food processing and agribusiness a4 - india in...

KPMG IN INDIA

CONSUMER MARKETS

Food processing and Agri business

01

About the study

This is a briefing paper that was presented by KPMG at the “International

Summit on Food Processing and Agribusiness” organized by

ASSOCHAM. The document analyses the potential of the Indian Food

Processing sector in two dimensions - India as a Sourcing hub and India

as a huge potential market in itself.

The study starts with the market landscape of food processing sector in

India, the key trends in the value chain, growth drivers and the export

scenario. It then identifies the key opportunities for players across the

value chain.

The paper then focuses on key hurdles in the path to growth, and

explains by means of cases how to overcome the hurdles. The document

concludes with the expectations of the industry and recommendations.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

02

India's strong agricultural base and accelerating economic growth holds a significant

potential for the Food Processing Industry that provides a strong link between agriculture

and consumers. Government also has accorded a high priority to the sector and has

provided many fiscal incentives. An enviable share of the world's agri-produce and diverse

agro-climatic regions coupled with changing demographic patterns, food habits and rise in

income levels opens up numerous opportunities in the sector – India as a large consumer

market and India as a potential sourcing hub to the world.

Yet India's share in the global food trade is just around 1.5 percent. What are the key

constraints that are slowing the growth of the sector and how are they being addressed?

What are the various opportunities that the Indian Food Processing Industry provides? What

are the trends in the food trade? How are the consumer food habits changing and how does

it affect the industry? What are the support initiatives taken by the government and what

opportunities do they provide in the value chain beyond just Processing? What is the

industry expecting from the government to further the growth? What further can be done to

help India reach the very deserving lead position in the global trade?

The report aims to answer all these questions on the Indian Food Processing Industry.

KPMG conducted extensive research based on information from both primary and

secondary sources – various proprietary databases, our experience with various food

companies and interviews with players across the value chain – to understand the sector,

the potential and various immediate and long term steps required. A summary of the key

findings of our analysis is outlined below.

Executive Summary


03

Food is the largest consumption category in india

India's Food Processing Industry is estimated to be around USD 67 billion of the USD 180

billion Food Industry and creates more employment opportunities per unit investment than

any other sector.

India has a diverse agro-climatic regions and soil types with optimum amount of sunshine

hours and day length suited for cultivating both food and commercial crops round the year.

Naturally, India is a leading producer of many agricultural products like fruits and vegetables,

cereals, pulses etc. India offers a huge potential in terms of rising consumption and as a

sourcing hub for the world due to its supply strength.

– Introduction: India - Global Food processing Hub, explains the contribution of

Food Processing to GDP, India's supply strengths and rising consumption-led

demand, hurdles in terms of wastage and highlights the opportunities in the

sector for players and the government.

Common features across segments –

Largely unorganised – Though the unorganised segment varies across categories

mentioned above, approximately 75 percent of the market is still in the unorganised

segment.

CHAPTER

!

Significant opportunities exist across each segment

Food Consumption in India will grow at a CAGR of 5.32 percent

Source: BMI, Q1 2009 & CSO

151.7 157.7168.6

180.1 184.4 191.4 198

50

100

150

200

250U

SD B

n

0

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

210.3229.7

CAGR: 5.32%

Food Processing Segments

Food Processing

Fruits &Vegetables

Meat &Poultry

Dairy MarineProducts

Grains Consumer Food

1


Source: KPMG Analysis

04

Level of Processing across Segments

Segment

Fruits and Vegetables

Fisheries

Poultry

Buffalo Meat

Milk

Level of Processing

2.2%

26%

6%

20%

35%

Comments

USA (65 %), Philippines (78%) and China (23%)

60-70% in developed countries


Source: UN COMTRADE

Export of processed food growing faster than exports of Food overall

18.75%

21.84%24.63% 25.44%

23.63%

28.96%31.25%

28.78%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2005 2006 2007 2008

Export of Food and Beverages Export of Processed Food and Beverages

2


! The organised sector is relatively bigger in the secondary processing segment than the

primary processing segment. Also, the primary processing segment is highly

fragmented.

The level of processing in each segment is low relative to many other countries and India

accounts for just around 1.5 percent of the global processed food trade.

If India was to lift its share of global processed food trade to just 3 percent, the Ministry of

Food Processing estimates that some USD 24.7 billion worth of investment would be

needed to restructure the industry. Taking a cue from the global examples, India also should

invest in infrastructure and policy development that helps reduce waste across the supply

chain and increase the level of processing and overall value of output.

– Food Processing Segments – details each segment of the Food Processing

covering the supply, processing, bottlenecks, and opportunities and explains

the need for improved focus and investment in the sector.

According to Business Monitor International, India’s Food exports are expected to increase

by 72.8 percent over 2008 to USD 24.25 billion in 2013. However, in spite of vast natural

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

forecast period, to reach USD 12.3 billion

by 2013. At an overall Food and Beverage

level, the export of processed segments is

growing much faster.

During the period 1980-2007 India’s share

of the global food exports has increased

from 1.1 percent to 1.4 percent, with

majority of the increase coming during the

current decade. Countries like Germany,

which had large number of SMEs similar to

that of India, have focused significantly on

R&D and Innovations in the sector apart

CHAPTER

Export of processed foods is growing faster than food segment

Source: MoFPI Annual Report 2007-08

05

Source: UN COMTRADE; CEPII

India's exports are predominantly to the nearby countries

0

South Asia 34%

Middle East 29%

East Asia 17%

Western Europe 10%

Rest of the world 7%

Africa 1%

Shar

e of

Tra

de

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 4000 6000 8000 10000 12000 14000

Distance (Kms)

US and Canada 1%


from investing in infrastructure and supportive policy and legal framework that helped the

country to the top league of the exporters table. Joint research initiatives that helps SMEs

invest in a federal R&D lab promoted multiple product innovations in the country.

India’s trade in various segments in the Food Processing Sector has seen a good growth

driven by the Mango Pulp, Dried and Preserved vegetables, Pickles and Chutney in F&V,

Buffalo Meat in the Meat and Poultry, Basmati Rice in Grains and Shrimp in the Fisheries

segments. India’s exports, as is the case globally, are to the proximate geographies led by

South Asia at 34 percent and USA & Canada a poor 1 percent of total exports.

However, significant impediments exist hindering the export growth:

Poor quality and grading mechanisms for raw material leading to loss of consistency in

variety of raw material

High level of wastage across the value chain

Presence of too many intermediaries implying a high cost of raw material

High costs of packaging

Low technology equipment and knowledge

High costs and poor quality of distribution

Stringent Food Safety and Traceability norms from importing (developed) countries

India needs to take strong measures to promote growth:

Map demand with production capabilities – Himachal Pradesh, is manufacturing

commercial crop in Kiwi, instead of Apples, due to the falling demand for Apples

Move towards non-traditional items – A herbal beverage made from Sea-buckthorn

developed with DRDO technology opens up a huge market opportunity

Improve promotional activities for Indian food and market India as a food sourcing hub

Promote investment for increasing the level of processing in the sector

Upgrade agri-infrastructure to have a sustainable supply chain for consistent high

quality raw material

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06

3

4


•

•

CHAPTER

CHAPTER

Provision for Training and Education on the safety and health regulations in export

markets

Market Diversification – Move over the geographical distance barriers and initiate joint

efforts with potential partners in identifying the focus of trade and creation of

conducive regulatory policies. Chile has successfully overcome the distance barrier and

exports to far off geographies due to its focus on quality, exports promotion by regional

trade agreements and joint initiatives.

– India’s Food Processing Trade – details the trade statistics of India, India’s

position in global trade, segment level and geography-based trade, the

impediments to growth and key export promotion strategies.

Increasing urbanisation, consciousness on health and nutrition and changing lifestyle are

changing the consumption habits of India. The number of working women, single

students/professionals and nuclear families is increasing creating a demand for processed

Ready-to-eat foods. Growth of organised retail, which makes the processed food readily

available, is also driving growth of Food Processing.

Government has initiated several steps like setting up Mega Food Parks, Integrated Cold

Chains, Modernisation of Abattoirs, fiscal incentives for technology upgradation, R&D,

Training and Educational institutes etc to reduce wastage and boost the growth of the

sector.

Budget 2009 provides a fillip to agriculture in terms of cheaper finance, increased allocation

to irrigation, harmonisation of taxes by implementing GST and fiscal incentives for

investments in Cold Chain facilities.

– Key Growth Drivers of Food Processing Sector in India – details the demand-

side and policy-level drivers of the sector, including a section on Budget 2009

measures for Food Processing Sector.

The Food Processing sector offers many opportunities across the value chain right from the

farm equipment players to the retail/food services segment.

Urbanisation and supportive policy is driving growth

Significant opportunities exist across the food value chain

India's Forex Reserves: 2001-2008 (till March 2008)

07

CHAPTER – Opportunities in the Food Processing Value Chain – details the food value

chain and provides an analysis of various opportunities that exist across the

value chain.

FarmsInputs

Farming Marketing/Aggregator

Processing Logistics(Food)

Retail/FoodServices

Consumer

Financial & Business Services

Transport Services/Infrastructure

Quality Control Market Intelligence

Product Design

Distribution

Marketing

POLICY SUPPORT

A summary of the key opportunities is listed below

5

Summary of Opportunities across the value chain

Opportunity

Customised equipment for the local market

Processable variety of crops

Forward Linkages with the Processors

Contract Farming Arrangements

Consolidation of farm produce

Access to global markets

Forward linkages with Organised Retail

Backward linkages with farmer

Institutional segment business

Increase in integrated storage facilities requirement

Cold storage facilities

Mega Food Parks

Integrated Cold Chain

Quality Control and R&D labs

Food Safety management systems

Joint Research Initiatives

Training and Provision of Market Intelligence

Packaging and barcoding

Player

Farm Equipment

Farmer

Processor

Logistics provider

Investors

Enabling Segment


Food Processing Value Chain



Constraint Long and fragmented supply chain leading to high wastage and high costs especially due

to seasonality, perishability and variability of produce.

Supply Chain hindrances

08

Various constraints are impeding

the growth of the sector

The opportunity in Food Processing industry

is significant, but so are the challenges that

ail the sector. Certain limitations could be

seen as an opportunity waiting to be

exploited for the allied sectors and others as

a guiding light to a roadmap for

government's intervention. Below is a

summary of various constraints and strategic

measures.

Summary of Constraints and Strategies

R&D

Constraint Commodity-centric R&D

Compartmentalization of R&D agencies

Poor validation and feedback mechanisms

Strategy Need for a systems approach to R&D to enable a holistic research-development-

technology transfer continuum involving all stakeholders

Strategy Contract farming helps certainty of supply, reduction of costs, and high remuneration to the

farmers. Suguna Poultry successfully implemented contract farming creating a win-win

situation for the farmer and the integrator. Terminal markets, that operate on a hub-and-

spoke format, where in the terminal market (hub) is linked to a number of collection

centres (the spokes) help procurement of right quality produce at the right price.

Constraint Industry is in dire need of highly skilled and trained manpower across different levels to

handle various operations

Strategy Need for institutes and courses that provide managerial, safety and enforcements,

technology and production, warehousing and distribution trainings, and regulatory bodies

to focus on trade agreements

Human Resource Development

Constraint Low level of interaction between industry and research institutes

Strategy A few initiatives by CFTRI with industry (MTR, Rishang Keishing Foundation) have been

successful. Similar efforts needs to be encouraged

Industry Linkages

Constraint Indian Export related infrastructure for agri-produce is grossly inadequate, especially at sea

ports and airports. More than 30 percent of the produce from the fields is lost due to poor

post-harvesting facilities and lack of cold chain infrastructure.

Strategy India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10

Million Ton more. Supportive measures for infrastructure investments from the private

sector are required.

Infrastructure bottlenecks

Constraint Either unavailability of funds or availability of funds through unorganized sector at

unfavourable terms and conditions.

Strategy Some organizations have been exploring equity investments in SMEs that operate along the

food value chain. These investors place less emphasis on collateral or creditworthiness and more

on the capabilities of the entrepreneurs and viability of their business plans. Two such initiatives

are African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF).

Poor Financing Options


09

CHAPTER – Constraints and strategies – details various constraints and strategies, with

case studies on how some players have been approaching the constraints.

Constraint The packaging material is imported from China as the sector lacks government support.

Packaging

Constraint

Constraint

Constraint

Constraint

Multiple laws at state and centre level are applicable to the FPI.

Was to enable establishment of private markets, direct purchase centres and promotion of

PPPs, but there is no uniform implementation of the Act. Only 15 states have adopted the

model law.

India's overall agriculture productivity is still at approximately 2 percent

Urgent need to make the law uniform across states. Support e-choupal like initiatives that

encourage market reforms

Strategy Encourage the sector by extending the tax breaks and concessions to players setting up

packaging industry in India

Strategy

Strategy

Players need to device a twin pronged strategy of improving agricultural yields coupled

with delivering the right quality to different markets

Strategy

Ensure that the requisite controls are put in place across the agri-value chain-from farm

inputs to storage of produce to food processing techniques.

Strategy

Need for a consolidated law that removes the hassles of multiple departments and multiple

laws

Multiplicity of Laws and Stringent Regulations

Poor implementation of APMC Act

Productivity Issues

Low adherence to quality standards

Unavailability of basic standardization and certification infrastructure. Given the size of the

industry, there is a huge gap in the availability of laboratories, trained manpower, and

certification agencies.

6


10


Industry expects a lot more from the government

KPMG has interviewed various players across the value chain for the study and collated

their expectations. The expectations are as under:

100 percent tax breaks in R&D – Large companies are willing to invest in R&D and also

support small scale industries provided the government provides incentives

Support for nutritional products – The industry expects the government to differentiate a

nutritional product from a non-nutritional product and make laws for labelling and

incentives

Conducive policy for Contract Farming – Need a change in the currently restrictive land

ceiling law

Harmonisation of taxes – VAT is not uniform across states leading to different prices in

different states

More incentives in Infrastructure Development – Government also needs to share the risks

of development and market

Focus on Skill Development – Need for improved focus on establishing training and

education facilities for production technology, warehousing, testing, safety and quality

systems

Easier Financing to Food Processing – Need to enable easier financing possibly with a

separate bank

KPMG’s recommendations for the sector:

More Production of processable varieties to help minimise wastage, improve value addition

and improve farmer income. This requires more investments in quality systems, sorting,

grading etc.

Promotion of Indian Food in global markets to market India as a brand in Food Processing.

Infrastructure development through Private Sector Participation (PSP)

Implementation of GST (to remove the non-uniformity in indirect taxes)

Fiscal incentives for modernisation

Support in meeting export quality norms by training facilities and providing market

intelligence through private bodies and institutes like NIFTEM, CFTRI etc

Extend incentives to players who invest substantial amounts in backward integration as this

helps farmers earn remunerative prices by minimising middlemen.

Promotion of Nutrition Foods – Need to make nutritional labelling a must and also

incentivise the players who produce nutrition foods.

– Industry Expectations and Recommendations – details the expectation of the

industry and KPMG recommendations for the sector.

A dynamic Food Processing sector will help India ensure higher value addition to agricultural

produce, generate employment, improve farmer income and create markets for domestic

consumption and export of agro foods.

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CHAPTER

7

11

Contents

Introduction: India - Global Food processing Hub


India’s Food Processing Trade

Key Growth Drivers of Food Processing Sector in India

Opportunities in the Food Processing Value Chain

Constraints and Strategies

Industry Expectations and Recommendations

Conclusion

Abbreviations

12

16

26

41

46

51

64

68

69


12

With agriculture at the core of Indian economy and more than two-thirds of the population

dependent on farming, a developed Food Processing sector can be a strong link between

agriculture and the consumers. Government's high priority to the sector coupled with a

growing consumption-led demand is leading to a fast pace growth in the sector. A

developed Food Processing sector will help overcome the biggest challenges in front of

India

Low farmer income and high subsidies

High wastage along the value chain

Poor hygiene and safety standards

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

into food or to transform food into other forms for consumption by humans or animals

either at home or by the food processing industry. 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 food processing industry is made up of primary, secondary and tertiary food

processors.

!

!

!

In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flour

mills, pulse mills and oil-seed mills. Also, there are several thousands of bakeries, traditional

food units and fruit & vegetable/spice processing units in unorganized sector.

Primary Food

Processors

Secondary Food

Processors

Tertiary Food

Processors

Primary industries process raw foods (wheat into flour, for example)

Secondary industries use primary products to manufacture other foods

(flour into bread).

Tertiary industries produce prepared convenience foods such as frozen

dinners or canned soup.

Introduction:

India - Global Food processing Hub


1. Ministry of Food Processing Industries, Annual Report 2007-08

2. IBEF Food Processing Report, June 2008

3. Changing lifestyle, thriving food processing; FFY Magazine June 2009

13

These numerous advantages and factor conditions like low cost of labour put India in an

enviable position to produce a wide variety of food crops and commercial crops for

domestic consumption as well as export.

Significant Contribution to GDP

and Employment

India's Strengths in Food

Processing

Indian food processing industry is estimated to

be around USD 67 billion, of the USD 180

1billion food industry, making it the fifth biggest .

The food industry expected to grow to USD

2280 billion by 2015 and generate an additional

employment for approximately 8.2 million

people. It has been observed that employment

potential of the food-processing sector is much

higher than other sectors. For instance, an

investment of INR 10 billion generates

employment for 54,000 people in the food-

processing sector, jobs for 48,000 people in

textiles and employment of 25,000 people in

the paper industry. There is also fourfold

generation of indirect employment in auxiliary

and other downstream activities on account of

investment in the food sector. Also, 60 percent

of the employment generation takes place in

3small towns and rural areas .

India is one of the key food producers of the

world and has access to several natural

resources. Diverse agro-climatic conditions

and wide ranging raw material base adds to

the huge advantage of a large untapped

domestic customer base.

Food processing industry in India is

supported by a great agri-climatic diversity

suitable for round the year cultivation of

crops. In terms of production, India is among

the world's major food producers – India

accounts for 17 percent animal, 12 percent

plants and 10 percent fish genetic resources

of the globe; and 16 percent of cattle, 57

percent of buffalo, 17 percent of goats and 5

percent of sheep population of the world.

Diverse agri-supply

52% cultivable land compared

to 11% world averageLargest livestock population

All 15 major climates in the

world exist in India Largest producer of milk

46 out of 60 soil types exist

in IndiaLargest producer cereals

20 agri-climatic regionsSecond-largest fruit and

vegetable producer

Sunshine hours and day length

are ideally suited for round the

year cultivation

Among the top five producers

worldwide of rice, wheat,

groundnuts, tea, coffee, tobacco,

spices, sugar and oilseeds.

India has the largest area in the world

under pulse crops

India is the first in the world to evolve a

cotton hybrid

India grows more than half of the world's

mangoes and leads all countries in the

production of cashews, millet, peanuts,

pulses, sesame seeds, and tea

The nation ranks second in the production

of cauliflowers, jute, onions, rice,

sorghum, and sugar cane

India is also the world's largest grower of

betel nuts, which are palm nuts chewed

as a stimulant by many people in tropical

Asia. It is also a leading producer of such

spices as cardamom, ginger, pepper, and

turmeric.

Some Interesting facts on

Indian Agriculture


Source: Can India be the Food Basket for the World, An ISB Working Paper

Statistics Source - National Horticulture Board, FICCI, MoFPI

14

India's Rank relative to the world in various agri-products

Percent Share HighLow

Ran

kH

igh

Low

Pulses, 1 , 21

Buffalo, 1 , 57

Paddy (Rice), 2 , 21

Chicken, 6 , 3

Sheep, 5 , 5

Eggs Total (m) 5, 3

Cattle, 1, 16

Total Milk, 1, 14

Cereal, 3, 11

Potatoes, 3, 8

Wheat, 2 , 12

Onions, 2 , 11 Veg & Melons, 2, 10

Item, Rank, % of Global Share

Consumption-led demand

Source: BMI, Q1 2009 & CSO

Food Consumption in India

151.7 157.7168.6

USD

Bn

180.1 184.4 191.4 198210.3

229.7

0

50

100

150

200

250

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

CAGR: 5.32%

India, with a population of more than 1.1 billion, is one of the largest consumer markets in

the world. Food consumption in India is expected to grow to 229.7 billion in dollar terms by

42013 from 168.6 billion in 2007 . Food and Beverages is largest category in Indian

5consumer spending and is expected to remain in the future . The country's highly favourable

demographic patterns, with more than 50 percent of the population below 30 years of age,

increasing disposable income, urbanisation and lifestyle change are likely to bring about

changes that will enforce shifts in the Indian food and drinks industry, as young populations

are one of the key drivers in the demand for processed and health foods.


4. Business Monitor International, Jan-Mar 2009

5. The Rise of the Indian Consumer Market, McKinsey 2005

Source: FAO, Kotak Securities

15

Hurdles in the growth path

In spite of the huge supply advantages, India's share in the global food trade is still around

1.5 percent. Huge losses across the value chain resulting in poor processing levels are

limiting the growth the India's share in the global processed food trade.

Processed food has a longer shelf life and reduces wastage. The lack of processing and

storage of fruits and vegetables results in huge wastages, as shown in the figure,

estimated at about 35 percent, the value of which is approximately INR 33,000 crore

6annually (Recent reports put the number at a much higher level). So, it is imperative for the

government and private players to invest in infrastructure to make India not only have

sustainable food production for its growing population but also export more to the world.

The low share of processed food and global trade is an opportunity waiting to be tapped.

Increasing urbanisation and rise in disposable incomes will further push demand for

processed food. This is an opportune time for companies to invest in quality facilities and

develop products with features that appeal to the growing Indian consumer base and the

export markets.

Also, from a government's point of view, Food Processing sector can help reduce the

burden of subsidies and raise the farmers' income simultaneously. Agricultural produce that

is processed for domestic consumption can not only fetch higher prices and hence higher

income for the farmers, but also generate direct and indirect employment helping alleviate

rural poverty. So, the government should continue to support the industry with an enabling

and growth oriented policy.

Significant Opportunity – Domestic Market and Exports

Field Losses(Pest, Diseases, Rodents etc)

Pre-Processing(e.g. inefficient harvesting, drying, milling)

Transport(e.g. spillage, leakage)

Storage(e.g. technical deficiencies)

Processing & Packaging(e.g. excessive peeling, washing)

Marketing(e.g. spoilage, rotting in stores)

Wastage by Consumer(e.g. overeating, food wastage)

Developing CountriesRelatively high losses in

the initial parts of thevalue chain

Rich Countries Highlosses at a in the food chain

later stage

Field

Con

sum

er

Pro

duce

r

Fork Britt-Lousie Anderson, SIWI


6. Ministry of Food Processing Industries, Annual Report 2007-08

16


India's low level of processing is expected to change significantly in the future fuelled by

sustained economic growth and steady urbanisation. Processed food output is expected to

grow at a strong 7 percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.6

1billion USD in 2013 . Premiumisation, especially among the young and rich urban population,

is also a key factor helping value growth over the forecast period.

Source: BMI, Q1 2009

USD

Bn

CAGR: 7%

Processed Food Output

55.658.9

62.566.2

71.577.2

83.490.1

95.6

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f


A schematic diagram of the key segments in the industry is as shown below.

Food Processing

Fruits &Vegetables

Meat &Poultry

DairyMarine

ProductsGrains

Consumer Food


1. Business Monitor International, Jan-Mar 2009

17

Source: EXIM Bank

India's share of global production - F&V

41 23 24 36 10

59 77 76 64 90

0%

20%

40%

60%

80%

100%

Mango Banana Cashew Nuts Green Peas Onion

India Rest of the World

Common features across segments –

Largely unorganised – Though the unorganised segment varies across categories

mentioned above, approximately 75 percent of the market is still in the unorganised

segment.

The organised sector is relatively bigger in the secondary processing segment than the

primary processing segment. Also, the primary processing segment is highly

fragmented.

The following sub-sections provide a brief overview of the key segments. While the

opportunities and constraints at segment level are touched upon, a detailed analysis is

provided in later chapters.

Supply

Fruits and vegetables is one of the most important and fast growing sub-sectors of the food

processing sector, as fruits and

vegetables form an indispensable part of

healthy diet. India accounts for 13

percent of vegetables and 12percent of

fruits production globally, with an

enviable share in few categories like

Mango, Banana, Cashew, Green Peas

and Onion. The productivity has also

improved from 10.25 and 14.37 million

Tons/Hectare for Fruits and Vegetables in

2002-03 to 10.94 and 16.14 million

Tons/Hectare for Fruits and Vegetables

respectively.

Processing

The installed capacity for fruits and vegetable processing in India has increased from 11.08

2lakh tons in 1993 to 24.74 lakh tons in 2007 , mainly due to the increasing demand from

ready-to-serve beverage industry, fruit juices and pulps, dehydrated and frozen fruits and

vegetable products, pickles etc.

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!

Fruits and Vegetables Processing

Year

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Fruits – (Mn Ha)

5.1

5.3

5.3

5.6

5.8

4.8

Fruits Vegetables

Fruits - Production (Mn Tons)

49.8

52.8

55.4

59.6

63.5

49.2

Vegetables – (Mn Ha)

5.9

6.7

7.1

7.2

7.5

7.8

Vegetables – (Mn Tons)

84.8

101.4

108.2

111.4

115. 0

125.9

Source: National Horticulture Board


2. India's share in world fruit, veg market remains poor, Feb 14 2009, news.webindia123.com

18

3The share of the organised sector in Fruits and Vegetables processing is 48 percent .

Majority of the units are in the Small Scale sector, having low capacities up to 250 tons/year

though big Indian and multinational companies have capacities in the range of 30 tons/hr.

Currently, only 2.2 percent of the total produce in India is processed and the rest marketed

as fresh fruits and vegetables. Globally, developed countries process fruits and vegetables

in excess of 65 percent.

Bottlenecks

4In spite of the strong supply base, India has a low 1.38 percent share of global trade . India's

exports of fresh fruit and vegetable stood at INR 2,411.66 crore (534.97 million dollar) in

2006-07. It is estimated that around 30 percent of the produce is lost due to lack of

processing facilities (in flush season) and inadequate infrastructure for post-harvest

treatment, packing, storage and transportation.

The demand for processed fruits and vegetables is lower in India mainly on account of

higher costs that can be attributed to higher duties and taxes on packaging material,

inefficient supply chain with lot of intermediaries, absence of cost-effective latest

technologies for processing, infrastructural bottlenecks and high cost of finance. Smaller

units and their lack of marketing strength for end-products also is a major constraint for

expansion of domestic market.

Summary

Fruits and vegetables offer a significant potential for the organised processing players due

to the low level of processing and a vast supply base, coupled with considerable

international demand for certain fresh as well as processed fruits and vegetables. However,

inefficient domestic farming, higher costs of product delivery, exports protection and

demanding standards, intermediaries and inefficiencies in the supply chain are the biggest

bottlenecks in the growth of the sector. The recent emphasis on Fruits and Vegetables in

light of nutrition security, growing interest of food processors and more profitable land use

has brought in a significant change in the outlook of the producers who started using the

arid/semi-arid lands and the horticultural crops that have lesser demands on water and gives

three to four times more remuneration than field crops.

Supply

India's has the largest livestock population in the world, however, most animals are not bred

for meat, as a vast majority of the Indian population is vegetarian. Animals generally used

Meat and Poultry Processing

Dried fruits and vegetables

Fruit juice concentrates

Vegetable curries in restorable pouches

Mushroom products

Fruit pulps and juices

Ready-to-serve beverages

Canned/Frozen fruits, Pulp and vegetables

Jams, squashes, pickles, chutneys

Prominent

Processed

Fruits and

Vegetables

(India)


3. DGCIS

4. MoFPI Annual Report, 2007-08

As is evident from the figure, most of the broiler meat produced is used for domestic

consumption, while beef and veal meat is also exported.

Processing

5The level of processing in meat is just about 6 percent , as the Indian customers prefer

fresh meat from the market than

processed/frozen meat.. For this reason,

processing of large animal meat is

usually high in exports. Also, Indian

buffalo meat, due to its lean character

and nearly organic in nature, is highly

preferred in the export market. Poultry,

with advantages of being the most

economical source of animal protein,

acceptability to all non-vegetarian

population and with no religious taboo, is

the fastest growing segment.

Source: MOFPI

Meat and Poultry Processed Quantity in Tons and INR Crore

0

200000

400000

600000

800000

1000000

1200000

1400000

2003-04 2004-05 2006-07

Year

Met

rics

Ton

s

INR

Crore

0

500

1000

1500

2000

2500

3000

3500

4000

Processed Meat in Metric Tons Processed Meat in INR Crore

2005-06

19


for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for more

than half of the global buffalo population indicating a significantly high export opportunity.

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

countries.

India - Broiler Meat and Beef Production Vs Consumption

19002000

2240

2490

2770

2,250

2,375

2,500

2,655

1,6331,694 1,735

1,845

1,975

2770

2490

2239

20001899

2,790

1300

1500

1700

1900

2100

2300

2500

2700

2900

2004 2005 2006 2007 2008 2009

2,130

16501648

1,638

Broiler Meat Production (1,000 Metric Tons (Ready to Cook Equivalent))

Broiler Meat Consumption (1,000 Metric Tons (Ready to Cook Equivalent)

Beef and Veal Production (1,000 Metric Tons (Carcass Weight Equivalent))

Beef and Veal Consumption (1,000 Metric Tons (Carcass Weight Equivalent))

Source: USDA-FAS, Oct 2008


20

Bottlenecks

There are a limited number of integrated poultry processing plants in the organized sector,

though the small poultry processing units are in plenty. Per capita consumption levels of

meat is very low in India, as there are religious taboos attached with consumption of beef

and pork. Also, exports in Poultry are hindered by the subsidies that developed countries

like USA and EU provide.

Summary

Apart from the huge opportunity for India in the buffalo meat export, the poultry segment

with the current low per-capita consumption and world class production infrastructure and

productivity offers a potential export opportunity. There is a large potential for setting up

modern slaughter facilities and development of cold chains in meat and poultry processing

sector. India needs to come up with strong support measures to increase its domestic

consumption levels, like for example, inclusion of eggs in the mid-day meal program and a

re-look at the taxes including VAT for poultry segment.

Supply

India is the largest producer of milk in the world –

Milk. Milk products production is expected to

increase from 99.9 million tons equivalent in 2006 to

108.8 million tons in 2009 growing at a CAGR of 2.89

percent.

The milk surplus states in India are Uttar Pradesh,

Punjab, Haryana, Rajasthan, Gujarat, Maharashtra,

Andhra Pradesh, Karnataka and Tamil Nadu with

majority of the manufacturing of milk products also

concentrated in these states.

Dairy Processing

Source: USDA-FAS, Oct 2008

Source: FAO Food Outlook, June 2009

Consumption - India Vs Global - Poultry and Beef

22.8 22.6 22.5 23.0 22.9 22.8 22.5

1.4 1.5 1.7 1.8 2.0 2.2 2.4

17.9 17.7 17.6 18.2 17.9 17.9 17.7

1.4 1.5 1.5 1.5 1.5 1.6 1.7

0.0

5.0

10.0

15.0

20.0

25.0

2003

Kilo

gram

s pe

r Per

son

2004 2005 2006 2007 2008 2009

Global (Poultry) India (Poultry) Global (Beef) India (Beef)

India - Milk/Milk Products Production

99.9

102.9

105.8

108.8

94

96

98

100

102

104

106

108

110

Mill

ion

Tons

2006 2007 2008 2009 (f)

CAGR: 2.89%


21

Processing

India's unique pattern of production,

consumption, processing and marketing of

dairy products consist of over 11 million

farmers organised into about 0.1 million

village Dairy Cooperative Societies (DCS).

These cooperatives form part of a national

milk grid which links the milk producers

throughout India with consumers in more

than 700 towns and cities handling about 18

6million kg of milk per day . The dairy sector

ranks first in terms of processed food, with

37 percent of the produce being processed,

but the organised sector accounts for a

mere 15 percent, processing about 13 million tons annually while the unorganised sector

7processes about 22 million tons per annum

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

24.1 percent and growing at a rate of 8 percent per annum. The dairy whitener market

comprises of sweetened milk powders, condensed milk and creamers. The organised

cheese market is dominated by processed cheese which accounts for 74 percent market

share. In the Ice Cream segment, organised sector accounts for a high 70 percent and is

8growing at 20 percent per annum .

Bottlenecks

The packaged milk segment is dominated by the regional and national level Dairy

Cooperative Societies. These Dairy Cooperative Societies collect milk from the various

small-scale vendors, pack it and distribute it under their brand name. Despite the high

production, the per capita consumption of milk in India is still lower at 229g/day compared

6to the world average of 285g/day . The farmers are not allowed to sell milk to new players

outside the cooperatives preventing huge investments from large foreign players.

Summary

Less than 0.4 percent of the total milk and milk products are exported and virtually none

imported. Most of the production is consumed in the domestic market. Also, the organised

Source: MOFPI

Dairy Products Processing in India

Quantity Value

0

10000

20000

30000

40000

50000

60000

70000

Year

Qu

an

tity

in M

etr

ic T

on

s

Va

lue

in IN

R C

rore

0

100

200

300

400

500

600

2003-04 2004-05 2005-06 2006-07

Source: Diary India Yearbook, Rabobank

Share (%)

45%

19%

8%

5%

23%

Retention by rural consumers/ sale to rural non

Sold as loose milk in urban areas

Packed liquid milk

Value added milk products

Value added milk products

Type

Processed (Unorganized)

Processing Segment

Unprocessed

Processed (Organized)


6.

7. India Infoline

MoFPI Annual Report, 2007-08 8. IBEF Food Processing Report, 27-Jun-2008

segment accounts for a lower 15 percent share. There is tremendous potential for the

organised play if the restrictions on the sale from farmers are removed and a level playing

field is created for all.

Supply

India is the third largest producer of fish and second largest producer in terms of fresh

water fish. The fisheries sector is classified as marine, inland and aquaculture. The captured

fish consists of 62 percent of total fish production while the rest 38 percent is from

9aquaculture . The total production of fish and fishery products has grown from 7 million tons

10(live weight equivalent) in 2006 to 7.4 million tons in 2007 .

Processing

The infrastructural setup of the sea food processing industry indicates a distribution of

major fishing bases in Kerala, Tamil Nadu, Karnataka and Maharashtra whereas the

concentration of the processing plants, freezing and storage capacities are more in Kerala,

Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and West Bengal.

Utilised capacity is just 20 percent of the

installed capacity in the fish processing

industry due to raw material shortage,

inability to meet the market demand for

value added products and safety related

regulation of importing countries. The frozen

products propel sea food exports business

and hence need a strong emphasis on value

addition in addition to addressing problems

of idle capacity utilisation, technological

upgradation and compliance with safety

related regulations of buyers.

Bottlenecks

Majority of the Agri-Export Zones and Food Parks are related to horticulture products and

very few are ascribed to development of sea food processing industry although 25 percent

of the total agricultural export is on account of sea food. Although by volume, the major

share of marine fish rates is in the fresh form (70 percent), the major focus of the industry

11is on the frozen products which have a share of 7.5 percent of the total catch . This is mainly

because of the export demand for frozen products and consequent need for value addition.

Marines Products Processing

22

Marine Products Processing in India

0

100000

200000

300000

400000

500000

600000

700000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

INR Crore

Met

ric T

ons

Quantity (in Metric Tons) Value (in INR Crore)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07


9.

10. FAO Food Outlook, June 2009

MoFPI Annual Report, 2007-08 11.K.G.Karmakar, Managing Director, and Dr G.D. Banerjee, Deputy General Manager, NABARD

Value Addition by the Marine Fisheries Sector - Dr


23

Source: Value addition by the marine fisheries sector - Dr K.G.Karmakar & Dr G.D.Banerjee, NABARD

The basic tenet on which the sea food industry is presently working is that there is no

demand for value added products in the domestic market as consumers prefer fresh fish.

Also, the infrastructure for handling, distribution and storage is not well developed in the

domestic market and hence the segment focuses heavily on exports.

Summary

Government needs to support the industry by developing technology for value addition and

infrastructure for exports in the form of food parks focused on marine products. Value

addition to a part of the fish catch can transform the domestic market which is experiencing

a sea change with an increasing demand for processed and ready-to-eat fish products like

Breaded and Battered fish items, Fish Burgers, Sea food mix, fish fillets, etc. Fish sauce,

silage and other fermented products are important areas of value addition at the lower end

of the chain. The segment focuses heavily on exports as the local demand in primarily in the

fresh fish. As the demand for processed marine products is increasing in India, the

government needs to encourage investment in infrastructure for distribution and storage.

Processed IQF (Instant Quality Freezer) marine products have a higher price in foreign

markets than conventional block-frozen material. So, products like shrimp, lobster, fish,

clams and fish fillets, provide opportunities for export.

Supply

India produces more than 200 million tons of different food grains every year - 209.32

million tons in 2005-06. India produces all major grains - rice, wheat, maize, barley and

12millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) . The major

segments within Grain Processing are Oil Milling and Pulse Milling & Flour Milling. Indian

Oilseed sector is one of the largest in the world, with a total turnover of INR 86,000 crore of

which INR 16,000 crore are import/exports. India is next only to European Union and China

in terms of vegetable oil imports.

Grain Processing

Fish Disposition in India

Fresh 70.00%

Frozen and Processed 7.50%

Cured Form (dried, saltedand smoked products)

12.50%

Canned 0.50%

Fish Oil 6.00%

Fish Meal & Manure 1% Miscellaneous 2.80%



24

Processing

The solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is

13reported at 115.4 lakh tons compared to 122.0 lakh tons in the previous year .

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

But the sector is predominantly into primary processing, sharing 96 percent of the total

value, while the secondary and the tertiary sectors add 4 percent.

Bottlenecks

The low level of technology modernisation in the sector with a high primary processing

leads to low value addition in the sector. India needs to promote the products for export

better, like Basmati.

Summary

Indian rice, especially Basmati rice, has gained international recognition, and is a premium

export product. The sector is recognised as a key for nutrition security in India and hence,

there is a need for improving the processing capabilities beyond the small scale/cottage

unorganised industries to the organised segment. So, for adequate and focused growth of

the sector the Ministry is providing financial assistance to the grain processing industries

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

Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages.

Packaged foods includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn

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

constitute the largest segment of consumer foods. The packaged food sales topped 13

billion USD in 2007 and are expected to reach 23.4 billion USD by 2013.

Consumer Food Processing

Source: BMI, Q1 2009

Packaged Food Industry Data

10.511.7

1314.2

15.517.3

19.5

21.723.4

9.610.6

11.5 12.413.5

14.816.5

18.119.3

0

5

10

15

20

25

USD

Bill

ion U

S Dollar

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f0

5

10

15

20

25

Packaged food sales (USD Bn) Per-capita package food spending (USD)



25

Non-Alcoholic Beverages segment is broadly

divided into carbonated drinks, non-

carbonated drinks and hot beverages. The

carbonated drinks comprise the soft drinks

that are the colas. The non-carbonated drinks

category consists of fruit based/flavoured

beverages. In non-alcoholic beverages, India

is a small but competitive player in coffee.

India is the fifth largest coffee producer in

the world accounting for 4.07 percent of the

world production (2004-05). In Tea, India is

the largest producer in the world, which

contributes around 31 percent in the world.

But owing to high domestic demand, the

14share of exports for India is just 14 percent .

Alcoholic beverages segment is the largest

in the world and provides ample scope for

value addition and employment generation.

The estimated demand for spirits and beer is

around 373 million cases. Twelve joint

ventures companies having a licensed

capacity of 33919 Kilolitres per annum

produce grain based alcoholic beverages. 56

units are manufacturing beer under license

15from the Government .

Majority of the processing in the segment is

still under the unorganised sector – 60

percent for Bread and 80 percent for Biscuits

15in terms of production . Manufacturing of

bread is reserved for small-scale industry

(SSI).

India accounts for less than 1.5 percent of

the global food trade, despite being the

world's leading producer of milk, live stock

and cereals, and ranked second in terms of

fruit and vegetables, the level of processing

Level of Food Processing in India

across segments is not comparable to the global levels. The following table shows the level

of processing across segments and the relative global levels for the segment.

India's agricultural production base is strong but at the same time wastage of agricultural

produce is massive. Even, within the country, share of fruits and vegetables processed is

much less when compared to other segments such as milk (35 percent) and Fisheries (26

percent). The high wastage levels across the value chain lead to a significant value loss. The

main reasons attributed to the loss are lack of proper infrastructure for handling,

transportation and storage. Another form of wastage is the high level of intermediation in

the supply chain that leads to higher costs as well.

Globally, countries and large companies have invested in disintermediation, developed

storage and transportation infrastructure and facilitated in bringing commercial/ technical

knowledge and market intelligence to the farmer. The hygiene/safety standards training and

certification facilities also were provided across the value chain. This resulted in

tremendously increasing the value of the output and reduction in costs of raw material for

the producers, while improving farmers' income levels. If India was to lift its share of global

processed food trade to just 3 percent, the Ministry of Food Processing estimates that

some USD 24.7 billion worth of investment would be needed to restructure the industry.

Taking a cue from the global examples, India also should invest in infrastructure and policy

development that helps reduce waste across the supply chain and increase the level of

processing and overall value of output.

Need for improved focus and investment

Level of Processing across segments (Source: MOFPI Annual Report 2007-08)

Segment


Fisheries

Poultry

Buffalo Meat

Milk

Level of Processing

2.2%

26%

6%

20%

35%

Comments

USA (65 %), Philippines (78%) and China (23%);




14.


Cygnus Research, Jan 2007

26

India's Food and Drink Trade

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

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

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

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

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

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

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

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

1of processed segments is growing much faster as shown in the figure .

India's Food Processing Trade

Source: BMI, India Food & Drink Report Q1 2009

India - Food and Drink Trade

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

Exports Imports

10.8112.28

14.0315.58

17.27

19.49

21.92

24.25

4.586.14 6.82 7.53

8.67 9.4410.42 11.24

12.31

9.19


1. UNCOMTRADE

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

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

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

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

in this sector.

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

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

storages in India.

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

that subsidises the promoter.

!

!

!

27

Source: UNCOMTRADE

Export Growth Rate: Food Vs Processed Food

18.75%

21.84%24.63% 25.44%

23.63%

28.96%31.25%

28.78%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2005 2006 2007 2008

Export of Food and Beverages Export of Processed Food and Beverages


28

Role of APEDA

APEDA is the apex agency entrusted with the responsibility

of facilitating and promoting exports of agricultural and

processed food. APEDA is responsible for 40 percent of the

total agricultural exports from India. The remaining

commodities such as tea, coffee, tobacco, spices, marine

products and rubber are handled by separate boards.

! Promote exports to maximise foreign exchange

earnings

! Increase per unit value realisation to the farmers and

improve their income

! Promote value addition to farm produce and generate

employment opportunities

! Development of industries relating to scheduled

products for exports by providing financial assistance or

otherwise

! Fixing of standards and specifications for the scheduled

products for the purpose of exports

! Carrying out inspection of meat and meat products for

ensuring quality

! Improving of packaging and marketing of the scheduled

products outside India

! Collection of statistics from various sources and

publication of the statistics so collected or of any

portions thereof or extracts there from

! Training in various aspects of the industries connected

with the scheduled products

Goals of APEDA

Accordingly APEDA has been entrusted with the following

functions:

Case Study: Role of APEDA in developing exports from

North East Region (NER)

Benefits

APEDA identified the major horticultural products of the

NER with good export potential – Citrus, Banana, Pineapple,

Papaya, Jack fruit. The following strategy was adopted by

APEDA to promote exports from the region

! Provision of Infrastructural facilities like pack houses,

cold storage and refrigerated transport

! Farmer Education on pre- and post-harvest measures in

local language and quality awareness

! Transport assistance for horticultural products from the

region

! Market linkages – Establish linkages with major players

like ITC, HUL, Dabur etc

! Financial Assistance – Sponsored delegations of

exporters every year to Aahaar, integrated packhouse

facility in Mizoram for INR 3.2 crore, 4 refrigerated

transport vans for NERMAC ltd and Government of

Tripura, INR 3.15 crore to AIDC, Guwahati, MoU with

CONCOR to operate and manage all infrastructure

projects

! Export Development Fund – Increase in expenditure

from INR 38 lakhs in 2000-01 to INR 6.3 crore in 2005-06

for the NER

! Promotion of Agri-Export Zones – 4 AEZs in Tripura,

Assam and Sikkim.

In Tripura, AEZ is expected to benefit more than 400 farmers

in the first phase and incremental exports are expected to

be INR 32 crore. Sikkim AEZ is expected to benefit a much

large section of the farmer community – 5000 farmers in

addition to more than 500 in processing and value chain.


Source: APEDA

29

India's Position in the Global Trade

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

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

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

global trade. India is a major exporter in the Food Industry and imports less. The exports are

growing at over 15 percent y-o-y with 2007 growth a high 29 percent. During the period

1980-2007, India's share in the global exports have increased from 1.1 percent to just 1.4

percent, the majority of the increase happening in this decade.

Annual percentage changeShare in world exportsValue

19

16

27

23

19

20

-2

42

45

9

29

45

13

20072006

9

12

12

13

13

15

5

16

14

17

14

23

15

2005

7

7

3

13

18

3

-5

15

-3

13

16

30

14

2000-07

12

10

7

19

14

9

5

17

17

9

14

19

12

2007

44.6

9.6

9.6

4.6

3.6

1.9

1.9

1.8

1.8

1.6

1.4

1.4

1.1

2000

43.8

10.7

12.6

3.0

3.1

2.3

2.9

1.3

1.3

1.9

1.2

0.9

1.0

1990

-

-

13.4

2.8

2.5

2.1

2.5

0.9

1.1

1.0

0.9

-

0.6

1980

-

-

17.6

4.2

1.4

1.3

3.3

0.7

0.9

0.9

1.1

-

0.3

2007

406.83

87.93

87.59

42.10

33.15

17.69

17.57

16.31

16.20

14.62

13.20

12.62

9.65

Exporters

European Union (27)

extra-EU (27) exports

United States

Brazil

China

Thailand

Australia

Indonesia

Malaysia

Mexico

India

Russian Federation

Chile

(Value In USD billion)

The food industry is one of the most important segments of Germany's

economy, with high relevance for employment and economic output. Novel

food, new scientific and technical approaches in food processing, the

impacts of structural changes in the food industry and in food retailing, the

effects of food scandals and socio-economic behaviour are having a far

reaching technical and economic impact on processing value chain.

Germany has taken several initiatives in R&D innovation to become a

leading food exporter.

Case Study: Food Industry

innovations in Germany


Source: FAO

30

Joint R&D – Due to the predominantly large number of SMEs in the country, a joint research institute, FEI

(Forschungskreis der Ernährungsindustrie e.V.) has been established to carry out joint applied research in

Food and Nutrition. In 2001, around 50 associations of the German food industry were members in FEI

which represented more than 4500 companies. There is a parallel private research activity as well. The

connectivity and the cluster for research for Food and Nutrition are as shown in the picture below.

R&D Financing – The research activities of FEI are jointly financed by the member associations and

companies as well as the Federal Ministry for Economic Affairs. By 2001, the joint research projects

organised by FEI are financed to around 75 percent by the industry – mainly in the filed of food structure

(Quality of food and ingredients) and process optimisation.

Innovation Activities – Measured as the number of product innovations, Germany has consistently

launched more than 1000 food products every year. Process innovations of food SMEs are wide-ranging,

without a specific focus on a particular area – Product quality, cost-saving aspects, higher flexibility and

faster production processes apart from improvement of the working conditions for employees.

Innovation in the food industry needs a strong multidisciplinary co-operation, the institutional framework

conditions and administrative competencies. The administrative bodies responsible for the food industry

in Germany cause significant delays in bringing scientific and technical innovations. A more flexible

framework for regulations is planned for newly emerging innovation fields which can be jointly formed by

public authorities and early innovators.

Industry Private ResearchInstitutes

Federal ResearchCentres

LeibnizCentres

HelmholtzCentres

FraunhoferSociety

Universities/Colleges

IndustrialR&D

departments

Combined

Research

IGV, DIL,

Natec

BFE, BAFF, BAfM

, BAGKF, BgW, RKI

DFA, IFE DKFZ, GSF IVV >50 institutes and

technical colleges

Food Industry

Flow of Funds

EconomyConsumer

Protection/AgricultureHealth Education/ Research Federal States EU

1

2

3

4

Source: Innovations in the food industry in Germany, K. Menrad; Department of Horticulture and Food Processing, University of Applied Sciences of Weihenstephan


The prominent export products are Fruit pulp & juices, Canned F&V, Jams, Squashes,

Dehydrated vegetables, Frozen pulps and vegetables, Frozen dried fruits, Vegetable curries,

Pickles and chutneys, Mushroom products etc

The main destinations for fruit exports are Middle East, UK, Europe and to some extent

Singapore and Malaysia. Mango Pulp is exported to Saudi Arab, Kuwait, UAE, Netherlands

and Hong Kong. In case of Pickles & Chutneys, the popular markets are USA, UK, UAE,

Germany, & Saudi Arabia. Other items like Tomato Paste, Jams and Jelly & Juices are

exported to USA, Russia, UK, UAE, Netherlands, etc. Vegetable exports are largely to

Middle East, Europe, UK and Singapore.

31

Export/Imports of Select Food Processing Segments


India's exports of processed fruits and vegetables have increased consistently over the last

few years, from USD 144 million in FY 04 to USD 278 million in FY 07. Exports of processed

vegetables have increased from USD 273.47 million in FY 04 to USD 420 million in FY 06

2and declined marginally to USD 396 million in Fy07 .

Key Export Product

Mango Pulp

Dried and Preserved vegetables

Pickles and Chutney

Export Value (2007-08) in INR crore

509

444

389

Source: Directorate General of Commercial Intelligence and Statistics

Source: DGCIS, MOCI

Exports of Processed Fruits and Vegetables

273.42 462.14 420.64 395.57

143.82

193.54 235.28 278.02

673.59655.92655.68

417.24

0

100

200

300

400

500

600

700

800

2004-05 2005-06 2006-07 2007-08

Processed Vegetables Processed Fruits

In Million USD

The growth of the processed

food segments has been faster

and has nearly doubled in terms

of value in a short span from FY

04 to FY 07. However, with

respect to the potential and

supply base of being the second

largest fruits and vegetables

producer in the world, India can

do much better at processed

food exports. The quality issues

and high costs of raw material,

packaging, wastage and

distribution are hindering the

growth of exports. India needs to

focus more on crops of

processing grade, diversify the

markets that it exports to and

improve promotional activities to

further trade.


2. DGCIS

32

Meat and Poultry Processing

India is predominantly an exporter of bovine meat, especially buffalo meat, which has high

demand in the developed countries, due to its lean and almost organic nature. The import of

meat and poultry is virtually non-existent. The production and export/import data of meat

and poultry is provided in the table below.

At present, poultry export from India is mostly to Maldives and Oman. Some other markets

like Japan, Malaysia, Indonesia and Singapore can be explored for export of poultry meat

products. Poultry production and egg processing industries have come up in the country in

a big way. The export products are egg powder, frozen egg yolk, albumin powder to Europe,

Japan and some other countries.

Indian Poultry has world class production infrastructure and boasts of high productivity with

Farm and hatchery automation systems, well networked disease diagnostic laboratories,

unique disease surveillance and monitoring model and genetic research and breeding.

Broilers are reared to achieve a body weight of 1.8 kg in 6 weeks.

Yet the poultry segment is faced with roadblocks to exports in the forms of

Subsidies by developed countries

Sanitary and Phyto-sanitary conditions

Increasing cost of production inputs

!

!

!


Imports ExportsProduction

million Tons

Total Meat

Bovine Meat

Ovine Meat

Pig Meat

Poultry Meat

2008

672

2854

775

500

2400

2009

7022

2997

780

500

2600

2008/09

1

1

-

-

-

2009/10

2

1

-

-

-

2008/09

534

523

8

1

2

2009/10

561

550

8

1

2

1000 tons (Carcass

Weight Equivalent)

Total Meat Statistics, India

In order to take advantage of the

exports opportunity in the

poultry segment, India should

take steps in increasing

production, providing assistance

in transportation and reduction in

taxes/duties to poultry by

including it under agriculture.

Also, quarantine and testing

facilities should be made

available at all ports of entry.

Also, market expansion into

Singapore, Malaysia, Japan and

Indonesia provide opportunities

for exports growth.

India also needs to set up more

slaughter houses, modern

abattoirs and cold storage

facilities to export the surplus

and much-in-demand buffalo

meat.


Grain Processing

The grain processing sector, with 96 percent Primary Processing, has a limited exports

focus. However, Basmati Rice is gaining traction in the Indian market and commands a

premium in the export market as well. The table below shows the key segments and the

production and Export/Import over the last two years.

The major exports segments are cereals and rice. Though production is expected to remain

stagnant during the year as compared to last year, the exports of cereals and rice is

expected to slightly increase.

India has expanded the basket for Basmati rice, by extending the classification. The Indian

government last year expanded the definition of basmati, and it now recognizes even those

rice varieties as 'evolved basmati' which have at least one traditional basmati grandparent.

Also, India had last year set the export floor for basmati at USD 1,200 per ton and also

imposed an export tax of USD 200 per ton to discourage exports and conserve domestic

supplies but has since revoked the export tax, and lowered the export floor to USD 1,100

3per ton . This is expected to further boost exports.


Grain Processing Statistics, India

Imports ExportsProduction

million Tons

Cereals

Wheat

Coarse grain

Maize

Barley

Sorghum

Rice

Total

2008

215.3

78.4

38

19.5

1.2

7.2

98.9

458.5

2009

214.9

77.6

37.8

18.5

1.5

7.5

99.5

457.3

2008/09

0.6

0.5

0.1

0.1

0

0

0.1

1.4

2009/10

0.6

0.5

0.1

0.1

0

0

0.1

1.4

2008/09

4.9

0.3

0.6

0.6

0

0

3.7

10.1

2009/10

5.7

1

0.6

0.6

0

0

4

11.9


Rice Exports, India

11 9 9 13 17 19 18 22 18 17 19 20

3 4

3719

17

44

14 8 13

36

21

38

0

10

20

30

40

50

60

70

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

Basmati Non-Basmati

INR

Bn

India needs to increase the

promotional activities for Basmati

and other cereals and continue to

provide tax breaks for exports.

The country also needs to

provide incentives for

modernisation of processing

equipment to improve the levels

of secondary and tertiary

processing so as to make the

quality of produce export worthy

and promote exports.

33


3. Commodity Online

Processed fish products for export include: conventional block frozen products, instant quick

frozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi,

textured products and dry fish, etc.

European Union, USA, Japan, China, South East Asia, Middle East etc. are the major export

destinations. The export has been strong with frozen shrimp continuing the largest item in

terms of volume.

In view of the supply and growth potential of the sector, Government of India has set a

target to increase fisheries export from INR 6000 crore to INR 14000 crore during the XI

Five Year Plan Period. Achieving the target for exports is dependent on the raw material

supply; optimum capacity utilisation of processing industries, product diversification; value

addition and adherence to quality control regulations. The share of export of shrimp in block

frozen form is around 22 percent as against 2.2 percent in IQF form. The unit value of IQF

products being INR 475 per kg as against INR 194 per kg for the block frozen shrimp, there

is considerable scope for boost of marine exports through value addition. Similarly, the

share of fish surimi which is priced at INR 68/kg, is only 3.2 percent of the total export as

compared to that of ribbon fish (which is the raw material for surimi) which is priced at INR

425/kg and enjoying an export share of 18.3 percent .

70 percent of Indian sea food exports constitute fish

and shrimp in various forms and shrimp alone accounts 4for 71.5 percent of the value of exports . However,

value added products comprise of a smaller share and

the major share of the present export in volumetric

terms is in bulk form. India needs to promote value

addition, be more export-driven by promoting products

like fresh surimi, and raise the share of IQF products

that claim a higher price to boost trade.

2006

3.8

2007

4

2006

3.2

2007

3.4

2006

1.8

2007

1.7

2008

1.7

Fish and Fisheries Products Processing Statistics, India

Capture fisheries production(million tons)

Aquaculture fisheries production(million tons)

Exports(USD billion)

Imports

-

Fisheries Products Processing

34


4.Director, and Dr G.D. Banerjee, Deputy General Manager, NABARDValue Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing

Milk and Milk Products Processing

Milk and Milk Products Statistics, India (in million tons milk equivalent)

Production ExportsImports

2006/07

102.9

2007/08

105.8

2008/09

108.8

2006/09

-

2006/07

0.4

2007/08

0.4

2008/09

0.4


Milk and milk products are produced for domestic consumption. Also, storage facilities

infrastructure bottleneck prevent the segment from growing in exports. India's share in

exports of dairy products in international market is insignificant. These markets are

dominated by OECD countries, some of whom provide a very high level of support to their

domestic producers which are unlikely to be scaled down in the near future. SPS and TBT

clauses are stringent and make the export markets protective. Therefore, even if India is

able to find fresh opportunities for exports, the gains may not be significantly high.

India's Food Processing Trade by Geography

The Indian food processing industry is primarily export oriented. India's geographical

situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,

Singapore, Thailand, Malaysia and Korea.

India exports mostly to the proximate

countries. Globally, most of the countries

import from countries that are geographically

closer. For example, 45 percent of USA

imports are from Canada and Mexico.

Another 50 percent is accounted by select

Cairns group countries. EU imports 50

percent from Spain, Netherlands, France,

Italy, Belgium and Germany, while another

25 percent is accounted by select Cairns

group countries.

In the current scenario, where the sector is strongly

controlled by cooperatives, an export-oriented growth

strategy will need to support the private players at the

expense of the Dairy Cooperative Societies. Private

sector targets very narrow segment of exports and

emerging urban areas. This would seriously affect the

dairy farmers unless government comes up with

innovative measures to produce surplus milk at low cost

at global quality standards.

Source: UN COMTRADE; CEPII

India's Exports - By Geography

0

South Asia 34%

Middle East 29%

East Asia 17%

Western Europe 10%

Rest of the world 7%

Africa 1%

Shar

e of

Tra

de

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 4000 6000 8000 10000 12000 14000

Distance (Kms)

US and Canada 1%

35


Impediments to Export Growth

!

!

India is still a production-supply driven market and not a market-

demand driven. For example, the apples produced in Himachal Pradesh

are of table variety and not of the processing grade. There are not

enough grading facilities in India that can separate class A products

from the rest. This not only leads to wastage and higher costs for

processors, but also low level of processing and value addition, leading

to lower realisation for farmers. Improved knowledge on processing

grade will improve supply of such products and fetch remunerative

prices for the farmers.

!

!

!

!

India's products are a lot cheaper but the high costs of transportation

and distribution leads to low level of exports. India's grapes are 40

percent cheaper than Chile's, but by the time they reach Netherlands,

they cost the same. Poor infrastructure and lack of government

support is making the exports uncompetitive in certain cases and

needs to be looked into.

!

Value added processed food exports need to satisfy two necessary conditions -

1. A threshold base of manufacturing and other infrastructure facilities and,

2. A reasonable level of marketable surplus in those primary products that enter as crucial

inputs into food processing (industrial activity) chain.

A successful and viable business enterprise must be able to harness economies of

scale. Large volumes of raw material of adequate quality are a paramount for the

economics to be favourable.

India faces challenges on this front:

Poor quality and grading mechanisms for raw material leading to loss of consistency

in variety of raw material

High level of wastage across the value chain

Presence of too many intermediaries implying a high cost of raw material

High costs of packaging

Low technology equipment and knowledge

High costs and poor quality of distribution

Stringent Food Safety and Traceability norms from importing (developed) countries

Developed countries, with better access to advanced technology and packaging

innovations, have a distinct edge over the developing countries in the manufacturing.

The distribution network to cater to the changing dietary patterns globally, makes them

nimble and responsive. Hence, the developed countries account for a majority of world

processed food. For India to increase its share in the global trade, the barriers across

the value chain need to be removed quickly.

36


Exports promotion strategy

!

!

!

!

1. India needs to map demand with production capabilities

Himachal Pradesh, known as the fruit bowl of the country, has approximately

200,000 hectares of land under horticulture cultivation yielding about half a million

tons of different kinds of fruit. The state earns more than INR 25 billion from

cultivation of fruits and vegetables. While apple is the main fruit crop, other fruits

like pears, peaches, cherries, apricots, almonds and plums are the major

commercial crops of Himachal Pradesh. Recently the production of apple has been

severely affected by adverse climatic changes. As an alternate, farmers in Himachal

Pradesh are increasingly moving towards commercial cultivation amongst which

kiwi is one of the most preferred crops.

Apple orchards require 1,000 to 1,600 hours of chill, while kiwi requires just 200 hours

of chill for a favourable crop. Fruit growers in the areas where the chilling hours are not

static now have opted for kiwi cultivation as a cash crop.

Impact

As per horticulture department estimates, at least 200 farmers in the Kullu valley

alone have taken up kiwi cultivation.

In 2008, the total kiwi yield in Himachal Pradesh was 137 tons

Different varieties of kiwi such as Hayward, Abbot, Allison and Bruno are cultivated

on almost 120 hectares of land

Kiwi typically needs temperate climate to grow, but Indian farmers have been

successful in growing it even at extremely low temperatures. Some of the farmers

are growing kiwi at an altitude of 8,500 feet

2. Move towards non-traditional items.

About Sea-buckthorn: Sea-buckthorn is a shrub which has 6 species and 12 subspecies

native over a wide area of Europe and Asia. More than 90 percent or about 1.5 million hectares

of the world’s sea buckthorn resources can be found in China where the plant is exploited for

soil water conservation purposes. The shrub’s fruit can be used to make pies, jams, lotions and

liquors. The juice or pulp has other potential applications in foods or beverages

Defence Research & Development Organisation (DRDO), Field Research Laboratory (FRL), Leh

undertook serious research studies on the product to harness its vast potential in facilitating

human adaption to extreme cold and hypoxic environmental conditions prevalent in

inhospitable mountainous region with special reference to the world’s highest battle field,

Siachin.

Leh Berry: Unleashing the potential of Sea-buckthorn

37


Aim: To find Seabuckthorn preparations for improving physical and mental performance

under hypoxic environment, prevention and treatment of cold injuries, and as an immun-

modulatory agent.

Result: The research let to the development of an herbal beverage whose trials were

successfully concluded in high altitude areas including Siachin under varying environmental

conditions. These trials revealed that the fruit extract did not freeze even at temperatures as

low as minus 15 degrees Celsius

Challenges: The juice could not be stored more than a day, limiting commercial viability.

The FRL technology has enabled the juice to be transported from Leh to Madhya Preadesh,

for packaging

Market Opportunity:

A INR 3,000 crore market for Seabuckthorn exists in Chine alone, combined with global

prospects amounting to INR 5,000 crore.

Seabuckthorn fruit, with its vast intrinsic properties offers manifold opportunities for

manufacturing a variety of products. The entire Seabuckthorn plant can be judiciously

utilized to produce high value food and medicinal products. With as many as 180 key

products already lined up and other categories like pharmaceuticals. cosmeceuticals,

natraceuticals, poultry & cattle feed and the pisciculture segment waiting to be

explored

!

!

Export Growth in Brazil

Brazil is a formidable food-producing country owing to its vast agricultural wealth, and

owing to the application of modern techniques, food production also has risen strongly in

recent years. Food production and processing accounts for nearly 25 percent of the GDP. In

terms of exports, Brazil is ranked fourth globally. Key factors responsible for export growth

are as listed below:

Strong government-funded agricultural research programme, together with heavy

private investment led to the higher food production growth than the overall economy.

Legalisation of commercial production of genetically modified (GM) crops. Though it

!

!

38

3. Improve promotional activities for Indian food and market India as a food sourcing hub

4. Promote investment for increasing the level of processing in the sector


39

was started off for research, the cultivation spread to officially illegal commercial

production. As the sale of GM products was allowed, the rules on cultivation were

being flouted on a large scale. Inspite of some protests from environmentalists and

potential loss of market in Europe, the GM crops was legalised.

! Food exports grew by a huge 25 percent due to currency depreciation and despite a

stronger Real in 2004, Food exports grew by another 30 percent to some USD 18.5bn.

! Market consolidation is a continuing trend and FDI in the Food and Beverages sector

surged to USD 5.3bn, or 26 percent of total FDI, in 2004.

! Economic liberalisation was also responsible for improved productivity during the

1990s resulting in a significant increase in foreign participation in key sectors, such as

dairy and coffee, through joint ventures and acquisitions of local companies.

! An expanding food-service sector also led to a faster food production growth.

Chile's strategy to become an Export Hub

Chile's export strategy is to promote itself as a reliable supplier of a range of high-quality,

affordable goods and services. Other basic campaign points are: ease of trade, with few

tariff walls or bureaucratic hindrances, low risk, due to political stability and a solid

economy, a respect for quality and environmental protection standards, and a qualified

workforce.

Special emphasis is being given to projects that diversify exports and aid small- and

medium-size companies. Chile also encourages exports through a simplified duty drawback

system that refunds duties paid on imports without an excessive documentation burden.

Within the past decade Chile has entered into a growing network of trade agreements,

including accords with Bolivia, Brunei Darussalam, Canada, Central America, China,

5. Upgrade agri-infrastructure to have a sustainable supply chain for consistent high

quality raw material

6. Provision for Training and Education on the safety and health regulations in export

markets

7. Market Diversification – Move over the geographical distance barriers and initiate joint

efforts with potential partners in identifying the focus of trade and creation of

conducive regulatory policies


Colombia, Cuba, Ecuador, the European Union, Iceland, India, Liechtenstein, Mercosur,

Mexico, New Zealand, Norway, Peru, Singapore, South Korea, Switzerland, the United

States and Venezuela. In excess of 76 percent of all Chilean trade is conducted with these

countries, which account for 87 percent of world GDP.

These agreements plus regional accords with most of Latin America have provided Chile

with a unique degree of access to markets encompassing more than 3.8 billion consumers

worldwide. As a result, Chile stands as a natural gateway for trade with both Latin America

and Asia-Pacific.

An Export-Oriented Economy: Export diversification is one of the key factors of Chilean

success. Noting the growing volume and sophistication of its trade, the Economist

Intelligence Unit ranked Chile as the No. 1 Latin American country in which to do business

for the period 2005-2009. Trade figures show that export performance has been nothing

short of spectacular.

15

50

USD

Bill

ion

Num

ber o

f Cou

ntrie

s (E

xpor

t Mar

kets

)

0

20

40

60

0

100

150

20058.9

181

1975 19752006 2006

Encourage an internationally competitive environment

Balance unilateral trade liberalization with open regionalism

Lower export transaction costs

Long-term view of enterprise-level support

Coordinate export support programmes through a central technical agency

Facilitate foreign direct investment

Promote private sector involvement in infrastructure development

Encourage innovation

Chile’s strategic approach to boost exports

Impact

40x 3.6x

Trade Promotion Institute

(ProChile) established to

develop the country’s

non-traditional exports,

design and introduce

export incentives and

modernise administrative

procedures

International investor

extended non-

discriminatory treatment


40

Source:

KPMG Analysis

Chile: Product and market development through international standards of competitiveness (http://www.intracen.org/wedf/ef1999/chile.pdf),

41

Demand-side Drivers

!

!

Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are leading

to significant changes in food habits of Indians. The key trends are as listed below:

Increasing spends on health and nutritional foods – Consumers are more focused on

health. Any packaged food that has sugar, salt, oil, preservatives etc beyond a

“healthy” level are becoming a no-no. Companies already are targeting this segment

with numerous product launches – Pepsico's “100 percent” juice and usage of rice

bran oil to reduce saturated fat in its products; Amul's energy drink “Stamina” are a

few examples towards this trend.

Increasing Nuclear Families and Working Women – Increasing nuclear families,

students and single employees staying alone on work/education and increasing women

employees are leading to rise in consumption of processed read-to-eat canned and

frozen foods. The number of upper and middle class Indians consuming packaged food

Key Growth Drivers of Food

Processing Sector in India

Source: Euromonitor

Employed Female Population

111,910

126,510

129,705131,424

134,207 135,370

100,000

105,000

110,000

115,000

120,000

125,000

130,000

135,000

140,000

1995 2000 2002 2004 2006 2007

Year

‘000

s Em

ploy

ed


•

•

•

Functional Foods – Functional Foods, Fresh or Processed Foods that claim to provide

health benefits apart from serving the basic function of nutrition, are on the fast-growth

path in India. Fabindia Organics, Organic Food retail outlets like 24 Letter Mantra and

Godrej Agrovet’s Nature Basket have big plans in this segment.

Organised Retail and Private Label

penetration – Organised retail

comprises of less than 5percent of the

total retail market in India, but is

growing at over 20 percent. Food

retailing, which constitutes 14 percent

of the organised retailing, is also

expected to benefit from the growth of

organised retail and the demand for

3processed foods is expected to rise .

With increasing trend of major retailers

towards private labels, the demand from

retail market for processed foods is also

expected to increase significantly.

Changing demographics and rising disposable incomes – This is the most important

demand booster for the processed food in India. The proportion of the “productive” age

is expected to rise to 200 million in 2012 from the current 30 million . ITC, MTR, Amul,

etc are quick to capitalise on this trend with products like Dal Bukhara, Murg Methi,

Sunfeast Pasta Treat, Shrikhand, Pure Ghee, Nutramul etc

Urbanisation – Changing lifestyle and increasing spend for snack-on-the-go is

2responsible for a USD 3 billion and growing snack market . Haldiram’s, Frito Lays, ITC

are quick to capture this market with products such as Masala Peanuts, Chips, Bhujia

and Chats.

1

•

Source: Euromonitor

Source: Euromonitor

group (15-59 years) is nearly 80 in India . This age group’s propensity and ability

to spend on quality processed food is higher. Higher incomes as more Indians join to

middle class and upper class also impact the demand of processed food positively.

4 percent

Policy Drivers5

Indian government recognised the potential of Food Processing sector to the economy and

has come up several initiatives to boost the quantity and quality of output in the sector. The

vast discrepancy in output between the agriculture and food processing is a major cause for

concern and government has increased the spending from INR 72.77 crore in 2002-03 to

159.78 crore in 2006-07 to increase the value of the output, share of global processed

market and provide a fillip to the farmer’s income.

Scheme for Infrastructure development

- The government plans to set up Mega Food Parks so as to integrate the value

chain comprising of farmers, processors and retailers. The move will help reduce

wastage, maximise value addition and increase farmer’s income as they get a

chance to sell the produce directly. 30 mega food parks are planned in the XI five-

year plan.

- Government plans to support Integrated Cold Chains including a value added

centre to ensure that there is no missing link from farm gate to

retailers/consumers, by increasing the grant assistance.

- Modernisation of Abattoirs for supply of hygienic raw material for meat

processing industry.

- In a bid to develop the food processing units, the government is ready to offer a

grant of INR 10 crore for projects providing backward integration for food

processing units and INR 50 crore to modernise meat processing units.

•


•

•

•

•

Scheme for Technology Upgradation/ Establishment/ Modernisation

- Government provides a grant of 25 percent of the cost of plant & machinery

and technical civil works subject to a maximum of INR 50 lakhs in general areas

and INR 75 lakhs in difficult areas.

Scheme for setting up/ Upgradation of Quality Control/ Food testing Laboratory, R&D &

promotional activities

- Setting up a network of laboratories to help in implementing quality regime for

processed food.

- Higher level of assistance to research institutes like IITs and other central/state

level institutes

- Assistance for organising promotional activities like workshops, seminars,

exhibitions, fairs, surveys etc

- 50 percent subsidy to private companies, which set up quality testing

laboratories and 100 percent subsidy for State governments that install new

testing laboratories.

Scheme for HR Development

- Financial assistance to set up training centres, Degree/Diploma courses on

Food Processing in Institutes, Entrepreneurship Development Programs and

training programs sponsored by the ministry

Scheme for strengthening of institutions

- Establishment of National Institute of Food Technology, Entrepreneurship &

Management (NIFTEM).

- Strengthening of State Nodal Agencies (SNA)

- Information Technology

The challenge in front of the players in the food value chain is to leverage the demand and

policy push effectively to deliver to the growing Indian/Global demand and give continuous

feedback to the government on further improvement measures. Meanwhile, the

government should ensure a smooth policy implementation by investing time and money in

institutional capacity building and in removing complications for the investors and

manufacturers due to multiplicity of departments and regulations.

44


45

1. Agriculture: The measures will lead to stabilisation of rural demand.

Agriculture will be made less dependent on the monsoon with

increased focus on irrigation development.

a. Agricultural credit flow at INR 287000 crore in FY09. Target for

FY10 at INR 325000 crore.

b. Continuation of interest subvention for short term farm loans

upto INR 300000. Additional subvention of 1 percent in cases of

timely debt servicing. Effective interest on farm loans thus 6

percent under new scheme.

c. Period of earlier one off debt waiver increased by six months till

31st December 2009.

d. Task force to be set up to look into debt burden of farmers due to

private informal lending in Maharashtra.

e. Allocation under Accelerated Irrigation Benefit Programme (AIBP)

increased by 75 percent.

f. Allocation under Rashtriya Krishi Vikas Yojana increased by 30

percent.

2. Improving Rural Demand: Increased allocation to National Rural

Employment Guarantee Scheme by a whopping 144 percent to

improve employment and consumption.

3. Taxation: GST by April 2010 will lead to rationalisation and

simplification of the tax structure at both the central and state level,

removing the non-uniform VAT currently in place.

4. Cold Chain: A deduction is allowed in respect of entire capital

expenditure (other than the acquisition of any land or goodwill or

financial instrument) incurred by the taxpayer engaged in the

following businesses:

- setting up and operating cold chain facilities for specified

products

- warehousing facilities for storage of agricultural produce

Budget 2009 Support Measures

Mr Subodh Kant Sahai, Hon'ble

Minister for Food Processing

Industries, however is of the

view that the industry needs

more sops on the lines of IT

industry – Tax holiday for 8-10

years and 100 percent

depreciation on plant and

machinery. Also, he feels that for

Agriculture to grow at 4 percent,

Food Processing should achieve a

growth rate of 6 percent.

Currently, the mismatch between

harvest and post-harvest

production is huge and this gap

needs to be bridged. The minister

is also for improving the training

facilities by using the ITIs. The

Minister projects an investment

requirement of INR 1,00,000

crore for the sector and is bullish

on the PPP mode to achieve the

target investments in the sector.

He also says the regulatory

framework needs to be

streamlined from 16 laws and 13

ministries taking measures to one

law that governs the sector.


46

Food Value Chain

Depicted below is a generic representation of Food value chain. It involves multiple steps

and relationships between multiple players with multiple ministries and departments

providing policy and regulatory support. It is important to note that the value chain need not

be sequential as shown and can jump a level or two in a few cases.

Farm input – Companies that provide farm equipment, seeds, fertilisers etc.

Farming – Agricultural production combines the farm inputs with other inputs such as land,

water, labour and investment.

Marketing/Aggregator – Farmers usually sell the crop to a market aggregator who buys from

multiple farmers and sells to a processor. Farmers, if they are big enough and/or nearer to

the processor, or are under a direct procurement contract etc., can directly sell to the

processor. Farmers can also choose to sell the crop directly to the consumers depending

upon the nature of the crop.

Processors to Consumers – The processor does some value addition to the primary foods

and delivers processed food to consumers with the help of Logistics providers and Retail

Opportunities in the Food Processing

Value Chain

FarmsInputs

Farming Marketing/Aggregator

Processing Logistics(Food)

Retail/FoodServices

Consumer

Financial & Business Services

Transport Services/Infrastructure

Quality Control Market Intelligence

Product Design

Distribution

Marketing

POLICY SUPPORT



47

outlets. Consumers can be individual or institutions. The key

attributes that help sell the final goods to the consumers are design,

distribution and marketing

Enablers: At each stage of the process, the players are supported by

a set of business enablers like Financing, Transport, Infrastructure –

Both hard and soft, Quality and Safety certifications, and Knowledge

about the market. At an overarching level is the government policy

that provides an enabling environment for all players to function in

the industry competitively and in a socially responsible manner

India is blessed with multiple agri-climatic zones and has

advantages of round-the-year cultivation capability. India still

produces varieties of crops, tomatoes and oranges for example,

that are not commercially viable for producers. The lack of

production and identification of items with commercial viability

contributes to the significant wastage. We import apples from

USA as the apples of Himachal Pradesh lack enough juice for

processing. India needs to focus on more processable

variety of crops to reduce wastage, increase processing

levels and hence value addition.

Eighty percent of India's 115 million farms are situated on plots

of less than 2 ha. A little over 1 percent of all farms are larger

than 10 hectares and these constitute 15 percent of the

cultivated land. With organised retail penetration increasing and

government's proposed mega food parks obviating the need for

an intermediary, Contract Farming is an opportunity for the

processors that will help in better handling, price realisation and

minimising wastage.

PepsiCo and Cadbury's examples of contract farming in India

can be a model for others to follow. The potato farming initiated

by Pepsi in Jharkhand can be useful in making potato chips that

can be supplied to food chains like Mc Donald's and others.

Government has announced various policy measures and

tax incentives for cold chain and warehousing, Food Parks

and Agri Export Zones to augment the storage and processing

Key Opportunities

1. Processable varieties of crops

2. Contract Farming

3. Investments in Infrastructure through PPP

capacity. Lack of infrastructure is a major roadblock impeding

the growth of the processed food segment. With a lot of

emphasis on value addition in food processing, it is imperative

that investments in infrastructure are a must and should have

favourable policy framework and fiscal incentives.

Mega Food Parks

Lot many State governments have taken the policy directive from

the centre and have planned Mega Food parks with associated

fiscal incentives. The proposed food parks aim to bring

together all players in the value chain together so as to

minimise waste and improve value addition in the industry.

This move will also help farmers realise better prices by removing

intermediaries. The processors also will be benefited by a better

inventory management and production planning.

The proposed mega-food parks will be between 10 and 100

hectares in size and 30 locations across India had already been

identified. The parks would be set up through private

consultants with the government providing grants of up to INR

1500 million each .

Each mega food park will have a minimum catchment area of

five districts. With a chain developing from the farm gate to the

retail shelves with collection and distribution centres and central

processing centres in between, where functions like sorting,

grading and packaging along with irradiation, food incubation-

cum-development will take place, the food processing ministry

hopes this initiative to be a commercial success.


India wastes more fruits and vegetables than it consumes.

About 30 percent of the fruits and vegetables grown in India (40

million tons amounting to USD 13 billion) get wasted annually

due to gaps in the cold chain such as poor infrastructure,

insufficient cold storage capacity, unavailability of cold storages

in close proximity to farms, poor transportation infrastructure,

etc. This results in instability in prices, farmers not getting

2remunerative prices and rural impoverishment .

Government plans to encourage setting up of Integrated

Cold Chain facilities to improve storage and reduce waste by

not missing any link in the value chain from the farmer to the

consumer/retailer.


1. Financial Express 2.harvest losses due to gaps in cold chain in India – A solution, C. Maheshwar, T.S. Chanakwa

International Society for Horticultural Science, Post

48

4. Food Safety Management Systems

Food safety is a growing concern across both developed and

developing nations. The introduction of Sanitary and

Phytosanitary Agreement and stringent safety regulations

means the Indian Processors/Producers should be

knowledgeable of the Food Safety requirements. Food

retailers/Independent bodies/Exporters should take the

initiative in educating the backward linkages. Going

forward, there will be a need for Food Safety certifying

agencies (for ISO 22000) authorised by the importing countries

or standards setting boards.

Organic Farming in Italy - A Case for Food Safety and

Farmer Cooperatives

Food Safety - Growth in Organic Farming

Organic Agriculture in Italy is acclaimed to be one of the

best in the world. During 1990-2000, the growth of organic

farming in Italy has been spectacular. Area under organic

cultivation increased from 13,000 ha to more than a million

hectares, approximately 7.2 percent of the total cultivated

area. By 2002, the area increased to 183,000 hectares (7.94

percent of the cultivated area). The reasons for such a

substantial increase were the food scandals like the mad

cow disease leading to the search for safe foods, the

constant endeavour for alternative farming methods which

were environmentally, technically and economically

attractive to the farmers and the liberal subsidies.

Expansion of new economic activities in rural areas -

Processing Cooperatives

In 2005, 41 percent of the organic area is under pastures.

Olive cultivation is the single biggest crop with 10 percent

of the area under cultivation while Cereal crops are raised

on 18.2 percent of the area. High growth of organic farming

led to a growth in processing units to the extent of 142

percent during 1997-2000 alone. By 2005, 1300 of the

42000 processing units are established by the farmers

themselves. Organic farming has resulted in the setting up,

conversion or expansion of new economic activities in the

rural areas of Italy.

A consumers' cooperative venture established the first

organic shop in Milan. The most important fact of the

market distribution of organic products in Italy is the

predominant position of the farmers' or consumers'

cooperatives. Consumer expenditure on organic products

can be split as follows: Dairy - 26 percent; Fruits &

Vegetables - 13 percent; Breads and Biscuits - 12 percent

A survey of the motives of the consumers of organic foods

revealed that every one was going for organic products to

protect the health of his/her family.

Policy Support for Organic Farming

Various legislations by the European Union providing

subsidies were instrumental in the growth of organic

farming in Italy. The devolution of power to the Regional

Government on agriculture policy in 1972 has resulted in

different levels of subsidies in different regions/crops.

There are nine organic certification bodies in Italy. A single

agency named ICEA has a share of 24 percent of the

certified farms coming to about 29 percent of the area.

These nine agencies have about 900 local offices, 1000

staff and technicians for inspecting farms, processing units

and storages for giving certifications.

Universities and Public Research Centres are becoming

increasingly interested in research and extension activities

in relation to organic agriculture. A National School of

Organic Farming has been established by the Ministry of

Agriculture to impart education.

Source: Organic Farming in India: Relevance, Problems and Constraints,

Dr. S. Narayanan, NABARD, 2005


49

5. Farm Equipment

6. Packaging and Barcoding

7. Quality Control and R&D labs

Thefarm equipment sector in India is nascent, but a fast

growing one, that is set to experience sustained growth due to

increased mechanisation of farming, easy availability of credit

and emerging practices, such as contract farming. Tractors and

related equipment form the major part of the industry and given

their low penetration levels in India, look set to continue having

a significant share in the market. These appear the most

attractive segments for investment and have been attracting

multinational players such as John Deere.

Also, there is need for equipment that is customised to the

Indian context. Advanced equipment is imported and is mostly

not suitable for Indian conditions. The equipment that is used in

India is not advanced. So, there is a huge opportunity for

players with technology to develop products that suit the

Indian conditions. Government can introduce measures to

enable Transfer of Technology to help the local equipment

industry come on par with the latest technology.

Implementation of safety standards for consumer safety is vital

in the Food Processing Industry. Food should be packed for

safety and promotion of brand as well. Also, capturing the

information flow about the physical movement along the value

chain is important in ensuring quality and traceability. Currently

manual, repetitive data recording processes, poor linkages

between goods/information flows, incorrect dispatches,

wastages in transit and storage, poor stock management, lack

of track & trace capabilities, etc are a few issues that confront

the Indian food processing sector.

Barcoding using international numbering standards enables

unique and universal identification of products, consignments,

companies, entities and assets, facilitating efficient goods

movement, and its track & trace across supply chains. The

packaging and barcoding is expected to only pick up due to

mandatory laws on traceability and supply chain efficiency.

Institutes that segregate the produce from various sources to

different grades; test the produced raw materials, foods in

8. Training and Market Intelligence Provision

9. B2B sales – Sales to the Institutional Segment

10. Segment level opportunities

process and finished products are required to help maintain

quality levels in the food processing industry. Quality control is

used to predict and control the quality of processed foods and

hence control the process so that the expected quality is

achieved for every batch. Joint research initiatives will help

SMEs compete effectively with the large players without

spending too much money. Government should encourage such

initiatives and enable a supportive legal and institutional policy

framework.

As the market matures and intermediaries are gradually reduced

in the value chain, the farmers seek knowledge about markets

and price directly and would like to sell at the best possible

price. The mechanisms that enable a farmer to gain market

intelligence and trading capabilities need to be evolved. Also,

training facilities need to be designed as most of the farmers

are not educated and would need a very simple way of learning

and using the system.

The B2B segment of the food sales has not taken off in a large

scale as much as the retail sales have. This is because of the

presence of a large number of small players in the industry and

a few large players. There is significant potential in the B2B

segment due to consistency in demand and economies of

scale. Cooperatives, as explained in the case of Italy Organic

Farming, or backward linkages will help aggregate the

produce by removing the intermediaries, help farmers earn

remunerative prices and reduce supply uncertainty for the

processors.

In the food processing sector, the sub-sectors such as soft-drink

bottling, confectionery manufacture, fishing, aquaculture, grain-

milling and grain-based products, meat and poultry processing,

alcoholic beverages, milk processing, tomato paste, fast-food,

ready-to-eat breakfast cereals, food additives, flavours etc have

huge potential in the domestic and export market.


Summary

Conducive policy and increasing demand provide many opportunities for players across the

food value chain. The opportunities and associated advantages for Farmers, Producers and

Consumers are summarised in the table below:

These opportunities come with a set of constraints in the industry that need a suitable

policy from the government and active involvement of private players in providing solutions.

The key constraints and measures are detailed in the next chapter.

Opportunity

Customised equipment for the local market

Processable variety of crops

Forward Linkages with the Processors

Contract Farming Arrangements

Consolidation of farm produce

Access to global markets

Forward linkages with Organised Retail

Backward linkages with farmer

Institutional segment business

Increase in integrated storage facilities requirement

Cold storage facilities

Mega Food Parks


Quality Control and R&D labs

Food Safety management systems

Joint Research Initiatives

Training and Provision of Market Intelligence

Packaging and barcoding

Player

Farm Equipment

Farmer

Processor

Logistics provider

Investors

Enabling Segment


50

The opportunity in food processing industry is significant, but so are the challenges that ail

the sector. Certain limitations could be seen as an opportunity waiting to be exploited for

the allied sectors and others as a guiding light to a roadmap for government's intervention.

The following section throws light on various challenges faced by the food processing

industry in India and how some of them have been tackled by early entrants in this sector.

The area of concern for food processing industry begins at the level food production itself.

Despite being an agrarian economy-one of the largest producers of vegetables, fruits,

1spices, milk, eggs, potatoes, wheat, meat etc . the productivity of crops is quite low as per

international standards. India's overall agriculture productivity is still at approximately 2

2percent . The problem of low productivity is compounded by poor quality of food produce.

It is essential to recognize that in a global arena, price competitiveness alone cannot suffice

as an instrument of competitive advantage. Food processors need to deliver taste and

quality demanded by consumers of both domestic as well as international markets. Hence,

the players need to device a twin pronged strategy of improving agricultural yields coupled

with delivering the right quality to different markets. Agricultural yields can improve only

when India resolves the problem of fragmented land holdings and adopts innovative

technologies to boost crop productivity. It is pertinent to note that reasons for low

productivity vary across regions and these need to be addressed on individual basis.

According to the Planning Commission XIth plan report on Agriculture, region specific

factors causing low productivity are as follows:

Productivity Issues

Constraints & Strategies


51

1. FAOSTAT

2. Innovative technology to ensure food security, UNI (United News of India), 25 March 2009

52

Region-specific Factors Causing Low Productivity

Agro-climatic Region

Western Himalayann

region I

Eastern Himalayan region

-II

Lower and middle

gangetic plain region - III

and IV

Upper and trans-gangetic

plains region - V and VI

Eastern plateau and hills

region - VII

States/ Parts of States

J&K, HP, Uttaranchal

Assam, NE States, Sikkim

West Bengal, Bihar,

Eastern UP

Western UP, Punjab,

Haryana

Orissa, Jharkhand,

Chhattisgarh

Region-specific Constraints

Severe soil erosion, degradation due to heavy

rainfall/ floods and deforestation, low SRRs, poor

road, poor input delivery, inadequate communication

infrastructure and marketing

Aluminium toxicity and soil acidity, soil erosion and

floods, shifting cultivation, low SRRs, non-availability

of electricity, poor road, poor input delivery system

and communication infrastructure

Food/ water logging, improper drainage,

salinity/alkalinity, arensic contamiation, low SRRs,

non-availability of electricity, high population growth,

poor road and communication infrastructure

Groundwater depletion, decreasing total factor

productivity, micronutrient deficiency, non-availability

of electricity, and high population density

Moisture stress, drought, and soil acidity, iron

toxicity, low SRRs, non-availability of electricity, high

population growth, poor road, poor input delivery and

communication infrastructure.

Source: Cited in Report of the Working Group of Sub-Committee of National Development Council on Agriculture and Related Issues on

Region/Crop Specific Productivity Analysis and Agro-Climatic Zones, Planning Commission, Government of India (February 2007).

Research and Development

!

!

!

In order to improve farm productivities, continuous introduction and implementation of

innovative technologies calls for existence of a strong R&D network. While substantial

investment is made in this regard, the efforts have not been rewarding. This is purely

because of lack of a clearly stated strategy that assigns definite responsibilities, prioritizes

the research agenda rationally, and recognizes that the research mode is not always best

suited for product development and delivery. Some of the common problems ailing the agri-

R&D in India are:

Commodity-centric R&D: Lack of a holistic approach involving a matrix of farm

enterprises

Compartmentalization of R&D agencies: Lack of effective bilateral flow of information

amongst research, extension, and implementation departments

Poor validation and feedback mechanisms: Lack of large-scale on-farm validation of

techniques and feedback thereon, leading to practically no scope for enhancement


53

Source: Continuation of the ongoing Plan Scheme of IIHR, Bangalore and seven sub-schemes for 11th Five Year Plan, March 30, 2009, Indian Council of Agricultutral Research

An exemplary shift is required to transform the present commodity-centric research to a

systems approach. Since farm-level problems are specific to agro-climatic zones (ACZs), a

convergence between R&D agencies within individual ACZs is required. This can help bring

region-specificity in technologies and their time-bound assessment. A seven-step

mechanism is required to set-up a research-development-technology transfer continuum

involving all stakeholders:

Problem identification and prioritization

Convergence of existing technologies to match the need

Generation of need-based viable technologies using the holistic farming system

approach

On-farm assessment and evaluation

Feedback on the technologies

Refinement of technologies, if necessary

Ensuring Timely availability of inputs

!

!

!

!

!

!

!

Human Resource Development

Advancement of any industry depends upon availability of skilled human resource. Food

processing industry is no exception to this rule. The industry is in dire need of highly skilled

and trained manpower across different levels to handle various operations.

The human resource requirements for the food processing units in India vary according to

the nature of the industry in which it operates. A food processing unit might be operating in

any of the three frameworks: in organized sector, as small scale entrepreneurs or in

unorganized sector. It is very essential to design and develop a mechanism addressing to

State 9%

Government

Indian Agricultural Research91%

Council of

Enhanced productivity and profitability

The outcome of the scheme will be

Conservation and safeguarding of genetic

resources like new high yielding cultivars having

resistance to biotic and abiotic stresses and also

nutritive and qualitative attributes

Enhancement in the input use efficiency (water,

nutrients, pesticides, labour)

Technology for plant health management

Minimising of post - harvest losses

Development of newer products and value

addition for better remuneration

Development of technology for organic farming,

off- season and protected cultivation to ensure

extended availability

?

?

?

?

?

?

Center's planned funding for sector during 11th Plan (INR 199.54 cr)

horticulture


54

the manpower development for these sectors at different levels of responsibilities. Thus

human resource development needs to cover the entire gamut, from basic infrastructure,

education, vocational and technical guidance to professional qualifications. For this purpose

State Universities need to be encouraged to commence courses in food packaging,

processing, bio-technology, information, technology in agriculture and such allied fields.

INDUSTRYLEVEL

ENFORCEMENT

REGULATORYAND TRADE ISSUE

RELATED

FOODPRODUCTION

WAREHOUSINGAND

DISTRIBUTION

?

?Mid-managerial level HRD

?Operators level HRD

?Sanitary Workers (concept of personal hygene)

Managerial HRD

?

and the enforcement authorities can discuss the issues and the further

actions with respect to policy decisions

?Institutions should include Regulatory and Trade Issues as a part of

curriculum

?In case of a management course like business management in food/agri

the Government should include the WTO aspects, TBT, SPS,

Export/Import regulations etc

Organisations like FICCI, CII etc can provide a platform where industry

?

?Food safety management system at the plant level

?Operators level HRD

?Industry specific Hazard Analysis and control program

?Auditing and inspection skills

?Process development

?Current domestic food regualtions

Food safety awarness

?

?The national network of ICAR could be made use of to incorporate farm

level food safety and related legislation

?Focus on packaging techniques, use of appropriate packaging material,

storage and safe transportation of the farm produce

Develop institutes/universities like IGNOU, ICAR for Farm Level HRD

?

affect the food safety of a product

?Programmes based on regional climatic changes and natural disasters

?National Institute of Agricultural Marketing (NIAM) under Ministry of

Agriculture has taken initiative by considering Warehouse and

distribution as a training need

Emphasize on how the storage conditions, handling of food items can



55

Supply Chain hindrances

Indian agri-business is renowned for their long and fragmented supply chain. The

inefficiencies in supply chain lead to huge losses due to wastage or shrinkage of perishable

commodities. In India, post harvest losses of perishable commodities are in the range of 30

3to 40 percent . The entire supply chain is dominated by unorganized players and absence of

any structured markets to ensure correct price discovery and availability of consistent

quality produce. Several middlemen add to wastages from the farm to the consumer,

retailer, processor or exporter. A long supply chain also means that each level of the supply

chain is unaware of the requirements of the next level and thus there exists disconnect

between farmer and processor. Finally, the nature of the processing industry creates further

problems for the food processor. The FPI is characterized by seasonality, perishability and

variability of produce.

These unique features of FPI necessitate that the food processors collaborate

with farmers to secure raw material. One of the crucial requirements of FPI is to

get the consistent supply of quality raw material. At present, raw material is

procured from markets, which often has variable quality and at times insufficient

quantity. This situation discourages processing units to reach optimum size and

achieve economies of scale. Additionally, lack of consistent quality hinders small

scale units to build brand equity for themselves in international and domestic

markets. Therefore, without quality and consistent supply of raw material, it is

unlikely to set up large units in food processing sector.

Contract Farming

In order to bridge the gap between farmer and processor, some of the private

players such as PepsiCo, Reliance Life Sciences, ITC (agri-business division) and

The ground and tree crops, fisheries and live stocks undergo a reproduction cycle.

Therefore, food processors have to procure the required raw materials during a

particular season, while the processing operations and demand for their products

are round the year

The food processing industry’s raw materials are highly perishable in nature .

They therefore require faster processing speed and involve higher handling and

storage costs

The industry has to face variability in the quality of raw materials. This is due to

cyclic variations as well as changes in weather conditions and/or damage to

crops and livestock from pests and diseases

Variability

Seasonality

Perishability


3. Maharashtra State Agricultural Marketing Board

56

McDonalds have modified their

sourcing channels to include contract

farming. Typically, the farmer agrees to

provide agreed quantities of a specific

agricultural product which should meet

the quality standards of the purchaser

and be supplied at the time determined

by the purchaser. In turn, the buyer

commits to purchase the product and,

in some cases, to support production

through, for example, the supply of

farm inputs, land preparation and the

4provision of technical advice . Some of

the clear benefits of contract farming

which creates a win-win situation for

both farmers and processors are:

!

!

!

!

It integrates supply chain to ensure timely availability of quality and quantity of

raw material for processors

Significantly reduces the procurement cost for food processors by removing

the middlemen

Food processors are able to source raw material as per their specific

requirements at a cost which is much less

Private sector participation increases the scope of technology transfers,

capital inflow as well as leads to assured markets for crop production

Suguna's poultry integration model is a case in point. The model has created a

win-win situation for both the farmer and the integrator. Farmers are provided

with day-old chicks, feed and health support. The performance is monitored on a

daily basis with Suguna field staff visiting the farms to check on the health of the

birds, feed intake, growth and mortality levels. In six weeks time, the birds are

weighed and are ready to be sold by Suguna through its own retail outlets as well

as other retailers and exporters. The farmers are paid a growing charge for the

birds at the end of the period.

Distributed to

contract farms

Suguna Poultry Suguna Fresh RetailMaize and Soya Network for Feed

Procurement Backward Integration Forward Integration

Extension services

6 weeks

Exports

Retailers

Parent birds

Hatching eggs Hatchery

Day -old chicks

Grandparent birds

Field staff makes daily visits to each farm to check the health of the birds, their feed intake, growth and mortality levels

About Suguna Poultry

?INR 2 billion turnover

?11 states with 4,800 employees

?15,000 + farmers

?25,000 channel partners

?395 million chickens produced per annum

?36 hatcheries and 50 feed mills

?1.56 million tons feed production per annum


4. Food and Agriculture Organization of the United Nations

Source: Company Website, KPMG Analysis

Case Study: Contract Farming by Suguna Poultry

Terminal Markets

While contract farming is one of the many

alternatives for food processing industry to

explore, it is not the only solution with the

private players. Another option for the

players is to leverage Terminal Markets to

procure quality produce at the right price.

Terminal Markets are established under

Public Private Partnership (PPP) mode and

operate on a Hub-and-Spoke Format

wherein the Terminal Market (the hub) is

linked to a number of Collection Centres

(the spokes). These markets help in

realizing better returns to the farmers by

reducing post harvest losses of perishable

commodities and reducing the number of

middlemen as well as provide one stop

shop for the processors to procure quality

raw materials.

The perishable horticultural produce is

cleaned at the collection centres and

transported to the terminal markets through

reefer vans thereby reducing post harvest

losses. The produce arriving in the terminal

market is graded and stored in the cold

storage till it is auctioned through electronic

auction system or direct selling.

The commodities marketed include all kinds

of perishable commodities, such as, fruits,

vegetables, flowers, aromatics, herbs, meat,

poultry etc. Non perishables are also

handled in the Terminal Market. However,

the proportion of Non-Perishables cannot

exceed 15 percent of the total through put of

the market. Similarly, the proportion of non

horticultural products within the perishable

commodities cannot exceed 15 percent of

the total through put of the market.

57

Case Study : Terminal Markets

TERMINAL MARKET

Producers/ Farmers and their Associations

Electronic Auction

Processor Exporter Wholesaler / Retailer

Direct Selling

Collection Centre Collection Centre Collection Centre

INFRASTRUCTURESERVICES

Storage

• Warehousing

• Cold Storage

• Ripening Chamber

Banking / Finance

Quality

Testing

And Grading

1 2 3

?Transport (incl. cool

chain)

?Settlement of

Payments

?Banking

?Market information

?Pack house

?Quality Testing

Facility

?Palletisation

?Washing

?Grading

?Sorting

?Weighing

?Transport

?Collection &

Aggregation of

produce

?Settlement of

payment

?Advisory on inputs,

prices, quality

?Multi modal

transport



58

Low adherence to quality standards

There is an increasing need for food processors to adhere to quality standards for both

domestic as well as export market. While the export market has always been critical in

terms of quality and hygiene, the domestic market should no longer be taken for granted.

Due to globalization, the rules of the game have become much more strict and intense.

Today, the consumers need to be ensured that that the foods that they consume are

healthy and have been subject to highest levels of manufacturing and hygiene standards.

However, an essential consideration is that once a food product has been through a

manufacturing process, little can be done to alter its quality.

It is therefore pertinent that the industry ensures that the requisite controls are put in place

across the agri-value chain-from farm inputs to storage of produce to food processing

techniques. Under WTO regime, Indian processors have to ensure that they meet the

requisite food standards in order to compete with imported goods. This calls for adoption of

high tech machine and technologies, development of entire chain of infrastructure and most

importantly putting in place quality control processes.

One of the key challenges in ensuring adherence to food standards is availability of basic

standardization and certification infrastructure. Given the size of the industry, there is a

huge gap in the availability of laboratories, trained manpower, and certification agencies.

The government should increasingly support private sector participation to address to these

issues. International players with extensive experience in providing certifications on CODEX,

HACCP, GMP and GHP guidelines should be invited to operate in India. This would not only

provide necessary infrastructure support but also ensure availability of certification as per

international standards.

CASE EXAMPLE

Suguna Poultry Farm has launched the first environment-controlled (EC) commercial

broiler sheds in Madurai district. Each shed has a capacity of 32,000 chickens, with the

farm capacity at about two lakh chickens a batch. The annual capacity has been

estimated at 12 lakh birds.

! Automated feed: The entire system in the sheds is automated through advanced

climate control system. Further, the feeding and watering systems are also

automated, thus enabling the entire farm to be operated and controlled from a

single computer-based system.

! System works: The EC sheds would help improve feed conversion ratio, better

quality bird meat, increased productivity and health of the chicken, reduced

mortality, one extra batch (or cycle) per year per shed, and a system-controlled farm

with ability to store and retrieve records up to five years


Source: http://www.sugunapoultry.com

59

Poor Financing Options

!

!

!

!

!

!

Being a developing economy, availability of finance has always been

an issue across the agri-business value chain in India. For long the

sector has been ailing due to either unavailability of funds or

availability of funds through unorganized sector at unfavourable

terms and conditions.

The impact of the same could be seen in form of

For Farmers

Use of poor quality of inputs (seeds and fertilizers)

Inability to use latest technology to enhance productivity and

ensure consistent quality of produce

Off-loading the produce at lower than market rate due to urgent

need of funds

SME Food Processors

Failure to expand plant capacity

Compromise of the level of safety measures to ensure hygiene

and food safety measures

Inability to purchase of quality input through auctions. This could

have multifarious implications, ranging from issue of

inconsistent quality to loss of clients and goodwill of the

company

The size of the target population seeking financing options is so

large that even with the government assigning priority sector

lending to agriculture and its allied activities, the sector is still

yearning for more funds. One of the biggest challenges for a small

scale food processor is to raise funds when he does not have assets

to offer as collateral. While the agri-business sector offers

tremendous opportunity for employment and business growth to

SME, their inability to raise requisite capital eradicates any chances

of their even setting up the business in the first place.

Within the priority sector lending target of 40 percent, the

banks are mandated to lend 18 percent to direct and indirect

agricultural activities. Food processing finds place within a

further subcategory of indirect lending of 4.5 percent. This

sub-category is usually oversubscribed by banks as

agriculture inputs form a part of it. Direct lending has its

own limitations in expanding credit to this sector. In the

above case, there is no distinct finance for food processors.

This issue is common to many developing nations. To address this

gap, some organizations have been exploring equity investments in

SMEs that operate along the food value chain. These investors place

less emphasis on collateral or creditworthiness and more on the

capabilities of the entrepreneurs and viability of their business plans.

Two such initiatives are African Agricultural Capital (AAC) and the

Africa Enterprise Challenge Fund (AECF). AAC is backed by USD 7

million from the Rockefeller Foundation and other private donors.

The fund has made 15 investments in small- and medium-sized

agricultural ventures in East Africa. The AECF is a USD 100 million

pool established by several donor agencies. AECF funds private

companies to develop innovative business models in the agriculture

and financial services sectors.

Source: International Fund for Agricultural Development, 2008

Indian Export related infrastructure for agri-produce is grossly

inadequate, especially at sea ports and airports. More than 30

percent of the produce from the fields is lost due to poor post-

harvesting facilities and lack of cold chain infrastructure. India has

merely 21.7 Million Ton cold storage facilities whereas it needs at

5least 9-10 Million Ton more of capacity . The cold storage facilities

now available are mostly for a single commodity like potato, orange,

CASE STUDY

Equity Bank, Kenya: Financing farmers and enterprises

along the food value chain

Equity Bank of Kenya, one of Kenya largest banks, launched a

project in 2007 aimed at providing USD 50 million in credit and

other financial services to Kenya farmers, agricultural input

dealers, and other players in the agricultural value chain. Two

project partners, the International Fund for Agricultural

Development (IFAD) and the Alliance for a Green Revolution in

Africa (AGRA), provided a USD 5 million cash guarantee fund to

reduce Equity Bank risk. The Kenyan Ministry of Agriculture is

also a partner in the project, which provides targeted subsidies

to poor farmers in the form of vouchers, which they can use to

purchase inputs from agricultural input dealers. The Ministry also

conducts outreach to build awareness of the program, and helps

monitor its results. If successful, project partners plan to

replicate this approach more broadly in Africa.

Infrastructure bottlenecks


5. India Today, Hungry for action, May 21 2009

grapes, pomegranates, flowers, etc. which

results in poor capacity utilization.

There is also a lack of trained experts for

testing, quality certification, R&D etc. who

can educate the farming community of the

standards and requirements and the

processes of obtaining certifications. R&D

efforts, as discussed earlier, also are a

drawback.

Information on good agricultural

practices: Providing farmers with

information on good agricultural practices is

a quick win' solution that has shown

impressive results. In a partnership between

BT, Cisco and OneWorld, the LifeLines India

project has already demonstrated a 20 to 30

percent increase in productivity among

users. The service is simple: farmers can dial

a fixed voicemail number where they can

record their queries. A dedicated knowledge

worker then finds the answer through a

panel of agricultural and veterinary experts,

using an innovative Internet-based

application. Farmers can retrieve the answer

by voicemail at a cost of INR 5 (11 cents).

After 2.5 years of operation, the service is

receiving over 12,000 calls per month

Multiple laws at state and centre level are

applicable to the FPI. The plethora of food

legislations and enforcement agencies often

results into a manufacturing plant being

visited by a number of inspectors from

different departments leaving enough room

for multiple harassment and even corrupt

practices. Such multiplicity also leads to

conflicting approach, lack of co-ordination,

administrative delays etc., thus retarding the

Multiplicity of Laws and Stringent

Regulations

growth of entire industry. Additionally, the industry is characterized by high tariffs, dated

food laws, unscientific sanitary and phytosanitary restrictions.

There is no uniform implementation of the Act though. Only 15 states have adopted the

model law. In fact, states like Bihar do not have an APMC Act at all. Key challenges with

APMC Act:

The transactions outside the regulated mandis are prohibited under the APMC Act

Direct marketing and contract farming are not encouraged by most of the states under

the APMC act

The act prohibits investments from private sector for improving the infrastructure

The act does not allow direct procurement of produce from the farmer's yield

As per the act the purchaser has to be a registered with a commission agent at the

market

Poor implementation of APMC Act

!

!

!

!

!

Name of States/Union Territories (UT)

Madhya Pradesh, Himachal Pradesh, Punjab, Sikkim,

Nagaland, Andhra Pradesh, Rajasthan, Chhattisgarh,

Orissa, Arunachal Pradesh, Maharashtra and

Chandigarh

Haryana, Karnataka, Gujarat, NCT of Delhi

Uttar Pradesh

Bihar, Kerala, Manipur, Andaman & Nicobar Islands,

Dadra & Nagar Haveli, Daman & Diu and

Lakshadweep

Tamil Nadu

Assam, Mizoram, Tripura, Meghalaya, J&K,

Uttaranchal, Goa, West Bengal, Pondicherry and

Jharkhand

Stage of Reform

States/UTs where reforms to APMC Act have

been done as suggested

States/UTs where reforms to APMC Act have

been done as suggested

a) by amending APMC Act

b) by Executive Order

States/Uts where there is no APMC Act and

hence not requiring reforms

States/UTs where APMC Act already provides

for the reforms

States/UTs where administrative action is

initiated for the reforms

Policy amendments by States to counter the challenges posed by APMC Act


60

Industry and Research Institution

Linkages

The current level of interaction between the

industry and research institutions is less.

Institutions like CFTRI who work closely with

a few industries have delivered several

successes – MTR and CFTRI have together

developed products for the Indian Military. As observed in Germany, initiatives to link

research and institutions lead to an increased innovation in the industry in terms of products

and processes. The initiatives will require policy, institutional and legal framework to be

successful at a large scale going forward. A successful fruit processing pilot unit set up by

CFTRI is described in the case study.

! Ministry of Agriculture had

formulated APMC Act to rbing

about marketing reforms in line

with the market trends

! The Act was to enable

establishment of private markets,

direct purchase centers,

consumers/farmers markets for

direct sale, and promotion of

public-private-partnership (PPP)

! With the growth trend of Super

and Hyper markets a provision

was made for constitution of

State Agriculture Produce

Standards Bureau for promotion

of grading. standardization and

quality certification of agricultural

produce

! 15 states and 5 Union Territories

have amended their Agricultural

Produce Marketing Committee

(APMC) Act to derive the benefits

of market reforms

!

!

!

!

E-choupal is a business platform consisting of a set of

organizational subsystems and interfaces connecting

farmers to global markets

The stricture was set to leverage a host of product and

services for the farmer as a producer as well as a

consumer

The business platform consists of three layers each at

different levels of geographic aggregation

! The first layer consists of the village level kiosks

with internet access

! The second layer consists of a bricks-and-mortar

infrastructure (called hubs) managed by the

traditional intermediary

ITC chose to operate the platform on the following

three business principles:

! Free Information and knowledge which ensures

wider participation by the farmer,

! freedom of choice in transactions (farmers, after

accessing information at the e-Choupal, are free to

transact their own way)

! transaction-based income stream for the Sachalak

by tying his revenue stream to transaction (on a

commission basis)

Perception behind

formation of the APMC ActCase Study: An initiative by ITC


61

!

!

!

!

!

!

CFTRI is an internationally reputed institute in food science and

technology

The development of Human Resource in the area of Food Science

and Technology has been one of the important activities of CFTRI

With a formidable reputation that surpasses the best in the world,

the CFTRI has over 270 products and processes

The CFTRI is focused on evolving cost-effective technologies that

utilize indigenously available raw materials to deliver nutrition

security to all sections of the population

CFTRI also houses the National Information Centre for Food Science

and Technology and provides the Indian R and D inputs to food

science and technology

The institution aims to provide value addition to meet nutritional

demands, supply technologies that help generate employment

opportunities in the area of food processing, improve the traditional

methods of processing foods by incorporating new technologies,

provide value addition to domestic and international trade and

promote avenues for self-employment

Overview

! Rishang Keishing Foundation for Management of Tribal Areas (MATA) promoted an integrated processing facility for

fruits, spices and vegetables including bamboo shoots for the benefit of the people

! A MoU was signed with CFTRI to provide a total turnkey solution, comprising of the engineering aspects, erection of

the plant and machineries, training on plant administration and production of various canned fruit products

Benefits

! The plant processes naturally and organically grown pineapple, oranges, passion fruit and other fruits/vegetables to

value added products such as pineapple juice concentrate, orange juice concentrate, passion fruit juice concentrate and

bamboo products

! The fruit-processing project is to process 3.65 tonnes of pineapple product (2 MT of pineapples per hour) and 2.85

tonnes of orange products (1 MT of orange per hour) per day

! Application of membrane processing technology for making clarified juice concentrates from pineapple and oranges is

an eco-friendly technology borne out of indigenous R&D

! The integrated programme for the procurement of fruits grown by the tribals, processing, value addition and marketing

under agro-industrial development programme is one of the major steps for bringing economic prosperity and the unit

has the potential to be model for rest of the regions as well.

Overview CFTRI Potential Benefits of CFTRI training

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

!

Analysis and Quality Standards

Confectionery Technology

Food Biotechnology

Food Flavors and Sensory Evaluation

Food Packaging

Food Processing Equipments

Infestation Control and Pesticides

Instrumental Methods of Food Analysis

Microbiological Quality Control of Foods

Post Harvest Handling Of Fresh Fruits and Vegetables

Processing and Analysis of Spice and Spice Products

Processing of Oil Seeds for Value Addition

Production of Enzymes and Food Ingredients By

Fermentation

Production of Secondary Metabolites through Tissue Culture

Quality Management System for Food Industry

Rice Technology

Storage of Food Grains

Technology of Fruit and Vegetable Products

Technology of Meat and Fish Products

Wheat Milling and Bakery Technology

Success Story: Integrated Pilot Scale Fruit Processing Unit setup for M/s. Rishang

Keishing Foundation for Management of Tribal Areas (MATA), Imphal, Manipur


62

63

Packaging

!

!

!

!

!

!

Packaging norms are stringent and are governed by various laws.

Standards of Weights and Measures Act, 1976 and Rules, 1977 mainly govern packaging

in the RTE food segment in India. The regulation specifies the quantity and package

labelling and administers the sale of packaged commodities including packaged food

and provides for the mandatory registration of all the importers of packaged foods in

India.

The packaging is influenced by the Prevention of Foods Adulteration Act 1955, which

determines the ingredients permissible in packaged foods to safeguard consumer

health and safety and the responsibility of packaging for spreading information and

awareness about the product ingredients.

The Agmark rule provides the benchmark and the quality guidelines to various food

products, which are to be imprinted on the packaging.

The Codex regulation that encompasses all the aspects of foods industry and also sets

guidelines for packaged foods Industry including labelling and packaging.

The major challenge is definitely the lack of government support for the packaging sector,

even while the food-processing sector gained support and importance in the recent years.

The packaging material is imported from China as the sector lacks government support:

The lack of concessions from government, highly fluctuating raw material prices and

pressure in margin prices are the major issues

The stringent regulations of European countries in packaging, and inability of Indian

companies to equip themselves to comply with these standards for winning the global

market

Government needs to encourage the sector by extending the tax breaks and concessions to

players setting up packaging industry in India and in enabling successful transfer of

technology from MNCs who wish to enter India.

Summary

The several constraints in the Food processing sector can in deed be opportunities for

players who can come up with innovative solutions, with a good deal of support from the

government. The following chapter describes the key support requirements highlighted by

the industry and recommendations.


64

Industry Expectations

!

!

!

!

!

!

KPMG has interviewed various companies during the preparation of the report. A summary

of the expectations of the industry is listed below:

100 percent tax breaks in Research and Development (R&D) sector – Large players do

not find any incentives for investments in R&D and small players do not have the funds

to invest. Large players are willing to invest and support the smaller players if sufficient

incentives are provided.

Support for nutritional products – Players who are producing products that improve

nutrition levels in India should be encouraged with incentives and tax concessions.

Currently, there is no way to differentiate a player who produces nutrition products and

hence to way to support.

Conducive policy for Contract Farming – The land ceilings law is restrictive for players

who want to invest in contract farming. Contract farming provides benefits to all the

players across the value chain from the farmer to the processor and will lead to overall

development of the industry; hence a supportive policy is required.

Harmonisation of taxes – Although VAT has been implemented, the tax is not uniform in

all the states, leading to vast cost differences in the products. Also, the set up costs

and transportation costs might vary as the strategies of location depend upon the taxes

and logistics costs. The proposed GST should ensure harmonisation of indirect taxes.

More incentives in Infrastructure Development – Government should share the costs in

development of market and infrastructure.

Focus on Skill Development – Skills required across the sector for research, food safety

and testing, etc are inadequate in the industry. Government should set up more

institutions like NIFTEM and encourage industry-institution partnerships.

Industry Expectations and Recommendations


65

!

Recommendations

Easier Financing to Food Processing – The financing of the food processing segment is

not so conducive and government should think about setting up a separate bank.

Industry recognises the immense potential of the Food Processing sector and is

continuously innovating to move up the value chain. However, there are still numerous

inefficiencies in the system that needs to be plugged with the help of the government. A

few key recommendations for the sector:

a. More Production of Processable Varieties

Due to the lack of proper grading facilities, the processing industry incurs losses in

time, money and quality by mixing table produce with one for processing. The market-

linked production still is a rarity in the industry. Blessed with the capability of cultivation

round the year, India should focus more on producing the processable crop variety.

Grading will help fetch remunerative prices for processable produce and hence lead to

improving the variety and quality of processing.

b. Promotion of Indian Food in global markets

Branding of India as a global sourcing hub for food processing will go a long way in

enhancing the exports. At the same time, India should have the infrastructure to cater

to the varied food habits across the world.

c. Infrastructure development through Private Sector Participation (PSP)

Infrastructure bottlenecks across the value chain from grading, cold chains, logistics

and transportation, power, roads etc is restricting the growth of Food Processing

sector. If the sector has to grow at the rate suggested in the vision and reach a global

trade of 3 percent by 2015, it is imperative that the infrastructure development keeps

pace or even outpace the sector growth.

Budget 2009 provides incentives for Cold Chain and warehousing players, which is a

step in the right direction.

Government needs to have a supporting framework for PSP that clearly defines the

role of private players across the value chain, Risk sharing mechanisms, Concession

framework and the partnership model.

A successful PSP initiative, like QCI, will help improve infrastructure and hence low

level of wastage in the food value chain.

d. Harmonisation of Taxes

The industry is driven by multiple laws and non-uniform taxes that vary across states.

VAT also is not uniform across states leading to different cost structures in different

states and putting pressure on the production and supply chain costs.

The 2009 budget proposes the implementation of Goods and Services Tax from April

2010.


Goods and Service Tax (GST): A last-point retail tax

Model:

The Central and state governments are discussing the GST system proposed to be

implemented in India from April 1, 2010. The GST is a comprehensive value-added tax (VAT)

on goods and services. France was the first country to introduce this system in 1954. Today, it

has spread to over 140 countries.

Through a tax credit mechanism, GST is collected on value-added goods and services

at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods

and services can be set off against that payable on the supply of goods or services. But being

the last person in the supply chain, the end consumer has to bear this tax.

Many countries have a unified GST system. However, countries like Brazil and Canada follow a

dual system wherein GST is levied by both federal and state or provincial governments.

In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a

state goods and services tax (SGST) will be levied on the taxable value of a transaction.

Expected advantages of GST implementation

Better compliance and revenue buoyancy

Replacing the cascading effect created by

existing indirect taxes

Tax incidence for consumers may fall

Lower transaction cost for final consumers

By merging all levies on goods and services into

one, GST acquires a very simple and transparent

character

Uniformity in tax regime with only one or two

tax rates across the supply chain as against

multiplex tax structure as of present

Efficiency in tax administration

May widen tax base

Increased tax collections due to wide coverage

of goods and services

Improvement in cost competitiveness of goods

and services in the international market

!

!

!

!

!

!

!

!

!

!

Hurdles in mplementation of GST in India

Implementation of GST would require

harmonization of levies between the Union and

the states.

It would require appropriate integration of

services in tax network

Constitutional amendments required for

implementing GST is expected to be one of the

major road blocks

Issue arising from designing and structuring of

GST. For instance, how the issue of inter-state

movement of goods and services might need to

be addressed

The phasing out of CST may take time

Need for robust and integrated MIS dedicated to

the task of tracking flow of goods and services

across the country and rendering accurate

accounting of levies associated with such flow of

goods and services

The issue of taxing financial services and e-

commerce will need addressing

!

!

!

!

!

!

!


66

67


e. Policy push for technology upgrade

Government needs to support the industry in granting fiscal

incentives for capital investment towards technology upgrade.

The companies that are constrained by finances into upgrading

to latest technology in food processing will need to have an

incentive and tax breaks are helpful in initiating the technological

change. This will lead to enhanced quality and a better value

addition.

In addition to government setting up more facilities for R&D in

the country and setting up R&D departments in esteemed

institutes like IITs and IISc, private sector should be incentivised

for investments in R&D. The government can provide tax

exemptions for investment in R&D for the companies that set

up research laboratories and can ask the companies to help

projects of Small Scale Industries or make the companies spend

money in imparting training to a certain number of people. This

will promote innovation in the Food Processing sector and

bridge skill gaps.

f. Capacity Building Measures

Government, with the help of private players into backward

integration, and training institutes should come up with ways of

training the producers on the Safety and Quality standards. The

traceability requirements of the developed countries should be

made aware to the producers in India.

Market intelligence mechanisms to farmers, training on global

standards and safety requirements, and other skills need to be

imparted to the players in the sector. Setting of more institutions

like NIFTEM, CFTRI etc, and trainings from governing bodies like

APEDA will help in developing research skills and keeping up-to-

date on the export market requirements.

g. Support for Backward Integration

Companies that invest substantial amounts in integrating the

value chain should receive government support. The companies

help in farmers realising a better price for their produce by

minimising the intermediaries in the value chain.

The government should hence make contract farming easier by

changing the land ceiling restrictions that exist.

h. Promotion of Nutrition Foods

The government should promote nutrition foods so as to

encourage a health-promoting diet, reducing fat consumption,

especially saturated fats, and replacing them with

polyunsaturated fats, whole grains and vegetables. This requires

a law to make it mandatory for nutritional value labelling on the

packs. As demanded by the industry, the government should

speed up building the national reference data on nutrition

parameters of all agricultural and horticultural produce before

implementation of the mandatory nutritional labelling for the

packaged food products.

Norway has implemented the concept successfully. In Norway,

taxes are related to wider environmental and social issues and

are closer to a ‘calorie’ tax than a ‘fat’ tax, as some foods will

naturally be high in fat and others low and these may not be an

adequate description of their healthiness or otherwise. These

have led to a requirement for a simplified labelling

The current food labelling regulations in Norway follow the

EU legislation. The EU labelling legislation states that it is

based on consumer protection and the common market

(European Communities 2006).

The aims are: to ensure fair competition among producers

by standardization of legislation on nutrition labelling

because differences between national laws on labelling can

lead to unequal conditions of competition; to increase

consumers’ access to information; and to reduce risks to

individual consumer safety and health.

According to the nutrition labelling Directive of 1990 (with

later amendments) nutrition labelling was optional, but

became compulsory if a nutrition claim appeared on the

label or in advertising.

According to regulation No 1924/2006, nutrition and health

claims that encourage consumers to purchase a product,

but are false, misleading or not scientifically proven are

prohibited. The Regulation includes a positive list of allowed

claims. Simplified nutritional labelling on food packages is an

example of voluntary nutritional labelling.

Implementation strategy

The policy and incentives of the government do not reach the

intended audience due to multiple roles and channels of service

delivery. Government needs to bring all these under one window to

improve clarity in roles and improve service effectiveness/efficiency

of delivery. Central government should allow State governments a

more free hand in developing their own industry support steps to

attract investments.

•

•

•

•

68

Indian food processing industry is estimated

to be around USD 67 billion, of the USD 180

billion food industry, making it the fifth

biggest. India's strong agricultural base and

accelerating economic growth holds a

significant potential for the Food Processing

Industry that provides a strong link between

agriculture and consumers. The food

industry expected to grow to USD 280 billion

by 2015 and generate an additional

employment for approximately 8.2 million

people. It has been observed that

employment potential of the food-

processing sector is much higher than other

sectors. For instance, an investment of INR

10 billion generates employment for 54,000

people in the food-processing sector, jobs

for 48,000 people in textiles and

employment of 25,000 people in the paper

industry. There is also fourfold generation of

indirect employment in auxiliary and other

downstream activities on account of

investment in the food sector. Also, 60 percent of the employment generation takes place

in small towns and rural areas.

Policy has accorded a high priority to the sector and has provided many fiscal incentives as

this is a sector that has strong synergies with the inclusive growth mandate of the

government and also provides a platform to significantly transform the face of rural India.

Additionally, an enviable share of the world's agri-produce and diverse agro-climatic regions

coupled with changing demographic patterns, food habits and rise in income levels opens

up numerous opportunities in the sector – India as a huge consumer market and India as a

potential sourcing hub to the world.

Indian Food Processing is on the verge of a great transformation from a low level of

processing and a low share in the global trade to one that will define the global trade in a

few decades from now, if not sooner. Sustained economic growth and steady urbanization

will enable the transformation. The country has a vast and diverse supply base and also the

demand to absorb the supply. Significant investments need to be made in developing the

infrastructure across the value chain right from farm inputs to the consumers. There is also

a need to bridge the skill gaps in the industry in terms of market intelligence to the farmer

community, establish and provide required facilities for R&D, Training, and Education for

product and process innovations. Investments made by the players for industry

infrastructure development should be supported by incentives. Considering the huge

potential opportunity, players should consider the constraints as opportunities waiting to be

exploited and make investments for the overall growth of the industry.

Conclusion


69

African Agricultural Capital

Agro-climatic zones

Africa Enterprise Challenge Fund

Agri Export Zone

Alliance for a Green Revolution in Africa

Accelerated Irrigation Benefit Programme

Assam Industrial Development Corporation

Agricultural & Processed Food Products Export Development Authority

Agriculture Produce Marketing Committee

The Associated Chambers of Commerce and Industry of India

Business Monitor International

Central Food Technological Research Institute

Central Goods and Services Tax

Confederation of Indian Industry

Capital Investment Subsidy Scheme

Codex Alimentarius Commission

Dairy Cooperative Societies

Directorate General of Commercial Intelligence and Statistics

Food and Agriculture Organization

Federation of Indian Chambers of Commerce and Industry

Food Processing Industry

Good Hygiene Practice

Good Manufacturing Practice

Goods and Services Tax

Hazard Analysis and Critical Control Points

Indian Council of Agricultural Research

International Fund for Agricultural Development

Indira Gandhi National Open University

Instant Quality Freezer

International Organization for Standardization

Ministry of Food Processing Industries

Marine Products Export Development Authority

North Eastern Region

North Eastern Agricultural Marketing Corporation Limited

National Horticulture Board

National Institute of Agricultural Marketing

National Institute of Food Technology, Entrepreneurship & Management

Organisation for Economic Co-operation and Development

Public Private Partnership

Private Sector Participation

Quality Council of India

Ready to Eat

States Goods and Services Tax

Small and Medium Enterprises

State Nodal Agency

Sanitary and Phyto-Sanitary

Technical Barriers to Trade

Value Added Tax

World Trade Organisation

AAC

ACZ

AECF

AEZ

AGRA

AIBP

AIDC

APEDA

APMC

ASSOCHAM

BMI

CFTRI

CGST

CII

CISS

CODEX

DCS

DGCIS

FAO

FICCI

FPI

GHP

GMP

GST

HACCP

ICAR

IFAD

IGNOU

IQF

ISO

MoFPI

MPEDA

NER

NERMAC

NHB

NIAM

NIFTEM

OECD

PPP

PSP

QCI

RTE

SGST

SME

SNA

SPS

TBT

VAT

WTO

Abbreviations



Authors:

Ramesh Srinivas is an Executive Director in KPMG's Consumer Markets and Retail

practice. Based in the firm's Bangalore office, he can be reached at

[email protected]

Anand Ramanathan is a Manager in KPMG's Consumer Markets and Retail practice.

Based in the firm's Bangalore office, he can be reached at

[email protected]

Veera Lokesh Ayireddy is a Consultant in KPMG's Consumer Markets and Retail

practice. Based in the firm's Bangalore office, he can be reached at

[email protected]

Shilpa Taneja is a Consumer Markets Lead in KPMG's Research, Analytics and

Knowledge practice. Based in the firm's Mumbai office, she can be reached at

[email protected]

Preeti Sitaram is a Manager in KPMG's Research, Analytics and Knowledge practice.

Based in the firm's Bangalore office, she can be reached at [email protected]

The Authors wish to acknowledge the contributions of Upasana Juneja, Simrat Singh,

Rajagopal M and Praveen Govindu in writing the report.

This document has been designed and formatted by Remedios D’silva, Senior Graphic

Designer, Design Cell - KPMG.

Acknowledgements

in.kpmg.com

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the KPMG network of independent member firms affiliated

with KPMG International, a Swiss cooperative.

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KPMG and the KPMG logo are registered trademarks of

KPMG International, a Swiss cooperative.

The information contained here in is of a general nature and is not intended to address the circumstances of any p articular individual

or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is

accurate as of the date it is received or that it will continue to be accurate in t he future. No one should act on such information

without appropriate professional advice after a thorough examination of the particular situation.

KPMG Contacts

IndiaPradip KanakiaHead of Markets,KPMG in IndiaTel: +91 80 3980 6100eMail: [email protected]

Ramesh SrinivasExecutive DirectorHead - Consumer Markets SectorKPMG in IndiaTel: +91 80 3065 4300eMail: [email protected]

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Kolkata

8-2-618/2

Reliance Humsafar, 4th Floor

Road No.11, Banjara Hills

Hyderabad - 500 034

Tel: +91 40 3046 5000

Fax: +91 40 3046 5299

Infinity Benchmark, Plot No. G-1

10th Floor, Block – EP & GP, Sector V

Salt Lake City, Kolkata 700 091

Tel: +91 33 44034000

Fax: +91 33 44034199

703, Godrej CastlemaineBund GardenPune 411 001Tel: +91 20 305 85764/65Fax: +91 20 305 85775

4/F, Palal TowersM. G. Road, Ravipuram,Kochi 682 016Tel: +91 484 309 4120Fax: +91 484 309 4121

Pune

Kochi

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