India Food Processing Ingredients Sector Annual 2005
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USDA Foreign Agricultural Service GAIN Report Global Agriculture Information Network Template Version 2.09 Required Report - public distribution Date: 4/1/2005 GAIN Report Number: IN5031 IN5031 India Food Processing Ingredients Sector Annual 2005 Approved by: Chad R. Russell U.S. Embassy, New Delhi Prepared by: A. Govindan Report Highlights: India’s food-processing sector, although still in a nascent stage, has undergone important changes over the last six to seven years. The types, variety, quality, and presentation of products have all improved, mainly as a result of economic liberalization, which led to foreign direct investment (FDI) in this sector. Several multinational companies, including US companies like Pepsi, Coca Cola, ConAgra, Cargill, Heinz, and Kellogg’s have invested in the Indian food-processing industry. The growth in the food-processing sector has generated increased interest in quality food ingredients in order to produce higher quality foods. Includes PSD Changes: No Includes Trade Matrix: No Annual Report New Delhi [IN1] [IN] GAIN Report - IN5031 Page 2 of 16 Table of Contents I. MARKET SUMMARY ..........................................................................................3 II. ROAD MAP FOR MARKET ENTRY ......................................................................5 A. ENTRY STRATEGY ........................................................................................... 5 B. MARKET STRUCTURE ....................................................................................... 6 C. COMPANY PROFILES ........................................................................................ 9 D. SECTOR TRENDS .......................................................................................... 12 III. COMPETITION............................................................................................ 13 IV. BEST PRODUCT PROSPECTS ......................................................................... 15 V. KEY CONTACTS AND FURTHER INFORMATION................................................ 16 UNCLASSIFIED USDA Foreign Agricultural Service GAIN Report - IN5031 Page 3 of 16 I. MARKET SUMMARY India’s food-processing sector, though still developing, contributes 14 percent to the manufacturing GDP (5.5 percent of aggregate GDP), produces goods worth rs. 2.8 trillion ($64 billion), and employs 13 million people1. Much of India’s food-processing industry is small-scale and involves very little value addition, although in recent years several multinational food-processing companies have started operations in India (see Section II. C). A plethora of internal restrictions, including (a) prohibition on foreign direct investment in retail, (b) prohibitions on contract farming, (c) barriers to interstate commerce based on revenue and food security concerns, (d) some of the highest taxes on processed foods in the world, and (e) inefficient in infrastructure and marketing networks seriously constrain growth of the sector. The almost year-round availability of fresh products across the country, combined with the consumers’ preference for fresh products and freshly cooked foods has dampened demand for processed food products. The level of processing varies across segments – ranging from less than 2 percent of the production in the case of fruits and vegetables to over 90 percent in non-perishable products such as cereals and pulses. In the latter, however, processing involves very little value addition, and is mostly confined to grading, cleaning, milling, and packing; with negligible use of additives, preservatives, and flavors. LEVEL OF PROCESSING IN PERISHABLE PRODUCTS Product Level of Processing (% of total production) Organized Unorganized Total Sector Sector 1/ Fruits & vegetables 1.2 0.5 1.7 Milk 15.0 22.0 37.0 Meat 21.0 0 21.0 Poultry 6.0 0 6.0 Marine fisheries 1.7 9.0 10.7 Shrimp 0.4 1.0 1.4 Source: Rabobank Analysis 1/ “Unorganized” in fruits and vegetables includes unbranded pickles, sauces, and potato chips, but excludes processing by street vendors; “unorganized” in dairy includes processing by sweet food makers; “unorganized” in marine products includes processing by small fishermen. According to the Ministry of Food-processing Industries (MFPI), the food-processing industry over the last decade has grown at an average annual rate of 7.1 percent. This higher rate is indicative of the relatively low base, the increasing marketable surpluses of agricultural products, changing consumer life styles and tastes, and the country’s higher disposable income. The growth is projected at around 7.3 percent per annum over the next five years. Of the estimated total food sales of rupees 8.6 trillion ($198 billion) in 2003/04, processed food consumption was valued at rs. 5.3 trillion ($122 billion), with the share of value-added foods (juice, jams, pickles, cheese, butter, ghee, processed meat, confectionary and chocolate, alcoholic beverages, aerated beverages, malted beverages, food services, etc.) estimated at 37 percent. 1 Food-processing Policy 2005, Ministry of Food-processing Industries, GOI; http://mofpi.nic.in/fpipolicy.htm UNCLASSIFIED USDA Foreign Agricultural Service GAIN Report - IN5031 Page 4 of 16 With a population of over 1 billion, which is growing annually at 1.7 percent, India is a large and growing market for food products. Food accounts for about 49 percent of the consumers’ total expenditure. With the changing lifestyle of consumers and the rising disposable income of the growing middle class, there is increasing demand for convenient and hygienic foods. This is expected to increase demand for processed food products, giving a boost to the domestic food-processing industry, and providing opportunities for increased imports of processed foods and food ingredients. The Indian food-processing industry has started looking outward to acquire the latest food ingredients and technology. An indication of this is the presence of numerous multinational food flavor, ingredient, and machinery companies in India; these include IFF, Danisco, Chr. Hansen, AB MAURI, The Solae Company, and Fine Organics. Health consciousness is popularizing sugar-free low calorie diet foods and natural foods containing dietary ingredients. At present, most inputs for the food-processing industry are sourced domestically, with the exception of some bulk commodities that are in short supply, such as pulses and vegetable oils, dried fruits and nuts, and small but increasing quantities of food additives and ingredients such as soy proteins, whey, and flavors and essence. India annually imports vegetable oils valued at over $2.6 billion and pulses valued at $560 million. Imports of food ingredients were valued at $170 million in 2003/04, and include mostly spices and condiments, dairy products, cocoa products, fish and fish products, fruit juices, and other ingredients (yeasts, sauces, soft drink concentrates, flavoring materials, soy protein concentrates and isolates, etc.). Unorganized, small players account for more than 70 percent of the industry’s output in volume and 50 percent in value terms. Most of them operate locally, add little if any value to products, and use outdated technologies. The government’s policy of reserving the food- processing sector for small-scale units, effective until 1991, discouraged large-scale domestic and foreign direct investment in the food-processing sector. However, following economic liberalization in 1991, the food-processing industry was opened, resulting in increased investment in this sector, both domestic and foreign. Over the last few years, several large companies, both Indian and foreign, have invested in the food-processing business in India, resulting in significant growth in this sector. Some of the major players in India’s food- processing industry are listed in Section II.C of this report. There are hundreds of medium- sized regional companies, some of them aspiring to emerge as national players with their own established brands, who pose some competition to large firms. ADVANTAGES AND CHALLENGES Advantages Challenges Ø Increasing disposable income; changing Ø High tariffs and increasing non- life style of consumers tariff barriers Ø Growing health and hygiene awareness Ø Antiquated food laws and internal among the middle class policies which restrict marketing Ø Government’s high priority on food- Ø Inadequate infrastructure facilities, processing industry like cold storage and roads Ø Plentiful availability of raw materials Ø Increasing competition from local players Ø Increasing presence of multinational Ø Long and fragmented supply chain companies Ø Modernizing retail sector in big cities Ø Problems in tapping the vast rural market and unorganized retail sector Ø Move towards a new “Food Safety and Ø Consumer preference for fresh foods Standards” legislation by the government UNCLASSIFIED USDA Foreign Agricultural Service GAIN Report - IN5031 Page 5 of 16 II. ROAD MAP FOR MARKET ENTRY A. ENTRY STRATEGY It is essential to survey existing and potential markets in India for products before initiating export sales. The Office of Agricultural Affairs in the American Embassy New Delhi (see Section V) and market research firms in India can assist new exporters. If the US companies do have products of promising sales potential in India, they can either set up a base in India or appoint distributors or agents. The Indian government encourages foreign investment in the food-processing sector. Hundred percent equity participation or joint ventures with Indian