01
About the study
This is a briefing paper that was presented by KPMG at the “International
Summit on Food Processing and Agribusiness” organized by
ASSOCHAM. The document analyses the potential of the Indian Food
Processing sector in two dimensions - India as a Sourcing hub and India
as a huge potential market in itself.
The study starts with the market landscape of food processing sector in
India, the key trends in the value chain, growth drivers and the export
scenario. It then identifies the key opportunities for players across the
value chain.
The paper then focuses on key hurdles in the path to growth, and
explains by means of cases how to overcome the hurdles. The document
concludes with the expectations of the industry and recommendations.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
02
India's strong agricultural base and accelerating economic growth holds a significant
potential for the Food Processing Industry that provides a strong link between agriculture
and consumers. Government also has accorded a high priority to the sector and has
provided many fiscal incentives. An enviable share of the world's agri-produce and diverse
agro-climatic regions coupled with changing demographic patterns, food habits and rise in
income levels opens up numerous opportunities in the sector – India as a large consumer
market and India as a potential sourcing hub to the world.
Yet India's share in the global food trade is just around 1.5 percent. What are the key
constraints that are slowing the growth of the sector and how are they being addressed?
What are the various opportunities that the Indian Food Processing Industry provides? What
are the trends in the food trade? How are the consumer food habits changing and how does
it affect the industry? What are the support initiatives taken by the government and what
opportunities do they provide in the value chain beyond just Processing? What is the
industry expecting from the government to further the growth? What further can be done to
help India reach the very deserving lead position in the global trade?
The report aims to answer all these questions on the Indian Food Processing Industry.
KPMG conducted extensive research based on information from both primary and
secondary sources – various proprietary databases, our experience with various food
companies and interviews with players across the value chain – to understand the sector,
the potential and various immediate and long term steps required. A summary of the key
findings of our analysis is outlined below.
Executive Summary
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
03
Food is the largest consumption category in india
India's Food Processing Industry is estimated to be around USD 67 billion of the USD 180
billion Food Industry and creates more employment opportunities per unit investment than
any other sector.
India has a diverse agro-climatic regions and soil types with optimum amount of sunshine
hours and day length suited for cultivating both food and commercial crops round the year.
Naturally, India is a leading producer of many agricultural products like fruits and vegetables,
cereals, pulses etc. India offers a huge potential in terms of rising consumption and as a
sourcing hub for the world due to its supply strength.
– Introduction: India - Global Food processing Hub, explains the contribution of
Food Processing to GDP, India's supply strengths and rising consumption-led
demand, hurdles in terms of wastage and highlights the opportunities in the
sector for players and the government.
Common features across segments –
Largely unorganised – Though the unorganised segment varies across categories
mentioned above, approximately 75 percent of the market is still in the unorganised
segment.
CHAPTER
!
Significant opportunities exist across each segment
Food Consumption in India will grow at a CAGR of 5.32 percent
Source: BMI, Q1 2009 & CSO
151.7 157.7168.6
180.1 184.4 191.4 198
50
100
150
200
250U
SD B
n
0
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f
210.3229.7
CAGR: 5.32%
Food Processing Segments
Food Processing
Fruits &Vegetables
Meat &Poultry
Dairy MarineProducts
Grains Consumer Food
1
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: KPMG Analysis
04
Level of Processing across Segments
Segment
Fruits and Vegetables
Fisheries
Poultry
Buffalo Meat
Milk
Level of Processing
2.2%
26%
6%
20%
35%
Comments
USA (65 %), Philippines (78%) and China (23%)
60-70% in developed countries
60-75% in developed countries
Source: UN COMTRADE
Export of processed food growing faster than exports of Food overall
18.75%
21.84%24.63% 25.44%
23.63%
28.96%31.25%
28.78%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2005 2006 2007 2008
Export of Food and Beverages Export of Processed Food and Beverages
2
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
! The organised sector is relatively bigger in the secondary processing segment than the
primary processing segment. Also, the primary processing segment is highly
fragmented.
The level of processing in each segment is low relative to many other countries and India
accounts for just around 1.5 percent of the global processed food trade.
If India was to lift its share of global processed food trade to just 3 percent, the Ministry of
Food Processing estimates that some USD 24.7 billion worth of investment would be
needed to restructure the industry. Taking a cue from the global examples, India also should
invest in infrastructure and policy development that helps reduce waste across the supply
chain and increase the level of processing and overall value of output.
– Food Processing Segments – details each segment of the Food Processing
covering the supply, processing, bottlenecks, and opportunities and explains
the need for improved focus and investment in the sector.
According to Business Monitor International, India’s Food exports are expected to increase
by 72.8 percent over 2008 to USD 24.25 billion in 2013. 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 of processed segments is
growing much faster.
During the period 1980-2007 India’s share
of the global food exports has increased
from 1.1 percent to 1.4 percent, with
majority of the increase coming during the
current decade. Countries like Germany,
which had large number of SMEs similar to
that of India, have focused significantly on
R&D and Innovations in the sector apart
CHAPTER
Export of processed foods is growing faster than food segment
Source: MoFPI Annual Report 2007-08
05
Source: UN COMTRADE; CEPII
India's exports are predominantly to the nearby countries
0
South Asia 34%
Middle East 29%
East Asia 17%
Western Europe 10%
Rest of the world 7%
Africa 1%
Shar
e of
Tra
de
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 4000 6000 8000 10000 12000 14000
Distance (Kms)
US and Canada 1%
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
from investing in infrastructure and supportive policy and legal framework that helped the
country to the top league of the exporters table. Joint research initiatives that helps SMEs
invest in a federal R&D lab promoted multiple product innovations in the country.
India’s trade in various segments in the Food Processing Sector has seen a good growth
driven by the Mango Pulp, Dried and Preserved vegetables, Pickles and Chutney in F&V,
Buffalo Meat in the Meat and Poultry, Basmati Rice in Grains and Shrimp in the Fisheries
segments. India’s exports, as is the case globally, are to the proximate geographies led by
South Asia at 34 percent and USA & Canada a poor 1 percent of total exports.
However, significant impediments exist hindering the export growth:
Poor quality and grading mechanisms for raw material leading to loss of consistency in
variety of raw material
High level of wastage across the value chain
Presence of too many intermediaries implying a high cost of raw material
High costs of packaging
Low technology equipment and knowledge
High costs and poor quality of distribution
Stringent Food Safety and Traceability norms from importing (developed) countries
India needs to take strong measures to promote growth:
Map demand with production capabilities – Himachal Pradesh, is manufacturing
commercial crop in Kiwi, instead of Apples, due to the falling demand for Apples
Move towards non-traditional items – A herbal beverage made from Sea-buckthorn
developed with DRDO technology opens up a huge market opportunity
Improve promotional activities for Indian food and market India as a food sourcing hub
Promote investment for increasing the level of processing in the sector
Upgrade agri-infrastructure to have a sustainable supply chain for consistent high
quality raw material
!
!
!
!
!
!
!
!
!
!
!
!
06
3
4
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
•
•
CHAPTER
CHAPTER
Provision for Training and Education on the safety and health regulations in export
markets
Market Diversification – Move over the geographical distance barriers and initiate joint
efforts with potential partners in identifying the focus of trade and creation of
conducive regulatory policies. Chile has successfully overcome the distance barrier and
exports to far off geographies due to its focus on quality, exports promotion by regional
trade agreements and joint initiatives.
– India’s Food Processing Trade – details the trade statistics of India, India’s
position in global trade, segment level and geography-based trade, the
impediments to growth and key export promotion strategies.
Increasing urbanisation, consciousness on health and nutrition and changing lifestyle are
changing the consumption habits of India. The number of working women, single
students/professionals and nuclear families is increasing creating a demand for processed
Ready-to-eat foods. Growth of organised retail, which makes the processed food readily
available, is also driving growth of Food Processing.
Government has initiated several steps like setting up Mega Food Parks, Integrated Cold
Chains, Modernisation of Abattoirs, fiscal incentives for technology upgradation, R&D,
Training and Educational institutes etc to reduce wastage and boost the growth of the
sector.
Budget 2009 provides a fillip to agriculture in terms of cheaper finance, increased allocation
to irrigation, harmonisation of taxes by implementing GST and fiscal incentives for
investments in Cold Chain facilities.
– Key Growth Drivers of Food Processing Sector in India – details the demand-
side and policy-level drivers of the sector, including a section on Budget 2009
measures for Food Processing Sector.
The Food Processing sector offers many opportunities across the value chain right from the
farm equipment players to the retail/food services segment.
Urbanisation and supportive policy is driving growth
Significant opportunities exist across the food value chain
India's Forex Reserves: 2001-2008 (till March 2008)
07
CHAPTER – Opportunities in the Food Processing Value Chain – details the food value
chain and provides an analysis of various opportunities that exist across the
value chain.
FarmsInputs
Farming Marketing/Aggregator
Processing Logistics(Food)
Retail/FoodServices
Consumer
Financial & Business Services
Transport Services/Infrastructure
Quality Control Market Intelligence
Product Design
Distribution
Marketing
POLICY SUPPORT
A summary of the key opportunities is listed below
5
Summary of Opportunities across the value chain
Opportunity
Customised equipment for the local market
Processable variety of crops
Forward Linkages with the Processors
Contract Farming Arrangements
Consolidation of farm produce
Access to global markets
Forward linkages with Organised Retail
Backward linkages with farmer
Institutional segment business
Increase in integrated storage facilities requirement
Cold storage facilities
Mega Food Parks
Integrated Cold Chain
Quality Control and R&D labs
Food Safety management systems
Joint Research Initiatives
Training and Provision of Market Intelligence
Packaging and barcoding
Player
Farm Equipment
Farmer
Processor
Logistics provider
Investors
Enabling Segment
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Food Processing Value Chain
Source: KPMG Analysis
Source: KPMG Analysis
Constraint Long and fragmented supply chain leading to high wastage and high costs especially due
to seasonality, perishability and variability of produce.
Supply Chain hindrances
08
Various constraints are impeding
the growth of the sector
The opportunity in Food Processing industry
is significant, but so are the challenges that
ail the sector. Certain limitations could be
seen as an opportunity waiting to be
exploited for the allied sectors and others as
a guiding light to a roadmap for
government's intervention. Below is a
summary of various constraints and strategic
measures.
Summary of Constraints and Strategies
R&D
Constraint Commodity-centric R&D
Compartmentalization of R&D agencies
Poor validation and feedback mechanisms
Strategy Need for a systems approach to R&D to enable a holistic research-development-
technology transfer continuum involving all stakeholders
Strategy Contract farming helps certainty of supply, reduction of costs, and high remuneration to the
farmers. Suguna Poultry successfully implemented contract farming creating a win-win
situation for the farmer and the integrator. Terminal markets, that operate on a hub-and-
spoke format, where in the terminal market (hub) is linked to a number of collection
centres (the spokes) help procurement of right quality produce at the right price.
Constraint Industry is in dire need of highly skilled and trained manpower across different levels to
handle various operations
Strategy Need for institutes and courses that provide managerial, safety and enforcements,
technology and production, warehousing and distribution trainings, and regulatory bodies
to focus on trade agreements
Human Resource Development
Constraint Low level of interaction between industry and research institutes
Strategy A few initiatives by CFTRI with industry (MTR, Rishang Keishing Foundation) have been
successful. Similar efforts needs to be encouraged
Industry Linkages
Constraint Indian Export related infrastructure for agri-produce is grossly inadequate, especially at sea
ports and airports. More than 30 percent of the produce from the fields is lost due to poor
post-harvesting facilities and lack of cold chain infrastructure.
Strategy India has merely 21.7 Million Ton cold storage facilities whereas it needs at least 9-10
Million Ton more. Supportive measures for infrastructure investments from the private
sector are required.
Infrastructure bottlenecks
Constraint Either unavailability of funds or availability of funds through unorganized sector at
unfavourable terms and conditions.
Strategy Some organizations have been exploring equity investments in SMEs that operate along the
food value chain. These investors place less emphasis on collateral or creditworthiness and more
on the capabilities of the entrepreneurs and viability of their business plans. Two such initiatives
are African Agricultural Capital (AAC) and the Africa Enterprise Challenge Fund (AECF).
Poor Financing Options
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
09
CHAPTER – Constraints and strategies – details various constraints and strategies, with
case studies on how some players have been approaching the constraints.
Constraint The packaging material is imported from China as the sector lacks government support.
Packaging
Constraint
Constraint
Constraint
Constraint
Multiple laws at state and centre level are applicable to the FPI.
Was to enable establishment of private markets, direct purchase centres and promotion of
PPPs, but there is no uniform implementation of the Act. Only 15 states have adopted the
model law.
India's overall agriculture productivity is still at approximately 2 percent
Urgent need to make the law uniform across states. Support e-choupal like initiatives that
encourage market reforms
Strategy Encourage the sector by extending the tax breaks and concessions to players setting up
packaging industry in India
Strategy
Strategy
Players need to device a twin pronged strategy of improving agricultural yields coupled
with delivering the right quality to different markets
Strategy
Ensure that the requisite controls are put in place across the agri-value chain-from farm
inputs to storage of produce to food processing techniques.
Strategy
Need for a consolidated law that removes the hassles of multiple departments and multiple
laws
Multiplicity of Laws and Stringent Regulations
Poor implementation of APMC Act
Productivity Issues
Low adherence to quality standards
Unavailability of basic standardization and certification infrastructure. Given the size of the
industry, there is a huge gap in the availability of laboratories, trained manpower, and
certification agencies.
6
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
10
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Industry expects a lot more from the government
KPMG has interviewed various players across the value chain for the study and collated
their expectations. The expectations are as under:
100 percent tax breaks in R&D – Large companies are willing to invest in R&D and also
support small scale industries provided the government provides incentives
Support for nutritional products – The industry expects the government to differentiate a
nutritional product from a non-nutritional product and make laws for labelling and
incentives
Conducive policy for Contract Farming – Need a change in the currently restrictive land
ceiling law
Harmonisation of taxes – VAT is not uniform across states leading to different prices in
different states
More incentives in Infrastructure Development – Government also needs to share the risks
of development and market
Focus on Skill Development – Need for improved focus on establishing training and
education facilities for production technology, warehousing, testing, safety and quality
systems
Easier Financing to Food Processing – Need to enable easier financing possibly with a
separate bank
KPMG’s recommendations for the sector:
More Production of processable varieties to help minimise wastage, improve value addition
and improve farmer income. This requires more investments in quality systems, sorting,
grading etc.
Promotion of Indian Food in global markets to market India as a brand in Food Processing.
Infrastructure development through Private Sector Participation (PSP)
Implementation of GST (to remove the non-uniformity in indirect taxes)
Fiscal incentives for modernisation
Support in meeting export quality norms by training facilities and providing market
intelligence through private bodies and institutes like NIFTEM, CFTRI etc
Extend incentives to players who invest substantial amounts in backward integration as this
helps farmers earn remunerative prices by minimising middlemen.
Promotion of Nutrition Foods – Need to make nutritional labelling a must and also
incentivise the players who produce nutrition foods.
– Industry Expectations and Recommendations – details the expectation of the
industry and KPMG recommendations for the sector.
A dynamic Food Processing sector will help India ensure higher value addition to agricultural
produce, generate employment, improve farmer income and create markets for domestic
consumption and export of agro foods.
!
?
?
?
?
?
?
?
?
?
?
?
?
?
?
CHAPTER
7
11
Contents
Introduction: India - Global Food processing Hub
Food Processing Segments
India’s Food Processing Trade
Key Growth Drivers of Food Processing Sector in India
Opportunities in the Food Processing Value Chain
Constraints and Strategies
Industry Expectations and Recommendations
Conclusion
Abbreviations
12
16
26
41
46
51
64
68
69
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
12
With agriculture at the core of Indian economy and more than two-thirds of the population
dependent on farming, a developed Food Processing sector can be a strong link between
agriculture and the consumers. Government's high priority to the sector coupled with a
growing consumption-led demand is leading to a fast pace growth in the sector. 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
Food processing is the set of methods and techniques used to transform raw ingredients
into food or to transform food into other forms for consumption by humans or animals
either at home or by the food processing industry. Food processing is a large sector that
covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries.
It also includes other industries that use agriculture inputs for manufacturing of edible
products. The food processing industry is made up of primary, secondary and tertiary food
processors.
!
!
!
In India, Primary Food Processing is a major industry with lakhs of rice-mills/hullers, flour
mills, pulse mills and oil-seed mills. Also, there are several thousands of bakeries, traditional
food units and fruit & vegetable/spice processing units in unorganized sector.
Primary Food
Processors
Secondary Food
Processors
Tertiary Food
Processors
Primary industries process raw foods (wheat into flour, for example)
Secondary industries use primary products to manufacture other foods
(flour into bread).
Tertiary industries produce prepared convenience foods such as frozen
dinners or canned soup.
Introduction:
India - Global Food processing Hub
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
1. Ministry of Food Processing Industries, Annual Report 2007-08
2. IBEF Food Processing Report, June 2008
3. Changing lifestyle, thriving food processing; FFY Magazine June 2009
13
These numerous advantages and factor conditions like low cost of labour put India in an
enviable position to produce a wide variety of food crops and commercial crops for
domestic consumption as well as export.
Significant Contribution to GDP
and Employment
India's Strengths in Food
Processing
Indian food processing industry is estimated to
be around USD 67 billion, of the USD 180
1billion food industry, making it the fifth biggest .
The food industry expected to grow to USD
2280 billion by 2015 and generate an additional
employment for approximately 8.2 million
people. It has been observed that employment
potential of the food-processing sector is much
higher than other sectors. For instance, an
investment of INR 10 billion generates
employment for 54,000 people in the food-
processing sector, jobs for 48,000 people in
textiles and employment of 25,000 people in
the paper industry. There is also fourfold
generation of indirect employment in auxiliary
and other downstream activities on account of
investment in the food sector. Also, 60 percent
of the employment generation takes place in
3small towns and rural areas .
India is one of the key food producers of the
world and has access to several natural
resources. Diverse agro-climatic conditions
and wide ranging raw material base adds to
the huge advantage of a large untapped
domestic customer base.
Food processing industry in India is
supported by a great agri-climatic diversity
suitable for round the year cultivation of
crops. In terms of production, India is among
the world's major food producers – India
accounts for 17 percent animal, 12 percent
plants and 10 percent fish genetic resources
of the globe; and 16 percent of cattle, 57
percent of buffalo, 17 percent of goats and 5
percent of sheep population of the world.
Diverse agri-supply
52% cultivable land compared
to 11% world averageLargest livestock population
All 15 major climates in the
world exist in India Largest producer of milk
46 out of 60 soil types exist
in IndiaLargest producer cereals
20 agri-climatic regionsSecond-largest fruit and
vegetable producer
Sunshine hours and day length
are ideally suited for round the
year cultivation
Among the top five producers
worldwide of rice, wheat,
groundnuts, tea, coffee, tobacco,
spices, sugar and oilseeds.
India has the largest area in the world
under pulse crops
India is the first in the world to evolve a
cotton hybrid
India grows more than half of the world's
mangoes and leads all countries in the
production of cashews, millet, peanuts,
pulses, sesame seeds, and tea
The nation ranks second in the production
of cauliflowers, jute, onions, rice,
sorghum, and sugar cane
India is also the world's largest grower of
betel nuts, which are palm nuts chewed
as a stimulant by many people in tropical
Asia. It is also a leading producer of such
spices as cardamom, ginger, pepper, and
turmeric.
Some Interesting facts on
Indian Agriculture
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: Can India be the Food Basket for the World, An ISB Working Paper
Statistics Source - National Horticulture Board, FICCI, MoFPI
14
India's Rank relative to the world in various agri-products
Percent Share HighLow
Ran
kH
igh
Low
Pulses, 1 , 21
Buffalo, 1 , 57
Paddy (Rice), 2 , 21
Chicken, 6 , 3
Sheep, 5 , 5
Eggs Total (m) 5, 3
Cattle, 1, 16
Total Milk, 1, 14
Cereal, 3, 11
Potatoes, 3, 8
Wheat, 2 , 12
Onions, 2 , 11 Veg & Melons, 2, 10
Item, Rank, % of Global Share
Consumption-led demand
Source: BMI, Q1 2009 & CSO
Food Consumption in India
151.7 157.7168.6
USD
Bn
180.1 184.4 191.4 198210.3
229.7
0
50
100
150
200
250
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f
CAGR: 5.32%
India, with a population of more than 1.1 billion, is one of the largest consumer markets in
the world. Food consumption in India is expected to grow to 229.7 billion in dollar terms by
42013 from 168.6 billion in 2007 . Food and Beverages is largest category in Indian
5consumer spending and is expected to remain in the future . The country's highly favourable
demographic patterns, with more than 50 percent of the population below 30 years of age,
increasing disposable income, urbanisation and lifestyle change are likely to bring about
changes that will enforce shifts in the Indian food and drinks industry, as young populations
are one of the key drivers in the demand for processed and health foods.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
4. Business Monitor International, Jan-Mar 2009
5. The Rise of the Indian Consumer Market, McKinsey 2005
Source: FAO, Kotak Securities
15
Hurdles in the growth path
In spite of the huge supply advantages, India's share in the global food trade is still around
1.5 percent. Huge losses across the value chain resulting in poor processing levels are
limiting the growth the India's share in the global processed food trade.
Processed food has a longer shelf life and reduces wastage. The lack of processing and
storage of fruits and vegetables results in huge wastages, as shown in the figure,
estimated at about 35 percent, the value of which is approximately INR 33,000 crore
6annually (Recent reports put the number at a much higher level). So, it is imperative for the
government and private players to invest in infrastructure to make India not only have
sustainable food production for its growing population but also export more to the world.
The low share of processed food and global trade is an opportunity waiting to be tapped.
Increasing urbanisation and rise in disposable incomes will further push demand for
processed food. This is an opportune time for companies to invest in quality facilities and
develop products with features that appeal to the growing Indian consumer base and the
export markets.
Also, from a government's point of view, Food Processing sector can help reduce the
burden of subsidies and raise the farmers' income simultaneously. Agricultural produce that
is processed for domestic consumption can not only fetch higher prices and hence higher
income for the farmers, but also generate direct and indirect employment helping alleviate
rural poverty. So, the government should continue to support the industry with an enabling
and growth oriented policy.
Significant Opportunity – Domestic Market and Exports
Field Losses(Pest, Diseases, Rodents etc)
Pre-Processing(e.g. inefficient harvesting, drying, milling)
Transport(e.g. spillage, leakage)
Storage(e.g. technical deficiencies)
Processing & Packaging(e.g. excessive peeling, washing)
Marketing(e.g. spoilage, rotting in stores)
Wastage by Consumer(e.g. overeating, food wastage)
Developing CountriesRelatively high losses in
the initial parts of thevalue chain
Rich Countries Highlosses at a in the food chain
later stage
Field
Con
sum
er
Pro
duce
r
Fork Britt-Lousie Anderson, SIWI
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
6. Ministry of Food Processing Industries, Annual Report 2007-08
16
Food Processing Segments
India's low level of processing is expected to change significantly in the future fuelled by
sustained economic growth and steady urbanisation. Processed food output is expected to
grow at a strong 7 percent CAGR in terms of value from 55.6 billion USD in 2005 to 95.6
1billion USD in 2013 . Premiumisation, especially among the young and rich urban population,
is also a key factor helping value growth over the forecast period.
Source: BMI, Q1 2009
USD
Bn
CAGR: 7%
Processed Food Output
55.658.9
62.566.2
71.577.2
83.490.1
95.6
0
10
20
30
40
50
60
70
80
90
100
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f
Food Processing Segments
A schematic diagram of the key segments in the industry is as shown below.
Food Processing
Fruits &Vegetables
Meat &Poultry
DairyMarine
ProductsGrains
Consumer Food
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
1. Business Monitor International, Jan-Mar 2009
17
Source: EXIM Bank
India's share of global production - F&V
41 23 24 36 10
59 77 76 64 90
0%
20%
40%
60%
80%
100%
Mango Banana Cashew Nuts Green Peas Onion
India Rest of the World
Common features across segments –
Largely unorganised – Though the unorganised segment varies across categories
mentioned above, approximately 75 percent of the market is still in the unorganised
segment.
The organised sector is relatively bigger in the secondary processing segment than the
primary processing segment. Also, the primary processing segment is highly
fragmented.
The following sub-sections provide a brief overview of the key segments. While the
opportunities and constraints at segment level are touched upon, a detailed analysis is
provided in later chapters.
Supply
Fruits and vegetables is one of the most important and fast growing sub-sectors of the food
processing sector, as fruits and
vegetables form an indispensable part of
healthy diet. India accounts for 13
percent of vegetables and 12percent of
fruits production globally, with an
enviable share in few categories like
Mango, Banana, Cashew, Green Peas
and Onion. The productivity has also
improved from 10.25 and 14.37 million
Tons/Hectare for Fruits and Vegetables in
2002-03 to 10.94 and 16.14 million
Tons/Hectare for Fruits and Vegetables
respectively.
Processing
The installed capacity for fruits and vegetable processing in India has increased from 11.08
2lakh tons in 1993 to 24.74 lakh tons in 2007 , mainly due to the increasing demand from
ready-to-serve beverage industry, fruit juices and pulps, dehydrated and frozen fruits and
vegetable products, pickles etc.
!
!
Fruits and Vegetables Processing
Year
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Fruits – (Mn Ha)
5.1
5.3
5.3
5.6
5.8
4.8
Fruits Vegetables
Fruits - Production (Mn Tons)
49.8
52.8
55.4
59.6
63.5
49.2
Vegetables – (Mn Ha)
5.9
6.7
7.1
7.2
7.5
7.8
Vegetables – (Mn Tons)
84.8
101.4
108.2
111.4
115. 0
125.9
Source: National Horticulture Board
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
2. India's share in world fruit, veg market remains poor, Feb 14 2009, news.webindia123.com
18
3The share of the organised sector in Fruits and Vegetables processing is 48 percent .
Majority of the units are in the Small Scale sector, having low capacities up to 250 tons/year
though big Indian and multinational companies have capacities in the range of 30 tons/hr.
Currently, only 2.2 percent of the total produce in India is processed and the rest marketed
as fresh fruits and vegetables. Globally, developed countries process fruits and vegetables
in excess of 65 percent.
Bottlenecks
4In spite of the strong supply base, India has a low 1.38 percent share of global trade . India's
exports of fresh fruit and vegetable stood at INR 2,411.66 crore (534.97 million dollar) in
2006-07. It is estimated that around 30 percent of the produce is lost due to lack of
processing facilities (in flush season) and inadequate infrastructure for post-harvest
treatment, packing, storage and transportation.
The demand for processed fruits and vegetables is lower in India mainly on account of
higher costs that can be attributed to higher duties and taxes on packaging material,
inefficient supply chain with lot of intermediaries, absence of cost-effective latest
technologies for processing, infrastructural bottlenecks and high cost of finance. Smaller
units and their lack of marketing strength for end-products also is a major constraint for
expansion of domestic market.
Summary
Fruits and vegetables offer a significant potential for the organised processing players due
to the low level of processing and a vast supply base, coupled with considerable
international demand for certain fresh as well as processed fruits and vegetables. However,
inefficient domestic farming, higher costs of product delivery, exports protection and
demanding standards, intermediaries and inefficiencies in the supply chain are the biggest
bottlenecks in the growth of the sector. The recent emphasis on Fruits and Vegetables in
light of nutrition security, growing interest of food processors and more profitable land use
has brought in a significant change in the outlook of the producers who started using the
arid/semi-arid lands and the horticultural crops that have lesser demands on water and gives
three to four times more remuneration than field crops.
Supply
India's has the largest livestock population in the world, however, most animals are not bred
for meat, as a vast majority of the Indian population is vegetarian. Animals generally used
Meat and Poultry Processing
Dried fruits and vegetables
Fruit juice concentrates
Vegetable curries in restorable pouches
Mushroom products
Fruit pulps and juices
Ready-to-serve beverages
Canned/Frozen fruits, Pulp and vegetables
Jams, squashes, pickles, chutneys
Prominent
Processed
Fruits and
Vegetables
(India)
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
3. DGCIS
4. MoFPI Annual Report, 2007-08
As is evident from the figure, most of the broiler meat produced is used for domestic
consumption, while beef and veal meat is also exported.
Processing
5The level of processing in meat is just about 6 percent , as the Indian customers prefer
fresh meat from the market than
processed/frozen meat.. For this reason,
processing of large animal meat is
usually high in exports. Also, Indian
buffalo meat, due to its lean character
and nearly organic in nature, is highly
preferred in the export market. Poultry,
with advantages of being the most
economical source of animal protein,
acceptability to all non-vegetarian
population and with no religious taboo, is
the fastest growing segment.
Source: MOFPI
Meat and Poultry Processed Quantity in Tons and INR Crore
0
200000
400000
600000
800000
1000000
1200000
1400000
2003-04 2004-05 2006-07
Year
Met
rics
Ton
s
INR
Crore
0
500
1000
1500
2000
2500
3000
3500
4000
Processed Meat in Metric Tons Processed Meat in INR Crore
2005-06
19
5. MoFPI Annual Report, 2007-08
for production of meat are cattle, buffaloes, sheep, pigs and poultry. India accounts for more
than half of the global buffalo population indicating a significantly high export opportunity.
India ranks among the top six egg producing and among the top five chicken producing
countries.
India - Broiler Meat and Beef Production Vs Consumption
19002000
2240
2490
2770
2,250
2,375
2,500
2,655
1,6331,694 1,735
1,845
1,975
2770
2490
2239
20001899
2,790
1300
1500
1700
1900
2100
2300
2500
2700
2900
2004 2005 2006 2007 2008 2009
2,130
16501648
1,638
Broiler Meat Production (1,000 Metric Tons (Ready to Cook Equivalent))
Broiler Meat Consumption (1,000 Metric Tons (Ready to Cook Equivalent)
Beef and Veal Production (1,000 Metric Tons (Carcass Weight Equivalent))
Beef and Veal Consumption (1,000 Metric Tons (Carcass Weight Equivalent))
Source: USDA-FAS, Oct 2008
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
20
Bottlenecks
There are a limited number of integrated poultry processing plants in the organized sector,
though the small poultry processing units are in plenty. Per capita consumption levels of
meat is very low in India, as there are religious taboos attached with consumption of beef
and pork. Also, exports in Poultry are hindered by the subsidies that developed countries
like USA and EU provide.
Summary
Apart from the huge opportunity for India in the buffalo meat export, the poultry segment
with the current low per-capita consumption and world class production infrastructure and
productivity offers a potential export opportunity. There is a large potential for setting up
modern slaughter facilities and development of cold chains in meat and poultry processing
sector. India needs to come up with strong support measures to increase its domestic
consumption levels, like for example, inclusion of eggs in the mid-day meal program and a
re-look at the taxes including VAT for poultry segment.
Supply
India is the largest producer of milk in the world –
Milk. Milk products production is expected to
increase from 99.9 million tons equivalent in 2006 to
108.8 million tons in 2009 growing at a CAGR of 2.89
percent.
The milk surplus states in India are Uttar Pradesh,
Punjab, Haryana, Rajasthan, Gujarat, Maharashtra,
Andhra Pradesh, Karnataka and Tamil Nadu with
majority of the manufacturing of milk products also
concentrated in these states.
Dairy Processing
Source: USDA-FAS, Oct 2008
Source: FAO Food Outlook, June 2009
Consumption - India Vs Global - Poultry and Beef
22.8 22.6 22.5 23.0 22.9 22.8 22.5
1.4 1.5 1.7 1.8 2.0 2.2 2.4
17.9 17.7 17.6 18.2 17.9 17.9 17.7
1.4 1.5 1.5 1.5 1.5 1.6 1.7
0.0
5.0
10.0
15.0
20.0
25.0
2003
Kilo
gram
s pe
r Per
son
2004 2005 2006 2007 2008 2009
Global (Poultry) India (Poultry) Global (Beef) India (Beef)
India - Milk/Milk Products Production
99.9
102.9
105.8
108.8
94
96
98
100
102
104
106
108
110
Mill
ion
Tons
2006 2007 2008 2009 (f)
CAGR: 2.89%
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
21
Processing
India's unique pattern of production,
consumption, processing and marketing of
dairy products consist of over 11 million
farmers organised into about 0.1 million
village Dairy Cooperative Societies (DCS).
These cooperatives form part of a national
milk grid which links the milk producers
throughout India with consumers in more
than 700 towns and cities handling about 18
6million kg of milk per day . The dairy sector
ranks first in terms of processed food, with
37 percent of the produce being processed,
but the organised sector accounts for a
mere 15 percent, processing about 13 million tons annually while the unorganised sector
7processes about 22 million tons per annum
Ghee is the most widely marketed and branded product with a nation-wide penetration of
24.1 percent and growing at a rate of 8 percent per annum. The dairy whitener market
comprises of sweetened milk powders, condensed milk and creamers. The organised
cheese market is dominated by processed cheese which accounts for 74 percent market
share. In the Ice Cream segment, organised sector accounts for a high 70 percent and is
8growing at 20 percent per annum .
Bottlenecks
The packaged milk segment is dominated by the regional and national level Dairy
Cooperative Societies. These Dairy Cooperative Societies collect milk from the various
small-scale vendors, pack it and distribute it under their brand name. Despite the high
production, the per capita consumption of milk in India is still lower at 229g/day compared
6to the world average of 285g/day . The farmers are not allowed to sell milk to new players
outside the cooperatives preventing huge investments from large foreign players.
Summary
Less than 0.4 percent of the total milk and milk products are exported and virtually none
imported. Most of the production is consumed in the domestic market. Also, the organised
Source: MOFPI
Dairy Products Processing in India
Quantity Value
0
10000
20000
30000
40000
50000
60000
70000
Year
Qu
an
tity
in M
etr
ic T
on
s
Va
lue
in IN
R C
rore
0
100
200
300
400
500
600
2003-04 2004-05 2005-06 2006-07
Source: Diary India Yearbook, Rabobank
Share (%)
45%
19%
8%
5%
23%
Retention by rural consumers/ sale to rural non
Sold as loose milk in urban areas
Packed liquid milk
Value added milk products
Value added milk products
Type
Processed (Unorganized)
Processing Segment
Unprocessed
Processed (Organized)
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
6.
7. India Infoline
MoFPI Annual Report, 2007-08 8. IBEF Food Processing Report, 27-Jun-2008
segment accounts for a lower 15 percent share. There is tremendous potential for the
organised play if the restrictions on the sale from farmers are removed and a level playing
field is created for all.
Supply
India is the third largest producer of fish and second largest producer in terms of fresh
water fish. The fisheries sector is classified as marine, inland and aquaculture. The captured
fish consists of 62 percent of total fish production while the rest 38 percent is from
9aquaculture . The total production of fish and fishery products has grown from 7 million tons
10(live weight equivalent) in 2006 to 7.4 million tons in 2007 .
Processing
The infrastructural setup of the sea food processing industry indicates a distribution of
major fishing bases in Kerala, Tamil Nadu, Karnataka and Maharashtra whereas the
concentration of the processing plants, freezing and storage capacities are more in Kerala,
Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and West Bengal.
Utilised capacity is just 20 percent of the
installed capacity in the fish processing
industry due to raw material shortage,
inability to meet the market demand for
value added products and safety related
regulation of importing countries. The frozen
products propel sea food exports business
and hence need a strong emphasis on value
addition in addition to addressing problems
of idle capacity utilisation, technological
upgradation and compliance with safety
related regulations of buyers.
Bottlenecks
Majority of the Agri-Export Zones and Food Parks are related to horticulture products and
very few are ascribed to development of sea food processing industry although 25 percent
of the total agricultural export is on account of sea food. Although by volume, the major
share of marine fish rates is in the fresh form (70 percent), the major focus of the industry
11is on the frozen products which have a share of 7.5 percent of the total catch . This is mainly
because of the export demand for frozen products and consequent need for value addition.
Marines Products Processing
22
Marine Products Processing in India
0
100000
200000
300000
400000
500000
600000
700000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
INR Crore
Met
ric T
ons
Quantity (in Metric Tons) Value (in INR Crore)
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
9.
10. FAO Food Outlook, June 2009
MoFPI Annual Report, 2007-08 11.K.G.Karmakar, Managing Director, and Dr G.D. Banerjee, Deputy General Manager, NABARD
Value Addition by the Marine Fisheries Sector - Dr
Source: MoFPI Annual Report 2007-08
23
Source: Value addition by the marine fisheries sector - Dr K.G.Karmakar & Dr G.D.Banerjee, NABARD
The basic tenet on which the sea food industry is presently working is that there is no
demand for value added products in the domestic market as consumers prefer fresh fish.
Also, the infrastructure for handling, distribution and storage is not well developed in the
domestic market and hence the segment focuses heavily on exports.
Summary
Government needs to support the industry by developing technology for value addition and
infrastructure for exports in the form of food parks focused on marine products. Value
addition to a part of the fish catch can transform the domestic market which is experiencing
a sea change with an increasing demand for processed and ready-to-eat fish products like
Breaded and Battered fish items, Fish Burgers, Sea food mix, fish fillets, etc. Fish sauce,
silage and other fermented products are important areas of value addition at the lower end
of the chain. The segment focuses heavily on exports as the local demand in primarily in the
fresh fish. As the demand for processed marine products is increasing in India, the
government needs to encourage investment in infrastructure for distribution and storage.
Processed IQF (Instant Quality Freezer) marine products have a higher price in foreign
markets than conventional block-frozen material. So, products like shrimp, lobster, fish,
clams and fish fillets, provide opportunities for export.
Supply
India produces more than 200 million tons of different food grains every year - 209.32
million tons in 2005-06. India produces all major grains - rice, wheat, maize, barley and
12millets like jowar (great millet), bajra (pearl millet) and ragi (finger millet) . The major
segments within Grain Processing are Oil Milling and Pulse Milling & Flour Milling. Indian
Oilseed sector is one of the largest in the world, with a total turnover of INR 86,000 crore of
which INR 16,000 crore are import/exports. India is next only to European Union and China
in terms of vegetable oil imports.
Grain Processing
Fish Disposition in India
Fresh 70.00%
Frozen and Processed 7.50%
Cured Form (dried, saltedand smoked products)
12.50%
Canned 0.50%
Fish Oil 6.00%
Fish Meal & Manure 1% Miscellaneous 2.80%
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
12. MoFPI Annual Report, 2007-08
24
Processing
The solvent extraction processing of oilseed, oilcakes and rice bran during 2006-07 is
13reported at 115.4 lakh tons compared to 122.0 lakh tons in the previous year .
Grain processing is the biggest component of the food sector, with a share of 40 percent.
But the sector is predominantly into primary processing, sharing 96 percent of the total
value, while the secondary and the tertiary sectors add 4 percent.
Bottlenecks
The low level of technology modernisation in the sector with a high primary processing
leads to low value addition in the sector. India needs to promote the products for export
better, like Basmati.
Summary
Indian rice, especially Basmati rice, has gained international recognition, and is a premium
export product. The sector is recognised as a key for nutrition security in India and hence,
there is a need for improving the processing capabilities beyond the small scale/cottage
unorganised industries to the organised segment. So, for adequate and focused growth of
the sector the Ministry is providing financial assistance to the grain processing industries
for its setting up/ expansion/modernization in the form of grant.
Consumer foods consist of packaged foods, non-alcoholic and alcoholic beverages.
Packaged foods includes 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 packaged food sales topped 13
billion USD in 2007 and are expected to reach 23.4 billion USD by 2013.
Consumer Food Processing
Source: BMI, Q1 2009
Packaged Food Industry Data
10.511.7
1314.2
15.517.3
19.5
21.723.4
9.610.6
11.5 12.413.5
14.816.5
18.119.3
0
5
10
15
20
25
USD
Bill
ion U
S Dollar
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f0
5
10
15
20
25
Packaged food sales (USD Bn) Per-capita package food spending (USD)
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
13. MoFPI Annual Report, 2007-08
25
Non-Alcoholic Beverages segment is broadly
divided into carbonated drinks, non-
carbonated drinks and hot beverages. The
carbonated drinks comprise the soft drinks
that are the colas. The non-carbonated drinks
category consists of fruit based/flavoured
beverages. In non-alcoholic beverages, India
is a small but competitive player in coffee.
India is the fifth largest coffee producer in
the world accounting for 4.07 percent of the
world production (2004-05). In Tea, India is
the largest producer in the world, which
contributes around 31 percent in the world.
But owing to high domestic demand, the
14share of exports for India is just 14 percent .
Alcoholic beverages segment is the largest
in the world and provides ample scope for
value addition and employment generation.
The estimated demand for spirits and beer is
around 373 million cases. Twelve joint
ventures companies having a licensed
capacity of 33919 Kilolitres per annum
produce grain based alcoholic beverages. 56
units are manufacturing beer under license
15from the Government .
Majority of the processing in the segment is
still under the unorganised sector – 60
percent for Bread and 80 percent for Biscuits
15in terms of production . Manufacturing of
bread is reserved for small-scale industry
(SSI).
India accounts for less than 1.5 percent of
the global food trade, despite being the
world's leading producer of milk, live stock
and cereals, and ranked second in terms of
fruit and vegetables, the level of processing
Level of Food Processing in India
across segments is not comparable to the global levels. The following table shows the level
of processing across segments and the relative global levels for the segment.
India's agricultural production base is strong but at the same time wastage of agricultural
produce is massive. Even, within the country, share of fruits and vegetables processed is
much less when compared to other segments such as milk (35 percent) and Fisheries (26
percent). The high wastage levels across the value chain lead to a significant value loss. The
main reasons attributed to the loss are lack of proper infrastructure for handling,
transportation and storage. Another form of wastage is the high level of intermediation in
the supply chain that leads to higher costs as well.
Globally, countries and large companies have invested in disintermediation, developed
storage and transportation infrastructure and facilitated in bringing commercial/ technical
knowledge and market intelligence to the farmer. The hygiene/safety standards training and
certification facilities also were provided across the value chain. This resulted in
tremendously increasing the value of the output and reduction in costs of raw material for
the producers, while improving farmers' income levels. If India was to lift its share of global
processed food trade to just 3 percent, the Ministry of Food Processing estimates that
some USD 24.7 billion worth of investment would be needed to restructure the industry.
Taking a cue from the global examples, India also should invest in infrastructure and policy
development that helps reduce waste across the supply chain and increase the level of
processing and overall value of output.
Need for improved focus and investment
Level of Processing across segments (Source: MOFPI Annual Report 2007-08)
Segment
Fruits and Vegetables
Fisheries
Poultry
Buffalo Meat
Milk
Level of Processing
2.2%
26%
6%
20%
35%
Comments
USA (65 %), Philippines (78%) and China (23%);
60-70% in developed countries
60-75% in developed countries
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
14.
15. MoFPI Annual Report, 2007-08
Cygnus Research, Jan 2007
26
India's Food and Drink 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. 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
1of processed segments is growing much faster as shown in the figure .
India's Food Processing Trade
Source: BMI, India Food & Drink Report Q1 2009
India - Food and Drink Trade
0.00
5.00
10.00
15.00
20.00
25.00
30.00
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f
Exports Imports
10.8112.28
14.0315.58
17.27
19.49
21.92
24.25
4.586.14 6.82 7.53
8.67 9.4410.42 11.24
12.31
9.19
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
1. UNCOMTRADE
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 subsidises the promoter.
!
!
!
27
Source: UNCOMTRADE
Export Growth Rate: Food Vs Processed Food
18.75%
21.84%24.63% 25.44%
23.63%
28.96%31.25%
28.78%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2005 2006 2007 2008
Export of Food and Beverages Export of Processed Food and Beverages
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
28
Role of APEDA
APEDA is the apex agency entrusted with the responsibility
of facilitating and promoting exports of agricultural and
processed food. APEDA is responsible for 40 percent of the
total agricultural exports from India. The remaining
commodities such as tea, coffee, tobacco, spices, marine
products and rubber are handled by separate boards.
! Promote exports to maximise foreign exchange
earnings
! Increase per unit value realisation to the farmers and
improve their income
! Promote value addition to farm produce and generate
employment opportunities
! Development of industries relating to scheduled
products for exports by providing financial assistance or
otherwise
! Fixing of standards and specifications for the scheduled
products for the purpose of exports
! Carrying out inspection of meat and meat products for
ensuring quality
! Improving of packaging and marketing of the scheduled
products outside India
! Collection of statistics from various sources and
publication of the statistics so collected or of any
portions thereof or extracts there from
! Training in various aspects of the industries connected
with the scheduled products
Goals of APEDA
Accordingly APEDA has been entrusted with the following
functions:
Case Study: Role of APEDA in developing exports from
North East Region (NER)
Benefits
APEDA identified the major horticultural products of the
NER with good export potential – Citrus, Banana, Pineapple,
Papaya, Jack fruit. The following strategy was adopted by
APEDA to promote exports from the region
! Provision of Infrastructural facilities like pack houses,
cold storage and refrigerated transport
! Farmer Education on pre- and post-harvest measures in
local language and quality awareness
! Transport assistance for horticultural products from the
region
! Market linkages – Establish linkages with major players
like ITC, HUL, Dabur etc
! Financial Assistance – Sponsored delegations of
exporters every year to Aahaar, integrated packhouse
facility in Mizoram for INR 3.2 crore, 4 refrigerated
transport vans for NERMAC ltd and Government of
Tripura, INR 3.15 crore to AIDC, Guwahati, MoU with
CONCOR to operate and manage all infrastructure
projects
! Export Development Fund – Increase in expenditure
from INR 38 lakhs in 2000-01 to INR 6.3 crore in 2005-06
for the NER
! Promotion of Agri-Export Zones – 4 AEZs in Tripura,
Assam and Sikkim.
In Tripura, AEZ is expected to benefit more than 400 farmers
in the first phase and incremental exports are expected to
be INR 32 crore. Sikkim AEZ is expected to benefit a much
large section of the farmer community – 5000 farmers in
addition to more than 500 in processing and value chain.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: APEDA
29
India's Position in the Global Trade
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.
Annual percentage changeShare in world exportsValue
19
16
27
23
19
20
-2
42
45
9
29
45
13
20072006
9
12
12
13
13
15
5
16
14
17
14
23
15
2005
7
7
3
13
18
3
-5
15
-3
13
16
30
14
2000-07
12
10
7
19
14
9
5
17
17
9
14
19
12
2007
44.6
9.6
9.6
4.6
3.6
1.9
1.9
1.8
1.8
1.6
1.4
1.4
1.1
2000
43.8
10.7
12.6
3.0
3.1
2.3
2.9
1.3
1.3
1.9
1.2
0.9
1.0
1990
-
-
13.4
2.8
2.5
2.1
2.5
0.9
1.1
1.0
0.9
-
0.6
1980
-
-
17.6
4.2
1.4
1.3
3.3
0.7
0.9
0.9
1.1
-
0.3
2007
406.83
87.93
87.59
42.10
33.15
17.69
17.57
16.31
16.20
14.62
13.20
12.62
9.65
Exporters
European Union (27)
extra-EU (27) exports
United States
Brazil
China
Thailand
Australia
Indonesia
Malaysia
Mexico
India
Russian Federation
Chile
(Value In USD billion)
The food industry is one of the most important segments of Germany's
economy, with high relevance for employment and economic output. Novel
food, new scientific and technical approaches in food processing, the
impacts of structural changes in the food industry and in food retailing, the
effects of food scandals and socio-economic behaviour are having a far
reaching technical and economic impact on processing value chain.
Germany has taken several initiatives in R&D innovation to become a
leading food exporter.
Case Study: Food Industry
innovations in Germany
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: FAO
30
Joint R&D – Due to the predominantly large number of SMEs in the country, a joint research institute, FEI
(Forschungskreis der Ernährungsindustrie e.V.) has been established to carry out joint applied research in
Food and Nutrition. In 2001, around 50 associations of the German food industry were members in FEI
which represented more than 4500 companies. There is a parallel private research activity as well. The
connectivity and the cluster for research for Food and Nutrition are as shown in the picture below.
R&D Financing – The research activities of FEI are jointly financed by the member associations and
companies as well as the Federal Ministry for Economic Affairs. By 2001, the joint research projects
organised by FEI are financed to around 75 percent by the industry – mainly in the filed of food structure
(Quality of food and ingredients) and process optimisation.
Innovation Activities – Measured as the number of product innovations, Germany has consistently
launched more than 1000 food products every year. Process innovations of food SMEs are wide-ranging,
without a specific focus on a particular area – Product quality, cost-saving aspects, higher flexibility and
faster production processes apart from improvement of the working conditions for employees.
Innovation in the food industry needs a strong multidisciplinary co-operation, the institutional framework
conditions and administrative competencies. The administrative bodies responsible for the food industry
in Germany cause significant delays in bringing scientific and technical innovations. A more flexible
framework for regulations is planned for newly emerging innovation fields which can be jointly formed by
public authorities and early innovators.
Industry Private ResearchInstitutes
Federal ResearchCentres
LeibnizCentres
HelmholtzCentres
FraunhoferSociety
Universities/Colleges
IndustrialR&D
departments
Combined
Research
IGV, DIL,
Natec
BFE, BAFF, BAfM
, BAGKF, BgW, RKI
DFA, IFE DKFZ, GSF IVV >50 institutes and
technical colleges
Food Industry
Flow of Funds
EconomyConsumer
Protection/AgricultureHealth Education/ Research Federal States EU
1
2
3
4
Source: Innovations in the food industry in Germany, K. Menrad; Department of Horticulture and Food Processing, University of Applied Sciences of Weihenstephan
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
The prominent export products are Fruit pulp & juices, Canned F&V, Jams, Squashes,
Dehydrated vegetables, Frozen pulps and vegetables, Frozen dried fruits, Vegetable curries,
Pickles and chutneys, Mushroom products etc
The main destinations for fruit exports are Middle East, UK, Europe and to some extent
Singapore and Malaysia. Mango Pulp is exported to Saudi Arab, Kuwait, UAE, Netherlands
and Hong Kong. In case of Pickles & Chutneys, the popular markets are USA, UK, UAE,
Germany, & Saudi Arabia. Other items like Tomato Paste, Jams and Jelly & Juices are
exported to USA, Russia, UK, UAE, Netherlands, etc. Vegetable exports are largely to
Middle East, Europe, UK and Singapore.
31
Export/Imports of Select Food Processing Segments
Fruits and Vegetables
India's exports of processed fruits and vegetables have increased consistently over the last
few years, from USD 144 million in FY 04 to USD 278 million in FY 07. Exports of processed
vegetables have increased from USD 273.47 million in FY 04 to USD 420 million in FY 06
2and declined marginally to USD 396 million in Fy07 .
Key Export Product
Mango Pulp
Dried and Preserved vegetables
Pickles and Chutney
Export Value (2007-08) in INR crore
509
444
389
Source: Directorate General of Commercial Intelligence and Statistics
Source: DGCIS, MOCI
Exports of Processed Fruits and Vegetables
273.42 462.14 420.64 395.57
143.82
193.54 235.28 278.02
673.59655.92655.68
417.24
0
100
200
300
400
500
600
700
800
2004-05 2005-06 2006-07 2007-08
Processed Vegetables Processed Fruits
In Million USD
The growth of the processed
food segments has been faster
and has nearly doubled in terms
of value in a short span from FY
04 to FY 07. However, with
respect to the potential and
supply base of being the second
largest fruits and vegetables
producer in the world, India can
do much better at processed
food exports. The quality issues
and high costs of raw material,
packaging, wastage and
distribution are hindering the
growth of exports. India needs to
focus more on crops of
processing grade, diversify the
markets that it exports to and
improve promotional activities to
further trade.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
2. DGCIS
32
Meat and Poultry Processing
India is predominantly an exporter of bovine meat, especially buffalo meat, which has high
demand in the developed countries, due to its lean and almost organic nature. The import of
meat and poultry is virtually non-existent. The production and export/import data of meat
and poultry is provided in the table below.
At present, poultry export from India is mostly to Maldives and Oman. Some other markets
like Japan, Malaysia, Indonesia and Singapore can be explored for export of poultry meat
products. Poultry production and egg processing industries have come up in the country in
a big way. The export products are egg powder, frozen egg yolk, albumin powder to Europe,
Japan and some other countries.
Indian Poultry has world class production infrastructure and boasts of high productivity with
Farm and hatchery automation systems, well networked disease diagnostic laboratories,
unique disease surveillance and monitoring model and genetic research and breeding.
Broilers are reared to achieve a body weight of 1.8 kg in 6 weeks.
Yet the poultry segment is faced with roadblocks to exports in the forms of
Subsidies by developed countries
Sanitary and Phyto-sanitary conditions
Increasing cost of production inputs
!
!
!
Source: FAO Food Outlook, June 2009
Imports ExportsProduction
million Tons
Total Meat
Bovine Meat
Ovine Meat
Pig Meat
Poultry Meat
2008
672
2854
775
500
2400
2009
7022
2997
780
500
2600
2008/09
1
1
-
-
-
2009/10
2
1
-
-
-
2008/09
534
523
8
1
2
2009/10
561
550
8
1
2
1000 tons (Carcass
Weight Equivalent)
Total Meat Statistics, India
In order to take advantage of the
exports opportunity in the
poultry segment, India should
take steps in increasing
production, providing assistance
in transportation and reduction in
taxes/duties to poultry by
including it under agriculture.
Also, quarantine and testing
facilities should be made
available at all ports of entry.
Also, market expansion into
Singapore, Malaysia, Japan and
Indonesia provide opportunities
for exports growth.
India also needs to set up more
slaughter houses, modern
abattoirs and cold storage
facilities to export the surplus
and much-in-demand buffalo
meat.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Grain Processing
The grain processing sector, with 96 percent Primary Processing, has a limited exports
focus. However, Basmati Rice is gaining traction in the Indian market and commands a
premium in the export market as well. The table below shows the key segments and the
production and Export/Import over the last two years.
The major exports segments are cereals and rice. Though production is expected to remain
stagnant during the year as compared to last year, the exports of cereals and rice is
expected to slightly increase.
India has expanded the basket for Basmati rice, by extending the classification. The Indian
government last year expanded the definition of basmati, and it now recognizes even those
rice varieties as 'evolved basmati' which have at least one traditional basmati grandparent.
Also, India had last year set the export floor for basmati at USD 1,200 per ton and also
imposed an export tax of USD 200 per ton to discourage exports and conserve domestic
supplies but has since revoked the export tax, and lowered the export floor to USD 1,100
3per ton . This is expected to further boost exports.
Source: FAO Food Outlook, June 2009
Grain Processing Statistics, India
Imports ExportsProduction
million Tons
Cereals
Wheat
Coarse grain
Maize
Barley
Sorghum
Rice
Total
2008
215.3
78.4
38
19.5
1.2
7.2
98.9
458.5
2009
214.9
77.6
37.8
18.5
1.5
7.5
99.5
457.3
2008/09
0.6
0.5
0.1
0.1
0
0
0.1
1.4
2009/10
0.6
0.5
0.1
0.1
0
0
0.1
1.4
2008/09
4.9
0.3
0.6
0.6
0
0
3.7
10.1
2009/10
5.7
1
0.6
0.6
0
0
4
11.9
Source: FAO Food Outlook, June 2009
Rice Exports, India
11 9 9 13 17 19 18 22 18 17 19 20
3 4
3719
17
44
14 8 13
36
21
38
0
10
20
30
40
50
60
70
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
Basmati Non-Basmati
INR
Bn
India needs to increase the
promotional activities for Basmati
and other cereals and continue to
provide tax breaks for exports.
The country also needs to
provide incentives for
modernisation of processing
equipment to improve the levels
of secondary and tertiary
processing so as to make the
quality of produce export worthy
and promote exports.
33
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
3. Commodity Online
Processed fish products for export include: conventional block frozen products, instant quick
frozen products, minced fish products like fish sausage, cakes, cutlets, pastes, surimi,
textured products and dry fish, etc.
European Union, USA, Japan, China, South East Asia, Middle East etc. are the major export
destinations. The export has been strong with frozen shrimp continuing the largest item in
terms of volume.
In view of the supply and growth potential of the sector, Government of India has set a
target to increase fisheries export from INR 6000 crore to INR 14000 crore during the XI
Five Year Plan Period. Achieving the target for exports is dependent on the raw material
supply; optimum capacity utilisation of processing industries, product diversification; value
addition and adherence to quality control regulations. The share of export of shrimp in block
frozen form is around 22 percent as against 2.2 percent in IQF form. The unit value of IQF
products being INR 475 per kg as against INR 194 per kg for the block frozen shrimp, there
is considerable scope for boost of marine exports through value addition. Similarly, the
share of fish surimi which is priced at INR 68/kg, is only 3.2 percent of the total export as
compared to that of ribbon fish (which is the raw material for surimi) which is priced at INR
425/kg and enjoying an export share of 18.3 percent .
70 percent of Indian sea food exports constitute fish
and shrimp in various forms and shrimp alone accounts 4for 71.5 percent of the value of exports . However,
value added products comprise of a smaller share and
the major share of the present export in volumetric
terms is in bulk form. India needs to promote value
addition, be more export-driven by promoting products
like fresh surimi, and raise the share of IQF products
that claim a higher price to boost trade.
2006
3.8
2007
4
2006
3.2
2007
3.4
2006
1.8
2007
1.7
2008
1.7
Fish and Fisheries Products Processing Statistics, India
Capture fisheries production(million tons)
Aquaculture fisheries production(million tons)
Exports(USD billion)
Imports
-
Fisheries Products Processing
34
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
4.Director, and Dr G.D. Banerjee, Deputy General Manager, NABARDValue Addition by the Marine Fisheries Sector - Dr K.G.Karmakar, Managing
Milk and Milk Products Processing
Milk and Milk Products Statistics, India (in million tons milk equivalent)
Production ExportsImports
2006/07
102.9
2007/08
105.8
2008/09
108.8
2006/09
-
2006/07
0.4
2007/08
0.4
2008/09
0.4
Source: FAO Food Outlook, June 2009
Milk and milk products are produced for domestic consumption. Also, storage facilities
infrastructure bottleneck prevent the segment from growing in exports. India's share in
exports of dairy products in international market is insignificant. These markets are
dominated by OECD countries, some of whom provide a very high level of support to their
domestic producers which are unlikely to be scaled down in the near future. SPS and TBT
clauses are stringent and make the export markets protective. Therefore, even if India is
able to find fresh opportunities for exports, the gains may not be significantly high.
India's Food Processing Trade by Geography
The Indian food processing industry is primarily export oriented. India's geographical
situation gives it the unique advantage of connectivity to Europe, the Middle East, Japan,
Singapore, Thailand, Malaysia and Korea.
India exports mostly to the proximate
countries. Globally, most of the countries
import from countries that are geographically
closer. For example, 45 percent of USA
imports are from Canada and Mexico.
Another 50 percent is accounted by select
Cairns group countries. EU imports 50
percent from Spain, Netherlands, France,
Italy, Belgium and Germany, while another
25 percent is accounted by select Cairns
group countries.
In the current scenario, where the sector is strongly
controlled by cooperatives, an export-oriented growth
strategy will need to support the private players at the
expense of the Dairy Cooperative Societies. Private
sector targets very narrow segment of exports and
emerging urban areas. This would seriously affect the
dairy farmers unless government comes up with
innovative measures to produce surplus milk at low cost
at global quality standards.
Source: UN COMTRADE; CEPII
India's Exports - By Geography
0
South Asia 34%
Middle East 29%
East Asia 17%
Western Europe 10%
Rest of the world 7%
Africa 1%
Shar
e of
Tra
de
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 4000 6000 8000 10000 12000 14000
Distance (Kms)
US and Canada 1%
35
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Impediments to Export Growth
!
!
India is still a production-supply driven market and not a market-
demand driven. For example, the apples produced in Himachal Pradesh
are of table variety and not of the processing grade. There are not
enough grading facilities in India that can separate class A products
from the rest. This not only leads to wastage and higher costs for
processors, but also low level of processing and value addition, leading
to lower realisation for farmers. Improved knowledge on processing
grade will improve supply of such products and fetch remunerative
prices for the farmers.
!
!
!
!
India's products are a lot cheaper but the high costs of transportation
and distribution leads to low level of exports. India's grapes are 40
percent cheaper than Chile's, but by the time they reach Netherlands,
they cost the same. Poor infrastructure and lack of government
support is making the exports uncompetitive in certain cases and
needs to be looked into.
!
Value added processed food exports need to satisfy two necessary conditions -
1. A threshold base of manufacturing and other infrastructure facilities and,
2. A reasonable level of marketable surplus in those primary products that enter as crucial
inputs into food processing (industrial activity) chain.
A successful and viable business enterprise must be able to harness economies of
scale. Large volumes of raw material of adequate quality are a paramount for the
economics to be favourable.
India faces challenges on this front:
Poor quality and grading mechanisms for raw material leading to loss of consistency
in variety of raw material
High level of wastage across the value chain
Presence of too many intermediaries implying a high cost of raw material
High costs of packaging
Low technology equipment and knowledge
High costs and poor quality of distribution
Stringent Food Safety and Traceability norms from importing (developed) countries
Developed countries, with better access to advanced technology and packaging
innovations, have a distinct edge over the developing countries in the manufacturing.
The distribution network to cater to the changing dietary patterns globally, makes them
nimble and responsive. Hence, the developed countries account for a majority of world
processed food. For India to increase its share in the global trade, the barriers across
the value chain need to be removed quickly.
36
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Exports promotion strategy
!
!
!
!
1. India needs to map demand with production capabilities
Himachal Pradesh, known as the fruit bowl of the country, has approximately
200,000 hectares of land under horticulture cultivation yielding about half a million
tons of different kinds of fruit. The state earns more than INR 25 billion from
cultivation of fruits and vegetables. While apple is the main fruit crop, other fruits
like pears, peaches, cherries, apricots, almonds and plums are the major
commercial crops of Himachal Pradesh. Recently the production of apple has been
severely affected by adverse climatic changes. As an alternate, farmers in Himachal
Pradesh are increasingly moving towards commercial cultivation amongst which
kiwi is one of the most preferred crops.
Apple orchards require 1,000 to 1,600 hours of chill, while kiwi requires just 200 hours
of chill for a favourable crop. Fruit growers in the areas where the chilling hours are not
static now have opted for kiwi cultivation as a cash crop.
Impact
As per horticulture department estimates, at least 200 farmers in the Kullu valley
alone have taken up kiwi cultivation.
In 2008, the total kiwi yield in Himachal Pradesh was 137 tons
Different varieties of kiwi such as Hayward, Abbot, Allison and Bruno are cultivated
on almost 120 hectares of land
Kiwi typically needs temperate climate to grow, but Indian farmers have been
successful in growing it even at extremely low temperatures. Some of the farmers
are growing kiwi at an altitude of 8,500 feet
2. Move towards non-traditional items.
About Sea-buckthorn: Sea-buckthorn is a shrub which has 6 species and 12 subspecies
native over a wide area of Europe and Asia. More than 90 percent or about 1.5 million hectares
of the world’s sea buckthorn resources can be found in China where the plant is exploited for
soil water conservation purposes. The shrub’s fruit can be used to make pies, jams, lotions and
liquors. The juice or pulp has other potential applications in foods or beverages
Defence Research & Development Organisation (DRDO), Field Research Laboratory (FRL), Leh
undertook serious research studies on the product to harness its vast potential in facilitating
human adaption to extreme cold and hypoxic environmental conditions prevalent in
inhospitable mountainous region with special reference to the world’s highest battle field,
Siachin.
Leh Berry: Unleashing the potential of Sea-buckthorn
37
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Aim: To find Seabuckthorn preparations for improving physical and mental performance
under hypoxic environment, prevention and treatment of cold injuries, and as an immun-
modulatory agent.
Result: The research let to the development of an herbal beverage whose trials were
successfully concluded in high altitude areas including Siachin under varying environmental
conditions. These trials revealed that the fruit extract did not freeze even at temperatures as
low as minus 15 degrees Celsius
Challenges: The juice could not be stored more than a day, limiting commercial viability.
The FRL technology has enabled the juice to be transported from Leh to Madhya Preadesh,
for packaging
Market Opportunity:
A INR 3,000 crore market for Seabuckthorn exists in Chine alone, combined with global
prospects amounting to INR 5,000 crore.
Seabuckthorn fruit, with its vast intrinsic properties offers manifold opportunities for
manufacturing a variety of products. The entire Seabuckthorn plant can be judiciously
utilized to produce high value food and medicinal products. With as many as 180 key
products already lined up and other categories like pharmaceuticals. cosmeceuticals,
natraceuticals, poultry & cattle feed and the pisciculture segment waiting to be
explored
!
!
Export Growth in Brazil
Brazil is a formidable food-producing country owing to its vast agricultural wealth, and
owing to the application of modern techniques, food production also has risen strongly in
recent years. Food production and processing accounts for nearly 25 percent of the GDP. In
terms of exports, Brazil is ranked fourth globally. Key factors responsible for export growth
are as listed below:
Strong government-funded agricultural research programme, together with heavy
private investment led to the higher food production growth than the overall economy.
Legalisation of commercial production of genetically modified (GM) crops. Though it
!
!
38
3. Improve promotional activities for Indian food and market India as a food sourcing hub
4. Promote investment for increasing the level of processing in the sector
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
39
was started off for research, the cultivation spread to officially illegal commercial
production. As the sale of GM products was allowed, the rules on cultivation were
being flouted on a large scale. Inspite of some protests from environmentalists and
potential loss of market in Europe, the GM crops was legalised.
! Food exports grew by a huge 25 percent due to currency depreciation and despite a
stronger Real in 2004, Food exports grew by another 30 percent to some USD 18.5bn.
! Market consolidation is a continuing trend and FDI in the Food and Beverages sector
surged to USD 5.3bn, or 26 percent of total FDI, in 2004.
! Economic liberalisation was also responsible for improved productivity during the
1990s resulting in a significant increase in foreign participation in key sectors, such as
dairy and coffee, through joint ventures and acquisitions of local companies.
! An expanding food-service sector also led to a faster food production growth.
Chile's strategy to become an Export Hub
Chile's export strategy is to promote itself as a reliable supplier of a range of high-quality,
affordable goods and services. Other basic campaign points are: ease of trade, with few
tariff walls or bureaucratic hindrances, low risk, due to political stability and a solid
economy, a respect for quality and environmental protection standards, and a qualified
workforce.
Special emphasis is being given to projects that diversify exports and aid small- and
medium-size companies. Chile also encourages exports through a simplified duty drawback
system that refunds duties paid on imports without an excessive documentation burden.
Within the past decade Chile has entered into a growing network of trade agreements,
including accords with Bolivia, Brunei Darussalam, Canada, Central America, China,
5. Upgrade agri-infrastructure to have a sustainable supply chain for consistent high
quality raw material
6. Provision for Training and Education on the safety and health regulations in export
markets
7. Market Diversification – Move over the geographical distance barriers and initiate joint
efforts with potential partners in identifying the focus of trade and creation of
conducive regulatory policies
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Colombia, Cuba, Ecuador, the European Union, Iceland, India, Liechtenstein, Mercosur,
Mexico, New Zealand, Norway, Peru, Singapore, South Korea, Switzerland, the United
States and Venezuela. In excess of 76 percent of all Chilean trade is conducted with these
countries, which account for 87 percent of world GDP.
These agreements plus regional accords with most of Latin America have provided Chile
with a unique degree of access to markets encompassing more than 3.8 billion consumers
worldwide. As a result, Chile stands as a natural gateway for trade with both Latin America
and Asia-Pacific.
An Export-Oriented Economy: Export diversification is one of the key factors of Chilean
success. Noting the growing volume and sophistication of its trade, the Economist
Intelligence Unit ranked Chile as the No. 1 Latin American country in which to do business
for the period 2005-2009. Trade figures show that export performance has been nothing
short of spectacular.
15
50
USD
Bill
ion
Num
ber o
f Cou
ntrie
s (E
xpor
t Mar
kets
)
0
20
40
60
0
100
150
20058.9
181
1975 19752006 2006
Encourage an internationally competitive environment
Balance unilateral trade liberalization with open regionalism
Lower export transaction costs
Long-term view of enterprise-level support
Coordinate export support programmes through a central technical agency
Facilitate foreign direct investment
Promote private sector involvement in infrastructure development
Encourage innovation
Chile’s strategic approach to boost exports
Impact
40x 3.6x
Trade Promotion Institute
(ProChile) established to
develop the country’s
non-traditional exports,
design and introduce
export incentives and
modernise administrative
procedures
International investor
extended non-
discriminatory treatment
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
40
Source:
KPMG Analysis
Chile: Product and market development through international standards of competitiveness (http://www.intracen.org/wedf/ef1999/chile.pdf),
41
Demand-side Drivers
!
!
Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are leading
to significant changes in food habits of Indians. The key trends are as listed below:
Increasing spends on health and nutritional foods – Consumers are more focused on
health. Any packaged food that has sugar, salt, oil, preservatives etc beyond a
“healthy” level are becoming a no-no. Companies already are targeting this segment
with numerous product launches – Pepsico's “100 percent” juice and usage of rice
bran oil to reduce saturated fat in its products; Amul's energy drink “Stamina” are a
few examples towards this trend.
Increasing Nuclear Families and Working Women – Increasing nuclear families,
students and single employees staying alone on work/education and increasing women
employees are leading to rise in consumption of processed read-to-eat canned and
frozen foods. The number of upper and middle class Indians consuming packaged food
Key Growth Drivers of Food
Processing Sector in India
Source: Euromonitor
Employed Female Population
111,910
126,510
129,705131,424
134,207 135,370
100,000
105,000
110,000
115,000
120,000
125,000
130,000
135,000
140,000
1995 2000 2002 2004 2006 2007
Year
‘000
s Em
ploy
ed
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
•
•
•
Functional Foods – Functional Foods, Fresh or Processed Foods that claim to provide
health benefits apart from serving the basic function of nutrition, are on the fast-growth
path in India. Fabindia Organics, Organic Food retail outlets like 24 Letter Mantra and
Godrej Agrovet’s Nature Basket have big plans in this segment.
Organised Retail and Private Label
penetration – Organised retail
comprises of less than 5percent of the
total retail market in India, but is
growing at over 20 percent. Food
retailing, which constitutes 14 percent
of the organised retailing, is also
expected to benefit from the growth of
organised retail and the demand for
3processed foods is expected to rise .
With increasing trend of major retailers
towards private labels, the demand from
retail market for processed foods is also
expected to increase significantly.
Changing demographics and rising disposable incomes – This is the most important
demand booster for the processed food in India. The proportion of the “productive” age
is expected to rise to 200 million in 2012 from the current 30 million . ITC, MTR, Amul,
etc are quick to capitalise on this trend with products like Dal Bukhara, Murg Methi,
Sunfeast Pasta Treat, Shrikhand, Pure Ghee, Nutramul etc
Urbanisation – Changing lifestyle and increasing spend for snack-on-the-go is
2responsible for a USD 3 billion and growing snack market . Haldiram’s, Frito Lays, ITC
are quick to capture this market with products such as Masala Peanuts, Chips, Bhujia
and Chats.
1
•
Source: Euromonitor
Source: Euromonitor
group (15-59 years) is nearly 80 in India . This age group’s propensity and ability
to spend on quality processed food is higher. Higher incomes as more Indians join to
middle class and upper class also impact the demand of processed food positively.
4 percent
Policy Drivers5
Indian government recognised the potential of Food Processing sector to the economy and
has come up several initiatives to boost the quantity and quality of output in the sector. The
vast discrepancy in output between the agriculture and food processing is a major cause for
concern and government has increased the spending from INR 72.77 crore in 2002-03 to
159.78 crore in 2006-07 to increase the value of the output, share of global processed
market and provide a fillip to the farmer’s income.
Scheme for Infrastructure development
- The government plans to set up Mega Food Parks so as to integrate the value
chain comprising of farmers, processors and retailers. The move will help reduce
wastage, maximise value addition and increase farmer’s income as they get a
chance to sell the produce directly. 30 mega food parks are planned in the XI five-
year plan.
- Government plans to support Integrated Cold Chains including a value added
centre to ensure that there is no missing link from farm gate to
retailers/consumers, by increasing the grant assistance.
- Modernisation of Abattoirs for supply of hygienic raw material for meat
processing industry.
- In a bid to develop the food processing units, the government is ready to offer a
grant of INR 10 crore for projects providing backward integration for food
processing units and INR 50 crore to modernise meat processing units.
•
Source: MoFPI Annual Report 2007-08
•
•
•
•
Scheme for Technology Upgradation/ Establishment/ Modernisation
- Government provides a grant of 25 percent of the cost of plant & machinery
and technical civil works subject to a maximum of INR 50 lakhs in general areas
and INR 75 lakhs in difficult areas.
Scheme for setting up/ Upgradation of Quality Control/ Food testing Laboratory, R&D &
promotional activities
- Setting up a network of laboratories to help in implementing quality regime for
processed food.
- Higher level of assistance to research institutes like IITs and other central/state
level institutes
- Assistance for organising promotional activities like workshops, seminars,
exhibitions, fairs, surveys etc
- 50 percent subsidy to private companies, which set up quality testing
laboratories and 100 percent subsidy for State governments that install new
testing laboratories.
Scheme for HR Development
- Financial assistance to set up training centres, Degree/Diploma courses on
Food Processing in Institutes, Entrepreneurship Development Programs and
training programs sponsored by the ministry
Scheme for strengthening of institutions
- Establishment of National Institute of Food Technology, Entrepreneurship &
Management (NIFTEM).
- Strengthening of State Nodal Agencies (SNA)
- Information Technology
The challenge in front of the players in the food value chain is to leverage the demand and
policy push effectively to deliver to the growing Indian/Global demand and give continuous
feedback to the government on further improvement measures. Meanwhile, the
government should ensure a smooth policy implementation by investing time and money in
institutional capacity building and in removing complications for the investors and
manufacturers due to multiplicity of departments and regulations.
44
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
45
1. Agriculture: The measures will lead to stabilisation of rural demand.
Agriculture will be made less dependent on the monsoon with
increased focus on irrigation development.
a. Agricultural credit flow at INR 287000 crore in FY09. Target for
FY10 at INR 325000 crore.
b. Continuation of interest subvention for short term farm loans
upto INR 300000. Additional subvention of 1 percent in cases of
timely debt servicing. Effective interest on farm loans thus 6
percent under new scheme.
c. Period of earlier one off debt waiver increased by six months till
31st December 2009.
d. Task force to be set up to look into debt burden of farmers due to
private informal lending in Maharashtra.
e. Allocation under Accelerated Irrigation Benefit Programme (AIBP)
increased by 75 percent.
f. Allocation under Rashtriya Krishi Vikas Yojana increased by 30
percent.
2. Improving Rural Demand: Increased allocation to National Rural
Employment Guarantee Scheme by a whopping 144 percent to
improve employment and consumption.
3. Taxation: GST by April 2010 will lead to rationalisation and
simplification of the tax structure at both the central and state level,
removing the non-uniform VAT currently in place.
4. Cold Chain: A deduction is allowed in respect of entire capital
expenditure (other than the acquisition of any land or goodwill or
financial instrument) incurred by the taxpayer engaged in the
following businesses:
- setting up and operating cold chain facilities for specified
products
- warehousing facilities for storage of agricultural produce
Budget 2009 Support Measures
Mr Subodh Kant Sahai, Hon'ble
Minister for Food Processing
Industries, however is of the
view that the industry needs
more sops on the lines of IT
industry – Tax holiday for 8-10
years and 100 percent
depreciation on plant and
machinery. Also, he feels that for
Agriculture to grow at 4 percent,
Food Processing should achieve a
growth rate of 6 percent.
Currently, the mismatch between
harvest and post-harvest
production is huge and this gap
needs to be bridged. The minister
is also for improving the training
facilities by using the ITIs. The
Minister projects an investment
requirement of INR 1,00,000
crore for the sector and is bullish
on the PPP mode to achieve the
target investments in the sector.
He also says the regulatory
framework needs to be
streamlined from 16 laws and 13
ministries taking measures to one
law that governs the sector.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
46
Food Value Chain
Depicted below is a generic representation of Food value chain. It involves multiple steps
and relationships between multiple players with multiple ministries and departments
providing policy and regulatory support. It is important to note that the value chain need not
be sequential as shown and can jump a level or two in a few cases.
Farm input – Companies that provide farm equipment, seeds, fertilisers etc.
Farming – Agricultural production combines the farm inputs with other inputs such as land,
water, labour and investment.
Marketing/Aggregator – Farmers usually sell the crop to a market aggregator who buys from
multiple farmers and sells to a processor. Farmers, if they are big enough and/or nearer to
the processor, or are under a direct procurement contract etc., can directly sell to the
processor. Farmers can also choose to sell the crop directly to the consumers depending
upon the nature of the crop.
Processors to Consumers – The processor does some value addition to the primary foods
and delivers processed food to consumers with the help of Logistics providers and Retail
Opportunities in the Food Processing
Value Chain
FarmsInputs
Farming Marketing/Aggregator
Processing Logistics(Food)
Retail/FoodServices
Consumer
Financial & Business Services
Transport Services/Infrastructure
Quality Control Market Intelligence
Product Design
Distribution
Marketing
POLICY SUPPORT
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: KPMG Analysis
47
outlets. Consumers can be individual or institutions. The key
attributes that help sell the final goods to the consumers are design,
distribution and marketing
Enablers: At each stage of the process, the players are supported by
a set of business enablers like Financing, Transport, Infrastructure –
Both hard and soft, Quality and Safety certifications, and Knowledge
about the market. At an overarching level is the government policy
that provides an enabling environment for all players to function in
the industry competitively and in a socially responsible manner
India is blessed with multiple agri-climatic zones and has
advantages of round-the-year cultivation capability. India still
produces varieties of crops, tomatoes and oranges for example,
that are not commercially viable for producers. The lack of
production and identification of items with commercial viability
contributes to the significant wastage. We import apples from
USA as the apples of Himachal Pradesh lack enough juice for
processing. India needs to focus on more processable
variety of crops to reduce wastage, increase processing
levels and hence value addition.
Eighty percent of India's 115 million farms are situated on plots
of less than 2 ha. A little over 1 percent of all farms are larger
than 10 hectares and these constitute 15 percent of the
cultivated land. With organised retail penetration increasing and
government's proposed mega food parks obviating the need for
an intermediary, Contract Farming is an opportunity for the
processors that will help in better handling, price realisation and
minimising wastage.
PepsiCo and Cadbury's examples of contract farming in India
can be a model for others to follow. The potato farming initiated
by Pepsi in Jharkhand can be useful in making potato chips that
can be supplied to food chains like Mc Donald's and others.
Government has announced various policy measures and
tax incentives for cold chain and warehousing, Food Parks
and Agri Export Zones to augment the storage and processing
Key Opportunities
1. Processable varieties of crops
2. Contract Farming
3. Investments in Infrastructure through PPP
capacity. Lack of infrastructure is a major roadblock impeding
the growth of the processed food segment. With a lot of
emphasis on value addition in food processing, it is imperative
that investments in infrastructure are a must and should have
favourable policy framework and fiscal incentives.
Mega Food Parks
Lot many State governments have taken the policy directive from
the centre and have planned Mega Food parks with associated
fiscal incentives. The proposed food parks aim to bring
together all players in the value chain together so as to
minimise waste and improve value addition in the industry.
This move will also help farmers realise better prices by removing
intermediaries. The processors also will be benefited by a better
inventory management and production planning.
The proposed mega-food parks will be between 10 and 100
hectares in size and 30 locations across India had already been
identified. The parks would be set up through private
consultants with the government providing grants of up to INR
1500 million each .
Each mega food park will have a minimum catchment area of
five districts. With a chain developing from the farm gate to the
retail shelves with collection and distribution centres and central
processing centres in between, where functions like sorting,
grading and packaging along with irradiation, food incubation-
cum-development will take place, the food processing ministry
hopes this initiative to be a commercial success.
Integrated Cold Chain
India wastes more fruits and vegetables than it consumes.
About 30 percent of the fruits and vegetables grown in India (40
million tons amounting to USD 13 billion) get wasted annually
due to gaps in the cold chain such as poor infrastructure,
insufficient cold storage capacity, unavailability of cold storages
in close proximity to farms, poor transportation infrastructure,
etc. This results in instability in prices, farmers not getting
2remunerative prices and rural impoverishment .
Government plans to encourage setting up of Integrated
Cold Chain facilities to improve storage and reduce waste by
not missing any link in the value chain from the farmer to the
consumer/retailer.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
1. Financial Express 2.harvest losses due to gaps in cold chain in India – A solution, C. Maheshwar, T.S. Chanakwa
International Society for Horticultural Science, Post
48
4. Food Safety Management Systems
Food safety is a growing concern across both developed and
developing nations. The introduction of Sanitary and
Phytosanitary Agreement and stringent safety regulations
means the Indian Processors/Producers should be
knowledgeable of the Food Safety requirements. Food
retailers/Independent bodies/Exporters should take the
initiative in educating the backward linkages. Going
forward, there will be a need for Food Safety certifying
agencies (for ISO 22000) authorised by the importing countries
or standards setting boards.
Organic Farming in Italy - A Case for Food Safety and
Farmer Cooperatives
Food Safety - Growth in Organic Farming
Organic Agriculture in Italy is acclaimed to be one of the
best in the world. During 1990-2000, the growth of organic
farming in Italy has been spectacular. Area under organic
cultivation increased from 13,000 ha to more than a million
hectares, approximately 7.2 percent of the total cultivated
area. By 2002, the area increased to 183,000 hectares (7.94
percent of the cultivated area). The reasons for such a
substantial increase were the food scandals like the mad
cow disease leading to the search for safe foods, the
constant endeavour for alternative farming methods which
were environmentally, technically and economically
attractive to the farmers and the liberal subsidies.
Expansion of new economic activities in rural areas -
Processing Cooperatives
In 2005, 41 percent of the organic area is under pastures.
Olive cultivation is the single biggest crop with 10 percent
of the area under cultivation while Cereal crops are raised
on 18.2 percent of the area. High growth of organic farming
led to a growth in processing units to the extent of 142
percent during 1997-2000 alone. By 2005, 1300 of the
42000 processing units are established by the farmers
themselves. Organic farming has resulted in the setting up,
conversion or expansion of new economic activities in the
rural areas of Italy.
A consumers' cooperative venture established the first
organic shop in Milan. The most important fact of the
market distribution of organic products in Italy is the
predominant position of the farmers' or consumers'
cooperatives. Consumer expenditure on organic products
can be split as follows: Dairy - 26 percent; Fruits &
Vegetables - 13 percent; Breads and Biscuits - 12 percent
A survey of the motives of the consumers of organic foods
revealed that every one was going for organic products to
protect the health of his/her family.
Policy Support for Organic Farming
Various legislations by the European Union providing
subsidies were instrumental in the growth of organic
farming in Italy. The devolution of power to the Regional
Government on agriculture policy in 1972 has resulted in
different levels of subsidies in different regions/crops.
There are nine organic certification bodies in Italy. A single
agency named ICEA has a share of 24 percent of the
certified farms coming to about 29 percent of the area.
These nine agencies have about 900 local offices, 1000
staff and technicians for inspecting farms, processing units
and storages for giving certifications.
Universities and Public Research Centres are becoming
increasingly interested in research and extension activities
in relation to organic agriculture. A National School of
Organic Farming has been established by the Ministry of
Agriculture to impart education.
Source: Organic Farming in India: Relevance, Problems and Constraints,
Dr. S. Narayanan, NABARD, 2005
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
49
5. Farm Equipment
6. Packaging and Barcoding
7. Quality Control and R&D labs
Thefarm equipment sector in India is nascent, but a fast
growing one, that is set to experience sustained growth due to
increased mechanisation of farming, easy availability of credit
and emerging practices, such as contract farming. Tractors and
related equipment form the major part of the industry and given
their low penetration levels in India, look set to continue having
a significant share in the market. These appear the most
attractive segments for investment and have been attracting
multinational players such as John Deere.
Also, there is need for equipment that is customised to the
Indian context. Advanced equipment is imported and is mostly
not suitable for Indian conditions. The equipment that is used in
India is not advanced. So, there is a huge opportunity for
players with technology to develop products that suit the
Indian conditions. Government can introduce measures to
enable Transfer of Technology to help the local equipment
industry come on par with the latest technology.
Implementation of safety standards for consumer safety is vital
in the Food Processing Industry. Food should be packed for
safety and promotion of brand as well. Also, capturing the
information flow about the physical movement along the value
chain is important in ensuring quality and traceability. Currently
manual, repetitive data recording processes, poor linkages
between goods/information flows, incorrect dispatches,
wastages in transit and storage, poor stock management, lack
of track & trace capabilities, etc are a few issues that confront
the Indian food processing sector.
Barcoding using international numbering standards enables
unique and universal identification of products, consignments,
companies, entities and assets, facilitating efficient goods
movement, and its track & trace across supply chains. The
packaging and barcoding is expected to only pick up due to
mandatory laws on traceability and supply chain efficiency.
Institutes that segregate the produce from various sources to
different grades; test the produced raw materials, foods in
8. Training and Market Intelligence Provision
9. B2B sales – Sales to the Institutional Segment
10. Segment level opportunities
process and finished products are required to help maintain
quality levels in the food processing industry. Quality control is
used to predict and control the quality of processed foods and
hence control the process so that the expected quality is
achieved for every batch. Joint research initiatives will help
SMEs compete effectively with the large players without
spending too much money. Government should encourage such
initiatives and enable a supportive legal and institutional policy
framework.
As the market matures and intermediaries are gradually reduced
in the value chain, the farmers seek knowledge about markets
and price directly and would like to sell at the best possible
price. The mechanisms that enable a farmer to gain market
intelligence and trading capabilities need to be evolved. Also,
training facilities need to be designed as most of the farmers
are not educated and would need a very simple way of learning
and using the system.
The B2B segment of the food sales has not taken off in a large
scale as much as the retail sales have. This is because of the
presence of a large number of small players in the industry and
a few large players. There is significant potential in the B2B
segment due to consistency in demand and economies of
scale. Cooperatives, as explained in the case of Italy Organic
Farming, or backward linkages will help aggregate the
produce by removing the intermediaries, help farmers earn
remunerative prices and reduce supply uncertainty for the
processors.
In the food processing sector, the sub-sectors such as 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 have
huge potential in the domestic and export market.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Summary
Conducive policy and increasing demand provide many opportunities for players across the
food value chain. The opportunities and associated advantages for Farmers, Producers and
Consumers are summarised in the table below:
These opportunities come with a set of constraints in the industry that need a suitable
policy from the government and active involvement of private players in providing solutions.
The key constraints and measures are detailed in the next chapter.
Opportunity
Customised equipment for the local market
Processable variety of crops
Forward Linkages with the Processors
Contract Farming Arrangements
Consolidation of farm produce
Access to global markets
Forward linkages with Organised Retail
Backward linkages with farmer
Institutional segment business
Increase in integrated storage facilities requirement
Cold storage facilities
Mega Food Parks
Integrated Cold Chain
Quality Control and R&D labs
Food Safety management systems
Joint Research Initiatives
Training and Provision of Market Intelligence
Packaging and barcoding
Player
Farm Equipment
Farmer
Processor
Logistics provider
Investors
Enabling Segment
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
50
The opportunity in food processing industry is significant, but so are the challenges that ail
the sector. Certain limitations could be seen as an opportunity waiting to be exploited for
the allied sectors and others as a guiding light to a roadmap for government's intervention.
The following section throws light on various challenges faced by the food processing
industry in India and how some of them have been tackled by early entrants in this sector.
The area of concern for food processing industry begins at the level food production itself.
Despite being an agrarian economy-one of the largest producers of vegetables, fruits,
1spices, milk, eggs, potatoes, wheat, meat etc . the productivity of crops is quite low as per
international standards. India's overall agriculture productivity is still at approximately 2
2percent . The problem of low productivity is compounded by poor quality of food produce.
It is essential to recognize that in a global arena, price competitiveness alone cannot suffice
as an instrument of competitive advantage. Food processors need to deliver taste and
quality demanded by consumers of both domestic as well as international markets. Hence,
the players need to device a twin pronged strategy of improving agricultural yields coupled
with delivering the right quality to different markets. Agricultural yields can improve only
when India resolves the problem of fragmented land holdings and adopts innovative
technologies to boost crop productivity. It is pertinent to note that reasons for low
productivity vary across regions and these need to be addressed on individual basis.
According to the Planning Commission XIth plan report on Agriculture, region specific
factors causing low productivity are as follows:
Productivity Issues
Constraints & Strategies
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
51
1. FAOSTAT
2. Innovative technology to ensure food security, UNI (United News of India), 25 March 2009
52
Region-specific Factors Causing Low Productivity
Agro-climatic Region
Western Himalayann
region I
Eastern Himalayan region
-II
Lower and middle
gangetic plain region - III
and IV
Upper and trans-gangetic
plains region - V and VI
Eastern plateau and hills
region - VII
States/ Parts of States
J&K, HP, Uttaranchal
Assam, NE States, Sikkim
West Bengal, Bihar,
Eastern UP
Western UP, Punjab,
Haryana
Orissa, Jharkhand,
Chhattisgarh
Region-specific Constraints
Severe soil erosion, degradation due to heavy
rainfall/ floods and deforestation, low SRRs, poor
road, poor input delivery, inadequate communication
infrastructure and marketing
Aluminium toxicity and soil acidity, soil erosion and
floods, shifting cultivation, low SRRs, non-availability
of electricity, poor road, poor input delivery system
and communication infrastructure
Food/ water logging, improper drainage,
salinity/alkalinity, arensic contamiation, low SRRs,
non-availability of electricity, high population growth,
poor road and communication infrastructure
Groundwater depletion, decreasing total factor
productivity, micronutrient deficiency, non-availability
of electricity, and high population density
Moisture stress, drought, and soil acidity, iron
toxicity, low SRRs, non-availability of electricity, high
population growth, poor road, poor input delivery and
communication infrastructure.
Source: Cited in Report of the Working Group of Sub-Committee of National Development Council on Agriculture and Related Issues on
Region/Crop Specific Productivity Analysis and Agro-Climatic Zones, Planning Commission, Government of India (February 2007).
Research and Development
!
!
!
In order to improve farm productivities, continuous introduction and implementation of
innovative technologies calls for existence of a strong R&D network. While substantial
investment is made in this regard, the efforts have not been rewarding. This is purely
because of lack of a clearly stated strategy that assigns definite responsibilities, prioritizes
the research agenda rationally, and recognizes that the research mode is not always best
suited for product development and delivery. Some of the common problems ailing the agri-
R&D in India are:
Commodity-centric R&D: Lack of a holistic approach involving a matrix of farm
enterprises
Compartmentalization of R&D agencies: Lack of effective bilateral flow of information
amongst research, extension, and implementation departments
Poor validation and feedback mechanisms: Lack of large-scale on-farm validation of
techniques and feedback thereon, leading to practically no scope for enhancement
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
53
Source: Continuation of the ongoing Plan Scheme of IIHR, Bangalore and seven sub-schemes for 11th Five Year Plan, March 30, 2009, Indian Council of Agricultutral Research
An exemplary shift is required to transform the present commodity-centric research to a
systems approach. Since farm-level problems are specific to agro-climatic zones (ACZs), a
convergence between R&D agencies within individual ACZs is required. This can help bring
region-specificity in technologies and their time-bound assessment. A seven-step
mechanism is required to set-up a research-development-technology transfer continuum
involving all stakeholders:
Problem identification and prioritization
Convergence of existing technologies to match the need
Generation of need-based viable technologies using the holistic farming system
approach
On-farm assessment and evaluation
Feedback on the technologies
Refinement of technologies, if necessary
Ensuring Timely availability of inputs
!
!
!
!
!
!
!
Human Resource Development
Advancement of any industry depends upon availability of skilled human resource. Food
processing industry is no exception to this rule. The industry is in dire need of highly skilled
and trained manpower across different levels to handle various operations.
The human resource requirements for the food processing units in India vary according to
the nature of the industry in which it operates. A food processing unit might be operating in
any of the three frameworks: in organized sector, as small scale entrepreneurs or in
unorganized sector. It is very essential to design and develop a mechanism addressing to
State 9%
Government
Indian Agricultural Research91%
Council of
Enhanced productivity and profitability
The outcome of the scheme will be
Conservation and safeguarding of genetic
resources like new high yielding cultivars having
resistance to biotic and abiotic stresses and also
nutritive and qualitative attributes
Enhancement in the input use efficiency (water,
nutrients, pesticides, labour)
Technology for plant health management
Minimising of post - harvest losses
Development of newer products and value
addition for better remuneration
Development of technology for organic farming,
off- season and protected cultivation to ensure
extended availability
?
?
?
?
?
?
Center's planned funding for sector during 11th Plan (INR 199.54 cr)
horticulture
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
54
the manpower development for these sectors at different levels of responsibilities. Thus
human resource development needs to cover the entire gamut, from basic infrastructure,
education, vocational and technical guidance to professional qualifications. For this purpose
State Universities need to be encouraged to commence courses in food packaging,
processing, bio-technology, information, technology in agriculture and such allied fields.
INDUSTRYLEVEL
ENFORCEMENT
REGULATORYAND TRADE ISSUE
RELATED
FOODPRODUCTION
WAREHOUSINGAND
DISTRIBUTION
?
?Mid-managerial level HRD
?Operators level HRD
?Sanitary Workers (concept of personal hygene)
Managerial HRD
?
and the enforcement authorities can discuss the issues and the further
actions with respect to policy decisions
?Institutions should include Regulatory and Trade Issues as a part of
curriculum
?In case of a management course like business management in food/agri
the Government should include the WTO aspects, TBT, SPS,
Export/Import regulations etc
Organisations like FICCI, CII etc can provide a platform where industry
?
?Food safety management system at the plant level
?Operators level HRD
?Industry specific Hazard Analysis and control program
?Auditing and inspection skills
?Process development
?Current domestic food regualtions
Food safety awarness
?
?The national network of ICAR could be made use of to incorporate farm
level food safety and related legislation
?Focus on packaging techniques, use of appropriate packaging material,
storage and safe transportation of the farm produce
Develop institutes/universities like IGNOU, ICAR for Farm Level HRD
?
affect the food safety of a product
?Programmes based on regional climatic changes and natural disasters
?National Institute of Agricultural Marketing (NIAM) under Ministry of
Agriculture has taken initiative by considering Warehouse and
distribution as a training need
Emphasize on how the storage conditions, handling of food items can
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: KPMG Analysis
55
Supply Chain hindrances
Indian agri-business is renowned for their long and fragmented supply chain. The
inefficiencies in supply chain lead to huge losses due to wastage or shrinkage of perishable
commodities. In India, post harvest losses of perishable commodities are in the range of 30
3to 40 percent . The entire supply chain is dominated by unorganized players and absence of
any structured markets to ensure correct price discovery and availability of consistent
quality produce. Several middlemen add to wastages from the farm to the consumer,
retailer, processor or exporter. A long supply chain also means that each level of the supply
chain is unaware of the requirements of the next level and thus there exists disconnect
between farmer and processor. Finally, the nature of the processing industry creates further
problems for the food processor. The FPI is characterized by seasonality, perishability and
variability of produce.
These unique features of FPI necessitate that the food processors collaborate
with farmers to secure raw material. One of the crucial requirements of FPI is to
get the consistent supply of quality raw material. At present, raw material is
procured from markets, which often has variable quality and at times insufficient
quantity. 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. Therefore, without quality and consistent supply of raw material, it is
unlikely to set up large units in food processing sector.
Contract Farming
In order to bridge the gap between farmer and processor, some of the private
players such as PepsiCo, Reliance Life Sciences, ITC (agri-business division) and
The ground and tree crops, fisheries and live stocks undergo a reproduction cycle.
Therefore, food processors have to procure the required raw materials during a
particular season, while the processing operations and demand for their products
are round the year
The food processing industry’s raw materials are highly perishable in nature .
They therefore require faster processing speed and involve higher handling and
storage costs
The industry has to face variability in the quality of raw materials. This is due to
cyclic variations as well as changes in weather conditions and/or damage to
crops and livestock from pests and diseases
Variability
Seasonality
Perishability
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
3. Maharashtra State Agricultural Marketing Board
56
McDonalds have modified their
sourcing channels to include contract
farming. Typically, the farmer agrees to
provide agreed quantities of a specific
agricultural product which should meet
the quality standards of the purchaser
and be supplied at the time determined
by the purchaser. In turn, the buyer
commits to purchase the product and,
in some cases, to support production
through, for example, the supply of
farm inputs, land preparation and the
4provision of technical advice . Some of
the clear benefits of contract farming
which creates a win-win situation for
both farmers and processors are:
!
!
!
!
It integrates supply chain to ensure timely availability of quality and quantity of
raw material for processors
Significantly reduces the procurement cost for food processors by removing
the middlemen
Food processors are able to source raw material as per their specific
requirements at a cost which is much less
Private sector participation increases the scope of technology transfers,
capital inflow as well as leads to assured markets for crop production
Suguna's poultry integration model is a case in point. The model has created a
win-win situation for both the farmer and the integrator. Farmers are provided
with day-old chicks, feed and health support. The performance is monitored on a
daily basis with Suguna field staff visiting the farms to check on the health of the
birds, feed intake, growth and mortality levels. In six weeks time, the birds are
weighed and are ready to be sold by Suguna through its own retail outlets as well
as other retailers and exporters. The farmers are paid a growing charge for the
birds at the end of the period.
Distributed to
contract farms
Suguna Poultry Suguna Fresh RetailMaize and Soya Network for Feed
Procurement Backward Integration Forward Integration
Extension services
6 weeks
Exports
Retailers
Parent birds
Hatching eggs Hatchery
Day -old chicks
Grandparent birds
Field staff makes daily visits to each farm to check the health of the birds, their feed intake, growth and mortality levels
About Suguna Poultry
?INR 2 billion turnover
?11 states with 4,800 employees
?15,000 + farmers
?25,000 channel partners
?395 million chickens produced per annum
?36 hatcheries and 50 feed mills
?1.56 million tons feed production per annum
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
4. Food and Agriculture Organization of the United Nations
Source: Company Website, KPMG Analysis
Case Study: Contract Farming by Suguna Poultry
Terminal Markets
While contract farming is one of the many
alternatives for food processing industry to
explore, it is not the only solution with the
private players. Another option for the
players is to leverage Terminal Markets to
procure quality produce at the right price.
Terminal Markets are established under
Public Private Partnership (PPP) mode and
operate on a Hub-and-Spoke Format
wherein the Terminal Market (the hub) is
linked to a number of Collection Centres
(the spokes). These markets help in
realizing better returns to the farmers by
reducing post harvest losses of perishable
commodities and reducing the number of
middlemen as well as provide one stop
shop for the processors to procure quality
raw materials.
The perishable horticultural produce is
cleaned at the collection centres and
transported to the terminal markets through
reefer vans thereby reducing post harvest
losses. The produce arriving in the terminal
market is graded and stored in the cold
storage till it is auctioned through electronic
auction system or direct selling.
The commodities marketed include all kinds
of perishable commodities, such as, fruits,
vegetables, flowers, aromatics, herbs, meat,
poultry etc. Non perishables are also
handled in the Terminal Market. However,
the proportion of Non-Perishables cannot
exceed 15 percent of the total through put of
the market. Similarly, the proportion of non
horticultural products within the perishable
commodities cannot exceed 15 percent of
the total through put of the market.
57
Case Study : Terminal Markets
TERMINAL MARKET
Producers/ Farmers and their Associations
Electronic Auction
Processor Exporter Wholesaler / Retailer
Direct Selling
Collection Centre Collection Centre Collection Centre
INFRASTRUCTURESERVICES
Storage
• Warehousing
• Cold Storage
• Ripening Chamber
Banking / Finance
Quality
Testing
And Grading
1 2 3
?Transport (incl. cool
chain)
?Settlement of
Payments
?Banking
?Market information
?Pack house
?Quality Testing
Facility
?Palletisation
?Washing
?Grading
?Sorting
?Weighing
?Transport
?Collection &
Aggregation of
produce
?Settlement of
payment
?Advisory on inputs,
prices, quality
?Multi modal
transport
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: KPMG Analysis
58
Low adherence to quality standards
There is an increasing need for food processors to adhere to quality standards for both
domestic as well as export market. While the export market has always been critical in
terms of quality and hygiene, the domestic market should no longer be taken for granted.
Due to globalization, the rules of the game have become much more strict and intense.
Today, the consumers need to be ensured that that the foods that they consume are
healthy and have been subject to highest levels of manufacturing and hygiene standards.
However, an essential consideration is that once a food product has been through a
manufacturing process, little can be done to alter its quality.
It is therefore pertinent that the industry ensures that the requisite controls are put in place
across the agri-value chain-from farm inputs to storage of produce to food processing
techniques. Under WTO regime, Indian processors have to ensure that they meet the
requisite food standards in order to compete with imported goods. This calls for adoption of
high tech machine and technologies, development of entire chain of infrastructure and most
importantly putting in place quality control processes.
One of the key challenges in ensuring adherence to food standards is availability of basic
standardization and certification infrastructure. Given the size of the industry, there is a
huge gap in the availability of laboratories, trained manpower, and certification agencies.
The government should increasingly support private sector participation to address to these
issues. International players with extensive experience in providing certifications on CODEX,
HACCP, GMP and GHP guidelines should be invited to operate in India. This would not only
provide necessary infrastructure support but also ensure availability of certification as per
international standards.
CASE EXAMPLE
Suguna Poultry Farm has launched the first environment-controlled (EC) commercial
broiler sheds in Madurai district. Each shed has a capacity of 32,000 chickens, with the
farm capacity at about two lakh chickens a batch. The annual capacity has been
estimated at 12 lakh birds.
! Automated feed: The entire system in the sheds is automated through advanced
climate control system. Further, the feeding and watering systems are also
automated, thus enabling the entire farm to be operated and controlled from a
single computer-based system.
! System works: The EC sheds would help improve feed conversion ratio, better
quality bird meat, increased productivity and health of the chicken, reduced
mortality, one extra batch (or cycle) per year per shed, and a system-controlled farm
with ability to store and retrieve records up to five years
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Source: http://www.sugunapoultry.com
59
Poor Financing Options
!
!
!
!
!
!
Being a developing economy, availability of finance has always been
an issue across the agri-business value chain in India. For long the
sector has been ailing due to either unavailability of funds or
availability of funds through unorganized sector at unfavourable
terms and conditions.
The impact of the same could be seen in form of
For Farmers
Use of poor quality of inputs (seeds and fertilizers)
Inability to use latest technology to enhance productivity and
ensure consistent quality of produce
Off-loading the produce at lower than market rate due to urgent
need of funds
SME Food Processors
Failure to expand plant capacity
Compromise of the level of safety measures to ensure hygiene
and food safety measures
Inability to purchase of quality input through auctions. This could
have multifarious implications, ranging from issue of
inconsistent quality to loss of clients and goodwill of the
company
The size of the target population seeking financing options is so
large that even with the government assigning priority sector
lending to agriculture and its allied activities, the sector is still
yearning for more funds. One of the biggest challenges for a small
scale food processor is to raise funds when he does not have assets
to offer as collateral. While the agri-business sector offers
tremendous opportunity for employment and business growth to
SME, their inability to raise requisite capital eradicates any chances
of their even setting up the business in the first place.
Within the priority sector lending target of 40 percent, the
banks are mandated to lend 18 percent to direct and indirect
agricultural activities. Food processing finds place within a
further subcategory of indirect lending of 4.5 percent. This
sub-category is usually oversubscribed by banks as
agriculture inputs form a part of it. Direct lending has its
own limitations in expanding credit to this sector. In the
above case, there is no distinct finance for food processors.
This issue is common to many developing nations. To address this
gap, some organizations have been exploring equity investments in
SMEs that operate along the food value chain. These investors place
less emphasis on collateral or creditworthiness and more on the
capabilities of the entrepreneurs and viability of their business plans.
Two such initiatives are African Agricultural Capital (AAC) and the
Africa Enterprise Challenge Fund (AECF). AAC is backed by USD 7
million from the Rockefeller Foundation and other private donors.
The fund has made 15 investments in small- and medium-sized
agricultural ventures in East Africa. The AECF is a USD 100 million
pool established by several donor agencies. AECF funds private
companies to develop innovative business models in the agriculture
and financial services sectors.
Source: International Fund for Agricultural Development, 2008
Indian Export related infrastructure for agri-produce is grossly
inadequate, especially at sea ports and airports. More than 30
percent of the produce from the fields is lost due to poor post-
harvesting facilities and lack of cold chain infrastructure. India has
merely 21.7 Million Ton cold storage facilities whereas it needs at
5least 9-10 Million Ton more of capacity . The cold storage facilities
now available are mostly for a single commodity like potato, orange,
CASE STUDY
Equity Bank, Kenya: Financing farmers and enterprises
along the food value chain
Equity Bank of Kenya, one of Kenya largest banks, launched a
project in 2007 aimed at providing USD 50 million in credit and
other financial services to Kenya farmers, agricultural input
dealers, and other players in the agricultural value chain. Two
project partners, the International Fund for Agricultural
Development (IFAD) and the Alliance for a Green Revolution in
Africa (AGRA), provided a USD 5 million cash guarantee fund to
reduce Equity Bank risk. The Kenyan Ministry of Agriculture is
also a partner in the project, which provides targeted subsidies
to poor farmers in the form of vouchers, which they can use to
purchase inputs from agricultural input dealers. The Ministry also
conducts outreach to build awareness of the program, and helps
monitor its results. If successful, project partners plan to
replicate this approach more broadly in Africa.
Infrastructure bottlenecks
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
5. India Today, Hungry for action, May 21 2009
grapes, pomegranates, flowers, etc. which
results in poor capacity utilization.
There is also a lack of trained experts for
testing, quality certification, R&D etc. who
can educate the farming community of the
standards and requirements and the
processes of obtaining certifications. R&D
efforts, as discussed earlier, also are a
drawback.
Information on good agricultural
practices: Providing farmers with
information on good agricultural practices is
a quick win' solution that has shown
impressive results. In a partnership between
BT, Cisco and OneWorld, the LifeLines India
project has already demonstrated a 20 to 30
percent increase in productivity among
users. The service is simple: farmers can dial
a fixed voicemail number where they can
record their queries. A dedicated knowledge
worker then finds the answer through a
panel of agricultural and veterinary experts,
using an innovative Internet-based
application. Farmers can retrieve the answer
by voicemail at a cost of INR 5 (11 cents).
After 2.5 years of operation, the service is
receiving over 12,000 calls per month
Multiple laws at state and centre level are
applicable to the FPI. The plethora of food
legislations and enforcement agencies often
results into a manufacturing plant being
visited by a number of inspectors from
different departments leaving enough room
for multiple harassment and even corrupt
practices. Such multiplicity also leads to
conflicting approach, lack of co-ordination,
administrative delays etc., thus retarding the
Multiplicity of Laws and Stringent
Regulations
growth of entire industry. Additionally, the industry is characterized by high tariffs, dated
food laws, unscientific sanitary and phytosanitary restrictions.
There is no uniform implementation of the Act though. Only 15 states have adopted the
model law. In fact, states like Bihar do not have an APMC Act at all. Key challenges with
APMC Act:
The transactions outside the regulated mandis are prohibited under the APMC Act
Direct marketing and contract farming are not encouraged by most of the states under
the APMC act
The act prohibits investments from private sector for improving the infrastructure
The act does not allow direct procurement of produce from the farmer's yield
As per the act the purchaser has to be a registered with a commission agent at the
market
Poor implementation of APMC Act
!
!
!
!
!
Name of States/Union Territories (UT)
Madhya Pradesh, Himachal Pradesh, Punjab, Sikkim,
Nagaland, Andhra Pradesh, Rajasthan, Chhattisgarh,
Orissa, Arunachal Pradesh, Maharashtra and
Chandigarh
Haryana, Karnataka, Gujarat, NCT of Delhi
Uttar Pradesh
Bihar, Kerala, Manipur, Andaman & Nicobar Islands,
Dadra & Nagar Haveli, Daman & Diu and
Lakshadweep
Tamil Nadu
Assam, Mizoram, Tripura, Meghalaya, J&K,
Uttaranchal, Goa, West Bengal, Pondicherry and
Jharkhand
Stage of Reform
States/UTs where reforms to APMC Act have
been done as suggested
States/UTs where reforms to APMC Act have
been done as suggested
a) by amending APMC Act
b) by Executive Order
States/Uts where there is no APMC Act and
hence not requiring reforms
States/UTs where APMC Act already provides
for the reforms
States/UTs where administrative action is
initiated for the reforms
Policy amendments by States to counter the challenges posed by APMC Act
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
60
Industry and Research Institution
Linkages
The current level of interaction between the
industry and research institutions is less.
Institutions like CFTRI who work closely with
a few industries have delivered several
successes – MTR and CFTRI have together
developed products for the Indian Military. As observed in Germany, initiatives to link
research and institutions lead to an increased innovation in the industry in terms of products
and processes. The initiatives will require policy, institutional and legal framework to be
successful at a large scale going forward. A successful fruit processing pilot unit set up by
CFTRI is described in the case study.
! Ministry of Agriculture had
formulated APMC Act to rbing
about marketing reforms in line
with the market trends
! The Act was to enable
establishment of private markets,
direct purchase centers,
consumers/farmers markets for
direct sale, and promotion of
public-private-partnership (PPP)
! With the growth trend of Super
and Hyper markets a provision
was made for constitution of
State Agriculture Produce
Standards Bureau for promotion
of grading. standardization and
quality certification of agricultural
produce
! 15 states and 5 Union Territories
have amended their Agricultural
Produce Marketing Committee
(APMC) Act to derive the benefits
of market reforms
!
!
!
!
E-choupal is a business platform consisting of a set of
organizational subsystems and interfaces connecting
farmers to global markets
The stricture was set to leverage a host of product and
services for the farmer as a producer as well as a
consumer
The business platform consists of three layers each at
different levels of geographic aggregation
! The first layer consists of the village level kiosks
with internet access
! The second layer consists of a bricks-and-mortar
infrastructure (called hubs) managed by the
traditional intermediary
ITC chose to operate the platform on the following
three business principles:
! Free Information and knowledge which ensures
wider participation by the farmer,
! freedom of choice in transactions (farmers, after
accessing information at the e-Choupal, are free to
transact their own way)
! transaction-based income stream for the Sachalak
by tying his revenue stream to transaction (on a
commission basis)
Perception behind
formation of the APMC ActCase Study: An initiative by ITC
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
61
!
!
!
!
!
!
CFTRI is an internationally reputed institute in food science and
technology
The development of Human Resource in the area of Food Science
and Technology has been one of the important activities of CFTRI
With a formidable reputation that surpasses the best in the world,
the CFTRI has over 270 products and processes
The CFTRI is focused on evolving cost-effective technologies that
utilize indigenously available raw materials to deliver nutrition
security to all sections of the population
CFTRI also houses the National Information Centre for Food Science
and Technology and provides the Indian R and D inputs to food
science and technology
The institution aims to provide value addition to meet nutritional
demands, supply technologies that help generate employment
opportunities in the area of food processing, improve the traditional
methods of processing foods by incorporating new technologies,
provide value addition to domestic and international trade and
promote avenues for self-employment
Overview
! Rishang Keishing Foundation for Management of Tribal Areas (MATA) promoted an integrated processing facility for
fruits, spices and vegetables including bamboo shoots for the benefit of the people
! A MoU was signed with CFTRI to provide a total turnkey solution, comprising of the engineering aspects, erection of
the plant and machineries, training on plant administration and production of various canned fruit products
Benefits
! The plant processes naturally and organically grown pineapple, oranges, passion fruit and other fruits/vegetables to
value added products such as pineapple juice concentrate, orange juice concentrate, passion fruit juice concentrate and
bamboo products
! The fruit-processing project is to process 3.65 tonnes of pineapple product (2 MT of pineapples per hour) and 2.85
tonnes of orange products (1 MT of orange per hour) per day
! Application of membrane processing technology for making clarified juice concentrates from pineapple and oranges is
an eco-friendly technology borne out of indigenous R&D
! The integrated programme for the procurement of fruits grown by the tribals, processing, value addition and marketing
under agro-industrial development programme is one of the major steps for bringing economic prosperity and the unit
has the potential to be model for rest of the regions as well.
Overview CFTRI Potential Benefits of CFTRI training
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Analysis and Quality Standards
Confectionery Technology
Food Biotechnology
Food Flavors and Sensory Evaluation
Food Packaging
Food Processing Equipments
Infestation Control and Pesticides
Instrumental Methods of Food Analysis
Microbiological Quality Control of Foods
Post Harvest Handling Of Fresh Fruits and Vegetables
Processing and Analysis of Spice and Spice Products
Processing of Oil Seeds for Value Addition
Production of Enzymes and Food Ingredients By
Fermentation
Production of Secondary Metabolites through Tissue Culture
Quality Management System for Food Industry
Rice Technology
Storage of Food Grains
Technology of Fruit and Vegetable Products
Technology of Meat and Fish Products
Wheat Milling and Bakery Technology
Success Story: Integrated Pilot Scale Fruit Processing Unit setup for M/s. Rishang
Keishing Foundation for Management of Tribal Areas (MATA), Imphal, Manipur
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
62
63
Packaging
!
!
!
!
!
!
Packaging norms are stringent and are governed by various laws.
Standards of Weights and Measures Act, 1976 and Rules, 1977 mainly govern packaging
in the RTE food segment in India. The regulation specifies the quantity and package
labelling and administers the sale of packaged commodities including packaged food
and provides for the mandatory registration of all the importers of packaged foods in
India.
The packaging is influenced by the Prevention of Foods Adulteration Act 1955, which
determines the ingredients permissible in packaged foods to safeguard consumer
health and safety and the responsibility of packaging for spreading information and
awareness about the product ingredients.
The Agmark rule provides the benchmark and the quality guidelines to various food
products, which are to be imprinted on the packaging.
The Codex regulation that encompasses all the aspects of foods industry and also sets
guidelines for packaged foods Industry including labelling and packaging.
The major challenge is definitely the lack of government support for the packaging sector,
even while the food-processing sector gained support and importance in the recent years.
The packaging material is imported from China as the sector lacks government support:
The lack of concessions from government, highly fluctuating raw material prices and
pressure in margin prices are the major issues
The stringent regulations of European countries in packaging, and inability of Indian
companies to equip themselves to comply with these standards for winning the global
market
Government needs to encourage the sector by extending the tax breaks and concessions to
players setting up packaging industry in India and in enabling successful transfer of
technology from MNCs who wish to enter India.
Summary
The several constraints in the Food processing sector can in deed be opportunities for
players who can come up with innovative solutions, with a good deal of support from the
government. The following chapter describes the key support requirements highlighted by
the industry and recommendations.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
64
Industry Expectations
!
!
!
!
!
!
KPMG has interviewed various companies during the preparation of the report. A summary
of the expectations of the industry is listed below:
100 percent tax breaks in Research and Development (R&D) sector – Large players do
not find any incentives for investments in R&D and small players do not have the funds
to invest. Large players are willing to invest and support the smaller players if sufficient
incentives are provided.
Support for nutritional products – Players who are producing products that improve
nutrition levels in India should be encouraged with incentives and tax concessions.
Currently, there is no way to differentiate a player who produces nutrition products and
hence to way to support.
Conducive policy for Contract Farming – The land ceilings law is restrictive for players
who want to invest in contract farming. Contract farming provides benefits to all the
players across the value chain from the farmer to the processor and will lead to overall
development of the industry; hence a supportive policy is required.
Harmonisation of taxes – Although VAT has been implemented, the tax is not uniform in
all the states, leading to vast cost differences in the products. Also, the set up costs
and transportation costs might vary as the strategies of location depend upon the taxes
and logistics costs. The proposed GST should ensure harmonisation of indirect taxes.
More incentives in Infrastructure Development – Government should share the costs in
development of market and infrastructure.
Focus on Skill Development – Skills required across the sector for research, food safety
and testing, etc are inadequate in the industry. Government should set up more
institutions like NIFTEM and encourage industry-institution partnerships.
Industry Expectations and Recommendations
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
65
!
Recommendations
Easier Financing to Food Processing – The financing of the food processing segment is
not so conducive and government should think about setting up a separate bank.
Industry recognises the immense potential of the Food Processing sector and is
continuously innovating to move up the value chain. However, there are still numerous
inefficiencies in the system that needs to be plugged with the help of the government. A
few key recommendations for the sector:
a. More Production of Processable Varieties
Due to the lack of proper grading facilities, the processing industry incurs losses in
time, money and quality by mixing table produce with one for processing. The market-
linked production still is a rarity in the industry. Blessed with the capability of cultivation
round the year, India should focus more on producing the processable crop variety.
Grading will help fetch remunerative prices for processable produce and hence lead to
improving the variety and quality of processing.
b. Promotion of Indian Food in global markets
Branding of India as a global sourcing hub for food processing will go a long way in
enhancing the exports. At the same time, India should have the infrastructure to cater
to the varied food habits across the world.
c. Infrastructure development through Private Sector Participation (PSP)
Infrastructure bottlenecks across the value chain from grading, cold chains, logistics
and transportation, power, roads etc is restricting the growth of Food Processing
sector. If the sector has to grow at the rate suggested in the vision and reach a global
trade of 3 percent by 2015, it is imperative that the infrastructure development keeps
pace or even outpace the sector growth.
Budget 2009 provides incentives for Cold Chain and warehousing players, which is a
step in the right direction.
Government needs to have a supporting framework for PSP that clearly defines the
role of private players across the value chain, Risk sharing mechanisms, Concession
framework and the partnership model.
A successful PSP initiative, like QCI, will help improve infrastructure and hence low
level of wastage in the food value chain.
d. Harmonisation of Taxes
The industry is driven by multiple laws and non-uniform taxes that vary across states.
VAT also is not uniform across states leading to different cost structures in different
states and putting pressure on the production and supply chain costs.
The 2009 budget proposes the implementation of Goods and Services Tax from April
2010.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Goods and Service Tax (GST): A last-point retail tax
Model:
The Central and state governments are discussing the GST system proposed to be
implemented in India from April 1, 2010. The GST is a comprehensive value-added tax (VAT)
on goods and services. France was the first country to introduce this system in 1954. Today, it
has spread to over 140 countries.
Through a tax credit mechanism, GST is collected on value-added goods and services
at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods
and services can be set off against that payable on the supply of goods or services. But being
the last person in the supply chain, the end consumer has to bear this tax.
Many countries have a unified GST system. However, countries like Brazil and Canada follow a
dual system wherein GST is levied by both federal and state or provincial governments.
In India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a
state goods and services tax (SGST) will be levied on the taxable value of a transaction.
Expected advantages of GST implementation
Better compliance and revenue buoyancy
Replacing the cascading effect created by
existing indirect taxes
Tax incidence for consumers may fall
Lower transaction cost for final consumers
By merging all levies on goods and services into
one, GST acquires a very simple and transparent
character
Uniformity in tax regime with only one or two
tax rates across the supply chain as against
multiplex tax structure as of present
Efficiency in tax administration
May widen tax base
Increased tax collections due to wide coverage
of goods and services
Improvement in cost competitiveness of goods
and services in the international market
!
!
!
!
!
!
!
!
!
!
Hurdles in mplementation of GST in India
Implementation of GST would require
harmonization of levies between the Union and
the states.
It would require appropriate integration of
services in tax network
Constitutional amendments required for
implementing GST is expected to be one of the
major road blocks
Issue arising from designing and structuring of
GST. For instance, how the issue of inter-state
movement of goods and services might need to
be addressed
The phasing out of CST may take time
Need for robust and integrated MIS dedicated to
the task of tracking flow of goods and services
across the country and rendering accurate
accounting of levies associated with such flow of
goods and services
The issue of taxing financial services and e-
commerce will need addressing
!
!
!
!
!
!
!
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
66
67
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
e. Policy push for technology upgrade
Government needs to support the industry in granting fiscal
incentives for capital investment towards technology upgrade.
The companies that are constrained by finances into upgrading
to latest technology in food processing will need to have an
incentive and tax breaks are helpful in initiating the technological
change. This will lead to enhanced quality and a better value
addition.
In addition to government setting up more facilities for R&D in
the country and setting up R&D departments in esteemed
institutes like IITs and IISc, private sector should be incentivised
for investments in R&D. The government can provide tax
exemptions for investment in R&D for the companies that set
up research laboratories and can ask the companies to help
projects of Small Scale Industries or make the companies spend
money in imparting training to a certain number of people. This
will promote innovation in the Food Processing sector and
bridge skill gaps.
f. Capacity Building Measures
Government, with the help of private players into backward
integration, and training institutes should come up with ways of
training the producers on the Safety and Quality standards. The
traceability requirements of the developed countries should be
made aware to the producers in India.
Market intelligence mechanisms to farmers, training on global
standards and safety requirements, and other skills need to be
imparted to the players in the sector. Setting of more institutions
like NIFTEM, CFTRI etc, and trainings from governing bodies like
APEDA will help in developing research skills and keeping up-to-
date on the export market requirements.
g. Support for Backward Integration
Companies that invest substantial amounts in integrating the
value chain should receive government support. The companies
help in farmers realising a better price for their produce by
minimising the intermediaries in the value chain.
The government should hence make contract farming easier by
changing the land ceiling restrictions that exist.
h. Promotion of Nutrition Foods
The government should promote nutrition foods so as to
encourage a health-promoting diet, reducing fat consumption,
especially saturated fats, and replacing them with
polyunsaturated fats, whole grains and vegetables. This requires
a law to make it mandatory for nutritional value labelling on the
packs. As demanded by the industry, the government should
speed up building the national reference data on nutrition
parameters of all agricultural and horticultural produce before
implementation of the mandatory nutritional labelling for the
packaged food products.
Norway has implemented the concept successfully. In Norway,
taxes are related to wider environmental and social issues and
are closer to a ‘calorie’ tax than a ‘fat’ tax, as some foods will
naturally be high in fat and others low and these may not be an
adequate description of their healthiness or otherwise. These
have led to a requirement for a simplified labelling
The current food labelling regulations in Norway follow the
EU legislation. The EU labelling legislation states that it is
based on consumer protection and the common market
(European Communities 2006).
The aims are: to ensure fair competition among producers
by standardization of legislation on nutrition labelling
because differences between national laws on labelling can
lead to unequal conditions of competition; to increase
consumers’ access to information; and to reduce risks to
individual consumer safety and health.
According to the nutrition labelling Directive of 1990 (with
later amendments) nutrition labelling was optional, but
became compulsory if a nutrition claim appeared on the
label or in advertising.
According to regulation No 1924/2006, nutrition and health
claims that encourage consumers to purchase a product,
but are false, misleading or not scientifically proven are
prohibited. The Regulation includes a positive list of allowed
claims. Simplified nutritional labelling on food packages is an
example of voluntary nutritional labelling.
Implementation strategy
The policy and incentives of the government do not reach the
intended audience due to multiple roles and channels of service
delivery. Government needs to bring all these under one window to
improve clarity in roles and improve service effectiveness/efficiency
of delivery. Central government should allow State governments a
more free hand in developing their own industry support steps to
attract investments.
•
•
•
•
68
Indian food processing industry is estimated
to be around USD 67 billion, of the USD 180
billion food industry, making it the fifth
biggest. India's strong agricultural base and
accelerating economic growth holds a
significant potential for the Food Processing
Industry that provides a strong link between
agriculture and consumers. The food
industry expected to grow to USD 280 billion
by 2015 and generate an additional
employment for approximately 8.2 million
people. It has been observed that
employment potential of the food-
processing sector is much higher than other
sectors. For instance, an investment of INR
10 billion generates employment for 54,000
people in the food-processing sector, jobs
for 48,000 people in textiles and
employment of 25,000 people in the paper
industry. There is also fourfold generation of
indirect employment in auxiliary and other
downstream activities on account of
investment in the food sector. Also, 60 percent of the employment generation takes place
in small towns and rural areas.
Policy has accorded a high priority to the sector and has provided many fiscal incentives as
this is a sector that has strong synergies with the inclusive growth mandate of the
government and also provides a platform to significantly transform the face of rural India.
Additionally, an enviable share of the world's agri-produce and diverse agro-climatic regions
coupled with changing demographic patterns, food habits and rise in income levels opens
up numerous opportunities in the sector – India as a huge consumer market and India as a
potential sourcing hub to the world.
Indian Food Processing is on the verge of a great transformation from a low level of
processing and a low share in the global trade to one that will define the global trade in a
few decades from now, if not sooner. Sustained economic growth and steady urbanization
will enable the transformation. The country has a vast and diverse supply base and also the
demand to absorb the supply. Significant investments need to be made in developing the
infrastructure across the value chain right from farm inputs to the consumers. There is also
a need to bridge the skill gaps in the industry in terms of market intelligence to the farmer
community, establish and provide required facilities for R&D, Training, and Education for
product and process innovations. Investments made by the players for industry
infrastructure development should be supported by incentives. Considering 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.
Conclusion
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
69
African Agricultural Capital
Agro-climatic zones
Africa Enterprise Challenge Fund
Agri Export Zone
Alliance for a Green Revolution in Africa
Accelerated Irrigation Benefit Programme
Assam Industrial Development Corporation
Agricultural & Processed Food Products Export Development Authority
Agriculture Produce Marketing Committee
The Associated Chambers of Commerce and Industry of India
Business Monitor International
Central Food Technological Research Institute
Central Goods and Services Tax
Confederation of Indian Industry
Capital Investment Subsidy Scheme
Codex Alimentarius Commission
Dairy Cooperative Societies
Directorate General of Commercial Intelligence and Statistics
Food and Agriculture Organization
Federation of Indian Chambers of Commerce and Industry
Food Processing Industry
Good Hygiene Practice
Good Manufacturing Practice
Goods and Services Tax
Hazard Analysis and Critical Control Points
Indian Council of Agricultural Research
International Fund for Agricultural Development
Indira Gandhi National Open University
Instant Quality Freezer
International Organization for Standardization
Ministry of Food Processing Industries
Marine Products Export Development Authority
North Eastern Region
North Eastern Agricultural Marketing Corporation Limited
National Horticulture Board
National Institute of Agricultural Marketing
National Institute of Food Technology, Entrepreneurship & Management
Organisation for Economic Co-operation and Development
Public Private Partnership
Private Sector Participation
Quality Council of India
Ready to Eat
States Goods and Services Tax
Small and Medium Enterprises
State Nodal Agency
Sanitary and Phyto-Sanitary
Technical Barriers to Trade
Value Added Tax
World Trade Organisation
AAC
ACZ
AECF
AEZ
AGRA
AIBP
AIDC
APEDA
APMC
ASSOCHAM
BMI
CFTRI
CGST
CII
CISS
CODEX
DCS
DGCIS
FAO
FICCI
FPI
GHP
GMP
GST
HACCP
ICAR
IFAD
IGNOU
IQF
ISO
MoFPI
MPEDA
NER
NERMAC
NHB
NIAM
NIFTEM
OECD
PPP
PSP
QCI
RTE
SGST
SME
SNA
SPS
TBT
VAT
WTO
Abbreviations
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Authors:
Ramesh Srinivas is an Executive Director in KPMG's Consumer Markets and Retail
practice. Based in the firm's Bangalore office, he can be reached at
Anand Ramanathan is a Manager in KPMG's Consumer Markets and Retail practice.
Based in the firm's Bangalore office, he can be reached at
Veera Lokesh Ayireddy is a Consultant in KPMG's Consumer Markets and Retail
practice. Based in the firm's Bangalore office, he can be reached at
Shilpa Taneja is a Consumer Markets Lead in KPMG's Research, Analytics and
Knowledge practice. Based in the firm's Mumbai office, she can be reached at
Preeti Sitaram is a Manager in KPMG's Research, Analytics and Knowledge practice.
Based in the firm's Bangalore office, she can be reached at [email protected]
The Authors wish to acknowledge the contributions of Upasana Juneja, Simrat Singh,
Rajagopal M and Praveen Govindu in writing the report.
This document has been designed and formatted by Remedios D’silva, Senior Graphic
Designer, Design Cell - KPMG.
Acknowledgements
in.kpmg.com
KPMG in India
©2009 KPMG, an Indian Partnership and a member firm of
the KPMG network of independent member firms affiliated
with KPMG International, a Swiss cooperative.
All rights reserved.
KPMG and the KPMG logo are registered trademarks of
KPMG International, a Swiss cooperative.
The information contained here in is of a general nature and is not intended to address the circumstances of any p articular individual
or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in t he future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
KPMG Contacts
IndiaPradip KanakiaHead of Markets,KPMG in IndiaTel: +91 80 3980 6100eMail: [email protected]
Ramesh SrinivasExecutive DirectorHead - Consumer Markets SectorKPMG in IndiaTel: +91 80 3065 4300eMail: [email protected]
Mumbai
Delhi
Bangalore
Chennai
KPMG House, Kamala Mills Compound
448, Senapati Bapat Marg
Lower Parel
Mumbai 400 013
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000
DLF Building No. 10,
8th Floor, Tower B,
DLF Cyber City, Phase 2, Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101
Solitaire
139/26, 3rd Floor,
Inner Ring Road, Koramangala,
Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999
No.10 Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999
Hyderabad
Kolkata
8-2-618/2
Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad - 500 034
Tel: +91 40 3046 5000
Fax: +91 40 3046 5299
Infinity Benchmark, Plot No. G-1
10th Floor, Block – EP & GP, Sector V
Salt Lake City, Kolkata 700 091
Tel: +91 33 44034000
Fax: +91 33 44034199
703, Godrej CastlemaineBund GardenPune 411 001Tel: +91 20 305 85764/65Fax: +91 20 305 85775
4/F, Palal TowersM. G. Road, Ravipuram,Kochi 682 016Tel: +91 484 309 4120Fax: +91 484 309 4121
Pune
Kochi