CHAPTER: 1

INTRODUCTION

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1.1. Introduction of Report

This report provides an overview of our food production and consumption system, its

impacts on the environment and its vulnerability to environmental problems and resource

constraints. The aim of the report is to identify any significant challenges to the future

security of the food system in India that arise from environmental and resource issues,

and the risks, constraints and social or political responses to these. The report also

considers a range of response strategies being developed and explored at various points

across the food system. Upon completion, this work will be circulated as a discussion

paper to researchers, government policy officers, and other stakeholders. This is intended

to inform and stimulate:

→ Clarification (confirm or modify) the set of expected policy challenges.

→ Policy responses and program development where sufficient evidence exists.

→More detailed studies (further research) where evidence or further investigation is

Needed.

→ Collaboration across complex issues in the food system.

The ‘food system’ includes the interdependent parts of the system that provides food for

local consumption and for export. It includes all the components and processes by which

food is produced (grown and/or processed), stored and distributed, delivered to end-

consumers and consumed (including further processing and storage) – as well as all the

processes that deal with waste along the ‘food chain’

‘Food security’ has been described as “the state in which all persons obtain nutritionally

adequate, culturally acceptable, safe foods regularly through local non-emergency

sources. The Indian Government’s investment in food security focuses on regular access

to healthy eating, noting that access is fundamentally dependent on secure food supplies

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The policy objective of food security requires attention to potential risks and challenges

to the ongoing security of food supplies for all Indians, where ‘security’ refers both to

‘provision’ and to ‘accesses’. Food security is being increasingly challenged by resource

constraints (eg. water, energy, land, oil, agricultural inputs) and environmental risks such

as climate change. In recent years Significant concern about food security and supply in

the India has stimulated numerous investigations. The possible impacts of resource

constraints and environmental risks on the Indian food system and food security are

examined throughout this report, guided by reference to research and policy development

occurring in other comparable economies.

Policy responses to environmental risks and the need to reduce the environmental impacts

of the food system, will also present challenges. For example, the impacts of climate

change are already (and will continue to be) a significant driver for change in production

of food. But the social and economic adjustments aimed at mitigating climate change

(e.g. emissions trading) will themselves become pressures for the food system.

There are other non-environmental pressures on the existing food system for India with

possibly significant consequences such as the health and wellbeing of the community.

The role of food production systems, consumption patterns and food-processing, on diet

and nutrition, has been the subject of interdisciplinary research in India and are under

further investigation elsewhere. This area is addressed briefly in this document, but only

to identify possible intersections of the health and environmental implications of the food

system.

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1.1.2. Scope of the Report

The report covers an overview of the global food processing industry along with the

position of the Indian food processing industry in the global scenario.

The report will focus on the dynamics of the industry, the market segments, the

growth of the sectors in India and what are the challenges and opportunities that the

industry is facing. On the competitive landscape, the report lays out the major food

processing companies that functions within the Indian industry and the strategies

these companies are following to capture the major chunk of the market share.

The concluding part of the report covers the drivers of the industry and the future

Prospects of the food processing industry in India.

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1.1.3 Research Objective

To analyze the market share of organized Food Processing sector compare to other unorganized Food Processing sector

To study the future growth of Food Processing Industry in India

To make a comparative analysis of Indian Food Processing Industry with the Food Processing industry in the world

To make the financial analysis of Indian Food Processing Industry

To study the sustainability of Indian Food Processing Industry

To study the Resources and the constraints of the Indian Food Processing Industry

To study the impact of Food Processing Industry on Indian Economy

To study the marketing and technological skills required for the nature and the scope of the Indian Food Processing Industry.

To study the effect of MNC’s in the Indian Food Processing Industry.

TO STUDY THE DRIVING FORCES THOSE ARE AFFECTING INDIAN

FOOD PROCESSING INDUSTRY.

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1.2. Introduction of Food Processing Industry

1.2.1. The History of Food Processing Industry

The origin of food processing goes all the way back to ancient Egypt, yet the period of

those developments seems to symbolize the history of the culture of mankind. Nowadays,

bread, which is characterized by its use of the fermentation action of yeast and which

uses wheat flour as its raw material, is baked all over the world. The origins of beer also

go back to Babylon and Egypt in the period from 3,000 to 5,000 BC.

The foundation of the modern industry was built up with the introduction of machinery

and technology of new methods from Germany. Nowadays, the processed foods that are

thriving in grocery shops are modern processed foods and traditional foods, but their

manufacturing technology, process control and manufacturing and packaging

environmental facilities have been advanced and rationalized to an incomparable extent

in the last 30 years. As a result, products with high quality and uniformity are now being

manufactured. This is based on the advancement of food science, and is, moreover, due to

the general introduction of hygienics, applied microbiology, mechanical engineering,

chemical engineering, electronic engineering and high-polymer technology. The most

remarkable developments until now have been convenient pre-cooked frozen foods, retort

pouch foods and dried foods. The mass production of excellent quality processed foods

without using unnecessary food additives has been made possible in the last 30 years by

grading and inspecting the process materials, carrying out proper inspections of processed

foods, and advances in processing technology, installation and packaging technology and

materials.

The history of processed food is the history of the rationalization of advanced technology

related to raw material treatment operations, processing operations, storage operations,

other processing equipment, cleaning of facilities, sterilizing and conservation treatment

operations and effluent and waste treatment operations. Worthy of note recently are

developments in container and tank lorry transportation, concentration using membrane

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technology in processing operations, vacuum refrigeration, vacuum freezing and

pressurized extrusion molding using two axle extruders. In storage operations,

technologies such as vapor drying, heat exchange sterilization, deoxygenating agents,

sterile filling packaging and PET bottle packaging have been developed. We have heard

the plans of soft drinks manufacturers who want to switch from active sludge methods of

wastewater treatment to methane fermentation methods.

1.2.2. Global food processing Industry

Food industry is not a formally defined term; however, it is usually used in a broadly

inclusive way to cover all aspects of food production and sale. The Food Standards

Agency, a government body in the UK, describes it thus:

"The whole food industry –from farming and food production, packaging and

distribution, to retail and catering."

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

same thing: "The world food system is a complex network of farmers and the industries

that link to them. Those links include makers of farm equipment and chemicals as well as

firms that provide services to agribusinesses, such as providers of transportation and

financial services. The system also includes the food marketing industries that link farms

to consumers and which include food processors, wholesalers, retailers, and foodservice

establishment’s food chain.

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Table 1.1. Consumer expenditure on food and drink 2001–07 (US$ billion)

Source: - FICCI Critical of EU’s New Food Safety Law. Web http://www.bisnetindia.com/bishtml/060012502441.htm

Supply chain of food processing industry and factor affecting in each activity

Agriculture

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

cultivation of certain plants and the raising of domesticated animals (livestock). The

practice of agriculture is also known as "farming", while scientists, inventors and others

devoted to improving farming methods and implements are also said to be engaged in

agriculture. More people in the world are involved in agriculture as their primary

economic activity than in any other, yet it only accounts for twelve percent of the world's

GDP.

Total agricultural trade consists of food and non- food commodities in both raw and

processed forms. Classification of agricultural trade is a breakdown of agricultural trade

into four components.

bulk commodities,

processed intermediate products,

fresh horticultural products,

Processed consumer goods.

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Over the years the share of bulk commodities in total agricultural trade has gone down.

Decreased demand for bulk commodities has been compensated by the growth in

intermediate processed products, which are essentially processed bulk commodities.

Processed intermediate products such as vegetable oils, flour etc.

The share of fresh horticultural products, i.e. products that are consumed without further

processing, in total agricultural trade is nearly constant.Recent improvements in

transportation technology have played a role in promoting trade of fresh products.

The faster growing categories in agricultural trade are non-bulk packaged processed food

products, which are marketed under different brands. Developed countries have played an

important role in promoting trade in processed food products. Share of these countries in

import of processed food products is more than developing countries, whereas in case of

bulk commodities share of developing countries exceeds the import of developed

countries.

Food processing

Food processing is the methods and techniques used to transform raw ingredients into

food for human consumption. Food processing takes clean, harvested or slaughtered and

butchered components and uses them to produce marketable food products. Consumer

expenditure on processed food and drink 2001–07 (US$ billion), as shown in below Chart

Graph:-1.1 Consumer expenditure on food

Sources: - Food Corporation of India, web http://fciweb.nic/Consumerexpen/.in

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Whole Food processing industry in divided mainly six sectors which are as shown in

figure 3 and food product cover in these sectors and shown in table 2

Figure: - 1.3. Major sector in food processing industry

Table:-1.2 Segmenting food product according to Food processing Sector

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1.2.3. Activity Use to Raise the Growth of Food processing

Industry

Food industry technologies

Sophisticated technologies define modern food production. They include many areas.

Agricultural machinery, originally led by the tractor, has practically eliminated human

labour in many areas of production. Biotechnology is driving much change, in areas as

diverse as agrichemicals, plant breeding and food processing. Many other areas of

technology are also involved, to the point where it is hard to find an area that does not

have a direct impact on the food industry. Computer technology is also a central force,

with computer networks and specialized software providing the support infrastructure to

allow global movement of the myriad components involved.

Marketing

Marketing is all about selling and buying of goods and services in exchange for money.

This is a very narrow view. There are three major facets of marketing. First is the

production-driven approach where stress is laid on selling whatever is produced. This

works during scarcity of goods. And the producer’s key function here is to sell goods

available at affordable prices. Most small and micro enterprises follow this approach. The

second is the sale-driven approach that revolves around personal selling and advertising

to convince customers to buy your product. This approach is adopted when there is an

abundance of supply in the market. The last is the consumer-driven approaches, which

focus on promoting sale by meeting the customers’ expectations in terms of quality,

looks, aesthetics, and prices and after sales-service. The earlier two approaches where

goods are tailor-made are producer-oriented and may not work satisfactorily as they

require a proper understanding of the consumer behaviors, preferences, tastes and needs

before undertaking production. The third being consumer-driven, lasts.

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This is why sales becomes a small part of an entire system called marketing that

addresses planning, pricing, promotion and distribution of goods and services to satisfy

customer needs. Food processing industry is totally consumer driven.

Therefore, you must understand that marketing is not just selling, but much

More, and includes:

I. Market Assessment

Ii. Market Segmentation

Iii. Market Targeting

iv. Developing Market Mix

As consumers grow increasingly removed from food production, the role of product

creation, advertising, publicity become the primary vehicles for information about food.

With processed food as the dominant category, marketers have almost infinite

possibilities in product creation so food processing industry have to focus on market

assessment , market segmentation market targeting and develop market mix.

Labor and education

Until the last 100 years, agriculture was labor intensive. Farming was a common

occupation. Food production flowed from millions of farms. Farmers, largely trained

from generation to generation, carried on the family business. That situation has changed

dramatically. In North America, over 50% of the population were farm families only a

few decades ago; now, that figure is around 1-2%, and some 80% of the population lives

in cities. The food industry as a complex whole requires an incredibly wide range of

skills. Several hundred occupation types exist within the food industry.

Research and development

Research in agricultural and food processing technologies happens in great part in

university research environments. Projects are often funded by companies from the food

industry. There is therefore a direct relationship between the academic and commercial

sectors, as far as scientific research.

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1.2.4. Outline of Prominent Food Companies in worldThe Food World is the biggest directory for food, beverage and agriculture industries,

worldwide. .

Both Archer Daniels Midland and Cargill process grain into animal feed and a

diverse group of products.

ADM also provides agricultural storage and transportation services, while Cargill

operates a finance wing.

Bunge is a global processed soybean exporter and is also involved in food

processing, grain trading, and fertilizer.

Dole is the world's largest fruit company.

Chiquita Brands International, another US based fruit company, is the leading

distributor of bananas in the United States.

Sunkist Growers, Incorporated is a U.S. based grower’s cooperative.

Tyson Foods is the world’s largest processor and marketer of chicken and the

largest beef exporter from the United States.

Smithfield is the world's largest pork processor and hog producer.

Nestlé is the world's largest food and beverage company.

Kraft Foods is the largest U.S. based food and Beverage Company.

Unilever is an Anglo-Dutch company that owns many of the world's consumer

product brands in foods and beverages.

Sysco Corporation, mainly catering to North America and Canada, is one of the

world's largest food distributors.

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1.3. Indian Food Processing Industry

1.3.1. History of food processing Industry in India

Food processing dates back to the prehistoric ages when crude processing incorporated

slaughtering, fermenting, sun drying, preserving with salt, and various types of cooking

(such as roasting, smoking, steaming, and oven baking). Salt-preservation was especially

common for foods that constituted warrior and sailors' diets, up until the introduction of

canning methods. Evidence for the existence of these methods exists in the writings of the

ancient Greek , Chaldean, Egyptian and Roman civilisations as well as archaeological

evidence from Europe, North and South America and Asia. These tried and tested

processing techniques remained essentially the same until the advent of the industrial

revolution. Examples of ready-meals also exist from pre industrial revolution times such

as the Cornish pasty and the Haggis.

Modern food processing technology in the 19th and 20th century was largely developed

to serve military needs. In 1809 Nicolas Appert invented a vacuum bottling technique that

would supply food for French troops, and this contributed to the development of tinning

and then canning by Peter Durand in 1810. Although initially expensive and somewhat

hazardous due to the lead used in cans, canned goods would later become a staple around

the world. Pasteurization, discovered by Louis Pasteur in 1862, was a significant advance in

ensuring the micro-biological safety of food.

In the 20th century, World War II, the space race and the rising consumer society in

developed countries (including the United States) contributed to the growth of food

processing with such advances as spray drying, juice concentrates, freeze drying and the

introduction of artificial sweeteners, colouring agents, and preservatives such as sodium

benzoate. In the late 20th century products such as dried instant soups, reconstituted fruits

and juices, and self cooking meals such as MRE food ration were developed.

In Western Europe and North America, the second half of the 20th century witnessed a

rise in the pursuit of convenience; food processors especially marketed their products to

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middle-class working wives and mothers. Frozen foods (often credited to Clarence

Birdseye) found their success in sales of juice concentrates and "TV dinners". Processors

utilized the perceived value of time to appeal to the postwar population, and this same

appeal contributes to the success of convenience foods today.

Benefits

More and more people live in the cities far away from where food is grown and

produced. In many families the adults are working away from home and therefore there is

little time for the preparation of food based on fresh ingredients. The food industry offers

products that fulfill many different needs: From peeled potatoes that only have to be

boiled at home to fully prepare ready meals that can be heated up in the microwave oven

within a few minutes.

Benefits of food processing include toxin removal, preservation, easing marketing and

distribution tasks, and increasing food consistency. In addition, it increases seasonal

availability of many foods, enables transportation of delicate perishable foods across long

distances, and makes many kinds of foods safe to eat by de-activating spoilage and

pathogenic micro-organisms. Modern supermarkets would not be feasible without modern

food processing techniques, long voyages would not be possible, and military campaigns

would be significantly more difficult and costly to execute.

Modern food processing also improves the quality of life for allergists, diabetics, and other

people who cannot consume some common food elements. Food processing can also add

extra nutrients such as vitamins. Processed foods are often less susceptible to early

spoilage than fresh foods, and are better suited for long distance transportation from the

source to the consumer. Fresh materials, such as fresh produce and raw meats, are more

likely to harbour pathogenic micro-organisms (e.g. Salmonella) capable of causing

serious illnesses.

Drawbacks

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In general, fresh food that has not been processed other than by washing and simple

kitchen preparation, may be expected to contain a higher proportion of naturally

occurring vitamins, fibre and minerals than the equivalent product processed by the food

industry. Vitamin C for example is destroyed by heat and therefore canned fruits have a

lower content of vitamin C than fresh ones.

Food processing can lower the nutritional value of foods. Processed foods tend to include

food additives, such as flavorings’ and texture enhancing agents, which may have little or

no nutritive value, or be unhealthy. Some preservatives added or created during

processing such as nitrites or sulphites may cause adverse health effects.

Processed foods often have a higher ratio of calories to other essential nutrients than

unprocessed foods, a phenomenon referred to as "empty calories". Most junk foods are

processed, and fit this category.

High quality and hygiene standards must be maintained to ensure consumer safety and

failures to maintain adequate standards can have serious health consequences.

Processing food is a very costly process, thus increasing the prices of foods products.

1.3.2. Current Market Overview

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India is a country of striking contrasts and enormous ethnic, linguistic, and cultural

diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven

Union Territories (under federal government rule). The states differ vastly in resources,

culture, food habits, living standards, and languages. Vast disparities in per-capita income

levels exist between and within India’s states. About 75 percent of the country’s people

live in its 550,000 villages; the rest in 200 towns and cities. There are 27 cities with a

population above one million people.

India has the largest number of poor, with 35 percent of the population surviving on less

than $1 per day, and 80 percent of the population surviving on less than $2 per day1.

Nearly 51 percent of Indians’ consumption expenditures go for food (54 percent in rural

area and 42 in urban areas) 2; mostly for basic items like grains, vegetable oils, and

sugar; very little goes for value added food items. In recent years, however, there has

been an increased shift towards vegetables, eggs, fruits, meat, and beverages. Religion

has a major influence on eating habits and, along with low purchasing power, supports a

predominantly vegetarian diet.

Some observers of India’s economic scene are, however, highly optimistic about

consumption growth potential, and believe that rising income levels, increasing

urbanization, a changing age profile (more young people), increasing consumerism, a

significant rise in the number of single men and women professionals, and the availability

of cheap credit will push India onto a new growth trajectory. These segments of the

population are aware of quality differences, insist on world standards, and are willing to

pay a premium for quality. Nonetheless, a major share of Indian consumers has to

sacrifice quality for affordable prices.

Potential US exporters should also bear in mind that India’s diverse agro-industrial base

already offers many items at competitive prices. Results of the “Market Information

Survey of Households,” conducted by the National Council of Applied Economic

Research, show that the share of households in the upper middle/high income group

(annual household income > Rs. 90,000, or $11,200 on purchasing power parity basis)

has grown from 14% in 1989-90 to 28% in 2001-02, and is projected at 48 percent in

2009-10. Correspondingly, there has been a decline in the low-income group.

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Sixty-five million people are expected to enter the 20-34 year age group from 2001 to

2010. By 2025, 40 percent of Indians are expected to be urban dwellers. Structural

reforms and stabilization programs during the 1990s have contributed to India’s sustained

economic growth, which has been relatively strong over the past two decades, averaging

6 percent annually. Since 1996, the Indian government has gradually lifted import-

licensing restrictions, which had effectively prohibited imports. On April 1, 2001, all

remaining quantitative restrictions were removed, putting India in compliance with its

WTO commitment. Nonetheless, the government continues to discourage imports,

particularly agricultural products, with the use of high tariffs and non-tariff barriers.

Import tariffs on most consumer products, although declining, are still high, ranging from

30.6 to 52.2 percent. Some sensitive items, such as alcoholic beverages, poultry meat,

raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Nontariff barriers

include unwarranted sanitary and phytosanitary restrictions and onerous labeling

requirements for pre-packaged foods. Other factors adversely affecting imports include a

poorly developed infrastructure (transportation and cold chain), a predominantly

unorganized retail sector, and outdated food laws.

However, some positive factors are:

• Rising disposable income levels

• Increasing urbanization and exposure to Western culture

• Growing health consciousness among the middle class

• Growing consumerism

• Changing age profile

• Increasing availability of cheap consumer credit

Current status of industry is shown in below table

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Table1. 4. Status of Food Processing Industry in India

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

India is a major producer of many agricultural commodities and it accounts for nine

per cent of the world’s fruit production and about 11 per cent of the vegetable

production. But the level of processing and value addition of fruits and vegetables is

just two per cent of the total production, compared to 65 per cent in the USA, 23 per

cent in China and 78 per cent in the Philippines as given in the figure below.

Graph: 1.2 food proessing perecentage in different country

Sources: - web http://www.fmi./worldfoodprocessed. /org

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There is huge wastage of perishable agricultural commodities. The position in the country

with regard to other products also is not very encouraging. The overall level of

processing of agricultural commodities in the country is estimated at six per cent. The

annual loss on account of wastage of agricultural commodities is estimated to be about Rs

50,000 crore.

At present, the food processing sector employs about 13 million people directly and about 35

million people indirectly. In 2006–07, food processing sector contributed about 14 per cent of

manufacturing GDP with a share of Rs 2,80,000 crore. Of this, the unorganised sector

accounted for more than 70 per cent of production in terms of volume and 50 per cent in

terms of value.

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CHAPTER: 2

Indian Food

Processing

Industry

Performance

21

2.1. Market Definition

The market for food processing industry is the complex in nature; it is global collective of

diverse businesses that together supply much of the food energy consumed by the

population. Only subsistence farmers, those who survive on what they grow, can be

considered outside of the scope of the modern food processing industry. The food

processing industry includes:

Regulation: local, regional, national and international rules and regulations for

food production and sale, including food quality and food safety, and industry

lobbying activities

Research and development: food technology

Financial services insurance, credit

Manufacturing: processed packed food, food processing machinery and

supplies, food processing construction, etc.

Food processing technology: preparation of fresh products for market,

manufacture of prepared food products

Marketing: promotion of generic products (e.g. milk board), new products,

public opinion, through advertising, packaging, public relations, etc

Wholesale and distribution: warehousing, transportation, logistics

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

restaurant, food services.

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2.2. Market Segments For Food Processing Industry

2.3 Food Processing Sector overview

Food processing is a large sector that covers activities such as agriculture, horticulture,

plantation, animal husbandry and fisheries. It also includes other industries that use

agriculture inputs for manufacturing of edible products. The Ministry of Food Processing,

Government of India has defined the following segments within the Food Processing

industry:

• Dairy, fruits & vegetable processing

• Grain processing

• Meat & poultry processing

• Fisheries

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

While the industry is large in terms of size, it is still at a nascent stage in terms of

development. Out of the country’s total agriculture and food produce, only 2 per cent is

processed. The highest share of processed food is in the Dairy sector, where 37 per cent

of the total produce is processed, of which 15 per cent is processed by the organized

sector. Primary food processing (packaged fruit and vegetables, milk, milled flour and

rice, tea, spices, etc.) constitutes around.

Table: 2.1 India’s food-processing sector

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India’s food-processing sector, though still developing, contributes 14 percent to the

manufacturing GDP (5.5 percent of aggregate GDP), produces goods worth rs. 2.8 trillion

($64 billion), and employs 13 million people1. Much of India’s food-processing industry

is small-scale and involves very little value addition, although in recent years several

multinational food-processing companies have started operations in India. A plethora of

internal restrictions, including (a) prohibition on foreign direct investment in retail, (b)

prohibitions on contract farming, (c) barriers to interstate commerce based on revenue

and food security concerns, (d) some of the highest taxes on processed foods in the

world, and (e) inefficient in infrastructure and marketing networks seriously constrain

growth of the sector.

The almost year-round availability of fresh products across the country, combined with

the consumers’ preference for fresh products and freshly cooked foods has dampened

demand for processed food products. The level of processing varies across segments –

ranging from less than 2 percent of the production in the case of fruits and vegetables to

over 90 percent in non-perishable products such as cereals and pulses. In the latter,

however, processing involves very little value addition, and is mostly confined to

grading, cleaning, milling, and packing; with negligible use of additives, preservatives,

and flavors.

Table: 2.2 Level of processed food in year 2008

1

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Product Level of Processing (% of total production)OrganizedSector

UnorganizedSector 1/

Total

Fruits & vegetables 1.2 0.5 1.7Milk 15.0 22.0 37.0Meat 21.0 0 21.0Poultry 6.0 0 6.0Marine fisheries 1.7 9.0 10.7Shrimp 0.4 1.0 1.4

Source: Rabobank Analysis

Source: - Web http://www.nasftlevelprocessing.org/

Table 2.3 level of processing Forecasted

“Unorganized” in fruits and vegetables includes unbranded pickles, sauces, and potato

chips, but excludes processing by street vendors; “unorganized” in dairy includes

processing by sweet food makers; “unorganized” in marine products includes processing

by small fishermen. .

At present, most inputs for the food-processing industry are sourced domestically, with

the exception of some bulk commodities that are in short supply, such as pulses and

vegetable oils, dried fruits and nuts, and small but increasing quantities of food additives

and ingredients such as soy proteins, whey, and flavors and essence. India annually

imports vegetable oils valued at over $2.6 billion and pulses valued at $560 million.

Imports of food ingredients were valued at $170 million in 2007/08, and include mostly

spices and condiments, dairy products, cocoa products, fish and fish products, fruit juices,

and other ingredients (yeasts, sauces, soft drink concentrates, flavoring materials, soy

protein concentrates and isolates, etc.).

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Unorganized, small players account for more than 70 percent of the industry’s output in

volume and 50 percent in value terms. Most of them operate locally, add little if any

value to products, and use outdated technologies. The government’s policy of reserving

the food-processing sector for small-scale units, effective until 1991, discouraged large-

scale domestic and foreign direct investment in the food-processing sector. However,

following economic liberalization in 1991, the food-processing industry was opened,

resulting in increased investment in this sector, both domestic and foreign. Over the last

few years, several large companies, both Indian and foreign, have invested in the food-

processing business in India, resulting in significant growth in this sector. Some of the

major players in India’s food-processing industry are listed in this report.

There are hundreds of medium-sized regional companies, some of them aspiring to

emerge as national players with their own established brands, who pose some

competition to large firms .The domestic organized processed-food market is expected to

triple in the next 10 years from about $100 billion in FINACIAL YEAR 2004 to $310

billion in FINACIAL YEAR 2015. India aims to increase its share of world trade in this

sector from 1.7% currently ($7.5 billion) to

3% by 2015 ($20 billion)

Graph 2.1 FMCG Market Size forecasting

Sources:-web http://www.foodprocessing/marketsize/.com

So here we have estimated that production of processed food is increasing linearly with

respect to FMCG Market size till 2015 E ,its shows that very good potential of proceeds

food in coming future.

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2.3. Food Processing Segment Analysis

Fruits and Vegetables processing

India produces the widest range of fruits and vegetables in the world. It is the second

largest vegetable and third largest fruit producer accounting for 8.4 per cent of the

world’s food and vegetable production. The share of organised sector in fruit processing

is estimated to be nearly 48 per cent. Fruit production in India registered a growth of 3.9

per cent during the period 2004-2008 whereas the fruit processing sector grew several

times faster at 20 per cent over the same period.

The total area under fruit cultivation is estimated at 4.18 million hectares. The total area

under vegetable cultivation is estimated at7.59 million hectares.However less than 2 per

cent of the total vegetables produced in the country are commercially processed, as

compared to nearly 70 per cent in Brazil and 65 per cent in USA.

India’s installed capacity for fruits and vegetable processing nearly increase by 5 fold

during the 1990s, from 1.1 million tones in 1993 to 5.33 million tones in 2008. About 20

per cent of processed fruits and vegetables are exported. Major products exported include

fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and

vegetables.

Fruit exports have registered a growth of 16 per cent in volume and 25 per cent in value

terms in 2007-08. Mango and mango based products alone constitute 50 per cent of the

exports.

The growth trend from 2004 to 2008 remained upward, being 21.8% in the first year,

25.2% in the second and 11.76% in the third. During 2006–2007, this sector showed a

negative trend of 4.2% over the preceding year and 2007–2008 registered a positive

growth of 3.3%. Though the detailed reason for this trend could be ascertained by

ground-level research, the factor responsible for negative growth in 2006–2007 was

excise duty of 8% on processed (Fruit and Vegetables) F&V products, as against no duty

in the preceding years.

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Table:-2.4 Fruits and vegetables units

Sources: - Web: http://www.foodwatchtrends.com/newsltr.htm

Out of the 5198 F&VP enterprises in 2008, 2002 (38%) were home-scale (household)

units, 1083 (21%) cottage, 834 (16%) small-scale, 598 (12%) large-scale and the

remaining 681 (13%) were only relabellers

Sources: - Web: http://www.foodwatchtrends.com/newsltr.htm

Figure: - 2.3 Type of units in food processing in India

The utilization of fruits and vegetables for processing in the organized & unorganized

sectors is estimated to be around 2% of the total production. Over the last few years, there

has been a positive growth in ready to serve beverages, fruit juices and pulps, dehydrated

and frozen fruits and vegetable products, tomato products, pickles, convenience veg-spice

pastes, processed mushrooms and curried vegetables.

28

The domestic consumption of value added fruits and vegetable products is also low

compared to the primary processed food in general and fresh fruits and vegetables in

particular, which is attributed to higher incidence of tax and duties including that on

packaging material, lower capacity utilization non-adoption of cost effective technology,

high cost of finance, infrastructural constraints, inadequate farmers-processors linkage

leading to dependence upon intermediaries.

The smallness of units and their inability for market promotion is also another main

reason for inadequate expansion of the domestic market. In order to give fresh impetus to

processing of Fruit and Vegetables Government has allowed under I.T.Act 100%

deduction of profit for first five year and 25% deduction for another five years for new

upcoming F & VP units.

Less than 2 percent of all fruits and vegetables produced in India are processed. The main

products, the industry size, and major players are shown in the following table:

Table: - 2.4 Main products, the industry size, and major players

Source: - web http://www.foodprocessing.com

29

Dairy Processing

India stands first in the world in terms of milk production .The output is expected to be

about 108 million tons for 2008, growing at a compounded annual growth rate of 4 per

cent. Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas)

and is currently valued at US$ 16 billion. The dairy sector ranks first in terms of

processed foods with 37 per cent of the produce being processed. The organised sector

processes an estimated 15 per cent of the total milk output in India. There are 676 dairy

plants registered with Government of India, which come under the organised sector. Milk

and milk products contribute to a significant 17 per cent of the country’s total expenditure

on food. Traditional dairy products account for about 50 per cent of the total

Milk produced. The market for dairy products is expected to grow at 15-20 per cent over

the next three years.

• Ghee is the most widely marketed and branded product with a nation-wide penetration

of 24.1 per cent. It is estimated to be growing at a rate of 8 per cent per annum.

• The dairy whitener market comprises of sweetened milk powders, condensed milk and

creamers. Its market size is US$ 450 million for 2008-09

• The cheese market is US$ 2.49 million for 2008-09 (54000 tones in volume terms),

growing at a rate of nearly 10 per cent per annum. The organized cheese market is

dominated by processed cheese which accounts for 74 per cent market share

• The ice-cream market in India is estimated at US$ 226 million in 2008-09, with the

organized market at US$ 158.2 billion This is currently growing at 20 per cent Organized

dairy industry accounts for less than 15% of the milk produced in India. The rest of the

milk is either consumed at farm level, or is sold as fresh, non-pasteurized milk through

unorganised channel.

30

The share of organised industry is expected to rise rapidly especially in the urban regions.

India, with its status as the largest milk producer in the world, is on the verge of assuming

an important position in the global dairy industry. Many international dairy companies

are viewing India with an eye to tapping its vast growing market for dairy products. Total

milk production in the country is around 91 million tones. Per capita of milk consumption

is 75 Kgs. (NDDB).19 units have been sanctioned financial assistance under the plan

scheme of the Ministry during the year 2008-09.

About 37 percent of India’s milk production of 91 million tons is processed, 15 percent in

the organized sector and 22 percent in the unorganized sector. A major share of the milk

processed in the organized sector (mostly by dairy cooperatives) is in the form of

packaged liquid milk. Other processed items include ethnic sweets, milk powder, ghee

(melted, clarified butter), butter, cheese, and ice cream. In the unorganized sector, a

major share is processed into milk-based sweets, and a smaller share for making yogurt,

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

following table:

Table: - 2.5 Dairy processed Product and there Industry size

Sources: - web: http://www.dairyfoods.com/

31

Going by FAO estimates, while world milk production fell by 2% in the last three years,

the Indian production galloped by 4%. While consumption of liquid milk accounts for

46% of the total production, the rest is converted into milk products. Of this, the share of

the organised sector is less than 10%. The products manufactured by the organised sector

are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk,

infant foods, etc. The products also include casein, lactose and dairy whiteners.

Graph:-2.2 Dairy Growth

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

Sources: - web http://www.dairyfoods.com/

Meat Processing:

India has the world’s largest livestock population, accounting for 50% of buffaloes and

1/6th of the goat population. Such a large population represents a challenge to retain

existing productivity traits by application of modern science and technology. Rigorous

efforts are being made to improve the condition of livestock by providing basic

infrastructure and latest technology. FAO has estimated the existing production of meat

and poultry products at 4.42 million tonnes. Only 11% of the buffalo population, 6% of

cattle, 33% of sheep and 38% of the goat population is culled for meat. Meat production

grew at a CAGR of 34 per cent during the period 1999-2004 and stood at US$ 12.44

million in 2008-09. Meat exports stood at US$ 0.104 million in 2008-09.

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Graph:-2.3 Meat Production

Sources:-Web http://mofpi.nic.in/industryspecificinformation/index.htm

Production of meat & meat products is gradually increasing from the year 1995 onwards.

Meat & Meat products are considered to be highly perishable commodities and can

transmit diseases from animals to human-beings. Production of meat is governed under

local by-laws as slaughtering is a state subject and Slaughterhouses are controlled by

local health authorities. Processing of meat food products is licensed under Meat Food

Products Order, (MFPO), 1973 which was hitherto being implemented by the Directorate

of Marketing & Inspection (DMI) has since been transferred to the Ministry of Food

Processing Industries w.e.f 19.03.2004. The Ministry of Food Processing Industries

during the year 2004-05 assisted eight units including 100% E.O.U. for manufacturing of

lamb/ chicken/meat products.

Consumption per head of both fresh and processed meat is very low at 1.5 kg compared

with world average of 35.5 kg. Indian poultry meat market was approximately US$ 2.03

billion in 2006. Indian broiler industry has seen a rapid growth in the last few years -

CAGR of more than 10 per cent a year since 1998.

At present, only a small percentage of the meat produced is converted into value added

products and most meat is purchased by consumers in the fresh/frozen form for

conversion into products at home, restaurants, etc. Maximum conversion takes place in

pork products.

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With growing urbanisation and increasing quality consciousness, the market for

scientifically produced meat products is expected to grow rapidly. Demand is growing for

ready-to-eat and semi-processed meat products because of changing life styles and

increase in exports to neighbouring countries, especially the Middle East. India exports

meat products worth Rs.8, 000 million mainly to countries in the Middle East and South

East Asia.

Meat processing is the new thrust sector for Indian industry with many processing centres

being set up with advanced technology. Animals render extremely useful service in out

transport system and agriculture. India needs technical cooperation to build up organised

facilities for rearing meat producing animals, proper storage and refrigerated transport

system. This sector has attracted an investment of Rs.9000 million, including foreign

investment of Rs.5000 million, in the last six years since the initiation of the

liberalization process.

Indian consumers prefer mostly fresh meat from the wet markets. Only a very small share

of production is further processed into value added products, mostly for export. Major

players include VH Group, Godrej, Sugunas, and Arambagh in the poultry processing

sector, and Allana's, Hind Agro, Al Kabeer in the buffalo meat (“beefalo”) processing

sector. Cow slaughter is prohibited in most states due to religious sentiments.

The below projections, it is expected that buffalo meat production will increase by 6%

during the period 2005-15 with an increase in processing of 11%. Similarly, poultry meat

production is expected to increase by 11% and processing by 25% in the corresponding

period. Total investment in these two areas is project to be INR 19,368 million during

that ten year period. A large part of that investment is expected to be in modernization of

old slaughterhouses (abattoirs), or installation of new ones, and for poultry processing

plants. This will also include equipment with quality control and other associated

equipment for processing and packaging.

34

Table:-2.6 Expected projections for buffalo meat production

Sources: - Meat Food Products Order, (MFPO), web

http://mofpi.ic.in/food&health/food%20law.html

FISH PROCESSING

India is the third largest fish producer in the world and second in in-land fish production,

India boasts of the seventh largest marine landing base in the world with an extensive

8,000 km coastline and an Exclusive Economic Zone (EEZ) of 2.2 million sq km, largely

untapped, and a 29,000 km stretch of rivers and canals, 145 million hectares of reservoirs

and 0.75 million hectares of tanks and ponds.. The Fisheries sector in India has been

classified into

Marine,

Inland

Aquaculture.

The fisheries sector contributes 1.1 per cent to the country’s GDP. This segment also

provides employment to 11 million people engaged fully, partially or in subsidiary

activities pertaining to the sector.

35

India’s fish production stood at a level of 6.4 million tons in 2008-09. Of this, about 60

per cent (3.9 million tons) came from marine resources. Currently fish processing is

mostly targeted for export markets. There are over 369 freezing units with a daily

processing capacity of 10,266 tones and 499 frozen storage units with a capacity of

134,767 tones. Though India’s fish potential from the EEZ has been estimated at 3.9

million tones, the harvest is only of 2.87 million tones. This can be increased to 3.37

million tons by intense tapping in offshore and deep-sea grounds using modern

technology. There is also a good scope to improve fish harvest from inland waters which,

at present is 2.7 million tones. Besides, the fish potential in aquaculture and shrimp

farming has also largely remained untapped. Though, traditionally, only local fishermen

have tapped the vast marine and inland water resources to meet domestic demand, the

organised corporate sector has become involved in preservation and export of coastal fish

since the last decade.

Marine fish found in India include prawns, shrimps, tuna, cuttlefish, squids, octopus, red

snappers, ribbon fish, mackerel, lobsters, cat fish and countless other varieties. Domestic

per capita consumption of fish is only 5 kg per annum against the world average of 12 kg.

India’s per capita consumption is much lower than the Asian maritime countries (e.g.

Japan–86 kg). India’s 60% fish production is from marine sources.

However, coastal fishing i.e. from the continental shelf constitutes the bulk of the marine

catch. It is estimated that only 10% of the marine catch is accounted by deep-sea

resources. Processing of produce into canned and frozen form is done almost exclusively

for the export market. Totally, there are 396 freezing units with a capacity of 2,170

tonnes, 23 canning units of 84.5 tonnes capacity, 131 ice-making units of 1820 tonnes, 24

fish meal units with a capacity of 419 tonnes and 297 cold storage units with a capacity

of 2,03,448 tonnes. This sector has attracted domestic and foreign investment to the tune

of Rs.30,000 million in the last six years, of which the foreign component is around

Rs.7,000 million.

36

Considerable infrastructure facilities for processing of marine products have been

developed over a period of 50 years. At present, there are over 369 freezing unit with a

daily processing capacity of 10266 tons and 499 frozen storage with a capacity of 134767

tons. Apart from the above there are 12 surimi units, 471 pre processing and dry fish

storages. 72 numbers of the freezing units mentioned above are having cooking facilities

and 125 have IQF machinery. Ministry Food Processing Industries during the year 2007-

08 (upto 31.12.04) assisted 18 processing units.

Processed fish product exports include conventional block frozen products, individual

quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes

etc. Export of marine fish products touched of US$ 1.48 billion during 2004-05. Exports

showed an increase of 11.97 per cent in volume and 11.1 per cent in value realization.

Frozen shrimp is the largest item in terms of value contributing to 63.5 per cent of the

total exports, and frozen fish is the largest in terms of volume contributing to 34.62 per

cent.

Performance of Indian seafood exports in 2004-05 was not on the expected lines. There

was a declining trend in exports due to the adverse market situation prevailing in the

major markets like USA, Japan and European Union. The anti dumping procedure

initiated by the US Government has affected the Indian shrimp exports to USA. Added to

this production of fish from capture sources is likely to be down due to tsunami factor

As in the case of meat, most fish consumed comes from the wet markets. Processing is

mostly for export, and includes conventional block-frozen and individual quick frozen

products, minced fish items like sausage, cutlets, pastes, texturized foodstuffs, and dried

fish. The frozen products usually undergo primary processing such as cleaning,

deveining, descaling, peeling, etc.

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Grain Processing

The grain processing industries include milling of rice, wheat and pulses and oilseeds.

Financial assistance is provided for setting up/modernization/expansion of the units

before their commissioning. The question of providing financial assistance under the Plan

Scheme for setting up/modernization in the grain/rice/ pulses/flour milling sector has

been reviewed. It was felt that priority should be given to processing and enhancing shelf

life of perishable items so as to reduce wastage and encourage value addition in that

sector. Considering that rice/pulses/flour are consumed in the processed form only and

primary processing in these sectors adds little to shelf life, wastage control and value

addition, it has been decided to not to accept fresh proposal for these sectors viz, Rice,

Flour & Pulse Milling from the financial year 2004-05. However complete and viable

cases relating to rice mill, flour mills and Pulses received by SNA till 31.03.2004 subject

to prescribed conditions are being considered on merit for assistance. During this year

upto 31st December, 2004, the Ministry has extended financial assistance for 27 rice

milling, 13 flour milling, 21 edible oil milling and 8 in pulse milling sector.

India produced nearly 209.32 million tones of grains in 2007-08. India’s production

covers all major grains – rice, wheat, maize, barley and millets like jowar, bajra and ragi.

It ranks third in the production of grains in the world. With a share of 40 per cent, grain

processing is the biggest component of food sector. Primary processing constitutes 96 per

cent with the remaining accounted for by the secondary and tertiary sectors. Total rice

milling capacity in the country is 186 million tones. There are about 516 large flour mills

in the country, as well as about 10,000 pulse mills.

The country’s current food grain production (including rice, jowar, bajra, maize, ragi,

wheat, barley, gram and pulses) has been put at 225 million tonnes a year. Food

processing industries play a crucial role in reducing post-harvest losses. Since most

operations of this industry are rural based, it has the potential to generate high

employment at low investment. Promotion of food processing also helps in energy

conservation by reducing energy wastages in home cooking.

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Grain processing, with a share of 40%, is the biggest component of the food sector. Its

basic feature is pre-dominance of the primary processing sector, sharing 96% of the total

value, with the secondary and tertiary sectors adding about 4%. This area needs to be

viewed as a high growth potential area. Indian Basmati rice commands a premium in the

international market. The export of Basmati and non-Basmati rice has been steadily

increasing. From Rs.3538.3 million in 1988–1989, the exports increased to Rs.92, 000

million in 2007-07. The country has a total paddy milling capacity of 286 million tonnes,

of which 85 m tonnes is of traditional mills and 201 of modern mills.

75 percent of India’s wheat production is milled into wheat flour (atta) to make rotis or

chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills)

in the unorganized sector. Branded atta is a relatively new segment, developed to provide

consumers a more hygienic quality, as compared to chakki atta. Annual production of

branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major

players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods. Bakery

products constitute the largest segment of grain-based processed foods. Small and

medium unorganized local players and a limited number of organized units dominate the

industry.

39

Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica. The grain-based

snack market, comprising extruded snacks and savories, is estimated at around Rs. 29

billion ($667 million). Of this, the organized segment contributes only 15 percent of

sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc. Breakfast

cereal production in the organized sector is very small, and is mainly confined to corn

flakes. Major producers are Kellogg’s and Mohan Meakins. Pepsi is reportedly interested

in investing in the breakfast segment over the next five years.

Beverage processing sector

The beverages market primarily consists of non-alcoholic beverages which can be

broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. This

segment is estimated at US$ 155 million out of which fruit juices and fruit-based drinks

account for US$ 60 million. The market size of organised carbonated drinks is estimated

at US$ 119 million. In the past decade the carbonated drinks market registered a healthy

growth rate of 20 per cent, driven by the positive changes in India’s consumer profile.

Hot beverages include health drinks such as white beverages (‘Horlicks’ etc) and brown

beverages such as tea/coffee as well as branded drinks (Eg: ‘Boost’). The total size of this

market is estimated at US$ 333 million by value and 85,000 tonnes by volume. White

beverages account for 65 per cent of the market and brown beverages constitute the

remaining 35 per cent India is the largest producer of tea in the world accounting for 28

per cent of the total global production, at 857 million kgs.

Tea production in India has been growing at 1.2 per cent per annum and India is the

fourth largest exporter of tea in the world with estimated exports of US$ 5 million in

2002-03. India is also the fifth largest producer of coffee accounting for 4 per cent of the

total production in the world. Nearly 75 per cent of India’s production is exported and

coffee exports stood at US$ 5.2 million in 2006-07.

Beverage industry classified in three broad categories

Alcoholic beverage

Non Alcoholic beverage

Aerated Soft drink bever

40

(A). Alcoholic beverage

India is the third largest market for alcoholic beverages in the world. The demand for

spirits and beer is estimated to be around 373 million cases. There are 12 joint venture

companies having a licensed capacity of 33919 Kilo-litres per annum for production of

grain based alcoholic beverages. 56 units are manufacturing beer under licence from the

Government of India the wine industry in India provides considerable opportunities for

value addition and employment generation in the agro processing sector.

Liquor made in India is categorized as beer, country liquor and Indian Made Foreign

Liquor (IMFL). Country liquor is made from a variety of raw materials and has different

names in different parts of the country. IMFL production comprises wine, vodka, whisky,

gin, rum, brandy, etc. Pre-mixed drinks like gin and lime, rum and cola are being

introduced in India now. Draught beer is another recent introduction and has done well

where introduced. Canned beer is also a recent introduction. Current production is over

300 million litres. In all, Rs. 11,000 million including Rs. 7,000 million of foreign

investment, has been made in this sector in the last six years.

The Indian beer market, currently at Rs.7, 000 million a year, has been growing by 15%

and now all world famous brands of liquor are available in India. The country has 212

distilleries with a yearly installed capacity of 1,933 million litres. However, there are only

24 units producing IMFL and 31 making country liquor. Alcohol produced by the rest is

either sold as industrial alcohol or in bulk as potable alcohol to other distilleries for

bottling or for making bottled alcohol (estimated 927.82 million litres). Raw material like

Molasses, barley, maize, potatoes, grapes, yeast and hops for beer and alcoholic products’

industry are abundantly available in India

41

Whisky, mostly low-priced, accounts for about 55 percent of the Indian spirit

consumption, followed by rum, brandy, and vodka. Key players are UB, Shaw Wallace,

Jagatjit Industries, Mohan Meakins, and International Distilleries. With the recent take-

over of Shaw Wallace’s liquor business by the UB Group, the latter has emerged as the

world’s second largest liquor producer. Major multinationals operating in India includes

Diageo, Seagram, and Baccardi Martini. UB, SABMiller, and Mohan Meakins are the

major beer-producing companies. The wine market in India is nascent, having emerged as

a distinct segment about a decade ago. Chateau Indage is the largest domestic player in

wines, followed by Grover Wines and Sula Wines. Key international players who have a

presence in India through distribution alliances include E&J Gallo, Hardy’s,

Canandaigua, and Fetzer.

(B) Non-alcoholic beverages

India is the world’s largest tea-producing country with an annual production of around

860,000 tons and is also one of the world’s largest tea exporters. Tea processing includes

withering, rolling, fermenting, drying, blending, packing, and branding. Instant tea

production is limited. Major players are Tata Tea, HLL, Manjushree Plantations, Jay

Shree, Goodricke, Harrison Malayalam, Eveready, and Warren.

With an annual production of around 300,000 tons, India is a small but competitive

producer of coffee. Traditionally a tea-drinking country, average annual coffee

consumption in India is only ten cups per person. The instant coffee segment is entirely

branded and packaged, and caters mostly to the export market. Major players are Tata

Coffee, HLL, Nestle, Barista, Qwiky’s, Narasu, Leo, and ABCTC.

(C) Soft drink

The aerated soft drinks industry in India comprises over 100 plants across all States. It

provides direct and indirect industry related employment to over 150,000 employees. It

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

over Rs.1200 crore annually by way of excise duty, sales tax and related taxes. It has

strong forward and backward linkages with over Rs.1000 crores relating to glass, plastic,

refrigeration, sugar and transportation industry. The soft drinks constitute the 3rd largest

42

packaged foods regularly consumed after packed tea and packed biscuits. The production

of soft drinks have increased from 5670 million bottles in 2004-2005 to 6230 million

bottles in 2006-2007 production of soft drinks has registered a gradual increase as

follows:

Consumer Foods Including Packaged foods, Packaged Drinking Water&

Confectionary

This comprises product groups like confectionery, chocolates, cocoa products, soya-

based products, ready-to-eat foods, mineral water, high protein foods etc. This sector has

attracted a whopping investment of Rs. 1, 28,000 million, including foreign investment of

Rs.50, 000 million, since liberalisation. Soft drinks enjoy the biggest share in this. The

Indian soft drinks’ market is worth Rs.22, 000 million a year. Statistically, this implies

three bottles per Indian. Cola, orange and lemon are some of the accepted tastes in India.

It is estimated that 65% prefer non-carbonated drinks. Lemon drinks continue to be very

popular in the country.

India produces a large range of cocoa and non-cocoa based confectionery items, besides

other cocoa-based products. The production of confectioneries, except chocolates, is

reserved for the small-scale sector. However, there are several large companies with an

established market presence and brands in cocoa and non-cocoa confectionery markets.

Confectionery output grew at a compound rate of 6 to 7% in recent years. Chocolate

production is growing at the rate of 10 to 15% a year. Among the ready-to-eat products,

the installed capacity in the organised sector is 33,400 tonnes for manufacture of pasta

products like noodles, macaroni, vermicelli, etc. Besides, there are 10 units with an

annual capacity of 9,340 tones for corn flakes, oat flakes and pearl barley.

43

Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls,

noodles, corn flakes, rice flakes, ready to eat and ready to cook products, cocoa products,

biscuits, soft drinks, beer, alcoholic beverages (non-molasses based), mineral and

packaged Water.

Bread and biscuits constitute the largest segment of consumer foods. Their Production is

about 4.00 million tons per year. Manufacturing of bread is reserved for SSI Sector. Out

of the total production of bread, 40% is produced in the organized sector and the

remaining 60% in the unorganised sector. Similarly, production of biscuits in the

organized sector is about 13.00 lakh tons and quantity of biscuits produced in the

unorganized sector is about 3.80 lakh tons.

According to available information, production of flakes is around 15,000 tons.

Production of pasta products has registered a marginal growth in the organized sector but

its growth in the unorganised sector is comparatively higher. During the year2006-07

(upto December 2007) 21consumer food processing units were sanctioned financial

assistance by MFPI.

(A) .Packaged food

Packaged foods segment in India registered a growth of 8 per cent in 2005-06.

Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15

per cent. The market for branded noodles is estimated at 230 million servings per year.

The Soups market is still small and nascent in India and is approximately US$ 14 million

in value. The market for culinary products is estimated at US$ 475,000 and estimated to

grow at 18 to 20 per cent per annum. Products like Tomato Ketchup and Jams currently

have low penetration levels, but are growing rapidly. Ketchups, for example, have a

penetration of just 3 per cent in India; however this category is estimated to be growing at

20 per cent per annum.

44

Packaged food products have been slow in penetrating the large potential presented by

India's 250 million strong middle class. But due to growing urbanization and changing

food habits, the demand has been rising at a good pace and there is enough latent market

potential waiting to be exploited through developmental efforts. Soya food segment is

also growing due to increased health consciousness and abundant production of quality

soyabeen (3.72 million tons/year) in the country. Soya bean is grown mainly in Madhya

Pradesh and measures are being taken to extend its cultivation further

(B) .Packaged drinking water

There are 215 companies, which have been granted licence for manufacturing packaged

Drinking water and 3 for manufacturing packaged natural mineral water. There has been

a spurt in growth for the last 3-4 years, which can largely be attributed to a range of

various packaged sizes to suit the consumers. 80% of the packaged water sale comes

from the bulk containers (5 litres and above).

(C).Confectionary

The size of the Indian confectionary market is estimated at rs.26.0 billion ($600 million).

Sugar confectionary accounts for 61 percent of this market, with the balance being

chocolates, mints, and gums. The confectionary market has been growing at over 6

percent annually over the last five years. The gum-based confectionary segment has

grown even faster at over 10 percent. The confectionary market is highly fragmented with

several local players such as Parle’s, Nutrine, and Ravalgaon. Key foreign companies are

Nestle, Cadbury’s, Perfetti, Lotte, Wrigley, Candico, and Joyco

(D).Staples – Bread, Wheat Flour, Salt and Sugar

45

Bread is slowly coming to be a staple product consumed by people of all economic

classes in India. Total bread production in the country in 2004-05 was estimated at 2.7

million tons, growing at 7.5 per cent. About 55 per cent of bread production comes from

the organised sector. India is the second largest producer of wheat in the world with an

output of more than 70 million tonnes. Branded ‘atta’ (wheat flour) is an important item

in this segment with an estimated market of US$ 195 million.

75 percent of India’s wheat production is milled into wheat flour (atta) to make rotis or

chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in

the unorganized sector. Branded atta is a relatively new segment, developed to provide

consumers a more hygienic quality, as compared to chakki atta. Annual production of

branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major

players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods.

Bakery products constitute the largest segment of grain-based processed foods. Small and

medium unorganized local players and a limited number of organized units dominate the

industry. Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica.

2.4. Indian Government policies and laws For Food Processing Industry

2.4.1. Understanding a country’s food regulations

In addition to meeting a country’s sanitary and phytosanitary requirements, food must

comply with the local laws and regulations to gain market access. These laws ensure the

safety and suitability of food for consumers and, in some countries, also govern food

quality and composition standards. Food regulatory requirements may be based on

several factors such as whether a country adopts international norms developed by the

Codex Alimentarius Commission of the Food and Agriculture Organisation of the United

Nations and the World Health Organisation; good agricultural and manufacturing

practices; or has its own suite of food regulations. Each country regulates food differently

46

and has its own food regulatory framework. Usually more than one agency is involved

(E.g. health and agriculture), they may have centralized or regionally controlled food

regulations, and different agencies may be involved in enforcement activities.

2.5.2. Food Laws

Food exporters will have to grapple with India’s varied and outdated food sector laws,

particularly those pertaining to the use of additives and colors, labeling requirements,

packaging, weights and measures, shelf-life, and phytosanitary regulations. Following the

removal of quantitative restrictions on imports of food products in 2001, the GOI issued

several notifications to make imported food products comply with domestic laws. Some

of the major food laws affecting Indian food importers are: as amended.

• The Prevention of Food Adulteration (PFA) Act, 1954, and PFA Rules of 1955,

This is a basic statute established to protect consumers against adulterated foods, and it

encompasses food colors and preservatives, pesticide residues, packaging, labeling, and

regulation of sales. This is similar to the Federal Food, Drug, and Cosmetics Act of the

United States’ Food and Drug Administration. PFA standards and regulations apply

equally to domestic and imported products. The PFA Act and Rules, and recent

notifications are available at: http://mohfw.nic.in/pfa.htm

• The Standards of Weights and Measures Act, 1976, and the Standards of Weights

and Measures (Packaged Commodities) Rules, 1977,

As amended. This Act established standards for weights and measures to regulate

interstate trade and commerce in goods that are sold or distributed by weight, measure, or

number. The Rules formed under the Act require labeling regarding the nature of the

commodity, the name and address of the manufacturer, quantity, date of manufacture,

best-before date, and the MRP. These labeling requirements apply equally to imported

and domestic packaged foods. This Act and Rules and recent notifications are available

at: http://fcamin.nic.in/wm_ind.htm

• The Plant Quarantine (Regulation of Import into India) Order, 2003, and

amendments.

47

These legislative measures regulate imports of planting seeds and agricultural products

into India. These can be accessed from: http://agricoop.nic.in/gazette/gazette.htm.

• The Fruit Products Order, 1955 The fruit and vegetable processing sector is regulated

by the Fruit Products Order, 1955 (FPO), which is administered by the Department of

Food Processing Industries. The FPO contains specifications and quality control

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

sweetened aerated water, vinegar, and synthetic syrups. All such processing units are

required to obtain a license under the FPO, and periodic inspections are carried out.

Processed fruit and vegetable products imported into the country must meet the FPO

standards. The FPO can be accessed from: http://mofpi.nic.in/fpoact.pdf.

• Meat Food Products Order, 1992 This order administers the permissible quantity of

heavy metals, preservatives, and insecticide residues for meat products. The Directorate

of Marketing and Inspection, Ministry of Agriculture, is the regulatory authority. This

order is equally applicable to domestic processors and importers of meat products.

However, its implementation is weak, due to unorganized production in the domestic

market and few subject imports. For details, see: http://agmarknet.nic.in/mfpo1973.htm

• Livestock Importation Act, 1898 Under the Livestock Importation Act, 1898, the

government established procedures for the importation of livestock and related products

to India, which are implemented by the Department of Animal Husbandry and Dairying,

Ministry of Agriculture. These procedures are available at:

http://dahd.nic.in/order/livestockimport.doc

• Milk and Milk Products Order, 1992 This order 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. Standards

specified in the order also apply to imported products. The Department of Animal

Husbandry and Dairying, Ministry of Agriculture, is the regulatory authority. For details

see: http://dahd.nic.in/order/mmpo.doc

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• The Food Safety and Standards Bill, 2005 The GOI is in the process of enacting an

integrated food law, which is called the "Food Safety and Standards Bill, 2005," in order

to establish science-based standards for articles of food and to regulate their manufacture,

import, export, storage, distribution, and sale. The Bill would bring all existing food-

related legislation under one umbrella, which would entail the establishment of a Food

Safety and Standards Authority of India. It is expected that the Bill will pass through

Parliament by the end of 2005 or early 2006. The full text of the Food Safety and

Standards Bill, 2005, is available at: http://mofpi.nic.in/foodsfty.htm

2.4.3. Food Safety and Standards Act

The Indian Parliament has recently passed the Food Safety and Standards Act, 2006

which overrides all other food related laws. When it comes into effect (date yet to be

notified) it will specifically repeal eight laws:

The Prevention of Food Adulteration Act,

1954 The Fruit Products Order, 1955

The Meat Food Products Order, 1973

The Vegetable Oil Products (Control) Order, 1947

The Edible Oils Packaging (Regulation) Order, 1998

The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order,

1967

The Milk and Milk Products Order, 1992

Any other order issued under the Essential Commodities Act, 1955 relating to food. The

Act establishes a new national regulatory body, the Food Safety and Standards Authority

of India, to develop science based standards for food and to regulate and monitor the

manufacture, processing, storage, distribution, sale and import of food so as to ensure the

availability of safe and wholesome food for human consumption. All food imports will

therefore be subject to the provisions of the Act and any rules and regulations made under

the Act. As an interim measure, the standards, safety requirements and other provisions

of the repealed Acts and Orders and any rules and regulations made under them will

continue to be in force until new rules and regulations are put in place under the Food

Safety and Standards Act, 2006. For that reason, importers will for some time have to

continue to take into account the provisions of those repealed Acts and Orders.

49

2.4.4. Food additives

Information on permitted colouring, preservatives, flavouring agents etc. can be found in

various sections of the Prevention of Food Adulteration Rules, 1955 in the Prevention of

Food Adulteration section of the Ministry of Health and Family Welfare website. In 2004

India removed permission for xanthan gum to be used as a food additive (see Rule 13 of

the Prevention of Food Adulteration (1st Amendment) Rules 2004. The decision was

made despite the fact that the gum is widely authorized for use in food around the world

and is included in the General Standards for Food Additives (GSFA) agreed by the Codex

Committee on Food Additives and Contaminants. The move created widespread concern

among India’s trading partners, including the EU, and in 2005 its use was reinstated as an

additive in certain classes of food. DAFF is currently coordinating an approach to the

Department of Health and Family Services on behalf of the Australian food industry to

broaden the classes of food that can include xanthan gum as an additive.

2.5.5. Pesticides and other contaminants

There are currently 194 pesticides registered in India and the Maximum Residue Limits

(MRLs) permissible in food commodities can be found in Part XIV of the Prevention of

Food Adulteration rules and at http://www.mohfw.nic.in/7.pdf For imported foodstuffs

when the pesticides are not included in the Indian list, zero tolerance applies. However,

FVG exporters are advised to check with Indian importers regularly. The regulation of

pesticides and other contaminants may need further clarification upon implementation of

the Food Safety and Standards Act, 2006, since the Act specifically excludes plants prior

to harvesting and animal feed from its purview.

2.4.5. Health claims

The Food Safety and Standards Act, 2006 requires that health claims or guarantees of

efficacy of a food have to be based on an adequate or scientific justification. Such

justification may include clinical trials, protocols or scientific studies and must be able to

withstand verification in court if challenged. Manufactured and imported food claiming

to be enriched with nutrients, such as minerals, proteins or vitamins, should indicate

quantities on the label.

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2.4.6. Genetically modified foods

The Food Safety and Standards Act, 2006 prohibits the manufacture, distribution, sale

or import of any genetically modified (GM) food, unless specifically allowed under the

Act or regulations made there under. However, until such specific regulations are made,

the Genetic Engineering Approval Committee (GEAC), under the Department of

Environment, Forests and Wildlife, remains the decision-making authority on GM food

issues, including their import. Therefore, at present, food ingredients and additives

containing bioengineered organisms may only be produced, used or imported with the

approval of the GEAC, such approval being granted for up to four years in the first

instance, and thereafter renewable for 2 years at a time. New rules implemented in July

2006 under the Foreign Trade (Development and Regulation) Act, 1992 require all

GM products, including.

GM foods, food additives, or any food product that contains GM material, to carry a

declaration stating that the product is genetically modified. In case a consignment does

not carry such a declaration and is later found to contain GM material, the importer is

liable for penal action under the Act.

2.4.7. Halal certification

Halal certification for imported foodstuffs is not required by Indian authorities. However,

exporters wanting to certify meat and meat products as Halal for export to India for

commercial purposes should discuss the matter with the source establishment to ensure

arrangements are in place.

2.5. Policy Initiatives So Far

The food processing industry has been accorded the 'Sunrise Industry' status by the

Government of India and has been identified as a thrust area for export promotion.

Almost entire sector has been de-licensed and assistance for upgrading standards to

51

international levels, and research and development activities is being provided. With a

view to creating a conducive and enabling environment, the State Govt. has also

identified food processing industry and declared it a priority area. The Industrial Policy-

1999 announced by Haryana Government inter-alia identified thrust areas to promote

industrial investment in the State as under:

"AGRO BASED AND FOOD PROCESSING INDUSTRIES Specialized industrial

estates having infrastructural facilities of cold storage, post-harvest storage facilities, and

facility of air freighting of fruits and vegetables will be developed. Cold chains for

storage and transportation of farm produce will be encouraged in the private sector also".

It may, be noticed that all benefits/facilities/incentives etc. available under industrial

Policy-1999, shall continue to be available to food processing industry in the State. The

institutional and administrative mechanism shall also remain the same for food

processing sector.

2.5.1. Salient Features of Processed Policy

The Policy on Food Processing Policy will seek to achieve the following

objectives.

Greater employment generation, higher household incomes and reduction of

poverty

Strengthening of food research, development, education and extension

Efficient inputs

Expansion of infrastructure through increased public and private sector

investment

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Ensuring remunerative prices for food products through strengthening the

marketing institutions and infrastructure and creation of a favourable economic

environment for growth of the sector

Value addition to farm produces through agro- processing and improved post-

harvest facilities

Revitalization of institutional finances for credit

Higher exports and integration of local markets with global markets

Creation of quality consciousness among processors and development of facilities

for quality testing

Adoption of international food standards in safety, quality and hygiene to meet

the competitive challenges

Create awareness and interest about processed food through print and electronic

media using the tools of social marketing.

CHAPTER: 453

Major

Players of

Food Processing

Industry

4.1. Indian Food Processing Companies Profiles

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

• Large Indian companies that have their production base in India or neighboring

countries (for tax-saving purposes)

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

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

• Small local players in the unorganized sector

4.2. Major Indian player in Food processing Industry Overview

I.T.C LTD

54

ITC is one of India's foremost private sector companies with a market capitalisation of

nearly US $ 19 billion* and a turnover of over US $ 5.1 Billion. ITC is rated among the

World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies

by Forbes magazine, among India's Most Respected Companies by Business World and

among India's Most Valuable Companies by Business Today. ITC ranks among India's

`10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and

published by the Economic Times. ITC also ranks among Asia's 50 best performing

companies compiled by Business Week.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology,

Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.

While ITC is an outstanding market leader in its traditional businesses of Cigarettes,

Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even

in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal

Care and Stationery.

As one of India's most valuable and respected corporations, ITC is widely perceived to be

dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a

commitment beyond the market". In his own words: "ITC believes that its aspiration to

create enduring value for the nation provides the motive force to sustain growing

shareholder value. ITC practices this philosophy by not only driving each of its

businesses towards international competitiveness but by also consciously contributing to

enhancing the competitiveness of the larger value chain of which it is a part."

ITC's diversified status originates from its corporate strategy aimed at creating multiple

drivers of growth anchored on its time-tested core competencies: unmatched distribution

reach, superior brand-building capabilities, effective supply chain management and

acknowledged service skills in hoteliering. Over time, the strategic forays into new

businesses are expected to garner a significant share of these emerging high-growth

markets in India.

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ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one

of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade).

The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance

its competitiveness by empowering Indian farmers through the power of the Internet.

This transformational strategy, which has already become the subject matter of a case

study at Harvard Business School, is expected to progressively create for ITC a huge

rural distribution infrastructure, significantly enhancing the Company's marketing

Reach.

ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is

aggressively pursuing emerging opportunities in providing end-to-end IT solutions,

including e-enabled services and business process outsourcing.

ITC's production facilities and hotels have won numerous national and international

awards for quality, productivity, safety and environment management systems. ITC was

the first company in India to voluntarily seek a corporate governance rating.

ITC employs over 25,000 people at more than 60 locations across India. The Company

continuously endeavors to enhance its wealth generating capabilities in a globalizing

environment to consistently reward more than 3, 78,000 shareholders, fulfill the

aspirations of its stakeholders and meet societal expectations. This over-arching vision of

the company is expressively captured in its corporate positioning statement.

GODREJ PROFILE

Started in 1897 as locks manufacturing company, the Godrej Group is today one of the

most accomplished and diversified business houses in India. Godrej’s success has been

driven by the company’s commitment to delivering innovation and excellence. Through

the consistent application of this commitment and a century of ethical business conduct,

Godrej has earned an unparalleled reputation for trust and reliability.

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In 1930, Godrej became the first company in the world to develop the technology to

manufacture soap with vegetable oils; that spirit of innovation has continued throughout

the organization’s history. Today Godrej is delivering consumers exciting innovations

across a spectrum of businesses. The company’s pursuit of excellence is equally well

established and enduring. In the 1944 Mumbai docks blast, Godrej safes were the only

security equipment whose contents were unharmed; an equal level of product quality

continues to be expected from every product bearing the Godrej brand name. Godrej

management understands that the company’s greatest asset is the trust and faith that

consumers have reposed in it, and recognizes that the company must continue to earn this

trust. This translates to the organization delivering outstanding quality and value in

everything it does.

Godrej’s ethical and visionary practices have allowed the company to successfully

expand into a number of businesses. Today Godrej is a leading manufacturer of goods

and provider of services in a multitude of categories: home appliances, consumer

durables, consumer products, industrial products, and agri products to name a few. A

recent estimate suggested that 400 million people across India use at least one Godrej

product every day. The group has more recently entered the real estate and information

technology sectors, and management views these as avenues for enormous growth.

The 6000 Crore - FY 2007 (US $1.5 Billion) Godrej Group is one of India's largest professionally

run private sector groups. It has a well-established presence in varied businesses ranging from foods

and consumer durables to real estate and information technology. In 1997, Godrej completed 100

years of service to the nation. Today, the name Godrej is synonymous with Quality & Trust. It is

amongst the most admired Business Groups in India, delivering quality products and services to its

customers at competitive costs. All this, with the highest international standards of customer care.

MTR Foods Limited Profile

57

MTR Foods Limited is amongst the top five processed food manufacturers in India. We

manufacture, market and export a wide range of packaged foods to global markets that

include USA, UK, Australia, New Zealand, Malaysia, Singapore, UAE and Oman.

Starting with the legendary MTR restaurant in Bangalore, India’s silicon valley, we now

offer ''complete meal solutions'. Our wide range of products include ready-to-eat curries

and rice, ready-to-cook gravies, frozen foods, ice cream, instant snack and dessert mixes,

spices and a variety of accompaniments like pickles and papads.

Our deep understanding of culinary expectations and needs has resulted in many new and

innovative products. Our investments in infrastructure and technology ensure that we can

scale rapidly and bring these to market. Today, consumers across the globe count on us to

bring them all-natural, wholesome and delicious food that is also convenient and no-fuss.

We have also expanded our retail presence significantly: contemporary 'Namma MTR'

and MTR kiosks now serve delighted consumers across Bangalore and Chennai.

Parle Limited Profile

Parle Products has been India's largest manufacturer of biscuits and confectionery, for

almost 80 years. Makers of the world's largest selling biscuit, Parle-G, and a host of other

very popular brands, the Parle name symbolizes quality, nutrition and great taste. With a

reach spanning even the remotest villages of India , the company has definitely come a

very long way since its inception.

Many of the Parle products - biscuits or confectioneries, are market leaders in their

category and have won acclaim at the Monde Selection, since 1971. With a 40% share of

the total biscuit market and a 15% share of the total confectionary market in India, Parle

58

has grown to become a multi-million dollar company. While to consumers it's a beacon

of faith and trust, competitors look upon Parle as an example of marketing brilliance.

Dabur India Limited Profile

Dabur India Limited has marked its presence with some very significant achievements

and today commands a market leadership status. Our story of success is based on

dedication to nature, corporate and process hygiene, dynamic leadership and commitment

to our partners and stakeholders. The results of our policies and initiatives speak for

themselves.

Leading consumer goods company in India with a turnover of Rs.2233.72 Crore

(FY07)

2 major strategic business units (SBU) - Consumer Care Division (CCD) and

Consumer Health Division (CHD)

3 Subsidiary Group companies - Dabur Foods, Dabur Nepal and Dabur

International and 3 step down subsidiaries of Dabur International - Asian

Consumer Care in Bangladesh, African Consumer Care in Nigeria and Dabur

Egypt.

13 ultra-modern manufacturing units spread around the globe

Products marketed in over 50 countries

Wide and deep market penetration with 47 C&F agents, more than 5000 distributors

and over 1.5 million retail outlets all over India.

 CCD, dealing with FMCG Products relating to Personal Care and Health Care

Leading brands -

59

Dabur - The Health Care Brand

Vatika-Personal Care Brand

Anmol- Value for Money Brand

Hajmola- Tasty Digestive Brand

and Dabur Amla, Chyawanprash and Lal Dant Manjan with Rs.100 crore

turnover each

Vatika Hair Oil & Shampoo the high growth brand

Strategic positioning of Honey as food product, leading to market leadership (over

40%) in branded honey market 

Dabur Chyawanprash the largest selling Ayurvedic medicine with over 65%

market share.

Leader in herbal digestives with 90% market share

Hajmola tablets in command with 75% market share of digestive tablets category

Dabur Lal Tail tops baby massage oil market with 35% of total share.

CHD (Consumer Health Division), dealing with classical Ayurvedic medicines.

Has more than 250 products sold through prescriptions as well as over the counter

Major categories in traditional formulations include:

- Asav Arishtas

- Ras Rasayanas

- Churnas

- Medicated Oils

Proprietary Ayurvedic medicines developed by Dabur include:

- Nature Care Isabgol

60

- Madhuvaani

- Trifgol

Division also works for promotion of Ayurveda through organised community of

traditional practitioners and developing fresh batches of students 

61

CHAPTER: 5

Analysis

5. Analysis For the food processing Industry

62

We are doing analysis for finding the answer of following things?

What is the future growth food processing Industry in India?

Whether Indian food processing industry is attractive?

What are the Resources and the constraints of the Indian Food processing

Industry?

What is the impact of Food processing Industry on Indian Economy?

What is the impact of political and economical conditions of India on the Indian

Food processing Industry?

What are the driving forces that are affecting Indian food processing Industry?

For this we are using following tool for our Analysis

Potter Five force Analysis

SWOT Analysis

PEST Analysis

Driving Force Analysis

Key Success factor Analysis

Key challenge Analysis

Tread Analysis

5.1. Porter Five Forces Analysis for Indian Food Processing Analysis

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The Porter's 5 Forces tool is a simple but powerful tool for understanding where power

lies in a business situation. This is useful, because it helps you understand both the

strength of your current competitive position, and the strength of a position you're

looking to move into. With a clear understanding of where power lies, you can take fair

advantage of a situation of strength, improve a situation of weakness, and avoid taking

wrong steps. This makes it an important part of your planning toolkit. Conventionally, the

tool is used to identify whether new products, services or businesses have the potential to

be profitable. However it can be very illuminating when used to understand the balance

of power in other situations too.

Threat of Entry(high)

64

The threat of new entry is quite high: if anyone looks as if they’re making a sustained

profit, new competitors can come into the industry easily, reducing profits

Profitable markets that yield high returns will draw firms. The results is many new

entrants, which will effectively decrease profitability. Unless the entry of new firms can

be blocked by incumbents, the profit rate will fall towards a competitive level (perfect

competition).

Capital Requirements(low)

The capital costs of getting established in an industry can be reduce because of the

government subsidies provided to food processing sector. Financial disaster for most

participants is that the initial setup costs of new ventures were typically very low. Startup

costs are so low that individual, self-financing entrepreneurs can enter. For example, in

mineral water pouch business, costs for a company are around Rs 350,000 and reaming

Rs 750,000 is subsidies by Government

Economies of Scale(low)

In industries that are capital or research or advertising intensive, efficiency requires large-

scale operation. The problem for new entrants is that they are faced with the choice of

either entering on a small scale and accepting high unit costs, or entering on a large scale

and running the risk of underutilized capacity while they build up sales volume.

These economies of scale have deterred entry into the industry so that the only new

entrants in recent decades have been state-supported companies the main reason or source

to achieve scale economies is new product development costs. Thus, developing and

launching a new product is very costly.

Segment of the market for food processing Industry is very narrowly define so potential

customer are very few that’s why companies are not able to achieve economies of scales.

Absolute Cost Advantages(high)

65

Apart from economies of scale, established firms may have a cost advantage over

entrants simply because they entered earlier. Absolute cost advantages often result from

the acquisition or alliances of low-cost sources of raw materials. Absolute cost

advantages may also result from economies of learning. Amul cost advantage in

Pasteurization milk results from its early entry into this market and its ability to move

down the learning curve faster than local player and then making alliances with they

produce milk but marketed by the brand name of Amul. So new enter company alliance

with well establish large firm can easily enter in the company

Product Differentiation (high)

In an industry where products are differentiated, established firms possess the advantages

of brand recognition and customer loyalty. New entrants to such markets must spend

disproportionately heavily on advertising and promotion to gain levels of brand

awareness and brand goodwill similar to that of established companies. One study found

that, compared to early entrants, late entrants into consumer goods markets incurred

additional advertising and promotional costs amounting to 2.12 percent of sales revenue.

Alternatively, the new entrant can accept a niche position in the market or can seek to

compete by cutting price. And in food processing industry there are many untapped

market are available, so there are good opportunity for niche marketing in food

processing industry e.g. sugar free is product that only targeting diabetic person and

health conscious person only and it having 11% growth rate annually

Access to Channels of Distribution (low)

Whereas lack of brand awareness among consumers acts as a barrier to entry to new

suppliers of consumer goods, a more immediate barrier for the new company is likely to

be gaining distribution. Limited capacity within distribution channels (e.g., shelf space),

risk aversion by retailers, and the fixed costs associated with carrying an additional

product result in retailers being reluctant to carry a new manufacturer’s product. The

battle for supermarket shelf space between the major food processors (typically involving

66

lump-sum payments to retail chains in order to reserve shelf space) means that new

entrants scarcely get a look in.

Governmental and Legal Barriers(high)

Some economists (Amitabha Sen) claim that the only effective barriers to entry are those

created by government. In taxicabs, banking, telecommunications, and broadcasting,

entry usually requires the granting of a license by a public authority. From medieval

times to the present day, companies and favored individuals have benefited from

governments granting them an exclusive right to ply a particular trade or offer a particular

service. In knowledge-intensive industries, patents, copyrights, and other legally

protected forms of intellectual property are major barriers to entry. Regulatory

requirements and environmental and safety standards often put new entrants at a

disadvantage to established firms, because compliance costs tend to weigh more heavily

on newcomers .e.g. Prevention of Food Adulteration laws is not only stringent one but

time consuming also. It is considered as an archaic and no industry friendly food law. It

substantial varies from Codex standard. Harmonization of multiple food laws is an urgent

necessity.

Retaliation (low)

Barriers to entry also depend on the entrants’ expectations as to possible retaliation by

established firms. Retaliation against a new entrant may take the form of aggressive

price-cutting, increased advertising, sales promotion, or litigation. The major food

processing company has a long history of retaliation against low-cost entrants. Parle and

other budget food processing have alleged that selective price cuts by MNC and other

major food processing like Britannia amounted to predatory pricing designed to prevent

its entry into new routes.8 To avoid retaliation by incumbents, new entrants may seek

initial small scale entry into less visible market segments. New entered company market

and targeted the small segments partly because this segment had big opportunity and

large profit (niche marketing).

Rivalry between Established Competitors (low)

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For most industries, this is the major determinant of the competitiveness of the industry.

Sometimes rivals compete aggressively and sometimes rivals compete in non-price

dimensions such as innovation, marketing, etc. For most industries, the major

determinant of the overall state of competition and the general level of profitability is

competition among the firms within the industry. In some industries, firms compete

aggressively – sometimes to the extent that prices are pushed below the level of costs and

industry-wide losses are incurred. In others, price competition is muted and rivalry

focuses on advertising, innovation, and other non price dimensions. Six factors play an

important role in determining the nature and intensity of competition between established

firms: concentration, the diversity of competitors, product differentiation, excess

capacity, exit barriers, and cost conditions.

Concentration(high)

Seller concentration refers to the number and size distribution of firms competing within

a market. It is most commonly measured by the concentration ratio: the combined market

share of the leading producers. Where a market is dominated by a small group of leading

companies (an oligopoly), price competition may also be restrained, either by outright

collusion, or more commonly through “parallelism” of pricing decisions. Thus, in

markets dominated by two companies, such as soft drinks (Coke and Pepsi), prices tend

to be similar and competition focuses on advertising, promotion, and product

development.

Economists measure rivalry by indicators of  industry concentration. The Concentration

Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for

major Standard Industrial Classifications (SIC's). The CR indicates the percent of market

share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry

also are available). A high concentration ratio indicates that a high concentration of

market share is held by the largest firms - the industry is concentrated. With only a few

firms holding a large market share, the competitive landscape is less competitive (closer

to a monopoly). A low concentration ratio indicates that the industry is characterized by

many rivals, none of which has a significant market share. These fragmented markets are

said to be competitive. The concentration ratio is not the only available measure; the

68

trend is to define industries in terms that convey more information than distribution of

market share.

In food processing industry concentration ratio is high that indicate high concentration of

market share is held by the largest firms like ITC (tobacco), Cadbury (chocolates) etc.

As the number of firms supplying a market increases, coordination of prices becomes

more difficult, and the likelihood that one firm will initiate price-cutting increases.

However, despite the common observation that the elimination of a competitor typically

reduces price competition, while the entry of a new competitor typically stimulates it,

systematic evidence of the impact of seller concentration on profitability is surprisingly

weak. Richard Schmalensee concluded that: “The relation, if any, between seller

concentration and profitability is weak statistically and the estimated effect is usually

small.”

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

moves:

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

Improving product differentiation - improving features, implementing innovations

in the manufacturing process and in the product itself.

Creatively using channels of distribution - using vertical integration or using a

distribution channel that is novel to the industry.

Exploiting relationships with suppliers - set high quality standards and required

suppliers to meet its demands for product specifications and price.

Diversity of Competitors (low)

The extent to which a group of firms can avoid price competition in favor of collusive

pricing practices depends upon how similar they are in terms of origins, objectives, costs,

and strategies. In food processing industry it is very low here firm always try to compete

rival strategies and there product prices e.g. coke and Pepsi, magi and top Ramon ,Amul

ice cream and havmor ice cream etc

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Product Differentiation

The more similar the offerings among rival firms, the more willing customers are to

substitute and the greater the incentive for firms to cut prices to increase sales. Where the

products of rival firms are virtually indistinguishable, the product is a commodity and

price is the sole basis for competition. Commodity industries such as food processing

agriculture, mining, and petrochemicals tend to be plagued by price wars and low profits.

By contrast, in industries where products are highly differentiated (perfumes,

pharmaceuticals, restaurants, management consulting services), price competition tends

to be weak, even though there may be many firms competing.

food processing industry it is very low here firm always try to compete rival strategies

and there product prices because they have more or similer offering and there product are

virtually indistinguishable e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream

and havmor ice cream etc

Excess Capacity and Exit Barriers

Why does industry profitability tend to fall so drastically during periods of recession?

The key is the balance between demand and capacity. Unused capacity encourages firms

to offer price cuts to attract new business in order to spread fixed costs over a greater

sales volume. Excess capacity may be cyclical (e.g. the boom–bust cycle in the

semiconductor industry); it may also be part of a structural problem resulting from

overinvestment and declining demand. In these latter situations, the key issue is whether

excess capacity will leave the industry. Barriers to exit are costs associated with capacity

leaving an industry. Where resources are durable and specialized, and where employees

are entitled to job protection, barriers to exit may be substantial. Conversely, rapid

demand growth creates capacity shortages that boost margins. On average, companies in

growing industries earn higher profits than companies in slow growing or declining

industries see figure 3.4. In food processing industry it will not effect because food

demand is always increase or maintain because it is directly related to population growth,

and in this industry some exit barrier are working because of Government policies.

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Bargaining Power of Buyers (low)

Also described as the market of outputs. The ability of customers to put the firm under

pressure and it also affects the customer's sensitivity to price changes. “Customer has

enough option to switch so they have less bargaining power.

The firms in an industry operate in two types of markets: in the markets for inputs and the

markets for outputs. In input markets firms purchase raw materials, components, and

financial and labor services. In the markets for outputs firms sell their goods and services

to customers (who may be distributors, consumers, or other manufacturers). In both

markets the transactions create value for both buyers and sellers. How this value is shared

between them in terms of profitability depends on their relative economic power. Let us

deal first with output markets. The strength of buying power that firms face from their

customers depends on two sets of factors: buyers’ price sensitivity and relative bargaining

power.

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Buyers’ Price Sensitivity (low)

The extent to which buyers are sensitive to the prices charged by the firms in an industry

depends on four main factors:

The greater the importance of an item as a proportion of total cost, the more

sensitive buyers will be about the price they pay. Beverage manufacturers are

highly sensitive to the costs of metal cans because this is one of their largest

single cost items. Conversely, most companies are not sensitive to the fees

charged by their auditors, since auditing costs are such a small proportion of

overall company expenses.

The less differentiated the products of the supplying industry, the more willing the

buyer is to switch suppliers on the basis of price.

The more intense the competition among buyers, the greater their eagerness for

price reductions from their sellers. As competition in the world food processing

industry has intensified, so component suppliers are subject to greater pressures

for lower prices, higher quality, and faster delivery.

The greater the importance of the industry’s product to the quality of the buyer’s

product or service, the less sensitive are buyers to the prices they are charged. The

buying power of necessary processed food product like suger salt etc. is limited

by the critical importance of these components to the functionality of their

product.

Relative Bargaining Power (high)

Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of

power between the two parties to a transaction depends on the credibility and

effectiveness with which each makes this threat. The key issue is the relative cost that

each party sustains as a result of the transaction not being consummated. A second issue

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is each party’s expertise in leveraging its position through gamesmanship. Several factors

influence the bargaining power of buyers relative to that of sellers:

Size and concentration of buyers relative to suppliers. The smaller the number of

buyers and the bigger their purchases, the greater the cost of losing one.

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

prices and costs, the better they are able to bargain.. Keeping customers ignorant

of relative prices is an effective constraint on their buying power. But knowing

prices is of little value if the quality of the product is unknown. It always works in

food processing industry because people are not having full information about the

product like k special of Kellogg which reduces the cholesterol of the consumer.

Ability to integrate vertically. In refusing to deal with the other party, the

alternative to finding another supplier or buyer is to do it yourself. Large food

processing companies such as Heinz and Campbell Soup have reduced their

dependence on the manufacturers of metal cans by manufacturing their own. The

leading retail chains have increasingly displaced their suppliers’ brands with their

own-brand products. Backward integration need not necessarily occur – a credible

threat may suffice.

Buyers are Powerful in food processing industry

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

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

standardized

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

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Buyers are Weak in food processing industry

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

Significant buyer switching costs - products not standardized and buyer cannot easily

switch to another product.

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

product or price

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

Bargaining Power of Suppliers (low)

Also described as market of inputs. Suppliers of raw materials, components, and

services (such as expertise) to the firm can be a source of power over the firm.

Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for

unique resources.

Analysis of the determinants of relative power between the producers in an industry

and their suppliers is precisely analogous to analysis of the relationship between

producers and their buyers. The only difference is that it is now the firms in the

industry that are the buyers and the producers of inputs that are the suppliers. The key

issues are the ease with which the firms in the industry can switch between different

input suppliers and the relative bargaining power of each party. Because raw

materials, semi-finished products, and components are often commodities supplied by

small companies to large manufacturing companies, their suppliers usually lack

bargaining power.

Suppliers are not Powerful because in food processing industry

Credible forward integration threat by suppliers

Suppliers concentrated

Significant cost to switch suppliers

Customers Powerful 

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Suppliers are Weak because in food processing industry

Many competitive suppliers - product is standardized

Purchase commodity products

Credible backward integration threat by purchasers

Concentrated purchasers

Customers Weak

Threat of Substitutes (high)

In Porter's model, substitute products refer to products in other industries. To the

economist, a threat of substitutes exists when a product's demand is affected by the price

change of a substitute product. A product's price elasticity is affected by substitute

products - as more substitutes become available, the demand becomes more elastic since

customers have more alternatives. A close substitute product constrains the ability of

firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the

industry. The price of aluminum beverage cans is constrained by the price of glass

bottles, steel cans, and plastic containers. These containers are substitutes, yet they are

not rivals in the aluminum can industry.

The existence of close substitute products increases the propensity of customers to

switch to alternatives in response to price increases (high elasticity of demand).

buyer propensity to substitute (low)

relative price performance of substitutes(low)

buyer switching costs (high)

Pressure from Substitutes Emerges Mainly From Two Factors

1. Switching costs for customers to the substitute.

2. Buyer willingness to search out for substitutes.

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Also the threat of substitution may take four different forms, each of which we shall

now discuss with reference to above factors.

Substitution of need

We take switching from one product (e.g. natural drink of Dabur) to another (fresh

juice from local vendor or prepared at home). In this case, the buyers might be

looking out for freshness and might not mind the nominal switching costs Food

processing Industry will definitely remain, in one form or the other, as long as the

manufacturers manufacture and consumers consume. Food processing industry does

not seem to become extinct even in the future. The issue that remains to be addressed

is just - what forms it keeps evolving into. Here the Substitutes of food processing

industry are fresh fruits and vegetables and food as a raw material , but they are yet

very well developed in India, so their threat are comparatively very high but food

processing industry break the boundaries of food product availability in certain

season and area that is why food industry will sustain for longer term. While the treat

of substitutes typically impacts an industry through price competition, there can be

other concerns in assessing the threat of substitutes.

Strategic Implications of the Five Competitive Forces

Competitive environment is unattractive from the standpoint of earning good

profits when

o Rivalry is vigorous

o Entry barriers are low and entry is likely

o Competition from substitutes is strong

o Suppliers and customers have considerable bargaining power

Competitive environment is ideal from a profit-making standpoint when

o Rivalry is moderate

o Entry barriers are high and no firm is likely to enter

o Good substitutes do not exist

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o Suppliers and customers are in a weak bargaining position.

But food processing industry is little bit attractive but not ideal, it gives

considerable profit

Because of the following point

o Rivalry is moderate

o Entry barriers are low and firm is likely to enter

o Good have some substitutes but up to certain extant

o Suppliers and customers are in a weak bargaining position

5.2 SWOT Analysis

Strengths   High quality natural environment, overall, the natural environment of the area is

of very high quality and exhibits great variety.

Good accessibility and linkages to parts of the area Parts of the area have good

accessibility. The north-south of India facilitates access to the more prosperous

coastal areas covered three side of India which make good transport links, and

also road links on shore, are well established due to which easy accessibility is

there

high productivity in manufacturing due new technique and technology

development through R&D work in India, now company are paying more

attention on R&D Program

flexible labour market, including good labour relations with low level of days

lost

distinctive culture created different market which are not dependable on each

Other which create good market potential for food processing industry

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Social capital perceived quality of food product for life, now people are more

concern about their health they need quality food though out the year so they

focused on quality food.

presence of a range of academic institutions which help to food processing

company to get good and well knowledge employees also high participation

levels in education for 16-19 year olds in rural areas, growth of jobs and

employment for m food processing Industry

new practices has offset long -run decline in traditional sector agriculture method

of doing farming , due to which good productivity is there and food processing

have less bargain thert from supplier

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

village roads so they are not able to connected with good food processing

companies in urban area

High tariffs, dated food laws, and unscientific polices pressurize companies to

depend on other company so expansion is difficult, so les growth in industry

They are lacking the availability of the trained manpower, because of

undulation rate is high and due to which many companies die because of poor

managerial skills

Increasing competition from local players and MNC which directly affect the

small SME Growth

Long and fragmented supply chain creates improper management in food

supply and result increase in cost.

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Consumer preference for fresh foods is very high today also 77% people frash

food not the packed food this is due to lack to knowledge about processed

foods

Opportunities Food processing industry is rising at the rate of 8% yearly. It shows the potential

of the industry to grow in the future.

India is given by a strong income growth, change in lifestyle nuclear family and

both parent working culture and favorable demographic pattern for food

processing industry.

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

.

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

Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material

base suitable for food processing industries. Presently a very small percentage of these

are processed into value added products.

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

million strong middle class.

Rapid urbanizations, increased literacy and rising per capita income , have all caused

rapid growth and changes in demand patterns, leading to tremendous new opportunities

for exploiting the large latent market. An average Indian spends about 50% of household

expenditure on food items.

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

India's comparatively cheaper workforce can be effectively utilized to setup large low

cost production bases for domestic and export markets.

Liberalized overall policy regimes, with specific incentives for high priority food

processing sector, provide a very conducive environment for investments and exports in

the sector.

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

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

market share of our store.

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

manpower is also increasing.

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

will become difficult to survive in such a tough competition.

Consumer buying behavior and the whole format of purchasing is altering

frequently.

A feeling of unstable government Self centered political leadership

Slow & Dysfunctional judiciary and corrupt law enforcers

Regulation, protection and restriction for processed food

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To patent Indian intellectual property by outsider (unawareness about own

research)

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

Innovations

Regional-Religion-caste-culture conflicts

Critical Key Success Factors for Food Processing Sector

The Indian food processing industry’s growth potential cannot be disputed; however, it

requires certain competencies and success factors to fructify this potential. These include

addressing the current gaps in the value chain as well as leveraging on the various

advantages the country provides. Investors in the sector need to be aware of these factors

and build the required capabilities in their

Business to ensure success. Some of the key success factors are discussed below.

Integrated Supply Chain and Scale of Operations

While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of

this production is lost in spoilage in various stages of harvesting. The key issues are poor

quality of seeds, planting material and lack of technology in improving yield. Ensuring

good quality produce entails investments in technology and ability to sustain a long

gestation period for the harvest. Good quality production also results in better quality of

processed fruits. Hence there is a need to establish backward linkages with the farmers

with the help of arrangements such as contract farming to improve the quality of the

produce. Scale is a key factor in the processing industry. Nearly 90

per cent of the food processing units are small in scale and hence are unable to exploit the

advantages of economies of scale. This is also true with land holdings. The country has

only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a

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limited number of pork-processing units. This is one of the reasons penetration of

processed meat is extremely poor at

1 per cent in India. These figures indicate both the need for scale, and the potential for

growth offered by the sector.

Processing Technology

Most of the processing in India is currently manual. There is limited use of technology

like pre cooling facilities for vegetables, controlled atmospheric storage and irradiation

facilities. This technology is important for extended storage of fruits and vegetables in

making them conducive for

Further processing. In the case of meat processing, despite the presence of over 3600

licensed slaughter-houses in India, the level of technology used in most of them is

limited, resulting in low exploitation of animal population. Bringing in modern

technology is an area that existing as well as new investors in the sector can focus on, this

will make a clear difference in both process efficiencies as well as quality of the end

product.

Increasing Penetration in Domestic Market

Most of the processing units are export oriented and hence their penetration levels in the

domestic market are low. For example,

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

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

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

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

while that for Americans is 4 per cent However, there is increasing acceptance of these

products amongst the urban population. India has a large untapped customer base and

even a small footprint in the domestic market would enable the player to gain significant

volumes. Acceptance in the domestic market and hence higher penetration is driven by

the following factors:

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Competitive Pricing

Consumers of processed foods are extremely price sensitive even a small change in

pricing can have significant impact on consumption. For instance, the launch of PET

bottles, new price points and package sizes in non-carbonated drinks (such as Coca Cola)

has increased in-home consumption from 30 per cent in 2006 to 80 per cent in 2007.

Competitive pricing also enables penetration in the rural markets.

Brand Competitiveness

Share of branded products in purchases of Indian consumers has increased by 25 per cent

to 35 per cent. This is especially true for urban consumers. Branded products like

Basmati rice and KFC’s chicken have been very successful implying that there is a good

demand for hygienic branded products at reasonable prices.

Product Innovation

Certain processed food categories such as snack foods are impulse purchase products

where consumers look for novelty and new flavors and hence these categories lack brand

loyalties. Visibility through attractive packaging boosts consumption. Increasing time

constraints amongst the working middle class has boosted consumption of products like

instant soups, noodles and ready-to-make products. Innovation in packaging and product

usage is an important success factor for processed foods

5.4. Key challenges to development of Food processing sector

Most of the challenges to food processing in India are typical to that of other developing

countries socio economic environment, subsistence agriculture, fragmented value chains

and lack of infrastructure for post harvest management and processing. Some issues are

country specific: role of federal and state government, policies regarding marketing of

agriculture produce, and food safety regulations.

i) Socio Economic Environment and Demand for Processed Foods:

As highlighted in the vision document of the MOFPI, sub-optimal growth of the food

processing industry can be attributed to the vicious circle of high unit cost low demand,

low capacity utilization again leading to high unit cost. Affordability is also a major

issue in the domestic market. Price differential between fresh and processed food in

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India is very high relative to convenience, hygiene and health values of the processed

food. In the developed countries processed and fresh food compare well in prices.

Further, low income Indians are very price sensitive since food accounts for over 50% of

the family budget. Per capita income in India is US$ 640 as compared with US$ 1360 in

China.

ii) Policy Issues in Food Processing

Agriculture Produce Marketing Committee (APMC Act)

Agricultural produce marketing in India has traditionally been dominated by government

sector. Agricultural commodities are marketed through regulated APMC (Agricultural

Produce Marketing Committee) markets. Agriculture is a state subject in India and as

such the APMC Act is under the purview of the state government. Some of the key areas

of concern regarding the APMC act are:

The APMC Act of most states prohibits transactions outside the regulated

mandis

The APMC Act of most states does not encourage direct marketing and contract

farming

The prohibitions under the APMC Act do not allow investment by the private

sector for improving the infrastructure

They do not facilitate procurement of agricultural produce directly from farmer’s

fields

The purchaser has to be a registered agent at the wholesale market (Commission

Agent).

These regulations can cause delay in supply and also loss of produce due to

multiple handling and the time involved in the same. In an effort to provide a fair

playing ground to the private sector and to encourage private sector investment

in the area of agriculture, the central government has proposed the Model Act

which addresses most of the above concerns and enables companies to procure

directly from farmers. Many states have already amended APMC

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Act on the lines of the proposed Model Act, or are in the process of amending it.

Nevertheless, there are vested interests and the process in some states is much

slower than others.

Essential Commodities Act

The Essential Commodities Act (ECA) 1955 was put in place after independence to

control production, supply and distribution of essential agricultural commodities. At a

time when India was facing acute food shortages, this act was put in place to ensure

availability of food products. In the context of liberalization and a relatively comfortable

food situation these controls are no more required. It is recognized that controlling the

movement of products by licensing of dealers, limits on stocks and control on

movements will only hamper the growth of the agricultural sector and promotion of food

processing industries. This act has been amended in 2003 to encourage free movement

of agricultural commodities across regions.

Food Quality Regulation

There are multiple laws/ regulations prescribing varied standards regarding food

additives, contaminants, food colors, preservatives and labeling. Currently, there are 13

laws enforced by 9 ministries:

The Prevention of Food Adulteration Act (PFA), 1954 focuses primarily on the

establishment of regulatory standards for primary food products, which constitute

the bulk of the Indian diet.

The Standards of Weights and Measures Act, 1976 and Standards of Weights and

Measure (Packaged Commodities) Rules, 1977 are legislative measures are

designed to establish fair trade practices with respect to packaged commodities.

The fruit and vegetable processing sector is regulated by the Fruit Products

Order, 1955 (FPO), which is administered by the Department of Food Processing

Industries.

Meat Food Products Order, 1992 administers the permissible quantity of heavy

metals, preservatives, and insecticide residues for meat products.

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Milk and Milk Products Order, 1992 order regulates the production, distribution,

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

machinery, premises; and sets quality control standards for milk and milk

products.

The Destructive Insects and Pests Act, 1914, and Plants, Fruits, and Seeds

(Regulation of

Import in India) Order, 1989 regulate imports of planting seeds into India, and

prohibit imports of seeds for sowing and planting materials without a valid

permit.

As discussed in the section on enabling environment, there has been a move to

harmonize these laws to one Food Safety and Standards Law.

Taxes on Processed Food

High level of taxes and multiplicity of taxes are the two key issues with food taxation. A

study conducted by Arthur Andersen points out that the food taxation is highest in India

among Asian countries of India, Indonesia, Philippines, Malaysia, Sri Lanka, China, and

Thailand. The Central excise as well as the state taxes (octroi and sales) is applicable in

India. According to the above mentioned study, excise duty on processed food is not

levied in any of the other Asian countries except for Thailand where excise is levied just

on carbonated drinks and fruit juices. In India, excise duty ranges from eight per cent to

18 per cent on processed food and 40 per cent on carbonated drinks. The study points

out that octroi on food items is levied only in India while other Asian countries do not

levy it. In India, Maharashtra levies the highest seven per cent octroi on processed food.

Sales tax in India averages second behind that in China.

Credit

The agricultural supply chains in India are very fragmented with a large number of

intermediaries. This structure of the chain leads to limited scale of financing as well as

higher risk, given the lack of control each of the players has on the supply chain. At the

farm level, financing is largely dependent on unorganized sources of credit due to

bottlenecks in access, timeliness in availability and adequacy of credit from organized

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sources. The key hurdles faced by banks in financing farmers are their inability to

provide adequate collateral as security and potential for default in the absence of an

assured market for their produce The food processing enterprises primarily comprise

small and medium sized companies, a large proportion of which have stand alone

operations with no linkage with farmer, and reliant on other organizations to undertake

marketing/further processing of their products. Consequently, companies in the food

processing sector usually bear a steep cost of interest for the high risk perception

associated with the nature of their operations. In contrast, agricultural supply chains in

developed are well integrated/coordinated where large companies have interest in all

levels of operation – input supply, storage, transportation etc. A high level of integration

leads to more control and less risk in the supply chain.

Scope of Center and State Government

Agriculture is a state policy in India. The central government can provide a direction for

the states, but eventually the implementation rests with the state government. The

progress in implementing various policies, projects and schemes depends on the

initiatives, efforts and ideologies of state governments. For example, the Model Act

which is an amendment to the APMC Act has been modified in about 15 states over the

past 2-3 years, but many state governments are yet to modify the Act.

Iii) Traditional and Subsistence Farming, Market Linkages and

Infrastructure

Similar to the situation in many developing countries, most of the farming in India is at

subsistence level which leaves limited produce for marketable surplus. The approach to

farming is traditional and modern practices of farming have not been widely adopted.

Post harvest management and infrastructure has not received much attention, which

limits the availability of storage of raw materials for processing. Further, sale of

agricultural produce is characterized by a long chain of intermediaries, which has severe

implications on cost efficiency and flow of information through the chain, about the

quality and quantity required for processing. Similarly, traditional marketing channels

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for food retailing food distribution and retailing is also fragmented which leads to high

distribution cost.

Iv) Institutional: Poor linkages between industry, Government and

institutions

Traditionally, government has been the dominant player in the agricultural sector,

especially in the areas of marketing and infrastructure development. The involvement of

private sector has been limited to marketing of inputs and undertaking processing of

some basic items. The linkages between private and public sector have been very poor

but this situation is changing dramatically as many new initiatives are being undertaken

in Public Private Partnership mode.

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5.5. Food Processing Industry Trends

Production:

The food-processing industry in India has undergone big changes over the last six

to seven years, in terms of types, variety, quality, and presentation of products,

which is mainly a result of the liberalization that led to foreign direct investment

(FDI) in the processed food sectors.

Most food-processing sectors have been brought under the liberal, transparent,

and investor-friendly FDI policy, which allows 100 percent FDI.

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

grading and standards, poor distribution channels, and onerous government

policies continue to pose problems for the processing industry to source the right

type of raw materials and to discourage more investment in the sector.

Nevertheless, the proportion of FDI in the food-processing sector to total FDI into

India is low, constituting about 4 percent of total FDI inflow from 1991 to 2004.

Several multinational companies, including US-based companies like Pepsi, Coca

Cola, ConAgra, Cargill, Heinz, Kellogg’s, IFF, and Mars (pet food only) have

entered the Indian food-processing industry with significant investments.

Indian food and beverage companies are expanding their operations to

neighboring countries like Bangladesh, Nepal, Sri Lanka, Commonwealth of

Independent States countries, and the Middle East.

Takeovers and mergers are beginning to occur in the Indian food-processing

sector, leading to consolidation.

The food-processing industry is beginning to focus on, and invest in, advertising

and awareness campaigns about products and brands.

Companies have added extras to their existing brands, including stylish

packaging.

The growth in the food-processing sector has generated increased interest in high

quality food ingredients in order to produce high quality foods.

The ready-to-eat food sector is growing at a high rate due to the changing

lifestyles of the middle-class consumers (both partners working, etc.).

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Some previously unknown regional brands are gaining national acceptance

because of consistent quality and product safety, thereby providing some

competition to established companies.

The GOI is in the process of enacting a Food Safety and Standards Bill, which if

properly done and implemented, would provide increased transparency, better

food safety management systems, and science-based standards.

Consumption

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

A large and an exceedingly wealthier middle class is creating growing demand for

a wider variety of high quality processed foods.

The changing age profile (sixty-five million people expected to enter 20-34 year

age group by 2010) and increasing exposure to western-type products and

lifestyles.

The market entry of several multinational food-processing companies and

ingredient suppliers.

The increasing number of fast food chains.

The recent trend toward a healthier lifestyle has generated a niche market for diet,

healthy, low-calorie, and non-fat food products.

The increasing urbanization and growing number of working women.

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

Competition

India’s domestic industry is the primary competitor for US food-processing and

ingredients suppliers in India. India, with diverse agro-climatic conditions, has a

production advantage in many agricultural goods, with the potential to cultivate a large

range of agricultural raw materials required by the food-processing industry. India is a

major producer of spices, spice oils, essential oils, condiments, and fruit pulps.

Significant variations in food habits and culinary traditions across the country translate

into a competitive advantage for small and medium local players, who are familiar with

local food habits and markets. Some Indian food-processing companies have increased

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market share by decreasing product prices. High import duties on processed food and

food ingredients make imports relatively costly. Existing domestic food laws restrict the

use of several ingredients, flavors, colors, and additives, thus posing an additional

challenge to US exporters interested in the Indian market.

Foreign competition to the United States is mostly from countries in closer geographic

proximity to India, such as Australia and New Zealand. Suppliers from other countries

often supply inferior goods at cheaper prices in comparison to those available from the

United States. European suppliers are major competitors in the food ingredient sector.

Several foreign firms, including some from the United States, have started operations in

India.

5.3. PEST ANALYSIS

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Political Impact

Internal Political/Economic Events

Increasing economic disparities among regions are emerging as a political risk

capable of provoking serious socio-political tensions that could lead to localized

violence from time to time. The states likely to be advancing economically are:

Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil Nadu. Those likely to be

lagging economically are: Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan and

Uttar Pradesh. Although this is essentially an internal situation it can, at times,

interrupt the flow of imports and negatively affect the solvency of Indian importers.

External Political/Economic Events

India has major disputes with Pakistan and China. India disputes Pakistan's claim to

Kashmir and questions its claim to have stopped sponsoring terrorism in Kashmir.

Relations with China are strained by its claim to Arunachal Pradesh and a portion of

land adjacent to Jammu and Kashmir.

Any outbreak of hostilities between India and its neighbours could disrupt trade and

negatively affect the solvency of some importers.

India could benefit greatly from free trade. However, there are wide gaps in the

positions of major world traders on some important issues. If the talks should

collapse with no progress, the concept of free trade will be in jeopardy and the gains

India may make will be at risk. On the other hand the possibility of failure may spur

participants to make major concessions and increase the convergence of positions

Policies

A number of policy initiatives have been taken from time to time to promote growth

of the processed food sector in the country. Some of these are:

a) Most of the processed food items have been exempted from the purview of

licensing under the Industries (Development & Regulation) Act, 1951, except items

reserved for small-scale sector and alcoholic beverages.

b) Food processing industries were included in the list of priority sector for bank

lending in 1999.

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c) Automatic approval for foreign equity upto 100% is available for most of the

processed food items excepting alcohol and beer and those reserved for small scale

sector subject to certain conditions.

d) Excise duty on processed fruit and vegetables has been brought down from 16%

to zero level in the Budget, 2001-02.

e) In the budget of 2004-05 income tax holiday and other concessions announced for

certain FPI sectors.

f) Delegation of powers to regional offices under Fruit Products Order 1973 has been

recently done.

Developmental

a) Assistance under various plan schemes.

b) Widening the R&D base in food processing by involvement of various R&D

institutes and support to various R&D activities.

c) Human Resource Development to meet the growing requirement of managers,

entrepreneurs and skilled workers in the food processing industry.

d) Assistance for setting up analytical and testing laboratories, active participation in the

laying down of food standards and their harmonization with the international standards.

Promotional

In order to create awareness about the potential and prospect of food processing

industries in the country, this Ministry provides,

a) Assistance for organizing workshops, seminars, exhibitions and fairs.

b) Assistance for studies/surveys etc.

c) Publications and films

Regulatory

i) Implementation of Fruit Products Order (FPO), 1955.

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ii) Implementation of Meat Food Product Order, 1973.

Legal Impact

In addition to the general legal requirements, there are a few legal requirements that are

specific to Food Processing Industries. A food processing enterprise has to comply with

several compulsory legal requirements. Implementation of these norms with regard to

Small and Medium Enterprises

Legal Requirements

a). Prevention of Food Adulteration Act (1954): which is the basic statute to protect

consumers against supply of adulterated food. The Central Committee for Food

Standards ‘under the Directorate General & Health Services Ministry of Health and

Family Welfare has specified the standards.

b). Milk and Milk Products Order (MMPO): regulates milk and milk products

production in the country. The order requires no permission for units handling less than

10,000 litres of liquid milk per day or milk solids upto 500 tap.

c.) Fruit Products Order (1955): regulates manufacture and distribution of all fruit and

vegetable products, sweetened aerated waters, vinegar and synthetic syrups. The license

is issued by Regional Director of MoFPI located at Mumbai, Delhi, Kolkatta, Chennai

and Guwahati based on the satisfaction of the concerned officer with regard to quality of

production, sanitation and hygiene, machinery and equipment and work area standards.

d). Standard of Weights and Measures (Packaged Commodities) Rules, 1977: lay down

certain obligations for all commodities in packed form with respect to their quality

declaration. The Directorate of Weights and Measures under the Ministry of Food and

Civil Supplies operates these rules.

e.) Export (Quality Control and Inspection) Act, 1963: is operated by the Export

Inspection Council and under this act many exportable commodities have been notified

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for compulsory pre-shipment inspection unless specifically requested by the importer

not to do so.

f). Voluntary Standards: are regulated by organisations involved with voluntary

standardisation and certificates systems concerning quality parameters in food. They are

the Bureau of Indian Standards (BIS) and Directorate of Marketing and Inspection

(DMI). The food processing industries sector as a whole involves other legislations.

g). Oils, Deoiled Meal and Edible Flour Control Order 1967 and Vegetables Products

Control Order, 1976: control the production and distribution of solvent extracted oils,

deoiled meals, edible oil seed flours and hydrogenated vegetable oils (vanaspati).

h). Meat Food Products Control Order, 1973: regulates manufacture, quality, and sale of

all meat products and is operated by the Directorate of Marketing and Inspection.

Despite the size and the phenomenal potential that exists, retailing is among the lesser-

evolved sectors of the Indian Industry. Retailing as an industry is yet to be recognized in

India. The policy environment is currently seen to be unfavorable to organized retailing.

Given the huge investments that need to be made, a look on the Foreign Direct

Investment Policy in the sector might be needed. Complex sales tax rates, octroi and

excise structures are major deterrents. Other impediments to growth of retail include the

bureaucracy, inflexible labour laws and multiple licensing requirements. Real estate in

India is also not geared to facilitate organized retailing.

Restriction on FDI.

A strong FDI presence in food processing sector is expected to not only boost the retail

scenario, but also act as a driving force in attracting FDI in upstream activities as well.

This will be more prominent in food processing and packaging industries because many

large retail chains also promote their own brands by way of backward integration/contract

manufacturing.

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In view of the demands made by industry and the need to boost the retail trade, the

Government is actively considering removing the restrictions. A recent note circulated by

the Ministry of Commerce has proposed permission for FDI up to 100 per cent in retail

trade subject to Government approval on a case-to-case basis. However, this permission,

if it is given, will be with lots of strings attached. Besides following rules on minimum

capitalization, the foreign entrants will be expected to neutralize the outflow of foreign

exchange (repatriation of dividends) by way of export earning on a year to year basis.

The biggest opposition to allowing 100% FDI is the feared exit of the small retailers.

Currently, moves are on to counter these apprehensions and the players are keenly

awaiting the final decision from the Government.

Land and Property laws

There is a shortage of good quality space and rents are high for what is available.

Compounding these shortages are the following problems. One of the drivers of property

prices is the high demand for space in the cities. This demand is exasperated by the flow

of black money (undeclared for tax purpose) that is generally invested in the property

sector.

Only Indians can own property in India, which complimenting the restrictions placed on

FDI, restrict the entry of foreign players. Stamp duties on property deals are significant

(12.5% in Gujarat and 8% in Delhi). The lease alone can cost up to 6-10 per cent of sales

while it's just 3-5 per cent globally.

The initial urban planning of cities was done with smaller plots in mind which along

with rigid building and zoning laws make it difficult for procurement of retail space.

The urban land ceiling act and rent control acts have distorted property markets in cities,

leading to exceptionally high property prices. The presence of strong pro-tenancy laws

makes it difficult to evict tenants and make people reluctant to give real estate on rent.

The problem is compounded by problems of clear titles to own

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Labour Laws

The labour laws instituted to protect store workers are not flexible enough to support the

modern formats of retailing. These rigidities in the law constrain the operations of

modern retail outlets. Working hours are restricted, with shops required to close one day

of the week and the hiring of part-time employees is difficult, however, in Bangalore, the

State Government has permitted flexibility in the use of labour without doing away with

the associated benefits accruing to it.

Taxes

Corporation tax is 38% and this would be even higher at 45% for a foreign

business.

Even essential basic foodstuffs are taxed (8% on milk).

The varying sales tax rate across states make supply chain management an even

more difficult task for retailers.

With the expected introduction of Value Added Tax (VAT) in April 2005, some

of the sales tax anamolies in the supply chain could get correct over a period of

time. However, retailers might also be additionally burdened as given below:-

Changing tax structure: Retailer margins to come under VAT net

In the tax regime contemplated from April 1 2003, VAT will be imposed at every

stage between the manufacturer and the final consumer. Thus, margin payable to

the distributor and the retailer will also be taxed.

As retailers and wholesalers would be taxed under VAT, their margins will

decline. Companies, in turn, will come under pressure to increase trade and

distributors margins to the extent of the tax being paid by them, thus pushing up

the cost of the product. The MRP could therefore increase in order to neutralize

the impact of VAT on margins. Goods with a long distribution chain between the

manufacturer and final consumer, such as FMCG items and consumer durable,

would be the worst affected.

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Environment Impact

Most of the challenges to food processing in India are typical to that of other developing

countries – socio economic environment, subsistence agriculture, fragmented value

chains and lack of infrastructure for post harvest management and processing. Some

issues are country specific: role of federal and state government, policies regarding

marketing of agriculture produce, and food safety regulations.

As highlighted in the vision document of the MOFPI, sub-optimal growth of the food

processing industry can be attributed to the vicious circle of high unit cost low demand,

low capacity utilization again leading to high unit cost. Affordability is also a major issue

in the domestic market. Price differential between fresh and processed food in India is

very high relative to convenience, hygiene and health values of the processed food. In the

developed countries processed and fresh food compare well in prices. Further, low

income Indians are very price sensitive since food accounts for over 50% of the family

budget. Per capita income in India is US$ 640 as compared with US$ 1360 in China.

There is need for working out synergy between business and environment for sustainable

development. The Govt. will bring together environmentalists, industrialists, policy

makers and NGOs at State. National and International level to debate and discuss the best

possible alternative to encourage development that is both economically productive and

environmentally friendly. The Govt. will prepare action plan for management of green

technologies to reconcile the growth of industry with that of sustaining the environment.

The Govt. will strive to energize business as a sustainable partner in preserving the

environment instead of viewing business as a destroyer of the environment. The Govt.

will further encourage the use of green technologies and shall focus on speeding up

innovation in industry and to institutionalize this.

The Govt. will compliment the efforts of various other Govt. departments, Public Sector,

Private Sector, Industry associations, Cooperatives, Consumer action groups, NGO etc. to

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provide a healthy, and enabling environment. The Govt. recognizes the need to achieve

these objectives by way of removal of restrictions, private sector participation, enhanced

Market opportunities, rationalization of tax structure and positive interface with the

industry. A policy environment that actively welcomes large-scale investment in food

will do much to stimulate this vital area of the economy.

Social Impact

Rapid transformation in the lifestyle of Indians, particularly those living in urban India,

has resulted in dramatic increase in the demand for processed food. The main reason why

processed food is luring the urban Indians is the convenience that it offers to cooking, as

they don't need to spend hours in kitchen to get that appetizing food. Growth in working

women's population and prevalence of nuclear families with double income are other

trends causing this change in the lifestyle of Indians.

Also, increase in overseas travel and the presence of foreign media in the country has

resulted in more Indians opting for processed food. For instance, in 2007, above 5Million

Indians had traveled abroad and the number is likely to rise by 15% to 20% every year.

These trends have largely impacted the Indian food-processing sector, as there's been a

jump in the demand for processed, ready-to-eat and ready-to-cook food. Amount of

money spent by Indian on foods outside home has been assessed to have more than

doubled over the last ten years to nearly $5Billion a year. Also, it's likely to double in the

five years to come. These trends entail significant growth potential for the food

processing industry in future and, as a result, add to the attractiveness of investment in

this sector.

"During the past five years, average monthly income has increased almost by 43 percent

and disposable income of individuals has increased nearly to 45 percent. This growth in

income will help the India processed food industry to boost further.

The demographic trend and lifestyle patterns, of the society that a retailer intends to

serve, decide the retailer’s strategy. Traditionally, children seldom accompanied their

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parents while grocery food shopping. Shopping for children was confined to that during

festivals when dresses were brought for them. But, in the present day, due to scarcity of

time, working parents prefer to spend as much time as possible with their children and

this includes their shopping hours also. As the organization retail sector offers the option

of entertainment along with shopping, the younger couples opt for these retail outlets for

shopping Speaking at KSA Retail Summit, 2000, Peter Lau, Chairman of Giordano

International, Hong Kong, said, "It is the format of consumer expectation that changes,

not the goods or services they want.”

KSA Techno Park conducted a study on consumer attitude towards shopping in

association with the market research firm ORG- MARG in January and February 1999.

The study was spread over the four zones of India viz. North, South, West and East and

covered a random sample of 7300 respondents in twelve cities.

The results of this study clearly reflect that the buying patterns do vary according to the

customs and lifestyle of a region. In the south approximately seven hours are spent on

shopping per week. This figure is the highest amongst the four zones, which probably

explains the more spurt of new malls and supermarkets in the south than in the other

zones.

Further, the study has attempted to find out what a customer expects out of a store. Here,

the six attributes desired by most number of people (65% and above) are polite and

courteous salespeople, quality of products, non intrusive sales persons, value for money,

attractive displays and range of products.

Although desired by a very low percentage of people (only 10%) yet the attribute of an

entertainment centre for children has also figured in.That is to say, apart from quality and

range of products, value for money and attractive displays, the human touch has a vital

role to play. Smart, polite and courteous sales people might make all the difference for a

store, which is like any other in terms of its Product offerings. There is also emphasis on

schemes and promotions, which, as the study ratifies, do pull customers. Further the trend

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is towards more convenience and flexibility in terms of exchange/ return policies, which

play a vital role in encouraging the purchase. 

Technology Impact

Technology is probably the most dynamic change agent for the retailing industry. The

computerization of the various operations in a retail store, including inventory

management, billing and payments as well as database (of customers) management,

widespread use of bar coding, point -of-sale terminals and Management Information

System has changed the face of retailing drastically. Apart from providing the retailers

with better and timelier information about their operations, the technology also does the

job of preventing theft, promoting the store's goods and creating a better shopping

atmosphere. These can be done with the help of closed circuit televisions, video walls, in-

store video networks, kiosks and other forms of interactive applications ranging from

CD-ROMs to virtual reality to let customers select and buy products.

They make the customer's life a lot easier by facilitating the use of developments like

credit cards. Toll free 800 numbers have brought about a revolution in consumer's

ordering and feedback mechanisms. These also pave way for tele-shopping and net-

shopping. Emerging technologies will also facilitate just-in-time management of certain

products within the store. These trends are already visible in the music and greeting card

industries.

Advancement in food technology can play an important role in not only harmonizing

quality norms, but also by developing good manufacturing practices, including

conformity to traceability norms hazard analysis at critical control points (HACCP). The

area where the technology can help is the fixation of the rational maximum residue limit

(MRL) for pesticides and veterinary drugs in food, which can be acceptable for

implementation by member countries of Codex. Codex has also mincorporated HACCP

system for identifying risk and their control. HACCP also covers pathogenic bacteria

also. Though the quality norms of these global bodies are accepted as base for reference,

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countries are allowed to set more stringent norms. The developed countries, who are

technologically advanced are in a more advantageous position to set stringent norms,

which many feel, could act as non-tariff barriers in trade.

5.4. Driving Forces for the Food Processing IndustryIn the international steel industry, there are a number of factors which are having a major

impact on the overall developments and trends in this industrial branch. These include:

• Continuing globalization and concentration of steel producers

• Increased worldwide competition resulting from deregulation and removal of trade

barriers and tariffs

• Relocation of production sites for semi-finished products to strategic locations along the

coast

• Tightening of environmental regulations with respect to emissions (e.g., Kyoto

protocol) and the treatment of waste materials In addition to these factors, steel producers

must also focus on and respond to the main driving forces behind developments in the

Food processing industry these

Driving forces can be defined as:

Raw materials

Products

Costs

People

The driving force: “raw materials”

Over the long term, the margin between revenues and food processing production costs is

expected to narrow as the worldwide demand for limited energy supplies continues to

increase, thus driving the costs for these in an upward spiral. One escape from this

tightening revenue-cost shear would be the greater and direct usage of less expensive and

more widely available raw materials At the same time, the protection of the environment

through the application of innovative process technologies which reduce emissions and

wastes (sludges, dusts, CO2), in combination with advanced recycling solutions that

convert wastes into valuable products, will eventually become mandatory in the industry.

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The driving force: “products”

A paradigm shift can be observed in the food processing industry today in that companies

are becoming less and less technology-oriented and more and more “value-enhancement”

oriented. This is reflected by the efforts of producers to improve the quality and value of

their products as exemplified by the development of genetically modified food– a

development, which is especially supported by the R&D. The creation of higher-value

food product through innovative product development is an important step for

maintaining and expanding existing markets, as well as for securing niche markets.

Examples of new food product for special applications include Athletic food, food for

reducing Cholesterol etc. This paradigm shift is also seen by the efforts of producers to

elongate the value-added chain in production through the increased installation of

downstream facilities, as well as by the manufacturing of, for example, food product for

premium segments like diabetic chocolate, fortified food from that higher revenues can

be obtained. The prediction, control and improvement of product quality are achieved by

the installation of fully automated plants, beginning with the processing of the raw

materials up to the dispatch of the finished products.

The driving force: “costs”

In addition to the production of higher-value products, the permanent reduction of costs is

the second major lever which is applied by processed food producers to escape the shear

of decreasing margins between revenues and costs. This cost reduction can be realized

through an improvement of business processes (investment strategy, organizational

aspects, flexible and just-in-time supply, etc.), by measures to secure “Total Cost of

Ownership” (TCO) in the supply chain through lifecycle partnerships with suppliers and

service partners, as well as by the permanent optimization of production routes,

equipment and logistics. Fast implementation of best practices (“benchmarking”) through

the application of knowledge-management tools and the maximum employment of

automation systems are further decisive steps towards reducing costs and increasing

profits.

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The driving force: “people”

The greatest asset of any company is its staff of highly qualified and motivated personnel.

Therefore, aspects of health, “safety on the job,” working environment and

training/education are becoming increasingly more important to ensure that plants are

ideally operated and maintained for their entire service life. This also implies full

automation and “roboterization” in dangerous working areas, such as in the boiler

chamber and on the milling platform, as well as personnel networking and knowledge

management to ensure continual improvements in plant operations and production.

Modern idea management systems help to exploit the vast creativity potential and

motivation of employees.

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CHAPTER: 7

Financial

Analysis

7. Financial Analysis

7.1. ANALYZING INDUSTRY ATTRACTIVENESS

The profitability of different Indian industries. Some industries (such as tobacco, food

processing, pharmaceuticals, and medical equipment) consistently earn high rates of

profit; others (such as iron and steel, nonferrous metals, airlines, and basic building

materials) have failed to cover their cost of capital. The basic premise that underlies

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industry analysis is that the level of industry profitability is neither random nor the result

of entirely industry-specific influences – it is determined by the systematic influences of

the industry’s structure. The Indian pharmaceutical industry and the Indian steel industry

not only supply very different products, they also have very different structures, which

make one highly profitable and the other a nightmare of price competition and weak

margins The food processing industry produces a commodity product with inclining

demand, strong substitute competition, massive overcapacity, and is squeezed on one side

by powerful customers.

Table: 7.1 Attractiveness of the industries

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(Source: G. Hawawini, V. Subramanian, and P. Verdin, “Is Firms’ Profitability Driven by Industry or Firm- Specific Factors? A New Look at the Evidence,” Strategic Management Journal 24 (January 2008): 1–16).

Food processing industry having 2.5 positive value of EVA/CE and ROA is 8.5%

which means companies in this industry is efficiently investing their money

Table:-7.2 ROE of the industries

107

INDUSTRY ROE (%) INDUSTRY ROE (%)

(2008-09) (2008-09)

(Source: Fortune 1000 by Industry)

Food processing Industry have median ROE 20.5% which is very good for the

investors of food processing company and this show how efficiently industry is

growing

7.2. Ratio Analysis of food Processing Industry

108

Profitability ratios (%)

Food Products              4-Mar 5-Mar 6-Mar 7-Mar 8-Mar 9-Mar             On Total Sales            EBIT/Sales( gross margin)

3.6328691

3.44629842

4.53609624

6.73397627

7.28130545

5.86520391

PAT/Sales( net margin)

0.5937217

0.29888855

1.1459133

3.02074908

3.3562716

2.66938467

             No of companies 742 840 866 849 804 711

Gross margin: It shows management is efficiently produce each unit of product , but

it is fluctuating minor because of changing in tax structure every year and also change

in sale every year and there are many other reason like

o Change in sales price

o Price change in cost of goods

o Combination both

Net Margin: Firm in industry have enough capacity to withstand against adverse

economic condition. It is having fluctuation because of change in sales price and

goods price take place every year

Return ratios %

Food Products            

  3-Mar 4-Mar 5-Mar 6-Mar 7-Mar 8-Mar             

On Net worth            

PAT/net worth( ROE)30.62898

29730.33298

60831.29865

10633.26223

35533.522

02732.62731

532

             

On Capital Employed             EBIT/ capital employed(ROI)

31.408738

27.532708

29.316561

39.105102

38.5614

32.293326

PAT/capital employed(ROI AFTER TAX)

20.409501

20.219880

20.856187

22.165680

22.3381

21.606365

No. of Cos. 742 840 866 849 804 711

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ROE: Its shows that the entire firm in industry is very well utilizing their own resources fluctuation is there show change net worth (due to utilization of reserve for investment) or profit after Tax

ROI: It is good satisfy the lender and investor in the firm present in food processing sector, here we have to find both ROI before Tax and After Tax because taxes are not controllable by management and since firm opportunities for availing tax incentives differ, it may be more prudent to use before Tax measure of ROI, but it is also fluctuating because there is change in debt net worth residue income

Working cycle & turnover ratios            Processed Foods              March-04 March-05 March-06 March-07 March-08 March-09             Working cycle (days)             Raw material cycle 39.0227256 36.8059139 48.3915532 52.956864 55.2282036 52.3420147Work in process 4.67372886 4.82143707 4.27427234 4.11794948 4.68214394 4.33089531 Finished goods cycle 18.7218815 15.8355637 11.9139576 12.0991397 14.5404523 30.5014775 Debtors 35.5811387 31.6990848 30.8788367 28.2503495 27.0889532 27.6488712 Creditors 88.3707228 76.9987343 82.0550516 86.3136067 79.3147194 60.8294903 Net working capital cycle 9.62875193 12.1632652 13.4035683 11.1106959 22.2250337 53.9937685             Turnover ratios (times)             Raw material turnover 8.21830669 8.48991408 5.8134284 5.26991186 5.28534897 6.226254 Finished goods turnover 10.141877 11.402451 11.6456797 12.4344442 12.8954532 12.6147856 Debtors turnover 10.2582439 11.514528 11.8203935 12.9201942 13.4741272 13.2012623 Creditors turnover 2.43776897 2.49519858 2.6818442 2.58554087 2.58509803 2.33586091             No of companies 742 840 866 849 804 711             

Component of Inventory: Raw material turnover and finish good turnover

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firms in food processing industry are not able to convert raw material in work in process and work in process into finished good efficiently or smoothly, but fluctuation is there reason for that is food processing industry is dependable on seasonal raw material that create fluctuation in inventory

Debtors’ turnover: It is increasing every year its show credit management is efficiently working in all firm in food processing industry it show management able to convert debtors amount in to cash.

  Asset utilization ratios

  Processed Foods              Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09               

 

Sales /Avg. net fixed assets( assets turnover) times 0.53891567 0.61570631 0.57306314 0.54389562 0.59283969 0.81297533

  No of companies 742 840 866 849 804 711               

Asset turnover: It shows management of firm of food processing industry are not able to utilization of asset efficiently, it fluctuate because of the depreciation of Asset and change in the volume of sales

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7.3. Balance Sheet of Industry and Trend Forecasting

 Structure of asset & liabilities (%)

  Food Products              (Non-Annualized) Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09                 Gross fixed assets 58.8919588 58.2600935 58.0187333 61.3574617 61.4596735 58.526768  Less: Cumulative depreciation 17.2611758 18.0889329 19.053344 20.2331437 18.3224381 15.7283046  Net fixed assets 41.5915643 40.1325542 38.9463887 41.1095199 43.1339212 42.7962707                 Investments 6.50232488 7.55229091 7.94729315 7.61589216 7.03592007 8.05160543  Market value of quoted investments 1.32794608 1.37565797 1.97089148 3.35012644 5.78006398 3.57087752  Deferred tax assets 1.36572257 2.19620693 2.44360574 2.15255737 1.40551364 1.53966598  Current assets 47.0348453 46.9310612 46.5371914 45.4149106 44.1667293 43.0989984  Loans & advances 0 0 0 0 0.00084844 0.00073092  Deferred revenue expenditure 0.56149978 0.62930481 0.43565975 0.3892272 0.31110052 0.21337235                 Total assets 100 100 100 100 100 100                 Net Worth 25.4683705 26.2748865 26.595633 28.5424743 29.7197576 27.7296568

  Paid up equity capital (net of forfeited capital) 11.1133611 10.3157307 11.5999857 9.89307523 8.5923109 5.74633211

  Paid up preference capital (net of forfeited capital) 0.89135311 1.18795227 1.21822801 1.16676151 1.05197766 1.05335108

  Reserves & surplus 18.3565941 18.4537476 17.0157217 21.1325282 23.4327352 23.2499453                 Total borrowings 41.1324176 38.6035508 39.150972 37.5054803 37.6548559 41.5147689  Secured borrowings 32.6790548 31.1990556 29.6037568 29.0801881 27.7739178 31.5655395  Unsecured borrowings 8.45336285 7.40449525 9.54721519 8.42529213 9.88093813 9.94922942                 Current liabilities & provisions 25.339658 27.2236393 26.6475093 26.0566617 25.3300944 24.967728  Sundry creditors 14.4694205 15.919581 14.9347278 13.8995453 13.6051827 14.5808358  Interest accrued 2.58366413 2.67875899 2.4534815 1.98576105 1.41208908 1.18930272  Share application money 0.00464695 0.00407853 0.0068559 0.00795875 0.0101283 0.03373665  Other current liabilities 2.5506147 2.5089318 2.31296821 2.48141157 2.12272715 1.958302  Provisions 3.13488854 3.17833289 3.26389776 3.76036228 4.32886694 4.08875915                 Total liabilities 100 100 100 100 100 100                 Contingent liabilities 0.00446668 0.00405991 0.00355854 0 0 0                 No of companies 742 840 866 849 804 711               

Forecasted Balanced sheet (Forecast Method Linear Trend)

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forecasted balanceStructure of asset & liabilities (%)

Mar-10(E) Mar-11(F) Mar-12(F) Mar-13(F)         Gross fixed assets 60.53027 60.84774 61.16521 61.48268Less: Cumulative depreciation 17.53615 17.37089 17.20564 17.04038Net fixed assets 43.00411 43.49528 43.98644 44.47761         Investments 8.037477 8.205073 8.37267 8.540267 Market value of quoted investments 5.476638 6.213984 6.95133 7.688676Deferred tax assets 1.671204 1.619964 1.568724 1.517483Current assets 42.62117 41.7899 40.95863 40.12736Loans & advances 8.83E-04 1.06E-03 1.06E-03 1.41E-03Deferred revenue expenditure 0.1491925 0.0708587 0.0074751 0.0858089         Total assets 100 100 100 100         Net Worth 29.74725 30.42119 31.09513 31.76907 Paid up equity capital (net of forfeited capital) 6.172235 5.209025 4.245816 3.282608 Paid up preference capital (net of forfeited capital) 1.129997 1.140014 1.150031 1.160049 Reserves & surplus 24.6256 25.86904 27.11249 28.35593         Total borrowings 39.00236 38.92865 38.85494 38.78123 Secured borrowings 28.68026 28.21265 27.74503 27.27741 Unsecured borrowings 10.3221 10.716 11.10991 11.50382         Current liabilities & provisions 25.11444 24.88212 24.6498 24.41748 Sundry creditors 13.82609 13.61405 13.40201 13.18997 Interest accrued 0.9265559 0.6054262 0.2842966 0.0368331 Share application money 0.0027704 0.003241 0.0037116 0.0041821 Other current liabilities 1.927319 1.814412 1.701506 1.588599 Provisions 4.497593 4.746662 4.995731 5.244801         Total liabilities 100 100 100 100         Contingent liabilities 0.001793 0.0028807 0.0039685 0.0050563         No of companies 774 812 862 871         

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CHAPTER: 7

Findings

8. Key Findings

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Currently, the Indian food processing industry is basically export oriented. Although

domestic consumption of processed food is low but it is fast picking up with rising

income levels & changing consumer behavior due to economic growth.

Indian processed food industry provides competitive advantages over other countries

due to cheap workforce, government initiatives (tax holidays) & availability of raw

materials.

Existence of untapped large consumer base with rising income levels.

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

continues to remain very low. However, with the emerging positive market forces, it

is all set to boom.

The rapidly developing and full of potential processed food market will attract foreign

companies.

Fast-food outlets appear to be taking market share from street hawkers as consumer

purchasing trends are turning more westernized.

Production of branded snack food is estimated to be growing at an annual rate of 20%

in coming 2-3 years, albeit it has a small base of consumers.

Being the world's largest market for whisky, India will remain major global spirits

market in the coming 3-4 years.

The processed-food market is the main focus for foreign companies as this segment is

underdeveloped and presents enormous potential for growth. The growth of modern,

organized retailing — in contrast to the kiosks and small shops from which Indians

have been purchasing food traditionally — will also increase the demand for value-

added foods.

Rising household incomes, increasing urbanization, changing lifestyles and the rapid

growth of the private-sector and dairy-processing industry should lead to greater

demand for value-added, milk-based products, such as processed cheese, table butter

and ice cream.

Rising incomes will make fish more affordable for a larger segment of the population.

It is expected that the consumption per head will increase at a CAGR of 3.45% for the

forecasted period.

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The growth rate of soft drink sales will decelerate during the forecasted period due to

pesticide contamination issues and growing popularity of fruit juice drinks and

bottled water.

Coffee consumption is likely to expand at a rapid rate during the forecasted period. It

is expected that it will increase at a CAGR of 10.05% for the period spanning from

2007-2011.

Industry associations & segments like semi processed cooked ready-to-eat, ice-cream;

wine and sugar have 24 per cent, 30 per cent, 22 per cent and 25 per cent growth

respectively.

With water resources in terms of 29,000 km of rivers, 3.15 million hectares of

reservoirs, 2.35 million hectares of ponds and tanks and 0.2 million hectares of

floodplain wetlands, the potential production levels are estimated at over 4.5 mmt

annually

The country produces almost 10% of the world’s fresh produce but accounts for just

1.6% of the global trade. Experts say almost 40% of the country’s fresh produce is

wasted due to the lack of a proper cold chain infrastructure.

Limitations

The respondents are selected by judgmental and snowball technique so they may not be experts of the industry

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The results are totally derived by the respondent’s answers. There might be a difference between the actual and projected results. because we have not taken all the factor affecting industry

We have to conduct depth interview in which we have to take the interviews from the experts but maybe it is possible that the responder may not be expert so he may give us wrong or incomplete information. or lack of latest data

Due to time constraint we will not be able to perform primary data analysis, due to this we will not be able to get the customers opinion about processed food.

Research also depends on intervie’s bias & his/her ability to analyze the data & draw conclusion and the whole report is depend on secondary data .

Conclusion117

According to a study done by us, the Indian food market will grow two fold by 2010 with

the rapidly growing Indian economy and improving lifestyles of Indians contributing in a

big way to this growth. Quoting the study "The market size for the food consumption

category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion in

2010 at a compound annual growth rate of 4.1 per cent."

The Indian snacks market is worth around US$ 3 billion, with the organised segment

taking half the market share, and has an annual growth rate of 15-20 per cent. The

unorganised snacks market is worth US$ 1.56 billion, with a growth rate of 7-8 per cent

per year. There are approximately 1,000 types of snacks and another 300 types of

savories being sold in the Indian market today.

There is a big market for snacks in India as urban Indian consumers eat ready-made

snacks 10 times more than their rural counterparts.

"Consumers are willing to pay a premium for both value-added private and branded

products, creating immense opportunities for manufacturers and retailers. The growth of

food processing sector has nearly doubled to 13.7 per cent during the last four years.

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

70 billion with a 32 per cent share. It comprises agriculture, horticulture, animal

husbandries, and plantation.

The opportunity for growth is huge when seen against the fact that while a mere 1.3 per

cent of food is processed in India, nearly 80 per cent of food is processed in the

developed world.

Significantly, processed food exports have increased from US$ 6.98 billion in 2003-04 to

US$ 20.51 billion in 2007-08, recording a whopping 193.83 per cent growth rate. It

realise India's potential in this industry,investment target of US$ 25.07 billion by 2015 to

double India's share in global food trade from 1.6 per cent to 3 per cent, increase

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processing of perishable food from 6 per cent to 20 per cent and value addition from 20

per cent to 35 per cent.

At last India is all set to become the food supplier of the world. It has the cultivable land,

all the seasons for production of all varieties of fruits and vegetables, well developed

agribusiness system that works in its own way.

There are some Factors such as rapid growth in the economy, the technological

innovations, rise of families with dual incomes and the changing food habits of the

population all point to the increasing need for healthy processed food. The supply chain

sector is very weak with no process owner and this can spell disaster. The food supply

chain needs the attention, the industry and the Government.

Reasons to Invest in Indian Food Processing Industry

It is the seventh largest country, with extensive administrative structure and independent

judiciary, a sound financial & infrastructural network and above all a stable and thriving

democracy.

Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material

base suitable for food processing industries. Presently a very small percentage of these

are processed into value added products.

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

million strong middle class.

Rapid urbanization, increased literacy and rising per capita income, have all

caused rapid growth and changes in demand patterns, leading to tremendous new

opportunities for exploiting the large latent market. An average Indian spends

about 50% of household expenditure on food items.

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

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India's comparatively cheaper workforce can be effectively utilized to setup large low

cost production bases for domestic and export markets.

Liberalized overall policy regime, with specific incentives for high priority food

processing sector, provides a very conducive environment for investments and exports in

the sector.

Very good investment opportunities exist in many areas of food processing industries, the

important ones being : fruit & vegetable processing, meat, fish & poultry processing,

packaged, convenience food and drinks, milk products.

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