FoodProcessingandAgribusinessAssocham Opt

CONSUMER MARKETS
Food processing and Agri business
KPMG IN INDIA
01
About the study

This is a briefing paper that was presented by KPMG at the International Summit on Food Processing and Agribusiness organized by ASSOCHAM. The document analyses the potential of the Indian Food Processing sector in two dimensions - India as a Sourcing hub and India as a huge potential market in itself. The study starts with the market landscape of food processing sector in India, the key trends in the value chain, growth drivers and the export scenario. It then identifies the key opportunities for players across the value chain. The paper then focuses on key hurdles in the path to growth, and explains by means of cases how to overcome the hurdles. The document concludes with the expectations of the industry and recommendations.
2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
02
Executive Summary
India's strong agricultural base and accelerating economic growth holds a significant potential for the Food Processing Industry that provides a strong link between agriculture and consumers. Government also has accorded a high priority to the sector and has provided many fiscal incentives. An enviable share of the world's agri-produce and diverse agro-climatic regions coupled with changing demographic patterns, food habits and rise in income levels opens up numerous opportunities in the sector India as a large consumer market and India as a potential sourcing hub to the world. Yet India's share in the global food trade is just around 1.5 percent. What are the key constraints that are slowing the growth of the sector and how are they being addressed? What are the various opportunities that the Indian Food Processing Industry provides? What are the trends in the food trade? How are the consumer food habits changing and how does it affect the industry? What are the support initiatives taken by the government and what opportunities do they provide in the value chain beyond just Processing? What is the industry expecting from the government to further the growth? What further can be done to help India reach the very deserving lead position in the global trade? The report aims to answer all these questions on the Indian Food Processing Industry. KPMG conducted extensive research based on information from both primary and secondary sources various proprietary databases, our experience with various food companies and interviews with players across the value chain to understand the sector, the potential and various immediate and long term steps required. A summary of the key findings of our analysis is outlined below.
03
Food is the largest consumption category in india

India's Food Processing Industry is estimated to be around USD 67 billion of the USD 180 billion Food Industry and creates more employment opportunities per unit investment than any other sector.
Food Consumption in India will grow at a CAGR of 5.32 percent

250
CAGR: 5.32%
200 USD Bn 150 100 50 0 2005

Source: BMI, Q1 2009 & CSO
151.7
157.7
168.6
180.1
184.4
191.4
198
210.3
229.7
2006
2007
2008e
2009f
2010f
2011f
2012f
2013f
India has a diverse agro-climatic regions and soil types with optimum amount of sunshine hours and day length suited for cultivating both food and commercial crops round the year. Naturally, India is a leading producer of many agricultural products like fruits and vegetables, cereals, pulses etc. India offers a huge potential in terms of rising consumption and as a sourcing hub for the world due to its supply strength. CHAPTER Introduction: India - Global Food processing Hub, explains the contribution of
Food Processing to GDP , India's supply strengths and rising consumption-led demand, hurdles in terms of wastage and highlights the opportunities in the sector for players and the government.
Significant opportunities exist across each segment

Food Processing Segments
Food Processing
Fruits & Vegetables

Source: KPMG Analysis
Meat & Poultry
Dairy
Marine Products
Grains
Consumer Food
Common features across segments

!
Largely unorganised Though the unorganised segment varies across categories mentioned above, approximately 75 percent of the market is still in the unorganised segment.
04
The organised sector is relatively bigger in the secondary processing segment than the primary processing segment. Also, the primary processing segment is highly fragmented.
The level of processing in each segment is low relative to many other countries and India accounts for just around 1.5 percent of the global processed food trade.
Level of Processing across Segments

Segment Fruits and Vegetables Fisheries Poultry Buffalo Meat Milk
Source: MoFPI Annual Report 2007-08
Level of Processing 2.2% 26% 6% 20% 35%
Comments USA (65 %), Philippines (78%) and China (23%)
60-70% in developed countries
60-75% in developed countries
If India was to lift its share of global processed food trade to just 3 percent, the Ministry of Food Processing estimates that some USD 24.7 billion worth of investment would be needed to restructure the industry. Taking a cue from the global examples, India also should invest in infrastructure and policy development that helps reduce waste across the supply chain and increase the level of processing and overall value of output. CHAPTER Food Processing Segments details each segment of the Food Processing
covering the supply, processing, bottlenecks, and opportunities and explains the need for improved focus and investment in the sector.
Export of processed foods is growing faster than food segment

According to Business Monitor International, Indias Food exports are expected to increase by 72.8 percent over 2008 to USD 24.25 billion in 2013. However, in spite of vast natural resources, import growth of food products in India is also expected to be strong over the
Export of processed food growing faster than exports of Food overall

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2005 2006 2007 2008 23.63% 18.75% 28.96% 21.84% 24.63% 31.25% 25.44%
forecast period, to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export of processed segments is 28.78% growing much faster. During the period 1980-2007 Indias share of the global food exports has increased from 1.1 percent to 1.4 percent, with majority of the increase coming during the current decade. Countries like Germany, which had large number of SMEs similar to that of India, have focused significantly on R&D and Innovations in the sector apart
Export of Food and Beverages

Source: UN COMTRADE
Export of Processed Food and Beverages
05
from investing in infrastructure and supportive policy and legal framework that helped the country to the top league of the exporters table. Joint research initiatives that helps SMEs invest in a federal R&D lab promoted multiple product innovations in the country. Indias trade in various segments in the Food Processing Sector has seen a good growth driven by the Mango Pulp, Dried and Preserved vegetables, Pickles and Chutney in F&V, Buffalo Meat in the Meat and Poultry, Basmati Rice in Grains and Shrimp in the Fisheries segments. Indias exports, as is the case globally, are to the proximate geographies led by South Asia at 34 percent and USA & Canada a poor 1 percent of total exports.
India's exports are predominantly to the nearby countries

40% 35% Share of Trade 30% 25% 20% 15% 10% 5% 0% Africa 1% 0 2000 4000 6000 8000 Distance (Kms)
Source: UN COMTRADE; CEPII
South Asia 34% Middle East 29%
East Asia 17% Western Europe 10% Rest of the world 7% US and Canada 1% 10000 12000 14000
However, significant impediments exist hindering the export growth:

!
Poor quality and grading mechanisms for raw material leading to loss of consistency in variety of raw material
! ! ! ! ! !
High level of wastage across the value chain Presence of too many intermediaries implying a high cost of raw material High costs of packaging Low technology equipment and knowledge High costs and poor quality of distribution Stringent Food Safety and Traceability norms from importing (developed) countries
India needs to take strong measures to promote growth:

!
Map demand with production capabilities Himachal Pradesh, is manufacturing commercial crop in Kiwi, instead of Apples, due to the falling demand for Apples
Move towards non-traditional items A herbal beverage made from Sea-buckthorn developed with DRDO technology opens up a huge market opportunity
! ! !
Improve promotional activities for Indian food and market India as a food sourcing hub Promote investment for increasing the level of processing in the sector Upgrade agri-infrastructure to have a sustainable supply chain for consistent high quality raw material
06
Provision for Training and Education on the safety and health regulations in export markets
Market Diversification Move over the geographical distance barriers and initiate joint efforts with potential partners in identifying the focus of trade and creation of conducive regulatory policies. Chile has successfully overcome the distance barrier and exports to far off geographies due to its focus on quality, exports promotion by regional trade agreements and joint initiatives.
CHAPTER Indias Food Processing Trade details the trade statistics of India, Indias
position in global trade, segment level and geography-based trade, the impediments to growth and key export promotion strategies.
Urbanisation and supportive policy is driving growth

Increasing urbanisation, consciousness on health and nutrition and changing lifestyle are changing the consumption habits of India. The number of working women, single students/professionals and nuclear families is increasing creating a demand for processed Ready-to-eat foods. Growth of organised retail, which makes the processed food readily available, is also driving growth of Food Processing. Government has initiated several steps like setting up Mega Food Parks, Integrated Cold Chains, Modernisation of Abattoirs, fiscal incentives for technology upgradation, R&D, Training and Educational institutes etc to reduce wastage and boost the growth of the sector. Budget 2009 provides a fillip to agriculture in terms of cheaper finance, increased allocation to irrigation, harmonisation of taxes by implementing GST and fiscal incentives for investments in Cold Chain facilities. CHAPTER Key Growth Drivers of Food Processing Sector in India details the demand-
side and policy-level drivers of the sector, including a section on Budget 2009 measures for Food Processing Sector.
Significant opportunities exist across the food value chain

The Food Processing sector offers many opportunities across the value chain right from the farm equipment players to the retail/food services segment.
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India's Forex Reserves: 2001-2008 (till March 2008) Food Processing Value Chain
POLICY SUPPORT Farms Inputs Farming Marketing/ Aggregator Processing Logistics (Food) Retail/Food Services
Consumer Product Design
Financial & Business Services
Transport Services/Infrastructure
Quality Control
Market Intelligence
Distribution Marketing
A summary of the key opportunities is listed below
Summary of Opportunities across the value chain

Player Farm Equipment Farmer Opportunity Customised equipment for the local market Processable variety of crops Forward Linkages with the Processors Contract Farming Arrangements Consolidation of farm produce Access to global markets Processor Forward linkages with Organised Retail Backward linkages with farmer Institutional segment business Logistics provider Increase in integrated storage facilities requirement Cold storage facilities Investors Mega Food Parks Integrated Cold Chain Enabling Segment Quality Control and R&D labs Food Safety management systems Joint Research Initiatives Training and Provision of Market Intelligence Packaging and barcoding
CHAPTER Opportunities in the Food Processing Value Chain details the food value
chain and provides an analysis of various opportunities that exist across the value chain.
08
Various constraints are impeding the growth of the sector

The opportunity in Food Processing industry is significant, but so are the challenges that ail the sector. Certain limitations could be seen as an opportunity waiting to be exploited for the allied sectors and others as a guiding light to a roadmap for government's intervention. Below is a summary of various constraints and strategic measures.
Summary of Constraints and Strategies

R&D Constraint Commodity-centric R&D Compartmentalization of R&D agencies Poor validation and feedback mechanisms Strategy Need for a systems approach to R&D to enable a holistic research-developmenttechnology transfer continuum involving all stakeholders Human Resource Development Constraint Industry is in dire need of highly skilled and trained manpower across different levels to handle various operations Strategy Need for institutes and courses that provide managerial, safety and enforcements, technology and production, warehousing and distribution trainings, and regulatory bodies to focus on trade agreements Industry Linkages Constraint Strategy Low level of interaction between industry and research institutes A few initiatives by CFTRI with industry (MTR, Rishang Keishing Foundation) have been successful. Similar efforts needs to be encouraged Supply Chain hindrances Constraint Long and fragmented supply chain leading to high wastage and high costs especially due to seasonality, perishability and variability of produce. Strategy Contract farming helps certainty of supply, reduction of costs, and high remuneration to the farmers. Suguna Poultry successfully implemented contract farming creating a win-win situation for the farmer and the integrator. Terminal markets, that operate on a hub-andspoke format, where in the terminal market (hub) is linked to a number of collection centres (the spokes) help procurement of right quality produce at the right price. Infrastructure bottlenecks Constraint Indian Export related infrastructure for agri-produce is grossly inadequate, especially at sea ports and airports. More than 30 percent of the produce from the fields is lost due to poor post-harvesting facilities and lack of cold chain infrastructure. Strategy India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10 Million Ton more. Supportive measures for infrastructure investments from the private sector are required. Poor Financing Options Constraint Either unavailability of funds or availability of funds through unorganized sector at unfavourable terms and conditions. Strategy Some organizations have been exploring equity investments in SMEs that operate along the food value chain. These investors place less emphasis on collateral or creditworthiness and more on the capabilities of the entrepreneurs and viability of their business plans. Two such initiatives are African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF).
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Packaging Constraint Strategy The packaging material is imported from China as the sector lacks government support. Encourage the sector by extending the tax breaks and concessions to players setting up packaging industry in India Multiplicity of Laws and Stringent Regulations Constraint Strategy Multiple laws at state and centre level are applicable to the FPI. Need for a consolidated law that removes the hassles of multiple departments and multiple laws Poor implementation of APMC Act Constraint Was to enable establishment of private markets, direct purchase centres and promotion of PPPs, but there is no uniform implementation of the Act. Only 15 states have adopted the model law. Strategy Urgent need to make the law uniform across states. Support e-choupal like initiatives that encourage market reforms Productivity Issues Constraint Strategy India's overall agriculture productivity is still at approximately 2 percent Players need to device a twin pronged strategy of improving agricultural yields coupled with delivering the right quality to different markets Low adherence to quality standards Constraint Unavailability of basic standardization and certification infrastructure. Given the size of the industry, there is a huge gap in the availability of laboratories, trained manpower, and certification agencies. Strategy Ensure that the requisite controls are put in place across the agri-value chain-from farm inputs to storage of produce to food processing techniques. CHAPTER Constraints and strategies details various constraints and strategies, with
case studies on how some players have been approaching the constraints.
10
Industry expects a lot more from the government

KPMG has interviewed various players across the value chain for the study and collated their expectations. The expectations are as under:
!
100 percent tax breaks in R&D Large companies are willing to invest in R&D and also support small scale industries provided the government provides incentives
? Support for nutritional products The industry expects the government to differentiate a
nutritional product from a non-nutritional product and make laws for labelling and incentives
? Conducive policy for Contract Farming Need a change in the currently restrictive land
ceiling law
? Harmonisation of taxes VAT is not uniform across states leading to different prices in
different states
? More incentives in Infrastructure Development Government also needs to share the risks
of development and market

? Focus on Skill Development Need for improved focus on establishing training and
education facilities for production technology, warehousing, testing, safety and quality systems
? Easier Financing to Food Processing Need to enable easier financing possibly with a
separate bank
KPMGs recommendations for the sector:

? More Production of processable varieties to help minimise wastage, improve value addition
and improve farmer income. This requires more investments in quality systems, sorting, grading etc. Promotion of Indian Food in global markets to market India as a brand in Food Processing. ? Infrastructure development through Private Sector Participation (PSP) ? Implementation of GST (to remove the non-uniformity in indirect taxes) ? Fiscal incentives for modernisation ? Support in meeting export quality norms by training facilities and providing market ? intelligence through private bodies and institutes like NIFTEM, CFTRI etc Extend incentives to players who invest substantial amounts in backward integration as this ? helps farmers earn remunerative prices by minimising middlemen.
? Promotion of Nutrition Foods Need to make nutritional labelling a must and also
incentivise the players who produce nutrition foods.
CHAPTER Industry Expectations and Recommendations details the expectation of the
industry and KPMG recommendations for the sector.
A dynamic Food Processing sector will help India ensure higher value addition to agricultural produce, generate employment, improve farmer income and create markets for domestic consumption and export of agro foods.
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Contents
Introduction: India - Global Food processing Hub Food Processing Segments Indias Food Processing Trade Key Growth Drivers of Food Processing Sector in India Opportunities in the Food Processing Value Chain Constraints and Strategies Industry Expectations and Recommendations Conclusion Abbreviations 12 16 26 41 46 51 64 68 69
12
Introduction: India - Global Food processing Hub

With agriculture at the core of Indian economy and more than two-thirds of the population dependent on farming, a developed Food Processing sector can be a strong link between agriculture and the consumers. Government's high priority to the sector coupled with a growing consumption-led demand is leading to a fast pace growth in the sector. A developed Food Processing sector will help overcome the biggest challenges in front of India
! ! !
Low farmer income and high subsidies High wastage along the value chain Poor hygiene and safety standards
Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either at home or by the food processing industry. Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The food processing industry is made up of primary, secondary and tertiary food processors. Primary Food Processors Secondary Food Processors Tertiary Food Processors Primary industries process raw foods (wheat into flour, for example) Secondary industries use primary products to manufacture other foods (flour into bread). Tertiary industries produce prepared convenience foods such as frozen dinners or canned soup.
In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flour mills, pulse mills and oil-seed mills. Also, there are several thousands of bakeries, traditional food units and fruit & vegetable/spice processing units in unorganized sector.
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Significant Contribution to GDP and Employment

Indian food processing industry is estimated to be around USD 67 billion, of the USD 180 billion food industry, making it the fifth biggest . The food industry expected to grow to USD 280 billion by 2015 and generate an additional employment for approximately 8.2 million people. It has been observed that employment potential of the food-processing sector is much higher than other sectors. For instance, an investment of INR 10 billion generates employment for 54,000 people in the foodprocessing sector, jobs for 48,000 people in textiles and employment of 25,000 people in the paper industry. There is also fourfold generation of indirect employment in auxiliary and other downstream activities on account of investment in the food sector. Also, 60 percent of the employment generation takes place in small towns and rural areas .
3 2 1
52% cultivable land compared to 11% world average
Largest livestock population
All 15 major climates in the world exist in India
Largest producer of milk
46 out of 60 soil types exist in India
Largest producer cereals
20 agri-climatic regions
Second-largest fruit and vegetable producer
Sunshine hours and day length are ideally suited for round the year cultivation
Source: Can India be the Food Basket for the World, An ISB Working Paper
Among the top five producers worldwide of rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and oilseeds.
These numerous advantages and factor conditions like low cost of labour put India in an enviable position to produce a wide variety of food crops and commercial crops for domestic consumption as well as export.
Some Interesting facts on India's Strengths in Food Processing

India is one of the key food producers of the world and has access to several natural resources. Diverse agro-climatic conditions and wide ranging raw material base adds to the huge advantage of a large untapped domestic customer base.
Indian Agriculture
India has the largest area in the world under pulse crops India is the first in the world to evolve a cotton hybrid India grows more than half of the world's mangoes and leads all countries in the production of cashews, millet, peanuts, pulses, sesame seeds, and tea The nation ranks second in the production of cauliflowers, jute, onions, rice, sorghum, and sugar cane India is also the world's largest grower of betel nuts, which are palm nuts chewed as a stimulant by many people in tropical Asia. It is also a leading producer of such spices as cardamom, ginger, pepper, and turmeric.
Statistics Source - National Horticulture Board, FICCI, MoFPI
Diverse agri-supply
Food processing industry in India is supported by a great agri-climatic diversity suitable for round the year cultivation of crops. In terms of production, India is among the world's major food producers India accounts for 17 percent animal, 12 percent plants and 10 percent fish genetic resources of the globe; and 16 percent of cattle, 57 percent of buffalo, 17 percent of goats and 5 percent of sheep population of the world.
1. 2. Ministry of Food Processing Industries, Annual Report 2007-08 IBEF Food Processing Report, June 2008 3.
Changing lifestyle, thriving food processing; FFY Magazine June 2009
14
India's Rank relative to the world in various agri-products

High Total Milk, 1, 14 Cattle, 1, 16 Veg & Melons, Onions, 2 , 11 2, 10 Wheat, 2 , 12 Cereal, 3, 11 Rank Potatoes, 3, 8 Pulses, 1 , 21 Buffalo, 1 , 57
Paddy (Rice), 2 , 21
Eggs Total (m) 5, 3 Sheep, 5 , 5
Low
Chicken, 6 , 3 Low Percent Share Item, Rank, % of Global Share High
Source: FAO, Kotak Securities
Consumption-led demand
Food Consumption in India

250
CAGR: 5.32%
200 USD Bn 150 100 50 0 151.7 157.7 168.6
180.1
184.4
191.4
198
210.3
229.7
2005
2006
2007
2008e
2009f
2010f
2011f
2012f
2013f
Source: BMI, Q1 2009 & CSO
India, with a population of more than 1.1 billion, is one of the largest consumer markets in the world. Food consumption in India is expected to grow to 229.7 billion in dollar terms by 2013 from 168.6 billion in 2007 . Food and Beverages is largest category in Indian consumer spending and is expected to remain in the future . The country's highly favourable demographic patterns, with more than 50 percent of the population below 30 years of age, increasing disposable income, urbanisation and lifestyle change are likely to bring about changes that will enforce shifts in the Indian food and drinks industry, as young populations are one of the key drivers in the demand for processed and health foods.
4. 5. Business Monitor International, Jan-Mar 2009 The Rise of the Indian Consumer Market, McKinsey 2005
5 4
15
Hurdles in the growth path

In spite of the huge supply advantages, India's share in the global food trade is still around 1.5 percent. Huge losses across the value chain resulting in poor processing levels are limiting the growth the India's share in the global processed food trade.
Producer
Field Losses
(Pest, Diseases, Rodents etc)
Pre-Processing
Developing Countries Relatively high losses in the initial parts of the value chain
(e.g. inefficient harvesting, drying, milling)
Transport
(e.g. spillage, leakage)
Storage
(e.g. technical deficiencies)
Processing & Packaging
(e.g. excessive peeling, washing)
Marketing
(e.g. spoilage, rotting in stores)
Consumer
Wastage by Consumer
(e.g. overeating, food wastage)
Rich Countries High losses at a later stage in the food chain
Field
Fork
Britt-Lousie Anderson, SIWI
Processed food has a longer shelf life and reduces wastage. The lack of processing and storage of fruits and vegetables results in huge wastages, as shown in the figure, estimated at about 35 percent, the value of which is approximately INR 33,000 crore annually (Recent reports put the number at a much higher level). So, it is imperative for the government and private players to invest in infrastructure to make India not only have sustainable food production for its growing population but also export more to the world.
6
Significant Opportunity Domestic Market and Exports

The low share of processed food and global trade is an opportunity waiting to be tapped. Increasing urbanisation and rise in disposable incomes will further push demand for processed food. This is an opportune time for companies to invest in quality facilities and develop products with features that appeal to the growing Indian consumer base and the export markets. Also, from a government's point of view, Food Processing sector can help reduce the burden of subsidies and raise the farmers' income simultaneously. Agricultural produce that is processed for domestic consumption can not only fetch higher prices and hence higher income for the farmers, but also generate direct and indirect employment helping alleviate rural poverty. So, the government should continue to support the industry with an enabling and growth oriented policy.
6. Ministry of Food Processing Industries, Annual Report 2007-08
16
India's low level of processing is expected to change significantly in the future fuelled by sustained economic growth and steady urbanisation. Processed food output is expected to grow at a strong 7 percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.6 billion USD in 2013 . Premiumisation, especially among the young and rich urban population, is also a key factor helping value growth over the forecast period.
1
Processed Food Output

100 90 80 70 USD Bn 60 50 40 30 20 10 0 2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f 55.6 58.9 62.5
CAGR: 7%
66.2
71.5
77.2
83.4
90.1
95.6
Source: BMI, Q1 2009

A schematic diagram of the key segments in the industry is as shown below. Food Processing
Fruits & Vegetables

1.
Meat & Poultry
Dairy
Marine Products
Grains
Consumer Food
Business Monitor International, Jan-Mar 2009
17
Common features across segments

!
Largely unorganised Though the unorganised segment varies across categories mentioned above, approximately 75 percent of the market is still in the unorganised segment.
The organised sector is relatively bigger in the secondary processing segment than the primary processing segment. Also, the primary processing segment is highly fragmented.
The following sub-sections provide a brief overview of the key segments. While the opportunities and constraints at segment level are touched upon, a detailed analysis is provided in later chapters.
Fruits and Vegetables Processing

Supply Fruits and vegetables is one of the most important and fast growing sub-sectors of the food processing sector, as fruits and
India's share of global production - F&V

100% 80% 60% 40% 20% 0% 41 Mango India
Source: EXIM Bank
vegetables form an indispensable part of healthy diet. India accounts for 13 percent of vegetables and 12percent of fruits production globally, with an
59
77
76
64
90
enviable share in few categories like Mango, Banana, Cashew, Green Peas and Onion. The productivity has also improved from 10.25 and 14.37 million
23 Banana
24 Cashew Nuts
36 Green Peas
10 Onion
Tons/Hectare for Fruits and Vegetables in 2002-03 to 10.94 and 16.14 million Tons/Hectare for Fruits and Vegetables respectively.
Rest of the World
Processing The installed capacity for fruits and vegetable processing in India has increased from 11.08 lakh tons in 1993 to 24.74 lakh tons in 2007 , mainly due to the increasing demand from ready-to-serve beverage industry, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, pickles etc. Fruits Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Source: National Horticulture Board
2
Vegetables Vegetables (Mn Ha) 5.9 6.7 7.1 7.2 7.5 7.8 Vegetables (Mn Tons) 84.8 101.4 108.2 111.4 115. 0 125.9
Fruits (Mn Ha) 4.8 5.1 5.3 5.3 5.6 5.8

2.
Fruits - Production (Mn Tons) 49.2 49.8 52.8 55.4 59.6 63.5
India's share in world fruit, veg market remains poor, Feb 14 2009, news.webindia123.com
18
The share of the organised sector in Fruits and Vegetables processing is 48 percent . Majority of the units are in the Small Scale sector, having low capacities up to 250 tons/year though big Indian and multinational companies have capacities in the range of 30 tons/hr. Currently, only 2.2 percent of the total produce in India is processed and the rest marketed as fresh fruits and vegetables. Globally, developed countries process fruits and vegetables in excess of 65 percent. Prominent Processed Fruits and Vegetables (India) Fruit pulps and juices Ready-to-serve beverages Canned/Frozen fruits, Pulp and vegetables Jams, squashes, pickles, chutneys Dried fruits and vegetables Fruit juice concentrates Vegetable curries in restorable pouches Mushroom products
Bottlenecks In spite of the strong supply base, India has a low 1.38 percent share of global trade . India's exports of fresh fruit and vegetable stood at INR 2,411.66 crore (534.97 million dollar) in 2006-07 . It is estimated that around 30 percent of the produce is lost due to lack of processing facilities (in flush season) and inadequate infrastructure for post-harvest treatment, packing, storage and transportation. The demand for processed fruits and vegetables is lower in India mainly on account of higher costs that can be attributed to higher duties and taxes on packaging material, inefficient supply chain with lot of intermediaries, absence of cost-effective latest technologies for processing, infrastructural bottlenecks and high cost of finance. Smaller units and their lack of marketing strength for end-products also is a major constraint for expansion of domestic market.
4
Summary Fruits and vegetables offer a significant potential for the organised processing players due to the low level of processing and a vast supply base, coupled with considerable international demand for certain fresh as well as processed fruits and vegetables. However, inefficient domestic farming, higher costs of product delivery, exports protection and demanding standards, intermediaries and inefficiencies in the supply chain are the biggest bottlenecks in the growth of the sector. The recent emphasis on Fruits and Vegetables in light of nutrition security, growing interest of food processors and more profitable land use has brought in a significant change in the outlook of the producers who started using the arid/semi-arid lands and the horticultural crops that have lesser demands on water and gives three to four times more remuneration than field crops.
Meat and Poultry Processing

Supply India's has the largest livestock population in the world, however, most animals are not bred for meat, as a vast majority of the Indian population is vegetarian. Animals generally used
3. 4.
DGCIS MoFPI Annual Report, 2007-08
19
for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for more than half of the global buffalo population indicating a significantly high export opportunity. India ranks among the top six egg producing and among the top five chicken producing countries.
India - Broiler Meat and Beef Production Vs Consumption

2900 2700 2500 2300 2100 1900 1700 1500 1650 1648 1,638 1900 1899 1,633 2,130 2,250 2000 2000 1,694 1,735 1,845 2,500 2,375 2240 2239 1,975 2,655 2490 2490 2,790 2770 2770
1300 2004
2005
2006
2007
2008
2009
Broiler Meat Production (1,000 Metric Tons (Ready to Cook Equivalent)) Broiler Meat Consumption (1,000 Metric Tons (Ready to Cook Equivalent) Beef and Veal Production (1,000 Metric Tons (Carcass Weight Equivalent)) Beef and Veal Consumption (1,000 Metric Tons (Carcass Weight Equivalent))
Source: USDA-FAS, Oct 2008
As is evident from the figure, most of the broiler meat produced is used for domestic consumption, while beef and veal meat is also exported. Processing The level of processing in meat is just about 6 percent , as the Indian customers prefer fresh meat from the market than
5
Meat and Poultry Processed Quantity in Tons and INR Crore

1400000 1200000 4000 3500 3000
processed/frozen meat.. For this reason, processing of large animal meat is usually high in exports. Also, Indian buffalo meat, due to its lean character and nearly organic in nature, is highly preferred in the export market. Poultry, with advantages of being the most economical source of animal protein, acceptability to all non-vegetarian population and with no religious taboo, is INR Crore
Metrics Tons
1000000 800000 600000 400000 200000 0 2003-04 2004-05 2005-06 2006-07
2500 2000 1500 1000 500 0
Year Processed Meat in Metric Tons

Source: MOFPI
Processed Meat in INR Crore
the fastest growing segment.
5.
MoFPI Annual Report, 2007-08
20
Bottlenecks There are a limited number of integrated poultry processing plants in the organized sector, though the small poultry processing units are in plenty. Per capita consumption levels of meat is very low in India, as there are religious taboos attached with consumption of beef and pork. Also, exports in Poultry are hindered by the subsidies that developed countries like USA and EU provide.
Consumption - India Vs Global - Poultry and Beef

25.0 22.8 20.0 Kilograms per Person 15.0 10.0 5.0 1.4 0.0 2003 Global (Poultry)
Source: USDA-FAS, Oct 2008
22.6 17.9 17.7
22.5 17.6
23.0 18.2
22.9 17.9
22.8 17.9
22.5 17.7
1.4
1.5 2004
1.5
1.7 2005
1.5
1.8 2006
1.5
2.0 2007
1.5
2.2 2008
1.6
2.4 2009
1.7
India (Poultry)
Global (Beef)
India (Beef)
Summary Apart from the huge opportunity for India in the buffalo meat export, the poultry segment with the current low per-capita consumption and world class production infrastructure and productivity offers a potential export opportunity. There is a large potential for setting up modern slaughter facilities and development of cold chains in meat and poultry processing sector. India needs to come up with strong support measures to increase its domestic consumption levels, like for example, inclusion of eggs in the mid-day meal program and a re-look at the taxes including VAT for poultry segment.
India - Milk/Milk Products Production

110 108 106 Million Tons 104 102 100 98 96 94 2006 2007 2008 2009 (f) 99.9
CAGR: 2.89%
Dairy Processing
Supply
108.8 105.8
India is the largest producer of milk in the world Milk. Milk products production is expected to increase from 99.9 million tons equivalent in 2006 to 108.8 million tons in 2009 growing at a CAGR of 2.89 percent. The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu with majority of the manufacturing of milk products also concentrated in these states.
102.9
Source: FAO Food Outlook, June 2009
21
Dairy Products Processing in India

70000 Quantity in Metric Tons 60000 50000 40000 30000 20000 10000 0 2003-04 2004-05 Quantity
Source: MOFPI
Processing India's unique pattern of production,

600 500 Value in INR Crore 400 300 200 100 0
consumption, processing and marketing of dairy products consist of over 11 million farmers organised into about 0.1 million village Dairy Cooperative Societies (DCS). These cooperatives form part of a national milk grid which links the milk producers throughout India with consumers in more than 700 towns and cities handling about 18
2005-06 Year Value
2006-07
million kg of milk per day . The dairy sector ranks first in terms of processed food, with 37 percent of the produce being processed, but the organised sector accounts for a
mere 15 percent, processing about 13 million tons annually while the unorganised sector processes about 22 million tons per annum Processing Segment Unprocessed Type Retention by rural consumers/ sale to rural non Sold as loose milk in urban areas Packed liquid milk Value added milk products Value added milk products
7
Share (%) 45% 19% 8% 5% 23%
Processed (Organized) Processed (Unorganized)

Source: Diary India Yearbook, Rabobank
Ghee is the most widely marketed and branded product with a nation-wide penetration of 24.1 percent and growing at a rate of 8 percent per annum. The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. The organised cheese market is dominated by processed cheese which accounts for 74 percent market share. In the Ice Cream segment, organised sector accounts for a high 70 percent and is growing at 20 percent per annum . Bottlenecks The packaged milk segment is dominated by the regional and national level Dairy Cooperative Societies. These Dairy Cooperative Societies collect milk from the various small-scale vendors, pack it and distribute it under their brand name. Despite the high production, the per capita consumption of milk in India is still lower at 229g/day compared to the world average of 285g/day . The farmers are not allowed to sell milk to new players outside the cooperatives preventing huge investments from large foreign players. Summary Less than 0.4 percent of the total milk and milk products are exported and virtually none imported. Most of the production is consumed in the domestic market. Also, the organised
6. 7 . MoFPI Annual Report, 2007-08 India Infoline 8. IBEF Food Processing Report, 27-Jun-2008
6 8
22
segment accounts for a lower 15 percent share. There is tremendous potential for the organised play if the restrictions on the sale from farmers are removed and a level playing field is created for all.
Marines Products Processing

Supply India is the third largest producer of fish and second largest producer in terms of fresh water fish. The fisheries sector is classified as marine, inland and aquaculture. The captured fish consists of 62 percent of total fish production while the rest 38 percent is from aquaculture . The total production of fish and fishery products has grown from 7 million tons (live weight equivalent) in 2006 to 7 .4 million tons in 2007 . Processing The infrastructural setup of the sea food processing industry indicates a distribution of major fishing bases in Kerala, Tamil Nadu, Karnataka and Maharashtra whereas the concentration of the processing plants, freezing and storage capacities are more in Kerala, Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and West Bengal.
10 9
Marine Products Processing in India

700000 600000 500000 Metric Tons 400000 300000 200000 100000 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 9000 8000 7000 6000 INR Crore 5000 4000 3000 2000 1000 0
Utilised capacity is just 20 percent of the installed capacity in the fish processing industry due to raw material shortage, inability to meet the market demand for value added products and safety related regulation of importing countries. The frozen products propel sea food exports business and hence need a strong emphasis on value addition in addition to addressing problems of idle capacity utilisation, technological upgradation and compliance with safety related regulations of buyers.
Quantity (in Metric Tons)

Value (in INR Crore)
Bottlenecks Majority of the Agri-Export Zones and Food Parks are related to horticulture products and very few are ascribed to development of sea food processing industry although 25 percent of the total agricultural export is on account of sea food. Although by volume, the major share of marine fish rates is in the fresh form (70 percent), the major focus of the industry is on the frozen products which have a share of 7 .5 percent of the total catch . This is mainly because of the export demand for frozen products and consequent need for value addition.
11
9. MoFPI Annual Report, 2007-08 10. FAO Food Outlook, June 2009
11. Value Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing Director, and Dr G.D. Banerjee, Deputy General Manager, NABARD
23
Fish Disposition in India

Fish Meal & Manure 1% Fish Oil 6.00% Canned 0.50% Cured Form (dried, salted and smoked products) 12.50% Frozen and Processed 7.50% Fresh 70.00% Miscellaneous 2.80%
Source: Value addition by the marine fisheries sector - Dr K.G.Karmakar & Dr G.D.Banerjee, NABARD
The basic tenet on which the sea food industry is presently working is that there is no demand for value added products in the domestic market as consumers prefer fresh fish. Also, the infrastructure for handling, distribution and storage is not well developed in the domestic market and hence the segment focuses heavily on exports.
Summary Government needs to support the industry by developing technology for value addition and infrastructure for exports in the form of food parks focused on marine products. Value addition to a part of the fish catch can transform the domestic market which is experiencing a sea change with an increasing demand for processed and ready-to-eat fish products like Breaded and Battered fish items, Fish Burgers, Sea food mix, fish fillets, etc. Fish sauce, silage and other fermented products are important areas of value addition at the lower end of the chain. The segment focuses heavily on exports as the local demand in primarily in the fresh fish. As the demand for processed marine products is increasing in India, the government needs to encourage investment in infrastructure for distribution and storage. Processed IQF (Instant Quality Freezer) marine products have a higher price in foreign markets than conventional block-frozen material. So, products like shrimp, lobster, fish, clams and fish fillets, provide opportunities for export.
Grain Processing
Supply India produces more than 200 million tons of different food grains every year - 209.32 million tons in 2005-06. India produces all major grains - rice, wheat, maize, barley and millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) . The major segments within Grain Processing are Oil Milling and Pulse Milling & Flour Milling. Indian Oilseed sector is one of the largest in the world, with a total turnover of INR 86,000 crore of which INR 16,000 crore are import/exports. India is next only to European Union and China in terms of vegetable oil imports.
12. MoFPI Annual Report, 2007-08
12
24
Processing The solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is reported at 115.4 lakh tons compared to 122.0 lakh tons in the previous year . Grain processing is the biggest component of the food sector, with a share of 40 percent. But the sector is predominantly into primary processing, sharing 96 percent of the total value, while the secondary and the tertiary sectors add 4 percent.
13
Bottlenecks The low level of technology modernisation in the sector with a high primary processing leads to low value addition in the sector. India needs to promote the products for export better, like Basmati.
Summary Indian rice, especially Basmati rice, has gained international recognition, and is a premium export product. The sector is recognised as a key for nutrition security in India and hence, there is a need for improving the processing capabilities beyond the small scale/cottage unorganised industries to the organised segment. So, for adequate and focused growth of the sector the Ministry is providing financial assistance to the grain processing industries for its setting up/ expansion/modernization in the form of grant.
Consumer Food Processing

Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages. Packaged foods includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread and biscuits constitute the largest segment of consumer foods. The packaged food sales topped 13 billion USD in 2007 and are expected to reach 23.4 billion USD by 2013.
Packaged Food Industry Data

25 21.7 20 USD Billion 15 10 5 0 10.5
9.6
23.4
25 20
19.5 14.2
12.4
15.5
13.5
17.3
18.1 16.5 14.8
19.3
11.7
10.6
13
11.5
15 10 5 0
US Dollar
2005
2006
2007
2008e
2009f
2010f
2011f
2012f
2013f
Packaged food sales (USD Bn)

Source: BMI, Q1 2009
Per-capita package food spending (USD)
13. MoFPI Annual Report, 2007-08
25
Non-Alcoholic Beverages segment is broadly divided into carbonated drinks, noncarbonated drinks and hot beverages. The carbonated drinks comprise the soft drinks that are the colas. The non-carbonated drinks category consists of fruit based/flavoured beverages. In non-alcoholic beverages, India is a small but competitive player in coffee. India is the fifth largest coffee producer in the world accounting for 4.07 percent of the world production (2004-05). In Tea, India is the largest producer in the world, which contributes around 31 percent in the world. But owing to high domestic demand, the share of exports for India is just 14 percent . Alcoholic beverages segment is the largest in the world and provides ample scope for value addition and employment generation. The estimated demand for spirits and beer is around 373 million cases. Twelve joint ventures companies having a licensed capacity of 33919 Kilolitres per annum produce grain based alcoholic beverages. 56 units are manufacturing beer under license from the Government . Majority of the processing in the segment is still under the unorganised sector 60 percent for Bread and 80 percent for Biscuits in terms of production . Manufacturing of bread is reserved for small-scale industry (SSI).
15 15 14
across segments is not comparable to the global levels. The following table shows the level of processing across segments and the relative global levels for the segment. Level of Processing across segments (Source: MOFPI Annual Report 2007-08) Segment Fruits and Vegetables Fisheries Poultry Buffalo Meat Milk Level of Processing 2.2% 26% 6% 20% 35% 60-75% in developed countries 60-70% in developed countries Comments USA (65 %), Philippines (78%) and China (23%);
India's agricultural production base is strong but at the same time wastage of agricultural produce is massive. Even, within the country, share of fruits and vegetables processed is much less when compared to other segments such as milk (35 percent) and Fisheries (26 percent). The high wastage levels across the value chain lead to a significant value loss. The main reasons attributed to the loss are lack of proper infrastructure for handling, transportation and storage. Another form of wastage is the high level of intermediation in the supply chain that leads to higher costs as well.
Need for improved focus and investment

Globally, countries and large companies have invested in disintermediation, developed storage and transportation infrastructure and facilitated in bringing commercial/ technical knowledge and market intelligence to the farmer. The hygiene/safety standards training and certification facilities also were provided across the value chain. This resulted in tremendously increasing the value of the output and reduction in costs of raw material for the producers, while improving farmers' income levels. If India was to lift its share of global processed food trade to just 3 percent, the Ministry of Food Processing estimates that some USD 24.7 billion worth of investment would be needed to restructure the industry. Taking a cue from the global examples, India also should invest in infrastructure and policy development that helps reduce waste across the supply chain and increase the level of processing and overall value of output.
Level of Food Processing in India

India accounts for less than 1.5 percent of the global food trade, despite being the world's leading producer of milk, live stock and cereals, and ranked second in terms of fruit and vegetables, the level of processing
14. Cygnus Research, Jan 2007 15. MoFPI Annual Report, 2007-08
26
India's Food Processing Trade
India's Food and Drink Trade

Supported by a committed government in improving the food trade and providing a conducive atmosphere for agriculture, India is a net exporter of agricultural products. BMI India Food and Drink Report for Q1 2009, expects India to be a net food exporter to 2013. The report attributes the status to India's immense landmass and availability of a large number of commodities. Over the forecast period to 2013, exports are expected to increase by 72.8 percent over 2008 to USD 24.25 billion. However, in spite of vast natural resources,
India - Food and Drink Trade

30.00 25.00 20.00 15.00 10.00 5.00 0.00 9.19 4.58 10.81 6.14 14.03 15.58 19.49 17.27 11.24 12.31 24.25 21.92
12.28 6.82
7.53
8.67
9.44
10.42
2005
2006
2007
2008e Exports
2009f
2010f Imports
2011f
2012f
2013f
Source: BMI, India Food & Drink Report Q1 2009
import growth of food products in India is also expected to be strong over the forecast period, to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export of processed segments is growing much faster as shown in the figure .
1
1.
UNCOMTRADE
27
Export Growth Rate: Food Vs Processed Food

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2005 Export of Food and Beverages
Source: UNCOMTRADE
28.96% 23.63% 18.75% 21.84%
31.25% 24.63%
28.78% 25.44%
2006
2007
2008
Export of Processed Food and Beverages
Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India. MPEDA is responsible for overseeing all fish and fishery product exports; other processed food product exports are the responsibility of APEDA. The Government of India (GOI) has accorded high priority to the establishment of cold chains and encourages major initiatives in this sector.
! !
Foreign equity participation of 51 percent is permitted for cold chain projects. There is no restriction on import of cold storage equipment or establishing cold storages in India.
National Horticulture Board (NHB) operates a capital investment subsidy scheme (CISS) that subsidises the promoter.
28
Role of APEDA
APEDA is the apex agency entrusted with the responsibility of facilitating and promoting exports of agricultural and processed food. APEDA is responsible for 40 percent of the total agricultural exports from India. The remaining commodities such as tea, coffee, tobacco, spices, marine products and rubber are handled by separate boards. Case Study: Role of APEDA in developing exports from North East Region (NER) APEDA identified the major horticultural products of the NER with good export potential Citrus, Banana, Pineapple, Papaya, Jack fruit. The following strategy was adopted by APEDA to promote exports from the region
!
Goals of APEDA
!
Provision of Infrastructural facilities like pack houses, cold storage and refrigerated transport
Promote exports to maximise foreign exchange earnings

!
Farmer Education on pre- and post-harvest measures in local language and quality awareness
Increase per unit value realisation to the farmers and improve their income
!
Transport assistance for horticultural products from the region
Promote value addition to farm produce and generate employment opportunities

!
Market linkages Establish linkages with major players like ITC, HUL, Dabur etc
Accordingly APEDA has been entrusted with the following functions:

!
Financial Assistance Sponsored delegations of exporters every year to Aahaar, integrated packhouse facility in Mizoram for INR 3.2 crore, 4 refrigerated transport vans for NERMAC ltd and Government of Tripura, INR 3.15 crore to AIDC, Guwahati, MoU with CONCOR to operate and manage all infrastructure projects
Development of industries relating to scheduled products for exports by providing financial assistance or otherwise
Fixing of standards and specifications for the scheduled products for the purpose of exports
Carrying out inspection of meat and meat products for ensuring quality
Export Development Fund Increase in expenditure from INR 38 lakhs in 2000-01 to INR 6.3 crore in 2005-06 for the NER
Improving of packaging and marketing of the scheduled products outside India

!
Promotion of Agri-Export Zones 4 AEZs in Tripura, Assam and Sikkim.
Collection of statistics from various sources and publication of the statistics so collected or of any portions thereof or extracts there from
Benefits In Tripura, AEZ is expected to benefit more than 400 farmers in the first phase and incremental exports are expected to be INR 32 crore. Sikkim AEZ is expected to benefit a much large section of the farmer community 5000 farmers in addition to more than 500 in processing and value chain.
Training in various aspects of the industries connected with the scheduled products
Source: APEDA
29
India's Position in the Global Trade

According to the WTO statistical database, the US is the world's leading food exporter followed by Netherlands, Germany, France and Brazil in the top five. In spite of the supply advantages, India stands a distant 21st for the year 2007 , with a 1.4 percent share in the global trade. India is a major exporter in the Food Industry and imports less. The exports are growing at over 15 percent y-o-y with 2007 growth a high 29 percent. During the period 1980-2007 , India's share in the global exports have increased from 1.1 percent to just 1.4 percent, the majority of the increase happening in this decade. Value 2007 Exporters European Union (27) extra-EU (27) exports United States Brazil China Thailand Australia Indonesia Malaysia Mexico India Russian Federation Chile
Source: FAO
Share in world exports 1980 1990 2000 2007 2000-07
Annual percentage change 2005 2006 2007
(Value In USD billion) 406.83 87.93 87.59 42.10 33.15 17.69 17.57 16.31 16.20 14.62 13.20 12.62 9.65 17.6 4.2 1.4 1.3 3.3 0.7 0.9 0.9 1.1 0.3 13.4 2.8 2.5 2.1 2.5 0.9 1.1 1.0 0.9 0.6 43.8 10.7 12.6 3.0 3.1 2.3 2.9 1.3 1.3 1.9 1.2 0.9 1.0 44.6 9.6 9.6 4.6 3.6 1.9 1.9 1.8 1.8 1.6 1.4 1.4 1.1 12 10 7 19 14 9 5 17 17 9 14 19 12 7 7 3 13 18 3 -5 15 -3 13 16 30 14 9 12 12 13 13 15 5 16 14 17 14 23 15 19 16 27 23 19 20 -2 42 45 9 29 45 13
Case Study: Food Industry innovations in Germany
The food industry is one of the most important segments of Germany's economy, with high relevance for employment and economic output. Novel food, new scientific and technical approaches in food processing, the impacts of structural changes in the food industry and in food retailing, the effects of food scandals and socio-economic behaviour are having a far reaching technical and economic impact on processing value chain. Germany has taken several initiatives in R&D innovation to become a leading food exporter.
30
Joint R&D Due to the predominantly large number of SMEs in the country, a joint research institute, FEI (Forschungskreis der Ernhrungsindustrie e.V.) has been established to carry out joint applied research in Food and Nutrition. In 2001, around 50 associations of the German food industry were members in FEI which represented more than 4500 companies. There is a parallel private research activity as well. The connectivity and the cluster for research for Food and Nutrition are as shown in the picture below.
Industry Private Research Institutes IGV, DIL, Natec Federal Research Centres BFE, BAFF, BAfM , BAGKF, BgW, RKI Leibniz Centres DFA, IFE Helmholtz Centres DKFZ, GSF Fraunhofer Society IVV Universities/Colleges
Industrial R&D departments
Combined Research
>50 institutes and technical colleges
Food Industry
Economy
Consumer Protection/Agriculture
Health
Education/ Research
Federal States
EU
Flow of Funds
2 3 4
R&D Financing The research activities of FEI are jointly financed by the member associations and companies as well as the Federal Ministry for Economic Affairs. By 2001, the joint research projects organised by FEI are financed to around 75 percent by the industry mainly in the filed of food structure (Quality of food and ingredients) and process optimisation.
Innovation Activities Measured as the number of product innovations, Germany has consistently launched more than 1000 food products every year. Process innovations of food SMEs are wide-ranging, without a specific focus on a particular area Product quality, cost-saving aspects, higher flexibility and faster production processes apart from improvement of the working conditions for employees.
Innovation in the food industry needs a strong multidisciplinary co-operation, the institutional framework conditions and administrative competencies. The administrative bodies responsible for the food industry in Germany cause significant delays in bringing scientific and technical innovations. A more flexible framework for regulations is planned for newly emerging innovation fields which can be jointly formed by public authorities and early innovators.
Source: Innovations in the food industry in Germany, K. Menrad; Department of Horticulture and Food Processing, University of Applied Sciences of Weihenstephan
31
Export/Imports of Select Food Processing Segments

Fruits and Vegetables India's exports of processed fruits and vegetables have increased consistently over the last few years, from USD 144 million in FY 04 to USD 278 million in FY 07 . Exports of processed vegetables have increased from USD 273.47 million in FY 04 to USD 420 million in FY 06 and declined marginally to USD 396 million in Fy07 . Key Export Product Mango Pulp Dried and Preserved vegetables Pickles and Chutney
Source: Directorate General of Commercial Intelligence and Statistics
2
Export Value (2007-08) in INR crore 509 444 389
The prominent export products are Fruit pulp & juices, Canned F&V, Jams, Squashes, Dehydrated vegetables, Frozen pulps and vegetables, Frozen dried fruits, Vegetable curries, Pickles and chutneys, Mushroom products etc
Exports of Processed Fruits and Vegetables
The growth of the processed food segments has been faster and has nearly doubled in terms of value in a short span from FY 04 to FY 07. However, with respect to the potential and supply base of being the second largest fruits and vegetables producer in the world, India can do much better at processed food exports. The quality issues and high costs of raw material, packaging, wastage and distribution are hindering the growth of exports. India needs to focus more on crops of processing grade, diversify the markets that it exports to and improve promotional activities to further trade.
In Million USD 800 700 600 500 400 300 200 100 0 2004-05 417.24 143.82 655.68 193.54 655.92 235.28 673.59 278.02
273.42 2005-06
462.14 2006-07
420.64 2007-08
395.57
Processed Vegetables
Source: DGCIS, MOCI
Processed Fruits
The main destinations for fruit exports are Middle East, UK, Europe and to some extent Singapore and Malaysia. Mango Pulp is exported to Saudi Arab, Kuwait, UAE, Netherlands and Hong Kong. In case of Pickles & Chutneys, the popular markets are USA, UK, UAE, Germany, & Saudi Arabia. Other items like Tomato Paste, Jams and Jelly & Juices are exported to USA, Russia, UK, UAE, Netherlands, etc. Vegetable exports are largely to Middle East, Europe, UK and Singapore.
2.
DGCIS
32
Meat and Poultry Processing India is predominantly an exporter of bovine meat, especially buffalo meat, which has high demand in the developed countries, due to its lean and almost organic nature. The import of meat and poultry is virtually non-existent. The production and export/import data of meat and poultry is provided in the table below. Total Meat Statistics, India 1000 tons (Carcass Weight Equivalent) million Tons 2008 672 2854 775 500 2400 2009 7022 2997 780 500 2600 2008/09 1 1 2009/10 2 1 2008/09 534 523 8 1 2 2009/10 561 550 8 1 2 Production Imports Exports
In order to take advantage of the exports opportunity in the poultry segment, India should take steps in increasing production, providing assistance in transportation and reduction in taxes/duties to poultry by including it under agriculture. Also, quarantine and testing facilities should be made available at all ports of entry. Also, market expansion into Singapore, Malaysia, Japan and Indonesia provide opportunities for exports growth. India also needs to set up more slaughter houses, modern abattoirs and cold storage facilities to export the surplus and much-in-demand buffalo meat.
Total Meat Bovine Meat Ovine Meat Pig Meat Poultry Meat
At present, poultry export from India is mostly to Maldives and Oman. Some other markets like Japan, Malaysia, Indonesia and Singapore can be explored for export of poultry meat products. Poultry production and egg processing industries have come up in the country in a big way. The export products are egg powder, frozen egg yolk, albumin powder to Europe, Japan and some other countries. Indian Poultry has world class production infrastructure and boasts of high productivity with Farm and hatchery automation systems, well networked disease diagnostic laboratories, unique disease surveillance and monitoring model and genetic research and breeding. Broilers are reared to achieve a body weight of 1.8 kg in 6 weeks. Yet the poultry segment is faced with roadblocks to exports in the forms of
! ! !
Subsidies by developed countries Sanitary and Phyto-sanitary conditions Increasing cost of production inputs
33
Grain Processing The grain processing sector, with 96 percent Primary Processing, has a limited exports focus. However, Basmati Rice is gaining traction in the Indian market and commands a premium in the export market as well. The table below shows the key segments and the production and Export/Import over the last two years. Grain Processing Statistics, India Production million Tons Cereals Wheat Coarse grain Maize Barley Sorghum Rice Total
Imports 2008/09 0.6 0.5 0.1 0.1 0 0 0.1 1.4 2009/10 0.6 0.5 0.1 0.1 0 0 0.1 1.4
Exports 2008/09 4.9 0.3 0.6 0.6 0 0 3.7 10.1 2009/10 5.7 1 0.6 0.6 0 0 4 11.9
2008 215.3 78.4 38 19.5 1.2 7.2 98.9 458.5
2009 214.9 77.6 37.8 18.5 1.5 7.5 99.5 457.3
The major exports segments are cereals and rice. Though production is expected to remain stagnant during the year as compared to last year, the exports of cereals and rice is expected to slightly increase.
Rice Exports, India

70 60 50 INR Bn 40 30 20 10 0 3 11 4 9 9 13 17 19 18 22 18 17 19 20 37 19 17 44 36 14 8 21 13 38
India needs to increase the promotional activities for Basmati and other cereals and continue to provide tax breaks for exports. The country also needs to provide incentives for modernisation of processing equipment to improve the levels of secondary and tertiary processing so as to make the quality of produce export worthy and promote exports.
1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 200494 95 96 97 98 99 00 01 02 03 04 05 Basmati Non-Basmati
India has expanded the basket for Basmati rice, by extending the classification. The Indian government last year expanded the definition of basmati, and it now recognizes even those rice varieties as 'evolved basmati' which have at least one traditional basmati grandparent. Also, India had last year set the export floor for basmati at USD 1,200 per ton and also imposed an export tax of USD 200 per ton to discourage exports and conserve domestic supplies but has since revoked the export tax, and lowered the export floor to USD 1,100 per ton . This is expected to further boost exports.
3. Commodity Online
3
34
Fisheries Products Processing Fish and Fisheries Products Processing Statistics, India Capture fisheries production (million tons) 2006 3.8 2007 4 Aquaculture fisheries production (million tons) 2006 3.2 2007 3.4 2006 1.8 Exports (USD billion) 2007 1.7 2008 1.7 Imports
Processed fish products for export include: conventional block frozen products, instant quick frozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi, textured products and dry fish, etc. European Union, USA, Japan, China, South East Asia, Middle East etc. are the major export destinations. The export has been strong with frozen shrimp continuing the largest item in terms of volume. In view of the supply and growth potential of the sector, Government of India has set a target to increase fisheries export from INR 6000 crore to INR 14000 crore during the XI Five Year Plan Period. Achieving the target for exports is dependent on the raw material supply; optimum capacity utilisation of processing industries, product diversification; value addition and adherence to quality control regulations. The share of export of shrimp in block frozen form is around 22 percent as against 2.2 percent in IQF form. The unit value of IQF products being INR 475 per kg as against INR 194 per kg for the block frozen shrimp, there is considerable scope for boost of marine exports through value addition. Similarly, the share of fish surimi which is priced at INR 68/kg, is only 3.2 percent of the total export as compared to that of ribbon fish (which is the raw material for surimi) which is priced at INR 25/kg and enjoying an export share of 18.3 percent .
4
70 percent of Indian sea food exports constitute fish and shrimp in various forms and shrimp alone accounts for 71.5 percent of the value of exports4. However, value added products comprise of a smaller share and the major share of the present export in volumetric terms is in bulk form. India needs to promote value addition, be more export-driven by promoting products like fresh surimi, and raise the share of IQF products that claim a higher price to boost trade.
4.
Value Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing Director, and Dr G.D. Banerjee, Deputy General Manager, NABARD
35
Milk and Milk Products Processing Milk and Milk Products Statistics, India (in million tons milk equivalent) Production 2006/07 102.9 2007/08 105.8 2008/09 108.8 Imports 2006/09 2006/07 0.4 Exports 2007/08 0.4 2008/09 0.4
Milk and milk products are produced for domestic consumption. Also, storage facilities infrastructure bottleneck prevent the segment from growing in exports. India's share in exports of dairy products in international market is insignificant. These markets are dominated by OECD countries, some of whom provide a very high level of support to their domestic producers which are unlikely to be scaled down in the near future. SPS and TBT clauses are stringent and make the export markets protective. Therefore, even if India is able to find fresh opportunities for exports, the gains may not be significantly high.
In the current scenario, where the sector is strongly controlled by cooperatives, an export-oriented growth strategy will need to support the private players at the expense of the Dairy Cooperative Societies. Private sector targets very narrow segment of exports and emerging urban areas. This would seriously affect the dairy farmers unless government comes up with innovative measures to produce surplus milk at low cost at global quality standards.
India's Food Processing Trade by Geography

The Indian food processing industry is primarily export oriented. India's geographical situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,
India's Exports - By Geography

40% 35% Share of Trade 30% 25% 20% 15% 10% 5% 0% Africa 1% 0 2000 4000 6000 8000 Distance (Kms)
Source: UN COMTRADE; CEPII
Singapore, Thailand, Malaysia and Korea. India exports mostly to the proximate countries. Globally, most of the countries
South Asia 34% Middle East 29%
import from countries that are geographically closer. For example, 45 percent of USA imports are from Canada and Mexico. Another 50 percent is accounted by select Cairns group countries. EU imports 50 percent from Spain, Netherlands, France, Italy, Belgium and Germany, while another 25 percent is accounted by select Cairns group countries.
East Asia 17% Western Europe 10% Rest of the world 7% US and Canada 1% 10000 12000 14000
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Impediments to Export Growth

Value added processed food exports need to satisfy two necessary conditions 1. 2.
A threshold base of manufacturing and other infrastructure facilities and, A reasonable level of marketable surplus in those primary products that enter as crucial inputs into food processing (industrial activity) chain. A successful and viable business enterprise must be able to harness economies of scale. Large volumes of raw material of adequate quality are a paramount for the economics to be favourable. India faces challenges on this front:
!
Poor quality and grading mechanisms for raw material leading to loss of consistency in variety of raw material
High level of wastage across the value chain
India is still a production-supply driven market and not a marketdemand driven. For example, the apples produced in Himachal Pradesh are of table variety and not of the processing grade. There are not enough grading facilities in India that can separate class A products from the rest. This not only leads to wastage and higher costs for processors, but also low level of processing and value addition, leading to lower realisation for farmers. Improved knowledge on processing grade will improve supply of such products and fetch remunerative prices for the farmers.
! ! ! !
Presence of too many intermediaries implying a high cost of raw material High costs of packaging Low technology equipment and knowledge High costs and poor quality of distribution
India's products are a lot cheaper but the high costs of transportation and distribution leads to low level of exports. India's grapes are 40 percent cheaper than Chile's, but by the time they reach Netherlands, they cost the same. Poor infrastructure and lack of government support is making the exports uncompetitive in certain cases and needs to be looked into.
Stringent Food Safety and Traceability norms from importing (developed) countries Developed countries, with better access to advanced technology and packaging innovations, have a distinct edge over the developing countries in the manufacturing. The distribution network to cater to the changing dietary patterns globally, makes them nimble and responsive. Hence, the developed countries account for a majority of world processed food. For India to increase its share in the global trade, the barriers across the value chain need to be removed quickly.
37
Exports promotion strategy

1. India needs to map demand with production capabilities
Himachal Pradesh, known as the fruit bowl of the country, has approximately 200,000 hectares of land under horticulture cultivation yielding about half a million tons of different kinds of fruit. The state earns more than INR 25 billion from cultivation of fruits and vegetables. While apple is the main fruit crop, other fruits like pears, peaches, cherries, apricots, almonds and plums are the major commercial crops of Himachal Pradesh. Recently the production of apple has been severely affected by adverse climatic changes. As an alternate, farmers in Himachal Pradesh are increasingly moving towards commercial cultivation amongst which kiwi is one of the most preferred crops. Apple orchards require 1,000 to 1,600 hours of chill, while kiwi requires just 200 hours of chill for a favourable crop. Fruit growers in the areas where the chilling hours are not static now have opted for kiwi cultivation as a cash crop. Impact
!
As per horticulture department estimates, at least 200 farmers in the Kullu valley alone have taken up kiwi cultivation.
! !
In 2008, the total kiwi yield in Himachal Pradesh was 137 tons Different varieties of kiwi such as Hayward, Abbot, Allison and Bruno are cultivated on almost 120 hectares of land
Kiwi typically needs temperate climate to grow, but Indian farmers have been successful in growing it even at extremely low temperatures. Some of the farmers are growing kiwi at an altitude of 8,500 feet
2.
Move towards non-traditional items. Leh Berry: Unleashing the potential of Sea-buckthorn
About Sea-buckthorn: Sea-buckthorn is a shrub which has 6 species and 12 subspecies native over a wide area of Europe and Asia. More than 90 percent or about 1.5 million hectares of the worlds sea buckthorn resources can be found in China where the plant is exploited for soil water conservation purposes. The shrubs fruit can be used to make pies, jams, lotions and liquors. The juice or pulp has other potential applications in foods or beverages Defence Research & Development Organisation (DRDO), Field Research Laboratory (FRL), Leh undertook serious research studies on the product to harness its vast potential in facilitating human adaption to extreme cold and hypoxic environmental conditions prevalent in inhospitable mountainous region with special reference to the worlds highest battle field, Siachin.
38
Aim: To find Seabuckthorn preparations for improving physical and mental performance under hypoxic environment, prevention and treatment of cold injuries, and as an immunmodulatory agent. Result: The research let to the development of an herbal beverage whose trials were successfully concluded in high altitude areas including Siachin under varying environmental conditions. These trials revealed that the fruit extract did not freeze even at temperatures as low as minus 15 degrees Celsius Challenges: The juice could not be stored more than a day, limiting commercial viability. The FRL technology has enabled the juice to be transported from Leh to Madhya Preadesh, for packaging Market Opportunity:
!
A INR 3,000 crore market for Seabuckthorn exists in Chine alone, combined with global prospects amounting to INR 5,000 crore.
Seabuckthorn fruit, with its vast intrinsic properties offers manifold opportunities for manufacturing a variety of products. The entire Seabuckthorn plant can be judiciously utilized to produce high value food and medicinal products. With as many as 180 key products already lined up and other categories like pharmaceuticals. cosmeceuticals, natraceuticals, poultry & cattle feed and the pisciculture segment waiting to be explored
3. 4.
Improve promotional activities for Indian food and market India as a food sourcing hub Promote investment for increasing the level of processing in the sector
Export Growth in Brazil Brazil is a formidable food-producing country owing to its vast agricultural wealth, and owing to the application of modern techniques, food production also has risen strongly in recent years. Food production and processing accounts for nearly 25 percent of the GDP. In terms of exports, Brazil is ranked fourth globally. Key factors responsible for export growth are as listed below:
!
Strong government-funded agricultural research programme, together with heavy private investment led to the higher food production growth than the overall economy.
Legalisation of commercial production of genetically modified (GM) crops. Though it
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was started off for research, the cultivation spread to officially illegal commercial production. As the sale of GM products was allowed, the rules on cultivation were being flouted on a large scale. Inspite of some protests from environmentalists and potential loss of market in Europe, the GM crops was legalised.
!
Food exports grew by a huge 25 percent due to currency depreciation and despite a stronger Real in 2004, Food exports grew by another 30 percent to some USD 18.5bn.
Market consolidation is a continuing trend and FDI in the Food and Beverages sector surged to USD 5.3bn, or 26 percent of total FDI, in 2004.
Economic liberalisation was also responsible for improved productivity during the 1990s resulting in a significant increase in foreign participation in key sectors, such as dairy and coffee, through joint ventures and acquisitions of local companies.
An expanding food-service sector also led to a faster food production growth.
5.
Upgrade agri-infrastructure to have a sustainable supply chain for consistent high quality raw material
6.
Provision for Training and Education on the safety and health regulations in export markets
7 .
Market Diversification Move over the geographical distance barriers and initiate joint efforts with potential partners in identifying the focus of trade and creation of conducive regulatory policies
Chile's strategy to become an Export Hub Chile's export strategy is to promote itself as a reliable supplier of a range of high-quality, affordable goods and services. Other basic campaign points are: ease of trade, with few tariff walls or bureaucratic hindrances, low risk, due to political stability and a solid economy, a respect for quality and environmental protection standards, and a qualified workforce. Special emphasis is being given to projects that diversify exports and aid small- and medium-size companies. Chile also encourages exports through a simplified duty drawback system that refunds duties paid on imports without an excessive documentation burden. Within the past decade Chile has entered into a growing network of trade agreements, including accords with Bolivia, Brunei Darussalam, Canada, Central America, China,
40
Colombia, Cuba, Ecuador, the European Union, Iceland, India, Liechtenstein, Mercosur, Mexico, New Zealand, Norway, Peru, Singapore, South Korea, Switzerland, the United States and Venezuela. In excess of 76 percent of all Chilean trade is conducted with these countries, which account for 87 percent of world GDP. These agreements plus regional accords with most of Latin America have provided Chile with a unique degree of access to markets encompassing more than 3.8 billion consumers worldwide. As a result, Chile stands as a natural gateway for trade with both Latin America and Asia-Pacific. An Export-Oriented Economy: Export diversification is one of the key factors of Chilean success. Noting the growing volume and sophistication of its trade, the Economist Intelligence Unit ranked Chile as the No. 1 Latin American country in which to do business for the period 2005-2009. Trade figures show that export performance has been nothing short of spectacular.
Chiles strategic approach to boost exports

Encourage an internationally competitive environment Balance unilateral trade liberalization with open regionalism Lower export transaction costs Long-term view of enterprise-level support Coordinate export support programmes through a central technical agency Facilitate foreign direct investment Promote private sector involvement in infrastructure development Encourage innovation
Trade Promotion Institute (ProChile) established to develop the countrys non-traditional exports, design and introduce export incentives and modernise administrative procedures International investor extended nondiscriminatory treatment
Impact
60 Number of Countries (Export Markets) 58.9
40x
200
3.6x
181
USD Billion
40
150
20 15 1975 2006
100
50
0 1975 2006
Source: Chile: Product and market development through international standards of competitiveness (http://www.intracen.org/wedf/ef1999/chile.pdf), KPMG Analysis
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Key Growth Drivers of Food Processing Sector in India

Demand-side Drivers
Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are leading to significant changes in food habits of Indians. The key trends are as listed below:
!
Increasing spends on health and nutritional foods Consumers are more focused on health. Any packaged food that has sugar, salt, oil, preservatives etc beyond a healthy level are becoming a no-no. Companies already are targeting this segment with numerous product launches Pepsico's 100 percent juice and usage of rice bran oil to reduce saturated fat in its products; Amul's energy drink Stamina are a few examples towards this trend.
Employed Female Population

140,000 135,000 130,000 000s Employed 125,000 120,000 115,000 110,000 105,000 100,000 1995 2000 2002 Year
Source: Euromonitor
129,705 126,510
131,424
134,207
135,370
111,910
2004
2006
2007
Increasing Nuclear Families and Working Women Increasing nuclear families, students and single employees staying alone on work/education and increasing women employees are leading to rise in consumption of processed read-to-eat canned and frozen foods. The number of upper and middle class Indians consuming packaged food
is expected to rise to 200 million in 2012 from the current 30 million . ITC, MTR, Amul, etc are quick to capitalise on this trend with products like Dal Bukhara, Murg Methi, Sunfeast Pasta Treat, Shrikhand, Pure Ghee, Nutramul etc Urbanisation Changing lifestyle and increasing spend for snack-on-the-go is responsible for a USD 3 billion and growing snack market . Haldirams, Frito Lays, ITC are quick to capture this market with products such as Masala Peanuts, Chips, Bhujia and Chats.
2
Source: Euromonitor
Functional Foods Functional Foods, Fresh or Processed Foods that claim to provide health benefits apart from serving the basic function of nutrition, are on the fast-growth path in India. Fabindia Organics, Organic Food retail outlets like 24 Letter Mantra and Godrej Agrovets Nature Basket have big plans in this segment. Organised Retail and Private Label penetration Organised retail comprises of less than 5percent of the total retail market in India, but is growing at over 20 percent. Food retailing, which constitutes 14 percent of the organised retailing, is also expected to benefit from the growth of organised retail and the demand for processed foods is expected to rise . With increasing trend of major retailers towards private labels, the demand from
3
Source: Euromonitor
retail market for processed foods is also expected to increase significantly. Changing demographics and rising disposable incomes This is the most important demand booster for the processed food in India. The proportion of the productive age
group (15-59 years) is nearly 80 percent in India . This age groups propensity and ability to spend on quality processed food is higher. Higher incomes as more Indians join to middle class and upper class also impact the demand of processed food positively.
Policy Drivers5
Indian government recognised the potential of Food Processing sector to the economy and has come up several initiatives to boost the quantity and quality of output in the sector. The vast discrepancy in output between the agriculture and food processing is a major cause for concern and government has increased the spending from INR 72.77 crore in 2002-03 to 159.78 crore in 2006-07 to increase the value of the output, share of global processed market and provide a fillip to the farmers income. Scheme for Infrastructure development The government plans to set up Mega Food Parks so as to integrate the value chain comprising of farmers, processors and retailers. The move will help reduce wastage, maximise value addition and increase farmers income as they get a chance to sell the produce directly. 30 mega food parks are planned in the XI fiveyear plan. Government plans to support Integrated Cold Chains including a value added centre to ensure that there is no missing link from farm gate to retailers/consumers, by increasing the grant assistance. Modernisation of Abattoirs for supply of hygienic raw material for meat processing industry. In a bid to develop the food processing units, the government is ready to offer a grant of INR 10 crore for projects providing backward integration for food processing units and INR 50 crore to modernise meat processing units.
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Scheme for Technology Upgradation/ Establishment/ Modernisation Government provides a grant of 25 percent of the cost of plant & machinery and technical civil works subject to a maximum of INR 50 lakhs in general areas and INR 75 lakhs in difficult areas.
Scheme for setting up/ Upgradation of Quality Control/ Food testing Laboratory, R&D & promotional activities Setting up a network of laboratories to help in implementing quality regime for processed food. Higher level of assistance to research institutes like IITs and other central/state level institutes Assistance for organising promotional activities like workshops, seminars, exhibitions, fairs, surveys etc 50 percent subsidy to private companies, which set up quality testing laboratories and 100 percent subsidy for State governments that install new testing laboratories.
Scheme for HR Development Financial assistance to set up training centres, Degree/Diploma courses on Food Processing in Institutes, Entrepreneurship Development Programs and training programs sponsored by the ministry
Scheme for strengthening of institutions Establishment of National Institute of Food Technology, Entrepreneurship & Management (NIFTEM). Strengthening of State Nodal Agencies (SNA) Information Technology
The challenge in front of the players in the food value chain is to leverage the demand and policy push effectively to deliver to the growing Indian/Global demand and give continuous feedback to the government on further improvement measures. Meanwhile, the government should ensure a smooth policy implementation by investing time and money in institutional capacity building and in removing complications for the investors and manufacturers due to multiplicity of departments and regulations.
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Budget 2009 Support Measures

1. Agriculture: The measures will lead to stabilisation of rural demand. Agriculture will be made less dependent on the monsoon with increased focus on irrigation development. a. Agricultural credit flow at INR 287000 crore in FY09. Target for FY10 at INR 325000 crore. b. Continuation of interest subvention for short term farm loans upto INR 300000. Additional subvention of 1 percent in cases of timely debt servicing. Effective interest on farm loans thus 6 percent under new scheme. c. Period of earlier one off debt waiver increased by six months till 31st December 2009. d. Task force to be set up to look into debt burden of farmers due to private informal lending in Maharashtra. e. Allocation under Accelerated Irrigation Benefit Programme (AIBP) increased by 75 percent. f. Allocation under Rashtriya Krishi Vikas Yojana increased by 30 percent. 2. Improving Rural Demand: Increased allocation to National Rural Employment Guarantee Scheme by a whopping 144 percent to improve employment and consumption. 3. Taxation: GST by April 2010 will lead to rationalisation and simplification of the tax structure at both the central and state level, removing the non-uniform VAT currently in place. 4. Cold Chain: A deduction is allowed in respect of entire capital expenditure (other than the acquisition of any land or goodwill or financial instrument) incurred by the taxpayer engaged in the following businesses:
setting up and operating cold chain facilities for specified products warehousing facilities for storage of agricultural produce
Mr Subodh Kant Sahai, Hon'ble Minister for Food Processing Industries, however is of the view that the industry needs more sops on the lines of IT industry Tax holiday for 8-10 years and 100 percent depreciation on plant and machinery. Also, he feels that for Agriculture to grow at 4 percent, Food Processing should achieve a growth rate of 6 percent. Currently, the mismatch between harvest and post-harvest production is huge and this gap needs to be bridged. The minister is also for improving the training facilities by using the ITIs. The Minister projects an investment requirement of INR 1,00,000 crore for the sector and is bullish on the PPP mode to achieve the target investments in the sector. He also says the regulatory framework needs to be streamlined from 16 laws and 13 ministries taking measures to one law that governs the sector.
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Opportunities in the Food Processing Value Chain

Food Value Chain
Depicted below is a generic representation of Food value chain. It involves multiple steps and relationships between multiple players with multiple ministries and departments providing policy and regulatory support. It is important to note that the value chain need not be sequential as shown and can jump a level or two in a few cases. POLICY SUPPORT Farms Inputs Farming Marketing/ Aggregator Processing Logistics (Food) Retail/Food Services
Consumer Product Design
Financial & Business Services
Transport Services/Infrastructure
Quality Control
Market Intelligence
Distribution Marketing
Farm input Companies that provide farm equipment, seeds, fertilisers etc. Farming Agricultural production combines the farm inputs with other inputs such as land, water, labour and investment. Marketing/Aggregator Farmers usually sell the crop to a market aggregator who buys from multiple farmers and sells to a processor. Farmers, if they are big enough and/or nearer to the processor, or are under a direct procurement contract etc., can directly sell to the processor. Farmers can also choose to sell the crop directly to the consumers depending upon the nature of the crop. Processors to Consumers The processor does some value addition to the primary foods and delivers processed food to consumers with the help of Logistics providers and Retail
47
outlets. Consumers can be individual or institutions. The key attributes that help sell the final goods to the consumers are design, distribution and marketing Enablers: At each stage of the process, the players are supported by a set of business enablers like Financing, Transport, Infrastructure Both hard and soft, Quality and Safety certifications, and Knowledge about the market. At an overarching level is the government policy that provides an enabling environment for all players to function in the industry competitively and in a socially responsible manner
capacity. Lack of infrastructure is a major roadblock impeding the growth of the processed food segment. With a lot of emphasis on value addition in food processing, it is imperative that investments in infrastructure are a must and should have favourable policy framework and fiscal incentives. Mega Food Parks Lot many State governments have taken the policy directive from the centre and have planned Mega Food parks with associated fiscal incentives. The proposed food parks aim to bring together all players in the value chain together so as to
Key Opportunities
1. Processable varieties of crops India is blessed with multiple agri-climatic zones and has advantages of round-the-year cultivation capability. India still produces varieties of crops, tomatoes and oranges for example, that are not commercially viable for producers. The lack of production and identification of items with commercial viability contributes to the significant wastage. We import apples from USA as the apples of Himachal Pradesh lack enough juice for processing. India needs to focus on more processable variety of crops to reduce wastage, increase processing levels and hence value addition. 2. Contract Farming Eighty percent of India's 115 million farms are situated on plots of less than 2 ha. A little over 1 percent of all farms are larger than 10 hectares and these constitute 15 percent of the cultivated land. With organised retail penetration increasing and government's proposed mega food parks obviating the need for an intermediary, Contract Farming is an opportunity for the processors that will help in better handling, price realisation and minimising wastage. PepsiCo and Cadbury's examples of contract farming in India can be a model for others to follow. The potato farming initiated by Pepsi in Jharkhand can be useful in making potato chips that can be supplied to food chains like Mc Donald's and others. 3. Investments in Infrastructure through PPP Government has announced various policy measures and tax incentives for cold chain and warehousing, Food Parks and Agri Export Zones to augment the storage and processing
minimise waste and improve value addition in the industry. This move will also help farmers realise better prices by removing intermediaries. The processors also will be benefited by a better inventory management and production planning. The proposed mega-food parks will be between 10 and 100 hectares in size and 30 locations across India had already been identified. The parks would be set up through private consultants with the government providing grants of up to INR 500 million each . Each mega food park will have a minimum catchment area of five districts. With a chain developing from the farm gate to the retail shelves with collection and distribution centres and central processing centres in between, where functions like sorting, grading and packaging along with irradiation, food incubationcum-development will take place, the food processing ministry hopes this initiative to be a commercial success. Integrated Cold Chain India wastes more fruits and vegetables than it consumes. About 30 percent of the fruits and vegetables grown in India (40 million tons amounting to USD 13 billion) get wasted annually due to gaps in the cold chain such as poor infrastructure, insufficient cold storage capacity, unavailability of cold storages in close proximity to farms, poor transportation infrastructure, etc. This results in instability in prices, farmers not getting remunerative prices and rural impoverishment . Government plans to encourage setting up of Integrated Cold Chain facilities to improve storage and reduce waste by not missing any link in the value chain from the farmer to the consumer/retailer.
1. Financial Express 2. International Society for Horticultural Science, Post harvest losses due to gaps in cold chain in India A solution, C. Maheshwar, T.S. Chanakwa
2 1
48
4.
Food Safety Management Systems Food safety is a growing concern across both developed and developing nations. The introduction of Sanitary and Phytosanitary Agreement and stringent safety regulations means the Indian Processors/Producers should be knowledgeable of the Food Safety requirements. Food retailers/Independent bodies/Exporters should take the initiative in educating the backward linkages. Going forward, there will be a need for Food Safety certifying agencies (for ISO 22000) authorised by the importing countries or standards setting boards.
themselves. Organic farming has resulted in the setting up, conversion or expansion of new economic activities in the rural areas of Italy. A consumers' cooperative venture established the first organic shop in Milan. The most important fact of the market distribution of organic products in Italy is the predominant position of the farmers' or consumers' cooperatives. Consumer expenditure on organic products can be split as follows: Dairy - 26 percent; Fruits & Vegetables - 13 percent; Breads and Biscuits - 12 percent
Organic Farming in Italy - A Case for Food Safety and Farmer Cooperatives Food Safety - Growth in Organic Farming Organic Agriculture in Italy is acclaimed to be one of the best in the world. During 1990-2000, the growth of organic farming in Italy has been spectacular. Area under organic cultivation increased from 13,000 ha to more than a million hectares, approximately 7.2 percent of the total cultivated area. By 2002, the area increased to 183,000 hectares (7.94 percent of the cultivated area). The reasons for such a substantial increase were the food scandals like the mad cow disease leading to the search for safe foods, the constant endeavour for alternative farming methods which were environmentally, technically and economically attractive to the farmers and the liberal subsidies. Expansion of new economic activities in rural areas Processing Cooperatives In 2005, 41 percent of the organic area is under pastures. Olive cultivation is the single biggest crop with 10 percent of the area under cultivation while Cereal crops are raised on 18.2 percent of the area. High growth of organic farming led to a growth in processing units to the extent of 142 percent during 1997-2000 alone. By 2005, 1300 of the 42000 processing units are established by the farmers
Source: Organic Farming in India: Relevance, Problems and Constraints, Dr. S. Narayanan, NABARD, 2005
A survey of the motives of the consumers of organic foods revealed that every one was going for organic products to protect the health of his/her family. Policy Support for Organic Farming Various legislations by the European Union providing subsidies were instrumental in the growth of organic farming in Italy. The devolution of power to the Regional Government on agriculture policy in 1972 has resulted in different levels of subsidies in different regions/crops. There are nine organic certification bodies in Italy. A single agency named ICEA has a share of 24 percent of the certified farms coming to about 29 percent of the area. These nine agencies have about 900 local offices, 1000 staff and technicians for inspecting farms, processing units and storages for giving certifications. Universities and Public Research Centres are becoming increasingly interested in research and extension activities in relation to organic agriculture. A National School of Organic Farming has been established by the Ministry of Agriculture to impart education.
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5.
Farm Equipment Thefarm equipment sector in India is nascent, but a fast growing one, that is set to experience sustained growth due to increased mechanisation of farming, easy availability of credit and emerging practices, such as contract farming. Tractors and related equipment form the major part of the industry and given their low penetration levels in India, look set to continue having a significant share in the market. These appear the most attractive segments for investment and have been attracting multinational players such as John Deere. 8. Also, there is need for equipment that is customised to the Indian context. Advanced equipment is imported and is mostly not suitable for Indian conditions. The equipment that is used in India is not advanced. So, there is a huge opportunity for players with technology to develop products that suit the Indian conditions. Government can introduce measures to enable Transfer of Technology to help the local equipment industry come on par with the latest technology.
process and finished products are required to help maintain quality levels in the food processing industry. Quality control is used to predict and control the quality of processed foods and hence control the process so that the expected quality is achieved for every batch. Joint research initiatives will help SMEs compete effectively with the large players without spending too much money. Government should encourage such initiatives and enable a supportive legal and institutional policy framework.
Training and Market Intelligence Provision As the market matures and intermediaries are gradually reduced in the value chain, the farmers seek knowledge about markets and price directly and would like to sell at the best possible price. The mechanisms that enable a farmer to gain market intelligence and trading capabilities need to be evolved. Also, training facilities need to be designed as most of the farmers are not educated and would need a very simple way of learning and using the system.
6.
Packaging and Barcoding Implementation of safety standards for consumer safety is vital in the Food Processing Industry. Food should be packed for safety and promotion of brand as well. Also, capturing the information flow about the physical movement along the value chain is important in ensuring quality and traceability. Currently manual, repetitive data recording processes, poor linkages between goods/information flows, incorrect dispatches, wastages in transit and storage, poor stock management, lack of track & trace capabilities, etc are a few issues that confront the Indian food processing sector. Barcoding using international numbering standards enables unique and universal identification of products, consignments, companies, entities and assets, facilitating efficient goods movement, and its track & trace across supply chains. The packaging and barcoding is expected to only pick up due to mandatory laws on traceability and supply chain efficiency.
9.
B2B sales Sales to the Institutional Segment The B2B segment of the food sales has not taken off in a large scale as much as the retail sales have. This is because of the presence of a large number of small players in the industry and a few large players. There is significant potential in the B2B segment due to consistency in demand and economies of scale. Cooperatives, as explained in the case of Italy Organic Farming, or backward linkages will help aggregate the produce by removing the intermediaries, help farmers earn remunerative prices and reduce supply uncertainty for the processors.
10. Segment level opportunities In the food processing sector, the sub-sectors such as soft-drink bottling, confectionery manufacture, fishing, aquaculture, grainmilling and grain-based products, meat and poultry processing, alcoholic beverages, milk processing, tomato paste, fast-food, ready-to-eat breakfast cereals, food additives, flavours etc have
7.
Quality Control and R&D labs Institutes that segregate the produce from various sources to different grades; test the produced raw materials, foods in
huge potential in the domestic and export market.
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Summary
Conducive policy and increasing demand provide many opportunities for players across the food value chain. The opportunities and associated advantages for Farmers, Producers and Consumers are summarised in the table below: Player Farm Equipment Farmer Opportunity Customised equipment for the local market Processable variety of crops Forward Linkages with the Processors Contract Farming Arrangements Consolidation of farm produce Access to global markets Processor Forward linkages with Organised Retail Backward linkages with farmer Institutional segment business Logistics provider Increase in integrated storage facilities requirement Cold storage facilities Investors Mega Food Parks Integrated Cold Chain Enabling Segment Quality Control and R&D labs Food Safety management systems Joint Research Initiatives Training and Provision of Market Intelligence Packaging and barcoding These opportunities come with a set of constraints in the industry that need a suitable policy from the government and active involvement of private players in providing solutions. The key constraints and measures are detailed in the next chapter.
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Constraints & Strategies
The opportunity in food processing industry is significant, but so are the challenges that ail the sector. Certain limitations could be seen as an opportunity waiting to be exploited for the allied sectors and others as a guiding light to a roadmap for government's intervention. The following section throws light on various challenges faced by the food processing industry in India and how some of them have been tackled by early entrants in this sector.
Productivity Issues
The area of concern for food processing industry begins at the level food production itself. Despite being an agrarian economy-one of the largest producers of vegetables, fruits, spices, milk, eggs, potatoes, wheat, meat etc . the productivity of crops is quite low as per international standards. India's overall agriculture productivity is still at approximately 2 percent . The problem of low productivity is compounded by poor quality of food produce. It is essential to recognize that in a global arena, price competitiveness alone cannot suffice as an instrument of competitive advantage. Food processors need to deliver taste and quality demanded by consumers of both domestic as well as international markets. Hence, the players need to device a twin pronged strategy of improving agricultural yields coupled with delivering the right quality to different markets. Agricultural yields can improve only when India resolves the problem of fragmented land holdings and adopts innovative technologies to boost crop productivity. It is pertinent to note that reasons for low productivity vary across regions and these need to be addressed on individual basis. According to the Planning Commission XIth plan report on Agriculture, region specific factors causing low productivity are as follows:
2 1
1. 2.
FAOSTAT Innovative technology to ensure food security, UNI (United News of India), 25 March 2009
52
Region-specific Factors Causing Low Productivity

Agro-climatic Region Western Himalayann region I States/ Parts of States J&K, HP, Uttaranchal Region-specific Constraints Severe soil erosion, degradation due to heavy rainfall/ floods and deforestation, low SRRs, poor road, poor input delivery, inadequate communication infrastructure and marketing Eastern Himalayan region -II Assam, NE States, Sikkim Aluminium toxicity and soil acidity, soil erosion and floods, shifting cultivation, low SRRs, non-availability of electricity, poor road, poor input delivery system and communication infrastructure Lower and middle gangetic plain region - III and IV West Bengal, Bihar, Eastern UP Food/ water logging, improper drainage, salinity/alkalinity, arensic contamiation, low SRRs, non-availability of electricity, high population growth, poor road and communication infrastructure Upper and trans-gangetic plains region - V and VI Western UP, Punjab, Haryana Groundwater depletion, decreasing total factor productivity, micronutrient deficiency, non-availability of electricity, and high population density Eastern plateau and hills region - VII Orissa, Jharkhand, Chhattisgarh Moisture stress, drought, and soil acidity, iron toxicity, low SRRs, non-availability of electricity, high population growth, poor road, poor input delivery and communication infrastructure.
Source: Cited in Report of the Working Group of Sub-Committee of National Development Council on Agriculture and Related Issues on Region/Crop Specific Productivity Analysis and Agro-Climatic Zones, Planning Commission, Government of India (February 2007).
Research and Development

In order to improve farm productivities, continuous introduction and implementation of innovative technologies calls for existence of a strong R&D network. While substantial investment is made in this regard, the efforts have not been rewarding. This is purely because of lack of a clearly stated strategy that assigns definite responsibilities, prioritizes the research agenda rationally, and recognizes that the research mode is not always best suited for product development and delivery. Some of the common problems ailing the agriR&D in India are:
!
Commodity-centric R&D: Lack of a holistic approach involving a matrix of farm enterprises
Compartmentalization of R&D agencies: Lack of effective bilateral flow of information amongst research, extension, and implementation departments
Poor validation and feedback mechanisms: Lack of large-scale on-farm validation of techniques and feedback thereon, leading to practically no scope for enhancement
53
An exemplary shift is required to transform the present commodity-centric research to a systems approach. Since farm-level problems are specific to agro-climatic zones (ACZs), a convergence between R&D agencies within individual ACZs is required. This can help bring region-specificity in technologies and their time-bound assessment. A seven-step mechanism is required to set-up a research-development-technology transfer continuum involving all stakeholders:
! ! !
Problem identification and prioritization Convergence of existing technologies to match the need Generation of need-based viable technologies using the holistic farming system approach
! ! ! !
On-farm assessment and evaluation Feedback on the technologies Refinement of technologies, if necessary Ensuring Timely availability of inputs
Center's planned funding for horticulture sector during 11th Plan (INR 199.54 cr)
The outcome of the scheme will be

? Conservation and safeguarding of genetic
resources like new high yielding cultivars having State Government 9% resistance to biotic and abiotic stresses and also nutritive and qualitative attributes
? Enhancement in the input use efficiency (water,
nutrients, pesticides, labour) Technology for plant health management ? Minimising of post - harvest losses ? Development of newer products and value ? addition for better remuneration Indian Council of Agricultural Research 91% Development of technology for organic farming, ? off- season and protected cultivation to ensure extended availability
Enhanced productivity and profitability
Source: Continuation of the ongoing Plan Scheme of IIHR, Bangalore and seven sub-schemes for 11th Five Year Plan, March 30, 2009, Indian Council of Agricultutral Research
Human Resource Development

Advancement of any industry depends upon availability of skilled human resource. Food processing industry is no exception to this rule. The industry is in dire need of highly skilled and trained manpower across different levels to handle various operations. The human resource requirements for the food processing units in India vary according to the nature of the industry in which it operates. A food processing unit might be operating in any of the three frameworks: in organized sector, as small scale entrepreneurs or in unorganized sector. It is very essential to design and develop a mechanism addressing to
54
the manpower development for these sectors at different levels of responsibilities. Thus human resource development needs to cover the entire gamut, from basic infrastructure, education, vocational and technical guidance to professional qualifications. For this purpose State Universities need to be encouraged to commence courses in food packaging, processing, bio-technology, information, technology in agriculture and such allied fields.
? Organisations like FICCI, CII etc can provide a platform where industry
and the enforcement authorities can discuss the issues and the further actions with respect to policy decisions
? Institutions should include Regulatory and Trade Issues as a part of
curriculum
? In case of a management course like business management in food/agri
the Government should include the WTO aspects, TBT, SPS, Export/Import regulations etc
Managerial HRD ?
? Mid-managerial level HRD ? Operators level HRD ? Sanitary Workers (concept of personal hygene)
INDUSTRY LEVEL Emphasize on how the storage conditions, handling of food items can ? affect the food safety of a product
? Programmes based on regional climatic changes and natural disasters ? National Institute of Agricultural Marketing (NIAM) under Ministry of
REGULATORY AND TRADE ISSUE RELATED
WAREHOUSING AND DISTRIBUTION
Agriculture has taken initiative by considering Warehouse and distribution as a training need ENFORCEMENT FOOD PRODUCTION
? Food safety awarness ? Food safety management system at the plant level ? Operators level HRD ? Industry specific Hazard Analysis and control program ? Auditing and inspection skills ? Process development ? Current domestic food regualtions
? Develop institutes/universities like IGNOU, ICAR for Farm Level HRD ? The national network of ICAR could be made use of to incorporate farm
level food safety and related legislation

? Focus on packaging techniques, use of appropriate packaging material,
storage and safe transportation of the farm produce

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Supply Chain hindrances

Indian agri-business is renowned for their long and fragmented supply chain. The inefficiencies in supply chain lead to huge losses due to wastage or shrinkage of perishable commodities. In India, post harvest losses of perishable commodities are in the range of 30 to 40 percent . The entire supply chain is dominated by unorganized players and absence of any structured markets to ensure correct price discovery and availability of consistent quality produce. Several middlemen add to wastages from the farm to the consumer, retailer, processor or exporter. A long supply chain also means that each level of the supply chain is unaware of the requirements of the next level and thus there exists disconnect between farmer and processor. Finally, the nature of the processing industry creates further problems for the food processor. The FPI is characterized by seasonality, perishability and variability of produce. The ground and tree crops, fisheries and live stocks undergo a reproduction cycle. Therefore, food processors have to procure the required raw materials during a particular season, while the processing operations and demand for their products are round the year
3
Seasonality
Perishability
The food processing industrys raw materials are highly perishable in nature . They therefore require faster processing speed and involve higher handling and storage costs
Variability
The industry has to face variability in the quality of raw materials. This is due to cyclic variations as well as changes in weather conditions and/or damage to crops and livestock from pests and diseases
These unique features of FPI necessitate that the food processors collaborate with farmers to secure raw material. One of the crucial requirements of FPI is to get the consistent supply of quality raw material. At present, raw material is procured from markets, which often has variable quality and at times insufficient quantity. This situation discourages processing units to reach optimum size and achieve economies of scale. Additionally, lack of consistent quality hinders small scale units to build brand equity for themselves in international and domestic markets. Therefore, without quality and consistent supply of raw material, it is unlikely to set up large units in food processing sector.
Contract Farming In order to bridge the gap between farmer and processor, some of the private players such as PepsiCo, Reliance Life Sciences, ITC (agri-business division) and
3.
Maharashtra State Agricultural Marketing Board
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McDonalds have modified their sourcing channels to include contract farming. Typically, the farmer agrees to provide agreed quantities of a specific agricultural product which should meet the quality standards of the purchaser and be supplied at the time determined by the purchaser. In turn, the buyer commits to purchase the product and, in some cases, to support production through, for example, the supply of farm inputs, land preparation and the provision of technical advice4. Some of the clear benefits of contract farming which creates a win-win situation for both farmers and processors are:
It integrates supply chain to ensure timely availability of quality and quantity of raw material for processors
Significantly reduces the procurement cost for food processors by removing the middlemen
Food processors are able to source raw material as per their specific requirements at a cost which is much less
Private sector participation increases the scope of technology transfers, capital inflow as well as leads to assured markets for crop production
Suguna's poultry integration model is a case in point. The model has created a win-win situation for both the farmer and the integrator. Farmers are provided with day-old chicks, feed and health support. The performance is monitored on a daily basis with Suguna field staff visiting the farms to check on the health of the birds, feed intake, growth and mortality levels. In six weeks time, the birds are weighed and are ready to be sold by Suguna through its own retail outlets as well as other retailers and exporters. The farmers are paid a growing charge for the birds at the end of the period.
Case Study: Contract Farming by Suguna Poultry

Maize and Soya Procurement Network for Feed Backward Integration Suguna Poultry Forward Integration Suguna Fresh Retail
Retailers Extension services Exports Grandparent birds Day -old chicks Parent birds Field staff makes daily visits to each farm to check the health of the birds, their feed intake, growth and mortality levels Distributed to contract farms 6 weeks About Suguna Poultry
? ? ? ? ? ? ?
INR 2 billion turnover
11 states with 4,800 employees
Hatching eggs
Hatchery
15,000 + farmers
25,000 channel partners
395 million chickens produced per annum
36 hatcheries and 50 feed mills
1.56 million tons feed production per annum
Source: Company Website, KPMG Analysis
4.
Food and Agriculture Organization of the United Nations
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Terminal Markets While contract farming is one of the many alternatives for food processing industry to explore, it is not the only solution with the private players. Another option for the players is to leverage Terminal Markets to procure quality produce at the right price. Terminal Markets are established under Public Private Partnership (PPP) mode and operate on a Hub-and-Spoke Format wherein the Terminal Market (the hub) is linked to a number of Collection Centres (the spokes). These markets help in realizing better returns to the farmers by reducing post harvest losses of perishable commodities and reducing the number of middlemen as well as provide one stop shop for the processors to procure quality raw materials. The perishable horticultural produce is cleaned at the collection centres and transported to the terminal markets through reefer vans thereby reducing post harvest losses. The produce arriving in the terminal market is graded and stored in the cold storage till it is auctioned through electronic auction system or direct selling. The commodities marketed include all kinds of perishable commodities, such as, fruits, vegetables, flowers, aromatics, herbs, meat, poultry etc. Non perishables are also handled in the Terminal Market. However, the proportion of Non-Perishables cannot exceed 15 percent of the total through put of the market. Similarly, the proportion of non horticultural products within the perishable commodities cannot exceed 15 percent of the total through put of the market.
Case Study : Terminal Markets

SERVICES TERMINAL MARKET Banking / Finance 1 Quality Testing And Grading 2 Storage Warehousing Cold Storage Ripening Chamber Electronic Auction Direct Selling 3 Processor Exporter Wholesaler / Retailer INFRASTRUCTURE
? Transport (incl. cool
? Pack house ? Quality Testing
chain)
? Settlement of
Facility
? Palletisation
Payments
? Banking ? Market information
? Collection &
? Washing ? Grading ? Sorting ? Weighing
Aggregation of produce
? Settlement of
payment
? Advisory on inputs,
Collection Centre
Collection Centre
Collection Centre
? Transport
prices, quality
? Multi modal
transport
Producers/ Farmers and their Associations
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Low adherence to quality standards

There is an increasing need for food processors to adhere to quality standards for both domestic as well as export market. While the export market has always been critical in terms of quality and hygiene, the domestic market should no longer be taken for granted. Due to globalization, the rules of the game have become much more strict and intense. Today, the consumers need to be ensured that that the foods that they consume are healthy and have been subject to highest levels of manufacturing and hygiene standards. However, an essential consideration is that once a food product has been through a manufacturing process, little can be done to alter its quality. It is therefore pertinent that the industry ensures that the requisite controls are put in place across the agri-value chain-from farm inputs to storage of produce to food processing techniques. Under WTO regime, Indian processors have to ensure that they meet the requisite food standards in order to compete with imported goods. This calls for adoption of high tech machine and technologies, development of entire chain of infrastructure and most importantly putting in place quality control processes. One of the key challenges in ensuring adherence to food standards is availability of basic standardization and certification infrastructure. Given the size of the industry, there is a huge gap in the availability of laboratories, trained manpower, and certification agencies. The government should increasingly support private sector participation to address to these issues. International players with extensive experience in providing certifications on CODEX, HACCP , GMP and GHP guidelines should be invited to operate in India. This would not only provide necessary infrastructure support but also ensure availability of certification as per international standards.
CASE EXAMPLE Suguna Poultry Farm has launched the first environment-controlled (EC) commercial broiler sheds in Madurai district. Each shed has a capacity of 32,000 chickens, with the farm capacity at about two lakh chickens a batch. The annual capacity has been estimated at 12 lakh birds.
!
Automated feed: The entire system in the sheds is automated through advanced climate control system. Further, the feeding and watering systems are also automated, thus enabling the entire farm to be operated and controlled from a single computer-based system.
System works: The EC sheds would help improve feed conversion ratio, better quality bird meat, increased productivity and health of the chicken, reduced mortality, one extra batch (or cycle) per year per shed, and a system-controlled farm with ability to store and retrieve records up to five years
Source: http://www.sugunapoultry.com
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Poor Financing Options

Being a developing economy, availability of finance has always been an issue across the agri-business value chain in India. For long the sector has been ailing due to either unavailability of funds or availability of funds through unorganized sector at unfavourable terms and conditions. The impact of the same could be seen in form of For Farmers
! !
This issue is common to many developing nations. To address this gap, some organizations have been exploring equity investments in SMEs that operate along the food value chain. These investors place less emphasis on collateral or creditworthiness and more on the capabilities of the entrepreneurs and viability of their business plans. Two such initiatives are African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF). AAC is backed by USD 7 million from the Rockefeller Foundation and other private donors. The fund has made 15 investments in small- and medium-sized agricultural ventures in East Africa. The AECF is a USD 100 million pool established by several donor agencies. AECF funds private companies to develop innovative business models in the agriculture and financial services sectors.
Use of poor quality of inputs (seeds and fertilizers) Inability to use latest technology to enhance productivity and ensure consistent quality of produce
Off-loading the produce at lower than market rate due to urgent need of funds
SME Food Processors

! !
CASE STUDY Equity Bank, Kenya: Financing farmers and enterprises along the food value chain Equity Bank of Kenya, one of Kenya largest banks, launched a project in 2007 aimed at providing USD 50 million in credit and other financial services to Kenya farmers, agricultural input dealers, and other players in the agricultural value chain. Two project partners, the International Fund for Agricultural Development (IFAD) and the Alliance for a Green Revolution in
Failure to expand plant capacity Compromise of the level of safety measures to ensure hygiene and food safety measures
Inability to purchase of quality input through auctions. This could have multifarious implications, ranging from issue of inconsistent quality to loss of clients and goodwill of the company
The size of the target population seeking financing options is so large that even with the government assigning priority sector lending to agriculture and its allied activities, the sector is still yearning for more funds. One of the biggest challenges for a small scale food processor is to raise funds when he does not have assets to offer as collateral. While the agri-business sector offers tremendous opportunity for employment and business growth to SME, their inability to raise requisite capital eradicates any chances of their even setting up the business in the first place.
Africa (AGRA), provided a USD 5 million cash guarantee fund to reduce Equity Bank risk. The Kenyan Ministry of Agriculture is also a partner in the project, which provides targeted subsidies to poor farmers in the form of vouchers, which they can use to purchase inputs from agricultural input dealers. The Ministry also conducts outreach to build awareness of the program, and helps monitor its results. If successful, project partners plan to replicate this approach more broadly in Africa.
Source: International Fund for Agricultural Development, 2008
Within the priority sector lending target of 40 percent, the banks are mandated to lend 18 percent to direct and indirect agricultural activities. Food processing finds place within a further subcategory of indirect lending of 4.5 percent. This sub-category is usually oversubscribed by banks as agriculture inputs form a part of it. Direct lending has its own limitations in expanding credit to this sector. In the above case, there is no distinct finance for food processors.
Infrastructure bottlenecks
Indian Export related infrastructure for agri-produce is grossly inadequate, especially at sea ports and airports. More than 30 percent of the produce from the fields is lost due to poor postharvesting facilities and lack of cold chain infrastructure. India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10 Million Ton more of capacity . The cold storage facilities now available are mostly for a single commodity like potato, orange,
5
5.
India Today, Hungry for action, May 21 2009
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grapes, pomegranates, flowers, etc. which results in poor capacity utilization. There is also a lack of trained experts for testing, quality certification, R&D etc. who can educate the farming community of the standards and requirements and the processes of obtaining certifications. R&D efforts, as discussed earlier, also are a drawback.
growth of entire industry. Additionally, the industry is characterized by high tariffs, dated food laws, unscientific sanitary and phytosanitary restrictions.
Poor implementation of APMC Act

There is no uniform implementation of the Act though. Only 15 states have adopted the model law. In fact, states like Bihar do not have an APMC Act at all. Key challenges with APMC Act:
! !
The transactions outside the regulated mandis are prohibited under the APMC Act Direct marketing and contract farming are not encouraged by most of the states under the APMC act
Information on good agricultural practices: Providing farmers with information on good agricultural practices is a quick win' solution that has shown impressive results. In a partnership between BT, Cisco and OneWorld, the LifeLines India project has already demonstrated a 20 to 30 percent increase in productivity among users. The service is simple: farmers can dial a fixed voicemail number where they can record their queries. A dedicated knowledge worker then finds the answer through a panel of agricultural and veterinary experts, using an innovative Internet-based application. Farmers can retrieve the answer by voicemail at a cost of INR 5 (11 cents). After 2.5 years of operation, the service is receiving over 12,000 calls per month
! ! !
The act prohibits investments from private sector for improving the infrastructure The act does not allow direct procurement of produce from the farmer's yield As per the act the purchaser has to be a registered with a commission agent at the market
Policy amendments by States to counter the challenges posed by APMC Act

Stage of Reform States/UTs where reforms to APMC Act have been done as suggested Name of States/Union Territories (UT) Madhya Pradesh, Himachal Pradesh, Punjab, Sikkim, Nagaland, Andhra Pradesh, Rajasthan, Chhattisgarh, Orissa, Arunachal Pradesh, Maharashtra and Chandigarh States/UTs where reforms to APMC Act have been done as suggested a) by amending APMC Act b) by Executive Order States/Uts where there is no APMC Act and hence not requiring reforms Bihar, Kerala, Manipur, Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu and Lakshadweep States/UTs where APMC Act already provides for the reforms States/UTs where administrative action is initiated for the reforms Assam, Mizoram, Tripura, Meghalaya, J&K, Uttaranchal, Goa, West Bengal, Pondicherry and Jharkhand Tamil Nadu Uttar Pradesh Haryana, Karnataka, Gujarat, NCT of Delhi
Multiplicity of Laws and Stringent Regulations

Multiple laws at state and centre level are applicable to the FPI. The plethora of food legislations and enforcement agencies often results into a manufacturing plant being visited by a number of inspectors from different departments leaving enough room for multiple harassment and even corrupt practices. Such multiplicity also leads to conflicting approach, lack of co-ordination, administrative delays etc., thus retarding the
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Perception behind formation of the APMC Act

!
Case Study: An initiative by ITC
Ministry of Agriculture had formulated APMC Act to rbing about marketing reforms in line with the market trends
E-choupal is a business platform consisting of a set of organizational subsystems and interfaces connecting farmers to global markets
! !
The stricture was set to leverage a host of product and services for the farmer as a producer as well as a consumer
The Act was to enable establishment of private markets, direct purchase centers, consumers/farmers markets for direct sale, and promotion of public-private-partnership (PPP)
!
The business platform consists of three layers each at different levels of geographic aggregation
!
The first layer consists of the village level kiosks with internet access
With the growth trend of Super and Hyper markets a provision was made for constitution of State Agriculture Produce Standards Bureau for promotion of grading. standardization and quality certification of agricultural produce
!
The second layer consists of a bricks-and-mortar infrastructure (called hubs) managed by the traditional intermediary
ITC chose to operate the platform on the following three business principles:
!
Free Information and knowledge which ensures wider participation by the farmer,
! !
freedom of choice in transactions (farmers, after accessing information at the e-Choupal, are free to transact their own way)
15 states and 5 Union Territories have amended their Agricultural Produce Marketing Committee (APMC) Act to derive the benefits of market reforms
!
transaction-based income stream for the Sachalak by tying his revenue stream to transaction (on a commission basis)
Industry and Research Institution Linkages

The current level of interaction between the industry and research institutions is less. Institutions like CFTRI who work closely with a few industries have delivered several successes MTR and CFTRI have together developed products for the Indian Military. As observed in Germany, initiatives to link research and institutions lead to an increased innovation in the industry in terms of products and processes. The initiatives will require policy, institutional and legal framework to be successful at a large scale going forward. A successful fruit processing pilot unit set up by CFTRI is described in the case study.
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Overview CFTRI
!
Potential Benefits of CFTRI training

! ! ! ! ! ! !
CFTRI is an internationally reputed institute in food science and technology
Analysis and Quality Standards Confectionery Technology Food Biotechnology Food Flavors and Sensory Evaluation Food Packaging Food Processing Equipments Infestation Control and Pesticides Instrumental Methods of Food Analysis Microbiological Quality Control of Foods Post Harvest Handling Of Fresh Fruits and Vegetables Processing and Analysis of Spice and Spice Products Processing of Oil Seeds for Value Addition Production of Enzymes and Food Ingredients By Fermentation Production of Secondary Metabolites through Tissue Culture Quality Management System for Food Industry Rice Technology Storage of Food Grains Technology of Fruit and Vegetable Products Technology of Meat and Fish Products Wheat Milling and Bakery Technology
The development of Human Resource in the area of Food Science and Technology has been one of the important activities of CFTRI
With a formidable reputation that surpasses the best in the world, the CFTRI has over 270 products and processes
The CFTRI is focused on evolving cost-effective technologies that utilize indigenously available raw materials to deliver nutrition security to all sections of the population
! ! ! ! ! ! ! ! ! ! ! ! ! !
CFTRI also houses the National Information Centre for Food Science and Technology and provides the Indian R and D inputs to food science and technology
The institution aims to provide value addition to meet nutritional demands, supply technologies that help generate employment opportunities in the area of food processing, improve the traditional methods of processing foods by incorporating new technologies, provide value addition to domestic and international trade and promote avenues for self-employment
Success Story: Integrated Pilot Scale Fruit Processing Unit setup for M/s. Rishang Keishing Foundation for Management of Tribal Areas (MATA), Imphal, Manipur
Overview
!
Rishang Keishing Foundation for Management of Tribal Areas (MATA) promoted an integrated processing facility for fruits, spices and vegetables including bamboo shoots for the benefit of the people A MoU was signed with CFTRI to provide a total turnkey solution, comprising of the engineering aspects, erection of the plant and machineries, training on plant administration and production of various canned fruit products
Benefits
!
The plant processes naturally and organically grown pineapple, oranges, passion fruit and other fruits/vegetables to value added products such as pineapple juice concentrate, orange juice concentrate, passion fruit juice concentrate and bamboo products
The fruit-processing project is to process 3.65 tonnes of pineapple product (2 MT of pineapples per hour) and 2.85 tonnes of orange products (1 MT of orange per hour) per day
Application of membrane processing technology for making clarified juice concentrates from pineapple and oranges is an eco-friendly technology borne out of indigenous R&D
The integrated programme for the procurement of fruits grown by the tribals, processing, value addition and marketing under agro-industrial development programme is one of the major steps for bringing economic prosperity and the unit has the potential to be model for rest of the regions as well.
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Packaging
Packaging norms are stringent and are governed by various laws.
!
Standards of Weights and Measures Act, 1976 and Rules, 1977 mainly govern packaging in the RTE food segment in India. The regulation specifies the quantity and package labelling and administers the sale of packaged commodities including packaged food and provides for the mandatory registration of all the importers of packaged foods in India.
The packaging is influenced by the Prevention of Foods Adulteration Act 1955, which determines the ingredients permissible in packaged foods to safeguard consumer health and safety and the responsibility of packaging for spreading information and awareness about the product ingredients.
The Agmark rule provides the benchmark and the quality guidelines to various food products, which are to be imprinted on the packaging.
The Codex regulation that encompasses all the aspects of foods industry and also sets guidelines for packaged foods Industry including labelling and packaging.
The major challenge is definitely the lack of government support for the packaging sector, even while the food-processing sector gained support and importance in the recent years. The packaging material is imported from China as the sector lacks government support:
!
The lack of concessions from government, highly fluctuating raw material prices and pressure in margin prices are the major issues
The stringent regulations of European countries in packaging, and inability of Indian companies to equip themselves to comply with these standards for winning the global market
Government needs to encourage the sector by extending the tax breaks and concessions to players setting up packaging industry in India and in enabling successful transfer of technology from MNCs who wish to enter India.
Summary The several constraints in the Food processing sector can in deed be opportunities for players who can come up with innovative solutions, with a good deal of support from the government. The following chapter describes the key support requirements highlighted by the industry and recommendations.
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Industry Expectations and Recommendations
Industry Expectations
KPMG has interviewed various companies during the preparation of the report. A summary of the expectations of the industry is listed below:
!
100 percent tax breaks in Research and Development (R&D) sector Large players do not find any incentives for investments in R&D and small players do not have the funds to invest. Large players are willing to invest and support the smaller players if sufficient incentives are provided.
Support for nutritional products Players who are producing products that improve nutrition levels in India should be encouraged with incentives and tax concessions. Currently, there is no way to differentiate a player who produces nutrition products and hence to way to support.
Conducive policy for Contract Farming The land ceilings law is restrictive for players who want to invest in contract farming. Contract farming provides benefits to all the players across the value chain from the farmer to the processor and will lead to overall development of the industry; hence a supportive policy is required.
Harmonisation of taxes Although VAT has been implemented, the tax is not uniform in all the states, leading to vast cost differences in the products. Also, the set up costs and transportation costs might vary as the strategies of location depend upon the taxes and logistics costs. The proposed GST should ensure harmonisation of indirect taxes.
More incentives in Infrastructure Development Government should share the costs in development of market and infrastructure.
Focus on Skill Development Skills required across the sector for research, food safety and testing, etc are inadequate in the industry. Government should set up more institutions like NIFTEM and encourage industry-institution partnerships.
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Easier Financing to Food Processing The financing of the food processing segment is not so conducive and government should think about setting up a separate bank.
Recommendations
Industry recognises the immense potential of the Food Processing sector and is continuously innovating to move up the value chain. However, there are still numerous inefficiencies in the system that needs to be plugged with the help of the government. A few key recommendations for the sector: a. More Production of Processable Varieties Due to the lack of proper grading facilities, the processing industry incurs losses in time, money and quality by mixing table produce with one for processing. The marketlinked production still is a rarity in the industry. Blessed with the capability of cultivation round the year, India should focus more on producing the processable crop variety. Grading will help fetch remunerative prices for processable produce and hence lead to improving the variety and quality of processing. b. Promotion of Indian Food in global markets Branding of India as a global sourcing hub for food processing will go a long way in enhancing the exports. At the same time, India should have the infrastructure to cater to the varied food habits across the world. c. Infrastructure development through Private Sector Participation (PSP) Infrastructure bottlenecks across the value chain from grading, cold chains, logistics and transportation, power, roads etc is restricting the growth of Food Processing sector. If the sector has to grow at the rate suggested in the vision and reach a global trade of 3 percent by 2015, it is imperative that the infrastructure development keeps pace or even outpace the sector growth. Budget 2009 provides incentives for Cold Chain and warehousing players, which is a step in the right direction. Government needs to have a supporting framework for PSP that clearly defines the role of private players across the value chain, Risk sharing mechanisms, Concession framework and the partnership model. A successful PSP initiative, like QCI, will help improve infrastructure and hence low level of wastage in the food value chain. d. Harmonisation of Taxes The industry is driven by multiple laws and non-uniform taxes that vary across states. VAT also is not uniform across states leading to different cost structures in different states and putting pressure on the production and supply chain costs. The 2009 budget proposes the implementation of Goods and Services Tax from April 2010.
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Goods and Service Tax (GST): A last-point retail tax The Central and state governments are discussing the GST system proposed to be implemented in India from April 1, 2010. The GST is a comprehensive value-added tax (VAT) on goods and services. France was the first country to introduce this system in 1954. Today, it has spread to over 140 countries.
Model: Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. But being the last person in the supply chain, the end consumer has to bear this tax.
Many countries have a unified GST system. However, countries like Brazil and Canada follow a dual system wherein GST is levied by both federal and state or provincial governments.
In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction.
Expected advantages of GST implementation

! !
Hurdles in mplementation of GST in India

!
Better compliance and revenue buoyancy Replacing the cascading effect created by existing indirect taxes
Implementation of GST would require harmonization of levies between the Union and the states.
! ! !
Tax incidence for consumers may fall Lower transaction cost for final consumers By merging all levies on goods and services into one, GST acquires a very simple and transparent character
It would require appropriate integration of services in tax network
Constitutional amendments required for implementing GST is expected to be one of the major road blocks
Uniformity in tax regime with only one or two tax rates across the supply chain as against multiplex tax structure as of present
Issue arising from designing and structuring of GST. For instance, how the issue of inter-state movement of goods and services might need to be addressed
! ! !
Efficiency in tax administration May widen tax base Increased tax collections due to wide coverage of goods and services
! !
The phasing out of CST may take time Need for robust and integrated MIS dedicated to the task of tracking flow of goods and services across the country and rendering accurate accounting of levies associated with such flow of goods and services
Improvement in cost competitiveness of goods and services in the international market
The issue of taxing financial services and ecommerce will need addressing
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e. Policy push for technology upgrade Government needs to support the industry in granting fiscal incentives for capital investment towards technology upgrade. The companies that are constrained by finances into upgrading to latest technology in food processing will need to have an incentive and tax breaks are helpful in initiating the technological change. This will lead to enhanced quality and a better value addition. In addition to government setting up more facilities for R&D in the country and setting up R&D departments in esteemed institutes like IITs and IISc, private sector should be incentivised for investments in R&D. The government can provide tax exemptions for investment in R&D for the companies that set up research laboratories and can ask the companies to help projects of Small Scale Industries or make the companies spend money in imparting training to a certain number of people. This will promote innovation in the Food Processing sector and bridge skill gaps.
polyunsaturated fats, whole grains and vegetables. This requires a law to make it mandatory for nutritional value labelling on the packs. As demanded by the industry, the government should speed up building the national reference data on nutrition parameters of all agricultural and horticultural produce before implementation of the mandatory nutritional labelling for the packaged food products. Norway has implemented the concept successfully. In Norway, taxes are related to wider environmental and social issues and are closer to a calorie tax than a fat tax, as some foods will naturally be high in fat and others low and these may not be an adequate description of their healthiness or otherwise. These have led to a requirement for a simplified labelling The current food labelling regulations in Norway follow the EU legislation. The EU labelling legislation states that it is based on consumer protection and the common market (European Communities 2006). The aims are: to ensure fair competition among producers by standardization of legislation on nutrition labelling because differences between national laws on labelling can lead to unequal conditions of competition; to increase consumers access to information; and to reduce risks to individual consumer safety and health. According to the nutrition labelling Directive of 1990 (with later amendments) nutrition labelling was optional, but became compulsory if a nutrition claim appeared on the label or in advertising. According to regulation No 1924/2006, nutrition and health claims that encourage consumers to purchase a product, but are false, misleading or not scientifically proven are prohibited. The Regulation includes a positive list of allowed claims. Simplified nutritional labelling on food packages is an example of voluntary nutritional labelling.
f.
Capacity Building Measures Government, with the help of private players into backward integration, and training institutes should come up with ways of training the producers on the Safety and Quality standards. The traceability requirements of the developed countries should be made aware to the producers in India. Market intelligence mechanisms to farmers, training on global standards and safety requirements, and other skills need to be imparted to the players in the sector. Setting of more institutions like NIFTEM, CFTRI etc, and trainings from governing bodies like APEDA will help in developing research skills and keeping up-todate on the export market requirements.
g. Support for Backward Integration Companies that invest substantial amounts in integrating the value chain should receive government support. The companies help in farmers realising a better price for their produce by minimising the intermediaries in the value chain. The government should hence make contract farming easier by changing the land ceiling restrictions that exist.
Implementation strategy The policy and incentives of the government do not reach the intended audience due to multiple roles and channels of service delivery. Government needs to bring all these under one window to improve clarity in roles and improve service effectiveness/efficiency
h. Promotion of Nutrition Foods The government should promote nutrition foods so as to encourage a health-promoting diet, reducing fat consumption, especially saturated fats, and replacing them with
of delivery. Central government should allow State governments a more free hand in developing their own industry support steps to attract investments.
68
Conclusion
Indian food processing industry is estimated to be around USD 67 billion, of the USD 180 billion food industry, making it the fifth biggest. India's strong agricultural base and accelerating economic growth holds a significant potential for the Food Processing Industry that provides a strong link between agriculture and consumers. The food industry expected to grow to USD 280 billion by 2015 and generate an additional employment for approximately 8.2 million people. It has been observed that employment potential of the foodprocessing sector is much higher than other sectors. For instance, an investment of INR 10 billion generates employment for 54,000 people in the food-processing sector, jobs for 48,000 people in textiles and employment of 25,000 people in the paper industry. There is also fourfold generation of indirect employment in auxiliary and other downstream activities on account of
investment in the food sector. Also, 60 percent of the employment generation takes place in small towns and rural areas. Policy has accorded a high priority to the sector and has provided many fiscal incentives as this is a sector that has strong synergies with the inclusive growth mandate of the government and also provides a platform to significantly transform the face of rural India. Additionally, an enviable share of the world's agri-produce and diverse agro-climatic regions coupled with changing demographic patterns, food habits and rise in income levels opens up numerous opportunities in the sector India as a huge consumer market and India as a potential sourcing hub to the world. Indian Food Processing is on the verge of a great transformation from a low level of processing and a low share in the global trade to one that will define the global trade in a few decades from now, if not sooner. Sustained economic growth and steady urbanization will enable the transformation. The country has a vast and diverse supply base and also the demand to absorb the supply. Significant investments need to be made in developing the infrastructure across the value chain right from farm inputs to the consumers. There is also a need to bridge the skill gaps in the industry in terms of market intelligence to the farmer community, establish and provide required facilities for R&D, Training, and Education for product and process innovations. Investments made by the players for industry infrastructure development should be supported by incentives. Considering the huge potential opportunity, players should consider the constraints as opportunities waiting to be exploited and make investments for the overall growth of the industry.
69
Abbreviations
AAC ACZ AECF AEZ AGRA AIBP AIDC APEDA APMC ASSOCHAM BMI CFTRI CGST CII CISS CODEX DCS DGCIS FAO FICCI FPI GHP GMP GST HACCP ICAR IFAD IGNOU IQF ISO MoFPI MPEDA NER NERMAC NHB NIAM NIFTEM OECD PPP PSP QCI RTE SGST SME SNA SPS TBT VAT WTO
African Agricultural Capital Agro-climatic zones Africa Enterprise Challenge Fund Agri Export Zone Alliance for a Green Revolution in Africa Accelerated Irrigation Benefit Programme Assam Industrial Development Corporation Agricultural & Processed Food Products Export Development Authority Agriculture Produce Marketing Committee The Associated Chambers of Commerce and Industry of India Business Monitor International Central Food Technological Research Institute Central Goods and Services Tax Confederation of Indian Industry Capital Investment Subsidy Scheme Codex Alimentarius Commission Dairy Cooperative Societies Directorate General of Commercial Intelligence and Statistics Food and Agriculture Organization Federation of Indian Chambers of Commerce and Industry Food Processing Industry Good Hygiene Practice Good Manufacturing Practice Goods and Services Tax Hazard Analysis and Critical Control Points Indian Council of Agricultural Research International Fund for Agricultural Development Indira Gandhi National Open University Instant Quality Freezer International Organization for Standardization Ministry of Food Processing Industries Marine Products Export Development Authority North Eastern Region North Eastern Agricultural Marketing Corporation Limited National Horticulture Board National Institute of Agricultural Marketing National Institute of Food Technology, Entrepreneurship & Management Organisation for Economic Co-operation and Development Public Private Partnership Private Sector Participation Quality Council of India Ready to Eat States Goods and Services Tax Small and Medium Enterprises State Nodal Agency Sanitary and Phyto-Sanitary Technical Barriers to Trade Value Added Tax World Trade Organisation
Acknowledgements
Authors:
Ramesh Srinivas is an Executive Director in KPMG's Consumer Markets and Retail practice. Based in the firm's Bangalore office, he can be reached at rameshs@kpmg.com Anand Ramanathan is a Manager in KPMG's Consumer Markets and Retail practice. Based in the firm's Bangalore office, he can be reached at anandramanathan@kpmg.com Veera Lokesh Ayireddy is a Consultant in KPMG's Consumer Markets and Retail practice. Based in the firm's Bangalore office, he can be reached at vlokesh@kpmg.com Shilpa Taneja is a Consumer Markets Lead in KPMG's Research, Analytics and Knowledge practice. Based in the firm's Mumbai office, she can be reached at shilpat@kpmg.com Preeti Sitaram is a Manager in KPMG's Research, Analytics and Knowledge practice. Based in the firm's Bangalore office, she can be reached at psitaram@kpmg.com The Authors wish to acknowledge the contributions of Upasana Juneja, Simrat Singh, Rajagopal M and Praveen Govindu in writing the report. This document has been designed and formatted by Remedios Dsilva, Senior Graphic Designer, Design Cell - KPMG.
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CONSUMER MARKETS

Food processing and Agri business

About the study

Food is the largest consumption category in india

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

200 USD Bn 150 100 50 0 2005

Significant opportunities exist across each segment

Fruits & Vegetables

Meat & Poultry

Common features across segments

Level of Processing across Segments

Level of Processing 2.2% 26% 6% 20% 35%

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

60-70% in developed countries

60-75% in developed countries

Export of processed foods is growing faster than food segment

Export of processed food growing faster than exports of Food overall

Export of Food and Beverages

Export of Processed Food and Beverages

India's exports are predominantly to the nearby countries

South Asia 34% Middle East 29%

However, significant impediments exist hindering the export growth:

India needs to take strong measures to promote growth:

Urbanisation and supportive policy is driving growth

Significant opportunities exist across the food value chain

Consumer Product Design

Financial & Business Services

Source: KPMG Analysis

A summary of the key opportunities is listed below

Summary of Opportunities across the value chain

Various constraints are impeding the growth of the sector

Summary of Constraints and Strategies

Industry expects a lot more from the government

of development and market

KPMGs recommendations for the sector:

incentivise the players who produce nutrition foods.

CHAPTER Industry Expectations and Recommendations details the expectation of the

industry and KPMG recommendations for the sector.

Introduction: India - Global Food processing Hub

Significant Contribution to GDP and Employment

52% cultivable land compared to 11% world average

Largest livestock population

All 15 major climates in the world exist in India

Largest producer of milk

46 out of 60 soil types exist in India

Largest producer cereals

Second-largest fruit and vegetable producer

Some Interesting facts on India's Strengths in Food Processing

Changing lifestyle, thriving food processing; FFY Magazine June 2009

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

Eggs Total (m) 5, 3 Sheep, 5 , 5

Chicken, 6 , 3 Low Percent Share Item, Rank, % of Global Share High

Source: FAO, Kotak Securities

Food Consumption in India

200 USD Bn 150 100 50 0 151.7 157.7 168.6

Source: BMI, Q1 2009 & CSO

Hurdles in the growth path

(Pest, Diseases, Rodents etc)

(e.g. inefficient harvesting, drying, milling)

(e.g. technical deficiencies)

Processing & Packaging

(e.g. excessive peeling, washing)

(e.g. spoilage, rotting in stores)

(e.g. overeating, food wastage)