CONSUMER MARKETS

Food Processing Sector in India

–Challenges & Opportunities

Ramesh Srinivas,
Executive Director, KPMG

July 28, 2009

BUSINESSADVISORY

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Agenda

1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 2
 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 3
Food Processing Sector in India
Food is the largest consumption category in India...

C A GR : 5.32%
Food Consumption in India
250 Source: BM I, Q12009 & CSO
229.7

210.3
198
200 191.4
184.4
180.1
168.6
157.7
151.7
150

100

50

0
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

Significant Opportunity

India as a huge Consumer Market

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 Food Processing Sector in India
India has huge supply advantages due to diverse agro-climatic conditions and wide ranging raw
material base…

cultivable land compared to 11% world average • Largest livestock population

15 major climates in the world exist in India • Largest producer of milk

Significant Opportunity
• 46 out of 60 soil types exist in India • Largest producer cereals
India as a global sourcing
hub

• 20 agri-climatic regions • Second-largest fruit and vegetable producer

• Among
nd day length are ideally suited
the top fivefor round the
producers year cultivation
worldwide of rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and oilseeds.

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 Food Processing Sector in India
Huge wastage across the supply chain leads to lower level of processing and hence low value
addition…

Field Losses Developing

Producer

(Pest, Diseases, Rodents etc)) Countries –

Relatively
Pre-Processing high losses
(e.g. inefficient harvesting, drying, in the initial Level of Processing across
milling) parts of the Segments
value chain Segment India Other Countries
Transport Fruits and 2.2% US A (65 %), Philippines
(e.g. spillage, leakage) Vegetables (78%)
China (23)%;
Storage
(e.g. technical deficiencies) Marine Meat 35%
Poultry
Buffalo
Milk 26%
6%
20% 60-75% in developed
60-70%
countries

Processing & Packaging

(e.g. excessive peeling, washing)

Rich Countries – High losses at a later stage in the food chain

Marketing
(e.g. spoilage, rotting in stores)

Wastage by Consumer
Consumer

(e.g. overeating, food wastage)

Britt-Louise Andersson, SIWI

Field Fork

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Indian Food Trade
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. …

India’s Position in Global Trade

•India stands a distant 21st for the year 2007, with a 1.4% share in the
global trade.
•
•During the period 1980-2007, India’s share in the global exports have
increased from 1.1% to just 1.4%, the majority of the increase
happening in this decade.
•
•However, Export of Processed Food and Beverages is growing faster
than the overall Food and Beverages…
•

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Indian Food Trade
India exports mostly to the proximate countries…

40% South Asia

34%
35%
Share of Trade

29% Middle East

30%

25%
East Asia
20%
17%
15% Western Europe

10% 10%
Rest of the World
7%
5% USA & Canada
Africa 1% 1%
0%
0 2000 4000 6000 8000 1
0000 1
2000 1
4000
Distance(Kms)

India’s geographical situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,
Singapore, Thailand, Malaysia and Korea.

Globally, most of the countries import from countries that are geographically closer.

•For example, 45% of USA imports are from Canada and Mexico.
•EU imports 50% from Spain, Netherlands, France, Italy, Belgium and Germany

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Indian Food Trade
Case Study: Chile has successfully overcome the distance barriers in trade…

Chile’s strategic approach to boost exports

Encourage an internationally competitive environment

Lower export transaction costs

Long term view of enterprise level support

Coordinate export support program through a central technical agency

Facilitate FDI

Promote private sector investment in infrastructure development

Encourage innovation

In the period 1975-2008, Chile’s Food Processing Market increased from USD 1.5 Billion to USD 58.9 Billion.
Also, the number of export markets increased from 50 to 181.

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Industry Growth Drivers - Demand
Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are leading to
significant demand for processed food…

Increasing spends on
health foods

Increasing Urbanisation Increasing Nuclear

– Lifestyle and Families and Working
Aspirations Women

Food Processing Demand Drivers

Changing
Demand for Functional
demographics – Rise in Foods
disposable incomes

Organised Retail and

Private Label
Penetration

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Industry Growth Drivers - Policy
Supportive Policy, in light of the significant employment and trade potential, to boost the quantity
and quality of output in the sector is also driving growth in the sector…

Food Processing Industry

HR and Institutional
Laboratory, R&D

Quality Control/
Infrastructure

Development
development

Food testing
Upgradation
Technology
Policy Support

Infrastructure Development Technology Upgradation Quality Control/ R&D HR and Institutional

•Setting up a network of
Development
•Mega Food Parks •Grant of 25% of the cost of laboratories •Financial assistance to set
• plant & machinery and up training centres
technical civil (maximum •Higher level of assistance to
•Integrated Cold Chain research institutes
of Rs 50 lakhs in general •Establishment of NIFTEM
• areas and Rs 75 lakhs in •Assistance for organising
•Modernisation of Abattoirs difficult areas) promotional activities •Strengthening of State
Nodal Agencies
•50-100% subsidy to private
companies/state •IT
governments, which set up
quality testing laboratories

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 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 12
Challenges in the Sector
Challenge 1: Productivity Issues

India's overall agriculture productivity is still low…

Source: Innovative technology to ensure food security, UNI (United News of
India), 25 March 2009

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Challenges in the Sector
Challenge 2: R&D

Key Problems in Indian R&D

Commodity-centric R&D Lack of a holistic approach involving a matrix of farm enterprises

Compartmentalization of Lack of effective bilateral flow of information amongst research, extension,

R&D agencies and implementation departments

Poor validation and Lack of large-scale on-farm validation of techniques and feedback thereon,
feedback mechanisms leading to practically no scope for enhancement

A seven-step mechanism is required to set-up a research-development-technology transfer continuum involving

all stakeholders
1.Problem identification and prioritization
2.
3.Convergence of existing technologies to match the need
4.
5.Generation of need-based viable technologies using the holistic farming system approach
6.
7.On-farm assessment and evaluation
8.
9.Feedback on the technologies
10.
11.Refinement of technologies, if necessary
12.
13.Ensuring timely availability of inputs

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 Challenges in the Sector
Challenge 3: Human Resource Development

The industry is in dire need of highly skilled/trained manpower across different levels to handle various operations

•Emphasize food safety in storage conditions

•
•Training in Warehousing and Distribution

Industry level Regulatory

•Managerial and Operational level HRD and trade
issues
•Platform to make policy decisions
Warehousing &
Distribution •
•Inclusion in academic curriculum

Enforcement Food production

•Food safety awareness
•
•Auditing and inspection skills
•
•Institutional Development
•Process development
•
•Focus on packaging techniques, storage and safe transportation

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Challenges in the Sector
Challenge 4: Supply Chain Hindrances

Necessity for a Strategic focus on Supply Chain in FPI

Seasonality Seasonal production Vs Year-round Processing Operations

Perishabilit
Highly perishable nature of raw materials
y

Variability Variable quality of raw materials due to cyclic variations and changing weather conditions

•This situation discourages processing units to reach optimum size and achieve
economies of scale.
•
•Additionally, lack of consistent quality hinders small scale units to build brand equity
for themselves in international and domestic markets.

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Challenges in the Sector
Challenge 5: Low Adherence to Quality Standards

Increasing need for food processors to adhere to quality standards for both domestic as well as export market

Increasing Rising Customer awareness on Quality and

Stringent Safety Norms
Globalisation Health

•Lack of requisite controls across the agri-value chain-from farm inputs to storage
of produce to food processing techniques
•
•Poor compliance to requisite food standards in export countries
•
•Absence of basic standardization and certification infrastructure

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 17
 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 18
Opportunities & Recommendations
Food Processing sector has strong synergies with the inclusive growth mandate of the government
and also provides a platform to significantly transform the face of rural India…

A developed Food Processing sector will help overcome the biggest challenges in front of India:

•Low farmer income and high subsidies

•
•High wastage along the value chain
•
•Poor hygiene and safety standards

Given the huge potential opportunity, players should consider the constraints as opportunities
waiting to be exploited and make investments for the overall growth of the industry.

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Opportunities
High domestic demand and supportive policy provides significant opportunities across the Food
Processing value chain…

Food Safety
Mega Food Parks Quality Control Labs
Management Systems

Key Joint Research

Opportunities Integrated Cold Chain Training Facilities
Facilities

Backward and Customised Farm

B2B Sales
Forward Integration Equipment

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Recommendations
Recommendations for the Food Processing Industry in India

Promote Nutrition Processable variety

Foods of Crops

Increase
Support Backward Promotional
Integration A Dynamic Activities
Food
Processing
Industry
Investment in
Market Access to
Hard/Soft
farmers
Infrastructure

Technology Harmonisation of
Upgradation Taxes

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© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 22
 Mr Ramesh Srinivas
Executive Director
KPMG Advisory Services Private Ltd
+91 98450 21939
[email protected]
www.in.kpmg.com

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 23