Sarthak Manoj Dhiren Sukanti Biswajit

Content

Status Levels Overview Segmentation Role of Govt Ground Reality Strength Challenges Suggestions

STATUS OF FOOD PROCESSING INDUSTRIES

Size of food market in India - Rs. 8,60,000 Crores Primarily processed food market Rs. 2,80,000 crore Value added processed food market Rs. 1,80,000 crore The Sector attracted a total investment of Rs.38,531 Crores during the 9th plan period Investment during the 10th plan is estimated at Rs. 62,105 Crores Industry growth rate during the last five years is estimated at 7.14% against GDP of 6.2% Investment required during next ten years Rs. 1,50,000 crore

LEVEL OF PROCESSING, VALUE ADDITION ETC.

Fruits & Vegetables Sector at 2%, Poultry 6%, Milk 35% (only 13% in modern dairies), Marine products 8%, Buffalo meat 21%. Value addition 20% Wastage Rs. 58,000 crore

INDUSTRY OVERVIEW

India is the worlds second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The food processing industry is one of the largest industries in India-it is ranked fifth in terms of production, consumption, export and expected growth.

Increasing incomes are always accompanied by a change in the food basket. The proportionate expenditure on cereals, pulses, edible oil, sugar, salt and spices declines as households climb the expenditure classes in urban India while the opposite happens in the case of milk and milk products, meat, egg and fish, fruits and beverages. A large part of this shift in consumption is driven by the processed food market, which accounts for 32 per cent of the total food market. It accounts for US$ 29.4 billion, in a total estimated market of US$ 91.66 billion.

Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries.
The Ministry of Food Processing, Government of India indicates the following segments within the Food Processing industry:

Dairy, fruits & vegetable processing Grain processing Meat & poultry processing Fisheries Consumer foods including packaged foods, beverages and packaged drinking water

Segmentation of different sectors in food processing industry:

OBJECTIVES OF MFPI

Promotion of FPIs resulting in : Reduction in wastages Value / quality addition Employment generation Remunerative income for farmers

Impetus by Govt

Included in the list of Priority sector lending by banks since 1999 Most of processed food Exempted from purview of licensing under the industries (Development & regulation) Act, 1951, except items reserved for small scale sector & alcoholic beverages Excise duty for processed fruits & vegetables, food mixes etc. NIL Excise duty on reefer vans reduced from 16 to 8% Reduction in customs duty on food processing machinery Tax breaks Move towards GST

Ground reality a study in contrast

The largest grower of fruits 15% of world output
Low share of global Exports at 0.5%

The second largest grower of vegetables 11 % of world output

Low share of global exports at 1.7% Cold storage facility available for only 10% of produce

Lowest cost producer of fruits & vegetables

Low farmer income farmer suicide

Second highest producer of milk

Organized dairy accounts for only 13% of milk produced Only 70,000 Ton cold storage capacity for 90 million Tones produced Poor yield per cow

Second largest cattle population

5500 registered & 25770 unregistered slaughter house with no chilling,

freezing & cold storage facility as hot meat market prevails

Source: Task force Report on Development of cold chain in India GOI/CII

Ground reality (cont.)

Fifth largest producer of eggs

Poultry meat sold as hot in retail market

Sixth largest producer of fish

20 30% damage and no cold storage facility in WB, AP, Goa

Low processing
2.20 % in fruits
35 % in milk 6 % in poultry

Value addition 20% Indias current share in world trade of processed foods 1.60 % Poor lab to land transfer of technology and adoption of new varieties. example of pineapple
Source: Task force Report on Development of cold chain in India GOI/CII APEDA data

Ground reality (cont.)

Market surplus of fruits & vegetables 88% Farmer sells immediately due to perishability & absence of proper infrastructure to keep it for longer period Post Harvest wastage of fruits & vegetables 25 to 35% valued at over Rs 45,000 crore Losses as above in India is more than consumption of same in UK Market surplus of food grains 60% Farmer keeps some for own consumption, seed purpose and to give to labour as wages Loss in above equal to annual food grain production in Australia Cost of wastage 6 times amount spent on food subsidy Farm gate price 25% of domestic consumer retail price against 50% in developed countries Story of Fyffee PLc - in Banana Handling and Processing on the ships before final destination of selling.
Source: Task force Report on Development of cold chain in India GOI/CII

Strengths and opportunities that India enjoys

It is one of the biggest emerging markets, with over 1 billion population and a 250 million strong middle class Rapid urbanisation, increased literacy and rising per capita income, have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50 per cent of household expenditure on food items Demand for processed/convenience food is constantly on the rise India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets Very good investment opportunities exist in many areas of food processing industries, the important ones being : fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products etc.

India .. A land of opportunities

52% cultivable land as against 11% world wide Unsurpassed Natural Advantages All the 15 major climates of the world 46 out of the 60 soil types 17% animal, 12% plant and 10% fish genetic resource of the world Food processing sector ranks fifth in terms of contribution to GDP Indian urban food market estimated at 350,000 crore Estimated investment in Food processing sector during 11th plan 1 lakh crore

Challenges

Low level of value addition

Bottle necks in cold storage including during transit Seasonality capacity utilization issues e.g. Himachal apples

2006-07 prod was half of 2005-06 Non Efficient storage/warehousing, processing & marketing techniques Non adoption of efficient technology

Infrastructure and others

Shortage of power High electricity tariff Low area under Irrigation High capital cost -Inadequate institutional finance at low rates High insurance premium in risk coverage Farm connectivity by road yet to take off

Challenges (cont.)

Quality and consistency at grass root levels

Inputs delivery not in time
Innumerable varieties Poor procurement and logistics Lack of cheap and timely credit

Weak and ineffective supply chain

Non professional management Low revenue rentals

Non Efficient and competitive retailing

High wastage

Absence of a Successful Business Model.

Agri supply chain a comparison with Developed countries

India
Farmer

Consolidator

Commission agent

Trader

Wholesaler

Retailer

Consumer

High wastage and low margins Consumer Retailer Developed countries Wholesaler Farmer High investments Low wastage better margins

Challenges - Hurdles towards Value addition

Wide disparity between peak & lean period arrivals usually ranging from 100 150% Long revenue cycle as products to be purchased in bulk during peak season Control of markets by few traders and agents who command large storage capacity Discouragement of farmer lower returns act as disincentive
Crashing of prices during peak season

Larger intermediaries exerts negative pressure on farmer margin, and deteriorates quality due to multiple handling

Bottle-necks in Cold storage & Processing industry

Higher Tax duties including on packaging material Lower capacity utilisation

Role of cold storage etc current utilisation 48% of

capacity 5100 units with 216 lakh MT capacity

Non adoptive of cost effective technology High working capital requirement High cost of finance Infrastructural constraints Dependence on intermediaries inadequate farmer processor linkages
Source: Task force Report on Development of cold chain in India GOI/CII

CONSTRAINTS OF FPI SECTOR

Lack of suitable infrastructure Lack of adequate infrastructure quality control & testing

Inefficient supply chain vis a vis involvement of middlemen

Lack of processable varieties of farm produce

Seasonality of raw material High inventory carrying cost

High taxation, high packaging cost

Affordability and cultural preference of fresh food.

Suggestions .

Reduction of wastage /spoilage to be tackled on a war footing

Accelerated establishment of cold chain networks Irradiation facilities and pest free warehouses Encourage SSI units and corporate to set up food processing units

Improvement of productivity both land and manpower

Example the case of Rubber where India has the highest land

productivity in the world Change in cultivation practices such as irrigation for paddy rather than method of flooding the fields

Price stability
Make farming remunerative to attract talent and retain farmer

interest

Suggestions Role for corporate

Incentives to Corporate to enter core farming land ceiling restrictions Increase Mechanization to tackle low availability of labour and to remain a low cost producer Liberalized credit norms for agricultural production , marketing and infrastructure development Changes in market regulatory framework to allow corporate to establish market yards
At present 7521 regulated markets which lack critical infrastructure

Review of legal instruments to facilitate entry in marketing activities Tax holidays and incentives Excise exemptions for CAPEX items.

Thank you