AN INDUSTY PROJECT REPORT ON

FOOD PROCESSING INDUSTRIES

SUBMITTED TO:

Prof. Siraj Bloch

Marwadi Education Foundation Group of Institutions

SUBMITTED BY: Urvi Pathak

Roll no: MPG1102021

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TABLE OF CONTENTS

Contents
ACKNOWLEDGEMENT ......................................................................................................... 4 EXECUTIVE SUMMARY ....................................................................................................... 5 GLOBAL PROCESSED FOOD INDUSTRY........................................................................... 7 INDIAN PROCESSED FOOD INDUSTRY............................................................................. 8 Food and Agriculture: An overview ...................................................................................... 8 Processed food industry: a sunrise sector .............................................................................. 9 Introduction: ........................................................................................................................... 9 Food-processing- a growing market .................................................................................... 10 MAJOR CHALLENGES FOR THE INDIAN FOOD INDUSTRY ....................................... 14 INDIAN FOOD PROCESSING INDUSTRY BY SECTORS ................................................ 15 Dairy .................................................................................................................................... 16 Fruits and Vegetable Processing .......................................................................................... 20 Grain processing .................................................................................................................. 21 Meat and poultry processing ................................................................................................ 24 Fish Processing .................................................................................................................... 26 Packaged/Convenience Food ............................................................................................... 27 Confectionery....................................................................................................................... 30 Ready-to-eat foods ............................................................................................................... 31 Aerated Soft Drinks, Packaged drinking water.................................................................... 32 INDIAS IMPORT AND EXPORT OF VARIOUS COMMODITIES .................................. 34 GOVERNMENT REGULATION AND SUPPORT............................................................... 37 Regulation and Control ........................................................................................................ 37 Fiscal policy and taxation: ................................................................................................... 38 Export promotion: ................................................................................................................ 38 REGULATORY FRAMEWORK ........................................................................................... 40 Various food laws ................................................................................................................ 40 PESTAL ANALYSIS ON FOOD PROCESSING INDUSTRIES .......................................... 42 POLITICAL ......................................................................................................................... 42 ECONOMICAL ................................................................................................................... 42 SOCIAL ............................................................................................................................... 43 TECHNICAL ....................................................................................................................... 43 2|Page

FIVE FORCES ANALYSIS .................................................................................................... 44 THREAT OF NEW ENTRANTS ........................................................................................ 44 POWER OF BUYERS ......................................................................................................... 45 POWER OF SUPPLIER ...................................................................................................... 46 THREAT OF SUBSTITUTES ............................................................................................ 48 RIVALRY AMONG COMPETING FIRMS IN INDUSTRY ............................................ 49 SWOT ANALYSIS OF HALDIRAM ..................................................................................... 51 STRENGTHS: ..................................................................................................................... 51 WEAKNESSES ................................................................................................................... 51 OPPORTUNITIES:.............................................................................................................. 51 THREATS: .......................................................................................................................... 51 SWOT ANALYSIS OF CADBURY ....................................................................................... 52 STRENGTHS: ..................................................................................................................... 52 WEAKNESSES: .................................................................................................................. 52 OPPORTUNITIES:.............................................................................................................. 52 THREATS: .......................................................................................................................... 52 MAJOR FOOD PROCESSING COMPANIES ...................................................................... 53 INDIAS FOOD PROCESSING SECTOR COULD STIMULATE GROWTH IN THE AGRICULTURE SECTOR ..................................................................................................... 60 CONCLUSION ........................................................................................................................ 62 BIBLOGRAPHY ..................................................................................................................... 63

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ACKNOWLEDGEMENT
Every study requires a guidance of someone who is working in that field. Firstly we would like to thank Director Sir Dr. S.C. Reddy for providing an opportunity of preparing a Industrial Project Report and allowing us to use the resources of the institution during this project.

I am extremely thankful to our Project Guide, Prof. Siraj Bloch of Marwadi Education Foundation Group of Institution for their precious guidance regarding the preparation of the Project Report. Their guidance has proved to be useful and without them, the preparation of this report might not have been possible.

I am also thankful to the other faculty members of MEFGI for extending their valuable support for this project.

I also extend my sincere thanks to the Respondents, who helped us during the course of our project and for their gracious attitude.

I would like to take this opportunity to extend our warm thoughts to those who helped me in making this project a wonderful experience.

Yours faithfully, URVI PATHAK

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EXECUTIVE SUMMARY
The size of global processed food industry is estimated to be valued around US $3.6 trillion and accounts for three-fourth of the global food sales. Despite its large size, only 6% of processed foods are traded across borders compared to 16% of major bulk agricultural commodities. Indian food-processing industry is miniscule in comparison and is estimated to be US $40 billion and is likely to grow at over 10%, on the basis of an expected GDP growth rate of 8-8.5% p.a.

With enormous scope for value addition, increase in the consumption of processed food products in India and many fiscal incentives being planned by the government, this sector is poised to maintain the growth momentum in the future. Moreover, the advent of the WTO regime and the possibility of reduced subsidies in developed countries can add to Indias strengths in food production and processing industry. India accounts for less than 1.5% of international food trade despite being one of the worlds major food producers, which indicates huge potential for both investors and exporters. With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2010. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion by 2014-15 assuming a growth of 10%. The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector.

Several global food giants and leading Indian industrial enterprises are already making their presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India, Kelloggs, Hindustan Unilever, ITC-Agro, Godrej Foods and MTR Foods.

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It is estimated that the food production in India is likely to grow two-fold in the next ten years. Thus, there is ample of opportunities for investments in food and food-processing technologies, equipment, especially in areas of canning, dairy & food-processing, specialty processing, packaging, frozen food and thermo processing, cold chains and in the area of food retail.

Ministry of food processing in its Vision 2015 document has estimated the size of processed food sector to treble, processing level of perishable to increase from 6% to 20%, value addition to increase from 20 % to 35% and Indias share in global food trade to increase from 1.5 % to 3%. The governments focus towards food processing industry as a priority sector will ensure policies to support investment in this sector and attract more FDI. India with its vast pool of natural resources and growing technical knowledge base has strong comparative advantages over other nations. According to CII estimates, food-processing sector has the potential of attracting US $33 billion of investment in 10 years and generate employment of 9 million person-days. The food-processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors.

The report outlines the tremendous growth potential in the sector and various opportunities for investments. We initiate coverage on Ruchi Soya and Lakshmi Energy & Foods with a BUY recommendation.

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GLOBAL PROCESSED FOOD INDUSTRY

The size of global processed food industry is estimated to be valued around US $3.6 trillion and accounts for three-fourth of the global food sales. Despite its large size, only 6% of processed foods are traded across borders compared to 16% of major bulk agricultural commodities. Over 60% of total retail processed food sales in the world are accounted by the U.S, EU and Japan taken together.

Japan is the largest food processing market in the Asian region, though India and China are catching up fast and are likely to grow more rapidly. Leading meat-importing countries namely Japan and South Korea have a developed processed food industry. One of the most technically advanced food-processing industries globally is Australia as the products produced are of international standards and at comparatively lower prices. Countries in the Sub-Sahara African region, Latin America and parts of Asia continue to be on the lower-end of technology competence in food items. However, Europe, North America, and Japan are on the higher-end of technology, with a sharper shift towards convenience and diet foods.

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INDIAN PROCESSED FOOD INDUSTRY

Food and Agriculture: An overview
India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India accounts for less than 1.5% of international food trade despite being one of the worlds major food producers, which indicates huge potential for both investors and exporters. Indias GDP is expected to grow in the range of 8-8.5% in the coming fiscal year, fuelled by robust investments and buoyant consumer spending. According to Goldman Sachs projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025 and Japans in 2035.

The growth estimated is; Indias GDP ($ billion) 604 2014 3174 4935 7854

Year 2005 2020 2025 2030 2035

Excessive controls, low public investment, inadequate infrastructure, poor agri-input management, distorted pricing and incentives structures, and inadequate credit weighed down Indias agricultural sector for several decades. The share of agriculture in Indias GDP has fallen by more than 60% in the past five decades. However, the policy environment is changing with increase in public investment, fading controls on product marketing and distribution, better price-discovery mechanisms and improvement in credit availability.

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Indian agriculture, particularly food processing and allied activities is thus going through a major transformation with the government targeting 4% growth for the agri-sector from 2005-2020.

Processed food industry: a sunrise sector

Introduction: Food-processing industry is significant for Indias development because it has important link and synergy with industry and agriculture, the two main support of the economy. Total size of food-processing industry is around US $40 billion growing at 10% and the size of processing sector is estimated to be US $2.53 billion. The industry is mainly unorganized with 75% of the processing units belonging to the unorganized category, the organized category though small, is growing fast. The food production is expected to double in the next 10 years and the consumption of value added food products is expected to grow at a much faster pace. This growth will benefit the economy, increase agricultural yields, create employment and raise the standard of living of various associated people. Rising consumer affluence and economic liberalization is opening up new opportunities in the sector.

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The food-processing industry has been identified as a focus area for development and has been included in the priority-lending sector. Most of the food-processing industries with the exception of beer & alcoholic drinks and items reserved for small scale sector, like vinegar, bread, and bakery have been exempted from the provisions of industrial licensing under Industries (Development and Regulation) Act, 1951. Automatic approval up to 100% of equity in case of foreign investment is available for most of the processed food items.

With over 1.10 billion consumers and fourth largest economy in terms of purchasing power parity, UNCTAD and AT Kearney has ranked India amongst the top three investment destinations in the world.

Food-processing- a growing market

With rapid increase in the per capita income and purchasing power along with increased urbanization, improved standards of living, there lies a large untapped opportunity to cater to 1000 million domestic consumers. It is estimated that 300 million upper and middle class consume processed food. With the convenience needs of dual income families, 200 million more consumers are expected to move to processed food by 2010. The market size for the processed foods is thus bound to increase from US $102 billion currently to US $330 billion 10 | P a g e

by 2014-15 assuming a growth of 10%. The share of the value added products in processed foods would almost double from US $44 billion currently to US $88 billion during the same period, growing at the rate of 15%. This presents enormous opportunities for investment in processed food sector.

Several global food giants and leading Indian industrial enterprises are already making their presence felt in a big way in the sector. Some of them are Nestle India, Cadbury's India, Kelloggs, Hindustan Unilever, ITC-Agro, Godrej Foods and MTR Foods.

According to Government estimates, Rs 1,000 billion investment is needed in this sector across all segments of the value chain, from agri inputs to logistics to front-end infrastructure and distribution, out of which bulk of investment will be from private sector. As a result, various private corporate houses like Reliance have ventured in this space with full vigor. Hence, there is immense potential for investment in this sector. To facilitate the prompt growth of food-processing industry, the Government has implemented the scheme for infrastructure development comprising a food park scheme, establishing packaging centers, integrated cold chain facility; value added centers and irrigation facilities.

Where the opportunity lies- areas for investment;

It is estimated that the food production in India is likely to grow two-fold in the next ten years. Thus, there is ample of opportunities for investments in food and food-processing technologies, equipments, especially in areas of canning, dairy & food-processing, specialty processing, packaging, frozen food and thermo processing, cold chains and in the area of food retail.

One of the key reasons for low levels of food processing is poor infrastructure for storage, marketing and distribution of food products. 25-40% of agri-produce is lost post-harvest season. According to estimates, Indias marketable surplus is set to increase by 350 mtpa to 870 mtpa by 2012. 40% of the increase (150 mtpa) would be accounted by perishable fruits and vegetables. The need for investments in the areas of infrastructure and supply chain is evident from the fact that Indias current storage infrastructure for all food items is only 100 mtpa.

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The Government has announced various policy and fiscal measures to expand the storage capacity. It has announced 15-25% capital subsidy scheme for facilitating construction of rural godowns and has also sanctioned 16 mt of new capacity the last five years.

Cold chain

The estimated cold-storage capacity at 19.5 mt is less than 15% of the annual horticulture production and is mainly dominated by potatoes (80% of capacity). The size of cold chain industry is estimated to be around US $2.2-2.7 billion and is expected to grow at 20-25% annually. FDI to the extent of 100% is allowed in the sector. With the rising focus on horticulture, increasing corporate participation and advent of food parks and agri export zones is likely to result in significant restructuring of cold storage infrastructure with an estimated investment of US $8-10 billion.

Voltas, Blue-Star and Kirloskar Pneumatic are some of the cold storage players and equipments. Radhakrishna Foodland and Snowman Frozen are major providers of cold storage facilities. Concor is setting up a countrywide network of 14 cold-chain complexes for horticulture in Delhi, Mumbai and Bangalore among other places.

Supply chain

An efficient supply chain not only brings down the price of the end product but also eliminates intermediaries by connecting farmers directly to the super stores. It has thus become an important aspect of organized retail setup. The food supply chain in India is highly fragmented with numerous intermediaries and lack of economies of scale. Sophisticated applications such as demand forecasting, data integration, financial flow management, supply-demand matching, information sharing will enable it to become mature and efficient.

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Food safety management systems

The tightening of restrictions and the introduction of the Sanitary and Phytosanitary Agreement by global industry bodies like the World Health Organization (WHO), have led to increased adherence of safety norms and regulations. Indian companies will have to strictly adhere to international food safety standards in order to gain a larger share of world trade.

Machinery

In packaging, freshness and hygiene remains a key factor in determining buying by consumers. In recent times, a number of new technologies have emerged both in processing and packaging, which have made an impact on the shelf life of food products.

Food parks

30 mega food parks with investments of around US $110 million are coming up across the country to attract FDI in the food-processing sector. The food parks will have facilities ranging from cold storage, sorting, grading, food-processing, packaging and quality control, and R&D laboratories. The government for these food parks has identified Maharashtra, Andhra Pradesh, Punjab and Jharkhand and one Northeast region.

Food retail

Food and groceries form major portion (75%) of the retail pie. However, it has the lowest level of penetration of 1% in organized retail. Branded foods market size is growing at 1520%. Players have outlined major expansion plans recognizing the opportunity.

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MAJOR CHALLENGES FOR THE INDIAN FOOD INDUSTRY

Food-processing industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, and seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference of fresh food.

Unprocessed foods are prone to spoilage by biochemical processes, microbial attack and infestation. Good processing techniques, packaging, transportation and storage can play an important role in reducing spoilage and extending shelf life. The challenge is to retain the nutritional value, aroma, flavour and texture of foods, and presenting them in near natural form with added conveniences. Processed foods need to be offered to the consumer in hygienic and attractive packaging, and at low incremental costs.

Major Challenges for the Indian Food Processing Industry are: Consumer education on nutritional facts of processed foods Low price-elasticity for processed food products Need for distribution network and cold chain Backward-forward integration from farm to consumers Development of marketing channels Development of linkages between industry, government and institutions Taxation in line with other nations Streamlining of food laws

Namenda Shah, CTARA* & K V Venkatesh, Department of Chemical Engineering

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INDIAN FOOD PROCESSING INDUSTRY BY SECTORS

India's food-processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc. The most promising sub-sectors includes- soft-drink bottling, confectionery manufacture, fishing, aquaculture, grain-milling and grain-based products, meat and poultry processing, alcoholic beverages, milk processing, tomato paste, fast food, ready-to-eat breakfast cereals, food additives, flavours etc. Health food and health food supplement is another rapidly rising segment of this industry, which is gaining vast popularity amongst the health conscious.

The dairy sector has an estimated consumer demand for milk and milk products at Rs 1,400 billion; growing at about 8% p.a. Poultry meat is estimated to have production of 1.8 million tones, growing at a CAGR of 11%. Besides, ready-to-eat (RTE) industry, still nascent in India, is estimated to be about Rs 5 billion growing at 30% p.a and expected to cross Rs 15 billion by 2010. The wine sector, is growing at about 50% p.a is expected to have a market size of Rs 20 billion by 2010.

The food industry is divided into various segments namely,

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Segmentation of various sectors in the industry:

SECTOR Dairy

PRODUCT Whole milk powder, skimmed milk powder, condensed milk, ice cream, butter and ghee, cheese

Fruits & Vegetables

Beverages, juices, concentrates, pulps, slices, frozen & dehydrated products, potato wafers/chips, etc

Grains & Cereals

Flour, bakeries, starch glucose, cornflakes, malted foods, vermicelli, beer and malt extracts, grain based alcohol

Fisheries

Frozen & canned products mainly in fresh form

Meat & Poultry

Frozen and packed - mainly in fresh form, Egg Powder

Consumer Foods

Snack food, namkeens, biscuits, ready to eat food, alcoholic and non-alcoholic beverages

Dairy
Milk and milk products is rated as one of the most promising sectors in the processed food industry. India is the largest producer of milk in the world with production of 97.1 million tones in 2005-06, growing at a CAGR of 4%. According to estimates by Dairy India, the size of the Indian dairy market is Rs 2, 27,340 crores, which is expected to more than double to Rs 5, 20,780 crores by 2011. Indias total milk production is projected to cross 100 million tones by end of 2007 according to the tenth five-year plan estimates. Milk and milk products account for a significant 17% of Indias total expenditure on food. India is on the verge of assuming an important position in the global dairy industry.

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Production and Per capita availability of milk

Year

Per capita availability (grams / day)

Production in million tonnes 17 20 22 31.6 53.9 80.6 86.2 88.1 92.5 97.1 100

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07

124 124 112 128 176 220 230 231 233 241 245

About 35% of milk produced in India is processed. The organized sector comprising of large dairy plants processes about 13 million tones, whereas the unorganised sector (halwaiis and vendors) process about 22 mtpa.

Milks Uses in India

22%

Value Added (Unorganised) Value Added (organised)

7%

Packed liquid Milk

63% 8%

Unprocessed

Source: Cygnus

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The traditional dairy products are Indias largest selling and profitable segment and accounts for more than 50% of milk and dairy products. With liberalisation, the import of technology and machinery has effected modernization and technological breakthrough in production of traditional milk products and this has encouraged the growth of the organized sector in the dairy segment. As per estimates by dairy India 2007, by 2011 private dairies are slated to outpace the cooperative sector and become the largest producers of milk in the industry. Private dairies are likely to contribute double the quantity of milk that would be contributed by cooperatives in 2011. Many corporates are planning a foray into the dairy business sensing the big opportunity. Reliance and Wal-Mart have already made an entry into this business by signing deals with farmers to procure 7 lakh litres and 15 lakh litres of milk per day. Dabur India is exploring the possibility of entering into the milk-based drink segment. Yakult Danone plans to launch health drinks and yoghurts based on probiotics bacteria. Amul has also forayed into the flavoured yoghurt segment. The 55,000 tpa branded butter market, valued at US $133 million is estimated to be growing at 8-10% pa. The cheese market is estimated to be US $110 million in value terms and an estimated 54,000 tonnes in volume terms, and has been growing at a CAGR of 8-9% during 1999- 2003. The ice-cream market in India is estimated to be about US $199 million pa.

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India's unique pattern of production, consumption, processing and marketing of dairy products consist of over 11 million farmers organized into about 0.1 million village Dairy Cooperative Societies (DCS).

Major Players The packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operative Milk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperatives have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private players include J. K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc.

Some of the major dairy products manufacturers in the country Company Nestle India Brands Milkmaid, Cerelac, Lactogen, Milo, Everyday Milkfood Milkfood Major Products Sweetened condensed milk, malted foods, milk powder and Dairy whitener Butter, Ghee, milk powder, ice cream, and other milk products Kwality Dairy (India) Indana, Cream Kountry Skimmed milk powder, whole milk powder, dairy milk whitener, Ghee Gujarat Co-operative Milk Marketing Federation Heritage Foods Heritage Amul Milk, Butter, cheese, Ghee, Ice cream and other milk Products Milk, Curd, Ghee, Butter Milk Britannia Britannia Milkman Flavoured milk, cheese, Milk Powder, Ghee Cadbury Mother Dairy Bournvita Mother Dairy Malted food Milk, Ice Cream, milk Products
Source: Company website

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Fruits and Vegetable Processing

India is the 2nd largest producer of fruits (50 million tones) and vegetables (100 million tones). The installed capacity of fruit and vegetable processing industry has increased from 11.08 lakh tones in 1993 to 21.18 lakh tones in 2006. The industry is still nascent and just about 2.2% of the total output of fruits and vegetables is processed as per estimates. The country's share in the world trade of processed fruits and vegetables is still less than 1%. Likewise, the consumption of value added fruits and vegetables are also low compared to the primary processed food in general and fresh fruits and vegetables in particular. This throws up a huge opportunity for the sector through increased penetration in the domestic market. The government expects the processing in this sector to grow to 10% in 2010 and 25% of the total produce by 2025.

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Major players Fruits and Vegetable Processing

Company HUL

Brands Kissan, Knorr, Annapurna,

Products Jams, Ketchups, wheat flour, Fruit Beverages, soups Fruit Beverages

Dabur India

Real, Real Activ, Coolers

Mother Dairy (Safal)

Safal

Frozen processed fruits and vegetables, Jam, Pickle

Temptation Foods Capital Foods

Pure Temptation Private Label

IQF fruits and vegetables Frozen Vegetables Foods, IQF

Mafco Priya Foods MTR Foods

Mafco Priya MTR

Frozen fruits and vegetables Pickles, Fruit Juices Frozen Foods, Pickles, spices & Masala

Allana Cold Storage

Allana

Frozen Foods

Grain processing
India produces more than 200 million tons of different food grains every year. All major grains like rice, wheat, maize, barley and millets like jowar (great millet), bajra (pearl millet) & ragi (finger millet) are produced in India. About 15% of the annual production of wheat is converted into wheat products. There are 10,000 pulse mills in the country with a milling capacity of 14 million tones, milling about 75% of annual pulse production of 14 million tones.

Rice - most processed grain:

India is the second largest rice producer in the world with a 20% share in world rice production. The total rice market in India is estimated to be worth around Rs 1,00,000 21 | P a g e

crores (growing at 3-4% annually) of which only 10% of the rice is branded. The branded rice sales have taken off in recent years and have been growing at around 15% in the domestic market compared to 5% for unbranded rice. The branded rice sales growth is an impressive 25% in the international market as compared to stagnant sales of unbranded rice. Added to this, of the Rs 3,500 crores worth of basmati rice produced, only around Rs 500 crores worth is sold in branded form.

While the total rice market is growing at 3-4% p.a, the basmati rice category is growing at 6%, indicating a latent robustness in the countrys consumption. India is the largest producer and exporter of basmati rice accounting for around 74% of the global production. Indian basmati rice commands premium over its traditional rivals in terms of prices and quality. India produces around 2 million tons of basmati p.a; around 50% of Indias total basmati production is consumed within, while the rest is exported.

India exports around one million tons of basmati rice every year. Saudi Arabia comprises 60% of the exports. Pakistan is Indias sole basmati competitor in the international market. The country wise breakup of exports is given in the figure below.

Outlook:

The demand for basmati rice is expected to grow for the following reasons: Growth in world population from 6.2 billion in 2002 to more than 8 billion in 2030; growth in the Indian population from 1.1 billion in 2005 at 1.7% p.a Growing per capita incomes, rising disposable surpluses, increasing consumerism and increase in the share of organized retail. The Indian retail space is also experiencing enormous growth in retail chains and malls Rising disposable incomes are growing branded volumes. Demand for branded rice is likely to grow at around 15% Basmati accounts for only 2% of Indias Rs 1,000 billion rice market by volume and about 5% by value, signifying a huge growth potential. The median age of the Indian population is one of the youngest in the world, averaging around 24, complemented by an increase in income levels, which could translate into encouraging spending patterns

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A rising number of Indian expatriates as well as a growing preference for basmati in the Middle East are likely to keep demand on the boil Recent projections made by the IMPACT model developed at the International Food Policy Research Institute (IFPRI) indicate that the demand for rice will increase by 1.1% annually over the next three decades.

Branded rice is becoming popular in both the domestic as well as the export market. Indian Basmati rice commands a premium in the international market. This segment thus offers opportunities in marketing of branded grains, as well as grains processing.

The global rice trade is expected to grow at 2-3% p.a. over the next 10 years, strengthening production to around 34 million tons by 2014. Basmati is expected to maintain a robust growth of over 6% in the medium-to-long term.

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Major players of Grain processing

Company KRBL

Brands India Gate, Lion, Doon, Bemisal, Nur Jahan, Rice King, Taj Mahal Rice

Products

Kohinoor Foods

Kohinoor

Rice, Convenience Food

LT Overseas

Daawat, Heritage, Orange, Josh, Apsara

Rice, Wheat

Lakshmi Energy Usher Agro REI Agro

Lakshmi Foods Rasoi Raa Kasauti, Real Magic, Mr Miller, Hungama, Ikon, Hansraj, Rain Drop

Rice, Wheat Rice, Cereals Rice

Meat and poultry processing

At 485 million India has the worlds largest livestock population- accounting for over 55% and 16% of the worlds buffalo and cattle populations respectively (the worlds largest bovine population). It ranks second in goats, third in sheep and camels, and seventh in poultry populations in the world.

Processing of meat products is licensed under Meat Food Products Order, (MFPO), 1973. Total meat production in the country is estimated at 5 million tones annually. Indian consumer prefers to buy freshly cut meat, rather than processed or frozen meat. A mere 6% of production of poultry meat is sold in processed form. Of this, only about 1% undergoes 24 | P a g e

processing into value added products (Ready-to- eat/ Ready-to-cook). Processing of large animals is largely for the purpose of exports. This is because of low processing of value added meat products and consumer preference for fresh meat. The total processing capacity in India is over 1 million tones p.a of which 40-50% is utilized.

In meat & meat processing sector, poultry meat is the fastest growing animal protein in India. The estimated production is 15,00,000 tones growing at CAGR of 13% through 1991-2005. India ranks among the top six egg producing countries and ranks among the top five chicken producing countries. Per capita consumption has grown from 870 grams in 2000 to about 1.68 kg in 2005. This is expected to grow to 2 kg in 2009. Growth in Buffalo meat production has been less rapid (CAGR of 5% in the last 6 years). The current production levels are estimated at 1.9 million mt. Of this about 21% is exported. Mutton and lamb is relatively small segment where demand is outstripping supply, which explains the high prices in domestic market. The production levels have been almost constant at 950,000 mt with annual exports of less than 10,000 mt. This has restricted large processing companies from developing business interests in this sector.

India exports more than 5,00,000 mt of meat of which major share is buffalo meat. Indian buffalo meat is witnessing strong demand in international markets due to its lean character and near organic nature.

The total processed meat production in India is likely to double in the next 10 years and has a huge potential with the growing number of fast food outlets in the country. With the rise in per capita incomes and busy lifestyles, the demand for processed meat products, which can be quickly cooked, has been rising. Most of the production of meat and meat products continues to be in the unorganised sector. Branded products like Venkys and Godrejs Real Chicken are, however, becoming popular in the domestic market.

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Fish Processing
India is the third largest fish producer in the world and is second in inland fish production. Fish production in the country has increased from 0.75 mt in 1950-51 to 6.50 mt in 2005-06. In 2005-06, it contributed about 1% of the total GDP and 5.3% of the GDP from agriculture sector. The geographic base of Indian marine fisheries has 8,118 km. coastline, 2.02 million sq.km. of exclusive economic zone including 0.5 million sq. km. of continental shelf, and 3,937 fishing villages. India is endowed with rich fishery resources and has vast potential for fishes from both inland and marine resources.

Processing of fish into canned and frozen forms is carried out almost entirely for the export market. It is widely felt that Indias substantial fishery resources are under-utilized and there is tremendous potential to increase the output of this sector. The potential could be gauged by the fact that against fish production potential in the exclusive economic zone of 3.9 million tones, actual catch is to the tune of 2.87 million tones. Harvesting from inland sources is around 2.7 million tones. In last six years there was substantial investment in fisheries to the tune of Rs 3,000 crores of which foreign investments were of the order of Rs 700. 26 | P a g e

Major Player in meat, poultry and fisheries

Company Arambagh Hatcheries Hind Industries Arambagh

Brands

Products Meat, Poultry Frozen buffalo meat, Chilled/ Frozen sheep and Goat meat

Sibaco,Eatco

Venkateshwara Hatcheries Alkabeer Exports Limited ASF Seafoods Bell Foods Frigo Refico Allana

Venky's

Poultry products

Alkabeer

Frozen buffalo meat

ASF Seafoods Bell Foods Allana

Seafood Marine foods Frozen buffalo and other meat

Godrej Agrovet MAFCO, Mumbai

Real Good Chicken MAFCO

Poultry products Pork and other meat products

Packaged/Convenience Food
This segment mainly comprise of pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, biscuits etc. Bread and biscuits constitute the largest segment of consumer foods. The annual production of bakery products, which includes bread, biscuits, pastries, cakes, buns, rusk etc, is estimated to be 50 lakh tones in 2004-05 with estimated value of Rs 69 billion. The two major bakery industries, viz., bread and biscuit account for about 82% (4 million tones) of the total bakery products. The organised sector has a market share of 45% and the balance 55% is with the unorganised sector in the baked products. The sectors that are projected to achieve high growth between 10-20% in 2005-06 in bakery segment include bread, cakes, pastry which is expected to achieve up to 11% growth and biscuits over 13%.

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Biscuits

The size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is accounted for by the organised sector. Glucose and milk biscuits account for 25% each and Marie biscuits 20% of the biscuits market.

The biscuit industry in India witnessed annual growth as below:

2003-04 2004-05 2005-06 2006-07

15% 14% 14% 13%

While the growth rate has been stagnating during last 4 years, momentum is expected to pick up during 2007-08, mainly on account of exemption from central excise duty on biscuits with MRP up to Rs 100/per kg, as per Union Budget for 2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty exemption, estimates annual growth of around 17-18% in 2007-08. Growth in biscuit marketing has been achieved, mainly due to improvement in rural market penetration.

The per capita consumption of biscuits in our country is only 2.1 kg compared to more than 10 kg in the USA, UK and West European countries and above 4.5 kg in South East Asian countries like Singapore, Hong Kong, Thailand, Indonesia etc. China has a per capita consumption of 1.9 kg while in the case of Japan it is estimated at 7.5 kg. This shows the huge untapped potential of biscuit industry in India. Exports of Biscuit are estimated to around 10% of the annual production during the year 2006-07.

With the entry of big players, the domestic biscuit manufacturing sector is to see a healthy competition that would ensure good quality products at affordable prices to the consumer. Exports of biscuits would also pick up. It has already increased with Indian biscuits turning favourite choice in several Middle East markets. The export of high end products (like cream biscuits) to former East European countries has also begun to rise. Thus, the biscuit manufacturing segment is poised for a stronger growth in the coming days. 28 | P a g e

Bread

The bread industry with estimated production of 27 lakh tones in 2004-05 is represented by both the organised and unorganised sectors with 55% and 45% contribution to production. The overall market size for bread in India is a little over 36 lakh loaves a day, and only one/third of this is from the organised sector.

The large organised sector players who are prominent in the high and medium-price segments include Britannia, Modern Industries. Brands like Modem and Britannia are major players in the bread market and together they account for 90% of the organised bread market. Local manufacturers with numerous local brands cater to populous segment and contribute considerably in the bread segment. Low margins, high level of fragmentation are the main features in the bakery industry. Volumes, brand loyalty and strong distribution networks are the main drivers of growth.

Major players- Bread, Biscuits

Company Modern Foods Inds Parle

Brands Bread Parle-G, Krackjack, Manaco, Hide & Seek Biscuits

Products

Priya Food Products Surya Foods and Agro Britannia Industries ITC

Priya PriyaGold Britannia Sunfeast

Biscuits Biscuits Biscuits, Bread, Cakes Biscuits

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Confectionery
The organised market for confectionery estimated at Rs 2,000 crores is growing at around 78% p.a. The retail value of the Indian sugar confectionery market, which includes products such as sweets, jellies and gums, is estimated to be US $461 million in 2007 and is projected to reach US $498 million in 2008. The yearly growth rate from 2002 to 2006 was 7.2%. The Indian candy market is currently valued at around US $664 million, with about 70% in sugar confectionery and the remaining 30%, in chocolate confectionery. The Indian sugar confectionery market is projected to expand at a CAGR of 8% until 2011, according to a study by Euromonitor International. Two major players namely Cadbury India and Nestle India, which together account for about 90% of the total chocolate market, dominate the chocolate market in India.

Increase in affluent consumers who show a tendency for impulse purchases of products such as sugar confectionery, the development of supermarkets, hypermarkets and convenience stores coupled with the trend towards higher allowances for children are likely to be the primary growth drivers for sugar confectionery.

Major players

Company Cadbury India Dairy Milk, Eclairs,

Brands

Gems,Temptations,Celebrations, Nutties Candico (I) Lotte India Corp Loco Poco, Koffi Toffi, Gumbo Jumbo Coffee bite, Lacto King, Caramilk, Coconut Punch Nestle India Parle Perfetti Kit Kat, Milky Bar Melody, Poppins, Kismi, Mangobite Mentos, Centerfresh, Alpenliebe, Chlormint, Happydent Ravalgaon Sugar Farms Coffee break, Mango Moods, Pan Pasand, Klearmint ITC Mint-o, Candyman

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Ready-to-eat foods
Ready-to-eat foods market in India is expected to reach Rs 2,900 crores by 2015 from its present size of Rs 128 crores (2006). The factors contributing to this growth would be changes like cold chain development, disintermediation, streamlining of taxation, economies of scale on the supply side, coupled with increasing disposable incomes, diminishing culinary skills and the rising need for convenience on the demand side. The ready-to-eat foods market in India has remained under-penetrated owing to factors like consumers penchant for freshness, low affordability and the Indian housewifes preference for home cooked food. Packaged foods in India have grown at approximately 7% p.a. between 2000-2005, with ready-to-eat foods (RTE).

Being the fastest growing category at CAGR 73%. The Indian RTE foods market, canned/preserved segment is more popular, contributing to approximately 90% of the market and growing at a CAGR of 63% between 2001 and 2006. The chilled and dried ready meal segments are non-existent. The packaged foods industry in India has not experienced significant growth due to inadequate demand arising from low household incomes and consumer preference for fresh and home-cooked food. There is thus a huge untapped market opportunity arising due to rapid demographic shifts in income, urbanization and proportion of urban working women in India. The industry needs to concentrate on broadening the market and increasing penetration amongst Indian consumers.

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Major players

Company Dabur India Priya Foods Hommade Priya

Brands

Products

Instant mixes, Puries, Pulihora paste, Ready to Eat

Capital Foods

Chings Secret, Smith & Jones

Cooking Paste, Sauce & Ketchups Packaged bhel puri chats, chana masala, samosa, pakoras, among others.

Haldirams

Haldirams

ITC

Aashirvaad Atta, Bingo, Kitchens of India

Ready to eat/cook foods

MTR

MTR

Indian curries, gravies and rice

Satnam Overseas Ltd

Kohinoor

Ready to eat Indian delicacies

Aerated Soft Drinks, Packaged drinking water

Aerated soft drinks

The soft drinks constitute the 3rd largest packaged food regularly consumed after packed tea and packed biscuits. The aerated soft drinks industry in India comprises over 100 plants across all states. It provides direct and indirect industry related employment to over 1,25,000 employees. It has attracted one of the highest foreign direct investments in the country. It has strong forward and backward linkages with glass, plastic, refrigeration, sugar and transportation industry. Installed capacity of sweetened/aerated water as on January 2006 is reported to be 29.60 lakh tons p.a.

Soft drink market overview: Indian soft drink market is valued to be Rs 6,000 crore. The soft drink market can be broadly divided into two major segments- carbonated soft drink and non32 | P a g e

carbonated soft drink. The carbonated drinks are the mainstay and accounts for 85% of the total soft drink market, however the growth rate has been stagnant and in fact on declining trend on account of controversial issue of pesticide. Non-carbonated soft drink category includes sub category like fruit drink, juices, dairy drinks and more. The preparatory soft drink market is around Rs 250 crores, out of which Rasna has almost 90% volume share.

Packaged drinking water

There are 218 companies, which have been granted license for manufacturing packaged drinking water and packaged natural mineral water. There has been a spurt in growth for the last 3-4 years, which can largely be attributed to a range of various packaged sizes to suit the consumers. 80% of the packaged water sale comes from the bulk containers (5 litres and above).

Major Players

Company Pepsi & Co.

Brands Pepsi, Miranda, Mountain Dew, 7up, Lehar, Dukes, Aquafina

Products Soft Drink, Packaged drinking Water Soft Drink, Packaged drinking Water

Coke

Coca Cola, Fanta, Sprite, Thumps Up, Limca, Kinley

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INDIAS IMPORT AND EXPORT OF VARIOUS COMMODITIES

The Ministry of Food Processing Industries has been encouraging the new processing capacities for agro-food products through its various policy initiatives and plan schemes providing financial incentives for setting up of new units and modernization of existing units.

Supported by a committed government in improving the food trade and providing a conducive atmosphere for agriculture, India is a net exporter of agricultural products. BMI India Food and Drink Report for Q1 2009, expects India to be a net food exporter to 2013.

The report attributes the status to India's immense landmass and availability of a large number of commodities. Over the forecast period to 2013, exports are expected to increase by 72.8 percent over 2008 to USD 24.25 billion. However, in spite of vast natural resources, import growth of food products in India is also expected to be strong over the forecast period, to reach USD 12.3 billion by 2013. At an overall Food and Beverage level, the export 1 of processed segments is growing much faster as shown in the figure.

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Two nodal agencies, APEDA and MPEDA, were formed for promoting exports from India. MPEDA is responsible for overseeing all fish and fishery product exports; other processed food product exports are the responsibility of APEDA. The Government of India (GOI) has accorded high priority to the establishment of cold chains and encourages major initiatives in this sector.

Foreign equity participation of 51 percent is permitted for cold chain projects. There is no restriction on import of cold storage equipment or establishing cold storages in India. National Horticulture Board (NHB) operates a capital investment subsidy scheme (CISS) that subsidies the promoter.

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According to the WTO statistical database, the US is the world's leading food exporter followed by Netherlands, Germany, France and Brazil in the top five. In spite of the supply advantages, India stands a distant 21st for the year 2007, with a 1.4 percent share in the global trade. India is a major exporter in the Food Industry and imports less. The exports are growing at over 15 percent y-o-y with 2007 growth a high 29 percent. During the period 1980-2007, India's share in the global exports have increased from 1.1 percent to just 1.4 percent, the majority of the increase happening in this decade.

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GOVERNMENT REGULATION AND SUPPORT

Since liberalization several policy measures have been taken with regard to regulation & control, fiscal policy, export & import, taxation, exchange & interest rate control, export promotion and incentives to high priority industries. Food-processing and agro industries have been accorded high priority with a number of important relieves and incentives. Some of the important policy changes are as follows.

Regulation and Control

As per extant policy, FDI up to 100% is permitted under the automatic route in the food infrastructure (food park, cold chain/warehousing). Automatic approval to FDI up to 100% equity in FPI sector excluding alcoholic beverages and a few reserved items. Foreign investments are allowed in SSI reserved items under an export obligation (pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil, groundnut oil, sweetened cashew nut products, ground and processed spices other than spice oil and oleoresin, tapioca sago and its flour).

FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohol subject to licensing by the appropriate authority. No industrial license is required for almost all of the food & agro processing industries except for some items like: beer, potable alcohol & wines, cane sugar, hydrogenated.

Animal fats & oils etc. and items reserved for exclusive manufacture in the smallscale sector. Up to a maximum of 24% foreign equity is allowed in SSI sector

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Fiscal policy and taxation:

Rupee is now fully convertible on current account and convertibility on capital account with unified exchange rate mechanism is foreseen in coming years. Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings.

Liberal corporate tax policy is applicable for export and domestic earnings, income tax rebate allowed (100% of profits for five years and 25% of profits for the next five years) for setting up of new agro-processing industries to process and package fruits & vegetables.

Fruits & vegetables, and dairy machineries are completely exempt from central excise duty. Central excise duty on preparation of meat, poultry and fish, pectin, pats and yeast is also completely exempt.

Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on designated items has been rationalized.

Customs duty on refrigerated goods transport vehicles has been reduced form 20% to 10%. 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%.

Export promotion:

Food-processing industry is one of the thrust areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with all infrastructures. Also, setting up of 100% Export Oriented Units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods.

Capital goods, including spares up to 20% of the CIF value of the capital goods may be imported at a concessional rate of customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed.

Units in EPZ/FTZ and 100% EOUs can retain 50% of foreign exchange receipts in foreign currency accounts.

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50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area. All profits from export sales are completely free from corporate taxes. Profits from such exports are also exempt from MAT. Agri export zones and food parks Setting up of 60 agri zones for end-to-end development for export of specific product from geographically contiguous areas. 53 food parks approved to enable small and medium food and beverage units to set up and to use capital intensive common facilities such as cold storage, warehouse, quality control labs, effluent treatment plant, etc.

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REGULATORY FRAMEWORK
There are different laws that govern the food-processing sector in India. The prevailing laws and standards adopted by the Government to verify the quality of food and drugs is one of the best in the world. Multiple laws/regulations prescribe varied standards regarding food additives, contaminants, food colours, preservatives and labeling. In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will be a single reference point in relation to the regulation of food products. The food laws in India are enforced by the Director General of Health Services, Ministry of Health and Family Welfare, Government of India (GOI).

Various food laws

Applicable to food and related products in India are Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health & Family Welfare): Covers specifications related to food colour, preservatives, pesticide residues, packaging and labelling, and regulation of sales. The Standards of Weights and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rules, 1977: Designed to establish fair trade practices with respect to packaged commodities Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development). Essential Commodities Act, 1955 (Ministry of Food & Consumer Affairs). Fruit Products Order (FPO), 1995: Specifications and quality control requirements regarding the production and marketing of processed fruits and vegetables, sweetened aerated water, vinegar, and synethic syrups. Meat Food Products Order, 1973 (MFPO): Administers the permissible quantity of heavy metals, preservatives, and insecticide residues for meat products Milk and Milk Products Order, 1992: Regulates the production, distribution, and supply of milk products; establishes sanitary requirements for dairies, machinery, and premises; and sets quality control standards for milk and milk products. The Food Safety and Standards Act, 2006: In August 2006, the Government of India had passed a new legislation Food Safety and Standards Act. The Act proposes 40 | P a g e

establishment of a new authority, the Food Safety and Standards Authority, reorganisation of scientific support pertaining to the food chain through the establishment of an independent risk assessment body and a new Food Law, merging eight separate Acts.

The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 and Rules 1993. The Insecticide Act, 1968. Export (Quality Control and Inspection) Act, 1963. Environment Protection Act, 1986. Pollution Control (Ministry of Environment and Forests). Industrial Licenses. BIS Act, 1986. VOP (Control) Order 1947.

SEO (Control) Order -1967.

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PESTAL ANALYSIS ON FOOD PROCESSING INDUSTRIES

POLITICAL
In terms of policy support, the ministry of food processing has taken the following initiatives: Formulation of the National Food Processing Policy Complete de-licensing, excluding for alcoholic beverages Declared as priority sector for lending in 1999 Formulation of the National Food Processing Policy Excise duty waived on fruits and vegetables processing from 2000 01 Income tax holiday for fruits and vegetables processing from 2004 05 Customs duty reduced on freezer van from 20% to 10% from 2005 06 Implementation of Fruit Products Order Implementation of Meat Food Products Order Enactment of FSS Bill 2005 Food Safety and Standards Bill, 2005

Apart from these initiatives, the Centre has requested state Governments to undertake the following reforms: Amendment to the APMC Act Lowering of VAT rates Declaring the industry as seasonal Integrate the promotional structure

ECONOMICAL
The size of the Indian urban food market is estimated at Rs 350,000 crore. The domestic market for processed food is huge and fast growing. The retail boom will create a huge demand for the food-processing sector in the coming years. Little wonder that 2007 has been designated the Year of Food Technology.

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The private sector is yet to realize its full potential in the food-retailing sector, as the market is still to explore. Though, it has now started discovering the money there is to be made in the urban food retailing market.

SOCIAL
Opportunity to trade globally Conducive working environment Subsidy provided by the government encourage development in this sector Increased infrastructure Vast domestic market Various initiative and assistance in project make this sector more investor friendly

TECHNICAL
Legal aspect has important role in grain sector act such as MRTP has been relaxed n made more flexible There is continuous improvement in TPM and TQM Legal document such as standardization sheet are required to meet the customer need

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FIVE FORCES ANALYSIS

THREAT OF NEW ENTRANTS
The threat of new entrants is an issue that large industry cannot ignore. Entry barriers into the industry are quite low, because most of the processed food items have been exempted from the purview of licensing under the Industries, Development and regulation, Act, 1951. There is also high potential for incentives if these small industries are able to succeed. Both of these facts can be considered threats to large established industries. The production of food grains is increasing but the capacity of processing is not increasing, so there is also a gate open for new entrants. There is one more reason for low entry barrier i.e., for the focused growth of the 'pulse milling and flour milling' sector, the Ministry is providing financial assistance to the grain processing industries for its setting up/ expansion/ modernization in the form of grant. Indias comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets. A few opportunities associated with potential entrants is that established firms can take advantage of economies of scale in production, access to distribution channels, and large amounts of capital to launch massive advertising campaigns.

The most common forms of entry barriers for food grain processing, except intrinsic physical or legal obstacles, are as follows: Cost of entry: for example, investment into technology for oil processing because the grant is given for rice milling and flour milling only; Distribution channels: for example, ease of access for competitors; Cost advantages not related to the size of the company: for example, contacts and expertise; Differentiation: for example, certain brand that cannot be copied i.e. new entrants have to introduce something new or something innovative to enter into the market.

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Factors Affecting the Threat of New Entrants

The threat of new entrants is greatest when: Processes are not protected by regulations or patents. Start-up costs are low for new firms entering the industry as ministry is giving grant for rice and flour milling. Customers have little brand loyalty. Without strong brand loyalty, a potential competitor has to spend little to overcome the advertising and service programs of existing firms and is more likely to enter the industry. Switching costs are low as there are many suppliers in the industry.

Reducing the Threat of New Entrants

Enhancing the marketing/brand image, utilizing patents, and creating alliances with associated products can minimize the threat of new entrants. Competitors may enter the industry if there are excess profits, setting a price that earns positive but not excessive profits could lessen the threat of new entry in the industry.

POWER OF BUYERS
Buyers have the most power when they are large and purchase much of your output. If your business sells to a few large buyers, they will have significant leverage to negotiate lower prices and other favorable terms because the threat of losing an important buyer puts you in a weak position. Buyers also have power if they can play suppliers against each other. The most important determinants of buyer power are the size and the concentration of customers. The bargaining power of buyers is high where there are a large number of undifferentiated small suppliers.

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Factors Influencing the Bargaining Power of Buyers

Buyers have more power in this industry because: The industry has many small companies supplying the product and buyers are few and large. The products represent a relatively large expense for the customers. Customers may not purchase a barrel of oil, but they will purchase if they are selling it again to a retailer. The retailers have access to and are able to evaluate market information. The firm has less room for negotiation if buyers know market demand, prices, and costs. The firms product is not unique and can be purchased from other suppliers. If the brand is homogenous or similar to all of the others, buyers will base their decision mainly on price. Customers can easily, and with little cost, switch to another product. For example, due to competition when Agro Tech Foods launched their lowerpriced blended oil under Sundrop umbrella they acquired mass market in edible oils.

Reducing the Bargaining Power of Buyers

The firm can reduce the bargaining power of their customers by increasing their loyalty by selling directly to consumers, or increasing the inherent or perceived value of a product by adding features or branding. In addition, if the firm can select the customers who have little knowledge of the market and have less power, the firm can enhance their profitability.

POWER OF SUPPLIER
The suppliers have little power because there are numerous throughout India that industry can choose who to buy from, so this would be considered an opportunity for industry. A threat involved with the power of suppliers is that suppliers can fairly easily integrate forward into the industry and become a rival.

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Every business requires inputslabor, parts, raw materials, services etc. The cost of the inputs can have a significant effect on the industrys profitability. Whether the strength of suppliers represents a weak or a strong force hinges on the amount of bargaining power they can exert and, ultimately, on how they can influence the terms and conditions of transactions in their favor. Suppliers would prefer to sell to the firm at the highest price possible or provide the firm with no more services than necessary. If the force is weak, then the firm may be able to negotiate a favorable business deal for themselves. Conversely, if the force is strong, then the firm is in a weak position and may have to pay a higher price or accept a lower level of quality or service.

In the food grain processing industry, there are many suppliers for raw materials like in flour milling, the firm can buy wheat directly from the farmers or ITC or the wholesaler. So the force is weak and the firm is able to negotiate a favorable business deal.

Factors Affecting the Bargaining Power of Suppliers

Suppliers have the most power when: The input(s) the firm requires are available only from a small number of suppliers. For instance, rice mainly produced in southern region of the country so the rice milling firm in northern region has small number of suppliers. The inputs the firm requires are unique, making it costly to switch suppliers. If the firm uses a certain enzyme in a food manufacturing process, changing to another supplier may require the firm to change their entire manufacturing process. This may be very costly to the firm, thus they will have less bargaining power with their supplier. It is difficult for the firm to switch to another supplier. The firm does not have a full understanding of their suppliers market. They are less able to negotiate if they have little information about market demand, prices, and suppliers costs. For example Jaora Gold.

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Reducing the Bargaining Power of Suppliers To increase the firms power, form a buying group of small producers to buy as one large-volume customer. If the firm has the resources, they may choose to integrate back and produce their own inputs by purchasing one of their key suppliers or doing the production their self.

THREAT OF SUBSTITUTES
The threat that substitute products pose to an industry's profitability depends on the relative price-to-performance ratios of the different types of products or services to which customers can turn to satisfy the same basic need. The threat of substitution is also affected by switching costs that is, the costs in areas such as retraining, retooling and redesigning that are incurred when a customer switches to a different type of product or service. Products from one business can be replaced by products from another. If a firm produces a commodity product that is undifferentiated, customers can easily switch away from their product to a competitors product with few consequences. In contrast, there may be a distinct penalty for switching if their product is unique or essential for their customers business. Substitute products are those that can fulfill a similar need to the one that a firms product fills. As an example, a family restaurant may prefer to buy the processed pulse by a firm, but if given a better deal, they may go to another supplier.It also involves:

Product-for-product substitution (soya oil for groundnut oil); is based on the substitution of need; Substitution that relates to something that people can do without (soya oil, groundnut oil).

Factors Affecting the Threat of Substitution

Substitutes are a greater threat when: A firms product doesnt offer any real benefit compared to other products. What will hold their customers if they can get an identical product from their competitor? 48 | P a g e

Customers have little loyalty. When price is the customers primary motivator, the threat of substitutes is greater.

Reducing the Threat of Substitutes

The firm can reduce the threat of substitutes by using tactics such as staying closely in tune with customer preferences and differentiating their product by branding. In some cases, the advertising required to differentiate is more than one firm can bear. In that case, collective advertising for an industry may be more effective.

RIVALRY AMONG COMPETING FIRMS IN INDUSTRY

Rivalry among competitors is often the strongest of the five competitive forces, but can vary widely among industries. If the competitive force is weak, companies may be able to raise prices, provide fewer products for the price, and earn more profits. If competition is intense, it may be necessary to enhance product offerings to keep customers, and prices may fall below break-even levels. Rivalries can occur on various playing fields. In food grain processing industries, rivalries are centered on price competition especially industries that sell edible oils, for example the Agro Tech Foods launched their lower priced Sundrop edible oil. In other industries, competition may be about offering customers the most attractive combination of good ingredients, or creating a stronger brand image than competitors.

Factors Influencing Rivalry among Competitors

The most intense rivalries occur when: One firm or a small number of firms have incentive to try and become the market leader. In some cases, an industry with two or three dominant firms may experience intense rivalry when these firms are battling to achieve market leader status. In other situations, when competitors with diverse strategies and relationships have different goals and the rules of the game are not well established, rivalry will be more intense. For example the government is providing grants for establishing new flour and rice milling. 49 | P a g e

There are high fixed costs of production. When a large percentage of the cost to produce products is independent of the number of units produced, businesses are pressured to produce larger volumes. This may tempt companies to drastically cut prices when there is excess capacity in the industry in order to sell greater volumes of product.

Products are perishable and need to be sold quickly. Sellers are more likely to price aggressively if they risk losing inventory due to spoilage or if storage costs are high.

Products

are

not

unique

or

homogenous.

Undifferentiated

products

(commodities) compete mainly on price, because consumers receive the same value from the products of different firms. Because firms do not experience any insulation from price competition, there is more likely to be active rivalry. Customers can easily switch between products. Intense rivalry is likely when customers in a given industry can easily switch to other suppliers. In these situations, the businesses in the industry will be vying for market share.

Reducing the Threat of Rivals

Threats of rivals can be reduced by employing a variety of tactics. To minimize price competition, distinguish the product from the competitors by innovating or improving features. Other tactics include focusing on a unique segment of the market, distributing your product in a novel channel, or trying to form stronger relationships and build customer loyalty.

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SWOT ANALYSIS OF HALDIRAM

STRENGTHS:
Brand awareness and recall Variety of products likes papads, namkeens, cookies, chips, sweets, sherbets, dry fruits, etc. Trusted for quality and hygiene Attractive and efficient packaging Good supply chain ensuring availability of products Aptly priced for the customers Loved for its taste Exported to many countries

WEAKNESSES
Less advertising is done compared to other food brands Involved only in Indian snacks Outlets are limited only to mainly North India

OPPORTUNITIES:
Increase its reach in India and abroad Expand the hotel business Increase the number of outlets Aggressively advertise and promote the brand Introduce healthy snacks like fat free, low calories and baked Innovate by introducing snacks catering to the youth

THREATS:
Customers are inclined towards western ways, and are not interested in Indian snacks Indian snacks are considered unhealthy Increased competition from other brands and local players

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SWOT ANALYSIS OF CADBURY

STRENGTHS:
Cadbury is a company, which is reputed internationally as the topmost chocolate provider in the world. The brand is well known to people & they can easily identify it from others. Cadbury the world leaders in chocolate, is a well-known force in marketing and distribution. Users have a positive perception about the qualities of the brand. Cadbury main strength is Dairy milk. Dairy milk is the most consumed chocolate in India. By using popular models like Cyrus Brocha, Preety Zinta and others Cadburys has managed to portray a young and sporty image, which has resulted in converting buyers of other brands to become its staunch loyalists. Cadbury has well-adjusted itself to Indian custom. It has properly repositioned itself in India whenever required i.e. from children to adults, togetherness bar to energizing bar for young ones etc.

WEAKNESSES:
There is lack of penetration in the rural market where people tend to dismiss it as a high end product. It is mainly found in urban and semi-urban areas. It has been relatively high priced brand, which is turning the price conscious customer away. People avoid having their chocolate thinking about the egg ingredients.

OPPORTUNITIES:
The chocolate market has seen one of the greatest increases in the recent times (almost @ 30%) There is a lot of potential for growth and a huge population who do not eat chocolates even today that can be converted as new users.

THREATS:
There exists no brand loyalty in the chocolate market and consumers frequently shift their brands. New brands are coming and existing brands are introducing new variants to add up to an already overcrowded market.

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MAJOR FOOD PROCESSING COMPANIES

Segment Player Fruit juice, cooking pastes, coconut milk, Dabur India Ltd. Beverages and Culinary tomato puree, lemon drink, chili powder and honey. Closely held listed company with Promoters holding at 78.4 per cent of the total share capital. Dabur Foods is a 100 per cent subsidiary of Dabur India Turnover of US$ 19.12 million in 2004 Sweet mix, namkeens, snack mix meal mix, pure ghee, dairy Gits Food Products Pvt. Ltd. Snack foods and dairy whitener and milk powder Gits exports to Europe, UK, USA, Australia, Canada, and the Middle East contributing to the extent of approximately 35 per cent of its total Revenue. Gits is an unlisted private family owned business. Edible oils, vanaspati, Godrej Industries Ltd. Beverages and Staples bakery fats, fruit drinks, fruit nectar, fruit juices and tomato puree Revenues from the food segment were US$ 250 million in FY04. Products About the company

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Sweets, namkeens, syrups, crushes, chips and papads Haldiram Marketing Pvt. Ltd. Snack Foods

Started in 1936 Major share in the namkeen and snack food market in India.

Strong presence in northern India especially in New Delhi.

Exports to USA, UK, Canada, Australia, Singapore and the UAE.

Ready-to-Eat curries and rice, Readyto-Cook gravies, frozen foods, ice creams, instant snack MTR Foods Ltd. Snack Foods, Ice creams and dessert mixes, spices (turmeric, coriander, black pepper), pickles and papads.

Turnover is estimated at US$ 261 million with the export market accounting for approximately 10 per cent of MTRs total sales.

An ISO 9002 and HACCP certified company is amongst the top five processed food manufacturers in India.

The company was recently acquired by Orkla, a Norwaybased company for US$ 80 Million.

Parle Agro Private Ltd.

Beverages and Bottled water

Fruit drinks and mineral water

Leading player in the fruit based beverages segment and the

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bottled water segment. Its flagship product is the fruit based drink Frooti Mango, which has 75 per cent market share. Milk powder, baby food, cheese and other milk Milkfood Milk food products The company is a subsidiary LP Investments Ltd. which is a wholly owned subsidiary of Jagatjit Industries Ltd. Revenues of around US$ 6.8 million in 2006-07. Tea, instant coffee, biscuits, icecreams, salt, wheat flour -atta, instant drinks, soups, jam and Hindustan Unilever Limited(HUL) Beverages, Staples, Dairy, Snack Foods squash The parent company Unilever holds 51.55 per cent of HULs equity Unilever is a Fortune 500 transnational, which sells Foods and Home and Personal Care brands in about 100 countries worldwide Indias largest fast moving consumer goods company, with leadership in Home & Personal Care Products and Foods & Beverages HULs brands, spread 55 | P a g e

across 20 distinct consumer categories, with combined volumes of about 4mn tons and sales of US$ 2.17 billion HULs Foods segment is at 9 per cent, beverages are at 12 per cent of its businesses. Biscuits, flavored milk, dairy whitener, ghee, bread, cake and rusk. A leading player in the Indian organised biscuit market with nearly 30 per cent value share The Nusli Wadia group, one of the Britannia Industries Ltd. Bakery Products oldest business houses in India and Groupe Danone, French multi-products food company, equally share the 48.5 per cent promoter holding in Britannia Sales of US$ 327.6 million in 2004 Wheat flour (atta), edible Agro Tech Foods Staples and snack food oil, vanaspati, popcorn, french fries and green A dominant player in the edible oils and branded foods sector, in India. ConAgra Foods Inc of USA, worlds third 56 | P a g e

peas.

largest foods company, along with Tiger Brands of South Africa holds a majority stake of 52.3 per cent in Agro Tech Foods Ltd, through CAG Tech Holdings, Mauritius. Revenue: US$ 230 million in 2007

Wheat flour-atta, salt, ready-to-eat meals, biscuits, confectioneries, snacks and cooking paste.

ITC is a listed company with British American Tobacco (BAT) holding 33 per cent stake and Institutions holding 50 per cent stake.

ITC made its entry into the branded & packaged foods

ITC Ltd.

Staples and Snack Foods

business in August 2001 with the launch of the Kitchens of India brand. A more broad based entry was made in mid-2002 and the company currently has a wider portfolio in the confectionery, staples and snack foods segments.

Nestle India

Dairy, Beverages

Instant coffee,

Incorporated in 1959 57 | P a g e

Pvt. Ltd.

and Snack Foods

condensed milk, dairy whitener, infant food, chocolates and confectioneries

as Food Specialties, Nestle Alimentana, Switzerland promoted Nestle India (NIL). Nestle India is a 51 per cent subsidiary of Nestle SA (founded 1866), which is today the worlds largest food and beverage company. Gross turnover in the year 2007 was US$ 652 Million

Soft drink, fruit juice and chips

PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay.

Pepsico India Holdings

Beverages and Snack food

Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including Gatorade, in 2001.

Chocolates, hard boiled confectionery, malt Cadbury India Ltd. foods, cocoa Confectionery powder

Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in the Indian chocolate market with strong brands like Dairy Milk, Five Star, Perk, Gems etc.

Dairy milk is the 58 | P a g e

largest chocolate brand in India. Chocolates and confectionery contribute to 75 per cent of Cadburys turnover. Sales of around US$ 234.54 million in 2007.

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INDIAS FOOD PROCESSING SECTOR COULD STIMULATE GROWTH IN THE AGRICULTURE SECTOR
Indias growing food processing sector can act as a catalyst to drive the back-end growth in the subdued agriculture sector in the country.

The food processing industry in the country has surpassed the rate of growth in the agriculture sector, which indicates we are adding more value to agriculture. said Rakesh Kacker, Secretary Ministry of Food Processing Industries at the Food & Bev Summit 2012 organised by Confederation of Indian Industry(CII). The 3-days CII Food & Bev International exhibition, which ended today was position on technology and food under one roof. The exhibition was a platform to explore the ways of making India the food factory of the world. The fourth exhibition on the subject organised every alternate year, was successful in garnering a large number of enquires which will culminate into actual deals going forward. The increase interest by the delegates continues to grow indicating the growth story ahead in this sunrise sector. The governments major area of focus is skill development. Industry needs skilled manpower and we are dedicated to developing that for the food processing industry, Kacker said. Moreover, Indias food processing sector could play a lead role in resolving the issue of food security within the country as also reducing it across the globe.

On its part, Ministry of Food Processing has drafted several schemes to promote the small and medium enterprises in this sector, with minimum capital requirement. As an industry when we develop our plans to make India the food factory of the world, we cannot forget that inclusive growth has to be at the core, said Pradeep Banerjee, Executive Director Supply Chain, Hindustan Unilever Ltd.

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As part of CIIs initiative for affirmative action and inclusive growth, the exhibition had a special pavilion under the aegis of DICCI Dalit Indian Chamber of Commerce and Industry to support SC/ST entrepreneurs from the food and beverage sector. The exhibition was an excellent exposure to the members of DICCI and the platform will aid them in growing their business in the fast growing sector of the country, said Milind Kamble, Chairman, and DICCI.

Processing could reduce the loss -- which is estimated at 1.3 billion tons of food or about one third of the global food production -- incurred in the food supply chain across the world. Such reduction in losses could bring down the cost of food and make it more affordable from the point of food security.

Apart from participation by the four states including Maharashtra, Kerala, Punjab and Gujarat, the exhibition also had a pavilion from Holland, which attracted attention of large number of delegate keen to upgrade their technology. The Retail Pavilion at the exhibition including Aditya Birla Retail Ltd. More, Future Group, Godrej Natures Basket, Dmart, Reliance Fresh, The Oberoi Group and Grand Hyatt had a face to face interaction exclusively with the exhibitors at Food and Bev 2012.

The Kerala based Kalady Rice Millers Consortium -- the largest rice producing cluster in Kerala -- displayed their capabilities in manufacturing of rice bran oil & de-oiled bran.

As Piruz Khambatta, Chairman, Food & Bev 2012 and Chairman & Managing Director, Rasna aptly puts it, Food processing can do to rural India what information technology has done to urban India bring prosperity and growth.

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CONCLUSION

Indian food industry is making an important mark in the global food arena as a large producer and exporter of agro food products. At present small players dominate the Indian food processing industry. The industry needs larger companies, which have financial muscle for establishing a large market network and also to invest in technology. The favorable policy environment and increasing interest of corporate in agro food processing sector, augurs well for India, which is well on track to become one of the leading food nations of the world.

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BIBLOGRAPHY

research@way2wealth.com

www.way2wealth.com

http://www.cii.in

http://www.nabard.org

www.foodsystemsinternational.com

http://mgmtfunda.com

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