industry project on food processing industy-urvi pathak

7/29/2019 Industry Project on Food Processing Industy-urvi Pathak

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FOOD PROCESSING INDUSTRIES

Marwadi Education Foundation Group of

Institutions

Roll no: MPG1102021


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TABLE OF CONTENTS

Contents

ACKNOWLEDGEMENT ......................................................................................................... 4

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

GLOBAL PROCESSED FOOD INDUSTRY........................................................................... 7

INDIAN PROCESSED FOOD INDUSTRY............................................................................. 8

Food and Agriculture: An overview ...................................................................................... 8

Processed food industry: a sunrise sector .............................................................................. 9

Introduction: ........................................................................................................................... 9

Food-processing- a growing market .................................................................................... 10

MAJOR CHALLENGES FOR THE INDIAN FOOD INDUSTRY ....................................... 14

INDIAN FOOD PROCESSING INDUSTRY BY SECTORS ................................................ 15

Dairy .................................................................................................................................... 16

Fruits and Vegetable Processing .......................................................................................... 20

Grain processing .................................................................................................................. 21

Meat and poultry processing ................................................................................................ 24

Fish Processing .................................................................................................................... 26

Packaged/Convenience Food ............................................................................................... 27

Confectionery ....................................................................................................................... 30

Ready-to-eat foods ............................................................................................................... 31

Aerated Soft Drinks, Packaged drinking water.................................................................... 32

INDIAS IMPORT AND EXPORT OF VARIOUS COMMODITIES .................................. 34

GOVERNMENT REGULATION AND SUPPORT............................................................... 37

Regulation and Control ........................................................................................................ 37

Fiscal policy and taxation: ................................................................................................... 38

Export promotion: ................................................................................................................ 38

REGULATORY FRAMEWORK ........................................................................................... 40

Various food laws ................................................................................................................ 40

PESTAL ANALYSIS ON FOOD PROCESSING INDUSTRIES .......................................... 42

POLITICAL ......................................................................................................................... 42

ECONOMICAL ................................................................................................................... 42

SOCIAL ............................................................................................................................... 43

TECHNICAL ....................................................................................................................... 43


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FIVE FORCES ANALYSIS .................................................................................................... 44

THREAT OF NEW ENTRANTS ........................................................................................ 44

POWER OF BUYERS ......................................................................................................... 45

POWER OF SUPPLIER ...................................................................................................... 46

THREAT OF SUBSTITUTES ............................................................................................ 48

RIVALRY AMONG COMPETING FIRMS IN INDUSTRY ............................................ 49

SWOT ANALYSIS OF HALDIRAM ..................................................................................... 51

STRENGTHS: ..................................................................................................................... 51

WEAKNESSES ................................................................................................................... 51

OPPORTUNITIES:.............................................................................................................. 51

THREATS: .......................................................................................................................... 51

SWOT ANALYSIS OF CADBURY ....................................................................................... 52

STRENGTHS: ..................................................................................................................... 52

WEAKNESSES: .................................................................................................................. 52

OPPORTUNITIES:.............................................................................................................. 52

THREATS: .......................................................................................................................... 52

MAJOR FOOD PROCESSING COMPANIES ...................................................................... 53

INDIAS FOOD PROCESSING SECTOR COULD STIMULATE GROWTH IN THE

AGRICULTURE SECTOR ..................................................................................................... 60

CONCLUSION ........................................................................................................................ 62

BIBLOGRAPHY ..................................................................................................................... 63


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EXECUTIVE SUMMARY

The size of global processed food industry is estimated to be valued around US $3.6 trillion

and accounts for three-fourth of the global food sales. Despite its large size, only 6% of

processed foods are traded across borders compared to 16% of major bulk agricultural

commodities. Indian food-processing industry is miniscule in comparison and is estimated to

be US $40 billion and is likely to grow at over 10%, on the basis of an expected GDP growth

rate of 8-8.5% p.a.

With enormous scope for value addition, increase in the consumption of processed food

products in India and many fiscal incentives being planned by the government, this sector is

poised to maintain the growth momentum in the future. Moreover, the advent of the WTO

regime and the possibility of reduced subsidies in developed countries can add to Indias

strengths in food production and processing industry.

India accounts for less than 1.5% of international food trade despite being one of the worlds

major food producers, which indicates huge potential for both investors and exporters. Withrapid increase in the per capita income and purchasing power along with increased

urbanization, improved standards of living, there lies a large untapped opportunity to cater to

1000 million domestic consumers. It is estimated that 300 million upper and middle class

consume processed food. With the convenience needs of dual income families, 200 million

more consumers are expected to move to processed food by 2010. The market size for the

processed foods is thus bound to increase from US $102 billion currently to US $330 billion

by 2014-15 assuming a growth of 10%. The share of the value added products in processedfoods would almost double from US $44 billion currently to US $88 billion during the same

period, growing at the rate of 15%. This presents enormous opportunities for investment in

processed food sector.

Several global food giants and leading Indian industrial enterprises are already making their

presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India,

Kelloggs, Hindustan Unilever, ITC-Agro, Godrej Foods and MTR Foods.


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It is estimated that the food production in India is likely to grow two-fold in the next ten

years. Thus, there is ample of opportunities for investments in food and food-processingtechnologies, equipment, especially in areas of canning, dairy & food-processing, specialty

processing, packaging, frozen food and thermo processing, cold chains and in the area of

food retail.

Ministry of food processing in its Vision 2015 document has estimated the size of processed

food sector to treble, processing level of perishable to increase from 6% to 20%, value

addition to increase from 20 % to 35% and Indias share in global food trade to increase from1.5 % to 3%.

The governments focus towards food processing industry as a priority sector will ensure

policies to support investment in this sector and attract more FDI. India with its vast pool of

natural resources and growing technical knowledge base has strong comparative advantages

over other nations. According to CII estimates, food-processing sector has the potential of

attracting US $33 billion of investment in 10 years and generate employment of 9 million

person-days. The food-processing sector in India is clearly an attractive sector for investment

and offers significant growth potential to investors.

The report outlines the tremendous growth potential in the sector and various opportunities

for investments. We initiate coverage on Ruchi Soya and Lakshmi Energy & Foods with a

BUY recommendation.


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GLOBAL PROCESSED FOOD INDUSTRY

The size of global processed food industry is estimated to be valued around US $3.6 trillion

and accounts for three-fourth of the global food sales. Despite its large size, only 6% of

processed foods are traded across borders compared to 16% of major bulk agricultural

commodities. Over 60% of total retail processed food sales in the world are accounted by the

U.S, EU and Japan taken together.

Japan is the largest food processing market in the Asian region, though India and China are

catching up fast and are likely to grow more rapidly. Leading meat-importing countries

namely Japan and South Korea have a developed processed food industry. One of the most

technically advanced food-processing industries globally is Australia as the products

produced are of international standards and at comparatively lower prices. Countries in the

Sub-Sahara African region, Latin America and parts of Asia continue to be on the lower-end

of technology competence in food items. However, Europe, North America, and Japan are on

the higher-end of technology, with a sharper shift towards convenience and diet foods.


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INDIAN PROCESSED FOOD INDUSTRY

Food and Agriculture: An overview

India has the second largest arable land of 161 million hectares and has the highest acreage

under irrigation. Next to China, India ranks second largest food producer in the world and has

the potential to immerge the biggest with its food and agricultural sector. India accounts for

less than 1.5% of international food trade despite being one of the worlds major food

producers, which indicates huge potential for both investors and exporters.

Indias GDP is expected to grow in the range of 8 -8.5% in the coming fiscal year, fuelled by

robust investments and buoyant consumer spending. According to Goldman Sachs

projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025

and Japans in 2035.

The growth estimated is;

Year Indias GDP ($ billion)

2005 604

2020 2014

2025 3174

2030 4935

2035 7854

Excessive controls, low public investment, inadequate infrastructure, poor agri-input

management, distorted pricing and incentives structures, and inadequate credit weighed down

Indias agricultural sector for several decades. The share of agriculture in Indias GDP has

fallen by more than 60% in the past five decades. However, the policy environment is

changing with increase in public investment, fading controls on product marketing and

distribution, better price-discovery mechanisms and improvement in credit availability.


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Indian agriculture, particularly food processing and allied activities is thus going through a

major transformation with the government targeting 4% growth for the agri-sector from

2005-2020.

Processed food industry: a sunrise sector

Introduction:

Food-processing industry is significant for Indias development because it has important link

and synergy with industry and agriculture, the two main support of the economy. Total size

of food-processing industry is around US $40 billion growing at 10% and the size of

processing sector is estimated to be US $2.53 billion. The industry is mainly unorganized

with 75% of the processing units belonging to the unorganized category, the organized

category though small, is growing fast. The food production is expected to double in the next

10 years and the consumption of value added food products is expected to grow at a much

faster pace. This growth will benefit the economy, increase agricultural yields, create

employment and raise the standard of living of various associated people. Rising consumer

affluence and economic liberalization is opening up new opportunities in the sector.


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The food-processing industry has been identified as a focus area for development and has

been included in the priority-lending sector. Most of the food-processing industries with the

exception of beer & alcoholic drinks and items reserved for small scale sector, like vinegar,

bread, and bakery have been exempted from the provisions of industrial licensing underIndustries (Development and Regulation) Act, 1951. Automatic approval up to 100% of

equity in case of foreign investment is available for most of the processed food items.

With over 1.10 billion consumers and fourth largest economy in terms of purchasing power

parity, UNCTAD and AT Kearney has ranked India amongst the top three investment

destinations in the world.

Food-processing- a growing market

With rapid increase in the per capita income and purchasing power along with increased

urbanization, improved standards of living, there lies a large untapped opportunity to cater to

1000 million domestic consumers. It is estimated that 300 million upper and middle class

consume processed food. With the convenience needs of dual income families, 200 million

more consumers are expected to move to processed food by 2010. The market size for the

processed foods is thus bound to increase from US $102 billion currently to US $330 billion


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by 2014-15 assuming a growth of 10%. The share of the value added products in processed

foods would almost double from US $44 billion currently to US $88 billion during the same

period, growing at the rate of 15%. This presents enormous opportunities for investment in

processed food sector.

Several global food giants and leading Indian industrial enterprises are already making their

presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India,

Kelloggs, Hindustan Unilever, ITC-Agro, Godrej Foods and MTR Foods.

According to Government estimates, Rs 1,000 billion investment is needed in this sector

across all segments of the value chain, from agri inputs to logistics to front-end infrastructure

and distribution, out of which bulk of investment will be from private sector. As a result,various private corporate houses like Reliance have ventured in this space with full vigor.

Hence, there is immense potential for investment in this sector. To facilitate the prompt

growth of food-processing industry, the Government has implemented the scheme for

infrastructure development comprising a food park scheme, establishing packaging centers,

integrated cold chain facility; value added centers and irrigation facilities.

Where the opportunity lies- areas for investment;

It is estimated that the food production in India is likely to grow two-fold in the next ten

years. Thus, there is ample of opportunities for investments in food and food-processing

technologies, equipments, especially in areas of canning, dairy & food-processing, specialty

processing, packaging, frozen food and thermo processing, cold chains and in the area of

food retail.

One of the key reasons for low levels of food processing is poor infrastructure for storage,

marketing and distribution of food products. 25-40% of agri-produce is lost post-harvest

season. According to estimates, Indias marketable surplus is set to increase by 350 mtpa to

870 mtpa by 2012. 40% of the increase (150 mtpa) would be accounted by perishable fruits

and vegetables. The need for investments in the areas of infrastructure and supply chain is

evident from the fact that Indias current storage infrastructure for all food items is only 100

mtpa.


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The Government has announced various policy and fiscal measures to expand the storage

capacity. It has announced 15-25% capital subsidy scheme for facilitating construction of

rural godowns and has also sanctioned 16 mt of new capacity the last five years.

Cold chain

The estimated cold-storage capacity at 19.5 mt is less than 15% of the annual horticulture

production and is mainly dominated by potatoes (80% of capacity). The size of cold chain

industry is estimated to be around US $2.2-2.7 billion and is expected to grow at 20-25%

annually. FDI to the extent of 100% is allowed in the sector. With the rising focus on

horticulture, increasing corporate participation and advent of food parks and agri exportzones is likely to result in significant restructuring of cold storage infrastructure with an

estimated investment of US $8-10 billion.

Voltas, Blue-Star and Kirloskar Pneumatic are some of the cold storage players and

equipments. Radhakrishna Foodland and Snowman Frozen are major providers of cold

storage facilities. Concor is setting up a countrywide network of 14 cold-chain complexes for

horticulture in Delhi, Mumbai and Bangalore among other places.

Supply chain

An efficient supply chain not only brings down the price of the end product but also

eliminates intermediaries by connecting farmers directly to the super stores. It has thus

become an important aspect of organized retail setup. The food supply chain in India is

highly fragmented with numerous intermediaries and lack of economies of scale.

Sophisticated applications such as demand forecasting, data integration, financial flow

management, supply-demand matching, information sharing will enable it to become mature

and efficient.


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Food safety management systems

The tightening of restrictions and the introduction of the Sanitary and Phytosanitary

Agreement by global industry bodies like the World Health Organization (WHO), have led toincreased adherence of safety norms and regulations. Indian companies will have to strictly

adhere to international food safety standards in order to gain a larger share of world trade.

Machinery

In packaging, freshness and hygiene remains a key factor in determining buying by

consumers. In recent times, a number of new technologies have emerged both in processingand packaging, which have made an impact on the shelf life of food products.

Food parks

30 mega food parks with investments of around US $110 million are coming up across the

country to attract FDI in the food-processing sector. The food parks will have facilities

ranging from cold storage, sorting, grading, food-processing, packaging and quality control,

and R&D laboratories. The government for these food parks has identified Maharashtra,

Andhra Pradesh, Punjab and Jharkhand and one Northeast region.

Food retail

Food and groceries form major portion (75%) of the retail pie. However, it has the lowest

level of penetration of 1% in organized retail. Branded foods market size is growing at 15-

20%. Players have outlined major expansion plans recognizing the opportunity.


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MAJOR CHALLENGES FOR THE INDIAN FOOD INDUSTRY

Food-processing industry is facing constraints like non-availability of adequate infrastructural

facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain,

and seasonality of raw material, high inventory carrying cost, high taxation, high packaging

cost, affordability and cultural preference of fresh food.

Unprocessed foods are prone to spoilage by biochemical processes, microbial attack and

infestation. Good processing techniques, packaging, transportation and storage can play an

important role in reducing spoilage and extending shelf life. The challenge is to retain the

nutritional value, aroma, flavour and texture of foods, and presenting them in near natural

form with added conveniences. Processed foods need to be offered to the consumer in

hygienic and attractive packaging, and at low incremental costs.

Major Challenges for the Indian Food Processing Industry are:

Consumer education on nutritional facts of processed foods

Low price-elasticity for processed food products

Need for distribution network and cold chain

Backward-forward integration from farm to consumers

Development of marketing channels

Development of linkages between industry, government and institutions

Taxation in line with other nations

Streamlining of food laws

Namenda Shah, CTARA* & K V Venkatesh, Department of Chemical Engineering


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INDIAN FOOD PROCESSING INDUSTRY BY SECTORS

India's food-processing sector covers fruit and vegetables; meat and poultry; milk and milk

products, alcoholic beverages, fisheries, plantation, grain processing and other consumer

product groups like confectionery, chocolates and cocoa products, soya-based products,

mineral water, high protein foods etc. The most promising sub-sectors includes- soft-drink

bottling, confectionery manufacture, fishing, aquaculture, grain-milling and grain-based

products, meat and poultry processing, alcoholic beverages, milk processing, tomato paste,

fast food, ready-to-eat breakfast cereals, food additives, flavours etc. Health food and health

food supplement is another rapidly rising segment of this industry, which is gaining vast

popularity amongst the health conscious.

The dairy sector has an estimated consumer demand for milk and milk products at Rs 1,400

billion; growing at about 8% p.a. Poultry meat is estimated to have production of 1.8 million

tones, growing at a CAGR of 11%. Besides, ready-to-eat (RTE) industry, still nascent in

India, is estimated to be about Rs 5 billion growing at 30% p.a and expected to cross Rs 15

billion by 2010. The wine sector, is growing at about 50% p.a is expected to have a market

size of Rs 20 billion by 2010.

The food industry is divided into various segments namely,


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Segmentation of various sectors in the industry:

SECTOR PRODUCT

Dairy Whole milk powder, skimmed milk powder,

condensed milk,

ice cream, butter and ghee, cheese

Fruits &

Vegetables

Beverages, juices, concentrates, pulps, slices,

frozen &

dehydrated products, potato wafers/chips, etc

Grains &Cereals

Flour, bakeries, starch glucose, cornflakes,malted foods,

vermicelli, beer and malt extracts, grain

based alcohol

Fisheries Frozen & canned products mainly in fresh

form

Meat & Poultry Frozen and packed - mainly in fresh form,

Egg Powder

Consumer

Foods

Snack food, namkeens, biscuits, ready to eat

food, alcoholic

and non-alcoholic beverages

Dairy

Milk and milk products is rated as one of the most promising sectors in the processed food

industry. India is the largest producer of milk in the world with production of 97.1 milliontones in 2005-06, growing at a CAGR of 4%. According to estimates by Dairy India, the size

of the Indian dairy market is Rs 2, 27,340 crores, which is expected to more than double to

Rs 5, 20,780 crores by 2011. Indias total milk production is projected to c ross 100 million

tones by end of 2007 according to the tenth five-year plan estimates. Milk and milk products

account for a significant 17% of Indias total expenditure on food. India is on the verge of

assuming an important position in the global dairy industry.


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Production and Per capita availability of milk

Year Per capita availability

(grams / day)

Production in million

tonnes

1950-51 124 17

1960-61 124 20

1970-71 112 22

1980-81 128 31.6

1990-91 176 53.9

2000-01 220 80.6

2002-03 230 86.2

2003-04 231 88.1

2004-05 233 92.5

2005-06 241 97.1

2006-07 245 100

About 35% of milk produced in India is processed. The organized sector comprising of large

dairy plants processes about 13 million tones, whereas the unorganised sector (halwaiis and

vendors) process about 22 mtpa.

Source: Cygnus

22%

7%

8%63%

Milks Uses in India

Value Added (Unorganised)

Value Added (organised)

Packed liquid Milk

Unprocessed


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The traditional dairy products are Indias largest selling and profitable segment and accounts

for more than 50% of milk and dairy products. With liberalisation, the import of technology

and machinery has effected modernization and technological breakthrough in production of

traditional milk products and this has encouraged the growth of the organized sector in the

dairy segment.As per estimates by dairy India 2007, by 2011 private dairies are slated to outpace the

cooperative sector and become the largest producers of milk in the industry. Private dairies

are likely to contribute double the quantity of milk that would be contributed by cooperatives

in 2011. Many corporates are planning a foray into the dairy business sensing the big

opportunity. Reliance and Wal-Mart have already made an entry into this business by signing

deals with farmers to procure 7 lakh litres and 15 lakh litres of milk per day. Dabur

India is exploring the possibility of entering into the milk-based drink segment. YakultDanone plans to launch health drinks and yoghurts based on probiotics bacteria. Amul has

also forayed into the flavoured yoghurt segment.

The 55,000 tpa branded butter market, valued at US $133 million is estimated to be growing

at 8-10% pa. The cheese market is estimated to be US $110 million in value terms and an

estimated 54,000 tonnes in volume terms, and has been growing at a CAGR of 8-9% during

1999- 2003. The ice-cream market in India is estimated to be about US $199 million pa.


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India's unique pattern of production, consumption, processing and marketing of dairy

products consist of over 11 million farmers organized into about 0.1 million village Dairy

Cooperative Societies (DCS).

Major Players

The packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operative

Milk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperatives

have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verka in

Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private players include

J. K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc.

Some of the major dairy products manufacturers in the countryCompany Brands Major Products

Nestle India Milkmaid, Cerelac,

Lactogen, Milo,

Everyday

Sweetened condensed

milk, malted foods, milk

powder and Dairy whitener

Milkfood Milkfood Butter, Ghee, milk powder,

ice cream, and other milk

products

Kwality Dairy (India) Indana, Cream

Kountry

Skimmed milk powder,

whole milk powder, dairy

milk whitener, Ghee

Gujarat Co-operative

Milk Marketing

Federation

Amul Milk, Butter, cheese, Ghee,

Ice cream and other milk

Products

Heritage Foods Heritage Milk, Curd, Ghee, Butter

Milk

Britannia

Britannia Milkman Flavoured milk, cheese,

Milk Powder, Ghee

Cadbury Bournvita Malted food

Mother Dairy Mother Dairy Milk, Ice Cream, milk

Products

Source: Company website


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Fruits and Vegetable Processing

India is the 2nd largest producer of fruits (50 million tones) and vegetables (100 million

tones). The installed capacity of fruit and vegetable processing industry has increased from11.08 lakh tones in 1993 to 21.18 lakh tones in 2006. The industry is still nascent and just

about 2.2% of the total output of fruits and vegetables is processed as per estimates. The

country's share in the world trade of processed fruits and vegetables is still less than 1%.

Likewise, the consumption of value added fruits and vegetables are also low compared to the

primary processed food in general and fresh fruits and vegetables in particular. This throws

up a huge opportunity for the sector through increased penetration in the domestic market.

The government expects the processing in this sector to grow to 10% in 2010 and 25% of the

total produce by 2025.


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Major players Fruits and Vegetable Processing

Company Brands Products

HUL Kissan, Knorr,

Annapurna,Jams, Ketchups, wheat flour,

Fruit Beverages, soups

Dabur India Real, Real Activ,

Coolers

Fruit Beverages

Mother Dairy (Safal) Safal Frozen processed fruits and

vegetables, Jam, Pickle

Temptation Foods Pure Temptation IQF fruits and vegetables

Capital Foods Private Label Frozen Foods, IQF

Vegetables

Mafco Mafco Frozen fruits and vegetables

Priya Foods Priya Pickles, Fruit Juices

MTR Foods MTR Frozen Foods, Pickles, spices

&

Masala

Allana Cold Storage Allana Frozen Foods

Grain processing

India produces more than 200 million tons of different food grains every year. All major

grains like rice, wheat, maize, barley and millets like jowar (great millet), bajra (pearl millet)

& ragi (finger millet) are produced in India. About 15% of the annual production of wheat is

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

capacity of 14 million tones, milling about 75% of annual pulse production of 14 million

tones.

Rice - most processed grain:

India is the second largest rice producer in the world with a 20% share in world riceproduction. The total rice market in India is estimated to be worth around Rs 1,00,000


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crores (growing at 3-4% annually) of which only 10% of the rice is branded. The

branded rice sales have taken off in recent years and have been growing at around 15%

in the domestic market compared to 5% for unbranded rice. The branded rice sales

growth is an impressive 25% in the international market as compared to stagnant sales

of unbranded rice. Added to this, of the Rs 3,500 crores worth of basmati rice produced,only around Rs 500 crores worth is sold in branded form.

While the total rice market is growing at 3-4% p.a, the basmati rice category is growing

at 6%, indicating a latent robustness in the countrys consumption. India is the largest

producer and exporter of basmati rice accounting for around 74% of the global

production. Indian basmati rice commands premium over its traditional rivals in terms

of prices and quality. India produces around 2 million tons of basmati p.a; around 50%of Indias total basmati production is consumed within, while the rest is exported.

India exports around one million tons of basmati rice every year. Saudi Arabia

comprises 60% of the exports. Pakistan is Indias sole basmati competitor in the

international market. The country wise breakup of exports is given in the figure below.

Outlook:

The demand for basmati rice is expected to grow for the following reasons:

Growth in world population from 6.2 billion in 2002 to more than 8 billion in

2030; growth in the Indian population from 1.1 billion in 2005 at 1.7% p.a

Growing per capita incomes, rising disposable surpluses, increasing

consumerism and increase in the share of organized retail. The Indian retail

space is also experiencing enormous growth in retail chains and malls

Rising disposable incomes are growing branded volumes. Demand for branded

rice is likely to grow at around 15% Basmati accounts for only 2% of Indias Rs

1,000 billion rice market by volume and about 5% by value, signifying a huge

growth potential.

The median age of the Indian population is one of the youngest in the world,

averaging around 24, complemented by an increase in income levels, which

could translate into encouraging spending patterns


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A rising number of Indian expatriates as well as a growing preference for

basmati in the Middle East are likely to keep demand on the boil

Recent projections made by the IMPACT model developed at the International

Food Policy Research Institute (IFPRI) indicate that the demand for rice will

increase by 1.1% annually over the next three decades.

Branded rice is becoming popular in both the domestic as well as the export

market. Indian Basmati rice commands a premium in the international market.

This segment thus offers opportunities in marketing of branded grains, as well

as grains processing.

The global rice trade is expected to grow at 2-3% p.a. over the next 10 years,

strengthening production to around 34 million tons by 2014. Basmati is

expected to maintain a robust growth of over 6% in the medium-to-long term.


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Major players of Grain processing


KRBL India Gate, Lion, Doon,

Bemisal, Nur

Jahan, Rice King, Taj Mahal

Rice

Kohinoor Foods Kohinoor Rice, Convenience

Food

LT Overseas Daawat, Heritage, Orange,Josh,

Apsara

Rice, Wheat

Lakshmi Energy Lakshmi Foods Rice, Wheat

Usher Agro Rasoi Raa Rice, Cereals

REI Agro Kasauti, Real Magic, Mr

Miller,

Hungama, Ikon, Hansraj,

Rain Drop

Rice

Meat and poultry processing

At 485 million India has the worlds largest livestock population- accounting for over 55%and 16% of the worlds buffalo and cattle populations respectively (the worlds largest

bovine population). It ranks second in goats, third in sheep and camels, and seventh in poultry

populations in the world.

Processing of meat products is licensed under Meat Food Products Order, (MFPO), 1973.

Total meat production in the country is estimated at 5 million tones annually. Indian

consumer prefers to buy freshly cut meat, rather than processed or frozen meat. A mere 6% ofproduction of poultry meat is sold in processed form. Of this, only about 1% undergoes


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processing into value added products (Ready-to- eat/ Ready-to-cook). Processing of large

animals is largely for the purpose of exports. This is because of low processing of value

added meat products and consumer preference for fresh meat. The total processing capacity

in India is over 1 million tones p.a of which 40-50% is utilized.

In meat & meat processing sector, poultry meat is the fastest growing animal protein in India.

The estimated production is 15,00,000 tones growing at CAGR of 13% through 1991-2005.

India ranks among the top six egg producing countries and ranks among the top five chicken

producing countries. Per capita consumption has grown from 870 grams in 2000 to about

1.68 kg in 2005. This is expected to grow to 2 kg in 2009. Growth in Buffalo meat production

has been less rapid (CAGR of 5% in the last 6 years). The current production levels are

estimated at 1.9 million mt. Of this about 21% is exported. Mutton and lamb is relativelysmall segment where demand is outstripping supply, which explains the high prices in

domestic market. The production levels have been almost constant at 950,000 mt with annual

exports of less than 10,000 mt. This has restricted large processing companies from

developing business interests in this sector.

India exports more than 5,00,000 mt of meat of which major share is buffalo meat. Indian

buffalo meat is witnessing strong demand in international markets due to its lean character

and near organic nature.

The total processed meat production in India is likely to double in the next 10 years and has a

huge potential with the growing number of fast food outlets in the country. With the rise in

per capita incomes and busy lifestyles, the demand for processed meat products, which can be

quickly cooked, has been rising. Most of the production of meat and meat products continues

to be in the unorganised sector. Branded products like Venkys and Godrejs Real Chicken

are, however, becoming popular in the domestic market.


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Fish Processing

India is the third largest fish producer in the world and is second in inland fish production.

Fish production in the country has increased from 0.75 mt in 1950-51 to 6.50 mt in 2005-06.

In 2005-06, it contributed about 1% of the total GDP and 5.3% of the GDP from agriculture

sector. The geographic base of Indian marine fisheries has 8,118 km. coastline, 2.02 million

sq.km. of exclusive economic zone including 0.5 million sq. km. of continental shelf, and

3,937 fishing villages. India is endowed with rich fishery resources and has vast potential for

fishes from both inland and marine resources.

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

market. It is widely felt that Indias substantial fishery resources are under-utilized and there

is tremendous potential to increase the output of this sector. The potential could be gauged by

the fact that against fish production potential in the exclusive economic zone of 3.9 million

tones, actual catch is to the tune of 2.87 million tones. Harvesting from inland sources is

around 2.7 million tones. In last six years there was substantial investment in fisheries to thetune of Rs 3,000 crores of which foreign investments were of the order of Rs 700.


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Major Player in meat, poultry and fisheries


Arambagh Hatcheries Arambagh Meat, Poultry

Hind Industries Sibaco,Eatco Frozen buffalo meat, Chilled/

Frozen sheep and Goat meat

Venkateshwara

Hatcheries

Venky's Poultry products

Alkabeer Exports

Limited

Alkabeer Frozen buffalo meat

ASF Seafoods ASF Seafoods Seafood

Bell Foods Bell Foods Marine foods

Frigo Refico Allana Allana Frozen buffalo and other

meat

Godrej Agrovet Real Good Chicken Poultry products

MAFCO, Mumbai MAFCO Pork and other meat products

Packaged/Convenience Food

This segment mainly comprise of pasta, breads, cakes, pastries, rusks, buns, rolls, noodles,

corn flakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread and

biscuits constitute the largest segment of consumer foods. The annual production of bakery

products, which includes bread, biscuits, pastries, cakes, buns, rusk etc, is estimated to be 50

lakh tones in 2004-05 with estimated value of Rs 69 billion. The two major bakery industries,

viz., bread and biscuit account for about 82% (4 million tones) of the total bakery products.

The organised sector has a market share of 45% and the balance 55% is with the unorganised

sector in the baked products. The sectors that are projected to achieve high growth between

10-20% in 2005-06 in bakery segment include bread, cakes, pastry which is expected to

achieve up to 11% growth and biscuits over 13%.


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Biscuits

The size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is

accounted for by the organised sector. Glucose and milk biscuits account for 25% each

and Marie biscuits 20% of the biscuits market.

The biscuit industry in India witnessed annual growth as below:

2003-04 15%

2004-05 14%

2005-06 14%

2006-07 13%

While the growth rate has been stagnating during last 4 years, momentum is expected to

pick up during 2007-08, mainly on account of exemption from central excise duty on

biscuits with MRP up to Rs 100/per kg, as per Union Budget for 2007-08. Indian

Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty

exemption, estimates annual growth of around 17-18% in 2007-08. Growth in biscuit

marketing has been achieved, mainly due to improvement in rural market penetration.

The per capita consumption of biscuits in our country is only 2.1 kg compared to more

than 10 kg in the USA, UK and West European countries and above 4.5 kg in South

East Asian countries like Singapore, Hong Kong, Thailand, Indonesia etc. China has a

per capita consumption of 1.9 kg while in the case of Japan it is estimated at 7.5 kg.

This shows the huge untapped potential of biscuit industry in India. Exports of Biscuit

are estimated to around 10% of the annual production during the year 2006-07.

With the entry of big players, the domestic biscuit manufacturing sector is to see a

healthy competition that would ensure good quality products at affordable prices to the

consumer. Exports of biscuits would also pick up. It has already increased with Indian

biscuits turning favourite choice in several Middle East markets. The export of high end

products (like cream biscuits) to former East European countries has also begun to rise.

Thus, the biscuit manufacturing segment is poised for a stronger growth in the coming

days.


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Bread

The bread industry with estimated production of 27 lakh tones in 2004-05 is

represented by both the organised and unorganised sectors with 55% and 45%contribution to production. The overall market size for bread in India is a little over 36

lakh loaves a day, and only one/third of this is from the organised sector.

The large organised sector players who are prominent in the high and medium-price

segments include Britannia, Modern Industries. Brands like Modem and Britannia are

major players in the bread market and together they account for 90% of the organised

bread market. Local manufacturers with numerous local brands cater to populoussegment and contribute considerably in the bread segment. Low margins, high level of

fragmentation are the main features in the bakery industry. Volumes, brand loyalty and

strong distribution networks are the main drivers of growth.

Major players- Bread, Biscuits


Modern Foods Inds Bread

Parle Parle-G, Krackjack,

Manaco, Hide & Seek

Biscuits

Priya Food Products Priya Biscuits

Surya Foods and Agro PriyaGold Biscuits

Britannia Industries Britannia Biscuits, Bread, Cakes

ITC Sunfeast Biscuits


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Confectionery

The organised market for confectionery estimated at Rs 2,000 crores is growing at around 7-

8% p.a. The retail value of the Indian sugar confectionery market, which includes products

such as sweets, jellies and gums, is estimated to be US $461 million in 2007 and is projected

to reach US $498 million in 2008. The yearly growth rate from 2002 to 2006 was 7.2%. The

Indian candy market is currently valued at around US $664 million, with about 70% in sugar

confectionery and the remaining 30%, in chocolate confectionery. The Indian sugar

confectionery market is projected to expand at a CAGR of 8% until 2011, according to a

study by Euromonitor International. Two major players namely Cadbury India and Nestle

India, which together account for about 90% of the total chocolate market, dominate the

chocolate market in India.

Increase in affluent consumers who show a tendency for impulse purchases of products such

as sugar confectionery, the development of supermarkets, hypermarkets and convenience

stores coupled with the trend towards higher allowances for children are likely to be the

primary growth drivers for sugar confectionery.

Major players

Company Brands

Cadbury India Dairy Milk, Eclairs,

Gems,Temptations,Celebrations, Nutties

Candico (I) Loco Poco, Koffi Toffi, Gumbo Jumbo

Lotte India Corp Coffee bite, Lacto King, Caramilk, Coconut

Punch

Nestle India Kit Kat, Milky Bar

Parle Melody, Poppins, Kismi, Mangobite

Perfetti Mentos, Centerfresh, Alpenliebe, Chlormint,

Happydent

Ravalgaon Sugar Farms Coffee break, Mango Moods, Pan Pasand,

Klearmint

ITC Mint-o, Candyman


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Ready-to-eat foods

Ready-to-eat foods market in India is expected to reach Rs 2,900 crores by 2015 from its

present size of Rs 128 crores (2006). The factors contributing to this growth would be

changes like cold chain development, disintermediation, streamlining of taxation, economies

of scale on the supply side, coupled with increasing disposable incomes, diminishing culinary

skills and the rising need for convenience on the demand side. The ready-to-eat foods market

in India has remained under-penetrated owing to factors like consumers penchant for

freshness, low affordability and the Indian housewifes preference for home cooked food.

Packaged foods in India have grown at approximately 7% p.a. between 2000-2005, with

ready-to-eat foods (RTE).

Being the fastest growing category at CAGR 73%. The Indian RTE foods market,

canned/preserved segment is more popular, contributing to approximately 90% of the market

and growing at a CAGR of 63% between 2001 and 2006. The chilled and dried ready meal

segments are non-existent. The packaged foods industry in India has not experienced

significant growth due to inadequate demand arising from low household incomes and

consumer preference for fresh and home-cooked food. There is thus a huge untapped market

opportunity arising due to rapid demographic shifts in income, urbanization and proportion of

urban working women in India. The industry needs to concentrate on broadening the market

and increasing penetration amongst Indian consumers.


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Major players


Dabur India Hommade

Priya Foods Priya Instant mixes, Puries,

Pulihora paste, Ready to Eat

Capital Foods Chings Secret, Smith

& Jones

Cooking Paste, Sauce &

Ketchups

Haldirams Haldirams Packaged bhel puri chats,

chana masala, samosa,

pakoras, among others.

ITC Aashirvaad Atta, Bingo,

Kitchens of India

Ready to eat/cook foods

MTR MTR Indian curries, gravies and

rice

Satnam Overseas Ltd Kohinoor Ready to eat Indian

delicacies

Aerated Soft Drinks, Packaged drinking water

Aerated soft drinks

The soft drinks constitute the 3rd largest packaged food regularly consumed after packed tea

and packed biscuits. The aerated soft drinks industry in India comprises over 100 plants

across all states. It provides direct and indirect industry related employment to over 1,25,000

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

strong forward and backward linkages with glass, plastic, refrigeration, sugar and

transportation industry. Installed capacity of sweetened/aerated water as on January 2006 is

reported to be 29.60 lakh tons p.a.

Soft drink market overview: Indian soft drink market is valued to be Rs 6,000 crore. The soft

drink market can be broadly divided into two major segments- carbonated soft drink and non-


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carbonated soft drink. The carbonated drinks are the mainstay and accounts for 85% of the

total soft drink market, however the growth rate has been stagnant and in fact on declining

trend on account of controversial issue of pesticide. Non-carbonated soft drink category

includes sub category like fruit drink, juices, dairy drinks and more. The preparatory soft

drink market is around Rs 250 crores, out of which Rasna has almost 90% volume share.

Packaged drinking water

There are 218 companies, which have been granted license for manufacturing packaged

drinking water and packaged natural mineral water. There has been a spurt in growth for the

last 3-4 years, which can largely be attributed to a range of various packaged sizes to suit the

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

Major Players


Pepsi & Co. Pepsi, Miranda,

Mountain Dew, 7up,Lehar, Dukes, Aquafina

Soft Drink, Packaged

drinkingWater

Coke Coca Cola, Fanta,

Sprite, Thumps Up,

Limca, Kinley

Soft Drink, Packaged

drinking

Water


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INDIAS IMPORT AND EXPORT OF VARIOUS

COMMODITIES

The Ministry of Food Processing Industries has been encouraging the new processing

capacities for agro-food products through its various policy initiatives and plan schemes

providing financial incentives for setting up of new units and modernization of existing units.

Supported by a committed government in improving the food trade and providing a

conducive atmosphere for agriculture, India is a net exporter of agricultural products. BMI

India Food and Drink Report for Q1 2009, expects India to be a net food exporter to 2013.

The report attributes the status to India's immense landmass and availability of a large

number of commodities. Over the forecast period to 2013, exports are expected to increase by

72.8 percent over 2008 to USD 24.25 billion. However, in spite of vast natural resources,

import growth of food products in India is also expected to be strong over the forecast period,

to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export 1 of

processed segments is growing much faster as shown in the figure.


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Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India.

MPEDA is responsible for overseeing all fish and fishery product exports; other processed

food product exports are the responsibility of APEDA. The Government of India (GOI) has

accorded high priority to the establishment of cold chains and encourages major initiatives in

this sector.

Foreign equity participation of 51 percent is permitted for cold chain projects.

There is no restriction on import of cold storage equipment or establishing cold

storages in India.

National Horticulture Board (NHB) operates a capital investment subsidy scheme

(CISS) that subsidies the promoter.


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According to the WTO statistical database, the US is the world's leading food exporter

followed by Netherlands, Germany, France and Brazil in the top five. In spite of the

supply advantages, India stands a distant 21st for the year 2007, with a 1.4 percent share

in the global trade. India is a major exporter in the Food Industry and imports less. Theexports are growing at over 15 percent y-o-y with 2007 growth a high 29 percent. During

the period 1980-2007, India's share in the global exports have increased from 1.1 percent

to just 1.4 percent, the majority of the increase happening in this decade.


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GOVERNMENT REGULATION AND SUPPORT

Since liberalization several policy measures have been taken with regard to regulation &

control, fiscal policy, export & import, taxation, exchange & interest rate control, export

promotion and incentives to high priority industries. Food-processing and agro industries

have been accorded high priority with a number of important relieves and incentives. Some

of the important policy changes are as follows.

Regulation and Control

As per extant policy, FDI up to 100% is permitted under the automatic route in the

food infrastructure (food park, cold chain/warehousing).

Automatic approval to FDI up to 100% equity in FPI sector excluding alcoholic

beverages and a few reserved items.

Foreign investments are allowed in SSI reserved items under an export obligation

(pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil,

groundnut oil, sweetened cashew nut products, ground and processed spices other

than spice oil and oleoresin, tapioca sago and its flour).

FDI up to 100% is permitted on the automatic route for distillation & brewing of

alcohol subject to licensing by the appropriate authority.

No industrial license is required for almost all of the food & agro processing

industries except for some items like: beer, potable alcohol & wines, cane sugar,

hydrogenated.

Animal fats & oils etc. and items reserved for exclusive manufacture in the small-

scale sector.

Up to a maximum of 24% foreign equity is allowed in SSI sector


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Fiscal policy and taxation:

Rupee is now fully convertible on current account and convertibility on capital

account with unified exchange rate mechanism is foreseen in coming years.

Repatriation of profits is freely permitted in many industries except for some, where

there is an additional requirement of balancing the dividend payments through export

earnings.

Liberal corporate tax policy is applicable for export and domestic earnings, income

tax rebate allowed (100% of profits for five years and 25% of profits for the next five

years) for setting up of new agro-processing industries to process and package fruits

& vegetables.

Fruits & vegetables, and dairy machineries are completely exempt from centralexcise duty. Central excise duty on preparation of meat, poultry and fish, pectin, pats

and yeast is also completely exempt.

Quantity restrictions on all food products have been removed. Peak rate of customs

duty has been reduced from 30% to 25% (excluding agricultural and dairy products)

and duty structure on designated items has been rationalized.

Customs duty on refrigerated goods transport vehicles has been reduced form 20% to

10%. Excise Duty of 16% on dairy machinery has been fully waived off and exciseduty on meat, poultry and fish products has been reduced from 16% to 8%.

Export promotion:

Food-processing industry is one of the thrust areas identified for exports. Free Trade

Zones (FTZ) and Export Processing Zones (EPZ) have been set up with all

infrastructures. Also, setting up of 100% Export Oriented Units (EOU) is encouraged

in other areas. They may import free of duty all types of goods, including capital

foods.

Capital goods, including spares up to 20% of the CIF value of the capital goods may

be imported at a concessional rate of customs duty subject to certain export

obligations under the EPCG scheme. Export linked duty free imports are also allowed.

Units in EPZ/FTZ and 100% EOUs can retain 50% of foreign exchange receipts in

foreign currency accounts.


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50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff

area.

All profits from export sales are completely free from corporate taxes. Profits from

such exports are also exempt from MAT.

Agri export zones and food parks

Setting up of 60 agri zones for end-to-end development for export of specific product

from geographically contiguous areas.

53 food parks approved to enable small and medium food and beverage units to set up

and to use capital intensive common facilities such as cold storage, warehouse, quality

control labs, effluent treatment plant, etc.


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REGULATORY FRAMEWORK

There are different laws that govern the food-processing sector in India. The prevailing laws

and standards adopted by the Government to verify the quality of food and drugs is one of the

best in the world. Multiple laws/regulations prescribe varied standards regarding food

additives, contaminants, food colours, preservatives and labeling. In order to rationalize the

multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and

other changes to formulate a modern, integrated food law, which will be a single reference

point in relation to the regulation of food products. The food laws in India are enforced by the

Director General of Health Services, Ministry of Health and Family Welfare, Government of

India (GOI).

Various food laws

Applicable to food and related products in India are Prevention of Food Adulteration

Act (PFA), 1954 and Rules (Ministry of Health & Family Welfare): Covers

specifications related to food colour, preservatives, pesticide residues, packaging and

labelling, and regulation of sales. The Standards of Weights and Measures Act, 1976,

and Standards of Weights and Measures (Packaged Commodities) Rules, 1977:

Designed to establish fair trade practices with respect to packaged commodities

Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development).

Essential Commodities Act, 1955 (Ministry of Food & Consumer Affairs).

Fruit Products Order (FPO), 1995: Specifications and quality control requirements

regarding the production and marketing of processed fruits and vegetables, sweetened

aerated water, vinegar, and synethic syrups.

Meat Food Products Order, 1973 (MFPO): Administers the permissible quantity of

heavy metals, preservatives, and insecticide residues for meat products

Milk and Milk Products Order, 1992: Regulates the production, distribution, and

supply of milk products; establishes sanitary requirements for dairies, machinery, and

premises; and sets quality control standards for milk and milk products.

The Food Safety and Standards Act, 2006: In August 2006, the Government of

India had passed a new legislation Food Safety and Standards Act. The Act proposes


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establishment of a new authority, the Food Safety and Standards Authority,

reorganisation of scientific support pertaining to the food chain through the

establishment of an independent risk assessment body and a new Food Law, merging

eight separate Acts.

The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation

of Production, Supply and Distribution) Act, 1992 and Rules 1993.

The Insecticide Act, 1968.

Export (Quality Control and Inspection) Act, 1963.

Environment Protection Act, 1986.

Pollution Control (Ministry of Environment and Forests).

Industrial Licenses.

BIS Act, 1986.

VOP (Control) Order1947.

SEO (Control) Order -1967.


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PESTAL ANALYSIS ON FOOD PROCESSING INDUSTRIES

POLITICAL

In terms of policy support, the ministry of food processing has taken the following

initiatives:

Formulation of the National Food Processing Policy

Complete de-licensing, excluding for alcoholic beverages

Declared as priority sector for lending in 1999

Formulation of the National Food Processing Policy

Excise duty waived on fruits and vegetables processing from 200001

Income tax holiday for fruits and vegetables processing from 200405

Customs duty reduced on freezer van from 20% to 10% from 2005 06

Implementation of Fruit Products Order

Implementation of Meat Food Products Order

Enactment of FSS Bill 2005

Food Safety and Standards Bill, 2005

Apart from these initiatives, the Centre has requested state Governments to undertake the

following reforms:

Amendment to the APMC Act

Lowering of VAT rates

Declaring the industry as seasonal

Integrate the promotional structure

ECONOMICAL

The size of the Indian urban food market is estimated at Rs 350,000 crore. The

domestic market for processed food is huge and fast growing. The retail boom will

create a huge demand for the food-processing sector in the coming years. Little wonder

that 2007 has been designated the Year of Food Technology.


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The private sector is yet to realize its full potential in the food-retailing sector, as the

market is still to explore. Though, it has now started discovering the money there is to

be made in the urban food retailing market.

SOCIAL

Opportunity to trade globally

Conducive working environment

Subsidy provided by the government encourage development in this sector

Increased infrastructure

Vast domestic market

Various initiative and assistance in project make this sector more investor friendly

TECHNICAL

Legal aspect has important role in grain sector act such as MRTP has been relaxed n

made more flexible

There is continuous improvement in TPM and TQM

Legal document such as standardization sheet are required to meet the customer need


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FIVE FORCES ANALYSIS

THREAT OF NEW ENTRANTS

The threat of new entrants is an issue that large industry cannot ignore. Entry barriers

into the industry are quite low, because most of the processed food items have been

exempted from the purview of licensing under the Industries, Development and

regulation, Act, 1951. There is also high potential for incentives if these small

industries are able to succeed. Both of these facts can be considered threats to large

established industries. The production of food grains is increasing but the capacity of

processing is not increasing, so there is also a gate open for new entrants. There is one

more reason for low entry barrier i.e., for the focused growth of the 'pulse milling and

flour milling' sector, the Ministry is providing financial assistance to the grain

processing industries for its setting up/ expansion/ modernization in the form of grant.

Indias comparatively cheaper workforce can be effectively utilized to setup large low

cost production bases for domestic and export markets. A few opportunities

associated with potential entrants is that established firms can take advantage of

economies of scale in production, access to distribution channels, and large amounts

of capital to launch massive advertising campaigns.

The most common forms of entry barriers for food grain processing, except intrinsic physical

or legal obstacles, are as follows:

Cost of entry: for example, investment into technology for oil processing because the

grant is given for rice milling and flour milling only;

Distribution channels: for example, ease of access for competitors;

Cost advantages not related to the size of the company: for example, contacts and

expertise;

Differentiation: for example, certain brand that cannot be copied i.e. new entrants

have to introduce something new or something innovative to enter into the market.


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Factors Affecting the Threat of New Entrants

The threat of new entrants is greatest when:

Processes are not protected by regulations or patents.

Start-up costs are low for new firms entering the industry as ministry is giving

grant for rice and flour milling.

Customers have little brand loyalty. Without strong brand loyalty, a potential

competitor has to spend little to overcome the advertising and service programs of

existing firms and is more likely to enter the industry.

Switching costs are low as there are many suppliers in the industry.

Reducing the Threat of New Entrants

Enhancing the marketing/brand image, utilizing patents, and creating alliances with

associated products can minimize the threat of new entrants. Competitors may enter the

industry if there are excess profits, setting a price that earns positive but not excessive

profits could lessen the threat of new entry in the industry.

POWER OF BUYERS

Buyers have the most power when they are large and purchase much of your output. If

your business sells to a few large buyers, they will have significant leverage to

negotiate lower prices and other favorable terms because the threat of losing an

important buyer puts you in a weak position. Buyers also have power if they can play

suppliers against each other. The most important determinants of buyer power are thesize and the concentration of customers. The bargaining power of buyers is high where

there are a large number of undifferentiated small suppliers.


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Factors Influencing the Bargaining Power of Buyers

Buyers have more power in this industry because:

The industry has many small companies supplying the product and buyers are

few and large.

The products represent a relatively large expense for the customers. Customers

may not purchase a barrel of oil, but they will purchase if they are selling it

again to a retailer.

The retailers have access to and are able to evaluate market information. The

firm has less room for negotiation if buyers know market demand, prices, and

costs.

The firms product is not unique and can be purchased from other suppliers. Ifthe brand is homogenous or similar to all of the others, buyers will base their

decision mainly on price.

Customers can easily, and with little cost, switch to another product. For

example, due to competition when Agro Tech Foods launched their lower-

priced blended oil under Sundrop umbrella they acquired mass market in edible

oils.

Reducing the Bargaining Power of Buyers

The firm can reduce the bargaining power of their customers by increasing their loyalty

by selling directly to consumers, or increasing the inherent or perceived value of a

product by adding features or branding. In addition, if the firm can select the customers

who have little knowledge of the market and have less power, the firm can enhance

their profitability.

POWER OF SUPPLIER

The suppliers have little power because there are numerous throughout India that

industry can choose who to buy from, so this would be considered an opportunity for

industry. A threat involved with the power of suppliers is that suppliers can fairly easily

integrate forward into the industry and become a rival.


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Every business requires inputslabor, parts, raw materials, services etc. The cost of the

inputs can have a significant effect on the industrys profitability. Whether the strength

of suppliers represents a weak or a strong force hinges on the amount of bargaining

power they can exert and, ultimately, on how they can influence the terms andconditions of transactions in their favor. Suppliers would prefer to sell to the firm at the

highest price possible or provide the firm with no more services than necessary. If the

force is weak, then the firm may be able to negotiate a favorable business deal for

themselves. Conversely, if the force is strong, then the firm is in a weak position and

may have to pay a higher price or accept a lower level of quality or service.

In the food grain processing industry, there are many suppliers for raw materials like inflour milling, the firm can buy wheat directly from the farmers or ITC or the

wholesaler. So the force is weak and the firm is able to negotiate a favorable business

deal.

Factors Affecting the Bargaining Power of Suppliers

Suppliers have the most power when:

The input(s) the firm requires are available only from a small number of

suppliers. For instance, rice mainly produced in southern region of the country

so the rice milling firm in northern region has small number of suppliers.

The inputs the firm requires are unique, making it costly to switch suppliers. If

the firm uses a certain enzyme in a food manufacturing process, changing to

another supplier may require the firm to change their entire manufacturing

process. This may be very costly to the firm, thus they will have less bargaining

power with their supplier.

It is difficult for the firm to switch to another supplier.

The firm does not have a full understanding of their suppliers market. They are

less able to negotiate if they have little information about market demand,

prices, and suppliers costs. For example Jaora Gold.


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Reducing the Bargaining Power of Suppliers

To increase the firms power, form a buying group of small producers to buy as one

large-volume customer. If the firm has the resources, they may choose to integrate back

and produce their own inputs by purchasing one of their key suppliers or doing theproduction their self.

THREAT OF SUBSTITUTES

The threat that substitute products pose to an industry's profitability depends on the

relative price-to-performance ratios of the different types of products or services to

which customers can turn to satisfy the same basic need. The threat of substitution is

also affected by switching coststhat is, the costs in areas such as retraining, retooling

and redesigning that are incurred when a customer switches to a different type of

product or service. Products from one business can be replaced by products from

another. If a firm produces a commodity product that is undifferentiated, customers can

easily switch away from their product to a competitors product with few consequences.

In contrast, there may be a distinct penalty for switching if their product is unique or

essential for their customers business. Substitute products are those that can fulfill asimilar need to the one that a firms product fills. As an example, a family restaurant

may prefer to buy the processed pulse by a firm, but if given a better deal, they may go

to another supplier.It also involves:

Product-for-product substitution (soya oil for groundnut oil); is based on the

substitution of need;

Substitution that relates to something that people can do without (soya oil,groundnut oil).

Factors Affecting the Threat of Substitution

Substitutes are a greater threat when:

A firms product doesnt offer any real benefit compared to other products.

What will hold their customers if they can get an identical product from their

competitor?


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Customers have little loyalty. When price is the customers primary motivator,

the threat of substitutes is greater.

Reducing the Threat of Substitutes

The firm can reduce the threat of substitutes by using tactics such as staying closely in

tune with customer preferences and differentiating their product by branding. In some

cases, the advertising required to differentiate is more than one firm can bear. In that

case, collective advertising for an industry may be more effective.

RIVALRY AMONG COMPETING FIRMS IN INDUSTRY

Rivalry among competitors is often the strongest of the five competitive forces, but can

vary widely among industries. If the competitive force is weak, companies may be able

to raise prices, provide fewer products for the price, and earn more profits. If

competition is intense, it may be necessary to enhance product offerings to keep

customers, and prices may fall below break-even levels. Rivalries can occur on various

playing fields. In food grain processing industries, rivalries are centered on price

competition especially industries that sell edible oils, for example the Agro TechFoods launched their lower priced Sundrop edible oil. In other industries, competition

may be about offering customers the most attractive combination of good ingredients,

or creating a stronger brand image than competitors.

Factors Influencing Rivalry among Competitors

The most intense rivalries occur when: One firm or a small number of firms have incentive to try and become the

market leader. In some cases, an industry with two or three dominant firms may

experience intense rivalry when these firms are battling to achieve market leader

status. In other situations, when competitors with diverse strategies and

relationships have different goals and the rules of the game are not well

established, rivalry will be more intense.

For example the government is providing grants for establishing new flour and

rice milling.


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There are high fixed costs of production. When a large percentage of the cost to

produce products is independent of the number of units produced, businesses

are pressured to produce larger volumes. This may tempt companies to

drastically cut prices when there is excess capacity in the industry in order to

sell greater volumes of product.

Products are perishable and need to be sold quickly. Sellers are more likely to

price aggressively if they risk losing inventory due to spoilage or if storage costs

are high.

Products are not unique or homogenous. Undifferentiated products

(commodities) compete mainly on price, because consumers receive the same

value from the products of different firms. Because firms do not experience any

insulation from price competition, there is more likely to be active rivalry. Customers can easily switch between products. Intense rivalry is likely when

customers in a given industry can easily switch to other suppliers. In these

situations, the businesses in the industry will be vying for market share.

Reducing the Threat of Rivals

Threats of rivals can be reduced by employing a variety of tactics. To minimize pricecompetition, distinguish the product from the competitors by innovating or improving

features. Other tactics include focusing on a unique segment of the market, distributing

your product in a novel channel, or trying to form stronger relationships and build

customer loyalty.


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SWOT ANALYSIS OF HALDIRAM

STRENGTHS:

Brand awareness and recall

Variety of products likes papads, namkeens, cookies, chips, sweets, sherbets, dry

fruits, etc.

Trusted for quality and hygiene

Attractive and efficient packaging

Good supply chain ensuring availability of products

Aptly priced for the customers

Loved for its taste

Exported to many countries

WEAKNESSES

Less advertising is done compared to other food brands

Involved only in Indian snacks

Outlets are limited only to mainly North India

OPPORTUNITIES:

Increase its reach in India and abroad

Expand the hotel business

Increase the number of outlets

Aggressively advertise and promote the brand

Introduce healthy snacks like fat free, low calories and baked Innovate by introducing snacks catering to the youth

THREATS:

Customers are inclined towards western ways, and are not interested in Indian snacks

Indian snacks are considered unhealthy

Increased competition from other brands and local players


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SWOT ANALYSIS OF CADBURY

STRENGTHS:

Cadbury is a company, which is reputed internationally as the topmost chocolate

provider in the world.

The brand is well known to people & they can easily identify it from others.

Cadbury the world leaders in chocolate, is a well-known force in marketing and

distribution.

Users have a positive perception about the qualities of the brand.

Cadbury main strength is Dairy milk. Dairy milk is the most consumed chocolate in

India.

By using popular models like Cyrus Brocha, Preety Zinta and others Cadburys has

managed to portray a young and sporty image, which has resulted in converting

buyers of other brands to become its staunch loyalists.

Cadbury has well-adjusted itself to Indian custom.

It has properly repositioned itself in India whenever required i.e. from children toadults, togetherness bar to energizing bar for young ones etc.

WEAKNESSES: There is lack of penetration in the rural market where people tend to dismiss it as a

high end product. It is mainly found in urban and semi-urban areas.

It has been relatively high priced brand, which is turning the price conscious customeraway.

People avoid having their chocolate thinking about the egg ingredients.

OPPORTUNITIES:

The chocolate market has seen one of the greatest increases in the recent times

(almost @ 30%) There is a lot of potential for growth and a huge population who do not eat chocolates

even today that can be converted as new users.

THREATS:

There exists no brand loyalty in the chocolate market and consumers frequently shift

their brands.

New brands are coming and existing brands are introducing new variants to add up to

an already overcrowded market.


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MAJOR FOOD PROCESSING COMPANIES

Player

Segment Products About the company

Dabur India

Ltd.

Beverages

and Culinary

Fruit juice,

cooking

pastes, coconut

milk,

tomato puree,

lemon

drink, chili

powder and

honey.

Closely held listed

company with

Promoters holding at

78.4 per cent of the

total share capital.

Dabur Foods is a 100

per cent subsidiary of

Dabur India

Turnover of US$

19.12 million in 2004

Gits Food

Products Pvt.

Ltd.

Snack foods

and dairy

Sweet mix,

namkeens,

snack mix meal

mix, pure

ghee, dairy

whitener and

milk powder

Gits exports to

Europe, UK, USA,

Australia, Canada,

and the Middle East

contributing to the

extent of

approximately 35 per

cent of its total

Revenue.

Gits is an unlisted

private family owned

business.

Godrej

Industries

Ltd.

Beverages

and Staples

Edible oils,

vanaspati,

bakery fats, fruit

drinks,

fruit nectar, fruit

juices

and tomato puree

Revenues from the

food segment were

US$ 250 million in

FY04.


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Haldiram

Marketing

Pvt. Ltd.

Snack Foods

Sweets,

namkeens,

syrups, crushes,

chips

and papads

Started in 1936

Major share in the

namkeen and snack

food market in India.

Strong presence in

northern India

especially in New

Delhi.

Exports to USA, UK,

Canada, Australia,

Singapore and the

UAE.

MTR Foods

Ltd.

Snack Foods,

Ice creams

Ready-to-Eat

curries

and rice, Ready-

to-Cook

gravies, frozen

foods, ice

creams, instantsnack

and dessert

mixes, spices

(turmeric,

coriander,

black pepper),

pickles

and papads.

Turnover is estimated

at US$ 261 million

with the export

market accounting for

approximately 10 per

cent of MTRs total

sales. An ISO 9002 and

HACCP certified

company is amongst

the top five processed

food manufacturers in

India.

The company wasrecently acquired by

Orkla, a Norway-

based company for

US$ 80 Million.

Parle Agro

Private

Ltd.

Beverages and

Bottled water

Fruit drinks and

mineral water

Leading player in the

fruit based beverages

segment and the


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bottled water

segment.

Its flagship product is

the fruit based drink

Frooti Mango, which

has 75 per cent market

share.

Milkfood Milk food

Milk powder,

baby food,

cheese and other

milk

products

The company is a

subsidiary LP

Investments Ltd.

which is a wholly

owned subsidiary ofJagatjit Industries Ltd.

Revenues of around

US$ 6.8 million in

2006-07.

Hindustan

Unilever

Limited(HUL)

Beverages, Staples,

Dairy, Snack Foods

Tea, instant

co

industry project on food processing industy-urvi pathak

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