market. Meat accounts for 57% of the
volumes handled while ice cream and butter /cheese account for 14% and 10%
respectively.
The Union Government has provided infrastructure status to the cold chain sector and
opened up the sector for massive investments and reforms. Refrigeration panels and
equipments are exempted from excise duty. Further, investment linked deduction of
6 Crisil Report
10Importance of Food Processing Sector in India Importance of Food Processing Sector in India
11
Exhibit 13: Some ideas for the “Make in India” opportunity
Segment Opportunity
Herbal extracts, nutraceuticals Indian players can leverage raw material sourcing
oleoresins, colours, advantage with focus on traceability, efficient extraction
systems and customized solutions.
Tea India's exports largely comprise bulk tea. Production
/manufacturing and export of value added packaged tea such as
orthodox tea, green tea and organic tea could be encouraged.
Seafood There is huge potential for processed seafood in ready-to-eat form
such as breaded and battered products processed out of a variety
of fish and shellfish. Investment is required in fish processing, cold
chains, handling and packaging of value-added food.
Orange juice While India is the third largest producer of oranges globally, the
citrus processing industry is still at a nascent stage. Frozen
concentrated orange juice (FCOJ) for packaged orange juice is
largely imported from Brazil.
Oats At present, most of the oats is imported. There is opportunity for
import substitution wherein oats is produced and processed
domestically.
The "Make in India" programme could be further strengthened with assistance for
Market development, which could be extended to the Food Processing companies that
are involved in development of 'Made in India' brand abroad through export of processed
foods within the stipulated conditions of quality, distribution infrastructure and track
record.
i) Food processing has a key role in enhancing nutritional security
In India, food security focuses only on food availability (largely wheat and rice). India's
progress in improving nutrition has been unacceptably slow. Almost one in two Indian
children is stunted and 40% are underweight. One-third of all Indian women are
underweight. Rates of micronutrient deficiencies are extremely high, with almost 80% of
children and 56% of women being anaemic. Globally, food security index (based on a
report by the Economist Intelligence Unit) assesses food security across three
internationally designated dimensions: affordability, availability and nutritional
quality/safety of food. India is ranked 66th out of 105 countries on Global Food Security
Index. It is imperative that India focuses on the global definition of food security.
In this context Food processing has an important role to play in terms of enhancing
nutritional security e.g. food fortified with healthier ingredients, Iodized salt etc
Exhibit 14: Example of an initiative around finger millet (“Ragi”)
Ragi (Finger Millet) is an integral part of India's food culture; it is rich in fibre and helps in reducing cholesterol and sugar levels. Soulfull (a start-up company promoted by Kottaram Agro Foods) has introduced the nutritious ragi as a key ingredient in modern, ready-to-cook products such as Ragi Bytes, idli and dosa mixes and Ragi flakes. The company is also experimenting with various millets in order to foray into other food categories. For instance, cereals with fruits, and muesli and millet-based meal solutions are progressing in the company's R&D wing.
BUILDING EFFECTIVE AGRI INFRASTRUCTURE AND STRONG SUPPLY CHAIN LOGISTICS
Agri infrastructure is key to reducing wastages/value loss and enhancing food
availability. There is a significant opportunity unfolding in back end aggregation as well
as storage infrastructure and logistics. Consistent innovation that works in the Indian
environment will be the critical driver of the efficiency and effectiveness of food supply
chains in India.
3.1 Cold chain solutions
The cold chain solutions market can be further broken down into Cold storage and Cold
chain logistics.
a) Cold storage
The cold storage market (organized and unorganized) is estimated at Rs 14,100Cr in 6
FY13 growing at a CAGR of 13% over the last 3 years . India currently has 5000+ cold
storages with a capacity of ~30 million tonnes. Potatoes account for nearly three-fourths
of the material stored with multi-purpose stores accounting for the rest. In the organized
segment, imported fruits and high value produce are driving demand for cold storage
infrastructure. Controlled Atmosphere (CA) storage for apples has been picking up.
Also, there has been a steady shift towards palletized storage as well as multi chamber
storage. There is an emerging opportunity in managing backend storage and logistics,
especially in case of perishables. Also, there is an opportunity to augment cold chain
facilities and container handling facilities at major ports as well as at air cargo
complexes for targeting global markets.
b) Cold chain logistics
In terms of refrigerated transport, the total market size6 (organized and unorganized) is
estimated at Rs 1,300 Cr in FY13 growing at a CAGR of 15% over the last 3 years. There
are ~250 transport operators and ~30000 vehicles for perishable product. The
organized market is estimated at 20% of the total market. Meat accounts for 57% of the
volumes handled while ice cream and butter /cheese account for 14% and 10%
respectively.
The Union Government has provided infrastructure status to the cold chain sector and
opened up the sector for massive investments and reforms. Refrigeration panels and
equipments are exempted from excise duty. Further, investment linked deduction of
6 Crisil Report
12Importance of Food Processing Sector in India Importance of Food Processing Sector in India
13
Key challenges: Capital and operationally intensive, high land prices / lease rentals,
lack of assured supply of grid power, seasonality in demand, consumer willingness
to pay a premium is yet to be established, lack of skilled manpower
There is a market need for end-to-end solutions, i.e. logistics and storage, on a pan India
basis. In addition, the scale of operations needs to increase with movement through
railway wagons to lower logistic costs. There is an opportunity to focus on bulk
handling of commodities and augment cold chain facilities and container handling
facilities at major ports as well as at air cargo complexes for targeting domestic and
global markets (see Exhibit 15 below). All this will not only need large scale
investments, but also development of appropriate technology more suitable to Indian
local requirements.
Exhibit 15: Vision 2020 - Bulk handling is the way forward
capital expenditure for cold chain facility and warehouses for storing food-grains to the
extent of 150%. The Ministry of Food Processing Industry encourages entrepreneurs to
set up cold chains by providing subsidy of Rs 10 Cr or 50% of the total project cost,
whichever is lower.
At mandis (markets)Trucks with tilters
Silos (sumps) at mandis with grading facilities
Te r m i n a l h a n d l i n g facilities
At railway stationsBulk wagons
Special yards for loading / unloading with handling facilities
At ports / other key locations
Silos
Te r m i n a l h a n d l i n g facilities
3.2 Farm level collection and aggregation
In the last few years, we have seen a lot of new initiatives in post harvest handling of
fresh produce.
a) The concept of pre-cooling of grapes was introduced in the 1980s, primarily in
Maharashtra, which is a leading grape growing state in India. This helped the
farmers to export grapes to Europe and the Middle East. Later this technology was 7
adopted to other fruits like mango, pomegranates and oranges .
7 Food and Beverage news, 1-15 January, 2015
8Exhibit 16: Example of FarmPik (Adani Agri Fresh)
Adani Agri Fresh Ltd has set up a strong integrated supply chain to ensure
consistency in the availability of fresh fruits and vegetable round the year. With an
investment of over Rs 200 cr, the company brings fresh fruits under the 'FarmPik'
brand to states across India. The company ensures that high quality standards are
maintained right from the sourcing of fruits and vegetables from the farms, sorting
and grading, product handling, storage and distribution. The company has set up
state-of-the-art CA storage facilities of around 18000 MT in Himachal Pradesh. This
can help keep fruits fresh for about 10 months retaining the nutritional value and
taste. The company has set up farmer service centers under the brand name 'Farm-Pik
Shoppe' to provide agri input and services to apple growers. The company identifies
the best orchards in Himachal Pradesh. Crates are sent to farmers so that fruits do not
get damaged during transportation from the orchard to the CA storage facility. Once
the apples reach the facility, a series of tests are undertaken to check the firmness and
ripeness of the produce. With the help of automatic cameras, apples are sorted and
graded according to colour and size. Then the apples are assembled in separate bins
and put in the CA chambers where the temperature, relative humidity and levels of
oxygen and carbon dioxide are controlled to preserve the freshness. When the
chamber is opened the bins are picked up by hydraulic elevators and the apples are
washed, cleaned and graded as per the size, colour and shape. Then they are packed
and despatched to the markets in refrigerated vans, which prevent thermal shock
and any loss in quality during transit.
8 Company website, Rabo Equity research
b) Following the global trends, a number of Controlled Atmoshphere (CA) have
already been established in Northern India, close to the apple growing regions.
Exhibit 16 below details the initiative of Adani Agri Fresh for managing the apple
supply chain.
c) There has been considerable interest in scientific ripening and storage of fruits
like banana and mango in recent years with units being established in South
India, Maharashtra and Gujarat.
d) Bihar has some of the largest exporters of litchi thanks to innovative packaging
and marketing network. The policy initiatives in the state have also shown
excellent results. On similar lines, programmes and subsidies which are cluster
based could be implemented across states.
12Importance of Food Processing Sector in India Importance of Food Processing Sector in India
13
Key challenges: Capital and operationally intensive, high land prices / lease rentals,
lack of assured supply of grid power, seasonality in demand, consumer willingness
to pay a premium is yet to be established, lack of skilled manpower
There is a market need for end-to-end solutions, i.e. logistics and storage, on a pan India
basis. In addition, the scale of operations needs to increase with movement through
railway wagons to lower logistic costs. There is an opportunity to focus on bulk
handling of commodities and augment cold chain facilities and container handling
facilities at major ports as well as at air cargo complexes for targeting domestic and
global markets (see Exhibit 15 below). All this will not only need large scale
investments, but also development of appropriate technology more suitable to Indian
local requirements.
Exhibit 15: Vision 2020 - Bulk handling is the way forward
capital expenditure for cold chain facility and warehouses for storing food-grains to the
extent of 150%. The Ministry of Food Processing Industry encourages entrepreneurs to
set up cold chains by providing subsidy of Rs 10 Cr or 50% of the total project cost,
whichever is lower.
At mandis (markets)Trucks with tilters
Silos (sumps) at mandis with grading facilities
Te r m i n a l h a n d l i n g facilities
At railway stationsBulk wagons
Special yards for loading / unloading with handling facilities
At ports / other key locations
Silos
Te r m i n a l h a n d l i n g facilities
3.2 Farm level collection and aggregation
In the last few years, we have seen a lot of new initiatives in post harvest handling of
fresh produce.
a) The concept of pre-cooling of grapes was introduced in the 1980s, primarily in
Maharashtra, which is a leading grape growing state in India. This helped the
farmers to export grapes to Europe and the Middle East. Later this technology was 7
adopted to other fruits like mango, pomegranates and oranges .
7 Food and Beverage news, 1-15 January, 2015
8Exhibit 16: Example of FarmPik (Adani Agri Fresh)
Adani Agri Fresh Ltd has set up a strong integrated supply chain to ensure
consistency in the availability of fresh fruits and vegetable round the year. With an
investment of over Rs 200 cr, the company brings fresh fruits under the 'FarmPik'
brand to states across India. The company ensures that high quality standards are
maintained right from the sourcing of fruits and vegetables from the farms, sorting
and grading, product handling, storage and distribution. The company has set up
state-of-the-art CA storage facilities of around 18000 MT in Himachal Pradesh. This
can help keep fruits fresh for about 10 months retaining the nutritional value and
taste. The company has set up farmer service centers under the brand name 'Farm-Pik
Shoppe' to provide agri input and services to apple growers. The company identifies
the best orchards in Himachal Pradesh. Crates are sent to farmers so that fruits do not
get damaged during transportation from the orchard to the CA storage facility. Once
the apples reach the facility, a series of tests are undertaken to check the firmness and
ripeness of the produce. With the help of automatic cameras, apples are sorted and
graded according to colour and size. Then the apples are assembled in separate bins
and put in the CA chambers where the temperature, relative humidity and levels of
oxygen and carbon dioxide are controlled to preserve the freshness. When the
chamber is opened the bins are picked up by hydraulic elevators and the apples are
washed, cleaned and graded as per the size, colour and shape. Then they are packed
and despatched to the markets in refrigerated vans, which prevent thermal shock
and any loss in quality during transit.
8 Company website, Rabo Equity research
b) Following the global trends, a number of Controlled Atmoshphere (CA) have
already been established in Northern India, close to the apple growing regions.
Exhibit 16 below details the initiative of Adani Agri Fresh for managing the apple
supply chain.
c) There has been considerable interest in scientific ripening and storage of fruits
like banana and mango in recent years with units being established in South
India, Maharashtra and Gujarat.
d) Bihar has some of the largest exporters of litchi thanks to innovative packaging
and marketing network. The policy initiatives in the state have also shown
excellent results. On similar lines, programmes and subsidies which are cluster
based could be implemented across states.
14Importance of Food Processing Sector in India Importance of Food Processing Sector in India
15
PRIMARY PROCESSING
Primary Processing involves a basic level of processing as seen in Grains, Oilseeds and
Edible Oils, Dairy, Poultry, Animal Feed, Sugar, Pulses etc. Many of the conventional
sub-sectors within primary processing are increasingly integrating with the global
market. For instance, Indian sugar and edible oil prices are strongly correlated to global
prices. This is enabling the producers to generate additional cash flows and improve
profitability. In addition, there is an increasing interest of large global players to enter
this space in India vide tie-ups with/acquisition of local players. In addition, some
Indian players are expanding overseas to strengthen their access to raw material such
as in case of edible oils, sugar and fertilisers. Also, supply chains are giving way to
"Quality" chains with large organised retailers, food services players and processed food
majors seeking specialist Business to Business (B2B) suppliers that have implemented
strict quality standards and offer traceability of various products such as dairy, poultry,
fresh produce, etc. on a sustainable basis.
A few key segments within Primary Processing are highlighted below
a) Dairy
India is one of the largest and growing market for milk and milk products. As per
Rabobank, the organized dairy market in 2012-13 was estimated at USD 10 billion and
expected to grow at a CAGR of 13-15% until 2019-20. With rising incomes and changing
lifestyles the demand for both milk and value-added dairy products is on the rise. There
is a steady consumer shift towards branded packaged dairy products such as
curd/yoghurt, cheese, paneer, flavored milk and infant food on the back of assured
quality and need for convenience. On the supply side, while India is the largest producer
of milk globally, the organized market currently handles only 25% of the total milk
production. As a result, players with good backend strengths in sourcing would stand to
gain. The Indian dairy sector is of strategic interest to many of the global dairy majors
given its production strengths coupled by a huge consumption market. The dairy sector
has tremendous social impact as most dairy farmers have small herds of 2-3 cattle.
9Exhibit 17: Example of Amul
The Amul Model of dairy development is a three-tiered structure with the dairy
cooperative societies at the village level federated under a milk union at the district
level and a federation of member unions at the state level. The Amul model has helped
India to emerge as the largest milk producer in the world. More than 15 million milk
producers pour their milk in 1,44,500 dairy cooperative societies across the country.
Their milk is processed in 184 District Co-operative Unions and marketed by 22 State
Marketing Federations, ensuring a better life for millions.
9 Company website, Rabo Equity research
The investment opportunities in dairy could be in setting up Village level milk collection
centres, Bulk milk coolers, Chilling plants as well in milk processing infrastructure such
as powder plants, cheese plants and production of various processed dairy products
b) Poultry
As per Rabobank, the Indian poultry industry is estimated at USD 3.6 bln (Rs 175 bln)
with production estimated at 3 mn tonnes (2011-12), growing at a CAGR of 10% since
1999-2000. Chicken meat has been growing faster in the same period than bovine
(CAGR of 6.5%) and fishery (CAGR of 3%). There is a lot of integration of poultry players
into animal feed as well as breeding. While over 90% of poultry sales are through the wet 10market (i.e. street side slaughter) , there is a window of opportunity for processed
poultry products which are seeing growth in demand. Policy level changes such as
moving the wet markets outside city limits and encouraging FDI in retail is expected to
stimulate further growth in the industry.
11Exhibit 18: Example of Suguna Poultry
Pioneering efforts by Suguna in contract farming has changed the landscape of the
Indian poultry industry. Through poultry integration, Suguna provides livelihood
and assured income to thousands of farmers and also provides indirect employment,
assuring a better future to thousands of rural households.
Suguna successfully reduced middlemen in the poultry chain from 14 to 4. Farmers
deal only with the company, and get assured returns. Suguna provides them all the
inputs and in return, the farmers get a fixed growing charge which can be increased
through optimizing production cost.
To service this massive base of 20,000 farms, Suguna has invested in highly
sophisticated technology and infrastructure. With state of the art hatcheries, and an
advanced R&D Centre, feed mills, veterinarians, scientists, and professionals,
farmers are assured of the best quality chicks, feed and professional care.
Importantly, Suguna's scientists and employees train the farmers in GMP (Good
Management Practices) too. Through all these, Suguna provides significant value to
the farmers who may otherwise be unable to have access to all these on their own.
Suguna also offers a buy back guarantee, so that the farmer gets a better price for his
crop. This way, Suguna procures 400,000 tonnes of maize per year from farmers in
Karnataka alone, grown in ~2.5 lakh acres, directly benefitting at least 50,000
farmers. Through this direct procurement, Suguna also assures farmers fair prices
and enormous savings by way of transparent transactions and quick payments.
Suguna also purchases raw materials worth more than Rs.1000 crores per year,
thereby providing indirect employment.
10 Rabobank publication “ From Wet markets to processed foods” (May 2012)11 Company website, Rabo Equity research
14Importance of Food Processing Sector in India Importance of Food Processing Sector in India
15
PRIMARY PROCESSING
Primary Processing involves a basic level of processing as seen in Grains, Oilseeds and
Edible Oils, Dairy, Poultry, Animal Feed, Sugar, Pulses etc. Many of the conventional
sub-sectors within primary processing are increasingly integrating with the global
market. For instance, Indian sugar and edible oil prices are strongly correlated to global
prices. This is enabling the producers to generate additional cash flows and improve
profitability. In addition, there is an increasing interest of large global players to enter
this space in India vide tie-ups with/acquisition of local players. In addition, some
Indian players are expanding overseas to strengthen their access to raw material such
as in case of edible oils, sugar and fertilisers. Also, supply chains are giving way to
"Quality" chains with large organised retailers, food services players and processed food
majors seeking specialist Business to Business (B2B) suppliers that have implemented
strict quality standards and offer traceability of various products such as dairy, poultry,
fresh produce, etc. on a sustainable basis.
A few key segments within Primary Processing are highlighted below
a) Dairy
India is one of the largest and growing market for milk and milk products. As per
Rabobank, the organized dairy market in 2012-13 was estimated at USD 10 billion and
expected to grow at a CAGR of 13-15% until 2019-20. With rising incomes and changing
lifestyles the demand for both milk and value-added dairy products is on the rise. There
is a steady consumer shift towards branded packaged dairy products such as
curd/yoghurt, cheese, paneer, flavored milk and infant food on the back of assured
quality and need for convenience. On the supply side, while India is the largest producer
of milk globally, the organized market currently handles only 25% of the total milk
production. As a result, players with good backend strengths in sourcing would stand to
gain. The Indian dairy sector is of strategic interest to many of the global dairy majors
given its production strengths coupled by a huge consumption market. The dairy sector
has tremendous social impact as most dairy farmers have small herds of 2-3 cattle.
9Exhibit 17: Example of Amul
The Amul Model of dairy development is a three-tiered structure with the dairy
cooperative societies at the village level federated under a milk union at the district
level and a federation of member unions at the state level. The Amul model has helped
India to emerge as the largest milk producer in the world. More than 15 million milk
producers pour their milk in 1,44,500 dairy cooperative societies across the country.
Their milk is processed in 184 District Co-operative Unions and marketed by 22 State
Marketing Federations, ensuring a better life for millions.
9 Company website, Rabo Equity research
The investment opportunities in dairy could be in setting up Village level milk collection
centres, Bulk milk coolers, Chilling plants as well in milk processing infrastructure such
as powder plants, cheese plants and production of various processed dairy products
b) Poultry
As per Rabobank, the Indian poultry industry is estimated at USD 3.6 bln (Rs 175 bln)
with production estimated at 3 mn tonnes (2011-12), growing at a CAGR of 10% since
1999-2000. Chicken meat has been growing faster in the same period than bovine
(CAGR of 6.5%) and fishery (CAGR of 3%). There is a lot of integration of poultry players
into animal feed as well as breeding. While over 90% of poultry sales are through the wet 10market (i.e. street side slaughter) , there is a window of opportunity for processed
poultry products which are seeing growth in demand. Policy level changes such as
moving the wet markets outside city limits and encouraging FDI in retail is expected to
stimulate further growth in the industry.
11Exhibit 18: Example of Suguna Poultry
Pioneering efforts by Suguna in contract farming has changed the landscape of the
Indian poultry industry. Through poultry integration, Suguna provides livelihood
and assured income to thousands of farmers and also provides indirect employment,
assuring a better future to thousands of rural households.
Suguna successfully reduced middlemen in the poultry chain from 14 to 4. Farmers
deal only with the company, and get assured returns. Suguna provides them all the
inputs and in return, the farmers get a fixed growing charge which can be increased
through optimizing production cost.
To service this massive base of 20,000 farms, Suguna has invested in highly
sophisticated technology and infrastructure. With state of the art hatcheries, and an
advanced R&D Centre, feed mills, veterinarians, scientists, and professionals,
farmers are assured of the best quality chicks, feed and professional care.
Importantly, Suguna's scientists and employees train the farmers in GMP (Good
Management Practices) too. Through all these, Suguna provides significant value to
the farmers who may otherwise be unable to have access to all these on their own.
Suguna also offers a buy back guarantee, so that the farmer gets a better price for his
crop. This way, Suguna procures 400,000 tonnes of maize per year from farmers in
Karnataka alone, grown in ~2.5 lakh acres, directly benefitting at least 50,000
farmers. Through this direct procurement, Suguna also assures farmers fair prices
and enormous savings by way of transparent transactions and quick payments.
Suguna also purchases raw materials worth more than Rs.1000 crores per year,
thereby providing indirect employment.
10 Rabobank publication “ From Wet markets to processed foods” (May 2012)11 Company website, Rabo Equity research
16Importance of Food Processing Sector in India Importance of Food Processing Sector in India
17
c) Edible oils
India's edible oil demand for the oil year 2013-14 (Nov-Oct) stands at 19.4 mln tonnes,
with domestic production at only 7.6 mln tonnes. As a result, the share of imports to 12overall edible oil consumption was at 65.3% for the oil year 2013-14 (Nov-Oct) . India's
overall edible oil import is 11.8 mln tonnes (mt) in 2013-14 with the edible oil import bill
exceeding Rs 60000 cr. India's per capita edible oil consumption is at 14.43 kg in 2013-14 13from 13.92 kg the previous year , with palm and soybean oil accounting for almost two-
thirds of domestic consumption. Branded edible oils are growing but still account for
less than 20% of total demand. Fully integrated edible oil refiners with wider product
portfolios are expected to benefit more than those with limited product diversification.
12 USDA estimates for 2013-1413 Dorab Mistry, Godrej International14 Company website, Rabo Equity research15 National Horticulture Board
14Exhibit 19: Example of Ruchi Soya Industries Ltd
Ruchi Soya Industries Limited ('Ruchi Soya') is a leading Indian manufacturer and
marketer of edible oils, soya food, table spread, vanaspati and bakery fats. It is also
the highest exporter of soya meal, lecithin and other food ingredients from India.
Established in 1986, Ruchi Soya has emerged as an integrated player, from farm to
fork with secured access to oil palm plantations in India and other key regions of the
world. Ruchi Soya has access, with exclusive oil procurement rights, to over two lakh
hectares of land in India with a potential of oil palm cultivation. The Company has
focused on continuous expansion across business verticals to consolidate and
sustain its industry leadership. Over the years the Ruchi group has metamorphosed
from a trader to a manufacturer & marketer and Ruchi Soya is now a company with an
array of brands viz. Nutrela, Mahakosh, Sunrich, Ruchi Gold & Ruchi No.1. The
company has a turnover of over USD 5 billion. Social initiatives of Ruchi Soya with a
focus on healthcare, education and women's empowerment, help in creating
sustainable value for society as well as the organisation.
d) Potato Value chain
15India is the third largest producer of potatoes (46.4 mn tonnes in 2013-14) .
Consumption of processed potato in the form of French fries, chips and snacks is
increasing.
16Exhibit 20: Example of Balaji Wafers
In 1989, Chandubhai Virani and his brothers set up a plant for potato wafers in Aji,
Gujarat Industrial Development Corporation's industrial estate in Rajkot, investing
Rs 5 lakh. Since then the company has invested around Rs 500 crore in operations.
The first year's revenue was around Rs 2.4 lakh. The promoters were quick to realise
the importance of technology in scaling up. In 1995-96 the company installed its first
semi-automatic plant with a capacity of 250 kg of potato chips per hour. By 1998-99 it
was working at almost full capacity. Demand still exceeded what they could
produce,andin1999 Balaji Wafers installed Gujarat's first fully automated potato
chips plant, following it up with another in 2003-04 in Vajdi district with a capacity of
1.2 tonnes per hour. Sales continued to grow and, between 2000 and 2006, Balaji
captured a 90% share of the potato chips market in Gujarat, and a 70% share of the
namkeen category. Besides, its markets in Maharashtra and Rajasthan were also
growing. Thus encouraged, they set up yet another plant in Valsad in 2008 with a
processing capacity of 8 tonnes of potatoes per hour, producing 2 tonnes of potato
chips per hour. The company currently has a capacity to process 450 tonnes of
potatoes per day and 400 tonnes of namkeen per day. It generates direct and indirect
employment for 250,000 people
Potato varieties suitable for French Fries, flakes or chips are now grown in India with
various corporates working closely with farmers. There has also been an emergence of
players who have integrated operations across the value chain. Many of these players
also have their own brands of potato based ready to eat (RTE) snacks.
16 Business Standard article dated 28 Jan 2014 : “A tough competitor for multinationals: Chandubhai Virani”17 Company website, Rabo Equity research
17Exhibit 21: Example of Merino Group
To support processing of potato flakes and for a consistent supply of best quality raw
materials, Merino has integrated its complete agri operations from tissue culture to food
processing.
Tissue culture labs for potato seed research and multiplication
Contract Farming throughmodern agriconcepts
Specialised coldstores to ensurepotatoes are kept sugar free
PotatoProcessing plantfor production of chips/flakes
16Importance of Food Processing Sector in India Importance of Food Processing Sector in India
17
c) Edible oils
India's edible oil demand for the oil year 2013-14 (Nov-Oct) stands at 19.4 mln tonnes,
with domestic production at only 7.6 mln tonnes. As a result, the share of imports to 12overall edible oil consumption was at 65.3% for the oil year 2013-14 (Nov-Oct) . India's
overall edible oil import is 11.8 mln tonnes (mt) in 2013-14 with the edible oil import bill
exceeding Rs 60000 cr. India's per capita edible oil consumption is at 14.43 kg in 2013-14 13from 13.92 kg the previous year , with palm and soybean oil accounting for almost two-
thirds of domestic consumption. Branded edible oils are growing but still account for
less than 20% of total demand. Fully integrated edible oil refiners with wider product
portfolios are expected to benefit more than those with limited product diversification.
12 USDA estimates for 2013-1413 Dorab Mistry, Godrej International14 Company website, Rabo Equity research15 National Horticulture Board
14Exhibit 19: Example of Ruchi Soya Industries Ltd
Ruchi Soya Industries Limited ('Ruchi Soya') is a leading Indian manufacturer and
marketer of edible oils, soya food, table spread, vanaspati and bakery fats. It is also
the highest exporter of soya meal, lecithin and other food ingredients from India.
Established in 1986, Ruchi Soya has emerged as an integrated player, from farm to
fork with secured access to oil palm plantations in India and other key regions of the
world. Ruchi Soya has access, with exclusive oil procurement rights, to over two lakh
hectares of land in India with a potential of oil palm cultivation. The Company has
focused on continuous expansion across business verticals to consolidate and
sustain its industry leadership. Over the years the Ruchi group has metamorphosed
from a trader to a manufacturer & marketer and Ruchi Soya is now a company with an
array of brands viz. Nutrela, Mahakosh, Sunrich, Ruchi Gold & Ruchi No.1. The
company has a turnover of over USD 5 billion. Social initiatives of Ruchi Soya with a
focus on healthcare, education and women's empowerment, help in creating
sustainable value for society as well as the organisation.
d) Potato Value chain
15India is the third largest producer of potatoes (46.4 mn tonnes in 2013-14) .
Consumption of processed potato in the form of French fries, chips and snacks is
increasing.
16Exhibit 20: Example of Balaji Wafers
In 1989, Chandubhai Virani and his brothers set up a plant for potato wafers in Aji,
Gujarat Industrial Development Corporation's industrial estate in Rajkot, investing
Rs 5 lakh. Since then the company has invested around Rs 500 crore in operations.
The first year's revenue was around Rs 2.4 lakh. The promoters were quick to realise
the importance of technology in scaling up. In 1995-96 the company installed its first
semi-automatic plant with a capacity of 250 kg of potato chips per hour. By 1998-99 it
was working at almost full capacity. Demand still exceeded what they could
produce,andin1999 Balaji Wafers installed Gujarat's first fully automated potato
chips plant, following it up with another in 2003-04 in Vajdi district with a capacity of
1.2 tonnes per hour. Sales continued to grow and, between 2000 and 2006, Balaji
captured a 90% share of the potato chips market in Gujarat, and a 70% share of the
namkeen category. Besides, its markets in Maharashtra and Rajasthan were also
growing. Thus encouraged, they set up yet another plant in Valsad in 2008 with a
processing capacity of 8 tonnes of potatoes per hour, producing 2 tonnes of potato
chips per hour. The company currently has a capacity to process 450 tonnes of
potatoes per day and 400 tonnes of namkeen per day. It generates direct and indirect
employment for 250,000 people
Potato varieties suitable for French Fries, flakes or chips are now grown in India with
various corporates working closely with farmers. There has also been an emergence of
players who have integrated operations across the value chain. Many of these players
also have their own brands of potato based ready to eat (RTE) snacks.
16 Business Standard article dated 28 Jan 2014 : “A tough competitor for multinationals: Chandubhai Virani”17 Company website, Rabo Equity research
17Exhibit 21: Example of Merino Group
To support processing of potato flakes and for a consistent supply of best quality raw
materials, Merino has integrated its complete agri operations from tissue culture to food
processing.
Tissue culture labs for potato seed research and multiplication
Contract Farming throughmodern agriconcepts
Specialised coldstores to ensurepotatoes are kept sugar free
PotatoProcessing plantfor production of chips/flakes
18Importance of Food Processing Sector in India Importance of Food Processing Sector in India
19
PROCESSED FOODS, FOOD SERVICE AND FOOD RETAIL
India is a large and growing market for food products. Its 350 million strong urban
middle class with its changing food habits poses a huge market for agricultural
products and processed food. The factors driving the growth in demand of processed
foods are as follows:
18Favourable demographics: With a population estimated at 1.27 billion (July 2014) and
growing at 1.25% per annum, India accounts for approximately 17.5% of the global
population. It is set to be the world's most populous country by 2028 and already has a
younger population compared to the world's top ten economies. More than 50% of the 19
population is below 25 years of age . It is estimated that urban population in India will 20
increase from 29% of total population in 2008 to 40% by 2030 . Further, migration has
resulted in formation of urban agglomerations/'clusters' of cities e.g. Greater Mumbai,
National Capital region ("NCR").
Exhibit 22: Population split by age group
Source: Census of India, Ministry of Home Affairs, Government of India, 2011
0-14
15-24
25-59
60 and above
31%
19%
41%
9%
Increasing disposable income and changing lifestyle: The consuming class households
(i.e. income over Rs 200,000 per year) are likely to increase from 35 million in 2010
(collective disposable income of USD 350 billion) to 137 million in 2025 (collective 21disposable income of USD 1.5 trillion) . There has been a rise in single and nuclear
family households, increased female workforce participation and increased working
hours. In addition, increasing outbound travel has led to demand for international
standards of product quality as well as a variety of cuisine/taste experiences, especially 22 23
in urban India. Further 75% of the population by 2020 will belong to Generation I , with
markedly higher consumption levels.
18 Worldometers19 Census of India20 India urbanization Econometric model, McKinsey Global Institute analysis, Businessworld Marketing “Whitebook: 2012-13”21 McKinsey Global Institute “Rise of India's consumer market”; Nielson Upper Middle and Rich (UMAR) Survey 2009; Businessworld Marketing “Whitebook: 2010-11”22 BCG report “Retail 2020: Retrospect, Reinvent, Rewrite”, dated Feb 201523 Individuals who have grown up in the liberalized economy (<14 years of age when economy started opening)
As seen in Exhibit 23, the average Indian household would be at Level 1, where food is
seen as an eating and social occasion. The share of household sat Level 3 and Level 4,
while currently low is expected to increase steadily over the next couple of decades.
Shift in consumption habits: Over the last decade a shift in food habits has been
observed. In line with most developing economies, food spends as a percentage of total
spends is showing a declining trend in both urban and rural India. For developed
economies such as the US and Japan, the food spends is less than 10% of total spends.
With increase in incomes, the proportionate expenditure on cereals has largely declined
while an increase has been seen in case of milk and milk products, meat, egg and fish,
fruits and beverages. Further, the upward mobility of income classes and increasing
need for convenience and hygiene will drive demand for (a) perishables and non-food
staples and (b) processed foods.
Level 1: ECONOMIC TAKE-OFF
Level 2: ECONOMIC DEVELOPMENT
Level 4: ECONOMIC REINVENTION
Level 4: ECONOMIC CONSOLIDATION
Food as a stimulationFood as a need
Income: > $ 40,000Income: > $ 5,000
Food as an eating & social occasion Food as nutrition / well being
Income: $ 5,000 - $ 15,000 Income: $ 15,000 - $ 40,000
AvailabilitySecurityCommodity
ConvenienceFood serviceMass - Market
HealthGrazingSegmented - market
Trans- national
Questioning
Veriety
Seeking/animal healthConsumer concernsInnovation/fashion Global/local /ethnic
Home shoppingCustomised - market
India is currently here
Source: Rabobank analysis
Exhibit 23: Income and changing lifestyles are driving shifts in consumption patterns
18Importance of Food Processing Sector in India Importance of Food Processing Sector in India
19
PROCESSED FOODS, FOOD SERVICE AND FOOD RETAIL
India is a large and growing market for food products. Its 350 million strong urban
middle class with its changing food habits poses a huge market for agricultural
products and processed food. The factors driving the growth in demand of processed
foods are as follows:
18Favourable demographics: With a population estimated at 1.27 billion (July 2014) and
growing at 1.25% per annum, India accounts for approximately 17.5% of the global
population. It is set to be the world's most populous country by 2028 and already has a
younger population compared to the world's top ten economies. More than 50% of the 19
population is below 25 years of age . It is estimated that urban population in India will 20
increase from 29% of total population in 2008 to 40% by 2030 . Further, migration has
resulted in formation of urban agglomerations/'clusters' of cities e.g. Greater Mumbai,
National Capital region ("NCR").
Exhibit 22: Population split by age group
Source: Census of India, Ministry of Home Affairs, Government of India, 2011
0-14
15-24
25-59
60 and above
31%
19%
41%
9%
Increasing disposable income and changing lifestyle: The consuming class households
(i.e. income over Rs 200,000 per year) are likely to increase from 35 million in 2010
(collective disposable income of USD 350 billion) to 137 million in 2025 (collective 21disposable income of USD 1.5 trillion) . There has been a rise in single and nuclear
family households, increased female workforce participation and increased working
hours. In addition, increasing outbound travel has led to demand for international
standards of product quality as well as a variety of cuisine/taste experiences, especially 22 23
in urban India. Further 75% of the population by 2020 will belong to Generation I , with
markedly higher consumption levels.
18 Worldometers19 Census of India20 India urbanization Econometric model, McKinsey Global Institute analysis, Businessworld Marketing “Whitebook: 2012-13”21 McKinsey Global Institute “Rise of India's consumer market”; Nielson Upper Middle and Rich (UMAR) Survey 2009; Businessworld Marketing “Whitebook: 2010-11”22 BCG report “Retail 2020: Retrospect, Reinvent, Rewrite”, dated Feb 201523 Individuals who have grown up in the liberalized economy (<14 years of age when economy started opening)
As seen in Exhibit 23, the average Indian household would be at Level 1, where food is
seen as an eating and social occasion. The share of household sat Level 3 and Level 4,
while currently low is expected to increase steadily over the next couple of decades.
Shift in consumption habits: Over the last decade a shift in food habits has been
observed. In line with most developing economies, food spends as a percentage of total
spends is showing a declining trend in both urban and rural India. For developed
economies such as the US and Japan, the food spends is less than 10% of total spends.
With increase in incomes, the proportionate expenditure on cereals has largely declined
while an increase has been seen in case of milk and milk products, meat, egg and fish,
fruits and beverages. Further, the upward mobility of income classes and increasing
need for convenience and hygiene will drive demand for (a) perishables and non-food
staples and (b) processed foods.
Level 1: ECONOMIC TAKE-OFF
Level 2: ECONOMIC DEVELOPMENT
Level 4: ECONOMIC REINVENTION
Level 4: ECONOMIC CONSOLIDATION
Food as a stimulationFood as a need
Income: > $ 40,000Income: > $ 5,000
Food as an eating & social occasion Food as nutrition / well being
Income: $ 5,000 - $ 15,000 Income: $ 15,000 - $ 40,000
AvailabilitySecurityCommodity
ConvenienceFood serviceMass - Market
HealthGrazingSegmented - market
Trans- national
Questioning
Veriety
Seeking/animal healthConsumer concernsInnovation/fashion Global/local /ethnic
Home shoppingCustomised - market
India is currently here
Source: Rabobank analysis
Exhibit 23: Income and changing lifestyles are driving shifts in consumption patterns
20Importance of Food Processing Sector in India Importance of Food Processing Sector in India
21
Exhibit 24: Changing trends in Food consumption
The growth in organised retail: Over the last 10 years, growth of modern retail formats,
have enabled entry of products from around the world. Of the total retail market of
USD 518 bn in 2012, food and grocery accounts for ~60% (i.e. USD 310 bn). While the
penetration of organized retail is ~8% overall, within Food & Grocery it is ~2%.
According to the Global Retail Development index 2012, India ranks fifth among the top
30 emerging markets for retail. With the opening up of multi-brand retail sector to
foreign investors, the pace of consumerism is expected to accelerate the growth of
processed foods in the future - subject to some tweaking of the conditions for 51% FDI in
multi brand retail. Also, we expect to see nimbler execution models along with localized
sourcing, backward integration, increasing private label, flexible lease arrangements
and manpower rationalization, leading to improved profitability of the sector.
Greater awareness of food quality: With the comprehensive new food safety rules finally
coming into effect, "safe food" is something every citizen in India can demand and
expect. To ensure this, the Food Safety and Standards Authority of India, an autonomous
body under the Ministry of Health, has put in place The Food Safety and Standards Act
2006, a law that has integrated all existing food laws in the country and will regulate the
manufacture, storage, distribution, sale as well as import of food products. Further, for
most processed food products, the pack labelling norms have become more stringent.
4.1 Growth in processed food segments
Most sub-segments within branded packaged foods are growing in double digits on the
back of favorable demographics, increasing disposable incomes, increasing
urbanization, changing lifestyles etc. The consumption growth story is here to stay and
may even accelerate with the increasing aspirations of the Indian middle-class.
Share of food consumption spends (%)
Cereals 32.9 24.9 23.8 19.2Edible oil 8.4 7.8 8.2 7.0Pulses, gram 5.8 6.8 5.2 5.7Dairy 15.5 18.7 18.6 20.3Egg, fish, meat 6.0 7.4 6.4 7.3Vegetables 11.1 9.9 10.6 8.8Fruits & Nuts 3.5 3.9 5.2 6.0Beverages 8.2 11.9 14.6 18.4
RURAL INDIA URBAN INDIA2004-05 2011-12 2004-05 2011-12
Food relatedspends(as a % of total 55.0 48.6 42.5 38.5spends)
Source: NSSO data for 2011-12, Government of India
Food related spends (as a % of total spends) is declining both in Rural and Urban India.
Share of consumption of cereals and edible oils declining while protein sources (dairy, egg, fish and meat) as well as fruits are increasing.
This is also leading to double digit inflation for these products.
Exhibit 25: Market size (company realization) for 2013 in Rs Billion
Pouch milk (405)
Sugar confectionery and Gums (55)
Wheat flour (33)
Plain noodles/vermicelli (5)
RTC - Table sauces & Cooking pastes (11)
Pickles (7)
Poultry meat (5)
RTE Meals (1) Pasta (0.3) Snack bars (0.8)Seafood (1)
Sports/Energy drinks (4)Breakfast cereals (7)
Cheese (9) Curd (38)
Instand Noodles (28)
Fruit based beverages (58)
Chocolates (56)
Chips and Savoury Snacks (79)
Bottled water (104)
RTC - Spice Mixes (30)
Ice cream (26)
UHT milk (9)
Frozen foods (3)Soup (2)
Spreads (6)
Bread (59)
Biscuits (134)
Food service (128)
0% 5% 10% 15% 20% 25% 30% 35% 40%
CAGR over last 5 year (%)
Source: Industry sources, Rabo Equity research
While India has favourable supply side dynamics, thanks to its strong agriculture base,
product development and innovation in the sector has taken a back seat due to lack of
investments and incentives. Also lack of adequate investments, lack of bank credit
facility and long gestation period have been impeding the adoption of newer
technologies. Globally, advances and innovations in food processing science have
established protocols and techniques for superior retention of flavours, better product
integrity and better nutrition benefits. Also there is a lot of focus on comprehensive use
of by-products and value addition through new concepts like nano-technology,
intelligent packaging, phase change materials etc. However, India is still at a nascent
stage with respect to adoption of global best practices.
Some of the key sectors within branded packaged foods are highlighted below
a) Bakery products (Cakes, Breads and Biscuits)
Bakery products are an item of mass consumption in view of its low price and high
nutrient value. However, the per capita consumption of bakery products is less than 2kg
per annum, which is comparatively lower than the developed countries where
consumption is between 10 to 50 kg per annum. Most Indians are not familiar with
baking at home. As a result bread, cakes, pastries and cookies are largely purchased
items. Consumers are gradually moving towards premium biscuit offerings and
increasing their consumption of cookies and sandwich biscuits.
20Importance of Food Processing Sector in India Importance of Food Processing Sector in India
21
Exhibit 24: Changing trends in Food consumption
The growth in organised retail: Over the last 10 years, growth of modern retail formats,
have enabled entry of products from around the world. Of the total retail market of
USD 518 bn in 2012, food and grocery accounts for ~60% (i.e. USD 310 bn). While the
penetration of organized retail is ~8% overall, within Food & Grocery it is ~2%.
According to the Global Retail Development index 2012, India ranks fifth among the top
30 emerging markets for retail. With the opening up of multi-brand retail sector to
foreign investors, the pace of consumerism is expected to accelerate the growth of
processed foods in the future - subject to some tweaking of the conditions for 51% FDI in
multi brand retail. Also, we expect to see nimbler execution models along with localized
sourcing, backward integration, increasing private label, flexible lease arrangements
and manpower rationalization, leading to improved profitability of the sector.
Greater awareness of food quality: With the comprehensive new food safety rules finally
coming into effect, "safe food" is something every citizen in India can demand and
expect. To ensure this, the Food Safety and Standards Authority of India, an autonomous
body under the Ministry of Health, has put in place The Food Safety and Standards Act
2006, a law that has integrated all existing food laws in the country and will regulate the
manufacture, storage, distribution, sale as well as import of food products. Further, for
most processed food products, the pack labelling norms have become more stringent.
4.1 Growth in processed food segments
Most sub-segments within branded packaged foods are growing in double digits on the
back of favorable demographics, increasing disposable incomes, increasing
urbanization, changing lifestyles etc. The consumption growth story is here to stay and
may even accelerate with the increasing aspirations of the Indian middle-class.
Share of food consumption spends (%)
Cereals 32.9 24.9 23.8 19.2Edible oil 8.4 7.8 8.2 7.0Pulses, gram 5.8 6.8 5.2 5.7Dairy 15.5 18.7 18.6 20.3Egg, fish, meat 6.0 7.4 6.4 7.3Vegetables 11.1 9.9 10.6 8.8Fruits & Nuts 3.5 3.9 5.2 6.0Beverages 8.2 11.9 14.6 18.4
RURAL INDIA URBAN INDIA2004-05 2011-12 2004-05 2011-12
Food relatedspends(as a % of total 55.0 48.6 42.5 38.5spends)
Source: NSSO data for 2011-12, Government of India
Food related spends (as a % of total spends) is declining both in Rural and Urban India.
Share of consumption of cereals and edible oils declining while protein sources (dairy, egg, fish and meat) as well as fruits are increasing.
This is also leading to double digit inflation for these products.
Exhibit 25: Market size (company realization) for 2013 in Rs Billion
Pouch milk (405)
Sugar confectionery and Gums (55)
Wheat flour (33)
Plain noodles/vermicelli (5)
RTC - Table sauces & Cooking pastes (11)
Pickles (7)
Poultry meat (5)
RTE Meals (1) Pasta (0.3) Snack bars (0.8)Seafood (1)
Sports/Energy drinks (4)Breakfast cereals (7)
Cheese (9) Curd (38)
Instand Noodles (28)
Fruit based beverages (58)
Chocolates (56)
Chips and Savoury Snacks (79)
Bottled water (104)
RTC - Spice Mixes (30)
Ice cream (26)
UHT milk (9)
Frozen foods (3)Soup (2)
Spreads (6)
Bread (59)
Biscuits (134)
Food service (128)
0% 5% 10% 15% 20% 25% 30% 35% 40%
CAGR over last 5 year (%)
Source: Industry sources, Rabo Equity research
While India has favourable supply side dynamics, thanks to its strong agriculture base,
product development and innovation in the sector has taken a back seat due to lack of
investments and incentives. Also lack of adequate investments, lack of bank credit
facility and long gestation period have been impeding the adoption of newer
technologies. Globally, advances and innovations in food processing science have
established protocols and techniques for superior retention of flavours, better product
integrity and better nutrition benefits. Also there is a lot of focus on comprehensive use
of by-products and value addition through new concepts like nano-technology,
intelligent packaging, phase change materials etc. However, India is still at a nascent
stage with respect to adoption of global best practices.
Some of the key sectors within branded packaged foods are highlighted below
a) Bakery products (Cakes, Breads and Biscuits)
Bakery products are an item of mass consumption in view of its low price and high
nutrient value. However, the per capita consumption of bakery products is less than 2kg
per annum, which is comparatively lower than the developed countries where
consumption is between 10 to 50 kg per annum. Most Indians are not familiar with
baking at home. As a result bread, cakes, pastries and cookies are largely purchased
items. Consumers are gradually moving towards premium biscuit offerings and
increasing their consumption of cookies and sandwich biscuits.
22Importance of Food Processing Sector in India Importance of Food Processing Sector in India
23
24Exhibit 26: Example of Parle Products
Parle Products has been a leading manufacturer of biscuits and confectionery in India
for almost 80 years. Makers of the world's largest selling biscuit, Parle-G, and a host of
other popular brands, the Parle name symbolizes quality, nutrition and great taste.
Today, one of the strengths of Parle Products is the extremely widespread distribution
network, created over decades. Parle's sales force started with one salesman in
Bombay and some agents in few other cities. Gradually, Parle Products expanded.
Soon sweets and biscuits were being sent by rail to Calcutta, Delhi, Karachi, Madras
and other major cities. As production increased, distribution was further
strengthened and full time salesmen appointed in different areas. Currently, Parle
Products has over 3.3 million retail outlets. Apart from the factories in Mumbai and
Bangalore, Parle also has factories in Bahadurgarh, Haryana and Neemrana,
Rajasthan. These are the largest biscuit and confectionery plants in the country.
Additionally, Parle Products also has 10 manufacturing units for biscuits and 75
manufacturing units for confectionery on contract.
b) Kitchen ingredients
Given the busy lifestyles of working women and even homemakers in urban India, they
are increasingly seeking time saving kitchen ingredients such as branded cooking
pastes, pickles and spice blends not only for traditional Indian food but also for global
cuisines such as Italian, Chinese and Thai. The unorganised market for these products
is estimated at five times the organised market, thereby providing a huge growth
opportunity.
25Exhibit 27: Example of Mahashian Di Hatti (MDH)
Spices have a long and ancient history, especially in India, where in every home
across the country, different spices and blends are used to create different and
distinctive tastes in dishes. Several decades ago, housewives used to grind their
spices manually at home and make their own blends for use in their cooking. To make
this process easier for the housewife, many companies such as MDH visualised the
concept of ready-to-use ground spices. Starting with manually ground spices, MDH
soon switched over to automatic machines to meet the fast growing demand for MDH
Spices, It is currently sold throughout India and abroad through a network of over
1000 stockists and over 400,000 retail outlets. These machines now have a daily
capacity of producing 30 tonnes of spices in powders packed in consumer packs (10g
to 500g).
24 Company website, Rabo Equity research25 Company website, Rabo Equity research
Snack foods
Savoury snacks, which includes various forms of chips and crisps, extruded snacks and
Indian snacks, is one of the fastest growing segments within processed foods in India.
Indian consumers, especially the young adults in urban areas are having shorter meals
and seeking more convenience foods, "meals on the go" as well as more options in the
"between meals" segment e.g. soups with real vegetables, instant pasta, instant
noodles (whole wheat, innovation around ethnic Indian flavours etc), baked not fried
snacks etc. The unorganised market for these products is estimated at four times the
organised market, thereby providing a huge growth opportunity.
26Exhibit 28: Example of Haldiram's
Haldiram's, is a strong home grown Indian brand which has a wide range of over 100
products. Its products include frozen foods such as frozen meals, ice cream, and kulfi,
namkeen, sweets, cookies, crackers, sherbet, papad, savories, chips and other
snacks. Haldiram's also produces fruit-flavored beverages and dairy products. The
company also produces ready-to-eat food since 2010. Haldiram's ensures a wide
product range in attractive packaging with many packs available in zip locked
metallic packaging, available at competitive pricing.
c) Fruit based beverages
Many players are exploring launch of new products with local Indian flavours, a
segment which is currently dominated by the unorganised market (estimated at ten
times the organised market). Along with this segment, fruit based drinks should
continue to record high growth rates in the future, since they are perceived as healthier
options to carbonated drinks. Premium bottled water brands are also expected to come
to the fore as the upper middle class and high-end consumers look for quality products.
24Exhibit 29: Example of Frooti
Frooti as a brand has always stood for packaging innovation. It was the first beverage
in India to be sold in a Tetra Pak. It is also the first ever fruit drink to be packaged in
PET bottles. In 2013, it was launched in a Bottle pack. As per the Economic Times
Survey, 2013 Frooti was rated as India's Most Trusted Fruit Beverage Brand. Frooti is
also exported to over 35 countries.
d) Breakfast cereals
The category has evolved beyond corn flakes with most of the leading food companies
having launched products/plans in this segment. While MNCs may create the category,
smaller Indian players continue to benefit with their attractive pricing. Hot cereals such
as oats are more in line with the traditional Indian tastes. It is the fastest growing
segment within breakfast cereals as it offers both health and convenience ('quick to
26 Company website, Rabo Equity research
22Importance of Food Processing Sector in India Importance of Food Processing Sector in India
23
24Exhibit 26: Example of Parle Products
Parle Products has been a leading manufacturer of biscuits and confectionery in India
for almost 80 years. Makers of the world's largest selling biscuit, Parle-G, and a host of
other popular brands, the Parle name symbolizes quality, nutrition and great taste.
Today, one of the strengths of Parle Products is the extremely widespread distribution
network, created over decades. Parle's sales force started with one salesman in
Bombay and some agents in few other cities. Gradually, Parle Products expanded.
Soon sweets and biscuits were being sent by rail to Calcutta, Delhi, Karachi, Madras
and other major cities. As production increased, distribution was further
strengthened and full time salesmen appointed in different areas. Currently, Parle
Products has over 3.3 million retail outlets. Apart from the factories in Mumbai and
Bangalore, Parle also has factories in Bahadurgarh, Haryana and Neemrana,
Rajasthan. These are the largest biscuit and confectionery plants in the country.
Additionally, Parle Products also has 10 manufacturing units for biscuits and 75
manufacturing units for confectionery on contract.
b) Kitchen ingredients
Given the busy lifestyles of working women and even homemakers in urban India, they
are increasingly seeking time saving kitchen ingredients such as branded cooking
pastes, pickles and spice blends not only for traditional Indian food but also for global
cuisines such as Italian, Chinese and Thai. The unorganised market for these products
is estimated at five times the organised market, thereby providing a huge growth
opportunity.
25Exhibit 27: Example of Mahashian Di Hatti (MDH)
Spices have a long and ancient history, especially in India, where in every home
across the country, different spices and blends are used to create different and
distinctive tastes in dishes. Several decades ago, housewives used to grind their
spices manually at home and make their own blends for use in their cooking. To make
this process easier for the housewife, many companies such as MDH visualised the
concept of ready-to-use ground spices. Starting with manually ground spices, MDH
soon switched over to automatic machines to meet the fast growing demand for MDH
Spices, It is currently sold throughout India and abroad through a network of over
1000 stockists and over 400,000 retail outlets. These machines now have a daily
capacity of producing 30 tonnes of spices in powders packed in consumer packs (10g
to 500g).
24 Company website, Rabo Equity research25 Company website, Rabo Equity research
Snack foods
Savoury snacks, which includes various forms of chips and crisps, extruded snacks and
Indian snacks, is one of the fastest growing segments within processed foods in India.
Indian consumers, especially the young adults in urban areas are having shorter meals
and seeking more convenience foods, "meals on the go" as well as more options in the
"between meals" segment e.g. soups with real vegetables, instant pasta, instant
noodles (whole wheat, innovation around ethnic Indian flavours etc), baked not fried
snacks etc. The unorganised market for these products is estimated at four times the
organised market, thereby providing a huge growth opportunity.
26Exhibit 28: Example of Haldiram's
Haldiram's, is a strong home grown Indian brand which has a wide range of over 100
products. Its products include frozen foods such as frozen meals, ice cream, and kulfi,
namkeen, sweets, cookies, crackers, sherbet, papad, savories, chips and other
snacks. Haldiram's also produces fruit-flavored beverages and dairy products. The
company also produces ready-to-eat food since 2010. Haldiram's ensures a wide
product range in attractive packaging with many packs available in zip locked
metallic packaging, available at competitive pricing.
c) Fruit based beverages
Many players are exploring launch of new products with local Indian flavours, a
segment which is currently dominated by the unorganised market (estimated at ten
times the organised market). Along with this segment, fruit based drinks should
continue to record high growth rates in the future, since they are perceived as healthier
options to carbonated drinks. Premium bottled water brands are also expected to come
to the fore as the upper middle class and high-end consumers look for quality products.
24Exhibit 29: Example of Frooti
Frooti as a brand has always stood for packaging innovation. It was the first beverage
in India to be sold in a Tetra Pak. It is also the first ever fruit drink to be packaged in
PET bottles. In 2013, it was launched in a Bottle pack. As per the Economic Times
Survey, 2013 Frooti was rated as India's Most Trusted Fruit Beverage Brand. Frooti is
also exported to over 35 countries.
d) Breakfast cereals
The category has evolved beyond corn flakes with most of the leading food companies
having launched products/plans in this segment. While MNCs may create the category,
smaller Indian players continue to benefit with their attractive pricing. Hot cereals such
as oats are more in line with the traditional Indian tastes. It is the fastest growing
segment within breakfast cereals as it offers both health and convenience ('quick to
26 Company website, Rabo Equity research
24Importance of Food Processing Sector in India Importance of Food Processing Sector in India
25
prepare') for time starved working professionals as well as school and college going
students. As per Euro monitor data, hot cereals which accounted for 35% of the breakfast
cereals market in 2011 is expected to increase its share to 53% by 2016.
e) Frozen foods
Along with frozen peas, other products such as sweet corn, beans and carrots are
finding increasing consumer acceptance. Organised retail is expected to drive growth
of frozen and chilled foods. A large export market exists targeted at the Indian diaspora.
f) Healthier foods
India is currently the "diabetic" capital of the world and has a significant share of other
lifestyle-related diseases. There is a slow but steady consumer shift towards "proactive
health", especially in urban areas. While the domestic market for health foods (low fat
milk, baked-not-fried snacks, low calorie beverages, probiotic drinks, 100% juice, oats,
fortified noodles, low glycemic index rice, low sodium salts, cereal bars, fortified wheat
flour, green tea etc) is currently quite small, they find appeal among the growing set of
health conscious consumers. However, it must be noted that Indian consumers are
reluctant to compromise on taste at the cost of added health.
Exhibit 30: Example of Gorgon Nut ('Makhana') by Shakti Sudha Agro 27
Ventures (SSAV)
Gorgon Nut ('Makhana') is a natural fat free food, rich in anti-oxidants and iron with
high protein value (12-15%). Makhana is currently grown in 8 disticts of Bihar, which
accounts for 90% of the global production. The present production is 20000 tonnes
with a potential to increase to 200,000 tonnes. The current market price is Rs 500 per
kg. The World Bank has made SSAV its partner in the Rural Livelihood project in
Bihar.
g) Traditional Indian products
Every state in India boasts of its unique food culture. There are a host of once regional
products which are now available across India e.g. Roadside Dhabas and Paneer
Makhani (Punjab), Idli and Dosa (South India), Dhokla and Khakras (Gujarat), Rosagulla
(West Bengal). With greater investment in R&D and development of standard
processes, many more regional products can be produced and marketed across India.
Food technology colleges and agri universities have a greater role to play in fuelling
innovation in the area of traditional food.
27 Company website, Rabo Equity research
Exhibit 31: Example of Jackfruit365
Jackfruit365, founded by James Joseph in 2012, is an exclusive, organized ventured
evoted to jackfruit-based products. It has not only given a fresh impetus to the
humble yet highly nutritious jackfruit, but also a global branding, and positioned it as
a sought-after dish in leading five-star hotels, there by reinstating the glorious
tradition of Indian cuisine. Mr Joseph has embarked on a 'jackfruit mission' by
modernizing manual sourcing and embracing advanced technology. The venture has
already ensured availability of the seasonal jackfruit throughout the year through
freeze drying technology. As per Mr Joseph, Kerala alone wastes Rs 550 Cr and Rs
2000 crore worth of jackfruit is wasted across India annually. The USP of Jackfruit365
is easy to cook, easy storage for 365 days, quick rehydration in minutes and
consistency in taste. Freeze drying reduces the weight by 82 percent, and offsets the
cost of transportation, storage and inventory. Jackfruit365 has partnered with
People's Service Society Palakkad for sourcing raw materials, and Kochi-based
Amalgam Foods (a leading food processing company in Kerala) for technological
support.
4.2 Food Service
28As per the India Food Services Report 2013, the organized food service industry in
India is estimated at Rs 75000 Cr in 2013 and is projected to grow at a CAGR of 16% to
reach Rs 157400 Cr by 2018. The chain market (subset of the organized market) is
estimated at Rs 12800 Cr in 2013 and accounts for 17% of the organized industry.
Currently, QSR and casual dine together account for 72% of the organised market in
2013, which is expected to go up to about 77% by 2018. Most of the growth in the
organised segment is a result of the fast growth of 18% per year in both the Casual Dine
and QSR sector which is seeing rapid expansion.
28Chain restaurants and licensed standalone restaurants (including those within hotels)
Trend Remarks
Café culture is on the rise For most young adults, cafes are the most common meeting place
with the overall experience more important than the coffee itself.
Café Coffee Day, a domestic chain has more than 1500 cafes
spread across 200 cities /towns in India and is the market leader.
Global chains are increasing their presence in India.
Emerging market for Western While still niche, fine dining restaurants are making their presence
Price points felt in the key metro cities with many global chains eyeing India.
In addition, many home-grown brands offer a fine dining
experience to well-travelled Indians with discerning tastes and
expats temporarily settled in the India.
New cuisines Until a few years ago, Chinese and Italian (pasta and pizza) were
the main foreign cuisines that Indians were familiar with. Of late, a
plethora of other foreign cuisines are on offer, such as Thai,
Mexican, Japanese, Lebanese, Indonesian, Korean, Greek etc.
Growth of Indian Regional Professionally run regional food chains are already doing well. Also
food street food is being offered to consumers in hygienic settings with a
tasteful ambience.
24Importance of Food Processing Sector in India Importance of Food Processing Sector in India
25
prepare') for time starved working professionals as well as school and college going
students. As per Euro monitor data, hot cereals which accounted for 35% of the breakfast
cereals market in 2011 is expected to increase its share to 53% by 2016.
e) Frozen foods
Along with frozen peas, other products such as sweet corn, beans and carrots are
finding increasing consumer acceptance. Organised retail is expected to drive growth
of frozen and chilled foods. A large export market exists targeted at the Indian diaspora.
f) Healthier foods
India is currently the "diabetic" capital of the world and has a significant share of other
lifestyle-related diseases. There is a slow but steady consumer shift towards "proactive
health", especially in urban areas. While the domestic market for health foods (low fat
milk, baked-not-fried snacks, low calorie beverages, probiotic drinks, 100% juice, oats,
fortified noodles, low glycemic index rice, low sodium salts, cereal bars, fortified wheat
flour, green tea etc) is currently quite small, they find appeal among the growing set of
health conscious consumers. However, it must be noted that Indian consumers are
reluctant to compromise on taste at the cost of added health.
Exhibit 30: Example of Gorgon Nut ('Makhana') by Shakti Sudha Agro 27
Ventures (SSAV)
Gorgon Nut ('Makhana') is a natural fat free food, rich in anti-oxidants and iron with
high protein value (12-15%). Makhana is currently grown in 8 disticts of Bihar, which
accounts for 90% of the global production. The present production is 20000 tonnes
with a potential to increase to 200,000 tonnes. The current market price is Rs 500 per
kg. The World Bank has made SSAV its partner in the Rural Livelihood project in
Bihar.
g) Traditional Indian products
Every state in India boasts of its unique food culture. There are a host of once regional
products which are now available across India e.g. Roadside Dhabas and Paneer
Makhani (Punjab), Idli and Dosa (South India), Dhokla and Khakras (Gujarat), Rosagulla
(West Bengal). With greater investment in R&D and development of standard
processes, many more regional products can be produced and marketed across India.
Food technology colleges and agri universities have a greater role to play in fuelling
innovation in the area of traditional food.
27 Company website, Rabo Equity research
Exhibit 31: Example of Jackfruit365
Jackfruit365, founded by James Joseph in 2012, is an exclusive, organized ventured
evoted to jackfruit-based products. It has not only given a fresh impetus to the
humble yet highly nutritious jackfruit, but also a global branding, and positioned it as
a sought-after dish in leading five-star hotels, there by reinstating the glorious
tradition of Indian cuisine. Mr Joseph has embarked on a 'jackfruit mission' by
modernizing manual sourcing and embracing advanced technology. The venture has
already ensured availability of the seasonal jackfruit throughout the year through
freeze drying technology. As per Mr Joseph, Kerala alone wastes Rs 550 Cr and Rs
2000 crore worth of jackfruit is wasted across India annually. The USP of Jackfruit365
is easy to cook, easy storage for 365 days, quick rehydration in minutes and
consistency in taste. Freeze drying reduces the weight by 82 percent, and offsets the
cost of transportation, storage and inventory. Jackfruit365 has partnered with
People's Service Society Palakkad for sourcing raw materials, and Kochi-based
Amalgam Foods (a leading food processing company in Kerala) for technological
support.
4.2 Food Service
28As per the India Food Services Report 2013, the organized food service industry in
India is estimated at Rs 75000 Cr in 2013 and is projected to grow at a CAGR of 16% to
reach Rs 157400 Cr by 2018. The chain market (subset of the organized market) is
estimated at Rs 12800 Cr in 2013 and accounts for 17% of the organized industry.
Currently, QSR and casual dine together account for 72% of the organised market in
2013, which is expected to go up to about 77% by 2018. Most of the growth in the
organised segment is a result of the fast growth of 18% per year in both the Casual Dine
and QSR sector which is seeing rapid expansion.
28Chain restaurants and licensed standalone restaurants (including those within hotels)
Trend Remarks
Café culture is on the rise For most young adults, cafes are the most common meeting place
with the overall experience more important than the coffee itself.
Café Coffee Day, a domestic chain has more than 1500 cafes
spread across 200 cities /towns in India and is the market leader.
Global chains are increasing their presence in India.
Emerging market for Western While still niche, fine dining restaurants are making their presence
Price points felt in the key metro cities with many global chains eyeing India.
In addition, many home-grown brands offer a fine dining
experience to well-travelled Indians with discerning tastes and
expats temporarily settled in the India.
New cuisines Until a few years ago, Chinese and Italian (pasta and pizza) were
the main foreign cuisines that Indians were familiar with. Of late, a
plethora of other foreign cuisines are on offer, such as Thai,
Mexican, Japanese, Lebanese, Indonesian, Korean, Greek etc.
Growth of Indian Regional Professionally run regional food chains are already doing well. Also
food street food is being offered to consumers in hygienic settings with a
tasteful ambience.
26Importance of Food Processing Sector in India Importance of Food Processing Sector in India
27
Pan India expansion Many quick service restaurants chains are gradually expanding
their footprint beyond one or two cities using a combination of own
outlets and the franchisee model in some cases.
Home delivery This is becoming an integral part of the business model for many
restaurant chains with McDonalds too embracing it a few years
ago. This helps improve turnover and profitability and requires less
real estate vis-à-vis dine ins.
Central Kitchens Central kitchens are becoming an integral part of the growth
strategy of quick service restaurant chains as they aspire to
increase their footprint across India.
Social media New cuisines and innovative formats are emerging and social
media and entertainment are being used for creating consumer
connect. There are various websites such as zomato.com,
burrp.com, mouthshut.com which provide user reviews to help
consumers make informed choices.
Trend Remarks
4.3 Other allied areas to Food Processing
The following cross sectoral areas are also critical for growth of the food processing
sector
a) Manufacturing for private label
Around 20-25% of total food and grocery category of the top-10 retailers is under private
label. This roughly translates into a USD 1.0-1.3 billion market size. Growth of organised
retail is expected to further propel the growth of private labels.
b) Food packaging
Packaging is as an important vehicle for product differentiation. There is varied level of
sophistication in food packaging across sectors with convenience of usage, freshness,
improved shelf life being the key drivers. Growth in organized retail especially in
second-tier cities would further provide a fillip to the sector. The fastest growing
packaging segments are laminates and flexible packaging, especially PET. There is a
greater need for packaging and labelling laws to be more consumer friendly. Also,
greater enforcement is required to ensure that product related claims are well
substantiated. As newer packaging materials evolve, there is a need to evaluate these
materials for different types of behavior e.g. toxicity, interface with food, strength, shelf
life etc.
ROLE OF GOVERNMENT
The government has encouraged the food processing sector by providing a number of
fiscal reliefs and incentives, to encourage commercialization and value addition to
agricultural produce and for minimizing wastages, both pre-harvest and post-harvest.
De-licensing, establishment of food parks, establishing packaging centers, and
integrated cold chain facilities are some of the initiatives taken by the government.
Foreign Direct Investment (FDI) is permissible for all the processed food products up to
100 per cent on automatic route except for items reserved for Micro and Small
Enterprises (MSEs). Also, under the revised priority sector lending norms (April 2015),
bank loans to food and agro processing units will form part of Agriculture.
However, the immense opportunity in the food processing sector still remains largely
untapped because of high packing costs, cultural preference of the people for fresh food,
seasonality of raw materials, lack of adequate upgraded infrastructural facilities and
quality control mechanism. As a result, there is a need to fully harness its potential and
increase processing levels by providing greater incentives, rationalizing of taxes,
encouraging scale as well as creating a conducive environment for more investments
and exports.
Some of the key areas where Government intervention is required are as follows:
a) India should be positioned as the 'Food Factory' to the world with strong focus on
promoting the "Made-in-India" brand abroad. This could drive the next wave of
processing growth ensuring better quality for consumers and economic surplus
for farmers and processors. This would require a shift in approach from supply
driven to demand driven, thereby catering to specific customer needs. Further, the
Government could catalyse investments across the food value chain and adopt a
focused approach on end-to-end requirements starting from harvesting, post-
harvest management, logistics and cold chain as well as export. Large players
would need integrated cold chain hubs and transportation to make this happen.
b) There should be more emphasis on demand driven research as there is repetition
of work at different state agricultural universities. Building lab to farm and lab to
industry link is necessary to ensure commercialization of technology.
c) With the comprehensive new food safety rules finally coming into effect, "safe
food" is something every citizen in India can demand and expect. An enabling
regulatory environments would lead the Industry to grow.
d) Lack of consumer awareness on food quality parameters benefits the unorganized
segments. In this context, there could be Government spends on creating "food
quality" awareness on the lines of some other campaigns like polio etc. Secondly,
the farm extension work undertaken by input companies focus largely on yield
improvement with limited focus on educating the farmers on quality related issues
26Importance of Food Processing Sector in India Importance of Food Processing Sector in India
27
Pan India expansion Many quick service restaurants chains are gradually expanding
their footprint beyond one or two cities using a combination of own
outlets and the franchisee model in some cases.
Home delivery This is becoming an integral part of the business model for many
restaurant chains with McDonalds too embracing it a few years
ago. This helps improve turnover and profitability and requires less
real estate vis-à-vis dine ins.
Central Kitchens Central kitchens are becoming an integral part of the growth
strategy of quick service restaurant chains as they aspire to
increase their footprint across India.
Social media New cuisines and innovative formats are emerging and social
media and entertainment are being used for creating consumer
connect. There are various websites such as zomato.com,
burrp.com, mouthshut.com which provide user reviews to help
consumers make informed choices.
Trend Remarks
4.3 Other allied areas to Food Processing
The following cross sectoral areas are also critical for growth of the food processing
sector
a) Manufacturing for private label
Around 20-25% of total food and grocery category of the top-10 retailers is under private
label. This roughly translates into a USD 1.0-1.3 billion market size. Growth of organised
retail is expected to further propel the growth of private labels.
b) Food packaging
Packaging is as an important vehicle for product differentiation. There is varied level of
sophistication in food packaging across sectors with convenience of usage, freshness,
improved shelf life being the key drivers. Growth in organized retail especially in
second-tier cities would further provide a fillip to the sector. The fastest growing
packaging segments are laminates and flexible packaging, especially PET. There is a
greater need for packaging and labelling laws to be more consumer friendly. Also,
greater enforcement is required to ensure that product related claims are well
substantiated. As newer packaging materials evolve, there is a need to evaluate these
materials for different types of behavior e.g. toxicity, interface with food, strength, shelf
life etc.
ROLE OF GOVERNMENT
The government has encouraged the food processing sector by providing a number of
fiscal reliefs and incentives, to encourage commercialization and value addition to
agricultural produce and for minimizing wastages, both pre-harvest and post-harvest.
De-licensing, establishment of food parks, establishing packaging centers, and
integrated cold chain facilities are some of the initiatives taken by the government.
Foreign Direct Investment (FDI) is permissible for all the processed food products up to
100 per cent on automatic route except for items reserved for Micro and Small
Enterprises (MSEs). Also, under the revised priority sector lending norms (April 2015),
bank loans to food and agro processing units will form part of Agriculture.
However, the immense opportunity in the food processing sector still remains largely
untapped because of high packing costs, cultural preference of the people for fresh food,
seasonality of raw materials, lack of adequate upgraded infrastructural facilities and
quality control mechanism. As a result, there is a need to fully harness its potential and
increase processing levels by providing greater incentives, rationalizing of taxes,
encouraging scale as well as creating a conducive environment for more investments
and exports.
Some of the key areas where Government intervention is required are as follows:
a) India should be positioned as the 'Food Factory' to the world with strong focus on
promoting the "Made-in-India" brand abroad. This could drive the next wave of
processing growth ensuring better quality for consumers and economic surplus
for farmers and processors. This would require a shift in approach from supply
driven to demand driven, thereby catering to specific customer needs. Further, the
Government could catalyse investments across the food value chain and adopt a
focused approach on end-to-end requirements starting from harvesting, post-
harvest management, logistics and cold chain as well as export. Large players
would need integrated cold chain hubs and transportation to make this happen.
b) There should be more emphasis on demand driven research as there is repetition
of work at different state agricultural universities. Building lab to farm and lab to
industry link is necessary to ensure commercialization of technology.
c) With the comprehensive new food safety rules finally coming into effect, "safe
food" is something every citizen in India can demand and expect. An enabling
regulatory environments would lead the Industry to grow.
d) Lack of consumer awareness on food quality parameters benefits the unorganized
segments. In this context, there could be Government spends on creating "food
quality" awareness on the lines of some other campaigns like polio etc. Secondly,
the farm extension work undertaken by input companies focus largely on yield
improvement with limited focus on educating the farmers on quality related issues
28Importance of Food Processing Sector in India Importance of Food Processing Sector in India
29
such as pesticide residues. Directing of CSR funds for this activity could be useful
in sensitizing farmers and aggregators to quality issues and transforming supply
chains into "quality" chains. This could be on the lines of improving Financial
Literacy using CSR funds.
e) The advent of new and improved food products has meant greater sophistication
and modernization of food processing units, higher efficiency levels in
performance, advanced R&D work and innovative marketing. Shortage of skilled,
semi-skilled and unskilled workers has emerged as a critical factor impacting the
competitiveness of Indian food industry. This gap needs to be bridged by finding
the right balance between applied research, capacity building, training and
development in the area of policy and regulatory frameworks, ensuring a strong,
public-private partnership, identifying additional resources to support the
initiative and by making technologies more accessible to the workers. This not
only requires fresh skilling but also up-skilling periodically.
Some of the areas which require additional focus include:
lEstablishment of more education centres and quality food labs in PPP for
imparting technical & managerial skills particularly in rural areas.
lDevelop a comprehensive programme for training of small and medium
enterprises in the unorganized sector. Also the training of food inspectors on
GMP, GHP & HACCP should be made mandatory
lDemand driven R&D centres on the lines of CFTRI to be developed across the
country
lIncreasing competitiveness of SMEs by facilitating their access to best
practices, technology, capital and marketing activities.
f) At present, access to finance is one of the key challenges faced by various players
across sub-sectors within food processing. Banks and financial institutions adopt
the same risk models relevant to the manufacturing sector, for assessing food
processing companies. For food processing companies the working capital
requirements are high, given the seasonal availability of raw materials and high
inventory holding period. Interest rates for food processing companies are high,
on account of the (often wrongly placed due to inadequate understanding of the
activities) high risk perception associated with the nature of the operations.
It is recommended that an autonomous Food Processing Bank of India (FPBI) be set
up along the lines of National Housing Bank/HDFC for funding all post-harvest
activities of the agro and food processing industry. The initial capital could come
from Government of India but supplemented by DFIs, Banks and large corporates.
The Government of India could have a minority stake.
FPBI should be managed professionally and should have
lSpecialised techno-commercial skills for food & agro processing
lProject evaluation skills for funding specialised activities
lSpecific lending norms customised for each sub-sector which takes into
account the seasonality, working capital cycle and scale of operations
g) There is a need to increase affordability of processed food products by reducing
costs through rationalization of tax regime and increasing supply chain efficiency.
In this context the Goods and Service Tax (GST) on food processing should be at
the lowest slab. Also, fresh produce should be fully exempted from APMC Act.
6.1 Case for additional funding for MoFPI
In the Vision 2015 document of MoFPI, a total investment of Rs 99,700 cr was envisaged
between 2005 and 2015 of which Rs 9,800 cr was to be provided by the Government
(both Central and State Governments). A Gross Budgetary support (GBS) of Rs 5,990 cr
was proposed for MoFPI in the 12th Five year plan (2012-17). However, the actual
Central Plan Outlay for the 10 year period (2005-2015) was only Rs 3,541.69 Cr and for the
first 4 years (2012-16) of the 12th Five year plan was Rs 2,133.63 Cr (refer Exhibit 32)
In fact the Central Plan outlay for MoFPI in the last three years has been in the range of
just 0.08% to 0.11% of the total Central Outlay (across Ministries /Departments).
Given the importance of the food processing sector (as detailed in Chapter 2) in terms of
employment generation, controlling food inflation and food wastage etc and the
important role of the Government (as detailed in this chapter) there is a case for
significant increase in the allocation of government funding to the food processing
sector.
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
2014
-15
2015
-16*
136 150
200221.24
272.51
393.24
515.07
651.71
527.24
474.68 480
Source: Union Budget, Government of India
Exhibit 32: Central Plan outlay for MoFPI (Rs Cr)
28Importance of Food Processing Sector in India Importance of Food Processing Sector in India
29
such as pesticide residues. Directing of CSR funds for this activity could be useful
in sensitizing farmers and aggregators to quality issues and transforming supply
chains into "quality" chains. This could be on the lines of improving Financial
Literacy using CSR funds.
e) The advent of new and improved food products has meant greater sophistication
and modernization of food processing units, higher efficiency levels in
performance, advanced R&D work and innovative marketing. Shortage of skilled,
semi-skilled and unskilled workers has emerged as a critical factor impacting the
competitiveness of Indian food industry. This gap needs to be bridged by finding
the right balance between applied research, capacity building, training and
development in the area of policy and regulatory frameworks, ensuring a strong,
public-private partnership, identifying additional resources to support the
initiative and by making technologies more accessible to the workers. This not
only requires fresh skilling but also up-skilling periodically.
Some of the areas which require additional focus include:
lEstablishment of more education centres and quality food labs in PPP for
imparting technical & managerial skills particularly in rural areas.
lDevelop a comprehensive programme for training of small and medium
enterprises in the unorganized sector. Also the training of food inspectors on
GMP, GHP & HACCP should be made mandatory
lDemand driven R&D centres on the lines of CFTRI to be developed across the
country
lIncreasing competitiveness of SMEs by facilitating their access to best
practices, technology, capital and marketing activities.
f) At present, access to finance is one of the key challenges faced by various players
across sub-sectors within food processing. Banks and financial institutions adopt
the same risk models relevant to the manufacturing sector, for assessing food
processing companies. For food processing companies the working capital
requirements are high, given the seasonal availability of raw materials and high
inventory holding period. Interest rates for food processing companies are high,
on account of the (often wrongly placed due to inadequate understanding of the
activities) high risk perception associated with the nature of the operations.
It is recommended that an autonomous Food Processing Bank of India (FPBI) be set
up along the lines of National Housing Bank/HDFC for funding all post-harvest
activities of the agro and food processing industry. The initial capital could come
from Government of India but supplemented by DFIs, Banks and large corporates.
The Government of India could have a minority stake.
FPBI should be managed professionally and should have
lSpecialised techno-commercial skills for food & agro processing
lProject evaluation skills for funding specialised activities
lSpecific lending norms customised for each sub-sector which takes into
account the seasonality, working capital cycle and scale of operations
g) There is a need to increase affordability of processed food products by reducing
costs through rationalization of tax regime and increasing supply chain efficiency.
In this context the Goods and Service Tax (GST) on food processing should be at
the lowest slab. Also, fresh produce should be fully exempted from APMC Act.
6.1 Case for additional funding for MoFPI
In the Vision 2015 document of MoFPI, a total investment of Rs 99,700 cr was envisaged
between 2005 and 2015 of which Rs 9,800 cr was to be provided by the Government
(both Central and State Governments). A Gross Budgetary support (GBS) of Rs 5,990 cr
was proposed for MoFPI in the 12th Five year plan (2012-17). However, the actual
Central Plan Outlay for the 10 year period (2005-2015) was only Rs 3,541.69 Cr and for the
first 4 years (2012-16) of the 12th Five year plan was Rs 2,133.63 Cr (refer Exhibit 32)
In fact the Central Plan outlay for MoFPI in the last three years has been in the range of
just 0.08% to 0.11% of the total Central Outlay (across Ministries /Departments).
Given the importance of the food processing sector (as detailed in Chapter 2) in terms of
employment generation, controlling food inflation and food wastage etc and the
important role of the Government (as detailed in this chapter) there is a case for
significant increase in the allocation of government funding to the food processing
sector.
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
2014
-15
2015
-16*
136 150
200221.24
272.51
393.24
515.07
651.71
527.24
474.68 480
Source: Union Budget, Government of India
Exhibit 32: Central Plan outlay for MoFPI (Rs Cr)
30Importance of Food Processing Sector in India
CONCLUSION
The food processing sector can play a key role in helping the economy transition from
agricultural work to highly skilled jobs and stimulate employment generation through
creation of small and medium sized enterprises. The food processing sector in India is a
key sector for India's development given the country's vast consumer base, that
continues to grow, and its strong food production base. There are huge growth
opportunities across the food value chain viz., cold chain solutions or processed foods
(both primary and value added foods). The food processing sector also fits in well with
the "Make in India" programme. Given its significant production strengths across
agricultural commodities, India is well placed to be the Food Factory to the world with a
strong thrust on food processing and value added exports.
Products need to be made keeping consumer needs in mind i.e. a fork to farm approach
should be followed. There is a need to work with all partners across the supply chain
and make them aware of the end quality requirements in order to succeed at the
marketplace. Separately, human resources are a serious challenge with manpower
training and retention extremely critical. The Government can play a role in creating an
enabling environment (by rationalizing tax structure, encouraging scale, focusing on
skill development, increasing awareness of food quality and enforcing quality
standards etc). Given its importance, there is a strong case for increasing government
funding to the food processing sector.
Rabo Equity Advisors is a subsidiary of Rabobank and is the Investment Advisor for the
India Agri Business Fund No 1 and No 2, with collectively USD 320 million in
commitment. The Fund No. 1 was the first private equity fund in Asia dedicated to the
food & agribusiness sector. Rabo Equity Advisors, with offices in New Delhi and
Mumbai helps the Fund in identifying and evaluating potential investment
opportunities, providing economic and market intelligence to portfolio investments and
creating liquidity events for its investors including exit opportunities.
The team at Rabo Equity Advisors brings together significant Food & Agri (F&A) sector
expertise and relationships that are essential for an Indian F&A sector focused fund
along with a cohesive set of experiences across strategic advisory, operations, fund
management, structuring, M&A, capital markets, etc. Majority of the Investment Team
members have significant F&A sector specific investment experience.
In order to provide a further edge to its operations, Rabo Equity Advisors has an
agreement with Rabobank to leverage its globally acclaimed Research capability as
well its network and product outreach for the benefit of the portfolio companies.
The Team in Rabo Equity Advisors, led by Rajesh Srivastava, actively engages with
industry, Governments and Embassies/High Commissions as a pro-bono advisor on
investment opportunities across 42 odd sub-sectors of food and agribusiness, including
Agri-infrastructure.
Corporate office
D-41, Third Floor, Defence Colony, New Delhi - 110024, INDIA
Tel: +91 11 66339898
Email: [email protected]
Mumbai office
102-104, Ram Krishna Chambers, Linking Road, Khar (West), Mumbai 400052, INDIA
Tel: +91 22 26494947 /+91 22 26494940
Email: [email protected]
30Importance of Food Processing Sector in India
CONCLUSION
The food processing sector can play a key role in helping the economy transition from
agricultural work to highly skilled jobs and stimulate employment generation through
creation of small and medium sized enterprises. The food processing sector in India is a
key sector for India's development given the country's vast consumer base, that
continues to grow, and its strong food production base. There are huge growth
opportunities across the food value chain viz., cold chain solutions or processed foods
(both primary and value added foods). The food processing sector also fits in well with
the "Make in India" programme. Given its significant production strengths across
agricultural commodities, India is well placed to be the Food Factory to the world with a
strong thrust on food processing and value added exports.
Products need to be made keeping consumer needs in mind i.e. a fork to farm approach
should be followed. There is a need to work with all partners across the supply chain
and make them aware of the end quality requirements in order to succeed at the
marketplace. Separately, human resources are a serious challenge with manpower
training and retention extremely critical. The Government can play a role in creating an
enabling environment (by rationalizing tax structure, encouraging scale, focusing on
skill development, increasing awareness of food quality and enforcing quality
standards etc). Given its importance, there is a strong case for increasing government
funding to the food processing sector.
Rabo Equity Advisors is a subsidiary of Rabobank and is the Investment Advisor for the
India Agri Business Fund No 1 and No 2, with collectively USD 320 million in
commitment. The Fund No. 1 was the first private equity fund in Asia dedicated to the
food & agribusiness sector. Rabo Equity Advisors, with offices in New Delhi and
Mumbai helps the Fund in identifying and evaluating potential investment
opportunities, providing economic and market intelligence to portfolio investments and
creating liquidity events for its investors including exit opportunities.
The team at Rabo Equity Advisors brings together significant Food & Agri (F&A) sector
expertise and relationships that are essential for an Indian F&A sector focused fund
along with a cohesive set of experiences across strategic advisory, operations, fund
management, structuring, M&A, capital markets, etc. Majority of the Investment Team
members have significant F&A sector specific investment experience.
In order to provide a further edge to its operations, Rabo Equity Advisors has an
agreement with Rabobank to leverage its globally acclaimed Research capability as
well its network and product outreach for the benefit of the portfolio companies.
The Team in Rabo Equity Advisors, led by Rajesh Srivastava, actively engages with
industry, Governments and Embassies/High Commissions as a pro-bono advisor on
investment opportunities across 42 odd sub-sectors of food and agribusiness, including
Agri-infrastructure.
Corporate office
D-41, Third Floor, Defence Colony, New Delhi - 110024, INDIA
Tel: +91 11 66339898
Email: [email protected]
Mumbai office
102-104, Ram Krishna Chambers, Linking Road, Khar (West), Mumbai 400052, INDIA
Tel: +91 22 26494947 /+91 22 26494940
Email: [email protected]
Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244 • CII Helpline Toll free No: 1800-103-1244
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry,
Government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process.
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In its 120th year of service to the nation, the CII theme of 'Build India – Invest in Development, A Shared Responsibility,' reiterates Industry's
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CII-Jubilant Bhartia Food and Agriculture Centre of ExcellenceIndia Habitat Centre, Core 4A, Ground Floor, Lodi Road, New Delhi 110003
T: +91-11-43007490, F: +91-11-46344602, E: [email protected], W: http://www.face-cii.inReach us via our Membership Helpline (Monday-Saturday: 0900-1715 Hrs)
T: +91-11-43546244, +91-9910446244, E: [email protected]
FACE is CII's Centre of Excellence dedicated to building efficiencies across the agricultural value chain from farm to form.
FACE charged with the mission of improving competitiveness of India's agriculture and food sector by catalyzing innovation, building capacity
and enhancing productivity across the value chain. FACE works with farmers, companies, developmental institutions and the government to
�Improve on and off-farm productivity through the dissemination of best practices and technological innovation
�Invest in capacity building initiatives and skill development for supply chain participants across the value chain
�Strengthen linkages across the value chain through market access initiatives, thereby reducing losses and increasing farmer incomes
FACE's service portfolio comprises commodity specific value Chain Assessments and supply chain advisory services for food and agri
businesses, training and consulting services in the area of food safety, and sectoral research across different market Segments. FACE also works
on projects in PPP mode, to develop business models that are scalable and replicable across geographies.