Sector Coverage

April 15, 2008

Indian Processed Food Industry

Opportunities Galore

Industry Overview Global Processed Food Industry Indian Processed Food Industry Processed Food Industry - A Sunrise sector Where the opportunity lies- areas for investment Industry Analysis Driving Forces Major Challenges Indian Food Processing Industry by sectors Diary Fruits and Vegetable Grains Meat and Poultry Fish Packaged/Convenience Food Aerated Soft Drinks, Packaged drinking water Exports FDI in Food Processing Government Regulation and support Regulatory framework Outlook

Initiating Coverage Lakshmi Energy & Foods Ruchi Soya

Analyst Sectors -

Nisha Harchekar nishaharchekar@way2wealth.com FMCG, Pharma, Entertainment

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

WAY2WEALTH Securities Pvt. Ltd.,

Indian Processed Food Industry

Sector Coverage
Opportunities Galore

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% of processed foods are traded across borders compared to 16% of major bulk agricultural commodities. Indian food-processing industry is miniscule in comparison and is estimated to be US $40 billion and is likely to grow at over 10%, on the basis of an expected GDP growth rate of 8-8.5% p.a.
86

Ruchi Soya FY09(E) CMP (Rs) Marketcap (Rs crores) PE (x) Mktcap/sales (x) EV/EBITDA (x) RoCE (%) RoNW (%)

1570 6.8 0.1 5.3 16.8 15.0

With enormous scope for value addition, increase in the consumption of processed food products in India and many fiscal incentives being planned by the government, this sector is poised to maintain the growth momentum in the future. Moreover, the advent of the WTO regime and the possibility of reduced subsidies in developed countries can add to Indias strengths in food production and processing industry. India accounts for less than 1.5% of international food trade despite being one of the worlds major food producers, which indicates huge potential for both investors and exporters. With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2010. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion by 2014-15 assuming a growth of 10%. The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector. Several global food giants and leading Indian industrial enterprises are already making their presence 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 ten years. Thus, there is ample of opportunities for investments in food and food-processing technologies, equipments, especially in areas of canning, dairy & food-processing, specialty processing, packaging, frozen food and thermo processing, cold chains and in the area of food retail. Ministry of food processing in its Vision 2015 document has estimated the size of processed food sector to treble, processing level of perishable to increase from 6% to 20%, value addition to increase from 20 % to 35% and Indias share in global food trade to increase from 1.5 % to 3%. The governments focus towards food processing industry as a priority sector will ensure policies to support investment in this sector and attract more FDI. India with its vast pool of natural resources and growing technical knowledge base has strong comparative advantages over other nations. According to CII estimates, food-processing sector has the potential of attracting US $33 billion of investment in 10 years and generate employment of 9 million person-days. The food-processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors. The report outlines the tremendous growth potential in the sector and various opportunities for investments. We initiate coverage on Ruchi Soya and Lakshmi Energy & Foods with a BUY recommendation.
WAY2WEALTH Securities Pvt. Ltd.,

Lakshmi Energy & Foods FY09(E) CMP (Rs) Marketcap (Rs crores) PE (x) Mktcap/sales (x) EV/EBITDA (x) RoCE (%) RoNW (%)

200

1200 7.2 0.9 4.4 29.3 35.5

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@ w ay2 we alth.com website: www .w ay2w ealth.com

Indian Processed Food Industry

Sector Coverage
Opportunities Galore

Global Processed Food Industry

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% of processed foods are traded across borders compared to 16% of major bulk agricultural commodities. Over 60% of total retail processed food sales in the world are accounted by the U.S, EU and Japan taken together. Japan is the largest food processing market in the Asian region, though India and China are catching up fast and are likely to grow more rapidly. Leading meat-importing countries namely Japan and South Korea have a developed processed food industry. One of the most technically advanced food-processing industry globally is Australia as the products produced are of international standards and at comparatively lower prices. Countries in the Sub-Sahara African region, Latin America and parts of Asia continue to be on the lower-end of technology competence in food items. However, Europe, North America, and Japan are on the higher-end of technology, with a sharper shift towards convenience and diet foods.

Size of global foodprocessing industry US $3.6 trillion

Indian Processed Food Industry

Food and Agriculture: An overview
India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India accounts for less than 1.5% of international food trade despite being one of the worlds major 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 by robust investments and buoyant consumer spending. According to Goldman Sachs projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025 and Japans in 2035. The growth estimated is
Year 2005 2020 2025 2030 2035 Indias GDP ($ billion) 604 2014 3174 4935 7854

India ranks second largest food producer in the world next to China

Excessive controls, low public investment, inadequate infrastructure, poor agri-input management, distorted pricing and incentives structures, and inadequate credit weighed down Indias agricultural sector for several decades. The share of agriculture in Indias GDP has fallen by more than 60% in the past five decades. However, the policy environment is changing with increase in public investment, fading controls on product marketing and distribution, better price-discovery mechanisms and improvement in credit availability. Indian agriculture, particularly food processing and allied activities is thus going through a major transformation with the government targeting 4% growth for the agri-sector from 2005-2020.

Indian Processed Food Industry

Sector Coverage
Opportunities Galore
Agri GDP growth (%CAGR)
5

Agri GDP is expected to grow by 4% from 20052020, which will be beneficial for the foodprocessing sector

4 3 2 1 0
Pre Green Green Revolution Revolution 19511965-80 65 Wider Tech diffusion 198095 Post economic reforms 1995-05

3.5 2.7 2.8 2.1

4.0

The Agri challenge 200520

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 be one of the biggest beneficiaries. Supply chain management, cold storages, financing, retailing and exports are the areas where sizable opportunities are yet to be tapped. The Government is taking steps to liberalize the agri sector to encourage investments. 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 wheat production Largest producer of pulses (15 million tones), accounting for nearly 21% of global pulse production Largest producer of milk (96 million tons), accounting for nearly 17% of global milk production 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 Rice production 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 the global sugarcane production 3rd largest producer of coarse grains (31 million tons), including maize, accounting for nearly 4% of the global coarse grain production 3rd largest producer of edible oilseeds (25 million tons), accounting for nearly 7% of the global edible oilseed production

Source: FICCI, Ministry of Agriculture

Indian Processed Food Industry

Sector Coverage
Opportunities Galore

Processed Food Industry: A sunrise sector

Introduction
Food-processing industry is significant for Indias development because it has important link and synergy with industry and agriculture, the two main support of the economy. Total size of food-processing industry is around US $40 billion growing at 10% and the size of processing sector is estimated to be US $2.53 billion. The industry is mainly unorganized with 75% of the processing units belonging to the unorganised category, the organised category though small, is growing fast. The food production is expected to double in the next 10 years and the consumption of value added food products is expected to grow at a much faster pace. This growth will benefit the economy, increase agricultural yields, create employment and raise the standard of living of various associated people. Rising consumer affluence and economic liberalization is opening up new opportunities in the sector.
Structure of Indian Food Processing Industry
Organised 25%

The industry is unorganized with 75% of the processing units belonging to the unorganised category

Unorganised 42%

Sm all Scale Industries 33%

Source: FAIDA Industries / Ministry of Food Processing

The food-processing industry has been identified as a focus area for development and has been included in the priority-lending sector. Most of the food-processing industries with the exception of beer & alcoholic drinks and items reserved for small scale sector, like vinegar, bread, and bakery have been exempted from the provisions of industrial licensing under Industries (Development and Regulation) Act, 1951. Automatic approval up to 100% of equity 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 power parity, UNCTAD and AT Kearney has ranked India amongst the top three investment destinations in the world. Low level of processing Low level of processing leading to wastage The industry has very low processing level i.e 2.2% for fruits and vegetables, around 35% in milk, 21% in meat and 6% in poultry products, which is significantly lower by international standards. For e.g. processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20% with wastage estimated to be valued at around US $13 billion.

Indian Processed Food Industry

Sector Coverage
Opportunities Galore

Source: FICCI, KPMG report

Processing levels for key Segments in Indian food-processing industry

50 %

Fruits & vegetables have the lowest level of processing. Milk is the most processed food item

40 % 30 % 20 % 10 % 0% 2.2 % Fru its an d Veg eta b les M ilk & D a iry M ea t 6.0 % P o u ltry Pro d u cts 3 5 .0 % 2 1.0 %

Source: Ministry of Food Processing Annual report 2005-06

Food-processing- a growing market

With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2010. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion by 2014-15 assuming a growth of 10%. The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector. Several global food giants and leading Indian industrial enterprises are already making their presence 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.

With 1000 million domestic consumers, there lies huge untapped opportunity

Indian Processed Food Industry

Sector Coverage
Opportunities Galore
According to Government estimates, Rs 1,000 billion investment is needed in this sector across all segments of the value chain, from agri inputs to logistics to front-end infrastructure and distribution, out of which bulk of investment will be from private sector. As a result, various private corporate houses like Reliance have ventured in this space with full vigor. Hence, there is immense potential for investment in this sector. To facilitate the prompt growth of food-processing industry, the Government has implemented the scheme for infrastructure development comprising a food park scheme, establishing packaging centers, 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 ten years. Thus, there is ample of opportunities for investments in food and food-processing technologies, equipments, especially in areas of canning, dairy & food-processing, specialty processing, packaging, frozen food and thermo processing, cold chains and in the area of food 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 harvest season. According to estimates, Indias marketable surplus is set to increase by 350 mtpa to 870 mtpa by 2012. 40% of the increase (150 mtpa) would be accounted by perishable fruits and vegetables. The need for investments in the areas of infrastructure and supply chain is evident from the fact that Indias current storage infrastructure for all food items is only 100 mtpa. The Government has announced various policy and fiscal measures to expand the storage capacity. It has announced 15-25% capital subsidy scheme for facilitating construction of rural godowns and has also sanctioned 16 mt of new capacity the last five years.

Canning, specialty processing, packaging, frozen food and thermo processing, cold chains are attractive areas for investments

Cold chain
The estimated cold-storage capacity at 19.5 mt is less than 15% of the annual horticulture production and is mainly dominated by potatoes (80% of capacity). The size of cold chain industry 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 on horticulture, increasing corporate participation and advent of food parks and agri export zones is likely to result in significant restructuring of cold storage infrastructure with an estimated investment of US $8-10 billion. Voltas, Blue-Star and Kirloskar Pneumatic are some of the cold storage players and equipments. Radhakrishna Foodland and Snowman Frozen are major providers of cold storage facilities. Concor is setting up a countrywide network of 14 cold-chain complexes for horticulture in Delhi, Mumbai and Bangalore among other places.

Supply chain
An efficient supply chain not only brings down the price of the end product but also eliminates intermediaries by connecting farmers directly to the super stores. It has thus become an important aspect of organised retail setup. The food supply chain in India is highly fragmented with numerous intermediaries and lack of economies of scale. Sophisticated applications such as demand forecasting, data integration, financial flow management, supply-demand matching, information sharing will enable it to become mature and efficient.

Food safety management systems

The tightening of restrictions and the introduction of the Sanitary and Phytosanitary Agreement by global industry bodies like the World Health Organisation (WHO), have led to increased 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.

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

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

Food retail
Food and groceries form major portion (75%) of the retail pie. However, it has the lowest level of penetration of 1% in organized retail. Branded foods market size is growing at 1520%. Players have outlined major expansion plans recognizing the opportunity.

Player expansion plans

Player Aditya Birla Group Bharti Wal-Mart Express Retail Services Format More (Supermarket) Trinethra Super Retail Wholesale Stores Big Apple/Big Apple Fresh Aadhar Fresh (Flagship Stores,Daily Stores Big Bazar Pantaloon Food Bazar KBs Fairprice Value tores Reliance Fresh Reliance Retail Hypermarket Reliance Town Centres RPG Sahakari Bhandar Subhiksha Wadhan Food Retail (Spinach) Source: Media report Spencers (Fresh, Express, Daily, Super, Hyper) Sahakari Bhandar Subhiksha Super Local, Express Current outlets 14 1 16 31 12 62 95 240 2 200 18 870 84 Expansion Expected Plans year 1000 4 15 100 1000 100 100 na 1500 471 500 784 5000 na 150 1500 2010 na 2012 na na na na na 2009 2010 2010 2010 2011 na 2009 2010

Big names in the retail industry have outlined huge plans in food & groceries segment

Godrej Group Heritage Foods

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@ w ay2 we alth.com website: www .w ay2w ealth.com

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Industry Analysis
Driving Forces
Abundant availability of raw material
India has varied agro climatic conditions; it has a wide-ranging and large raw material base suitable for food-processing industries. It has a vast coastline of 8000 km, vast marine land with 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 million poultry and 45,200 million eggs. India's agricultural production base is huge. With huge agriculture production base, cheap labour force, lower cost of production, India has a competitive edge over others India- Competitive edge
India Arable Land (million hectare) Irrigated Land (million hectare) Coast line (km) Major Food Crops (MT) Fruits (MT) Vegetables (MT) Rice/Paddy (MT) Wheat (MT) Milk (MT) Sugarcane (MT) Pulses (MT) Tea (MT) Edible Oil seed (MT) Cattle (million)
Source: FICCI, Ministry of Agriculture

Share in global production (%)

Global Rank 2 1 19

161 55 8,000 35 50 100 92 72 90 296 31 25 485 4 10 10 22 15 17 21 4 28 7 16

3 2 2 2 1 1 2 3 2 3 1

Low cost production base for domestic and export market can be set up considering Indias comparatively cheap labour force and lower cost of production. India has access to significant 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 base India with its population of more than 1 billion accounts for close to 17% of the global population. It is one of the most attractive consumer markets in the world with the increase in income levels across the population segments. Food and grocery comprise the largest share of the spending pie followed by personal care items, thus offering a lot of scope for the food-processing industry. According to NCAER data, the consuming class, with an annual income of US $980 (Rs 45,000) or above, is growing and is expected to constitute over 80% of the population by 2009-10. The increase in income levels and higher tendency to spend provides great opportunities for companies across various sectors.

Favorable demographic environment works in favour of the industry

15/A Chander Mukhi, Nariman Point, Mumbai - 400 021. Tel: +91 22 4019 2900 email: research@ w ay2 we alth.com website: www .w ay2w ealth.com

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200 23.4 150 33.0 44.0 71.6 54.1 32.5 0 2.0 1997-98 2000-01 1.0 54.6 28.1

12.8 15.3 74.1

Destitutes (<$327) Aspirants ($327-$449) Climbers ($449-$915) Consumers ($915-

100

50

90.9

$4388) Very Rich (>$4388)

6.0 2006-07

Growing consuming class (million households-annual income)

The Rupee Spending 4% 3%

3% 7%

6%

57%

Food and grocery takes away 57% from the consumers wallet

5%

9% 1% 5%

Food and grocery Personal Care items Home Textiles Savings & Investments Clothing, Footwear and Accessories Consumer Durable/ Appliances vacation Eating out Movies and Entertainment Books and Music

Source: NCAER

Relatively young population India has a relatively young population with close to 55% of population in the age group of 20- 59 years. This group is also high in consumption and therefore, this trend is expected to provide a further boost to the growth of consumption in India. Changing lifestyles Increase in literacy and exposure to western lifestyles by more and more urban consumers have led to change in mindset and preference. Increase in the population of working women and increase in nuclear double income families in urban areas are some of the other factors that are influencing the lifestyles. As a result, there has been an increase in demand for processed, ready-to-cook and ready-to-eat food. According to Euromonitor, money spend by Indians on meals outside the home has more than doubled in the past decade 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 investment attractiveness.

Indian Processed Food Industry

Sector Coverage
Opportunities Galore
Increase in consuming class in rural areas
Rural areas cannot be ignored as it accounts for 50% of Indias consumption

Nearly 70% of Indias population resides in rural areas and account for nearly 50% of Indias consumption. Even with increasing urbanization and migration it is estimated that 63% of India'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-farm employment. 37% of rural households could move into the middle income-and-above consuming class by 2010 according to NCAER survey from just 15-17% in the late 1990s. This will result in a consuming class of 56 million rural households by 2010 more than half of India's overall estimated middle class by this time. This will open up vast and relatively unexplored section of India to companies.

Major Challenges for the Indian Food Industry

Food-processing industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference of fresh food. Unprocessed foods are prone to spoilage by biochemical processes, microbial attack and infestation. Good processing techniques, packaging, transportation and storage can play an important role in reducing spoilage and extending shelf life. The challenge is to retain the nutritional value, aroma, flavour and texture of foods, and presenting them in near natural form with added conveniences. Processed foods need to be offered to the consumer in hygienic 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

The industry needs to overcome various challenges if it has to grow to the estimated levels.

Indian Food Processing Industry by sectors

India's food-processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc. The most promising sub-sectors includes- soft-drink bottling, confectionery manufacture, fishing, aquaculture, grain-milling and grain-based products, meat and poultry processing, alcoholic beverages, milk processing, tomato paste, fast food, ready-to-eat breakfast cereals, food additives, flavors etc. Health food and health food supplement is another rapidly rising segment of this industry, which is gaining vast popularity amongst the health conscious. The dairy sector has an estimated consumer demand for milk and milk products at Rs 1,400 billion, growing at about 8% p.a. Poultry meat is estimated to have production of 1.8 million tones, growing at a CAGR of 11%. Besides, ready-to-eat (RTE) industry, still nascent in India, is estimated to be about Rs 5 billion growing at 30% p.a and expected to cross Rs 15 billion by 2010. The wine sector, is growing at about 50% p.a is expected to have a market size of Rs 20 billion by 2010.

Segmentation of various sectors in the industry

Sectors Dairy Fruits & Vegetables Grains & Cereals Fisheries Meat & Poultry Consumer Foods Products Whole milk powder, skimmed milk powder, condensed milk, ice cream, butter and ghee, cheese Beverages, juices, concentrates, pulps, slices, frozen & dehydrated products, potato wafers/chips, etc Flour, bakeries, starch glucose, cornflakes, malted foods, vermicelli, beer and malt extracts, grain based alcohol Frozen & canned products mainly in fresh form Frozen and packed - mainly in fresh form, Egg Powder 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 food industry. India is the largest producer of milk in the world with production of 97.1 million tones in 2005-06, growing at a CAGR of 4%. According to estimates by Dairy India, the size of the Indian dairy market is Rs 2,27,340 crores, which is expected to more than double to Rs 5,20,780 crores by 2011. Indias total milk production is projected to cross 100 million tones by end of 2007 according to the tenth five-year plan estimates. Milk and milk products account for a significant 17% of Indias total expenditure on food. India is on the verge of assuming an important position in the global dairy industry. Milk and milk products is rated as the most promising sectors and is expected to more than double by 2011.
Production and Per capita availability of milk Year Per capita availability (grams / day) 124 124 112 128 176 220 225 230 231 233 241 245 Production in million tonnes 17 20 22 31.6 53.9 80.6 84.4 86.2 88.1 92.5 97.1 100

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 * Provisional Source: department of Animal Husbandary and dairying

About 35% of milk produced in India is processed. The organized sector comprising of large dairy plants processes about 13 million tones, whereas the unorganised sector (halwaiis and vendors) process about 22 mtpa.

Milk Uses in India

22%

Value Added (Unorganised) Vlaue Added (organised)

7% 63% Packed liquid Milk 8% Unprocessed

Source: Cygnus The traditional dairy products are Indias largest selling and profitable segment and accounts for more than 50% of milk and dairy products. With liberalisation, the import of technology and machinery has effected modernization and technological breakthrough in production of traditional milk products and this has encouraged the growth of the organized sector in the dairy segment. As per estimates by dairy India 2007, by 2011 private dairies are slated to outpace the cooperative sector and become the largest producers of milk in the industry. Private dairies are likely to contribute double the quantity of milk that would be contributed by cooperatives in 2011. Many corporates are planning a foray into the dairy business sensing the big opportunity. Reliance and Walmart have already made an entry into this business by signing deals with farmers to procure 7 lakh litres and 15 lakh litres of milk per day. Dabur India is exploring the possibility of entering into the milk-based drink segment. Yakult Danone plans to launch health drinks and yoghurts based on probiotics bacteria. Amul has also forayed into the flavored yoghurt segment. The 55,000 tpa branded butter market, valued at US $133 million is estimated to be growing at 8-10% pa. The cheese market is estimated to be US $110 million in value terms and 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 million pa.

Big names like Reliance, Walmart, Dabur are entering the private diary sector through tie ups with farmers

Major Players

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

Indian Processed Food Industry

Sector Coverage
Company Nestle India Milkfood GlaxoSmithKline Consumer Healthcare

Opportunities Galore
Some of the major dairy products manufacturers in the country
Brands Milkmaid, Cerelac, Lactogen, Milo, Everyday Milkfood Horlicks, Boost, Maltova, Viva Indana, Kream Kountry Amul Farex, Complan, Glactose, Bonniemix, Vitamilk Heritage Milkman Bournvita Mother Dairy Major Products Sweetened condensed milk, malted foods, milk powder and Dairy whitener Butter, Ghee, milk powder, ice cream, and other milk products Malted Milkfood, ghee, butter, powdered milk, milk fluid and other milk based baby foods Skimmed milk powder, whole milk powder, dairy milk whitener, Ghee Milk, Butter, cheese, Ghee, Ice cream and other milk products Infant Milkfood, malted Milkfood Milk, Curd, Ghee, Butter Milk Flavoured milk, cheese, Milk Powder, Ghee Malted food Milk, Ice Cream, milk products

Kwality Dairy (India) Gujarat Co-operative Milk Marketing Federation H.J. Heinz Heritage Foods Britannia Cadbury Mother Dairy Source: Company website

Fruits and Vegetable Processing

India is the 2nd largest producer of fruits (50 million tones) and vegetables (100 million tones). The installed capacity of fruit and vegetable processing industry has increased from 11.08 lakh tones in 1993 to 21.18 lakh tones in 2006. The industry is still nascent and just about 2.2% of the total output of fruits and vegetables is processed as per estimates. The country'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 to the primary processed food in general and fresh fruits and vegetables in particular. This throws up a huge opportunity for the sector through increased penetration in the domestic market. The government expects the processing in this sector to grow to 10% in 2010 and 25% of the total produce by 2025.

F&V processing is still at its nascent stage with processing level of only 2.2% of total output

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Indian Processed Food Industry

Sector Coverage
Opportunities Galore

Fruit & Vegetable exports (Rs crores)

1800 1600 1400 1200 1000 800 600 400 200 0 2001-02 2002-03 2003-04 2005-06

Source: APEDA

Major players
Company HUL Dabur India Mother Dairy (Safal) Temptation Foods Godrej F&B Capital Foods Mafco Priya Foods MTR Foods Allana Cold Storage Brands Kissan, Knorr, Annapurna, Real, Real Activ, Coolers Safal Pure Temptation Private Label Mafco Priya MTR Allana Products Jams, Ketchups, wheat flour, Fruit Beverages, soups Fruit Beverages Frozen processed fruits and vegetables, Jam, Pickle IQF fruits and vegetables, Fruit Juices, Fresh F&V (Retail) Frozen Foods, IQF Vegetables Frozen fruits and vegetables Pickles, Fruit Juices Frozen Foods, Pickles, spices & masala Frozen Foods

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

Rice- most processed grain

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

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While the total rice market is growing at 3-4% p.a, the basmati rice category is growing at 6%, indicating a latent robustness in the countrys consumption. India is the largest producer and exporter of basmati rice accounting for around 74% of the global production. Indian 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 total basmati production is consumed within, while the rest is exported.
In d ia n B a s m a t i R ic e E x p o r t D e s t in a t io n s
0. 0. 0. 0. 0. 0. 0. 7 6 5 4 3 2 1 0 Sau d i Ar a b i a Ku w a i t UAE UK USA Others

Source: Rice India January 2006

India exports around one million tones of basmati rice every year. Saudi Arabia comprises 60% 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 experiencing enormous growth in retail chains and malls Rising disposable incomes are growing branded volumes. Demand for branded rice is likely to grow at around 15% Basmati accounts for only 2% of Indias Rs 1,000 billion rice market by volume and about 5% by value, signifying a huge growth potential The median age of the Indian population is one of the youngest in the world, averaging around 24, complemented by an increase in income levels, which could translate into encouraging spending patterns A rising number of Indian expatriates as well as a growing preference for basmati in the Middle East are likely to keep demand on the boil Recent projections made by the IMPACT model developed at the International Food Policy 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 thus offers 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 to maintain a robust growth of over 6% in the medium-to-long term.

MMT

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Indian Processed Food Industry

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Major players
Company KRBL Kohinoor Foods LT Overseas Lakshmi Energy and Foods Usher Agro REI Agro Brands India Gate, Lion, Doon, Bemisal, Nur Jahan, Rice King, Taj Mahal Kohinoor, Daawat, Heritage, Orange, Josh, Apsara, Lakshmi Foods Rasoi Raa Kasauti, Real Magic, Mr Miller, Hungama, Ikon, Hansraj, Rain Drop Products Rice Rice, Convenience Food Rice, Wheat Rice, Wheat Rice, Cereals Rice

Opportunities Galore

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 largest bovine population). It ranks second in goats, third in sheep and camels, and seventh in poultry 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. Indian consumer prefers to buy freshly cut meat, rather than processed or frozen meat. A mere 6% 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). Processing of large animals is largely for the purpose of exports. This is because of low processing of value added meat products and consumer preference for fresh meat. The total processing capacity 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 19912005. India ranks among the top six egg producing countries and ranks among the top five chicken producing countries. Per capita consumption has grown from 870 grams in 2000 to about 1.68 kg in 2005. This is expected to grow to 2 kg in 2009. Growth in Buffalo meat production has been less rapid (CAGR of 5% in the last 6 years). The current production levels are estimated at 1.9 million mt. Of this about 21% is exported. Mutton and lamb is relatively small segment where demand is outstripping supply, which explains the high prices in domestic market. The production levels have been almost constant at 950,000 mt with annual exports of less than 10,000 mt. This has restricted large processing companies from 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 crores
Items Buffalo meat Sheep/ Goat meat Poultry Products Animal casings Processed Meat 2001-02 Qty. Value 243355.58 3915.06 19876.02 464.28 267.13 1144.42 33.07 130.07 9.63 1.29 2002-03 Qty. Value 297897.3 4973.55 26450.01 8296.17 669.48 1305.45 39.95 156.47 140.27 4.8 2003-04 Qty. Value 343817.1 16820.53 415228.2 732.84 986.13 2004-05 Qty. Value

Low preference level for frozen meat has resulted in only 6% of poultry meat sold in processed form

1536.77 306970.81 1615.59 110.39 8885.28 79.36 202.4 264607.54 154.11 12.43 552.33 12.57 7.63 107.45 1.57

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Country-wise Exports of Meat Products in Value Terms (April 06-March 07)
8% 8% 7% 54% 14% 9%

Philippines Saudi Arabia UAE Malaysia Angola Others

Source: CMIE

Processed meat has huge potential with rising number of fast food outlets and is expected to double in next 10 years

India exports more than 5,00,000 mt of meat of which major share is buffalo meat. Indian buffalo meat is witnessing strong demand in international markets due to its lean character and near organic nature. The total processed meat production in India is likely to double in the next 10 years and has a huge potential with the growing number of fast food outlets in the country. With the rise in per capita incomes and busy lifestyles, the demand for processed meat products, which can be quickly cooked, has been rising. Most of the production of meat and meat products continues to be in the unorganised sector. Branded products like Venkys and Godrejs 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 2005-06. In 2005-06, it contributed about 1% of the total GDP and 5.3% of the GDP from agriculture sector. The geographic base of Indian marine fisheries has 8,118 km. coastline, 2.02 million sq.km. of exclusive economic zone including 0.5 million sq. km. of continental shelf, and 3,937 fishing villages. India is endowed with rich fishery resources and has vast potential for fishes from both inland and marine resources. Processing of fish into canned and frozen forms is carried out almost entirely for the export market. It is widely felt that Indias substantial fishery resources are under-utilised and there is tremendous potential to increase the output of this sector. The potential could be gauged by the fact that against fish production potential in the exclusive economic zone of 3.9 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 in fisheries to the tune of Rs 3,000 crores of which foreign investments were of the order of Rs 700.

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Year

Production and export of marine products Fish production Export of marine (million tones) products Quantity Marin ('000 Value tones) (Rs crores) e Inland Total 0.5 0.9 1.1 1.5 2.3 2.8 3 3 3.52 0.2 0.3 0.7 0.9 1.5 2.8 3.2 3.4 2.78 0.7 1.2 1.8 2.4 3.8 5.6 6.2 6.4 6.3 20 20 40 80 140 503 521 412 482 2 4 35 235 893 6288 6793 6086 6460 7019

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2002-03 2003-04 2004-05

2005-06(P) 3.76 2.81 6.57 551 Source: Department of Animal Husbandry, Dairying and Fisheries

Major players in meat, poultry and fisheries

Company Arambagh Hatcheries Hind Industries Venkateshwara Hatcheries Alkabeer Exports Limited ASF Seafoods Bell Foods Frigo Refico Allana Godrej Agrovet MAFCO, Mumbai Brands Arambagh Sibaco,Eatco Venky's Alkabeer ASF Seafoods Bell Foods Allana Real Good Chicken MAFCO Products Meat, Poultry Frozen buffalo meat, Chilled/ Frozen sheep and Goat meat Poultry products Frozen buffalo meat, Chilled/ Seafood Marine foods Frozen buffalo and other meat Poultry products 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 and biscuits constitute the largest segment of consumer foods. The annual production of bakery products, which includes bread, biscuits, pastries, cakes, buns, rusk etc, is estimated to be 50 lakh tones in 2004-05 with estimated value of Rs 69 billion. The two major bakery industries, viz., bread and biscuit account for about 82% (4 million tones) of the total bakery products. The organised sector has a market share of 45% and the balance 55% is with the unorganised sector in the baked products. The sectors that are projected to achieve 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%.

Biscuits

The size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is accounted for by the organised sector. Glucose and milk biscuits account for 25% each and Marie biscuits 20% of the biscuits market. The biscuit industry in India witnessed annual growth as below:
2003-04 2004-05 2005-06 2006-07 15% 14% 14% 13%

Growth rate of biscuits is expected to pick up from 13-15% during 2003-07 to 17-18% in 2007-08

While the growth rate has been stagnating during last 4 years, momentum is expected to pick up during 2007-08, mainly on account of exemption from central excise duty on biscuits with MRP up to Rs 100/per kg, as per Union Budget for 2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty exemption, estimates annual growth of around 17-18% in 2007-08. Growth in biscuit marketing has been 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 than 10 kg in the USA, UK and West European countries and above 4.5 kg in South East Asian countries like Singapore, Hong Kong, Thailand, Indonesia etc. China has a per capita consumption of 1.9 kg while in the case of Japan it is estimated at 7.5 kg. This shows the huge untapped potential of biscuit industry in India. Exports of Biscuit is estimated to around 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 healthy competition that would ensure good quality products at affordable prices to the consumer. Exports of biscuits would also pick up. It has already increased with Indian biscuits turning favourite choice in several Middle East markets. The export of high end products (like cream biscuits) to former East European countries has also begun to rise. Thus, the biscuitmanufacturing segment is poised for a stronger growth in the coming days.

Bread

The bread industry with estimated production of 27 lakh tones in 2004-05 is represented by both the organised and unorganised sectors with 55% and 45% contribution to production. The 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-price segments include Britannia, Modern Industries. Brands like Modem and Britannia are major players in the bread market and together they account for 90% of the organised bread market. Local manufacturers with numerous local brands cater to populous segment and contribute considerably in the bread segment. Low margins, high level of fragmentation are the main features in the bakery industry. Volumes, brand loyalty and strong distribution networks are the main drivers of growth.

Indian Processed Food Industry

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Major players- Bread, Biscuits

Company Modern Foods Inds Parle Priya Food Products Surya Foods and Agro Britannia Industries ITC Brands Parle-G, Krackjack, Manaco, Hide & Seek Priya PriyaGold Britannia Sunfeast Products Bread Biscuits Biscuits Biscuits Biscuits, Bread, Cakes Biscuits

Confectionery
The organised market for confectionery estimated at Rs 2,000 crores is growing at around 7-8% p.a. The retail value of the Indian sugar confectionery market, which includes products such as sweets, jellies and gums, is estimated to be US $461 million in 2007 and is projected 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 about 70% in sugar confectionery and the remaining 30%, in chocolate confectionery. The Indian sugar confectionery market is projected to expand at a CAGR of 8% until 2011, according to a study by Euromonitor International. Two major players namely Cadbury India and Nestle India, which together account for about 90% of the total chocolate market, dominate the chocolate market in India. Increase in affluent consumers who show a tendency for impulse purchases of products such as sugar confectionery, the development of supermarkets, hypermarkets and convenience stores coupled with the trend towards higher allowances for children are likely to be the primary growth drivers for sugar confectionery. Major players
Company Cadbury India Candico (I) Lotte India Corp Nestle India Parle Perfetti Ravalgaon Sugar Farms ITC Brands Dairy Milk, Eclairs, Gems,Temptations,Celebrations, Nutties Loco Poco, Koffi Toffi, Gumbo Jumbo Coffee bite, Lacto King, Caramilk, Coconut Punch Kit Kat, Milky Bar Melody, Poppins, Kismi, Mangobite Mentos, Centerfresh, Alpenliebe, Chlormint, Happydent Coffee break, Mango Moods, Pan Pasand, Klearmint Mint-o, Candyman

Sugar confectionery market is projected to expand at a CAGR of 8% until 2011

Ready-to-eat foods
Ready-to-eat foods market in India is expected to reach Rs 2,900 crores by 2015 from its present size of Rs 128 crores (2006). The factors contributing to this growth would be changes 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. The ready-to-eat foods market in India has remained under-penetrated owing to factors like consumers penchant for freshness, low affordability and the Indian housewifes preference for home cooked food. Packaged foods in India have grown at approximately 7% p.a

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RTE foods is expected is growing at CAGR of 73% and is the fastest growing category in packaged food segment

between 2000-2005, with ready-to-eat foods (RTE) being the fastest growing category at CAGR 73%. The Indian RTE foods market, canned/preserved segment is more popular, contributing to approximately 90% of the market and growing at a CAGR of 63% between 2001 and 2006. The chilled and dried ready meal segments are non-existent. The packaged foods industry in India has not experienced significant growth due to inadequate demand arising from low household incomes and consumer preference for fresh and home-cooked food. There is thus a huge untapped market opportunity arising due to rapid demographic shifts in income, urbanization and proportion of urban working women in India. The industry needs to concentrate on broadening the market and increasing penetration amongst Indian consumers. Major players
Company Dabur India Priya Foods Capital Foods Haldirams ITC MTR Satnam Overseas Ltd Gits Brands Hommade Priya Chings Secret, Smith & Jones Haldirams Aashirvaad Atta, Bingo, Kitchens of India MTR Kohinoor Gits Products Instant mixes, Puries, Pulihora paste, Ready to Eat Cooking Paste, Sauce & Ketchups Packaged bhel puri chats, chana masala, samosa, pakoras, among others. Ready to eat/cook foods. Indian curries, gravies and rice. Ready to eat Indian delicacies. Variety of ethnic Indian cuisine

Aerated Soft Drinks, Packaged drinking water

Aerated soft drinks
The soft drinks constitute the 3rd largest packaged food regularly consumed after packed tea and packed biscuits. The aerated soft drinks industry in India comprises over 100 plants across all states. It provides direct and indirect industry related employment to over 1,25,000 employees. It has attracted one of the highest foreign direct investments in the country. It has strong forward and backward linkages with glass, plastic, refrigeration, sugar and transportation industry. Installed capacity of sweetened/aerated water as on January 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. The soft drink market can be broadly divided into two major segments- carbonated soft drink and non-carbonated soft drink. The carbonated drinks are the mainstay and accounts for 85% 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 drink category includes sub category like fruit drink, juices, dairy drinks and more. The preparatory soft drink market is around Rs 250 crores, out of which Rasna has almost 90% volume share.

Packaged drinking water

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

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Indian Processed Food Industry

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Major Players
Company Pepsi & Co Brands Pepsi, Miranda, Mountain Dew, 7up, Lehar, Dukes, Aquafina Coca Cola, Fanta, Sprite, Thumps Up, Limca, Kinley Products Soft Drink, Packaged drinking water Soft Drink, Packaged drinking water

Opportunities Galore

Coke

Exports
The Ministry of Food Processing Industries has been encouraging the new processing capacities for agro-food products through its various policy initiatives and plan schemes providing financial incentives for setting up of new units and modernization of existing units. The export of processed food items has been as under:

Export of processed food products

Items 2001-02 Qty. Value Processed Fruits & Vegetables Dried & Preserved 209157.78 537.15 Vegetables 76735.18 241.34 Mango Pulp 38758.97 120.34 Pickle & Chutney Other Processed 61332.36 201.74 Fruits & Vegetables 385984.29 1100.57 Total 1359.54 243355.58 Buffalo Meat Sheep/Goat Meat 3915.06 Poultry Products 19876.02 24774.13 Dairy Products 464.28 Animal Casings 267.13 Processed Meat 292652.2 Total 112812.81 117883.03 1144.42 33.07 130.07 182.45 9.63 1.29 1500.93 250.94 403.09 2002-03 Qty. Value 216640.2 96107.31 56384.37 54792.77 423925 561.03 297.01 154.16 194.73 1206.93 2003-04 Qty. Value 211160.1 89514.84 63052.73 66070.26 429798 520.49 241.99 119.75 243.58 1125.81 2004-05 Qty. Value 351034.32 90988.6 67193.29 80760.5 589976.71 765.75 300.86 120.58 275.53 1462.72 2005-06 Qty. Value 566238 1459.17 134613 135382 107335 501826 364.24 260.98 370.21

Animal Products 297897.3 1305.45 343817.1 4973.55 39.95 16820.53 26450.01 156.47 415228.2 21439.81 153.59 15882.67 8296.17 140.27 732.84 669.48 4.8 986.13 359726 1800.53 793467 67889.75 111948.4 191522.5 1235.21 51809.74 26164.58 38687.41 499692.8

1536.77 306970.81 110.39 8885.28 202.4 264607.54 155.19 48426.79 12.43 552.33 7.63 107.45 2024.81 629550.2 177114.96 129648.47 35549.29 2273.85 49486.85 30045.49 52513.73 140123.27 616755.91

1615.59 459938 2629.57 79.36 7177.51 80.37 154.11 145889 167.58 389.14 76515 668.5 12.57 1125 .82 17.51 1.56 256.04 2.43 2252.33 690901 3566.96 503 664.28 77 27.3 277.77 113.78 224.36 144.85 2032.34 190053 513.69 186718 1049.23 107197 2147.09 76880.6 49587.9 49606.7 50901.5 227.57 21.83 393.96 117.2 225.77 64.68

Groundnuts Guargum Jaggery & 365893.44 436.49 Confectionery 1293.38 12.87 Cocoa Products Cereal 38087.17 224.67 Preparations Alcoholic & Non 49671.86 118.29 Alch. Beverages Miscellaneous 23189.16 137.33 Preparations 322346.5 196.39 Milled Products Total for other 1031177.35 1780.07 Processed Foods 1709813.8 4381.57 Grand Total

Other Processed Foods 178.3 176109.3 544.3 486.74 120561.3 507.9 212.98 11.94 268.83 102.47 170.2 288.65 295013.3 1688.37 46275.35 28964.09 65252.02 545755.4 1279619 331.48 16.15 241.71 108.62 210.33 355.95 2316.44

988950.4 1720.11

713092 2613.93

1772601 4727.57 2502884 5467.06 1836282.82 5747.39 1905819 7539.43

Source: APEDA

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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 foodprocessing segment has been increased from US $19.5 million in 2004-05 to US $41.4 million next 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-year alone, FDI approvals in food-processing has doubled. Add to this the US $55 million that has been invested in sugar and cooking oil companies. The food-processing sector continues to attract FDI. Details of FDI inflow Since 2000-01 is as under:
1500 1250 1000 Rs crores 750 500 250 0
200001(AprMar) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 (AprMar)

FDI 1036.1 510.9 198.1 176.5 174.1 182.9

441.0 26.0

Source: MOFPI

Maharashtra was among the front-runners to receive the highest share of FDI in food processing 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 sector comes 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, export promotion and incentives to high priority industries. Food-processing and agro industries have been accorded high priority with a number of important relieves and incentives. Some of 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 food infrastructure (food park, cold chain/warehousing). Automatic approval to FDI up to 100% equity in FPI sector excluding alcoholic beverages and 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 than spice oil and oleoresin, tapioca sago and its flour). FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohol subject to licensing by the appropriate authority.

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No industrial license is required for almost all of the food & agro processing industries except 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 account with unified exchange rate mechanism is foreseen in coming years. Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings. Liberal corporate tax policy is applicable for export and domestic earnings, income tax rebate allowed (100% of profits for five years and 25% of profits for the next five years) for 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 and yeast is also completely exempt. Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on designated items has been rationalized. Customs duty on refrigerated goods transport vehicles has been reduced form 20% to 10%. Excise Duty of 16% on dairy machinery has been fully waived off and excise duty on meat, 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 Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with all infrastructures. Also, setting up of 100% Export Oriented Units (EOU) is encouraged in other 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 be imported at a concessional rate of customs duty subject to certain export obligations under 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 foreign currency accounts. 50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area. 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, quality control 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 is one of the best in the world. Multiple laws/regulations prescribe varied standards regarding food additives, contaminants, food colours, preservatives and labeling. In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will be a single reference point in relation to the regulation of food products. The food laws in India are enforced by the Director General of Health Services, Ministry of Health and Family Welfare, 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, pesticide residues, packaging and labeling, and regulation of sales. The Standards of Weights and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rules, 1977: Designed to establish fair trade practices with respect to packaged 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, sweetened aerated water, vinegar, and synethic syrups. Meat Food Products Order, 1973 (MFPO): Administers the permissible quantity of heavy metals, preservatives, and insecticide residues for meat products Milk and Milk Products Order, 1992: Regulates the production, distribution, and supply of milk products; establishes sanitary requirements for dairies, machinery, and premises; and sets quality control standards for milk and milk products. 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 proposes establishment of a new authority, the Food Safety and Standards Authority, reorganisation of scientific support pertaining to the food chain through the establishment of an independent risk assessment body and a new Food Law, merging eight separate Acts. The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, 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.

Indian Processed Food Industry

Sector Coverage
Opportunities Galore

Major Food Processing Companies in India

Major MNCs Major Indian companies Nestle, Pepsi, Coke, Kellogs, Conagra, Unilever, Perfetti, IT, Dabur, Britannia, Parle, Glaxo Smithkline, Heinz, Amul, Haldiram, Godrej, Wyeth, Ajinomoto, Nissinmet, Venky's Walmart. Indian MNCs likely to enter Reliance, Bharti Group, Tatas, Wipro, thapars etc.

Outlook
With the success of Green and White Revolution, India is now poised for the Food Revolution. Entry of multinationals, low cost of technology and rise in commodity branding has 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 Projections 2003-04 ($ Total food consumption Processed foods 274 Primary processed food 136 Value Added Food 138 205 126 79 48

2014-15 ($

Indian food-processing industry is poised for explosive growth driven by changing demographics, growing population and rapid urbanization along with increased government support. These factors will increase the demand for value added products and thus improve the prospects of food-processing industry in India. The governments focus towards foodprocessing industry as a priority sector will ensure policies to support investment in this sector and attract more FDI. India with its vast pool of natural resources and growing technical 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 of investment in 10 years and generate employment of 9 million person-days. The foodprocessing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors.

We initiate coverage on Lakshmi Energy & Foods and Ruchi Soya.

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