•

Overview of Food Processing Industry

The food processing industry plays a vital role in the diversification and commercialisation of agriculture by
ensuring value addition to agricultural produce, generating employment, enhancing the income of farmers
and creating markets for export of agro foods. In short, the food processing industry provides linkages and
synergies between the industrial and agricultural sector. Change in lifestyle and food consumption patterns
and increase in the disposable income are some of the key growth drivers for the industry.

(Source: APEDA)

Fruits and Vegetable Processing

The total installed capacity of fruits and vegetables processing industry has increased from 1.1 mn tonnes
in January 1993 to 2.5 mn tonnes in January 2007. The processing of fruits and vegetables is estimated to
be around 2.2% of the total production in the country.

Meat & Poultry Processing

In meat and poultry processing sector, poultry meat is one of the fastest growing animal proteins in India.
Through 1991-2005, the estimated production was 1.5 mn tonnes, which has grown at a CAGR of 13%. Per
capita consumption has grown from 870 grams in 2000 to about 1.68 kg in 2005 and is expected to grow
to 2 kg in 2009.

Milk & Milk Products

India is the largest milk producing country in the world. According to the Annual Report FY07 of Ministry of
Food Processing Industries of India, Indian production stands at 91 mn tonnes, having grown at a CAGR of
4%. Approximately 70 mn rural Indian households, primarily, small and marginal farmers and landless
labourers, are engaged in the business of milk production.

Marine Products
The country has a long coast line of over 8000 kms, 50600 sq kms of continental shelf area and 2.2 mn sq
kms of exclusive Economic Zone. Of the total value of exports, 63.5% is contributed by frozen shrimps.
Among all, the US is the largest importer of Indian marine products, contributing to 13% in quantity and
30% in value of total exports, as per the Ministry of Food Processing Industries.

Grain Processing
Milling of rice, wheat and pulses form a part of the grain processing industry. India is self reliant in grain
production. It is the second largest rice producer in the world, with a 20% share in the global production.
Every year, India produces about 200 mn tonnes of different food grains. All major grains, such as paddy,
wheat, maize, barley, millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) are
produced in the country.

Alcoholic Beverages
India is the third largest market for alcoholic beverages in the world. The demand for beers and spirits is
estimated to be around 373 mn cases, according to the Annual Report FY07 of Ministry of Food Processing
Industries of India. The alcoholic beverages industry provides considerable employment opportunities in the
agro – processing industry.

Consumer Food Industry

Consumer food industries include packaged / convenience food, aerated soft drink and packaged drinking
water. Packaged food consists of ready-to-eat and ready-to-cook products, pastas, breads, cakes, pastries,
biscuits, rice flakes, bun rolls, noodles etc. As per the Ministry of Food Processing Industries, bread and
biscuits constitute the largest segment of consumer food with the production of about 4 mn tonnes p.a. Of
the total production of bread, 40% is produced in the organised sector and the remaining in the
unorganised sector. In production of biscuits, the organised sector produces about 80% of the total
production.

Policy Initiatives
The Government has undertaken several policy measures and initiatives. Some initiatives can be named as
follows:
• Most of the processed food items have been exempted from the purview of licensing under the
Industries (Development & Regulation) Act, 1951.

• In order to ease the availability of finance, the industry is included in the list of priority sector.

• Excise duty levied on the ready-to-eat products, instant food mixes, aerated drinks and fruits and
vegetables processing units is reduced.

• Foreign equity up to 100% for most of the processed items except for alcoholic beverages and those
reserved for the small-scale units.

• A large number of foreign collaborations have been approved.

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

Future Outlook
India has the potential of being the biggest producer within the food and agricultural sector. In this respect,
the country is endowed with a large production base for a variety of food crops due to its varied agro-
climatic conditions. The Government of India under the Ministry of Food Processing Industries has adopted
a Vision 2015 which envisages:
• Trebling the size of the processed food sector

• Increasing level of processing of perishables from 6% to 20%

• Value addition to increase from 20% to 35%

• Share in global food trade to increase from 1.5% to 3%

The areas identified to develop the food processing industries in India are - establishing mega food parks,
modernisation of abattoirs, cold chain/value addition and preservation infrastructure, upgrading safety and
quality of street food and establishment / upgradation of quality control laboratories.
Policy reforms in the food processing sector are already in their advanced phase, and have prompted
several corporate like Reliance, ITC, Bharti and Godrej to invest in this sector. The growth in food
processing industries would not only help in the growth of agricultural sector, but also in the growth of
these segments that may have remained marginalised for a long time.

Cluster Insights
Cluster Insights are aimed at highlighting the performance and expectations of the small and medium
enterprises operating in the food processing sector in the Kolkata cluster. The sample considered for this
analysis are the food processing firms profiled in this publication; the variables considered for analysis
include operational structure, business practices, and future plans.

Key characteristics of the Kolkata food processing cluster

• Average revenue growth of the food processing companies in the last two years was around 24%.

• 24% of the companies possessed quality certifications such as ISO 9000: 2000 and others.

• 55% of the companies were involved in exports.

• 41% of the profiled companies generated more than 50% of their total revenue from the
international market.

• Asia (excluding Middle East) is the most preferred export destination.

• On an average, the companies operated at a capacity utilisation of around 87%.

• 59% of the companies were established prior to 1990. Around 38% and 3% of the companies were
established between1990-2000 and post 2000 respectively.

Ownership Pattern
The ownership pattern of food processing companies was inclined more towards public limited companies.

(source: Emerging SMEs: Kolkata 2008-09)

• Around 60% of the public limited companies fall in the Rs 10 – 100 mn turnover bracket.
 • Private limited companies in the Kolkata cluster recorded an average revenue growth of 25% in the
last two years.

Sub segment
Most of the companies in the Packaged / convenience foods segment fall in the turnover bracket of Rs 10 –
100 mn, followed by milk & milk products segment.

(source: Emerging SMEs: Kolkata 2008-09)

• 60% of the companies in packaged / convenience foods segment were involved in exports.

• Companies dealing in milk & milk products operated at an average of 87% of their installed
capacity.

Turnover Bracket
 • 25% of the companies in the turnover bracket of Rs 10 – 100 mn earned more than 50% of their
revenue from the overseas market.

• The companies in the turnover bracket of Rs 100 - 250 mn operated at an average of 88% of
capacity utilisation.

Growth & Future Plans

The food processing companies in Kolkata cluster expect an average revenue growth of 33% in the next
two years.
• Notably, 17% of the profiled companies are expecting more than 50% revenue growth in the next
two years.
• Most of the companies have envisaged future plans. The plans range from capacity expansion and
modernisation, to enter into new markets and diversification. For instance, 40% of the companies
are planning to tap new markets while 30% are willing to expand the plant capacity.

Cluster benefits and hindrances

Marketing initiatives, quality up gradation and funding from the financial institutions were the dominant
benefits derived by the companies operating in the cluster.

http://www.dnb.co.in/Kolkata2008/Food.asp

Changing face of the Indian food processing industry

Wednesday, September 16, 2009 08:00 IST

The past decade has witnessed a radical development in India's food processing sector. The growth of this industry is
expected to change the way people perceive food and their eating habits. Yashodhan Jadhav maps the evolution of
the processed food sector, proposed development plans and upcoming trends in India.

The food processing sector in India is poised to be one of the largest in terms of production, consumption, export and
growth prospects. The government too has prioritised its focus on this sector and bestowed it with a number of fiscal
reliefs and incentives to commercialise and add value to the agricultural produce. The focus is also directed towards
minimising pre and post harvest wastage, employment generation and export growth. While India's food processing
industry features an array of products like fruit and vegetables, meat and poultry, milk and milk products; other
consumer product groups like confectionary, chocolates and cocoa products, soya-based products, mineral water
and high protein food also falls under its purview. As per the figures given by the National Committee on Food
Processing & Regulatory Affairs, the food processing sector received investments worth USD 144 million between
2007 and 2008, as against USD 5.7 million in the previous year. During April 2008 - January 2009, the sector
received USD 760 million worth of investments.

The Food Processing Industry: In Retrospect

With an aim to streamline the meat and poultry processing industry in India, the government has launched the
National Meat and Poultry Processing Board (NMPPB) in New Delhi on February 2009. The new board will have 19
members and will address issues related to the production of clean and hygienic meat and meat products. The board
will also go a long way in helping the rural economy through employment generation. Further, NMPPB will work
towards raising domestic standards in meat and poultry processing to international levels, developing uniform and
effective meat quality testing systems and addressing environmental pollution issues arising out of the conditions,
which is now prevalent in the meat industry. The cabinet had given the approval for the board's set up, with an outlay
of Rs 14.64 crore (Rs 146.4 million)

Setting up Mega Food Parks

Similarly a sum of Rs 3,700 crore has been assured in order to set up 10 mega food parks in the first phase of the
11th five-year Plan. This includes Rs 2,500 crore-investment from individual units, Rs 700 crore from special purpose
vehicles (SPVs) and the Centre contributing Rs 500 crore. A total of 30 mega food parks are expected to be set up
during the 11th Plan. Each food park is expected to have 30 units, which are collectively expected to attract Rs 250
crore. The SPV, which will require an investment of Rs 120 crore, will include the government's contribution of Rs 50
crore. Hence, each park will attract an investment of Rs 370 crore. Apart from private entities, government agencies
are also allowed to be part of the SPV. Consequently, the West Bengal Horticulture Development Corporation and
Assam Industrial Development Corporation are stakeholders in their respective state mega food parks.

The parks will be set up in Chittoor (AP), Chikmagalur (Karnataka), Dharmapuri (Tamil Nadu), Pune (Maharashtra),
Jalandhar (Punjab), Jangipur (West Bengal), Rai Bareilly (Uttar Pradesh), Haridwar (Uttarakhand), Nalbari (Assam)
and Ranchi (Jharkhand). Private partners, who have taken part in the SPV, include Patanjali Ayurved of Ramdev
fame in Uttarakhand, Shrei Infrastructure in West Bengal, Unity Infra in Punjab and Chordia Food Products in
Maharashtra. For the SPV to be approved, it should have a minimum of five members, out of which one should be
from the food processing industry. Each mega food park will have a minimum catchment area of five districts. Each
will incorporate a chain developing from the farm gate to the retail shelves, with collection and distribution centres and
central processing centres in between; functions like sorting, grading and packaging along with irradiation and food
incubation-cum-development will take place, as well. The food processing ministry hopes that the initiative will be a
commercial success.

Some staggering facts

India has 184 million hectares of cultivable land and the country produces 90 million tonnes of milk (highest in the
world), 150 million tonnes of fruit and vegetables (second largest), 485 million livestock (largest in the world), 204
million tonnes food grain (third largest), 6.3 tonnes fish (third largest), 489 million poultry and 45,200 million eggs. In
spite of having a vast production base, the processing level is low - two per cent in fruits and vegetables, 26 per cent
for marine products, six per cent for poultry and 20 per cent for buffalo meat. With only 1.5 per cent share of India's
export of processed food in global trade; there lies immense potential for investment and development in this sector.

Indian Grape Processing Board

In early 2009, the government launched the Indian Grape Processing Board (IGPB) in Pune, Maharashtra. This board
will provide a platform for the advocacy of the Indian wine sector. The board's major objectives are to formulate a
vision and action plan for the Indian wine sector's growth including research and development for quality upgradation
in new technologies/processes; to collaborate and advise wine-grape growers, the wine processing industry, central
and state governments on commercial, regulatory and technical issues related to the Indian wine sector, including
best practices in viticulture; to increase farmers' income and employment generation, with a particular focus on rural
areas; to encourage cluster farming, contract farming and farm diversification; to bring the benefits of value addition
to the farming community and farmers fetching remunerative prices for their produce; co-ordinating with premier
Research and Development (R&D) institutes in order to identify and develop appropriate root-stock and wine varieties
of grapes suited for different geo-climatic regions of India.

Annual grape production in the country is estimated to be 1.6 million metric tonnes and area under cultivation is about
60 thousand hectares. Approximately 80 per cent of total production, irrespective of variety, is consumed fresh. Of the
total grapes produced in the country, about one per cent is processed into wine. The Indian wine market is growing
rapidly at 25-30 per cent per annum for the last five years.

The food processing sector is likely to be the driving seat for the Indian economy. At present, the sector is growing at
the rate of 15 per cent per annum; however, the sector's future growth depends on adherence to safety and quality
standards, infrastructure facility, capacity building, skilled manpower, and rationalisation of tax structure, opined
Subodh Kant Sahai, Union Minister for Food Processing Industries. The food processing sector needs strong venture
capital arrangements, either from the government or via Private-Public Partnership (PPP) mode, as banks do not give
priority to sectors, which fall under perishable segment.

Research and Development

In August 2009, Sahai said that the government was planning to formulate a separate policy for India's food
processing industry and develop R&D activities in the sector. The minister addressed this topic at a workshop on
'New Perspectives in Research and Development in the Food Processing Sector,' jointly organised by the ministry
and the Federation of Indian Chambers of Commerce and Industry (FICCI). The proposed new policy would lay
special emphasis on PPP for giving a commercial orientation to R&D activities in this sector. The ministry intends to
chart out a roadmap for scaling up R&D activities in the sector. It will also focus on technical capacity building for
research with the ultimate aim of increasing the processing of perishables from the 2007 - 08 level of 10 per cent to
20 per cent by 2015 and raise value addition (of agricultural produce) from 25 per cent to 35 per cent.

R&D in food processing is vital for several areas like development of new cost-effective technologies for preservation
and packaging of food products, development of innovative products using new technologies and use of energy-
efficient processing. The minister also said that special emphasis would be given to train farmers and other
stakeholders. The ministry plans to train and empower five lakh women entrepreneurs, at least 1,000 women from
each of the 5,000 parliamentary constituencies of India, thereby the intent is to create 5,00,000 women entrepreneurs
in the food processing sector.
"The customer awareness in India is high. Today's discerning clientele seeks authentic food. However, they still
prefer simple plate presentation. One important development is that the hotels are getting severe competition from
the standalone restaurants. Thus, the hotels will need to rework on their price points to be offered. Hotels cannot
operate on the five-star deluxe margins and will be compelled to rationalise their pricing. Besides, foreign travellers
want to try local cuisine. Thus F&B outlets within the hotels need to offer authentic and innovative recipes," said
Anuraag Bhatnagar, General Manager, Le Royal Meridien, Mumbai. Contrary to serving authentic gourmet fare (both
Indian and international cuisines) within hotels, the government is keen to make traditional Indian food available in
overseas markets through preservation and packaging. Likewise, research will be encouraged in perishables such as
fruits, vegetables, dairy products, meat, poultry products, fish and marine products.

Acceptance and Future

Food service industry professionals opine that the product expectations have increased from institutional clients,
suppliers and retailers, especially with regards to the new technology that augments itself within the food processing
sector. Food service players find it relatively easier to gain ground, now, within the market, thanks to the spurt of
trade shows and exhibitions, which showcase the latest offerings within the F&B sector. "I believe there is a paradigm
shift in the way end consumers and the industry perceives the food processing industry. For example, we have
observed that people are willing to accept processed frozen foods now. A few institutional players have also
changed/modified their style of operations, food preparation and service to match the prerequisites of processed
food. One cannot rely on the seasonal availability of certain exotic fruits and vegetables, hence, frozen foods serve as
the most ideal option for such requirements," explained, Hrishikesh Bhatjiwale, Vice President - Sales and Marketing,
Tastee Choice.

Initially, processed food products were considered an exorbitant commodity, however, 'convenience' has become an
important factor in today's context. Bhatjiwale suggests that food service players slowly seek 'convenience over cost'
involved in preparing the food, thereby saving time and labour but often cumbersome to manage overheads. The
processed food market gears up to offer innovative products, which are quick to prepare and available throughout the
year yet affordably priced.

http://www.business-standard.com/india/news/govt-eyes-150-growth-in-processed-
food-exports-in-five-yrs/371019/

Govt eyes 150% growth in processed food exports in five yrs

Dilip Kumar Jha / Mumbai September 24, 2009, 0:39 IST

The ministry of food processing has set a target of 150 per cent growth in processed food
exports in the next five years on rising global demand of Indian food. This will be 5 per cent of
the total share in global processed food market.

Agriculture & Processed Food Products Export Development Authority (Apeda) monitored
processed food products including fresh and processed fruits and vegetables, livestock products,
cereals etc. have grown exponentially by 24 per cent in rupees term (Rs 39,461 crore) and 10
per cent in dollar term ($8.67 billion) in 2008-09.
The way value addition and food processing is picking up, India’s exports would increase by
atleast another Rs 60,000 crore by 2014-2015.
But, to maintain the same growth pace, an investment of Rs 100,000 crore is required during the
period which has received lukewarm response from investors especially in the projects such as
Mega Food Park , said Ashok Sinha, secretary, Ministry of Food Processing Industries, in the
sideline of Agricorp ‘09 in Mumbai.
Sinha emphasised the need of corporates’ entry into contract farming and fast adoption of
mechanised farm practices which can help enhance foodgrain production and reduce reliance on
imports. Since land holding by average farmers has declined significantly in the last four
decades due to population explosion, there are rooms for better fertiliser, pesticides and seeds
management through contract farming by corporates which is not easy but possible, Sinha said.
During this period, average land holding by farmers has declined to a third from an acre each in
1970. Equally difficult is the adoption of mechanised farm practices as only 10 per cent of
Indian farmers own tractors for tilling the field while around 30 per cent are using this.
According to a recent study by the Ministry of Agriculture, in a country where 60 per cent
population depend upon agriculture, over 80 per cent farmers own less than five acres of land
while over 63 per cent of farmers control less than 2.5 acres of landbank.
While contract farming has not been allowed by the government officially, private companies
have been entering into contracts with farmers to grow the agricultural commodities of the
former’s choice. In some cases, quality seeds, fertilisers, pesticides and irrigation equipment are
availed by the company on a condition to supply the output to the company. Farmers enjoy
premium over market price of the produce from the company.
“However, the law is silent on the issue whether to allow corporates’ into contract farming or
not,” said Bipin Sinha, project director of UBM India, an organiser of events on food processing
sector.
Bharat Doshi, president of the Bombay Chamber of Commerce and Industry, said, “Barring
2006-07 when agri sector growth surpassed the target of 4 per cent, the government has never
achieved even half of that. Hence, there is an urgent need to raise domestic production of
agricultural products to meet the rising demand.
At a time when land bank is shrinking, better utilisation of farm techniques including multiple
cropping, mechanisation of tilling, sowing, harvesting and post-harvest management for
reducing agri output loss, can enhance availability of farm produce to feed growing population.
According to an estimate, India loses agri commodities worth Rs 33,000 crore due to poor post-
harvest management practices.