food report 06

8/6/2019 Food Report 06

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This reeport has been carryed out by the

Indo I talian Chamber of Commerce & Industry in Mumbay (India)on november 2006

within the Project

Friuli Venezia Giulia I ndia: Imprese e Conoscenzarealized by:

REPORTON

FOOD INDUSTRY IN INDIA


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INDEX

SECTION A: FOOD SECTOR ANALYSIS

PART 1 MARKET OVERVIEW

1.1 Introduction 1.2 Advantages & Challenges 1.3 Types of products

1.3.1 Traditional 1.3.2 Recent trends 1.3.3 Estimated consumption of packaged & processed food products

1.4 Consumer choices 1.4.1 Food preferences 1.4.2 Shopping habits

1.5 Statistics of foreign trade (Indias import from Italy)

PART 2 PARAMETERS OF COMPETITION

2.1 Company profiles 2.2 Sector trends

2.2.1 Production 2.2.2 Consumption

2.3 Competition 2.4 Major food ingredients suppliers in India 2.5 Major suppliers of selected food products in India 2.6 Best product prospects

PART 3 COMMONEST MISTAKES IN EXPORT TO INDIA

3.1 Factors for success in Indian market 3.1.1 Planning and Preparation Stage 3.1.2 Entering the Market 3.1.3 Developing and Sustaining the Business in India 3.1.4 Thinking about the Future 3.1.5 Attributes 3.1.6 Representation 3.1.7 Connections 3.1.8 Survey feedback

3.4 Precautions to be taken by Italian exporters

PART 4 COMMUNICATION AND PROMOTION

4.1 Advertising and Sales promotion 4.2 Business Etiquette

PART 5 PENETRATION IN THE MARKET

5.1 Entry strategy 5.2 Market structure 5.3 Forms of enterprise 5.4 Major types of corporation

5.4.1 Private corporations 5.4.2 Public corporations

5.4.3 Foreign corporations


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5.5 Structures typically used by foreign investors

5.5.1 Subsidiary companies 5.5.2 Branch office 5.5.3 Liaison office 5.5.4 Project office 5.5.5 Joint venture

5.5.6 Appointing an agent or distributor 5.5.7 Third party arrangement for maintenance and servicing of products 5.5.8 Franchising 5.5.9 Direct Selling

5.6 Forms of business presence in India for a foreign company 5.7 Processed fruits and vegetables 5.8 Diary products 5.9 Cooking oil 5.10 Meat and poultry 5.11 Fisheries 5.12 Non-alcoholic beverages 5.13 Alcoholic beverages 5.14 Confectionary 5.15 Milling and baking 5.16 Distribution systems 5.17 Finding a business partner

PART 6 OBSTACLES

6.1 Interview with Mr Suku Shah, Gourment Foods ImporterS IMPORTER 6.2 Interview with Ms. Sapna Lawyer - A practical side to food industry in India 6.3 Precautions to be taken by Italian exporters

PART 7 PRICE POLICIES

7.1 Pricing structures and policies 7.2 Costing FVG product 7.3 Trade barriers 7.4 Indian customs & excise duties 7.5 Tariff quotas 7.6 Taxes and duties 7.7 Trade samples

SECTION B: GENERAL ANALYSIS

PART 8 INFORMATION SOURCES

PART 9 IMPORT LEGISLATION

9.1 Cost breakdown of imported processed food products 9.2 List of required export certificates 9.3 Processed food products 9.4 Purpose of the export certificates 9.5 Specific attestation required on the export certificate 9.6 Government certificate legal entry requirements 9.7 Other certification or accreditation requirements


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PART 10 BANKING SYSTEM AND EXCHANGE POLICIES

10.1 Reserve Bank of India 10.2 Types of institutions

10.3 Currency 10.4 Foreign Exchange Controls 10.5 Foreign Exchange Management Act 10.6 General Permission under FEMA

PART 11 METHODS OF PAYMENT

11.1 Payment against imports 11.2 Letter of credit Vs Bank guarantee 11.3 Parties to a Letter of credit 11.4 Mode of payment

PART 12 LOCAL JUDICIAL SYSTEM

12.1 Understanding a countrys food regulations 12.2 Types of food safety and quality standards that apply in most countires 12.3 Food laws in India 12.4 Food safety and standards act 12.5 Food additives 12.6 Pesticides and other contaminants 12.7 Health claims 12.8 Genetically modified food 12.9 Halal certification 12.10 Indian judiciary

PART 13 NAMES OF EVENTUAL PARTNERS

PART 14 ANALYSES OF DIFFERENT RISKS

14.1 Internal political/ Economic events 14.2 External political/ Economic events 14.3 Handling risks of International trade 14.4 Value & Volume of retail sales of packaged food, sector by region 14.5 Country Risk 14.6 Non-collection of goods & Non-payment

PART 15 LEGISLATION ON INTELLECTUAL PROPERTY IN I NDIA

15.1 Introduction 15.2 Concerns expressed over IPR protection & Indias response 15.3 Copyright protection in India


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PART 16 RULES ON LABELLING AND PACKAGING

16.1 Introduction

16.2 Requirement specific to nutritional labeling 16.3 Packaging and container requirements 16.4 Food additives regulations 16.5 Pesticides and other contaminants 16.6 Other regulations and requirements 16.7 Other specific standards 16.8 Copyright and / or trademark laws 16.9 Import procedure 16.10 Regulatory agency contacts

PART 17 EXHIBTIONS

PART 18 LOGISTICS


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EXECUTIVE SUMMARY

The idea of India is gradually changing as number of countries showing interest to invest inIndia is increasing. According to an AT Kearneys FDI Confidence index, India has displacedthe US as the second most favored destination in the world after China. India attracted FDIat US$7.96 billion during the first half of FY06, as against US$2.38 billion during the sameperiod in FY05, more than 3 times growth. Indias economy is predicted to be growing over8% in 2006 and with a billion plus population India has its wings of varied culture andbusiness/industry scenario across the country. At the backdrop of such characteristicsprospective investors in any foreign countries will be interested to know Doing business inIndia in wine industry. The study aimed at highlighting macro-economic indicators of the

country with its risk analysis in terms of currency, non-collection of goods and non-payment. It also discusses obstacles that the prospective investors may face andappropriate marketing strategies that they should adopt to ensure smooth landing in thecountry which requires a good understanding of its geographies and associated culture andbusiness environment, least but not the last the market dynamics. Approach taken for thisstudy was to collect information/data from various authentic sources like industryassociations, trade agencies and respective ministries wherever applicable. As far aspolicy/regulations are concerned respective ministries reports and guidelines have beenreferred and an attempt has been made to explain them appropriately as relevant theymay be. Salient points which are key findings in this report are given below.

Challenges in the market is still to find the right partner, knowledgeable about local

market and procedural issues for foreign industries investment in India and canformulate the right strategies with solid foundation for setting up manufacturingbase as JVs as the FDI policy may stipulate in respective sectors

Tariffs (although tariff structure has been reduced considerably since economicreforms but issues still remain in some specific sectors) and poor infrastructure stillpose a serious challenge to FDI.

In addition, heavily bureaucratic investment processes, poor IPR enforcement,government inefficiency, and corruption have also discouraged foreign investors.

Winning strategy overcoming the market entry barriers for setting up anestablishment- a solid regional plan analyzing the local market demand and

economics that work out to be feasible in producing in India and exporting to othercountries in the world leveraging conducive economic factors that otherwisebecome an impediment in future growth.

While marketing products distribution strategy can really make the difference;however merit has to be given after due diligence is done and a meticulous planshould be in place. Small distributors can really make a drastic improvement insales growth where flexible marketing strategies play an important role.

A joint venture company is generally formed under the Indian Companies Act of1956 and is jointly owned by an Indian company and a foreign company. This typeof arrangement is quite common because India encourages foreign collaborations tofacilitate capital investments, import of capital goods and transfer of technology.


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All industrial undertakings are exempt from obtaining an industrial license tomanufacture, except for (i) industries reserved for the Public Sector, (ii) industriesretained under compulsory licensing, (iii) items of manufacture reserved for thesmall scale sector and (iv) if the proposal attracts location restriction.

Being a buyers market from sellers market promotion of products matters much.The key to gaining rural market share is increased brand awareness, complementedby a wide distribution network. Rural markets are best covered by mass media -Indias vast geographical expanse and poor infrastructure pose serious challenge forcommunication and hence emphasis must be given in communication problems tobe really effective in selling to rural market.

India is still not holding its laws high for protecting copyright issues. As a resultcases of counterfeiting and violation of copyright act happens and probably judicialsystem is still not being able to curb the menace. Adjudication of cases is extremelyslow.

Logistics play an important role in distributing products to all corners of the country. Due to

its vast territory challenges in implementing a smooth supply chain model is reallychallenging and hence outsourcing to third parties is very common and an useful andeffective strategy to reach market place just in time.


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PART 1 MARKET OVERVIEW

1.1 Introduction

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

diversity. It has a population of 1.1 billion, and it is comprised of 28 states and sevenUnion Territories (under federal government rule). The states differ vastly in resources,culture, food habits, living standards, and languages. Vast disparities in per-capitaincome levels exist between and within Indias states. About 75 percent of the countryspeople live in its 550,000 villages; the rest in 200 towns and cities. There are 27 citieswith a population above one million people.

India has the largest number of poor, with 35 percent of the population surviving on lessthan $1 per day, and 80 percent of the population surviving on less than $2 per day1.Nearly 51 percent of Indians consumption expenditures go for food (54 percent in ruralarea and 42 in urban areas)2; mostly for basic items like grains, vegetable oils, andsugar; very little goes for value added food items. In recent years, however, there hasbeen an increased shift towards vegetables, eggs, fruits, meat, and beverages. Religion

has a major influence on eating habits and, along with low purchasing power, supports apredominantly vegetarian diet.

Some observers of Indias economic scene are, however, highly optimistic aboutconsumption growth potential, and believe that rising income levels, increasingurbanization, a changing age profile (more young people), increasing consumerism, asignificant rise in the number of single men and women professionals, and the availabilityof cheap credit will push India onto a new growth trajectory. These segments of thepopulation are aware of quality differences, insist on world standards, and are willing topay a premium for quality. Nonetheless, a major share of Indian consumers has tosacrifice quality for affordable prices. Potential US exporters should also bear in mind thatIndias diverse agro-industrial base already offers many items at competitive prices.

Results of the Market Information Survey of Households, conducted by the NationalCouncil of Applied Economic Research, show that the share of households in the uppermiddle/high income group (annual household income > rs. 90,000, or $11,200 onpurchasing power parity basis) has grown from 14% in 1989-90 to 28% in 2001-02, andis projected at 48 percent in 2009-10. Correspondingly, there has been a decline in thelow-income group.

Sixty-five million people are expected to enter the 20-34 year age group from 2001 to2010. By 2025, 40 percent of Indians are expected to be urban dwellers.

1UNDP Human Development Report 2004

2Consumer Household Expenditure Survey 59

thRound (January December 2003), National Sample Survey

Organization, GOI


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Structural reforms and stabilization programs during the 1990s have contributed toIndias sustained economic growth, which has been relatively strong over the past twodecades, averaging 6 percent annually. Since 1996, the Indian government has graduallylifted import-licensing restrictions, which had effectively prohibited imports. On April 1,2001, all remaining quantitative restrictions were removed, putting India in compliance

with its WTO commitment. Nonetheless, the government continues to discourageimports, particularly agricultural products, with the use of high tariffs and non-tariffbarriers. Import tariffs on most consumer products, although declining, are still high,ranging from 30.6 to 52.2 percent. Some sensitive items, such as alcoholic beverages,poultry meat, raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Non-tariff barriers include unwarranted sanitary and phytosanitary restrictions and onerouslabeling requirements for pre-packaged foods. Other factors adversely affecting importsinclude a poorly developed infrastructure (transportation and cold chain), a predominantlyunorganized retail sector, and outdated food laws. However, some positive factors are:

Rising disposable income levels Increasing urbanization and exposure to Western culture Growing health consciousness among the middle class Growing consumerism Changing age profile Increasing availability of cheap consumer credit

1.2 Advantages & Challenges

Advantages Challenges

Large and growing middle class Divergent food habitsIncreasing exposure to American productsand lifestyle

Preference for fresh products and traditionalfoods

A slow but steady transformation of theretail food sector in cities

Difficulties in accessing vast untapped ruralmarkets

Growing number of fast food chains Poor infrastructureIncreasing urbanization and growingnumber of working women

Diverse agro-industrial base offering manyproducts at competitive prices

A growing food processing industry lookingfor imported food ingredients

High tariffs, dated food laws, and unscientificsanitary and phytosanitary restrictions

Improved Indo-US political relations Competition from countries with bettergeographic proximity


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1.3Types of products:

1.3.1 Traditional

There is no single traditional cuisine of India. The many cultures that have come to India

over the centuries have contributed their flavours and recipes using the basic productsavailable locally.

Selected Traditional Cuisines of I ndia.

Cuisine Description

Kashmiri. Largely meat based, particularly lamb, goat and chickenflavoured with saffron and chillies. Other products include walnuts,dried dates and apricots used in puddings, curries and snacks.Cottage cheese is popular with meats and vegetables. Freshwater fish is also a delicacy. Popular desserts consist of fresh

fruits such as strawberries, plums, cherries and apples.Punjabi Marinated chicken, fish, paneer, rotis and naans of many types

are cooked in earthen ovens half buried in the ground. In thewinter, makki ki roti (maize flour bread) is popular along withsarson ka saag (mustard leafgravy). Fresh curd and whitebutter are consumed in large quantities. A popular drink is lassi (asweet or salted drink made with curd). Other popular dishes arema ki dal, rajma (kidney beans) and stuffedparathas.

Mughlai(Delhi).

Rich sauces, butter-based curries, ginger flavoured roast meatsand delicious sweets.

Bengali. Fish in a variety of styles. Use ofmustard oil rather than coconutoil. Five basic spices used: zeera, kalaunji, saunf, fenugreek and

mustard seeds. Sweets made from burnt milk, yoghurtsweetened with jaggery, crisp samosas.

Maharashtrian. Subtly flavoured vegetarian delicacies and hot, aromatic meat andfish curries. Crispy sweets made mostly of rice and jaggery.Konkani and Malwani cuisines originated in the coastal parts of thisregion and are sea-food based.

Goan Influenced to some extent by Portugese culture. Tangy porkvindaloo, spicy sorpotel and fish curry with rice. Coconut and fishbased dishes. Local wines or the local liqueur called Feni. Most,but not all Goan dishes are chili hot, spicy and pungent. Seafoodincludes prawns, lobsters, crabs, and jumbo pomfrets (bream).Goa is not known as vegetarian. Hindus like lamb and chicken

while Christians like pork and both prefer fish and seafood to anyother meat.

Gujarati. Vegetarian cuisine. Lentils and vegetables, yoghurt andbuttermilk are a part of Gujarati's daily diet. Potatoes, brinjal,and green beans and other vegetable are used in the winter toprepare undhyoo. Other dishes are prepared with chickpea flour,thickened milk, nuts and the srikhand. Yogurt, flavoured withsaffron, cardamom, nuts and candied fruit.


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Rajasthani. Historically the Rajas who went on hunting expeditions ate the

meat of the game fow l they brought back. Vegetarian Rajasthaniscook in pure ghee, famous for its aroma. Rajasthan includes alarge desert area and the scarcity of water and lack of fresh greenvegetables has affected Rajasthani cooking. Dried lentils andbeans from indigenous plants like sangri, ker etc. are staples of

the Rajasthani diet. Gram flour is an integral cooking ingredient.Bajra and corn are used all over the state for making rotis andother breads. Other food items are millet bread, chutney, onionsand milk

Hyderabadi(Andhra

Pradesh).

This category includes the original red hot Andhra cooking and theHyderabadi cuisine with its Mughlai influence. Vegetables areprepared with different masalas giving the same vegetablesdifferent flavours. Traditional Andhra cuisine includes many non-vegetarian dishes which are also spicy. Hyderabadi cuisine is richand aromatic with a liberal use of spices and ghee as well as nutsand dried fruit. Lamb is the most widely use meat in non-vegetarian dishes. The biryanis (flavoured rice with meat or

vegetables) is one of the most distinct Hyderabadi foods.

1.3.2 Recent Trends

The middle class of India has not been satisfactorily measured. It is very heterogeneousand its size depends on the definitions of several parameters. Estimates range from 25million to 200 million but it is generally accepted that it is growing. FVG exporters arelikely to find the greatest opportunities in the markets serving the middle and upperincome groups of India.

The typical pattern of buying groceries and emerging trends are closely associated withboth tradition and new technology. A typical household purchases less-perishable food andother groceries at the beginning of each month - sometimes having them delivered. More-perishable products such as bread and eggs are purchased every one or two weeks. Milkis purchased daily. It is estimated that only 15% the potential market for refrigerators hasbeen exploited. As increasing numbers of Indians purchase refrigerators, the buyingpatterns of groceries will change.

Grocery stores are the dominant food outlets but fruit and vegetables are bought fromunorganized vendors. Some grocery chains are expanding into the supermarket orhypermarket category offering a wide range of products; however, purchasing of fruit andvegetables in this context has not yet been fully accepted. Even so, supermarkets andhypermarkets are putting pressure on the traditional grocery store. Visits to asupermarket encourage much impulse buying compared to visits to a traditional grocery

store or phone shopping.

Eating out is a very popular activity while attending other functions. It is estimated thatIndians spend INR 350 billion eating out annually. Of this, organized establishmentsaccounts for only INR 20 billion. International fast food chains such as Subway,McDonald's and Pizza Hut are found in shopping malls and near cinema theatres.

The "well-off in urban areas are increasingly eating out in coffee shops, malls or retailstores. Lounge bars are the latest trend in urban areas and are frequented by youngprofessionals, successful executives and single women in their late 20's. This trend beganin Mumbai, Bangalore, Delhi and Kolkata and will no doubt spread to other urban areas.

Among the "affluent", clubs are becoming popular. In addition to many recreationalfacilities they are upgrading their food facilities and can compete with some of the finest


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restaurants or hotels of India. The "affluent" also have an interest in the performing arts.A play in Mumbai can cost about INR 1,000.

Middle to upper income families are increasingly two income, younger families. A smallproportion of Indian families are moving to quick ready-to-eat foods and frozen foods.However 90% of the population still prefers fresh foods and consider processed foods tobe not fresh and containing harmful preservatives. Table below presents estimates of theconsumption of packaged and processed foods. Bread had the highest estimatedconsumption level in 2003, (1,656.5 gms per person). The consumption of crisps/chipswas the fastest growing food sector from 1998 to 2003 (77.82% over the 5 year period)although the level of consumption was still low (9.96 gms per person). Similarly, theconsumption of pasta increased 76.3 % from 1998 reaching 0.705 gms per person in2003. Both chips/crisps and pasta are popular among consumers below 19 years of age.Pasta is also popular with mothers as a snack for school-age children.

1.3.3 Estimated Consumption of Packaged and Processed Food products. India.1998 and 2003.

Product (gms/ person) 1998 2003 Change 1998 to 2003(% / 5 yrs)

Canned Meat and Meat Products 0.2 0.242 21.05

Canned Fish / Seafood n/a 0.1 n/a

Canned Vegetables 0.3 0.317 5.56

Chips /Crisps 5.6 9.958 77.82

Extruded Snacks 5.6 7.568 35.15

Nuts 1.655 2.577 55.74

Butter 39.1 50.607 29.43

Cakes 41.5 57.179 37.78

Bread 1,355.60 1656.543 22.2

Breakfast Cereals 2.2 3.382 53.73

Baby Food 12.4 14.634 18.02

Biscuits 351.1 439.999 25.32

Chocolate Confectionery 19.3 25.939 34.4

Dried Food 283.5 407.871 43.87

Frozen Food 12.4 20.461 65.01

Ice Cream (ml./person). 29.8 47.546 59.55

Noodles 20 20.086 0.43

Oils 575.5 620.159 7.76Other Sweet and SavourySnacks

17.1 23.266 36.06

Other Fats 477.7 523.464 9.58

Pasta 0.4 0.705 76.3

Sugar Confectionery 58.3 78.145 34.04

Sauces, Dressings andCondiments

64.1 93.214 45.42

Soup 1 1.425 42.45

Spreads 14 15.672 11.94

Sweet and Savoury Snacks 29.9 43.277 44.74

Yoghurt 1.4 1.933 38.07


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1.4 Consumer choices for tastes, attitudes, expectations & fashion factors

1.4.1 Food P references

India is well known for its tradition of vegetarianism. Among those who are notvegetarians, beef is still generally taboo to most Hindus (80.5 percent of the population),

Sikhs (1.9 percent of the population), and Jains (0.4 percent of the population), all ofwhom consider cows sacred. Many Indians are vegetarians because they cannot afford anon-vegetarian diet. As India has been at the crossroads of many peoples and culturesover the centuries, some foreign elements have invariably seeped into the local culinaryculture. Thus, Indias culinary tradition is constantly changing. Nonetheless, Indianshave a strong preference for fresh products and traditional spices and ingredients, whichhas generally slowed the penetration of American and other Western-type foods.However, with urbanization, rising incomes, more working women, the arrival of somefood multinationals, and a proliferation of fast food outlets, the acceptance of packagedand ready-to-eat food products is increasing, especially among the urban middle class.These products, nonetheless, are usually tailored to Indian tastes. Many Indians are quitewilling to try new foods, but usually return to traditional fare. While Western foods have a

reasonably good chance of succeeding in casual dining, integrating them into the mainmeal will be more difficult.

Demand for specialty and high-value food items, including those imported, such aschocolates, dry fruits (almonds, cashews, pistachios, etc.), cakes, pastries, exotic fruits,and fruit juices, typically peaks during the fall festive season, especially at Diwali theFestival of Lights. Hence, from October to December is the best time to introduce newfood products into the Indian market.

Typical imported food items that can be spotted in retail stores in cities include chocolatesand chocolate syrups, biscuits, cake mixes, fruit juices, canned soups, pastas, popcorn,potato chips, canned fish and vegetables, ketchup, and fruits such as apples, grapes, andkiwis.

1.4.2 Shopping Habits

Lacking home refrigeration and purchasing power, most Indians shop daily atneighborhood kirana shops (small retail outlets) or roadside vendors. Most consumersregard shopping as a chore, and few are familiar with alternatives to traditional storeformats. Convenience to ones home is important, since daily shopping and sensitivity tofood freshness is an integral part of shopping habits. Indians buy fruits and vegetables inone shop, dairy products in another, groceries in a third, and meat and fish in yet another.Quality is important, but there is a reluctance to pay a premium. Trust in the retailer,especially with regard to quality of food and replacement of defective goods, is important.Although added services such as home delivery are welcome, consumers are unwilling to

(and do not have to) pay a premium for this service. Women do most of the shoppingand make most of the food purchasing decisions. Households able to afford Westernimports usually have servants who buy, clean, and prepare foods. Availability of manyfresh foods, particularly fruits and vegetables, is seasonal, and people are accustomed toadjusting their diet to the season. Processed/packaged foods in great demand includeketchup and sauces, jams and jellies, table butter and ghee (melted butter), cooking oils,various masalas (spice mixes), pickles, wheat flour, noodles, snack foods (mostly Indiantypes), and health drinks. Most packaged food items are sold in small containers, due tocustomers limited purchasing power. Only in the past few years have Indians, mostly incities, been exposed to supermarkets in the Western sense. Semi-urban, non-metropolitan, and rural areas have yet to feel the impact of large-scale retailing. Mostpeople, even in cities, still associate supermarkets with expensive rather than costeffective. However, in recent years, the Shopping Mall culture has caught on in India,

with many large malls built in large cities and suburbs.


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1.5 Statistics of foreign trade (Indias Import from I taly)

S.No Commodity (Value in Rs. Lakhs)2004-2005

2005-2006

%Growth

1 Meat And Edible Meat Offal. 24.57 67.58 175.1

2 Fish And Crustaceans, Molluscs And OtherAquatic Invertabrates.

10.83 45.72 322.06

3 Dairy Produce; Birds' Eggs; Natural Honey;Edible Prod. Of Animal Origin, Not ElsewhereSpec. Or Included.

179.21 196.34 9.56

4 Products Of Animal Origin, Not ElsewhereSpecified Or Included.

217.56 167.62 -22.95

5 Live Trees And Other Plants; Bulbs; Roots AndThe Like; Cut Flowers And OrnamentalFoliage.

0.04 17.68 42,279.08

6 Edible Vegetables And Certain Roots AndTubers.

25.11 44.67 77.89

7 Edible Fruit And Nuts; Peel Or Citrus Fruit Or

Melons.

281.54 413.01 46.7

8 Coffee, Tea, Mate And Spices. 181.9 404.86 122.57

9 Products Of The Milling Industry; Malt;Starches; Inulin; Wheat Gluten.

257.21 200.14 -22.19

10 Oil Seeds And Olea. Fruits; Misc. Grains,Seeds And Fruit; Industrial Or MedicinalPlants; Straw And Fodder.

128.94 329.48 155.53

11 Lac; Gums, Resins And Other Vegetable SapsAnd Extracts.

340.65 379.48 11.4

12 Animal Or Vegetable Fats And Oils And TheirCleavage Products; Pre. Edible Fats; AnimalOr Vegetable Waxex.

650.52 1,034.58 59.04

13 Preparations Of Meat, Of Fish Or OfCrustaceans, Molluscs Or Other AquaticInvertebrates

3.28 59.26 1,709.07

14 Sugars And Sugar Confectionery. 14.15 87.23 516.26

15 Cocoa And Cocoa Preparations. 21.19 33.38 57.53

16 Preparations Of Cereals, Flour, Starch Or Milk;Pastrycooks Products.

366.41 562.55 53.53

17 Preparations Of Vegetables, Fruit, Nuts OrOther Parts Of Plants.

261.57 68.52 -73.8

18 Miscellaneous Edible Preparations. 46.21 257.25 456.72

19 Beverages, Spirits And Vinegar. 419.08 732.51 74.79

20 Residues And Waste From The FoodIndustries; Prepared Animal Foder.

153.2 281.32 83.63

THE SOURCE OF ABOVE INFORMATION ISGOVERNMENT OF INDIA DEPARTMENT OFCOMMERCE & INDUSTRYHttp://Commerce.Nic.In/


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PART 2 PARAMETERS OF COMPETITION

2.1 Company Profiles

Indian food processors may be divided into the following main categories:

Large Indian companies that have their production base in India or neighboringcountries (for tax-saving purposes)

Multinational and joint-venture companies that have their production base in India

Medium/small domestic food-processing companies with a local presence

Small local players in the unorganized sector

The following table shows some of the major food-processing companies in India and theirproducts. This list is neither exhaustive nor ranked according to the order of importance.The end use channels for most of them are retail and hotel, restaurant and institutional

(HRI) markets. Sales figures for these companies are not available.

INDIAN COMPANIES

Company Name Products

Godrej FoodsLtd.

Vegetable oils, fruit juices, tomatopaste, soy beverages

Dabur India Ltd. Fruit juices, cooking paste, honey

Mother DairyDhara

Dairy products, ice cream, cannedvegetables, fruit juices, cooking oils

Amul Dairy products, ice cream, chocolate

ITC Branded wheat flour, biscuits, ready-to-eat food, confectionary

Hindustan Lever(HLL)

Ice cream, branded wheat flour, bread,sauces, jams, jellies

VH Group Poultry products

BritanniaIndustries

Biscuits, bread, packaged food

Parle Products Biscuits, candies, toffees

NutrineConfectionaryCompany

Confectionary, chewing gum

WeikfieldProductsCompany

Custard powder, baking powder, jellycrystals, drinking chocolate, sauces,soups

Rasna (PiomaIndustries)

Instant drink, health drink, soft drinkconcentrates, flavors

Haldirams Snack foods

UB Group Beer, alcoholic beverages


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MaricoIndustries

Vegetable oils, jams

MTR Foods Ready-to-eat foods, soups, spices, icecream mixes, pickles

Punjab Markfed Canned food, rice, vegetable oils

Vista ProcessedFoods

Frozen chicken and vegetables

Dynamix DairyIndustries

Cheese, whey, other dairy products

MULTINATIONAL/ JOINT VENTURE COMPANIES

Company Name ProductsPepsi Soft drinks, potato chips, snack food,fruit juices

Cargill Vegetable oils

Heinz Ketchup, health drinks

Kelloggs Breakfast cereals, biscuits

Bunge Vegetable oil, margarine

Nestle Coffee, chocolates, confectionary,instant noodles, milk products,beverages, health drinks

Cadbury Chocolates, health drinks

Coca Cola Soft Drinks, beverages

Agro Tech Foods(ConAgras)

Branded vegetable oils, branded wheatflour, snack food, popcorn

Pillsbury Wheat flour, cake mixes

GlaxoSmith Kline Health drinks

Perfetti Chewing gum, candy

Wrigley Chewing gum

Lotte IndiaCorporation Ltd.(Parrys)

Confectionary


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McCain Foods French fries

Adani WilmarLtd.

Cooking oils, bakery shortenings

The SolaceCompany

Soya nuggets

Effem India(Mars)

Pet food

2.2 Sector trends

2.2.1 P roduction:

The food-processing industry in India has undergone big changes over the last six

to seven years, in terms of types, variety, quality, and presentation of products,which is mainly a result of the liberalization that led to foreign direct investment(FDI) in the processed food sectors.

Most food-processing sectors have been brought under the liberal, transparent,and investor-friendly FDI policy, which allows 100 percent FDI.

However, the small-scale farming system in India, marketing problems, lack ofgrading and standards, poor distribution channels, and onerous governmentpolicies continue to pose problems for the processing industry to source the righttype of raw materials and to discourage more investment in the sector.

Nevertheless, the proportion of FDI in the food-processing sector to total FDI into

India is low, constituting about 4 percent of total FDI inflow from 1991 to 2004.

Several multinational companies, including US-based companies like Pepsi, CocaCola, ConAgra, Cargill, Heinz, Kelloggs, IFF, and Mars (pet food only) have enteredthe Indian food-processing industry with significant investments.

Indian food and beverage companies are expanding their operations to neighboringcountries like Bangladesh, Nepal, Sri Lanka, Commonwealth of Independent Statescountries, and the Middle East.

Takeovers and mergers are beginning to occur in the Indian food-processing sector,leading to consolidation.

The food-processing industry is beginning to focus on, and invest in, advertisingand awareness campaigns about products and brands.

Companies have added extras to their existing brands, including stylish packaging. The growth in the food-processing sector has generated increased interest in high

quality food ingredients in order to produce high quality foods.

The ready-to-eat food sector is growing at a high rate due to the changinglifestyles of the middle-class consumers (both partners working, etc.).

Some previously unknown regional brands are gaining national acceptancebecause of consistent quality and product safety, thereby providing some

competition to established companies.


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The GOI is in the process of enacting a Food Safety and Standards Bill, which ifproperly done and implemented, would provide increased transparency, better foodsafety management systems, and science-based standards.

2.2.2 Consumption:

The following factors influence the type and quality of inputs in processed foods:

A large and an exceedingly wealthier middle class is creating growing demand for awider variety of high quality processed foods.

The changing age profile (sixty-five million people expected to enter 20-34 yearage group by 2010) and increasing exposure to western-type products andlifestyles.

The market entry of several multinational food-processing companies andingredient suppliers.

The increasing number of fast food chains.

The recent trend toward a healthier lifestyle has generated a niche market for diet,healthy, low-calorie, and non-fat food products.

The increasing urbanization and growing number of working women.

A slow but steady transformation of the retail food sector in cities.

2.3 Competition

Indias domestic industry is the primary competitor for FVG food-processing and

ingredients suppliers in India. India, with diverse agro-climatic conditions, has aproduction advantage in many agricultural goods, with the potential to cultivate a largerange of agricultural raw materials required by the food-processing industry. India is amajor producer of spices, spice oils, essential oils, condiments, and fruit pulps.Significant variations in food habits and culinary traditions across the country translateinto a competitive advantage for small and medium local players, who are familiar withlocal food habits and markets. Some Indian food-processing companies have increasedmarket share by decreasing product prices. High import duties on processed food andfood ingredients make imports relatively costly. Existing domestic food laws restrict theuse of several ingredients, flavors, colors, and additives, thus posing an additionalchallenge to FVG exporters interested in the Indian market.

Foreign competition to the FVG is mostly from countries in closer geographic proximity to

India, such as Australia and New Zealand. European suppliers are major competitors inthe food ingredient sector. Several foreign firms, including some from the United States,have started operations in India.


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2.4 Major food food ingredient suppliers

Company Name Country

IFF United StatesDANISCO Denmark

Chr. Hansen DenmarkAB MAURI United KingdomFine Organics United StatesMSC CO. Ltd. KoreaDavars M.P. Organics IndiaThe Solae Company United StatesDoehler GermanyAVT McCormick Ingredients Ltd. India/US joint ventureSynthite IndiaPlant Lipids India


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2.5 Major suppliers of selected product categories

Product CategoryMajor Supply

Sources

Strength of KeySupply Countries

Advantages (A) &Disadvantages (D)

for FVG Suppliers

Vegetab le

Oi ls

Imports:US$: 2.6 billion

IndonesiaMalaysiaArgentina

49%24%18%

Low prices Local production issignificant butinadequate (A)

Pulses

ImportsUS$: 563 million

MyanmarCanadaAustralia

41%21%8%

Low prices Local production issignificant; competitivein some categories (D)

Spices &

CondimentsImportsUS$ 95 million

Indonesia

Sri LankaNepal

25%

16%15%

Low prices, freight

advantage

India is a major

producer (D)

A l m o n d s

Imports:US$: 68 million

USAAfghanistanIran

73%12%12%

Low price, highquality

Domestic productioninsignificant (A)

Dai ry

P roduc t s

Imports:

US$: 29 million

AustraliaU.K.Belgium

17%8%7%

Low price High production,seasonal shortages (A)

Food ingredientsImports:US$: 14 million

USABrazilNepal

52%8%4%

Quality, reliability Large domesticproduction (D)

Cocoa & productsImports:US$: 13 million

MalaysiaSingaporeIndonesia

30%17%15%

Low price Domestic production issmall (A)

Fish & fish productsImports:US$: $11 million

BangladeshMyanmarUSA

48%9%9%

Border trade Large exporter ofshrimp (D)

Fru i t j u i c es

Imports:US$: 8 million

NepalBrazil

Philippines

42%12%

5%

Border trade Poor quality (A)

Data relates to IFY 2003/04 (Apr-Mar)Source: Ministry of Commerce, GOI


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2.6 Best product prospects

ProductCategory

Imports2003/04$ Million

1/

ExpectedAvg.

AnnualImport

G r o w t h

ImportTariff

Rate

KeyConstraints

MarketAttractiveness

for FVG

Cocoa &products

13.0 10% 52.2% Competitionfrom othersuppliers anddomesticsuppliers

Importliberalization andconsumerpreference forimportedproducts

Almonds

Pistachios

Prunes

68.0

29.0

0.1

5%

5%

10%

Rs.35/kg

30.6%

25.5%

Competitionfrom IranandAfghanistan

High seasonaldemand;increasing use;health

consciousness

Fruit juices 8.0 10% 30.6% Competitionfrom nearbysuppliers anddomesticproduction

Increasinghealthawarenessamong middleclass andshortage ofquality productslocally

Miscellaneousfood

ingredients(yeasts,sauces ,mixedcondimentsandseasonings,soft drinkconcentrates,flavoringmaterials,etc.)

14.0 10% 30.6 Competitionfrom

domesticsuppliers

Increasingpopularity;

growing food-processing andfast food sectors

1/ Source: Ministry of Commerce, GOI


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PART 3 COMMONEST MISTAKES IN EXPORT TO INDIA

3.1 FACTORS FOR SUCCESS IN I NDIAN MARKET

Marketing Education Visibility Events & Promotions. Work with Key organizations. Exposure to your facilities Right Partner: Work with National players. Youth appeal is important in a country where more than 50 million population is below

the age of 25.

Mistakes occur at different stages while doing export business with the Indian importers.

We found that unsuccessful companies committed mistakes in the four key steps and werenegatively influenced by three important factors, as given below:

Steps Influencing Factors

Planning and Preparation AttributesEntering the Market RepresentationDeveloping and Sustaining the BusinessThinking about the Future

Connections

3.1.1 Plann ing and Preparation Stage

Entering the Indian market requires a substantial amount of preparation and patience, andtakes a considerable period of time to accomplish. Time and other resources need to beinvested in developing knowledge of the institutional environment. Generating credibility in

the market before entry is also beneficial.

Tenders and competitive contracts require considerable background work, not only withregard to the content of the tender request, but also on building relationships with keydecision-makers and people to understand the tender process.

Finding a partner who has knowledge of the local market and procedural issues is a mustfor successful business development. For Italian business men, ideally, the Indian partnershould be conversant with the language and customs of Italy.

Appropriate and sufficient infrastructure must be in place in India to support the business.In many cases, it is necessary to wait until the infrastructure has been developed, or elseinvest in developing local infrastructure to a level sufficient enough to accommodate theproducts or services being offered.

Success in India may take longer to achieve than in other international markets. It requiresa lot of preparation and investment before gains are realised, and there is relatively a highlevel of risk.


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3.1.2 Entering the Market

Decision-making in India is slow, particularly with the public and government sectors, andit is important to assess the amount of time that obtaining an initial order is likely to take.Decision-making blockages are sometimes overcome by drawing on the influence ofnetwork links of Italian companies in India.

Some times companies have failed to understand the implications of licensing and tariffsonly to make a retreat. However, some of these companies made a re-entry whenrestrictions on import licenses were partly or fully waived.

The importance of having other critical factors, such as initial relationships with customers,solutions to bureaucratic barriers, and a period of time becoming familiar with the Indianmarket, cannot be undermined.

3.1.3 Developing and Sustaining the Business in India

Pricing is the key to gaining orders, and there is little doubt that Indian customers willnegotiate prices aggressively.

Local labour is necessary for a number of Italian companies wanting to do business inIndia, for tasks such as assembly, installation, and implementation. The companiesgenerally have to rely on their agents or distributors to assist with hiring and managinglocal labour, in particular, with monitoring performance and dealing with local labour laws.

Government involvement is considered to be both a help and a hindrance to doing businessin India. State- and nationally-funded projects have led to business opportunities for manyof Italian companies.

3.1.4 Thinking about the Future

Although the opportunities for future growth in India are well recognised by globalcompanies, not all of them anticipate this market becoming a substantial part of theirbusiness, at least in the near future. At this stage, it is still considered relatively high riskand uncertain, with considerable change needed in the country to encourage furtherinvestment.

3.1.5 Attributes

Establishing credibility and reputation may involve a substantial initial investment of timeand money, often before any payback is realised.

Credibility and a strong reputation are achieved by the companies in a number of ways:building links with large Indian corporation or government customer (for example, one

company has endorsement from one of the largest banks in India); using the links of acredible or reputable agent (or distributor/partner) or opinion-leader; leveraging from aninternational reputation (e.g. with world funding agencies); becoming part of a wideprofessional network that provides legitimacy in the market; drawing on links withinternational partners that conduct business in India; and leveraging from customersexperiences with the product or service in Italy such as professionals returning to India.

3.1.6 Representation

Getting the right agent for a company is critical to success. A key attribute of successfulagents or distributors is their connectedness with political representatives and officials, aswell as with potential customers and decision-makers. Agents are also instrumental in

sourcing skilled labour.


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Power and size symmetry between company and agent can help engender trust.Strengthening links with agents is best done gradually.

3.1.7 Connect ions

Being linked to a local network is critical for success in the Indian market. An Italiancompanys access networks through their agents, distributors or partners, and, over time,build relationships and become part of the local network involved in their business. Thenetworks include a range of stakeholders, but of primary importance are the decisionmakers (often policy officials) and customers.

Frequent visits to India are critical, in order to build relationships, and stay informed aboutthe business and customers in India. The frequency of visits for the New Zealand companymanagers varies, ranging from 2 to 8 times per year, depending on the particular needs atthe time. At critical times during a tender process, for example, an Italian manager mayneed to make numerous visits over a short period of time.

Working with large companies provides substantial opportunities for Italian companies.These arise from a range of factors: the reputation of the large company, the opportunityto tap into their business networks, including customers, and access to markets, andtechnical and political knowledge. In many cases, large corporations have influence atgovernment level, and are able to lobby for industry-based regulatory changes, accesstender information, or negotiate with key decision-makers.

3.1.8 Survey feedback

Survey was conducted among a few members of Indo Italian Chamber of Commerce takinga few industries and units and they are summarised below.

Generally for matured Italian companies exporting goods/services Indian

companies do not have much issues as far compliance with custom procedures areconcerned

New companies sometimes do not comply with export regulations (in terms ofadequate documents). They should get professional support if required

Price quoted is high and that spoils the market opportunities sometimes Even free replacement is there in the contract clause but some principals charge

the courier cost and applicable duties on the parts to be supplied which causesenough dissatisfaction amongst Indian customers


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PART 4 COMMUNICATION AND PROMOTION

The government of India has banned any directly print or display (television etc)advertisement or promotion of alcohol. Hence, the companies should focus on promotingthe brand without actually showing the alcohol. There are various advertisement agencies

in India which could guide the companies with the same.

According to the Advertising and Marketing (A&M) magazine, a leading trade journal,advertising is a US$3 billion industry in India today. The Indian industry grew 11.5% in2004-05. Media accessibility has increased exponentially, competition is unlimited,budgets are large and expectations of advertising are high. Practically every aspect ofmedia is available for advertising, from print to outdoor advertising to satellite channels tomovie theatres.

Italian companies have a choice of many advertising and trade promotion channels inIndia. The print media, almost completely controlled by the private sector, is welldeveloped and advertising and promotional opportunities are available in a large numberof newspapers including daily, weekly or monthly business publications, news magazines

and industry-specific magazines.

The Times of India and the Hindustan Times are the largest selling English-languagenewspapers, with a readership base across India.Leading business newspapers include the Business Standard and the Economic Times.Leading magazines include India Today, Business India, Business Today, Business Worldand the Outlook.

Advertising opportunities are also available on satellite and cable television channels.Doordarshan, the government-owned television network, can reach almost 90% of thepopulation. In addition, more than 80 satellite and cable television channels, includingmany U.S. and international channels such as STAR TV, CNN, NBC, Discovery, National

Geographic and BBC, are available for advertising.

Satellite TV has grown explosively from 134m viewers in an average week in 2002 to asmany as 190m viewers in 2005. Another advertising media is the radio, by which thegovernment-owned All India Radio (AIR) reaches over 90% of the population. Privateradio channels are restricted to the FM music channels and are currently available only ina few cities. Radio improved its performance in urban India (23% listen to the medium,up from 20% three years ago) mainly due to FM. Another widely accessed medium is theInternet. Today, net access is estimated by over 20m people. Internet advertising isexpected to grow exponentially over the next several years. All the above media areavailable in English, Hindi, and a variety of regional languages.

Italian companies interested in advertising in any of the above media can work through

the many advertising agencies in India. Many large and reputable U.S. and otherinternational advertising agencies are present in India in collaboration with localadvertising agencies. The advertising sector in India is technologically advanced.

In addition to advertising, established public relation firms are also available to Italiancompanies that require such services. In public relations too, a few Italian and otherinternational companies are present in collaboration with local partners.

In India, advertising is no different from other businesses - local advertising companiesthat need to have access to the best global technologies and practices in their industryhave global collaborations. Mumbai remains the centre of the advertising industry inIndia.


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Italian companies can select from a number of quality international trade fairs, bothindustry-specific and horizontal, to display and promote their products and services.

Communication and Promotion Wine Trade Shows

Through trade shows exporters can create awareness among the end-user clients.

Costs Involved : Average costs borne by foreign exhibitor

Cost Head CostType of stall Two Side Open: 15 % Extra, Three Side

Open: 25 % ExtraLogistics (personnel andexhibited items)

Variable

Power Connection US$450 per KVACompressor US$450 per ConnectionService Tax 12.24%Total costs excludinglogistics

Two Side Open: US$1162Three Side Open: US$1263

Source: Cygnus Research

4.1 Advertising and Sales Promotion

Advertising and trade promotion are highly developed in India, and most majorInternational advertising firms choose local partners, as they know India and Indians well.In addition to government-controlled television in various regional languages, there areseveral popular national, international, and regional privately-owned channels. Mosturban households have televisions, and they are increasingly present in rural areas.

India also has a diverse and growing number of newspapers and glossy magazinesappealing to various social, cultural, and gender groups. According to the NationalReadership Survey 20053, the reach of the press medium (dailies and magazinescombined) has increased to 300 million people from 179 million three years ago. Satellitetelevision has grown explosively to reach 190 million people, whereas radios reach hasstagnated at 23 percent of the population. The internet now reaches more than 10 millionpeople, with 34 percent of users surfing from home and 32 percent from cyber cafs.Among the fast growing tribe of mobile phone owners, 14 percent access value-addedfeatures like downloads, news, SMS, etc.

Delhis Annual Food Exposition AAHAR, and smaller food shows in Delhi and other cities(IFE India, Agro Tech, Am Fest) provide opportunities for US exporters to showcase theirfood products to potential clients.

4.2 Business Etiquette

Although Hindi is Indias leading national language, almost all Indian officials and businesspeople have an excellent command of English. Most Indian businessmen have traveledabroad and are familiar with Western culture. Indians appreciate punctuality, but dontalways practice it themselves. Keep your schedule flexible enough for last minuterescheduling of meetings. Business is not conducted during the numerous religiousholidays that are observed throughout the many regions and states of India. Verify thisinformation with your Consulate or Embassy before scheduling a visit. Indian executivesprefer late morning or afternoon appointments between 11:00 a.m. and 4:00 p.m.

3National Readership Studies Council www.auditbureau.org


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Indians are famous for having longer-than-scheduled meetings, so be sure to leave plentyof time between appointments. The climate in India can be very hot, so it is advisable towear lightweight clothing to avoid discomfort. Men should wear a jacket and tie (andwomen should wear corresponding attire) when making official calls or attending formaloccasions. Always present a business card when introducing yourself. Refer to businesscontacts by their surname, rather than by their given name. Use courtesy titles such as

Mr., Mrs., or Miss. Talking about your family and friends is an important part ofestablishing a relationship with those involved in the business process. Hospitality is akey part of doing business in India; most business discussions will not even begin untilchai (tea), coffee, or a soft drink is served and there has been some preliminary smalltalk. To refuse any beverage outright will likely be perceived as an insult. While anexchange of gifts is not necessary, most businessmen appreciate token momentos,particularly if they reflect the subject under discussion. Business lunches are preferred todinners. Try to avoid business breakfasts, especially in Mumbai. The best time of year tovisit India is between October and March, so that the seasons of extreme heat and rainscan be avoided. Although Delhi (the capital) has a cool, pleasant winter (November -February), summers (April June) are fierce with temperatures of up to 120 degreesFahrenheit. Mumbai (the business hub) and most other major cities have a subtropicalclimate hot and humid year around. Most Indian cities have good hotels and are well

connected by domestic airlines.

The following websites were found to be informative and user-friendly in providinginformation on Indian business culture and business etiquettes.

http://stylusinc.com/business/india/cultural_tips.htm

www.executiveplanet.com/business-etiquette/India.html


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PART 5 P ENETRATION IN THE MARKET

5.1 Entry strategy

It is essential to survey existing and potential markets in India for products beforeinitiating export sales. The Indo-Italian Chamber of Commerce India, Mumbai and market

research firms in India can assist new exporters. If the FVG companies do have productsof promising sales potential in India, they can either set up a base in India or appointdistributors or agents. The Indian government encourages foreign investment in thefood-processing sector. Hundred percent equity participation or joint ventures with Indiancompanies are possible. Tax benefits and incentives are available to companies setting upoperations in Special Economic Zones (SEZ).

For FVG food ingredient suppliers, direct interaction, such as visits, with large Indian foodcompanies would help create awareness about new products and their uses in the Indiancontext. However, as the majority of Indian food-processing units are small-and-mediumsized, it would be difficult for FVG companies to reach their intended audience directly. Insuch cases, appointing agents and distributors is the best alternative. Consider the

following before selecting an agent or distributor:

o Determine through surveys who their potential customers are, and where inIndia these customers are located.

o Recognize that agents with fewer principals and smaller set-ups often aremore adaptable and committed than those with large infrastructure and bigreputations.

o There may be a conflict of interest where the potential agent handlessimilar product lines, as many agents do.

o FVG firms should examine all distributor prospects, and thoroughly research

the more promising ones. Check the potential agents reputation throughlocal industry/trade associations, potential clients, bankers, and otherforeign companies/missions.

Aspiring FVG suppliers should also be aware of Indias varied and dated food sector laws,particularly those pertaining to the use of additives and colors, labeling requirements,packaging, weights and measures, shelf-life, and sanitary and phytosanitary regulations.Refer to the GOIs Department of Health website relating to the Prevention of FoodAdulteration Act and Rules at www.mohfw.nic.in/pfa.htm. The GOI is planning to enact anew Food Safety and Standards Act, which is intended to be comprehensive, and whichaims to meet the dynamic requirements of international trade and the Indian foodindustry. This is a move in the right direction if formulated according to internationalstandards and practices, and should help attract investment in the food-processing sector.


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5.2 Market structure

FVG food ingredient suppliers can access the Indian market in three ways: (a) supplydirectly to local food processors; (b) supply through local agents/distributors to local foodprocessors; or (c) start production/distribution centers in India. Some of the leading foodingredient producers like IFF, Danisco, and Doehler have a production base in India. As

small players, scattered all over the country, dominate the Indian food-processingindustry, appointing agents/distributors would be the best way for FVG exporters to reachthem. However, some of the large Indian and multinational companies can be supplieddirectly. The chart below gives an overview of the usual distribution channel for importedfood ingredients (and processed foods) applicable to FVG food suppliers.

FVG FOOD SUPPLIERS

Indias food-processing industry can be broadly classified into the following categories:

Fruits and vegetable based products Dairy products Cooking oils Meat and poultry Fisheries Non-alcoholic beverages Alcoholic beverages Confectionary Grain and grain-based products (milling & baking)

Indian Food-processingCompany

ImporterAgent

DistributorWholesaler

Retail Outlets/Food Services


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5.3 FORMS OF ENTERPRISE

5.3.1 Companies

The principal forms of business organization in India are: Corporations, Partnerships andSole Proprietorships. Corporations incorporated in India and foreign corporations having a

presence in India are regulated by the provisions of the Companies Act 1956, which drawsheavily from the Companies Act of the UK. The Registrar of Companies and the CompanyLaw Board (CLB), both working under the Ministry of Company Affairs, have beenentrusted with the responsibility of ensuring compliance with the provisions of theCompanies Act, 1956.

5.4 Major Types of Corporation

5.4.1 Private Corporations

These corporations have restrictions on the right to transfer shares, and can make no offerto the public to subscribe to its shares and debentures, and cannot invite acceptance of

deposits from persons other than members, directors or relatives. The maximum numberof shareholders is limited to 50. It is required to have a minimum paid-up capital of Rs. 0.1million ( U.S. $ 2,170).

5.4.2 Public Corporations

A public corporation is required to have a minimum paid-up capital of U.S. $ 11,100 (equivalent of Rs 0.5 million).

5.4.3 Foreign Corporations

Foreign Corporations that are incorporated outside India but have a presence in India in

the form of liaison offices, project offices, branch offices etc, are also governed by theCompanies Act 1956, which contains special provisions for regulating such entities.

5.5 Structures Typically Used by Foreign Investors

5.5.1 Subsidiary Companies

Foreign corporations can set up their subsidiary companies in the form of privatecompanies in India. It is treated as a domestic company for tax purposes. In comparisonwith branch and liaision offices, a subsidiary company provides maximum flexibility forconducting business in India. However, the exit procedure norms for such companies aremore cumbersome. Funding could be via equity, debt and internal accruals and no approval

is required for repatriation of dividends. Indian transfer pricing regulations apply.

5.5.2 Branch Office

Foreign corporations need RBI approval to start a branch in India. A foreign corporationcannot undertake any activity in India not specifically permitted by the RBI and is requiredto register itself with the Registrar of Companies. A branch office is permitted toexport/import goods, render professional or consultancy services, carry out research workin which the parent company is engaged, promote technical or financial collaboration,represent the parent company for buying/selling, render services in IT and softwaredevelopment, render technical support to the products supplied by the parent group,undertake activities of foreign airline/shipping companies and manufacture by a branch

located in a Special Economic Zone.


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A branch office provides ease of operation and uncomplicated closure but its operations arestrictly regulated by foreign exchange control guidelines.

5.5.3 Liaison Office

Foreign Corporation are permitted by RBI to open Liaison Offices in India, subject to

approval for undertaking liaison activities and acting as a communication channel betweenthe foreign corporations and Indian customers. The Liaison office is permitted to representthe Indian company, promote import/export to India, promote technical and financialcollaborations and act as a communication channel with the parent company.

5.5.4 Project Office

A foreign corporation which has secured a contract from and Indian company to execute aproject in India may establish a project office in India without obtaining prior permissionfrom the RBI. However, the exchange control norms prescribe certain requirements.

Like a branch office, a project office is also treated as an extension of the foreign

corporation in India and taxed at the rate applicable to foreign corporations.

5.5.5 Joint Ventures: Foreign Companies can set up their operations in India by forgingstrategic alliances with Indian partners.

Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resources of the Indian partners

Established contacts of the Indian partners which help smoothen the process of setting up

of operations.

5.5.6 Appointing an Agent or Distributor

A company interested in only a distribution arrangement with a suitable Indian companycan appoint an Agent or a Distributor. The arrangements with the Agent/Distributor canvary depending upon the product/service. For example, payment terms can be negotiatedbetween the parties. However, one of the major issues relates to sending back productsthat are not sold. This, under the current system, is not easy.

5.5.7 Third party arrangement for maintenance and servicing of products

Some companies that sell high value items often find it useful to appoint an Indian partywho would be responsible for service and maintenance of their products sold into India. Anexample is when IBM decided to move out of India in 1977 rather than dilute their holdingsin the Indian company (as was required by the then Indian Government), they tied up withIndian companies to maintain the IBM equipment already installed in the country.Similarly, Omega watches set up operations for servicing of their products in Delhi througha third party.

In all these cases, the technical personnel of the company are trained by the parentcompany to service and maintain their products. One problem that existed in the past insuch arrangement was the import of spares. However, it has now become relatively easier.


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5.5.8 Franchis ing

Franchising has been operating in India for several decades. One well-known example ofthis is the Bata shoe Chain, started in the 1960s. New franchise business concepts includeas diverse sectors as healthcare, pharmaceuticals, specialised food services, garments andapparel, education, entertainment, fitness and personal grooming clinics and courier

services, to name a few.

India does not have any specific law on franchising. Franchising is covered within the broaddefinition of transfer of technology contained in domestic legislations. A legal frameworkfor new franchisers interested in setting up master franchises in India however exists, interms of brand protection and rules regarding payment of franchise fees.Some of the features of the Indian franchising industry are as follows:

Wide spread sectors (from education to hospitality) Over 40,000 franchisees currently Annual turnover from franchising approximately $2.2 billion Total investments made by franchisees approximately $1.1 billion Over 300,000 people directly employed by franchised businesses Variety of hybrid formats in practice Numerous international franchises already existing and rapidly expanding

While franchising has mushroomed in India, the concept has initially functioned mainly onan agent basis. It is still evolving and being refined and will take a couple of years forfranchising to become more organised in India. Franchising in India is often perceived as atool to cover the high cost of real estate that a company interested in retailing would haveto bear. As a result, if business projections are not met, franchisees can and sometimes doshift to other franchises. With minor variations, in a typical franchise operation, a companyapproaches an owner of prime commercial space to provide the real estate, to invest ininteriors and inventories to run a franchise business, and to hire staff for the operation.Franchisees prefer to recruit staff directly, but most franchisers insist on training the staff

themselves, particularly in educational and computer training academies. Usually, the twoparties work out an arrangement by which the franchisee agrees to sell the companysproducts on an exclusive basis. Typically, the companys investment is reduced by about15% if the same operation is run by a franchisee. Also, the company has no worries abouthiring and dealing with staff or worker unions.

The franchise agreement is a comprehensive document that specifies everything from thefranchise location to the finer details of operating the franchise. There are no standardfranchise agreements because every franchiser and every business is different. Manydetails in the agreement are settled by bargaining, but the normal clauses that should beon the checklist of every franchiser includes use of brand name, protection of intellectualproperty, conflict of interest, indemnity, business promotion, definition of territory, periodof validity, and termination. By the same token, the franchisee will seek to ensure that the

agreement maintains his/her intellectual property rights; covers training, consultation andequipment and includes a suitable indemnity clause.

Franchise fee payments in hard currency are allowed. A potential franchisee must submit aproposal for a franchise operation to the government ministry that regulates the particularindustry sector. Among other details, the proposal must contain the amount of franchisefee that will be paid to the franchiser. The proposal moves from the relevant ministry to theMinistry of Industry and the Foreign Investment Promotion Board. Reserve Bank of Indiasapproval of the franchise fee is automatic when the Ministry of

Industry clears the proposal. There are value or percentage limits on approvals of franchisefees, with franchise involving advanced or high-technology, receiving the highest limits.

Royalty payments ranging from 3-8% are allowed in hard currency, in addition to the


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franchise fee, although the norm is closer to 5%. The royalty is calculated on total turnoverfor the year for the franchise operation.

5.5.9 Direct Selling

Direct selling is one of the fastest growing industries in India and is an unusually good

income generator for entrepreneurs from all walks of life. In addition, direct selling offersconsumers a convenient and more informed way to buy, along with money-backguarantees and refund policies. According to the Indian Direct Selling Association, thedirect selling industry reported a total turnover of $545m (Rs24bn) during fiscal year2004-05.

In India, direct selling traditionally meant contracting of outside agencies by manufacturersto move surplus or promotional products or small manufacturers resorting to door-to-doorselling because of their inability to compete in the retail market. It has also meantdeploying direct sales employees to demonstrate products with the objective of making aspot sale. The traditional view of direct selling is changing. One of the first Indiancompanies to practice direct selling in India was Eureka Forbes, which sells a range ofhousehold appliances through direct selling. Though some form of direct selling had been

in practice in India, a new wave of interest to sell in the Indian market through the modernconcept of direct selling has begun only during the last decade.

At present, the direct selling industry employs more than 1.3m people, an increase of100,000 from 2003-04 to 2004-05. There are about 750,000 active direct salesexecutives (including men, women and couples working as a team) who buy or sellproducts at least once every two months. The total number of product offerings increasedto 380 with 2,100 variants and product categories ranging from cosmetics to kitchenware,education, home care and natural products.

According to industry estimates, there are roughly 20 direct selling companies in Indiawith nation-wide coverage and approximately 100 smaller companies with localised city-

specific presence. Many Indian and multinational companies like Amway, Aero Pharma,Avon, Herbalife, Sunrider, Tupperware, Lotus Learning, Oriflame, AMC Cookware, andTime Life Asia have started operations in India through joint ventures or wholly-ownedsubsidiaries. Amway, with more than 200,000 distributors spread across 26 citiesservicing more than 306 locations, is perhaps the largest direct selling company in Indiatoday. Tupperware entered India in 1996 and currently has more than 40,000 dealers in40 Indian cities. Established retail companies in India have also started direct sellingoperations, the most prominent being Hindustan Lever Limited of the Unilever group.

Since their launch, many direct selling companies have had to rework their strategies withemphasis on the three critical Ps of marketing - product, pricing, and packaging. Once

considered as the medium for sales of premium products, direct selling in India today ismoving towards lower priced products to meet the demands of the price sensitive Indianconsumer. Package sizes are being reduced to bring down the psychological price barrierand make the products sold through the direct selling channel more affordable. Somemultinational direct selling companies have also customised products to meet the needs ofIndian consumers. Major foreign direct selling companies have also establishedmanufacturing facilities in India.

Direct selling companies follow different plans of compensation for their sales force. Somefollow the single level plan under which sales people earn commission on sales made bythem alone, and do not earn anything on sales made by people they have introduced inthe business. They may earn a one-time reward for people they help recruit. There arestill some others who also compensate a sales person for the sales made by persons


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recruited by the first sales person, and from the sales of the group or network recruited bythe first sales persons personal recruits.

5.6 Forms of business presence in I ndia for a foreign company

A foreign company may wish to set up a business presence in India. It can do so by

setting up any one of the following:

Liaison Office;Branch Office; orCompany (either a joint-venture or a subsidiary)

Different regulations apply to each of the above three forms. The following summarytable highlights key differences between them.

LiaisonOffice(LO)

BranchOffice(BO)

Joint-Venture orSubsidiaryCompany

PERMISSIBLE ACTIVITIES

Product/Corporate Promotion YES YES YES

Business Development YES YES YES

Technical Support YES YES YES

Purchase/Sales co-ordination onbehalf of the overseas parent (e.g.Italian) company

YES YES YES

Earning Income NO YES YES

Buying Products NO YES YES

Selling Products NO YES YES

Export NO YES YES

Import NO YES YES

Manufacturing NO NO YES

LEGAL, FINANCIAL & TAX

ISSUES

Opening A Bank Account YES YES YES

Recruiting People YES YES YES

Owning Premises NO YES YES

Income-Tax Rate Applicable OnProfit

N.A. 41.82% 33.66%

Can It Repatriate Profit N.A. YES YES


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Can It Repatriate Capital N.A. N.A. YES

Minimum Authorised CapitalLegally RequiredMinimum Paid-up Capital Legally

RequiredNIL NIL

INR.100,000 fora private limitedcompany

INR.500,000 for apublic limited companyINR.100,000 for both.

Maximum shareholding that aforeign company can have

N.A. N.A. 100% (Subjectto applicableregulations)

REGULATORY

PERMISSIONS/ REGISTRATIONS

Permissions/RegistrationsRequired From

ReserveBank ofIndia

ReserveBank ofIndia

Registrar of

Companies; Reserve

Bank of India;

ForeignInvestment Promotion


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5.7 Processed fruits and vegetables: Less than 2 percent of all fruits and vegetablesproduced in India are processed. The main products, the industry size, and major playersare shown in the following table:

Industry Size(Million Rupees)

Products

Organized Unorganized

Key players in the organized segment

Jam 900 450 HLL, Marico, Mapro, MalasPickles 1,500 10,000 Priya Foods, Preveen, Desai Brothers,

Cavin Kare, GD FoodsSauce/ketchup 1,000 3,000 HLL, Nestle, Heinz, GD Foods, Bector

Food SpecialtiesPulp/concentrate 4,000 0 Foods and Inns, BEC, Claen Foods, Jain

Irrigation, Usha InternationalJuices/fruit drinks 5,000 0 Pepsi, Dabur, Parle, Godrej, Mother

DairySquashes 1,000 2,000 HLL, Haldiram, MaproReady-to-eat

vegetables

1,000 0 ITC, MTR, Tasty Bite

Potato chips 2,500 3,000 Pepsi, HaldiramCooking paste 300 0 Dabur, HLLTotal 35,650

Source: Rabobank Analysis

5.8 Dairy Products: About 37 percent of Indias milk production of 86 million tons isprocessed, 15 percent in the organized sector and 22 percent in the unorganized sector.A major share of the milk processed in the organized sector (mostly by dairycooperatives) is in the form of packaged liquid milk. Other processed items include ethnicsweets, milk powder, ghee (melted, clarified butter), butter, cheese, and ice cream. Inthe unorganized sector, a major share is processed into milk-based sweets, and a smallershare for making yogurt, butter, and ghee. The main products, the industry size, and

major players are shown in the following table:

Industry Size(Billion Rupees)

Products

Organized Unorganized

Key Players in the Organized Sector

Packaged milk 98.0 0 Mother Dairy, Amul, various statecooperatives, Paras Dairy

Ethnic sweets 62.5 455 Mother Dairy, Amul, various statecooperatives, Haldiram, Bikanerwala

Yogurt 6.3 160 Mother Dairy, Amul, NestleCheese 2.0 21 Amul, Vijaya, Britannia, Dynamaix DairyIce Cream 8.0 0 HLL, Mother Dairy, Vadilal

Butter 5.2 60 Amul, Mother Dairy, VijayaGhee 35.0 210 Amul, Vijaya, various state

cooperatives, ParasMilk powder 38.0 0 Amul, NestleTotal 255 906

1,161Source: Rabobank Analysis


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5.9 Cooking oil: Total annual sales of branded cooking oils in India are estimated at rs.50 billion ($1.1 billion), and have been growing annually at 7 to 8 percent over the pastfive years. Branded edible oils account for only 9 percent of the total edible oil market byvolume and 17 percent by value. Mustard, sunflower, and peanut oils together accountfor around 80 percent of branded edible oil consumption. The edible oil companies arefocusing their marketing strategy on the emerging healthy eating habits of a growing

number of Indian consumers. Branded players attempt to deliver better value for moneythrough innovative packaging. Although there are hundreds of regional/local processorsand brands, the national-level players are Godrej, Dhara, Marico, Liberty, and Ruchi. Inrecent years, a number of multinational companies including Cargill, Adani Wilmar, andBunge have set up operations in India, either through port-based refineries, tradingsubsidiaries, or brand acquisitions.

5.10 Meat and poultry: Indian consumers prefer mostly fresh meat from the wetmarkets. Only a very small share of production is further processed into value addedproducts, mostly for export. Major players include VH Group, Godrej, Sugunas, andArambagh in the poultry processing sector, and Allana's, Hind Agro, Al Kabeer in thebuffalo meat (beefalo) processing sector. Cow slaughter is prohibited in most states dueto religious sentiments.

5.11 Fisheries: As in the case of meat, most fish consumed comes from the wetmarkets. Processing is mostly for export, and includes conventional block-frozen andindividual quick frozen products, minced fish items like sausage, cutlets, pastes,texturized foodstuffs, and dried fish. The frozen products usually undergo primaryprocessing such as cleaning, deveining, descaling, peeling, etc.

5.12 Non-alcoholic beverages: India is the worlds largest tea-producing country withan annual production of around 860,000 tons and is also one of the worlds largest teaexporters. Tea processing includes withering, rolling, fermenting, drying, blending,packing, and branding. Instant tea production is limited. Major players are Tata Tea, HLL,Manjushree Plantations, Jay Shree, Goodricke, Harrison Malayalam, Eveready, and

Warren.

With an annual production of around 300,000 tons, India is a small but competitiveproducer of coffee. Traditionally a tea-drinking country, average annual coffeeconsumption in India is only ten cups per person. The instant coffee segment is entirelybranded and packaged, and caters mostly to the export market. Major players are TataCoffee, HLL, Nestle, Barista, Qwikys, Narasu, Leo, and ABCTC.

Pepsi and Coca Cola dominate the Indian soft drink industry.

5.13 Alcoholic Beverages: Whisky, mostly low-priced, accounts for about 55 percent ofthe Indian spirit consumption, followed by rum, brandy, and vodka. Key players are UB,Shaw Wallace, Jagatjit Industries, Mohan Meakins, and International Distilleries. With the

recent take-over of Shaw Wallaces liquor business by the UB Group, the latter hasemerged as the worlds second largest liquor producer. Major multinationals operating inIndia include Diageo, Seagram, and Baccardi Martini. UB, SABMiller, and Mohan Meakinsare the major beer-producing companies. The wine market in India is nascent, havingemerged as a distinct segment about a decade ago. Chateau Indage is the largestdomestic player in wines, followed by Grover Wines and Sula Wines. Key internationalplayers who have a presence in India through distribution alliances include E&J Gallo,Hardys, Canandaigua, and Fetzer.


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5.14 Confectionary: The size of the Indian confectionary market is estimated at rs.26.0 billion ($600 million). Sugar confectionary accounts for 61 percent of this market,with the balance being chocolates, mints, and gums. The confectionary market has beengrowing at over 6 percent annually over the last five years. The gum-based confectionarysegment has grown even faster at over 10 percent. The confectionary market is highly

fragmented with several local players such as Parles, Nutrine, and Ravalgaon. Keyforeign companies are Nestle, Cadburys, Perfetti, Lotte, Wrigley, Candico, and Joyco.

5.15 Milling and baking: 75 percent of Indias wheat production is milled into wheatflour (atta)to make rotis or chapattis (unleavened flat bread), mostly in small chakkis(small wheat grinding mills) in the unorganized sector. Branded atta is a relatively newsegment, developed to provide consumers a more hygienic quality, as compared to chakkiatta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti BhogFoods.

Bakery products constitute the largest segment of grain-based processed foods. Smalland medium unorganized local players, and a limited number of organized units dominate

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

The grain-based snack market, comprising extruded snacks and savories, is estimated ataround rs. 29 billion ($667 million). Of this, the organized segment contributes only 15percent of sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc.

Breakfast cereal production in the organized sector is very small, and is mainly confinedto corn flakes. Major producers are Kelloggs and Mohan Meakins. Pepsi is reportedlyinterested in investing in the breakfast segment over the next five years.

5.16 Distribution Systems

Domestic consumer goods are distributed through a multi-level distribution system. Withthe cost of establishing warehouses nearly prohibitive, clearing and forwarding agents(CFAs) are fast becoming the norm. Typically, the CFAs transport merchandise from thefactory or warehouse to stockists or distributors. While the CFAs do not take title to theproduct, they receive 2 to 2.5 percent margins, invoice the stockists, and receive paymenton behalf of the manufacturer. The stockists have exclusive geographical territories and asales force that calls on both the wholesalers and on large retailers in urban areas. Theyusually offer credit to their customers and receive margins in the range of 3 to 9 percent.The wholesalers provide the final link to those rural and smaller retailers who cannotpurchase directly from the distributors. Sales to these retailers are typically in cash onlyand the wholesalers receive a margin of 2 to 3 percent. Margins for retailers range from 5to 15 percent, and the total cost of the distribution network represents between 10 and20 percent of the final retail price.

Most imported food products are transshipped through regional hubs such as Dubai andSingapore, due to their liberal trade policies and efficient handling facilities. Majorimporters are located in Mumbai, Kolkata, Delhi, and Chennai. Although a large share ofimported foods enter India through illegal smuggling, normal imports are also increasing.Under-invoicing is a commonly used practice to lessen the burden of import tariffs.


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5.17 Finding a Business Partner

It is essential to survey existing and potential markets for products before initiatingexport sales to India. Market research firms in India can assist new exporters. If theaspiring FVG companies have products of promising sales potential in India, they caneither set up a base in India or appoint a distributor or an agent. If possible, setting up abase is preferable, because Indians like to see foreign companies investing in theircountry rather than selling from abroad. FVG companies should avoid the temptation toestablish a relationship with an agent/distributor merely because he is the most persistentsuitor. Consider the following before selecting an agent/distributor:

Determine who their potential customers are, and where in India thesecustomers are located, through surveys.

Recognize that agents with fewer principals and smaller set-ups often aremore adaptable and committed than those with large infrastructure and bigreputations.

There may be a conflict of interest where the potential agent handlessimilar product lines, as many agents do.

FVG firms should examine all distributor prospects, and thoroughly researchthe more promising ones. Check the potential agents reputation throughlocal industry/trade associations, potential clients, bankers, and otherforeign companies/missions.

Franchising is another way of introducing Western products. Companies with franchises inthe food sector in India include McDonalds, KFC, Dominos Pizza, Baskin Robbins,Wimpys, TGIF, Ruby Tuesday, and Pizza Hut. Indian companies with strong brandrecognition also franchise. Direct marketing, although becoming more popular, is stilllimited.


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PART 6 OBSTACLES

6.1 INTERVIEW WITH MR SUKU SHAH, GOURMET FOODS IMPORTER

Suku Shah, the chairman and managing director of Olive Tree Trading Pvt Ltd is one of

the leading importers of Italian and Japanese high end food products. Interaction with himgives an in-depth insight in to the status of imported food industry and the market todayin India.

The imported food industry is undergoing a rapid change in Indi

food report 06

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