The potential of India's food industry

India is the world's second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The processing food segment accounts for 29.4 billion, in a total estimated food market of about $91.7 billion. The food processing industry is one of the largest industries in India. It currently ranks fifth in terms of production, consumption, export and growth prospects.

The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and generates employment of 9 million person-days. The Government has formulated and implemented several Plan Schemes to provide financial assistance for setting up and modernizing food processing units, creation of infrastructure, support for research and development and human resource development in addition to other promotional measures to encourage the growth of the processed food sector.

Though the industry is large in size, it is still at a nascent stage in terms of development. Of the country's total agriculture and food produce, only 2 per cent is processed. The highest share of processed food is in the dairy sector, where 37 per cent of the total produce is processed, of this only 15 per cent is processed by the organized sector.

India's food processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya-based products, mineral water, high protein foods etc. We cover an exhaustive database of an array of suppliers, manufacturers, exporters and importers widely dealing in sectors like the Food Industry, Dairy processing, Indian beverage industry etc. We also cover sectors like dairy plants, canning, bottling plants, packaging industries, process machinery etc.

The most promising sub-sectors includes Soft-drink bottling, Confectionery manufacture, Fishing, aquaculture, Grain-milling and grain-based products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-food, Ready-to-eat breakfast cereals, Food processing, Food additives, flavors etc.

Government initiatives

The Government of India has identified the Food Processing Industry sector as a high priority area. It has given a number of fiscal relief and incentives to encourage commercialization and value addition to agricultural produce. As per a study conducted by McKinsey and Confederation of Indian Industry (CII), the turnover of the total food market is approximately US $ 69.4 billion out of which value-added food products comprise US $ 22.2 billion.

Since the liberalization in August, up-till February 2000, proposals for projects of over US $13.4 billion have been proposed in various segments of the food and agro-processing industry. Besides this, the Government has also approved proposals for joint ventures; foreign collaboration, industrial licenses and 100%export oriented units envisaging an investment of US $ 4.80 billion during the same period. Out of this, foreign investment is over US $ 18.2 billion.

Indian Finance Minister P. Chidambaram, in an attempt to provide an impetus to the food processing industry, has announced that food processing would be treated as a priority sector for bank credit. Chidambaram said the National Agriculture and Rural Development Bank (Nabard) would create a separate window with a corpus of $223 million for "refinancing loans to the sector, especially for agro-processing infrastructure and market development".

India is also considering investing another $22.97m in at least 10 mega food parks in the country. The move is besides working towards offering 100% foreign direct investment and income-tax benefits to the sector. According to Indian Credit Rating Agency (Icra), the processed food market accounts for 32% of the total food market.

The industry associations are also pro-active. The CII will shortly approach the government with an action plan seeking fiscal sops and policy initiatives for the food processing industry. The organized and unorganized industry in India is estimated at $102 billion. CII wants its proposals incorporated in the 11th Plan. These include providing new broadband category definitions to bring in uniformity in taxation and flexibility in manufacturing. The idea is to change the present narrow product-specific definitions to an all-encompassing one that would even include packaging in the policy for food processing.

The Associated Chambers of Commerce & Industry of India (ASSOCHAM) has sought a 10 year tax holiday for food parks and integrated food zones and also urged the government to provide exemption of income from grading of agriculture and farm produce, cold storage, processing of fruit and vegetables for a period, beginning April 2007 until March 2012.

Indianization

International fast food brands spice up their plans of entering India. Many like UK brand Dixy Chicken and pizza outlet Papa John's made their foray recently, Cinnabon and Barnie's will open their first store this year and a host of other brands, including SumoSalad and Panda Express, are scouting for local partners to tempt the Indian palate.

Fast-food retail chains such as KFC, McDonald's, Domino's, Pizza Hut and others are re-learning marketing lessons and segmenting their product portfolio to capture Indian consumers across diverse income levels and lifestyles. The strategy is an attempt by some top retailers to tone up profit margins with a multi-layered product portfolio that addresses the aspirational need of consumers willing to splurge while meeting the basic requirement at the bottom-end.

With cut-throat competition to set up standalone outlets at busy marketplaces getting tougher, fast-food chains have come up with a new recipe for success - takeover and manage canteens across schools, colleges and corporate offices.

With global supermarket majors such as Wal-Mart, Tesco and Carrefour among others increasing sourcing of processed foods from the country, it makes monetary sense for local companies to enter/expand in this arena. In fact, Food Processing Minister Subhodh Kant Sahai had said at the beginning of the year that foreign retail giants are willing to buy as much as $30 billion worth of processed food from the country.

Investments

The food processing sector needs investment of about $28-35bn to meet the changing food demands in India, according to industry estimates. The outlay for the food processing segment has been increased from $19.5m in '04-05 to $41.4m in the next year, more than twice the earlier amount.

Foreign direct investment (FDI) in the country's food sector is poised to hit the US$ 3-billion mark. In the last one year alone, FDI approvals in food processing have doubled. Add to this the $55 million that has been invested in sugar and cooking oil companies, and you can see how the changing diet of upwardly mobile India along with the new mega food parks are becoming dishy to overseas investors. Foreign direct investment in food already beats the money being pumped into the far-more-glamorous hotels and tourism industry.

According to latest industry ministry data, the cumulative FDI inflow in food processing reached $2,804 million in March '06. In '05-06, the sector received approvals worth $41million. This figure is almost double the $22million approved in '04-05.

Foreign investors are keen in investing in the country. Recently, India has received an encouraging response from investors in the UK for establishing joint quality control testing facilities for agriculture products and establishing cold storage facilities in the country, Minister of State for Food Processing Industries Subodh Kant Sahai said.

Bon Appetite

The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Health food and health food supplements is another rapidly rising segment of this industry which is gaining vast popularity amongst the health conscious.

In a bid to remove constraints in the way of investments in the sector, the Ministry of Food Processing Industries (MoFPI) is set to push for creating a favorable fiscal environment to induce venture capital and mutual funds to invest in different components of supply chain or in the entire chain. This follows the recommendations of a Rabo Bank study commissioned by the Ministry to unlock investments to the tune of $33.4 billion in this sector over the next 10 years.

Since the sector offers immense growth potential, a large number of multi national companies (MNCs) have entered India to take advantage of the opportunity. Unilever, Nestle, Pepsi and Cadbury are some of the big, successful overseas players in India that face a strife from established Indian brands.

According to a recently published report by RNCOS, Indian Food Processing (2006), :"In next 3 years, the Indian food processing industry is anticipated to grow to 3 times its current size making India a key and consequential player in the food and agriculture trade. Despite being recognized as a promising growth area, the current share of Indian food processing market in the world food trade is only 2%."

The food processing and bakery products sector has given the stock markets something to munch on. Stocks of major players in this slow-moving sector have been performing well on good corporate results, helpful economic conditions and good weather. Although thin margins will call for increased volumes for these companies to remain afloat two years down the line, the long-term prospects are still good because opened-up rural markets and an ever expanding consumer base will ensure volumes.

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