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Executive summery

Though the Indian economic reform process commenced in 1991, it is only in the last five to
seven years that the countrys GDP has accelerated well past the 7 to 8 per cent per annum
growth rate. There is clear evidence of discernible increase in purchasing power in many parts of
the country and rising affluence in many urban pockets. Globalization, urbanization, Relaxation
of import policies, rising income, growth of organized retailing, economic growth, impact of
visual media and changing lifestyles and food habits have opened the doors for the entry of
imported food products from across the globe. With increasing propensity to spend, the Indian
urban consumer now has the willingness and means to try new products. Today, retail outlets
ranging from small grocery stores to large retail chains in most urban cities sell imported food
products. From Washington apples and Australian Kiwifruit to Swiss chocolates, French cheese
and Italian pasta, a wide variety of imported products are available in the Indian market. Apples,
pears, chocolates, juices, pasta, olive oil, sauces and salad dressings are some of the prime
categories of imported products.
The recent global financial crisis has cast its shadow over the Indian economy. However, the
Indian economy is expected to weather the storm much better than its compatriots thanks to the
well diversified and strong domestic economy and appropriate monetary and fiscal policy
responses from the Central Government. The economy is expected to revert to a higher growth
trajectory by the end of 2011.
Recent data tends to suggest that the impact of the downturn on the domestic fast moving
consumer goods sector has been much lower than other sectors. Brand owners are also making
strong forays into the vast rural hinterland creating fresh demand for their products and services.
Propelled by the increasing disposable income, the food sector has been witnessing a marked
change in consumption pattern. Currently, India is the worlds second largest producer of food in
the world and the food processing industry is the one of the largest industries in India. In terms
of production, consumption, export and expected growth, India is ranked fifth in the world.

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Indias food industry is valued at US$ 180 billion of which the food processing industry is
estimated at US$ 67 billion, according to a report Food Processing and Agri Business, done by
KPMG.
The industry size has been estimated at US$ 70 billion by the Ministry of Food Processing,
Government of India. The food processing industry contributed 6.3 per cent to Indias GDP in
2003 and had a share of 6 per cent in total industrial production. The industry employs 1.6
million workers directly. The industry is estimated to be growing at 9-12 per cent during the
period 2002 to 2007. Value addition of food products is expected to increase from the current 8
per cent to 35 per cent by the end of 2025. Fruit & vegetable processing, which is currently
around 2 per cent of total production will increase to 10 per cent by 2011 and to 25 per cent by
2025. The highest share of processed food is in the dairy sector, where 37 per cent of the total
produce is processed, of this only 15 per cent is processed by the organized sector. The food
processing industry in the country is on track to ensure profitability in the coming decades. The
sector is expected to attract phenomenal investments of about Rs 1,400 billion in the next decade


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Table of Contents

1. Overview of Indian Agricultural & Food Processing sector..4
1.1 Agriculture...4
1.2 Indian food processing sector..4
1.3 Overview of production & consumption in major sector9
1.4 Key drivers & Trends.26
2. Food processing Industry: A critical analysis...28
2.1 Advantage India.28
2.2 Market overview29
2.3 Industry Infrastructure...34
2.4 Investments35
2.5 Policy & Regulatory framework36
2.6 Opportunities..37

Conclusion.40






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Overview of Indian Agricultural & Food processing sector

1.1 Agriculture
India has traditionally been an agrarian society and agriculture is a key sector of the Indian
economy. In the 1950s, the contribution of agriculture to the overall GDP was in the range of 51
per cent. However, growing emphasis on the industry and service sectors and changes in the
Indian economy has resulted in a drop in the proportion of the agriculture sector. Today,
agriculture contributes around 18 per cent to the GDP and accounts for about 15 per cent of the
total exports. Nearly 58 per cent of the population still depends on agriculture for a livelihood.
India is home to a broad spectrum of flora and fauna and of the total geographic area of 329
million hectares, the cultivable land in India is about 167 million hectares. Indias favorable
climatic conditions and rich natural resources have helped India become the worlds largest
producer of a range of commodities such as coconut, banana, mango, pulses, cashew nuts,
ginger, turmeric and black pepper. Improved infrastructural facilities like refrigerated
transportation, cold storage and packaging and new technology like IT and biotechnology, has
helped the agricultural sector to develop more significantly in the recent years.
In terms of global farm output, India ranks second and is the second largest producer of rice,
sugar, wheat, cotton, fruits and vegetables in the world. In 200910, the production of food
grains in India grew by 6.2 per cent to reach 230.7 million tonnes.
1.2 Indian food processing sector
The food processing industry is ranked fifth in terms of production, consumption, export and
expected growth. Major products of the food processing sector include:
Processed fruits and vegetables;
Meat and poultry;
Milk and milk products;
Marine products;
Plantation crops;
Processed grain;
Bakery products;
Alcoholic beverages;

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High protein foods;
Ready-to-eat, ready-to-cook and other convenience food.
Food processing in India is gaining equal importance as agriculture or any other industry and is
vital to the Indian economy as it acts as a linkage between manufacturing industries and
agriculture. Offering employment to around 1315 million people around the country, the food
processing sector contributes about 14 per cent to the GDP. In 200607, the food processing
sector was estimated at US$82.6 billion, growing at 13 per cent per annum. However, when
compared to some of the developed countries, the Indian food processing sector is still in a
nascent stage. For instance, the current level of fruits/vegetables processed is around 23 per cent
as against 80 per cent in USA, Malaysia and other developed nations.
Indian Food sector: Market size & Segment
















Food Processing
Agri Products Milk & Milk Products Meat, Poultry and Marine
Products
Fruits &
Vegetables
Beverages
India is the
second largest
producer of
Fruits (50
Million
tonnes) &
vegetables
(100 Million
tonnes) in the
World in
2009-10

India is the
third largest
market in the
world for
alcohol & has
62
Manufacturing
units (2009-10)
Dairy Products
India is the
largest producer
of milk in the
world,
accounting for
nearly 15.2 per
cent of global
milk production
(2009-10).
Meat and
poultry
Fisheries
The
production of
meat in
200910 was
estimated at
6.5 million
tonnes.
Fish
production in
India was
estimated at 7
million tonnes
(2009-10).


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1

Indias food industry is valued at US$ 180 billion of which the food processing industry is
estimated at US$ 67 billion, according to a report Food Processing and Agri Business, done by
KPMG. The industry size has been estimated at US$ 70 billion by the Ministry of Food
Processing, Government of India. The sector is expected to attract phenomenal investments of
about Rs 1,400 billion in the next decade.
Exports
Exports of agricultural products from India are expected to cross around US$ 22 billion mark by
2014 and account for 5 per cent of the worlds agriculture exports, according to the Agricultural
and Processed Food Products Export Development Authority (APEDA).
Exports of floriculture, fresh fruits and vegetables, processed fruits and vegetables, animal
products, other processed foods and cereals stood at Rs 17728.71 from September 2010-2011,
according to DGCIS annual data published by APEDA.
India will be setting up a global platform for spice trade. The organization named World Spice
Organisation (WSO) will be headquartered in the Kochi, Kerela. Spice related organizations
across the world will be coordinating prices across the world and address the issue of food safety
regulations through WSO.
Spices
The export of spices and spice-based value added products during April-February 2010-11 was
US$ 1,323.28 compared to the US$ 1,063.44 in the same period last year.
Fishery
Fish production of the country has been growing continuously with improvement in productivity
and utilisation of untapped resources. The total fish production is 6.4 million metric tonnes
(mmt) of which 3.4 mmt is inland and 3.0 mmt is marine production. The Fishery sector

1
Ministry of Food Processing Industries, Annual Report 2009-10, Ernst & Young Analysis

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contributes about 1.21 per cent of the total GDP and 5.37 per cent of the GDP from agriculture
sector and provides employment to 14 million people.
Food Processing
FDI inflows to Food Processing Industries has set a target of USD 25.07 billion to be achieved
by 2015.
Food processing industry is accounts for 32 per cent share in the entire food industry. It
comprises of 2 per cent of fruits and vegetables and 15 per cent of processed milk. This industry
contributes to 6.3 per cent of the GDP and about 13 per cent to export production. The food
processing industry is expected to witness a growth of 10 per cent in the recent years to come.
The food processing sector attracted US$ 130 million of foreign direct investment (FDI) in the
first eight months of the fiscal as compared to total FDI of US$ 1.2 billion.
Besides attracting FDI through schemes like mega food park, the government has also extended
several fiscal incentives during this financial year to enhance FDI in food processing sector,
including full exemption from excise duty for specified equipments to preserve, store or transport
apiary , horticultural, dairy, poultry, aquatic and marine produce and meat and its processing
products.
Beverages
According to a report published by market research firm RNCOS in August 2009, titled "Indian
Non-Alcoholic Drinks Forecast to 2012", the Indian non-alcoholic drinks market was estimated
at around US$ 4.43 billion in 2008 and is expected to grow at a CAGR of around 15 per cent
during 2009-2012.
As per the report, the fruit/vegetable juice market will grow at a CAGR of around 30 per cent in
value terms during 2009-2012, followed by the energy drinks segment which will grow at a
CAGR of around 29 per cent during the same period.

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In terms of employment generation, better price realisation for farmers, reduction in agricultural
wastage and improvement in quality, the food processing sector ranks way ahead of other sectors
of the Indian economy. The multiplier for the food industry is reported to be much higher than
other industries such as power and telecom. Therefore, the rapid growth in the food processing
industry has stimulated the growth of domestic market and trade on the international front.
In order to boost the food sector, the Government of India has introduced the concept of mega
food parks in the country. Catering to the entire range of food processing activities, food parks
consist of groups of large, medium and small-scale food processing units. Facilities such as cold
storages, warehousing, power and water supply are provided by the food parks, thus making it
more affordable for small and medium scale units. The gap between the farmers and industries
have also been closed in with the help of food parks by facilitating a firm buyback agreement
between processing units located in the parks and the farmers. Various food parks are being set
up by the Ministry of Food Processing Industries (MOFPI) across the country in states such as
Andhra Pradesh, Tamil Nadu, Maharashtra, Punjab and Jharkhand.
With better market orientation, food processing units are enabled to be cost effective and also
have auxiliary units such as printing, packaging, transportation agencies, etc. The table below
shows the number of food processing units in this industry.
Number of units in the food processing sector
Food processing units Number
Huller rice mills 140208
Modern rice mills 36256
Fruit and vegetable processing units 5455
Flour mills 516
Sweetened and aerated water units 656
Sugar mills 465
Fish processing units 595
Meat processing units 224
Milk production units 395
Solvent extract units 864
Source: MCG Compilation
The food processing industry is dominated by the cottage industry sector, which accounts for 40 per cent
of the total processed food market. The rest is shared by the small scale sector and the organised players,
each accounting for almost 30 per cent of the market share. Small players in this industry have only a
local or regional presence and use basic technologies for processing the food products. Some of the well
established brands in the food processing industry include: Britannia Industries, Cadbury India Ltd, Pepsi
Foods, ITC Ltd, Nestle India Ltd, Parle Products Ltd, etc.

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1.3 Overview of production & consumption in major sector
The food processing industry can be classified as primary, secondary and tertiary processing
based on the processing involved in the conversion of raw material to finished products.
While primary processing includes cleaning, grading, powdering and refining of agricultural
produce, secondary processing consists of value addition to the basic product. Products that have
passed through the final or tertiary stage of processing are the value-added branded products that
are ready for final consumption. Around 60 per cent of the food units in India are engaged only
in primary processing. The production base of secondary and tertiary processed foods in India is
relatively low, thus resulting in low value addition. Of the total production, value addition to
foods by processing is a mere 8 per cent and is expected to increase to 35 per cent by the end of
2025. A wide range of products comprise the Indian food processing industry as listed in Table
Sector Products
Fruits and vegetables Pulps, concentrates, slices, frozen and
dehydrated products, chips/wafers,
etc.
Meat and poultry Frozen and canned products, egg powder
Fishery Frozen and canned products
Dairy Whole milk powder, skimmed milk powder,
condensed milk, flavoured milk,
ice-cream, butter, ghee, cheese, infant milk
food, malted milk food
Bakery products Bread, biscuits, cornflakes, vermicelli, pasta,
noodles, etc.
Confectionery Chocolates, sugar candies, bubble gum,
chewing gum
Beverages Alcoholic and Non-alcoholic (tea/coffee,
Carbonated Soft Drinks and
non-carbonated soft drinks)
Packaged/convenience foods Ready-to-eat (jams, pickles/chutneys,
ketchup, soup, snack foods) and
ready-to-cook food





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Fruits and vegetables


Almost all varieties of fruits and vegetables are grown in India due to the diverse agro-climatic
zones in the country. India is today the worlds 2nd largest producer of fruits and vegetables next
only to China. The total cultivated area of fruits and vegetables is about 12 million hectares (7
per cent of the total cultivation area) and the country produced about 206 million tonnes in 2006
07, accounting for about 10 per cent of the global production of fruits and 15 per cent of the
global production of vegetables. The country witnessed an increase of 22.7 per cent over 2005
06, which was around 167.9 million tonnes as shown in below Table
Production of fruits and vegetables (million tonnes)
Production 2004-05 2005-06 2006-07
Fruits* 52.8 54.4 69.7
Vegetables* 108.2 113.5 136.3
Total 161.0 167.9 206.0
Source: MCG Compilation
*includes dry fruits
**Includes Roots and Tubers
Some of the main fruits (accounting for 7580 per cent of the total fruit production) and
vegetables (accounting for 70 per cent of the total vegetable production) produced in India
include mango, banana, citrus, guava, apple, potato, brinjal, tomato, cauliflower, onion, cabbage
and tapioca.
While India stands first in the production of cauliflower, the country ranks second and third in
the production of onions and cabbages respectively. The production of onions stood at 9.3
million tonnes in 200809. Onions are used extensively throughout India, both as the primary
constituent as well as with other spices and vegetables.
India stands first in the production of bananas and in 200708 banana production was estimated
at 17.3 million tonnesa world market share of about 20 per cent. Bananas are mainly
consumed fresh in the country. However, the ripe fruit can be converted into an extensive range

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of products such as pulp, powder and dehydrated strips, while the raw fruit is generally
processed into chips.
Mango on the other hand is known as the king of fruits and is found growing all over India. In
200506, the production of mangoes in India was 12.6 million tonnes, an increase of 9.1 per cent
over the previous year. This fruit is processed into a variety of products such as pulps, juices,
concentrates, squashes, jams and pickles. India is the sixth largest producer and consumer of
apples in the world and in 200506, the production of apples stood at 1.8 million tonnes.
Production of apples in India largely takes place in the hilly Northern States of India and about
70 per cent of the crop is usually transported to and sold in Indias largest wholesale fruit and
vegetable market at Azadpur in Delhi. Most of the apples produced in India are used for fresh
consumption, with only small quantities used for processing into products such as apple juice,
jelly or jam.
Over the last few years, there has been a positive growth in the processed fruits and vegetables
sector, particularly in fruit juices and pulps, dehydrated and frozen fruits and vegetable products,
pickles, tomato produces, processed mushrooms, convenience vegetable spices and curried
vegetables. The installed processing capacity for fruits and vegetables was valued at US$5.2
billion in 200910. Of the total processed fruits and vegetables, about 36 per cent is contributed
by the organised sector and the rest of the processing is undertaken by the unorganised sector.
While the organised sector largely produces products like juices and pulp concentrate, the
unorganised sector mainly concentrates on the traditional areas of processed items like sauces,
pickles and squashes.

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Source: Ministry of Food Processing Industries
Market size & composition of the processed fruits & Vegetables in (US$ Billion)
Meat & Poultry


According to the livestock 2003 census, India had a livestock population of 485 million, which is
one of the largest in the world. India has about 36 000 slaughter houses, 10 modern abattoirs, 171
meat processing units, 7 bacon factories, modern pork processing units and a number of small
poultry processing plants. India is the 7th largest producer of meat in the world and of the total
world meat production of285 million tonnes; India contributes to about 2.1 per cent.



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Processed organised
Processed unorganised

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Meat Production, 2009-10 in Million Tonnes
Item Qty.
Bovine Meat 3.48
Pig Meat 0.65
Sheep and Goat Meat 1.85
Poultry Meat 2.5
Total 8.48
Source: Department of Animal Husbandry Dairying (DAHD)
When compared to other developed countries, the per capita consumption of meat is well below
average. In India, the per capita consumption of poultry meat stood at 1.9 kg, whereas in the US
it was 45.4 kg. While poultry, goat or lamb meat is largely consumed in the country, buffalo
meat production is linked closely to the production of leather, a sector in which India holds the
second position.
Poultry meat
Poultry meat is the fastest moving animal protein in the country and is considered the most
economical source of animal protein. India is the ninth largest producer of poultry meat in the
world. This sector has undergone a major change since the 1960s, from being a backyard
occupation to an activity of great commercial significance. In 200607, poultry meat production
stood at 2.1 million tonnes. Growth in urban population and an increase in per capital income are
some of the major factors that have contributed to the expansion of poultry meat production.
Private entrepreneurship and encouragement from the government are also some factors that
have influenced the growth in this sector.
In 1986, Western Hatcheries (part of the Venkateswara Group) were the first to set up a poultry
processing unit in India. Substantial investments have been made thereafter in areas of hatching,
breeding and processing, with poultry farmers rearing hybrid, high-yielding birds with
significant support in terms of veterinary health services and improved poultry feeds.
Today around 95 per cent of the total processed meat and poultry is contributed by the top 10
major players. Shalimar Super Foods, Venkateswara Hatcheries, Al-Kabeer, Godrej Agrovet,
Allanasons, Al Barkat Exports, Suguna Poultry, Mark International, Prabhat Poultry and Vista
Processed Foods are some of the major companies in the meat and poultry sector.

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Eggs
In terms of production of eggs, India ranks fifth in the world, producing about 85 billion eggs per
annum. When compared to developed countries, the per capita availability of eggs in the country
is very small. For instance, Indias per capita availability of eggs stood at around 42 numbers per
head per annum as against USA, Europe, Taiwan, Japan and Mexico, whose per capita
availability was 300, 280, 358, 346 and 304 nos. per head per annum respectively. Unlike the
developed countries, where eggs are an item of daily use, Indians have not completely adapted to
consumption of eggs. This is mainly because of a low consumer propensity to make eggs a part
of their daily diet and the lack of purchasing power in the lower income segments.
Marine products


India is endowed with rich fishery resources due to its long coast line of over 8 000 km, rivers
and canals of 195 210 km and 2.2 million square km of exclusive economic zones. India boasts
of a great potential in fish and fish products and is among the top ten producers in the world. The
country is the 3rd largest producer of fish and 2nd largest producer of inland fish. With a
contribution of around 1.5 per cent to Indias GDP and 5 per cent to the agricultural GDP, the
countrys main marine products include: shrimp, fin fish, tuna, cuttlefish, octopus, squid, red
snapper, mackerel, ribbon fish, lobster, cat fish and prawns.
With a total production of 7.9 million tonnes, the market size of fish in 200910 stood at US$9.4
billion. Since 200102, inland fish production has risen steadily with the additional impetus
given to salt water aquaculture in West Bengal, Orissa, Andhra Pradesh, Tamil Nadu and
Karnataka. The world average availability of fish is about 12.1 kg per annum, while the per
capita consumption of fish in India is around 4.7 kg per annum.






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Fish Production (Lakh Tonnes)
Year Marine Inland Total
2003-04 29.41 34.58 63.99
2004-05 27.78 35.26 63.04
2005-06 28.16 37.55 65.71
2006-07 30.24 38.45 68.69
2007-08 29.29 42.07 71.26
2008-09 29.78 46.38 76.16
2009-10 30.65 48.34 78.99
Source: Department of Animal Husbandry Dairying (DAHD)

There has been steady growth in the export of fish Products. During 2009-10 the country
exported 6.64 lakh tonnes of marine products, which resulted in export earnings of ` 9921.46
crore. Efforts are being made to boost the export potential through diversification of products for
export. The country has now started exports of frozen squid, cattle fish and variety of other
fishes.

Under the CSS for development of infrastructure of marine fisheries the Government of India has
sanctioned 7 major fishing harbours, 58 minor fishing harbours and 189 fish landing centres. Out
of these, 7 Major Fishing Harbours , 44 Minor Fishing Harbours and 189 Fish Landing Centres
have been completed and put to use. The remaining fishing harbours and fish landing centres are
at various stages of construction.
Processing provides an opportunity for marine products and exotic fish and today conventional
cleaning and cooking fish is slowly giving way to convenient products.


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Source: Ministry of Food Processing Industries
Market Structure
It was before 1960 the markets of Indian marine products were largely confined to neighbouring
countries like Sri Lanka, Myanmar formerly known as Burma, and Singapore etc. when dried
items dominated our exports. This situation changed with the development of technology and
modernization; dried products gave way to canned and frozen items. The product shift also
resulted in market shift. More sophisticated and affluent markets viz. Japan, USA, Europe,
Australia, etc. became our important buyers. Several seafood processing units with modern
machinery for freezing and production of value added products were set up at all important
centers in the country for export processing.

For a long time USA was the principal buyer for our frozen shrimp but after 1977, Japan
emerged as the principal buyer of the product, followed by the West European countries. Japan
retained its position till 2001-02 as the single largest buyer for our marine products accounting
for about 31% in the total exports value. During the year 2002-03 and 2003-04 USA emerged
as the single largest market for our marine products. During the year 2004-05, the European
Union has collectively become the largest importer of Indian marine products and it retained its
position during the year 2005-06 also. As compared to 2004-05, its share is increased by 16.22%
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in quantity, 17.31% in value and 19.39% in US $ realization. USA became the second largest
market in terms of value, followed b y Japan. Exports to USA, EU, China, Middle East etc
showed an increase where as the export to Japan and South East Asia recorded a declining trend.
Future Prospects
Marine products have created a sensation in the world market because of their high health
attributes. With the high unit value, seafood has been acclaimed as one of the fastest moving
commodity in the world market. The world market for seafood has doubled within the last
decade reaching US $49.32 billion mark India's share is 2.4%, dependence on shrimp as a
product and is changing due to the increased attention given on other fishery resource like squid,
cuttlefish, fin fish, etc. and penetrating into markets of Western Europe and South East Asia.
Over the last 50 years a number of infrastructural facilities for processing of marine products
have been developed. With a number of processing plants, freezing units and cold storages, the
sea food processing sector provides employment to a sizeable population in the country.
Sea Food Processing: Industry Structure
Processing Units Unit Qty
Processing Plants No. 485
Freezing Units No. 396
Freezing Capacity Tonnes Per Day 10685
Cold Storages No. 605
Source: DAHD
A great deal of effort is being taken to transform India into a centre for processed sea foods. All
the coastal states have put up units to process fish, with Kerala having the highest number at 124.
Sea Food Processing Units in select States
State No. of Units
Kerala 124
Gujarat 55
Andhra Pradesh 52
Tamil Nadu 48

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Maharashtra 41
Orissa 25
Karnataka 18
Goa 14
Source: DAHD
Some of the key players in the industry are mentioned in below Table
Companies Key Products
Allanasons Pomfrets, seer fish, squids, prawns and cattle fish
ASF Seafoods Seafood
Bells foods marine division Crab, cuttlefish, shrimps, squid, fish octopus
Deep Sea Products Marine products
IFB Agro Pvt Ltd Pomfrets, crabs, prawns and sea food
Sea Sparkle Octopus, squid, crabs and tuna
Sumero Pomfrets, crabs, prawns and sea food
Source: Food Techno Park
Dairy Products

India has the highest livestock population in the world with 50% of the buffaloes and 20% of the
worlds cattle population, most of which are milch cows and milch buffaloes. Indias dairy
industry is considered as one of the most successful development programmes in the post-
Independence period.
In the year 2009-10 the total milk production in the country was over 136.7 million tonnes with a
per capita availability of 229 gms per day. The industry had been recording an annual growth of
4% during the period 1993-2005, which is almost 3 times the average growth rate of the dairy
industry in the world. Milk processing in India is around 35%, of which the organized dairy

19
industry account for 13% of the milk produced, while the rest of the milk is either consumed at
farm level, or sold as fresh, non-pasteurized milk through unorganized channels.
Dairy Cooperatives account for the major share of processed liquid milk marketed in the India.
Milk is processed and marketed by 170 Milk Producers Cooperative Unions, which federate into
15 State Cooperative Milk Marketing Federations. Over the years, several brands have been
created by cooperatives like Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan).
Nandini (Karnataka), Milma (Kerala) and Gokul (Kolhapur).
Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka
and Tamil Nadu are the milk surplus states in India. The manufacturing of milk products is
obviously high in these milk surplus States. Exports of dairy products have been growing at the
rate of 25% per annum in the terms of quantity terms and 28% in terms of value since 2001.
Significant investment opportunities exist for the manufacturing of value-added milk products
like milk powder, packaged milk, butter, ghee, cheese and ready-to-drink milk products.
India has emerged as the largest milk producing country in the world with present level of annual
milk production estimated as 94.5 million tonnes. We expect a production level of 135 million
tonnes by the year 2015. India has a large livestock population base constituting 278 million
livestock including 180.5 million cattle, 82.8 million buffaloes, 4 million sheep and 9.2 million
goats. The livestock population is projected to increase to 322 million by the year 2015. The
large livestock population is raised primarily on crop residues and grazing in the common
property including basement. The forest area, which was a major source of grazing, is no longer
available to livestock breeders especially landless people. As a consequence, the available feed
resources fall short of the nutritional requirement. The shortfall is estimated as 59.9 million
tonnes for the green fodder and 19.9 million tonnes for dry fodder. This shortfall is likely to
increase by 2015 to 63.5 million tonnes of green fodder and 23.56 million tonnes of dry fodder.
India prepares to tackle the international market following Japan, where milk consumption today,
has more than trebled to 70 kg per capita from a mere 20 kg in the 'sixties - the consumption of
dairy products in other Asian 'tiger' nations is also growing. As a consequence - creating
excellent export opportunities for India, as these nations are deficient in milk by at least 3 million
tonnes per year. India, with some 27 per cent of Asia's population, accounts for more than half of

20
the milk output with enough growth potential to explore foreign markets. In anticipation of the
export opportunities and in view of the post GATT scenario, India is gearing up to tackle the
demands of the international market.
Processed Dairy Products
Cheese
The organized cheese market including its variants like processed cheese, mozzarella, cheese
spreads, flavored and spiced cheese, is valued at around Rs 4.5 billion. Processed cheese at 60%
of the overall market is Rs 2.7 billion. The next most popular variant is cheese spread claiming a
share of around 30% of the total processed cheese market. The market is primarily an urban
phenomenon and is known to be growing at around 15%. The market for cheese cubes, slices and
tins is growing. The flavored cheese segment has been constantly declining.
Gujarat Cooperative Milk Marketing Federation (GCMF) with the Amul brand continues to be
the main operator in the branded cheese market in India. It pioneered the market for processed,
branded cheese. What GCMF did was to develop the technology to make cheese from buffalo
milk. World over it is made from cow milk.
Britannia Industries joined the fray in the cheese market in mid-1990s through
an arrangement with Dynamix Dairy Industries (DDI). It was set up in 1995 by
a consortium of five companies - Conwood, Indo Saigon, Hiranandani, ETA and Metro. DDI
has capacity to process 500,000 litres of milk per day with an estimated investment of Rs 1500
mn. The plant designed by Valio of Finland is run on technology tie-up with Schreiber Foods of
the US. Schreiber is the largest supplier of processed cheese to fast food chains in the US with
expertise in sliced cheese.
Britannia's cheese is sold in tins in the form of cubes, and in individually wrapped slices in packs
of fives and tens. The slices are being promoted more aggressively worldwide, and these
account for a bulk of cheese consumption. These are gaining acceptance in India as
well. Amul followed Britannia in launching slices. Its cheese spread in the form of paste
has been well received in the market.
Britannia Industries joined the fray in the cheese market in mid-1990s through
an arrangement with Dynamix Dairy Industries (DDI). It was set up in 1995 by

21
a consortium of five companies - Conwood, Indo Saigon, Hiranandani, ETA and Metro. DDI
has capacity to process 500,000 litres of milk per day with an estimated investment of Rs 1500
mn. The plant designed by Valio of Finland is run on technology tie-up with Schreiber Foods of
the US. Schreiber is the largest supplier of processed cheese to fast food chains in the US with
expertise in sliced cheese.
Britannia's cheese is sold in tins in the form of cubes, and in individually wrapped slices in packs
of fives and tens. The slices are being promoted more aggressively worldwide, and these
account for a bulk of cheese consumption. These are gaining acceptance in India as
well. Amul followed Britannia in launching slices. Its cheese spread in the form of paste
has been well received in the market.
Britannia has been concentrating on metros and large cities. The network covers some 60,000
dairy outlets equipped with cold cabinets, refrigerators and insulated boxes. Amul covers some
500,000 retail outlets.

Britannia has been concentrating on metros and large cities. The network covers some 60,000
dairy outlets equipped with cold cabinets, refrigerators and insulated boxes. Amul covers some
500,000 retail outlets.
Foreign brands in India include: Probolene, Colby, Mozzarella and Parmessan from Italy,
Cheddar from Dutch, Gryueve. The new entrants will have to compete with well-established
players such as Amul, Britannia's Milkman and Daburs Le Bon, enjoying substantial market
shares in the overall Indian cheese market. The US-based Philip Morris, which brought in its
Kraft cheese brand earlier, has gained a significant presence in the market. The rest of the
market is spread among Verka, Nandini, Vijaya and Vadilal.
Dabur had forayed into the dairy products market through its joint venture company, Dabon
International, a 50:50 joint venture between Dabur India and French dairy products major,
Bongrain. The company claimed a product range of 20 different varieties of cheese under LeBon
brand. Dabon has a manufacturing facility at Noida with an installed capacity of 12,000 tonnes
per annum. Incidentally, the government had, in a move in late April 2001, barred Dabon from
marketing flavoured milk and processed cheese in the country.

22
Dabur was to launch speciality cheese like blue cheese and hard cheese. It had plans to
developing cold chains at the distributor and retail levels in the state capitals and major towns in
order to increase penetration levels.
Processed Cheese

Leading Brands
Amul, Vijaya, Verka, Vadilal, Kraft, Britannia.
Market Growth Rates
1990-91 1996-97 18.5%
1996-97 2001-02 20.6%
2001-02 2006-07 11.7%
2004-05 2009-10 9.4%
2009-10 2014-15 7.4%
Lead Players
The lead players in processed milk products in the market are as follows:
Amul, Britannia, and others include Vijaya, Verka and Vadilal. In the category of cheese Amul,
Britannia Dabur (Le Bon) are the leading players including others like Verka, Nandini, Vijaya
and Vadilal
Dairy Whiteners
About 15% of the total milk output in India is estimated to be processed in the organized
dairy. The industry has maintained a high growth profile, especially in the wake of the
Operation Flood, colloquially also termed as White Revolution, initiated in early 1980s. Today,
India produces over 85 mn tonnes of milk annually. The total milk economy is estimated at Rs
1300 billion in terms of value.
The market for dairy whiteners (commercially know as beverage milk powders and condensed
milk) and creamers is around Rs 3,000 mn. Apart from MNCs like Nestle and companies
like Britannia, the Indian enterprises have also made perceptible progress. Names like Amul,
Sapan, Vijaya, Mohan, Parag and several others have been seen in the marketplace with their

23
whiteners. These are available mostly in pouches, tetrapacks, and in the near future, may be
in mini portion cups.
Dairy Whiteners / Creamers
Demand: Past & Future
Year th MT
1990-91 80
1991-92 83
1992-93 85
1993-94 86
1994-95 89
1995-96 91
1996-97 99
1997-98 95
1998-99 135
1999-00 183
2000-01 147
2001-02 160
2002-03 175
2003-04 190
2004-05 206
2005-06 224
2006-07 243
2007-08 263
2008-09 284
2009-10 307
2014-15 450


24
Lead Players
Nestle, Amul, Britannia, Dynamix Diary, Sterling Agro, Haryana Milk Foods, Mohan Food,
Modern Dairy, K Dairy
Leading Brands
Amul, Sapan, Vijaya Spray, Meadow, Mohan, Parag, Shweta, Malkana, Gagan, White Magic,
Every Day.
Market Growth Rates
1990-91 - 1996-97 3.6%
1996-97 - 2001-02 10.1%
2001-02 - 2006-07 8.7%
2004-05 - 2009-10 8.3%
2009-10 - 2014-15 8.0%
Commercial production of traditional products
With the increase in the availability of liquid milk and Western dairy products, refinement in the
marketing network and significant improvement in per capita income, there is an increased
pressure for the restructuring of the indigenous milk product industry. Now, the organized sector
has started showing keen interest in processes and equipment for manufacturing traditional
products standardization of products, as well as refinement in packaging and improvement in
safety and shelf life. Any innovation which can enable the organized sector to manufacture and
market indigenous milk products on an industrial scale can have a far reaching impact on the
dairy industry as well as on the economic condition of milk producers. The market for
indigenous products far exceeds that for Western dairy products like butter, milk powder and
cheese. A great scope exists for further expansion of the market for indigenous milk products,
provided quality and safety are ensured and the shelf life is extended to facilitate distribution
over larger areas. Major innovations are needed in manufacturing, quality assurance, packaging
and process engineering to adapt these products to current marketing and consumer
requirements. Some commercial processes have been developed to manufacture ghee, khoya,
shrikhand and gulabjamun, but much is required to be done.


25
Major Players
The dairy industry is dominated by the co-operative sector. About 60% of the installed
processing capacity is in the co-operative sector.
The National Dairy Development Board (NDDB) is a major player in the market with its major
brand, Amul. Leading brands like Amul, Nestle, Mother Dairy and Britannia are in the race to
tap the growing market.

SmithKline Beecham Consumer Healthcare, Nestl India and Heinz India are amongst the large
MNCs that dominate the high-value milk products market. Other players include Indiana Dairy
Specialties, Jagatjit Industries Ltd and various other state cooperatives.
Some dairy plants have production of mithais on a commercial scale. Some national brands like
Haldiram, Bikanervala, K C Das, Chitales, Ganguram, Brijwasi, Agarwal Sweets etc are getting
wide acceptance because of consistent quality Encouraged by the growing market and cashing on
brand value select dairy companies are planning major expansion plans in various cities with
new brands suited to local taste and preferences and realizing higher prices with higher sales
volumes and product safety.
The milk and dairy products segment is set for up gradation of cold-storage chains for expansion.
Mother Dairy, a wholly owned subsidiary of National Dairy Development Board plans to make
strong presence in the market of milk and milk products under the Mother Dairy brand through
retail outlets across the country in addition to its own 300 outlets with provision of cold storage
and cold chains.
Market size of dairy products (US$ billions)
Category 2006-07 2009-10
Market Size 44 85
Processed 32 53

26

Of the total milk produced in India, about 35 per cent (in volume terms) is processed. While the
unorganised sector processes about 22 million tonnes per annum, the organised sector (large
scale dairy plants) processed about 13 million tonnes per annum. There are about 676 dairy
plants in the organised sector run by cooperatives, private and government sectors registered
with the Government of India and the State Governments.
From a milk deficient country in the early 1960s, India has today emerged as the worlds largest
producer of milk. Milk sales proved to be the most lucrative for the Indian dairy market. The
main factors behind this include: initiatives taken by the Operation flood programs in organizing
milk producers into cooperatives; building infrastructure for milk procurement, processing and
marketing and providing financial, technical and management inputs by the Ministry of
Agriculture and Ministry of Food Processing industries to turn the dairy sector into a viable self-
sustaining organised sector.
1.4 Key drivers & Trends
The processed food industry has evolved into a modern industry from a traditional, small-scale
production system. This industry today caters to the diverse needs and tastes of Indian
consumers. Over the last decade there has been a drastic increase in the demand for processed
food in India and some of the factors which have helped this increase include rapid change in the
lifestyle of Indians particularly urban dwellers, rise in disposable incomes, increase in the
number of working women, growth of nuclear and double income families, increase in the
8
22
24
31
0
5
10
15
20
25
30
35
2006-07 2009-10
C
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$
Process Organized
Process Unorganized

27
number of jet setters, explosion of the information and communication sector, etc. Other factors
which have also helped in the growth of the food processing industry include favourable
demography and economic factors, stable democracy and raw materials supply. Owing to factors
such as increase in literacy rate, rapid growth in urbanisation, rising per capita incomes,
relatively cheap workforce, etc. there are significant opportunities for developing vast underlying
markets in the country. In addition to these factors, the geographical location of India helps in
giving it the competitive advantage of being able to cater to major consumption centres.
Some of the key drivers of the processed food sector include:
Expanding product variety;
Improvements in the supply chain;
Improvements in the food retail sector such as emergence of organised food retailing;
Growing awareness of health and food safety;
Upgrading and modernisation of food processing units;
Enhanced packaging facilities;
Increasing importance of food standards and labelling laws;
Liberalized government policies such as 100 per cent foreign direct investment in the
Key food segments, reduction in the excise duty, etc.;
Emergence of niche market opportunities in exotic product categories;
Increasing acceptance of India as a global sourcing partner
Some of the emerging trends of the processed food sector are:
Greater demand for ready-to-eat and ready-to-cook food.
Increasing preference for western food.
Rise in the presence of multinational companies in the food processing sectors.
Increasing recognition of regional and foreign brands.
Increase in the number of mergers and acquisitions.
Emerging investment opportunities in infrastructure development, technology, testing and
inspection, marketing, packaging, etc.
Change in food consumption patterns. A shift is being witnessed towards the
consumption of higher value products across all income levels. A growing demand for
different food attributes which include health, safety, convenience and the manner in
which the food is grown is being witnessed in the country.

28
I
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2. Food processing Industry: A critical analysis
2.1 Advantage India
The Ministry of Food Processing Industries (MOFPI) has formulated a Vision 2015 action plan
which includes trebling the size of the food processing industry, raising the level of processing of
perishables from 6 per cent to 20 per cent, increasing value addition from 20 per cent to 35 per
cent, and enhancing Indias share in global food trade from 1.5 per cent to 3 per cent.














India has the largest livestock
population in the world, with 98.7
million buffaloes and 176 million
cows (2008).
In milk and milk products, India is
the largest producer, accounting for
20 per cent of the worlds production
Indias tropical climate favours the
cultivation of several exotic food and
flower crops.
The peninsular coastline drives the
growth of the marine industry.
The Middle East and Southeast Asia
are major export destinations for

Advantage India
Vision 2015
L
a
r
g
e

L
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e

s
t
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B
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K
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Large Consumer
Base

29
Indian agricultural (agri)
commodities and milk.
India is the largest producer of
several fruits, such as banana, mango
and papaya, and the second-largest
producer of vegetables such as
brinjal, cabbage and onion.
Further, India is the second largest
producer of rice, wheat, sugar and
cotton.
The establishment of 60fully equipped Agri-Export Zones (AEZs), in addition to food parks, is
expected to attract foreign investment. It has been estimated that the size of the middle to upper
classes will increase at more than 300 per cent between 2005 and 2015. During the same period
the youth population (age group 15 25) in India is expected to grow by 11per cent. This will
lead to an increasing demand for food products to meet demands of convenience, variety, health
and a changing palate.
Sources: Ministry of Food Processing Industries 200809 annual report; Flavorsof Incredible India, Ernst & Young, 2009;
Agr iExport Zones of India, APEDA website, www.apeda.com, accessed 8 November 2010; Food Industry, IBEF website,
www.ibef.org, accessed 8 November 2010; An appetite for growth, Ernst and Young, 2009
2.2 Market overview
The food processing industry in India is at
an early growth stage, with low penetration
levels and high potential.
The size of the food processing industry in
India has increased from US$ 57 billion
(INR 2,736 billion) in 2004 to US$ 75
billion (INR 3,600) in 2007.
During this period, the number of registered
operating units increased from 24,000 to
25,725 units.









75
89
110
135
0
20
40
60
80
100
120
140
160
V
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s

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n

U
S

B
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l
l
i
o
n

$
Out Put of Processed Food
Out Put of
Processed
Food

30
Overview of processing activities across categories
In the global context, there is ample scope for investment in the processing segment.
Products Level of Processing (in Per cent)
Organized Unorganized Total
Fruits & Vegetables 1.4 0.8 2.2
Milk & Milk
products
13 22 35
Meat & Poultry
Buffalo Meat 21 - 21
Poultry 6 - 6
Marine products 8 - 8
Source: Flavors of Incredible India, Ernst & Young 2009
Exports
Indias processed food exports constituted 1.5 per cent of the global food trade in 200809.


Source: Ministry of Food Processing Industries 2008-09 Annual Reports
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2003-04 2004-05 2005-06 2006-07 2007-08
600.1
619.9
1153.3
1390.5
1869.7
U
S
$

M
i
l
l
i
o
n
Export of Processed Food In (US$ Million)

31
Domestic Demand

Growth Drivers
By 2015, the Indian food industry is
estimated to grow by around 40 per cent
over 2007. Two key factors are expected to
drive this growth:
Socio-economic changes across
Indias population base, in terms of
growth in the number of households
in the high-income category, rising
youth population and migration from
rural to urban areas
Evolving lifestyle trends, such as the
emergence of nuclear families,
increasing health awareness and
growing exposure to international
markets.

Potato Chips
Potato chips (or wafers), a popular snack item in
India, are manufactured on a large scale, not only by
big firms but also by cottage industries and home-
grown players.
Ready-to-eat meals
Societal changes in India (more nuclear families), as
well as evolving consumer preferences, are driving the
demand for ready-to-eat foods.
Agri based
Products
Flavoured Milk
Milk features prominently in the Indian diet. With
consumer tastes evolving, flavoured milk is gaining
popularity, especially among the urban population.
Currently, medium and large-scale cooperatives and
private companies dominate the manufacture of milk.
Popular flavours include cardamom, saffron and
chocolate.
Milk & Milk
products
Poultry processing
In India, the consumption of chicken is increasing
more rapidly than any other category of meat.
Currently, small-and medium-sized firms undertake
poultry processing, with the presence of a few
organised players.
Meat & Marine
products
0
500
1000
1500
2005 2008 2015E 2020E
384
592
920
1,235
U
S
$

B
i
l
l
i
o
n
Growth in Household Consuption

32
Key Trends
In addition to a large number of initiatives that the Government of India has undertaken to drive
consumption, increased activity by domestic and international players has boosted the
availability of products.



Increase In the
depth of
Distribution
Indian companies, which previously focused only on back-end
processing and manufacturing, have now extended their presence
into the processed food segment. Andhra Pradesh Dairy
Development Cooperative Federation Ltd (APDDCF) was
established in 1981 with the objectives of milk supply and dairy
development. APDDCF is considering the establishment of
1,000 franchisees for retail sales and offering products such as
packed curd, butter, ghee and paneer.


Entry of
international
Companies
With the Indian economy opening up, major international
food product manufacturers have entered the market and
introduced processed products in the agriproducts and milk
products categories.
For instance, Pepsico, India, launched Nimboozon February
28, 2009. According to the company, Nimboozis Indias first
packaged nimbupani, a popular traditional homemade drink in
India.
Del Monte has entered the Indian ketchup market. The
BhartiEnterprises-Del Monte Pacific Ltd JV FieldFreshFoods
PvtLtd launched a range of Del Monte products including
ketchup and sauces in 2009.
General Mills opened an outlet of ice cream brand, Haagen-
Dazs in India in 2010, under a franchise agreement.






33
Key players agri products
Company Major brands Categories/Products
Dabur India Ltd Dabur, RealActiv,
Vatika,Pudin Hara
Juice, honey, spices, cooking pastes
and coconut milk
Godrej Industries
Ltd
Godrej, Jumpin, Xs Oils and vanaspati, bakery fats, fruit
drinks and fruit nectar and non-food
items include chemicals and
consumer products
Parle Agro Ltd LMN, Bailey, Appy, Frooti Water, beverages and confectionery
MTR Foods Ltd MTR Ready-to-eat and frozen food,
spices, dessert mixes, pickle,
papadandbeverages
Nestl India Ltd Nestl, Maggi, Nescaf Chocolates, snack foods, milk,
coffee and infant food
PepsiCo, Inc Pepsi, Frito-Lay Carbonated drinks, juices and snack
foods
Cadbury India
Ltd
Dairy Milk, Perk, Five Star,
Gems
Chocolates, malt food and cocoa
powder
Hindustan
Unilever Ltd
(HUL)
Brooke Bond, Annapurna,
Kissan, Knorr, Kwality Walls
Tea, coffee, biscuits, ice creams,
atta(flour), instant drinks, soups,
jams and squash and other FMCG
products
Britannia
Industries Ltd
Britannia, Tiger, Bourbon,
Goodday
Biscuits, flavored milk, dairy
whitener, ghee, bread, cheese and
cake
Source: Flanours of Incredible India, Earnst & Young 2009




34
2.3 Industry Infrastructure
Agri Export Zones
State Products
Andhra Pradesh Mango pulp and fresh vegetables, grapes, mangoes, gherkins and chilies
Assam Fresh and processed ginger
Bihar Litchi
Gujarat Mangoes and vegetables, dehydrated onions and sesame seeds
Himachal
Pradesh
Apples
Jammu &
Kashmir
Apples and walnuts
Jharkhand Vegetables
Karnataka Gherkins, rose onions, flowers and vanilla
Kerala Horticulture products and medicinal plants
Madhya Pradesh Potatoes, onions and garlic, seed spices, wheat, lentil and grams and
oranges
Maharashtra Grapes and grape wine, mangoes including Kesar mango, flowers,
onions, pomegranate, banana and oranges
Orissa Ginger and turmeric
Punjab Vegetables, potatoes and basmati rice
Rajasthan Coriander and cumin
Sikkim Ginger, flowers (orchids) and cherry pepper
Tamil Nadu Flowers, mangoes and cashew nuts
Tripura Pineapples
Uttar Pradesh Potatoes, mangoes, vegetables and basmati rice
Uttaranchal Basmati rice, litchi, flowers, medicinal and aromatic plants
West Bengal Pineapples, litchi, potatoes, mangoes, vegetables and Darjeeling tea
Source: Agri Export Zones of India. APEDA web site



35
2.4 Investments
The largest inbound deal between January 1, 2009 and August 1, 2010 was the
acquisition of the businesses of Eastern Condiments PvtLtd, by McCormick & Co Inc,
for US$ 35.0 million (INR 1,680 million).
In 2010 Shree Renuka Sugars Ltd acquired Equipav S.A Acar e lcool for US$
1,160.0 million (INR 55.7 billion) in a major outbound deal.
M&A scenario details
Period : January 1, 2009 to November 1, 2010
Deal type No of deals Deal value
(US$ million)
Inbound 5 43.0
Outbound 7 1,402.8
Domestic 17 185.1
Source: Bloomberg and Thomson ONE Banker, Ernst & Young Analysis
Cumulative FDI inflow
Period: April 2000 to August 2010
Sector Amount of FDI inflow
(US$ million)
Agricultural services 1,538.18
Food processing industries 1,086.01
Fermentation industries 786.72
Agricultural machinery 150.25
Vegetable oils and
vanaspati
185.65
Tea and coffee 94.57
Sugar 41.74
Total 3,883.12
Source: Fact Sheet on Foreign Direct Investment (FDI), Department of Industrial Policy and
Promotion website, www.dipp.nic.in,
The largest domestic deal during the period was the acquisition of Agro Dutch Industries Ltd by
PentaHomes PvtLtd, VishwaCalibreBuilders PvtLtd and private investors, for US$ 85.4 million
(INR 4.1 billion).




36
Deal Deal
type
Announcement
date
Announced
total value
(US$ million)
Target name Target
country
Acquirer name Acquirer
country
Domestic ACQ October 12, 2010 11.2 CandicoIndia Ltd India KeventerAgro Ltd India
Domestic ACQ September 14,
2010
42.6 Millennium Beer
Industries Ltd
India United Breweries Ltd India
Inbound ACQ June 29,2010 35.0 Eastern Condiments
PvtLtd
India McCormick & Co
Inc
US
Inbound PE June 7,2010 NA TirumalaMilk
Products Private Ltd
India The Carlyle Group US
Domestic ACQ March22, 2010 24.7 MP ChiniIndustries
Ltd
India BK Birla Group India
Outbound ACQ February22, 2010 1,160.0 Equipav S.A
Acar e lcool
Brazil Shree RenukaSugars
Ltd
India
Domestic ACQ January21, 2010 85.4 Agro Dutch
Industries Ltd
India PentaHomes PvtLtd,
VishwaCalibre
Builders PvtLtd and
private investors
India
Outbound ACQ November 11,
2009
240.0 Vale Do Iva SA
Acar e lcool
Brazil Shree RenukaSugars
Ltd
India
Source: Bloomberg and Thomson ONE Banker, Ernst & Young Analysis
2.5 Policy & Regulatory framework
FDI in the Indian food processing industry is allowed under the automatic route* in agriproducts,
milk and milk products, and marine and meat products, except the following (broadly):
Proposals that require an industrial license and cases where foreign investment exceeds 24 per
cent equity in units that manufacture items reserved for the small-scale industries are exceptions.
Proposals in which the foreign collaborator has a previous venture or tie-up in India, as
on January 12, 2005, are exceptions.
Proposals falling outside notified sectoral policy/caps or those that are generally
restricted/ prohibited are exceptions.
The repatriation of profits and capital is permitted.
Automatic approvals are provided for foreign investment and technology transfer in most
cases.
Units based on agri products that are100 per cent export-oriented are allowed to sell up to
50 per cent in the domestic market.

37
There is no import duty on capital goods and raw material for 100 per cent export-
oriented units.
Earnings from export activities are exempt from corporate taxes.
* Note: The entry of foreign/large players is restricted for a few food items.
2.6 Opportunities



















Potential
global
outsourcing
hub
The Indian food processing sector has the potential to become
an outsourcing hub for the world by 2012. The Ministry of Food
Processing Industries is committed to the sector and has
announced various incentives and schemes to support new
ventures.



Development
of food parks
The Ministry of Food Processing Industries Vision
2015 action plan includes trebling the size of the food
processing industry, increasing value addition from
20 per cent to 35 per cent, and enhancing Indias
share in global food trade to 3 per cent.
The Government of India is actively promoting the
concept of mega food parks and is expected to set up
30 such parks across the country to attract FDI. The
Government of India has released a total assistance of
US$ 23 million (INR 1,104 million) to implement the
Food Parks Scheme. It has, till date, approved 50
food parks for assistance across the country. The
Centre has also planned for a subsidy of US$ 22
billion (INR 1,056 million) for mega food processing
parks.


38


























Establishment of
production bases
India has abundant resources in terms of raw material
for food production, including fruits, vegetables, spices,
dairy products and edible oils.
The presence of a skilled workforce and low labour
costs are key factors to be considered while establishing
production bases.
The Government of India has established few notable
institutes for research and training in the food segment.
These include the Central Food Technology Research
Institute in Mysore (Karnataka) and the National
Institute of Food Technology Entrepreneurship and
Management (NIFTEM) in Sonepat, Haryana.

Investment in
infrastructure
through public-
private
partnerships
(PPPs)
It is estimated that by 2012, Indias marketable
surplus will increase to 870 million tonnes per
annum (MTPA), 40 per cent of which is likely to be
accounted for by perishable foods, creating
opportunities for the development of storage
infrastructure.
Considerable investment is required in rural
infrastructure and components of the supply chain,
which is undertaken with the involvement of all
stakeholders on a PPP basis. This is likely to add
value and help producers obtain better prices and
income.
The Central Government envisages an investment
of US$ 21.89 billion (INR 1,050.72 billion) by the
private sector in the food processing industry by
2015.


39



























Contract farming
Contract farming is an agreement between the
food processor (contractor), typically a large
organized player, and the farmer, where the
latter is contracted to plant and produce the
formers crop on his land.
HUL Rallis and ICICI are practicing contract
farming in wheat in Madhya Pradesh. Under the
system, Rallis supplies agri input and know-how
and ICICI finances (farm credit) farmers. HUL,
which requires the farm produce as raw material
for its food processing division, provides the
buyback arrangement for the farm output.
Scandic Food India Pvt Ltd is planning to
increase its presence to 800 cities during 2010
11 from a present 250 through contract farming,
to revive its Sil brand. The company is now
taking to contract farming to secure the supply
of fresh fruits and commodities such as chili,
tomatoes etc. for its jams and ketchups.

Investment in
supply chain
infrastructure
There is a considerable scope to use sophisticated
techniques and applications in areas such as demand
forecasting, data integration, fund-flow management and
information sharing to improve supply chain
management.
The Indian Government has initiated a number of
activities to facilitate growth of the logistics and
warehousing sectors. For instance, the Government has
announced investmentlinked tax incentives for setting
up and operating cold chains and warehousing facilities
and permitted 100 per cent FDI in foodrelated
infrastructure such as food parks and cold chains.


40
Conclusion

The food processing industry, accounting for 32 per cent of the total food market, is one of the
largest industries in India, and is ranked fifth in terms of production, consumption, export and
expected growth.
With urbanization and disposable incomes rising, the lifestyle of consumers and their eating
habits have evolved, thereby increasing the demand for processed and ready-to-eat food.
The Government of India has undertaken several initiatives to attract investments in this
segment, such as financial assistance for the establishment and modernization food processing
units, the creation of infrastructure, and support for R&D and human resource development.
The Indian food processing sector has the potential to become an outsourcing hub for the world
by 2012. The Ministry of Food Processing Industries is committed to the sector and has
announced various incentives and schemes to support new ventures.
By 2015, the Indian food industry is estimated to grow by about 40 per cent over the level in
2007. The Government of India is actively promoting the concept of mega food parks and is
expected to set up 30 such parks, each with a cold storage facility. The parks will also have
facilities for sorting, grading, processing, packaging and quality control, thereby providing an
investment opportunity to integrated players, as well as developers.

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