indian food industry

8/7/2019 indian food industry

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ector Coveragepril 15, 2008

Analyst - Nisha Harchekar

nishaharchekar@way2wealt

Sectors - FMCG, Pharma, Entertainme

Indian Processed Food IndustryOpportunities Galore

WAY2WEALTH Securities Pvt. Ltd.,

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900email: [email protected] website: www.way2wealth.com

Industry OverviewGlobal Processed Food IndustryIndian Processed Food Industry

Processed Food Industry - A Sunrise sectorWhere the opportunity lies- areas for investment

Industry AnalysisDriving ForcesMajor Challenges

Indian Food Processing Industry by sectorsDiaryFruits and VegetableGrainsMeat and PoultryFishPackaged/Convenience FoodAerated Soft Drinks, Packaged drinking

water Exports

FDI in Food Processing

Government Regulation and support

Regulatory framework

Outlook

Initiating CoverageLakshmi Energy & FoodsRuchi Soya
mailto:[email protected]://www.way2wealth.com/reports/RR150420082.pdfhttp://www.way2wealth.com/reports/RR150420083.pdfhttp://www.way2wealth.com/reports/RR150420083.pdfmailto:[email protected]://www.way2wealth.com/reports/RR150420083.pdfhttp://www.way2wealth.com/reports/RR150420082.pdf


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WAY2WEALTH Securities Pvt. Ltd.,15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900

email: [email protected] website: www.way2wealth.com

Indian Processed Food IndustryOpportunities GaloreSector Coverage

Executive Summary

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

and accounts for three-fourth of the global food sales. Despite its large size, only 6% ofprocessed foods are traded across borders compared to 16% of major bulk agriculturalcommodities. Indian food-processing industry is miniscule in comparison and is estimated tobe US $40 billion and is likely to grow at over 10%, on the basis of an expected GDP growthrate of 8-8.5% p.a.

With enormous scope for value addition, increase in the consumption of processed foodproducts in India and many fiscal incentives being planned by the government, this sector ispoised to maintain the growth momentum in the future. Moreover, the advent of the WTOregime and the possibility of reduced subsidies in developed countries can add to Indiasstrengths in food production and processing industry.

India accounts for less than 1.5% of international food trade despite being one of theworlds major food producers, which indicates huge potential for both investors andexporters. With rapid increase in the per capita income and purchasing power along withincreased urbanization, improved standards of living, there lies a large untappedopportunity to cater to 1000 million domestic consumers. It is estimated that 300 millionupper and middle class consume processed food. With the convenience needs of dualincome families, 200 million more consumers are expected to move to processed food by2010. The market size for the processed foods is thus bound to increase from US $102billion currently to US $330 billion by 2014-15 assuming a growth of 10%. The share of thevalue added products in processed foods would almost double from US $44 billion currentlyto US $88 billion during the same period, growing at the rate of 15%. This presentsenormous opportunities for investment in processed food sector.

Several global food giants and leading Indian industrial enterprises are already making theirpresence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India,

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

It is estimated that the food production in India is likely to grow two-fold in the next tenyears. Thus, there is ample of opportunities for investments in food and food-processingtechnologies, equipments, especially in areas of canning, dairy & food-processing, specialtyprocessing, packaging, frozen food and thermo processing, cold chains and in the area offood retail.

Ministry of food processing in its Vision 2015 document has estimated the size of processedfood sector to treble, processing level of perishable to increase from 6% to 20%, valueaddition to increase from 20 % to 35% and Indias share in global food trade to increasefrom 1.5 % to 3%.

The governments focus towards food processing industry as a priority sector will ensurepolicies to support investment in this sector and attract more FDI. India with its vast poolof natural resources and growing technical knowledge base has strong comparativeadvantages over other nations. According to CII estimates, food-processing sector has thepotential of attracting US $33 billion of investment in 10 years and generate employmentof 9 million person-days. The food-processing sector in India is clearly an attractive sectorfor investment and offers significant growth potential to investors.

The report outlines the tremendous growth potential in the sector and variousopportunities for investments. We initiate coverage on Ruchi Soya and Lakshmi Energy &Foods with a BUY recommendation.

Ruchi Soya

Y09(E)

MP (Rs) 86arketcap (Rsores) 1570

E (x) 6.8

ktcap/sales (x) 0.1

V/EBITDA (x) 5.3

oCE (%) 16.8

oNW (%) 15.0

kshmi Energy & Foods

Y09(E)

MP (Rs) 200arketcap (Rsrores) 1200

E (x) 7.2

ktcap/sales (x) 0.9V/EBITDA (x) 4.4

oCE (%) 29.3

oNW (%) 35.5


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Global Processed Food Industry

The size of global processed food industry is estimated to be valued around US $3.6 trillionand accounts for three-fourth of the global food sales. Despite its large size, only 6% of

processed foods are traded across borders compared to 16% of major bulk agriculturalcommodities. Over 60% of total retail processed food sales in the world are accounted bythe U.S, EU and Japan taken together.

Japan is the largest food processing market in the Asian region, though India and China arecatching up fast and are likely to grow more rapidly. Leading meat-importing countriesnamely Japan and South Korea have a developed processed food industry. One of the mosttechnically advanced food-processing industry globally is Australia as the productsproduced are of international standards and at comparatively lower prices. Countries in theSub-Sahara African region, Latin America and parts of Asia continue to be on the lower-endof technology competence in food items. However, Europe, North America, and Japan areon the higher-end of technology, with a sharper shift towards convenience and diet foods.

Indian Processed Food Industry

Food and Agriculture: An overview

India has the second largest arable land of 161 million hectares and has the highest acreageunder irrigation. Next to China, India ranks second largest food producer in the world andhas the potential to immerge the biggest with its food and agricultural sector. Indiaaccounts for less than 1.5% of international food trade despite being one of the worldsmajor food producers, which indicates huge potential for both investors and exporters.

Indias GDP is expected to grow in the range of 8-8.5% in the coming fiscal year, fuelled byrobust investments and buoyant consumer spending. According to Goldman Sachs

projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025and Japans in 2035.

The growth estimated is

Year Indias GDP ($ billion)

2005 604

2020 2014

2025 3174

2030 4935

2035 7854

Excessive controls, low public investment, inadequate infrastructure, poor agri-inputmanagement, distorted pricing and incentives structures, and inadequate credit weigheddown Indias agricultural sector for several decades. The share of agriculture in Indias GDPhas fallen by more than 60% in the past five decades. However, the policy environment ischanging with increase in public investment, fading controls on product marketing anddistribution, better price-discovery mechanisms and improvement in credit availability.Indian agriculture, particularly food processing and allied activities is thus going through amajor transformation with the government targeting 4% growth for the agri-sector from2005-2020.

Size of global food-processing industry US $3.6 trillion

India ranks second

largest food producerin the world next toChina


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Source: RBI, Chand (2005): WTO & Indian Agriculture: Issues & Experience

With the upturn of the agriculture sector, lot of opportunities has opened up for players

having strong linking with the entire agri-value chain and the food-processing sector will beone of the biggest beneficiaries. Supply chain management, cold storages, financing,retailing and exports are the areas where sizable opportunities are yet to be tapped. TheGovernment is taking steps to liberalize the agri sector to encourage investments.

Source: FICCI, Ministry of Agriculture

Indian agri-business: Key facts

Varied agro climatic zones

2nd largest arable land (161 million hectares) in the world

Largest irrigated land (55 million hectares) in the world

Largest producer of wheat (72 million tones), accounting for nearly 15% of global wheatproduction

Largest producer of pulses (15 million tones), accounting for nearly 21% of global pulseproduction

Largest producer of milk (96 million tons), accounting for nearly 17% of global milkproduction

Largest producer and exporter of spices

2nd largest producer of tea, accounting for nearly 28% of the global tea production

2nd largest producer of rice (92 million tons), accounting for nearly 22% of global Riceproduction

Largest exporter of the world's best basmati rice

2nd largest producer of fruits (50 million tons) and vegetables (100 million tons)

2nd largest producer of sugarcane (296 million tons), accounting for nearly 21% of theglobal sugarcane production

3rd largest producer of coarse grains (31 million tons), including maize, accounting for nearly4% of the global coarse grain production

3rd largest producer of edible oilseeds (25 million tons), accounting for nearly 7% of theglobal edible oilseed production

Agri GDP is expected togrow by 4% from 2005-2020, which will bebeneficial for the food-rocessin sector

Agri GDP growth (%CAGR)

4.0

2.1

3.5

2.7 2.8

0

1

2

3

4

5

Pre Green

Revolution 1951-

65

Green Revolution

1965-80

Wider Tech

diffusion 1980-

95

Post economic

reforms 1995-05

The Agri

challenge 2005-

20


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Processed Food Industry: A sunrise sectorIntroduction

Food-processing industry is significant for Indias development because it has importantlink and synergy with industry and agriculture, the two main support of the economy. Totasize of food-processing industry is around US $40 billion growing at 10% and the size ofprocessing sector is estimated to be US $2.53 billion. The industry is mainly unorganizedwith 75% of the processing units belonging to the unorganised category, the organisedcategory though small, is growing fast. The food production is expected to double in thenext 10 years and the consumption of value added food products is expected to grow at amuch faster pace. This growth will benefit the economy, increase agricultural yieldscreate employment and raise the standard of living of various associated people. Risingconsumer affluence and economic liberalization is opening up new opportunities in thesector.

Source: FAIDA / Ministry of Food Processing Industries

The food-processing industry has been identified as a focus area for development and hasbeen included in the priority-lending sector. Most of the food-processing industries with theexception of beer & alcoholic drinks and items reserved for small scale sector, like vinegarbread, and bakery have been exempted from the provisions of industrial licensing underIndustries (Development and Regulation) Act, 1951. Automatic approval up to 100% ofequity in case of foreign investment is available for most of the processed food items.

With over 1.10 billion consumers and fourth largest economy in terms of purchasing powerparity, UNCTAD and AT Kearney has ranked India amongst the top three investmentdestinations in the world.

Low level of processing

The industry has very low processing level i.e 2.2% for fruits and vegetables, around 35% inmilk, 21% in meat and 6% in poultry products, which is significantly lower by internationalstandards. For e.g. processing of agriculture produce is around 40% in China, 30% inThailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Value addition toagriculture produce in India is just 20% with wastage estimated to be valued at around US$13 billion.

The industry isunorganized with 75%of the processing unitsbelonging to theunor anised cate or

Low level of processingleadin to wasta e

Structure of Indian Food Processing Industry

Organised

25%

Small Scale

Industries

33%

Unorganised

42%


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According to Government estimates, Rs 1,000 billion investment is needed in this sectoracross all segments of the value chain, from agri inputs to logistics to front-endinfrastructure and distribution, out of which bulk of investment will be from private sectorAs a result, various private corporate houses like Reliance have ventured in this space withfull vigor. Hence, there is immense potential for investment in this sector. To facilitate theprompt growth of food-processing industry, the Government has implemented the schemefor infrastructure development comprising a food park scheme, establishing packagingcenters, integrated cold chain facility; value added centers and irrigation facilities.

Where the opportunity lies- areas for investment

It is estimated that the food production in India is likely to grow two-fold in the next tenyears. Thus, there is ample of opportunities for investments in food and food-processingtechnologies, equipments, especially in areas of canning, dairy & food-processing, specialtyprocessing, packaging, frozen food and thermo processing, cold chains and in the area offood retail.

One of the key reasons for low levels of food processing is poor infrastructure for storage,marketing and distribution of food products. 25-40% of agri-produce is lost post harvestseason. According to estimates, Indias marketable surplus is set to increase by 350 mtpa to870 mtpa by 2012. 40% of the increase (150 mtpa) would be accounted by perishable fruitsand vegetables. The need for investments in the areas of infrastructure and supply chain isevident from the fact that Indias current storage infrastructure for all food items is only100 mtpa.

The Government has announced various policy and fiscal measures to expand the storagecapacity. It has announced 15-25% capital subsidy scheme for facilitating construction ofrural godowns and has also sanctioned 16 mt of new capacity the last five years.Cold chainThe estimated cold-storage capacity at 19.5 mt is less than 15% of the annual horticultureproduction and is mainly dominated by potatoes (80% of capacity). The size of cold chainindustry is estimated to be around US $2.2-2.7 billion and is expected to grow at 20-25%annually. FDI to the extent of 100% is allowed in the sector. With the rising focus onhorticulture, increasing corporate participation and advent of food parks and agri exportzones is likely to result in significant restructuring of cold storage infrastructure with anestimated investment of US $8-10 billion.

Voltas, Blue-Star and Kirloskar Pneumatic are some of the cold storage players andequipments. Radhakrishna Foodland and Snowman Frozen are major providers of coldstorage facilities. Concor is setting up a countrywide network of 14 cold-chain complexesfor horticulture in Delhi, Mumbai and Bangalore among other places.

Supply chainAn efficient supply chain not only brings down the price of the end product but alsoeliminates intermediaries by connecting farmers directly to the super stores. It has thusbecome an important aspect of organised retail setup. The food supply chain in India ishighly fragmented with numerous intermediaries and lack of economies of scale.Sophisticated applications such as demand forecasting, data integration, financial flowmanagement, supply-demand matching, information sharing will enable it to becomemature and efficient.

Canning, specialtyprocessing, packaging,frozen food andthermo processing,cold chains areattractive areas for


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Food safety management systemsThe tightening of restrictions and the introduction of the Sanitary and PhytosanitaryAgreement by global industry bodies like the World Health Organisation (WHO), have led toincreased adherence of safety norms and regulations. Indian companies will have to strictly

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

MachineryIn packaging, freshness and hygiene remains a key factor in determining buying byconsumers. In recent times, a number of new technologies have emerged both inprocessing and packaging, which have made an impact on the shelf life of food products.

Food parks30 mega food parks with investments of around US $110 million are coming up across thecountry to attract FDI in the food-processing sector. The food parks will have facilitiesranging from cold storage, sorting, grading, food-processing, packaging and quality controland R&D laboratories. The government for these food parks has identified Maharashtra,Andhra Pradesh, Punjab and Jharkhand and one Northeast region.

Food retailFood and groceries form major portion (75%) of the retail pie. However, it has the lowestlevel of penetration of 1% in organized retail. Branded foods market size is growing at 15-20%. Players have outlined major expansion plans recognizing the opportunity.

Player expansion plans

Player FormatCurrentoutlets

ExpansionPlans

Expectedyear

More (Supermarket) 14 1000 2010Aditya Birla Group

Trinethra Super Retail 1 4 na

Bharti Wal-Mart Wholesale Stores - 15 2012

Express Retail Services Big Apple/Big Apple Fresh 16 100 na

Godrej Group Aadhar 31 1000 na

Heritage FoodsFresh (FlagshipStores,Daily Stores

12 100 na

Big Bazar 62 100 na

Food Bazar 95 na naPantaloon

KBs Fairprice Value tores - 1500 2009

Reliance Fresh 240 471 2010

Hypermarket 2 500 2010Reliance Retail

Reliance Town Centres - 784 2010

RPGSpencers (Fresh, Express,Daily, Super, Hyper)

200 5000 2011

Sahakari Bhandar Sahakari Bhandar 18 na na

Subhiksha Subhiksha 870 150 2009

Wadhan Food Retail(Spinach)

Super Local, Express 84 1500 2010

Source: Media report

Big names in the retailndustry have outlinedhuge plans in food &groceries segment


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Industry Analysis

Driving Forces

Abundant availability of raw materialIndia has varied agro climatic conditions; it has a wide-ranging and large raw material basesuitable for food-processing industries. It has a vast coastline of 8000 km, vast marine landwith 10 major ports. India produces annually 90 million tones of milk (highest in the world)150 million tones of fruits and vegetables (second largest), 485 million livestock (largest)204 million tones food grain (third largest), 6.3 million tones fish (third largest), 489 millionpoultry and 45,200 million eggs. India's agricultural production base is huge.

Low cost production base for domestic and export market can be set up considering Indiascomparatively cheap labour force and lower cost of production. India has access tosignificant investments to facilitate food-processing industry.

Demographic trends

The food-processing industry has a bright future due to demographic environment in India,

which is a key positive.

Rising income levels leading to large customer baseIndia with its population of more than 1 billion accounts for close to 17% of the globapopulation. It is one of the most attractive consumer markets in the world with theincrease in income levels across the population segments. Food and grocery comprise thelargest share of the spending pie followed by personal care items, thus offering a lot ofscope for the food-processing industry. According to NCAER data, the consuming class, withan annual income of US $980 (Rs 45,000) or above, is growing and is expected to constituteover 80% of the population by 2009-10. The increase in income levels and higher tendencyto spend provides great opportunities for companies across various sectors.

India- Competitive edge

IndiaShare in global production

(%)GlobalRank

Arable Land (million hectare) 161 2

Irrigated Land (million hectare) 55 1

Coast line (km) 8,000 19

Major Food Crops (MT) 35 4 3

Fruits (MT) 50 10 2

Vegetables (MT) 100 10 2

Rice/Paddy (MT) 92 22 2

Wheat (MT) 72 15 1

Milk (MT) 90 17 1

Sugarcane (MT) 296 21 2

Pulses (MT) 31 4 3

Tea (MT) 28 2

Edible Oil seed (MT) 25 7 3

Cattle (million) 485 16 1

Source: FICCI, Ministry of Agriculture

With huge agricultureproduction base,cheap labour force,

lower cost ofproduction, India hasa competitive edge

Favorabledemographicenvironment works infavour of theindustry


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Growing consuming class (million households-annual income)

Source: NCAER

Relatively young populationIndia has a relatively young population with close to 55% of population in the age group of20- 59 years. This group is also high in consumption and therefore, this trend is expected toprovide a further boost to the growth of consumption in India.

Changing lifestylesIncrease in literacy and exposure to western lifestyles by more and more urban consumershave led to change in mindset and preference. Increase in the population of workingwomen and increase in nuclear double income families in urban areas are some of theother factors that are influencing the lifestyles. As a result, there has been an increase indemand for processed, ready-to-cook and ready-to-eat food. According to Euromonitormoney spend by Indians on meals outside the home has more than doubled in the pastdecade to about US $5 billion a year, and is expected to further double in the next 5 years.Thus, there lies significant growth potential for the sector and its investmentattractiveness.

Food and grocerytakes away 57% fromthe consumers wallet

32.554.6

90.954.1

71.6

74.1

44.0

28.1

15.3

33.0

23.4

12.8

6.01.0 2.00

50

100

150

200

1997-98 2000-01 2006-07

Destitutes ($4388)

The Rupee Spending

5%1%

9%

5%

7%

3%6%

3% 4%

57%

Food and grocery Personal Care items

Home Textiles Savings & InvestmentsClothing, Footwear and Accessories Consumer Durable/ Appliances

vacation Eating out

Movies and Entertainment Books and Music


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Increase in consuming class in rural areasNearly 70% of Indias population resides in rural areas and account for nearly 50% of Indiasconsumption. Even with increasing urbanization and migration it is estimated that 63% ofIndia's population will continue to live in rural areas in 2025. Average income levels for

rural India will increase with higher agri-incomes and a gradual shift from farm to non-farmemployment. 37% of rural households could move into the middle income-and-aboveconsuming class by 2010 according to NCAER survey from just 15-17% in the late 1990s. Thiswill result in a consuming class of 56 million rural households by 2010 more than half ofIndia's overall estimated middle class by this time. This will open up vast and relativelyunexplored section of India to companies.

Major Challenges for the Indian Food Industry

Food-processing industry is facing constraints like non-availability of adequateinfrastructural facilities, lack of adequate quality control & testing infrastructureinefficient supply chain, seasonality of raw material, high inventory carrying cost, hightaxation, high packaging cost, affordability and cultural preference of fresh foodUnprocessed foods are prone to spoilage by biochemical processes, microbial attack andinfestation. Good processing techniques, packaging, transportation and storage can play animportant role in reducing spoilage and extending shelf life. The challenge is to retain thenutritional value, aroma, flavour and texture of foods, and presenting them in near naturaform with added conveniences. Processed foods need to be offered to the consumer inhygienic and attractive packaging, and at low incremental costs.

Major Challenges for the Indian Food Processing Industry are:

Consumer education on nutritional facts of processed foods Low price-elasticity for processed food products Need for distribution network and cold chain Backward-forward integration from farm to consumers Development of marketing channels Development of linkages between industry, government and institutions Taxation in line with other nations Streamlining of food laws

Indian Food Processing Industry by sectors

India's food-processing sector covers fruit and vegetables; meat and poultry; milk and milkproducts, alcoholic beverages, fisheries, plantation, grain processing and other consumerproduct groups like confectionery, chocolates and cocoa products, soya-based products,mineral water, high protein foods etc. The most promising sub-sectors includes- soft-drinkbottling, confectionery manufacture, fishing, aquaculture, grain-milling and grain-basedproducts, meat and poultry processing, alcoholic beverages, milk processing, tomato paste,

fast food, ready-to-eat breakfast cereals, food additives, flavors etc. Health food andhealth food supplement is another rapidly rising segment of this industry, which is gainingvast popularity amongst the health conscious.

The dairy sector has an estimated consumer demand for milk and milk products at Rs 1,400billion, growing at about 8% p.a. Poultry meat is estimated to have production of 1.8million tones, growing at a CAGR of 11%. Besides, ready-to-eat (RTE) industry, still nascentin India, is estimated to be about Rs 5 billion growing at 30% p.a and expected to cross Rs15 billion by 2010. The wine sector, is growing at about 50% p.a is expected to have amarket size of Rs 20 billion by 2010.

Rural areas cannot beignored as it accountsfor 50% of Indiasconsumption

The industry needs toovercome variouschallenges if it has togrow to the estimatedlevels.


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Segmentation of various sectors in the industry

Sectors Products

Dairy Whole milk powder, skimmed milk powder, condensed milk,ice cream, butter and ghee, cheese

Fruits &Vegetables

Beverages, juices, concentrates, pulps, slices, frozen &dehydrated products, potato wafers/chips, etc

Grains &Cereals

Flour, bakeries, starch glucose, cornflakes, malted foods,vermicelli, beer and malt extracts, grain based alcohol

FisheriesFrozen & canned products mainly in fresh form

Meat & PoultryFrozen and packed - mainly in fresh form, Egg Powder

ConsumerFoods

Snack food, namkeens, biscuits, ready to eat food, alcoholic

and non-alcoholic beverages

Dairy

Milk and milk products is rated as one of the most promising sectors in the processed foodindustry. India is the largest producer of milk in the world with production of 97.1 milliontones in 2005-06, growing at a CAGR of 4%. According to estimates by Dairy India, the sizeof the Indian dairy market is Rs 2,27,340 crores, which is expected to more than double toRs 5,20,780 crores by 2011. Indias total milk production is projected to cross 100 milliontones by end of 2007 according to the tenth five-year plan estimates. Milk and milkproducts account for a significant 17% of Indias total expenditure on food. India is on theverge of assuming an important position in the global dairy industry.

Production and Per capita availability of milk

YearPer capita availability

(grams / day)Production in million tonnes

1950-51 124 17

1960-61 124 20

1970-71 112 22

1980-81 128 31.6

1990-91 176 53.9

2000-01 220 80.6

2001-02 225 84.4

2002-03 230 86.2

2003-04 231 88.1

2004-05 233 92.5

2005-06 241 97.1

2006-07 245 100

* Provisional

Source: department of Animal Husbandary and dairyingAbout 35% of milk produced in India is processed. The organized sector comprising of largedairy plants processes about 13 million tones, whereas the unorganised sector (halwaiis andvendors) process about 22 mtpa.

Milk and milk productsis rated as the mostpromising sectors andis expected to morethan double by 2011.


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Source: Cygnus

The traditional dairy products are Indias largest selling and profitable segment andaccounts for more than 50% of milk and dairy products. With liberalisation, the import oftechnology and machinery has effected modernization and technological breakthrough inproduction of traditional milk products and this has encouraged the growth of theorganized sector in the dairy segment.

As per estimates by dairy India 2007, by 2011 private dairies are slated to outpace the co-operative sector and become the largest producers of milk in the industry. Private dairiesare likely to contribute double the quantity of milk that would be contributed by co-operatives in 2011. Many corporates are planning a foray into the dairy business sensing thebig opportunity. Reliance and Walmart have already made an entry into this business bysigning deals with farmers to procure 7 lakh litres and 15 lakh litres of milk per day. DaburIndia is exploring the possibility of entering into the milk-based drink segment. YakultDanone plans to launch health drinks and yoghurts based on probiotics bacteria. Amul hasalso forayed into the flavored yoghurt segment.

The 55,000 tpa branded butter market, valued at US $133 million is estimated to begrowing at 8-10% pa. The cheese market is estimated to be US $110 million in value termsand an estimated 54,000 tones in volume terms, and has been growing at a CAGR of 8-9%during 1999- 2003. The ice-cream market in India is estimated to be about US $199 millionpa.

Major PlayersThe packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operativeMilk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperativeshave their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verkain Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private playersinclude J. K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc.

Big names likeReliance, Walmart,Dabur are entering theprivate diary sectorthrough tie ups withfarmers

Milk Uses in India

22%

7%

8%63%

Value Added (Unorganised)

Vlaue Added (organised)

Packed liquid Milk

Unprocessed


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Some of the major dairy products manufacturers in the country

Company Brands Major Products

Nestle IndiaMilkmaid, Cerelac,Lactogen, Milo,

Everyday

Sweetened condensedmilk, malted foods, milk

powder and Dairy whitener

Milkfood MilkfoodButter, Ghee, milk powder,ice cream, and other milkproducts

GlaxoSmithKlineConsumer Healthcare

Horlicks, Boost,Maltova, Viva

Malted Milkfood, ghee,butter, powdered milk,milk fluid and other milkbased baby foods

Kwality Dairy (India)Indana, KreamKountry

Skimmed milk powder,whole milk powder, dairymilk whitener, Ghee

Gujarat Co-operativeMilk MarketingFederation

AmulMilk, Butter, cheese, Ghee,Ice cream and other milkproducts

H.J. HeinzFarex, Complan,Glactose, Bonniemix,Vitamilk

Infant Milkfood, maltedMilkfood

Heritage Foods HeritageMilk, Curd, Ghee, ButterMilk

Britannia MilkmanFlavoured milk, cheese,Milk Powder, Ghee

Cadbury Bournvita Malted food

Mother Dairy Mother DairyMilk, Ice Cream, milkproducts

Source: Company website

Fruits and Vegetable Processing

India is the 2nd largest producer of fruits (50 million tones) and vegetables (100 milliontones). The installed capacity of fruit and vegetable processing industry has increased from11.08 lakh tones in 1993 to 21.18 lakh tones in 2006. The industry is still nascent and justabout 2.2% of the total output of fruits and vegetables is processed as per estimates. Thecountry's share in the world trade of processed fruits and vegetables is still less than 1%.Likewise, the consumption of value added fruits and vegetables are also low compared tothe primary processed food in general and fresh fruits and vegetables in particular. Thisthrows up a huge opportunity for the sector through increased penetration in the domesticmarket. The government expects the processing in this sector to grow to 10% in 2010 and25% of the total produce by 2025.

F&V processing is stillat its nascent stagewith processing levelof only 2.2% of totaloutput


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Source: APEDA

Major players

Grains

India produces more than 200 million tones of different food grains every year. All majorgrains like rice, wheat, maize, barley and millets like jowar (great millet), bajra (pearlmillet) & ragi (finger millet) are produced in India. About 15% of the annual production ofwheat is converted into wheat products. There are 10,000 pulse mills in the country with amilling capacity of 14 million tones, milling about 75% of annual pulse production of 14million tones.

Rice- most processed grainIndia is the second largest rice producer in the world with a 20% share in world riceproduction. The total rice market in India is estimated to be worth around Rs 1,00,000crores (growing at 3-4% annually) of which only 10% of the rice is branded. The brandedrice sales have taken off in recent years and have been growing at around 15% in thedomestic market compared to 5% for unbranded rice. The branded rice sales growth is animpressive 25% in the international market as compared to stagnant sales of unbrandedrice. Added to this, of the Rs 3,500 crores worth of basmati rice produced, only around Rs500 crores worth is sold in branded form.

Company Brands Products

HULKissan, Knorr,Annapurna,

Jams, Ketchups, wheat flour,Fruit Beverages, soups

Dabur IndiaReal, Real Activ,Coolers

Fruit Beverages

Mother Dairy (Safal) SafalFrozen processed fruits andvegetables, Jam, Pickle

Temptation Foods Pure Temptation IQF fruits and vegetables,

Godrej F&B Fruit Juices, Fresh F&V (Retail)

Capital Foods Private Label Frozen Foods, IQF Vegetables

Mafco Mafco Frozen fruits and vegetables

Priya Foods Priya Pickles, Fruit Juices

MTR Foods MTR Frozen Foods, Pickles, spices &masala

Allana Cold Storage Allana Frozen Foods

Branded rice isgrowing at 15% indomestic market and25% in internationalmarket

Fruit & Vegetable exports (Rs crores)

0200400600800

1000120014001600

1800

2001-02 2002-03 2003-04 2005-06


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While the total rice market is growing at 3-4% p.a, the basmati rice category is growing at6%, indicating a latent robustness in the countrys consumption. India is the largestproducer and exporter of basmati rice accounting for around 74% of the global productionIndian basmati rice commands premium over its traditional rivals in terms of prices and

quality. India produces around 2 million tones of basmati p.a, around 50% of Indias totabasmati production is consumed within, while the rest is exported.

Source: Rice India January 2006

India exports around one million tones of basmati rice every year. Saudi Arabia comprises60% of the exports. Pakistan is Indias sole basmati competitor in the international market.The country wise breakup of exports is given in the figure below.

Outlook

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

Growth in world population from 6.2 billion in 2002 to more than 8 billion in 2030;growth in the Indian population from 1.1 billion in 2005 at 1.7% p.a

Growing per capita incomes, rising disposable surpluses, increasing consumerism and

increase in the share of organised retail. The Indian retail space is also experiencingenormous growth in retail chains and malls

Rising disposable incomes are growing branded volumes. Demand for branded rice islikely to grow at around 15%

Basmati accounts for only 2% of Indias Rs 1,000 billion rice market by volume andabout 5% by value, signifying a huge growth potential

The median age of the Indian population is one of the youngest in the world, averagingaround 24, complemented by an increase in income levels, which could translate intoencouraging spending patterns

A rising number of Indian expatriates as well as a growing preference for basmati in theMiddle East are likely to keep demand on the boil

Recent projections made by the IMPACT model developed at the International FoodPolicy Research Institute (IFPRI) indicate that the demand for rice will increase by 1.1%annually over the next three decades

Branded rice is becoming popular in both the domestic as well as the export market.Indian Basmati rice commands a premium in the international market. This segment thusoffers opportunities in marketing of branded grains, as well as grains processing.

The global rice trade is expected to grow at 2-3% p.a over the next 10 years,strengthening production to around 34 million tones by 2014. Basmati is expected tomaintain a robust growth of over 6% in the medium-to-long term.

Indian Ba sm at i Rice Export Des t inat ions

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Saud i

Arabia

Kuw ait U A E U K U S A O thers

MMT


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Major players


KRBLIndia Gate, Lion, Doon, Bemisal, NurJahan, Rice King, Taj Mahal

Rice

Kohinoor Foods Kohinoor, Rice, ConvenienceFood

LT OverseasDaawat, Heritage, Orange, Josh,Apsara,

Rice, Wheat

Lakshmi Energyand Foods

Lakshmi Foods Rice, Wheat

Usher Agro Rasoi Raa Rice, Cereals

REI AgroKasauti, Real Magic, Mr Miller,Hungama, Ikon, Hansraj, Rain Drop

Rice

Meat and poultry processing

At 485 million India has the worlds largest livestock population- accounting for over 55%

and 16% of the worlds buffalo and cattle populations respectively (the worlds largestbovine population). It ranks second in goats, third in sheep and camels, and seventh inpoultry populations in the world.

Processing of meat products is licensed under Meat Food Products Order, (MFPO), 1973.Total meat production in the country is estimated at 5 million tones annually. Indianconsumer prefers to buy freshly cut meat, rather than processed or frozen meat. A mere6% of production of poultry meat is sold in processed form. Of this, only about 1%undergoes processing into value added products (Ready-to- eat/ Ready-to-cook). Processingof large animals is largely for the purpose of exports. This is because of low processing ofvalue added meat products and consumer preference for fresh meat. The total processingcapacity in India is over 1 million tones p.a of which 40-50% is utilized.

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

India. The estimated production is 15,00,000 tones growing at CAGR of 13% through 1991-2005. India ranks among the top six egg producing countries and ranks among the top fivechicken producing countries. Per capita consumption has grown from 870 grams in 2000 toabout 1.68 kg in 2005. This is expected to grow to 2 kg in 2009. Growth in Buffalo meatproduction has been less rapid (CAGR of 5% in the last 6 years). The current productionlevels are estimated at 1.9 million mt. Of this about 21% is exported. Mutton and lamb isrelatively small segment where demand is outstripping supply, which explains the highprices in domestic market. The production levels have been almost constant at 950,000 mtwith annual exports of less than 10,000 mt. This has restricted large processing companiesfrom developing business interests in this sector.

Details of exports in terms of quantity and value of meat products are given below:

Quantity in mts and value in Rs croresItems 2001-02 2002-03 2003-04 2004-05

Qty. Value Qty. Value Qty. Value Qty. Value

Buffalo meat 243355.58 1144.42 297897.3 1305.45 343817.1 1536.77 306970.81 1615.59

Sheep/ Goat meat 3915.06 33.07 4973.55 39.95 16820.53 110.39 8885.28 79.36

Poultry Products 19876.02 130.07 26450.01 156.47 415228.2 202.4 264607.54 154.1

Animal casings 464.28 9.63 8296.17 140.27 732.84 12.43 552.33 12.57

Processed Meat 267.13 1.29 669.48 4.8 986.13 7.63 107.45 1.57

Low preference levelfor frozen meat hasresulted in only 6% ofpoultry meat sold inprocessed form


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Country-wise Exports of Meat Products in Value Terms (April 06-March 07)

Source: CMIE

India exports more than 5,00,000 mt of meat of which major share is buffalo meat. Indianbuffalo meat is witnessing strong demand in international markets due to its lean characteand near organic nature.

The total processed meat production in India is likely to double in the next 10 years andhas a huge potential with the growing number of fast food outlets in the country. With therise in per capita incomes and busy lifestyles, the demand for processed meat productswhich can be quickly cooked, has been rising. Most of the production of meat and meatproducts continues to be in the unorganised sector. Branded products like Venkys andGodrejs Real Chicken are, however, becoming popular in the domestic market.

Fish Processing

India is the third largest fish producer in the world and is second in inland fish production.Fish production in the country has increased from 0.75 mt in 1950-51 to 6.50 mt in 2005-06In 2005-06, it contributed about 1% of the total GDP and 5.3% of the GDP from agriculturesector. The geographic base of Indian marine fisheries has 8,118 km. coastline, 2.02 millionsq.km. of exclusive economic zone including 0.5 million sq. km. of continental shelf, and3,937 fishing villages. India is endowed with rich fishery resources and has vast potentiafor fishes from both inland and marine resources.

Processing of fish into canned and frozen forms is carried out almost entirely for the exportmarket. It is widely felt that Indias substantial fishery resources are under-utilised andthere is tremendous potential to increase the output of this sector. The potential could begauged by the fact that against fish production potential in the exclusive economic zone of3.9 million tones, actual catch is to the tune of 2.87 million tones. Harvesting from inland

sources is around 2.7 million tones. In last six years there was substantial investment infisheries to the tune of Rs 3,000 crores of which foreign investments were of the order ofRs 700.

Processed meat hashuge potential withrising number of fastfood outlets and isexpected to double innext 10 ears

9%

54%

8%

8%

7%

14%

Philippines

Saudi Arabia

UAE

Malaysia

Angola

Others


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Production and export of marine products

YearFish production(million tones)

Export of marineproducts

Marine Inland Total

Quantity('000tones)

Value(Rs crores)

1950-51 0.5 0.2 0.7 20 2

1960-61 0.9 0.3 1.2 20 4

1970-71 1.1 0.7 1.8 40 35

1980-81 1.5 0.9 2.4 80 235

1990-91 2.3 1.5 3.8 140 893

2000-01 2.8 2.8 5.6 503 6288

2002-03 3 3.2 6.2 521 6793

2003-04 3 3.4 6.4 412 6086

2004-05 3.52 2.78 6.3 482 64602005-06(P) 3.76 2.81 6.57 551 7019

Source: Department of Animal Husbandry, Dairying and Fisheries

Major players in meat, poultry and fisheries


Arambagh Hatcheries Arambagh Meat, Poultry

Hind Industries Sibaco,EatcoFrozen buffalo meat, Chilled/Frozen sheep and Goat meat

VenkateshwaraHatcheries

Venky's Poultry products

Alkabeer ExportsLimited

Alkabeer Frozen buffalo meat, Chilled/

ASF Seafoods ASF Seafoods SeafoodBell Foods Bell Foods Marine foods

Frigo Refico Allana Allana Frozen buffalo and other meat

Godrej Agrovet Real Good Chicken Poultry products

MAFCO, Mumbai MAFCO Pork and other meat products

Packaged/Convenience Food

This segment mainly comprise of pasta, breads, cakes, pastries, rusks, buns, rolls, noodles,corn flakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread andbiscuits constitute the largest segment of consumer foods. The annual production of bakeryproducts, which includes bread, biscuits, pastries, cakes, buns, rusk etc, is estimated to be50 lakh tones in 2004-05 with estimated value of Rs 69 billion. The two major bakeryindustries, viz., bread and biscuit account for about 82% (4 million tones) of the totalbakery products. The organised sector has a market share of 45% and the balance 55% iswith the unorganised sector in the baked products. The sectors that are projected toachieve high growth between 10-20% in 2005-06 in bakery segment include bread, cakes,pastry which is expected to achieve up to 11% growth and biscuits over 13%.


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BiscuitsThe size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is accountedfor by the organised sector. Glucose and milk biscuits account for 25% each and Mariebiscuits 20% of the biscuits market.

The biscuit industry in India witnessed annual growth as below:

2003-04 15%

2004-05 14%

2005-06 14%

2006-07 13%

While the growth rate has been stagnating during last 4 years, momentum is expected topick up during 2007-08, mainly on account of exemption from central excise duty onbiscuits with MRP up to Rs 100/per kg, as per Union Budget for 2007-08. Indian BiscuitManufacturers Association (IBMA), instrumental in obtaining the excise duty exemptionestimates annual growth of around 17-18% in 2007-08. Growth in biscuit marketing hasbeen achieved, mainly due to improvement in rural market penetration.

The per capita consumption of biscuits in our country is only 2.1 kg compared to more than10 kg in the USA, UK and West European countries and above 4.5 kg in South East Asiancountries like Singapore, Hong Kong, Thailand, Indonesia etc. China has a per capitaconsumption of 1.9 kg while in the case of Japan it is estimated at 7.5 kg. This shows thehuge untapped potential of biscuit industry in India. Exports of Biscuit is estimated toaround 10% of the annual production during the year 2006-07

With the entry of big players, the domestic biscuit manufacturing sector is to see a healthycompetition that would ensure good quality products at affordable prices to the consumerExports of biscuits would also pick up. It has already increased with Indian biscuits turningfavourite choice in several Middle East markets. The export of high end products (likecream biscuits) to former East European countries has also begun to rise. Thus, the biscuit-manufacturing segment is poised for a stronger growth in the coming days.

BreadThe bread industry with estimated production of 27 lakh tones in 2004-05 is represented byboth the organised and unorganised sectors with 55% and 45% contribution to productionThe overall market size for bread in India is a little over 36 lakh loaves a day, and only onethird of this is from the organised sector.

The large organised sector players who are prominent in the high and medium-pricesegments include Britannia, Modern Industries. Brands like Modem and Britannia are majorplayers in the bread market and together they account for 90% of the organised breadmarket. Local manufacturers with numerous local brands cater to populous segment and

contribute considerably in the bread segment. Low margins, high level of fragmentationare the main features in the bakery industry. Volumes, brand loyalty and strongdistribution networks are the main drivers of growth.

Growth rate of biscuitsis expected to pick up

from 13-15% during2003-07 to 17-18% in2007-08


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Major players- Bread, Biscuits


Modern Foods Inds Bread

Parle Parle-G, Krackjack,Manaco, Hide & Seek

Biscuits

Priya Food Products Priya Biscuits

Surya Foods and Agro PriyaGold Biscuits

Britannia Industries Britannia Biscuits, Bread, Cakes

ITC Sunfeast Biscuits

Confectionery

The organised market for confectionery estimated at Rs 2,000 crores is growing at around7-8% p.a. The retail value of the Indian sugar confectionery market, which includesproducts such as sweets, jellies and gums, is estimated to be US $461 million in 2007 and isprojected to reach US $498 million in 2008. The yearly growth rate from 2002 to 2006 was

7.2%. The Indian candy market is currently valued at around US $664 million, with about70% in sugar confectionery and the remaining 30%, in chocolate confectionery. The Indiansugar confectionery market is projected to expand at a CAGR of 8% until 2011, according toa study by Euromonitor International. Two major players namely Cadbury India and NestleIndia, which together account for about 90% of the total chocolate market, dominate thechocolate market in India.

Increase in affluent consumers who show a tendency for impulse purchases of productssuch as sugar confectionery, the development of supermarkets, hypermarkets andconvenience stores coupled with the trend towards higher allowances for children arelikely to be the primary growth drivers for sugar confectionery.

Major playersCompany Brands

Cadbury IndiaDairy Milk, Eclairs,Gems,Temptations,Celebrations, Nutties

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

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

Nestle India Kit Kat, Milky Bar

Parle Melody, Poppins, Kismi, Mangobite

PerfettiMentos, Centerfresh, Alpenliebe, Chlormint,Happydent

Ravalgaon Sugar FarmsCoffee break, Mango Moods, Pan Pasand,Klearmint

ITC Mint-o, Candyman

Ready-to-eat foods

Ready-to-eat foods market in India is expected to reach Rs 2,900 crores by 2015 from itspresent size of Rs 128 crores (2006). The factors contributing to this growth would bechanges like cold chain development, disintermediation, streamlining of taxation,economies of scale on the supply side, coupled with increasing disposable incomes,diminishing culinary skills and the rising need for convenience on the demand side. Theready-to-eat foods market in India has remained under-penetrated owing to factors likeconsumers penchant for freshness, low affordability and the Indian housewifes preferencefor home cooked food. Packaged foods in India have grown at approximately 7% p.a

Sugar confectionerymarket is projectedto expand at a CAGRof 8% until 2011


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between 2000-2005, with ready-to-eat foods (RTE) being the fastest growing category atCAGR 73%. The Indian RTE foods market, canned/preserved segment is more popularcontributing to approximately 90% of the market and growing at a CAGR of 63% between2001 and 2006. The chilled and dried ready meal segments are non-existent. The packagedfoods industry in India has not experienced significant growth due to inadequate demandarising from low household incomes and consumer preference for fresh and home-cookedfood. There is thus a huge untapped market opportunity arising due to rapid demographicshifts in income, urbanization and proportion of urban working women in India. Theindustry needs to concentrate on broadening the market and increasing penetrationamongst Indian consumers.

Major players


Dabur India Hommade

Priya Foods PriyaInstant mixes, Puries, Pulihorapaste, Ready to Eat

Capital Foods

Chings Secret, Smith

& Jones Cooking Paste, Sauce & Ketchups

Haldirams HaldiramsPackaged bhel puri chats, chanamasala, samosa, pakoras, amongothers.

ITC Aashirvaad Atta, Bingo,Kitchens of India

Ready to eat/cook foods.

MTR MTRIndian curries,gravies and rice.

Satnam Overseas Ltd Kohinoor Ready to eat Indian delicacies.

Gits Gits Variety of ethnic Indian cuisine

Aerated Soft Drinks, Packaged drinking water

Aerated soft drinksThe soft drinks constitute the 3rd largest packaged food regularly consumed after packedtea and packed biscuits. The aerated soft drinks industry in India comprises over 100 plantsacross all states. It provides direct and indirect industry related employment to over1,25,000 employees. It has attracted one of the highest foreign direct investments in thecountry. It has strong forward and backward linkages with glass, plastic, refrigeration,sugar and transportation industry. Installed capacity of sweetened/aerated water as onJanuary 2006 is reported to be 29.60 lakh tons p.a.

Soft drink market overview: Indian soft drink market is valued to be Rs 6,000 crore. Thesoft drink market can be broadly divided into two major segments- carbonated soft drinkand non-carbonated soft drink. The carbonated drinks are the mainstay and accounts for85% of the total soft drink market, however the growth rate has been stagnant and in fact

on declining trend on account of controversial issue of pesticide. Non-carbonated soft drinkcategory includes sub category like fruit drink, juices, dairy drinks and more. Thepreparatory soft drink market is around Rs 250 crores, out of which Rasna has almost 90%volume share.

Packaged drinking waterThere are 218 companies, which have been granted licence for manufacturing packageddrinking water and packaged natural mineral water. There has been a spurt in growth forthe last 3-4 years, which can largely be attributed to a range of various packaged sizes tosuit the consumers. 80% of the packaged water sale comes from the bulk containers (5litres and above).

RTE foods is expectedis growing at CAGR of73% and is the fastestgrowing category inpackaged foodsegment


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FDI

According to industry estimates, the food-processing sector needs investment of about US$28-35 billion to meet the changing food demands in India. The outlay for the food-processing segment has been increased from US $19.5 million in 2004-05 to US $41.4 millionnext year, more than twice the earlier amount.

FDI in the country's food sector is poised to hit the US $3-billion mark. In the last one-yearalone, FDI approvals in food-processing has doubled. Add to this the US $55 million that hasbeen invested in sugar and cooking oil companies.

The food-processing sector continues to attract FDI. Details of FDI inflow Since 2000-01 isas under:

FDI

198.1 174.126.0

182.9176.5

441.0

1036.1

510.9

0

250

500

750

10001250

1500

2000-

01(Apr-

Mar)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

(Apr-

Mar)

Rscrores

Source: MOFPI

Maharashtra was among the front-runners to receive the highest share of FDI in foodprocessing during the last five years. The dairy and consumer industries received FDI worth

Rs 2.7 billion each as foreign investment. Nearly 30% of FDI in the food-processing sectorcomes from EU countries such as Netherlands, Germany, Italy and France.

Government Regulation and Support

Since liberalisation several policy measures have been taken with regard to regulation &control, fiscal policy, export & import, taxation, exchange & interest rate control, exportpromotion and incentives to high priority industries. Food-processing and agro industrieshave been accorded high priority with a number of important relieves and incentives. Someof the important policy changes are as follows

Regulation and Control

As per extant policy, FDI up to 100% is permitted under the automatic route in the foodinfrastructure (food park, cold chain/warehousing).

Automatic approval to FDI up to 100% equity in FPI sector excluding alcoholic beveragesand a few reserved items.

Foreign investments are allowed in SSI reserved items under an export obligation(pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil,groundnut oil, sweetened cashew nut products, ground and processed spices other thanspice oil and oleoresin, tapioca sago and its flour).

FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohosubject to licensing by the appropriate authority.


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No industrial license is required for almost all of the food & agro processing industriesexcept for some items like: beer, potable alcohol & wines, cane sugar, hydrogenated.

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

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

Fiscal policy and taxation:

Rupee is now fully convertible on current account and convertibility on capital accountwith unified exchange rate mechanism is foreseen in coming years.

Repatriation of profits is freely permitted in many industries except for some, wherethere is an additional requirement of balancing the dividend payments through exportearnings.

Liberal corporate tax policy is applicable for export and domestic earnings, income taxrebate allowed (100% of profits for five years and 25% of profits for the next five yearsfor setting up of new agro-processing industries to process and package fruits &

vegetables. Fruits & vegetables, and dairy machineries are completely exempt from central excise

duty. Central excise duty on preparation of meat, poultry and fish, pectin, pats andyeast is also completely exempt.

Quantity restrictions on all food products have been removed. Peak rate of customsduty has been reduced from 30% to 25% (excluding agricultural and dairy products) andduty structure on designated items has been rationalized.

Customs duty on refrigerated goods transport vehicles has been reduced form 20% to10%.

Excise Duty of 16% on dairy machinery has been fully waived off and excise duty onmeat, poultry and fish products has been reduced from 16% to 8%.

Export promotion:

Food-processing industry is one of the thrust areas identified for exports. Free TradeZones (FTZ) and Export Processing Zones (EPZ) have been set up with alinfrastructures. Also, setting up of 100% Export Oriented Units (EOU) is encouraged inother areas. They may import free of duty all types of goods, including capital foods.

Capital goods, including spares up to 20% of the CIF value of the capital goods may beimported at a concessional rate of customs duty subject to certain export obligationsunder the EPCG scheme. Export linked duty free imports are also allowed.

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

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

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

such exports are also exempt from MAT. Agri export zones and food parks Setting up of 60 agri zones for end-to-end development for export of specific product

from geographically contiguous areas. 53 food parks approved to enable small and medium food and beverage units to set up

and to use capital intensive common facilities such as cold storage, warehouse, qualitycontrol labs, effluent treatment plant, etc.


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Regulatory Framework

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

laws and standards adopted by the Government to verify the quality of food and drugs isone of the best in the world. Multiple laws/regulations prescribe varied standards regardingfood additives, contaminants, food colours, preservatives and labeling. In order torationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggestlegislative and other changes to formulate a modern, integrated food law, which will be asingle reference point in relation to the regulation of food products. The food laws in Indiaare enforced by the Director General of Health Services, Ministry of Health and FamilyWelfare, Government of India (GOI).

Various food laws applicable to food and related products in India are:

Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health &Family Welfare): Covers specifications related to food colour, preservatives, pesticideresidues, packaging and labeling, and regulation of sales. The Standards of Weightsand Measures Act, 1976, and Standards of Weights and Measures (PackagedCommodities) Rules, 1977: Designed to establish fair trade practices with respect topackaged commodities

Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development). Essential Commodities Act, 1955 (Ministry of Food & Consumer Affairs). Fruit Products Order (FPO), 1995: Specifications and quality control requirements

regarding the production and marketing of processed fruits and vegetables, sweetenedaerated water, vinegar, and synethic syrups.

Meat Food Products Order, 1973 (MFPO): Administers the permissible quantity ofheavy metals, preservatives, and insecticide residues for meat products

Milk and Milk Products Order, 1992: Regulates the production, distribution, andsupply of milk products; establishes sanitary requirements for dairies, machinery, and

premises; and sets quality control standards for milk and milk products. The Food Safety and Standards Act, 2006: In August 2006, the Government of India

had passed a new legislation Food Safety and Standards Act. The Act proposesestablishment of a new authority, the Food Safety and Standards Authority,reorganisation of scientific support pertaining to the food chain through theestablishment of an independent risk assessment body and a new Food Law, mergingeight separate Acts.

The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation ofProduction, Supply and Distribution) Act, 1992 and Rules 1993.

The Insecticide Act, 1968. Export (Quality Control and Inspection) Act, 1963. Environment Protection Act, 1986. Pollution Control (Ministry of Environment and Forests). Industrial Licenses. BIS Act, 1986. VOP (Control) Order 1947. SEO (Control) Order -1967.


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Major Food Processing Companies in India

Major MNCs Major Indian companiesIndian MNCs likely toenter

Nestle, Pepsi, Coke, Kellogs,Conagra, Unilever, Perfetti,Glaxo Smithkline, Heinz,Wyeth, Ajinomoto, Nissinmet,Walmart.

IT, Dabur, Britannia, Parle,Amul, Haldiram, Godrej,Venky's

Reliance, Bharti Group,Tatas, Wipro, thaparsetc.

Outlook

With the success of Green and White Revolution, India is now poised for the FoodRevolution. Entry of multinationals, low cost of technology and rise in commodity brandinghas resulted in a change in the Indian food industry.

Vision 2015 adopted by this Ministry of Food Processing envisages

- Trebling the size of the processed food sector- Increasing level of processing of perishables from 6 % to 20 %.- Value addition to increase from 20 % to 35%- Share in global food trade to increase from 1.5 % to 3%

Vision Document Projections2003-04

($ billion)2014-15

($ billion)

Total food consumption 205

Processed foods126 274

Primary processed food 79 136

Value Added Food 48 138

Share of value added products in foodproduction

16% 50%

Indian food-processing industry is poised for explosive growth driven by changingdemographics, growing population and rapid urbanization along with increased governmentsupport. These factors will increase the demand for value added products and thus improvethe prospects of food-processing industry in India. The governments focus towards food-processing industry as a priority sector will ensure policies to support investment in thissector and attract more FDI. India with its vast pool of natural resources and growingtechnical knowledge base has strong comparative advantages over other nations. According

to CII has estimates, food-processing sector has the potential of attracting US $33 billion ofinvestment in 10 years and generate employment of 9 million person-days. The foodprocessing sector in India is clearly an attractive sector for investment and offerssignificant growth potential to investors.

We initiate coverage on Lakshmi Energy & Foods and RuchiSoya.
http://www.way2wealth.com/reports/RR150420082.pdfhttp://www.way2wealth.com/reports/RR150420082.pdfhttp://www.way2wealth.com/reports/RR150420083.pdfhttp://www.way2wealth.com/pdf/29517.pdfhttp://www.way2wealth.com/pdf/29517.pdfhttp://www.way2wealth.com/pdf/29517.pdfhttp://www.way2wealth.com/reports/RR150420083.pdfhttp://www.way2wealth.com/reports/RR150420082.pdf


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Indian Processed Food Industry

Opportunities GaloreSector Coverage

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