India is set to witness the next revolution in the food processing industry, as per Mr Subodh Kant Sahai, the Union Minister for Food Processing Industries. The Centre has set an investment target of Rs 100, 000 crore (US$ 18.90 billion) by 2015 in the sector. The sector is expected to grow by 20 per cent and value addition to increase by 35 per cent by 2015.
India is the second largest producer of food and holds the potential to be the biggest on global food and agriculture canvas, according to a Corporate Catalyst India (CCI) survey. The Indian food industry comprises of food production and the food processing industry. The food processing industry is one of the largest in India – it is ranked fifth in terms of production, consumption, export and expected growth.
The Indian fast moving consumer goods (FMCG) market is estimated to grow to US$ 100 billion by 2025 from US$ 12 billion in 2011, according to market research firm Nielsen's report titled Consumer 360. The report has identified four key trends that will drive consumption: premiumisation, consumers switching from commodity to brands, from indulgence to regular consumption, and acceptability.
The Union Ministry of Food Processing plans to give emphasis on improving supply chain, by creating large primary collection and distribution centres throughout the country involving private sector, in the 12th Five Year Plan (2012-17) period.
Food processing industry is of enormous significance for India's development because it has linked up economy, industry and agriculture in India, efficiently and effectively. The three pillars being together have synergised the development process and promoted the growth of the nation to a great extent.
There are 25, 367 registered food processing units in the country whose total invested capital is Rs 84,094 crore (US$ 15.90 billion), as per a competitiveness report of the National Manufacturing Competitiveness Council. This information was provided in a written reply to the Lok Sabha, by Dr Charan Das Mahant, the Minister of State for Food Processing Industries.
Food processing industry is one of the largest industries operating in India and is divided into several segments.
The Food Processing Industry operates across various segments that include:
Value addition of food products is expected to increase from 8 per cent to 35 per cent by 2025. Fruit & vegetable processing is also expected to increase from the current level of 2 per cent to 25 per cent of total production by 2025, as per the CCI report. Dairy sector – that holds highest share in processed food market – holds large potential to be exploited. The report reveals that 37 per cent of the total dairy produce is processed, of which only 15 per cent is done by the organised sector. Hence, there lies a plethora of opportunity for investment and development.
The Vision Document 2015 envisages increasing the value addition to 35 per cent by 2015. The food processing sector is presently growing at an average rate of 13.5 per cent per annum. Food processing industry is a potential source for driving the rural economy and is of great importance to an agrarian economy like India.
The Indian market for non-alcoholic drinks, is expected to grow at a compound aggregate growth rate (CAGR) of around 15 per cent during 2009-2012, according to a report published by market research firm RNCOS, titled "Indian Non-Alcoholic Drinks Forecast to 2012".
Furthermore, the report forecasts the fruit/vegetable juice market to grow at a CAGR of around 30 per cent in terms of value during 2009-2012, followed by the energy drinks segment which is expected to grow at a CAGR of around 29 per cent during the same period.
The food processing industries in India has attracted foreign direct investment (FDI) worth US$ 1,309.54 million from April 2000 to September 2011, according to the data provided by Department of Industrial Policy and Promotion (DIPP).
Exports of organic food products are expected to grow five-fold by 2015, according to the Agriculture and Processed Food Products Export Development Authority (APEDA). The Government agency expects exports to touch US$ 1.43 billion by 2014-15 against US$ 280 million in 2010-11.
"There are a total of 2,084 organic projects in India which have been certified by our certification bodies. 191 out of these are exporters of organic produce," as per Shailender Singh, Consultant, Organic Division, APEDA.
These companies are increasing their manufacturing capacities in the country to take advantage of lower production costs, save on import costs, and make their products more competitive and widely available to the booming Indian consumer market.
Major players in India's fast-moving consumer goods (FMCG) industry will continue to pursue acquisitions over the medium term, given the scope for expansion in under-penetrated product segments and geographies, and the intensifying competitive pressures in the domestic market, as per a report by the credit rating agency, Crisil.
The Government of India has approved setting up of 15 mega food parks under Infrastructure Development Scheme, with a total grant of Rs 787.50 crore (US$ 148.57 million), during the remaining period of 11th Five Year Plan (2007-12).
The Centre has also proposed to set up 30 food parks by the Ministry of Food Processing Industries and this will help 20,000 small and medium industries engaged in the manufacturing and processing of food products every year, as per N C Saha, Director, IIP. The size of the food processing industry is likely to grow from US$ 200 billion at present to US$ 310 billion by 2015, added Saha.
The Ministry of Food Processing Industries has allocated Rs 595 crore (US$ 112.48 million) for different schemes to be implemented in the food processing sector during 2011-12.
Opening up the retail sector for FDI will give a tremendous boost to the economy of fruit and vegetable growers in Himachal Pradesh, especially because its temperate climate is ideal for off-season cultivation, says Prakash Thakur, Chairman, People for Environment Horticulture and Livelihood, a non-governmental organisation (NGO) involved in horticulture-related activities.
An Inter-Ministerial Task Force on Agricultural Marketing Reforms, constituted by the Union Ministry of Agriculture, had recommended the creation of additional cold chain facilities with an investment of Rs 2,500 crore (US$ 472.59 million).
The Ministry has also sanctioned a cold storage chain facility in Kamrup district and a mega food park in Nalbari, among other schemes in the North-Eastern (NE) region of India.
The Union Budget 2011-12 has also allocated US$ 135 million to the Food Processing Ministry from the previous US$ 90 million. As a measure to boost investment in the agriculture sector, the Minister extended the Viability Gap Funding Scheme (VGFS) for public-private partnership (PPP) for setting up modern storage capacity besides giving infrastructure status to cold chains.
India's consumption growth story is expected to maintain its course of about 14 per cent growth over the next three years driven by three factors-inclusiveness, mix changes and specific consumption categories, as per senior analysts Vijay Chugh, Ashvin Shetty and Shariq Merchant in the report 'The Indian Consumer: a robust operator in an uncertain world'.
The Government of India had also announced Vision 2015, which lays focus on enhancing the competitiveness of food processing industry in both domestic as well as international markets along with ensuring stable income levels to farmers. The Vision 2015 provides for enhancing the level of processing of perishable to 20 per cent, enhancing value addition to 35 per cent and increasing the share in global food trade from 1.5 per cent to 3 per cent, by 2015.
India remains an attractive market, with its growing economy, large population that offers considerable scope for additional geographic penetration, particularly in the rural areas, and low per-capita consumption.
The opportunities in the food processing industry are vast. As the economy grows, the food processing industry will offer bigger opportunities to the new as well as the existing players.
Exchange Rate: INR 1 = US$ 0.0189072, as on December 20, 2011
References: Corporate Catalyst India (CCI) Survey Report, Press Releases, KPMG Report on Food Processing and Agri Business, Agriculture and Processed Food Products Export Development Authority (APEDA) articles, Ministry of Food Processing Industries articles, RNCOS Research Report, Department of Industrial Policy and Promotion (DIPP), Media Reports