Is India making, baking, packing, transporting and serving it right? March 2018 issue

Is India making, baking, packing, transporting and serving it right?

Despite being one of the largest producers of agricultural products in the world, India's food processing industry remains for all practical purposes, an infant! Logistics and storage issues have led to enormous wastages over the years in an industry worth $67 billion, and which provides direct employment to some 13 million people. But there's hope. The Centre's recent nod to allow 100% FDI in made in India processed food retail and efforts to encourage investments in infrastructure through lower import duties could lead to better days ahead for the industry. Or are we just being unjustifiably optimistic? The Dollar Business analyses.

By The Dollar Business Intelligence Unit | May 2016 Issue | The Dollar Business

Last year, when an industry report from Credit Lyonnais Securities made headlines with a finding that a home-grown brand Patanjali Ayurved Ltd. had become the fastest growing FMCG brand in India, the news would have surely given some undesired, anxious moments to the sales and marketing teams of foreign FMCG behemoths. And why not? For years – actually, decades – these deep-pocketed and muscular giants had been relishing the sight of their food & beverage (F&B) brands – big and small, global and local – throwing their weights around in the Indian market. And the thought of a made in India brand rising up the ladder and suddenly becoming the icon of the processed foods industry in the country must have got alarm bells ringing in their boardrooms. After all, no company would want to lose its grip on a mega market like India; and definitely not in a hard to settle market like processed foods, where quality is as much about ad spends as it is about something as sensitive as "mass health"! [Wondering what's that? Recall what happened to the Cola giants in 2006 and to Nestlé's Maggi last year. Sensitive industry, isn't it?]

When we talk about the potential of the processed foods sector, one doesn’t have to think hard to arrive at the conclusion that with a population of more than 1.2 billion and adequate availability of raw materials, India makes for a promising market. For instance, even a sale of Rs.10 per person per annum of a basic food product like biscuit makes the country a potential Rs.1,300 crore-a-year market for the product. Or best say, if each Indian was to even purchase a packet of a soup worth Rs.40 a year, that brand would have revenues of over Rs.5,000 crore coming from a single point of incidence with each person in the country in an entire year! We're talking of a mega market here. And not to say, this excitement is shared by each processed food brand in India. 

And, why talk of just consumption?   India ranks amongst the world's top producers of several agri-commoditiesProduction of noodles – while India ranks no.1 in the world in production of milk, pulses, ginger, bananas, guavas, papayas and mangoes, it sits pretty at no.2 in items like rice, wheat, vegetables and several other horticulture products.

With such attractive numbers one would have expected the Indian processed foods sector to demonstrate a consistently high level of dynamism, month after month, year after year. The reality however is quite different, and we dare say, disappointing.

Despite an enormous potential, the sector has remained an underdog. Industry insiders say that one of the major reasons for this not so impressive performance is lack of heavy investments from big Indian conglomerates of the likes of the Tatas, Reliances or Birlas, companies which are otherwise ubiquitous in other major industry sectors. And this claim is true to a considerable extent. Except for ITC, Britannia Industries and Dabur India, there are not many true blue hot Indian stocks in pure play processed foods segment in the country. 

Production of noodles is a big business as consumers across the country
have embraced this product as a comfort food.

Nevertheless, with the advent of 'Make In India' programme and the recent announcement of several new mega food parks as well as the decision to allow 100% foreign direct investment (FDI) in the marketing of food products produced and manufactured in the country, the sector seems to be slowly warming up for the big day. "The food processing industry in India has been hailed as one of the sunrise sectors for 25 years now. Although the potential has never been in doubt, its importance as a key growth driver is being realised only of late," says a hopeful Dr. A. Didar Singh, Secretary General, Federation of Indian Chambers of Commerce and Industry (FICCI), to The Dollar Business.

To quickly break-up contribution at the product level, when it comes to representations from the various sub-segments of the sector, grain processing and spices category leads from the front. While grain processing and spices segment constitutes 34% of the Indian processed foods sector, packaged or convenience food comprises 14%. As per Dun & Bradstreet data, non-alcoholic beverages that include aerated drinks, tea, coffee, fruit juices, water, etc., account for 8%; milk & milk products and fruits & vegetable processing account for 7% each; 6% bakery; 5% sugar and  confectionery; 4% meat and poultry; 3% alcoholic beverages; 3% marine products; the rest 9% comes from other segments that include flavours, additives, seeds, etc. 

food processing may 2016A Success Story

Given the tremendous potential that India's processed foods sector holds, battles between players to reach deep into competitors' market shares are a common sight. In fact, Indian processed foods sector recently witnessed a battle royale when ITC tried to capitalise on Nestle's loss in the instant noodles segment when the Food Safety and Standards Authority of India (FSSAI) questioned the quality of the latter's product.

And to touch upon where we started, far removed from the battle of noodles that hogged the limelight was Patanjali Ayurved, busy ramping up its production capacity and product portfolio in Haridwar, a small town more known as a place of Hindu pilgrimage. It's objective – meet the fast-growing demand from its customers. In fact, the success of Patanjali Group has now become a case in point to establish the real market potential of India's processed foods sector.

food processing may 2016

So, to what do we attribute the success of a company that has always remained isolated from the glitz and glamour of mega events and brand ambassadors. One of the many carefully crafted strategies by the company was its decision to set up a Mega Food Park in 2010. And since then there has been no looking back for Patanjali. That was a move well made. But equally true is the fact that in the absence of demand for quality food products in a price-sensitive market like India, Patanjali couldn't have come even a mile close to tasting success in a cluttered Indian processed foods industry. 

A Potential Powerhouse

If government data is anything to go by, the Indian food and grocery market is the world’s sixth largest, with retail contributing 70% of the total sales. The Ministry of Food Processing Industries' (MOFPI) annual report for FY2015 reveals that the sector constituted around 9% and 11% of GDP in manufacturing and agriculture sectors respectively and have been growing at an annual average rate of 8.4%, as against 3.3% and 6.6% rate clocked by agriculture and manufacturing sectors respectively.

food processing may 2016

Currently, Indian processed foods sector is estimated to be worth about $67 billion and gives employment to about 480 lakh Indians (130 lakh directly and 350 lakh indirectly). Talking of job creation, a joint report by the National Skill Development Corporation (NSDC) and KPMG titled 'Human Resources and Skill Requirements in the Food Processing sector states, "In the last five years, the growth of the Indian food processing sector has been faster than agricultural growth. The sector is poised for strong growth, driven by growth in organised retail, changing consumer preferences and favourable government policies." The report also states that by 2022, the Indian food processing industry is expected to generate about 44 lakh additional employment opportunities. Speaking of contribution, a joint industry report titled 'Winning consumer trust' from PwC and FICCI, states, "The Indian processed food industry accounts for 32% of the country’s total food market, 13% of India’s exports and 6% of total industrial investment." There's more goods news for believers in the Indian processed foods sector. The industry is projected to grow at an annual average rate of 104%, touching $482 billion by 2020. That's some growth to work hard for. [Now you understand why the likes of Patanjali, ITC, Dabur, etc., are busy diversifying within the processed foods vertical, with some even distributing their cookies as complimentary items on domestic air routes!] 

The Good, The Bad And...

Many studies and forecasts based on government and private Easy availability of a wide range of food products under one roof at large stores have spurred the demand for processed food products across the country.research data indicate that the Indian processed foods sector is poised for exponential growth. And that it is slowly emerging as a high growth sector due to its immense potential for value addition, ability to control inflation and ensure remunerative prices to farmers. But is this just a case of being over-optimistic?

Whether the industry can really achieve all that it promises is something that many experts doubt. Their reasons – still unclear government policies and of course, many other bottlenecks that plague the sector.

"Government policies lack clarity. The government stresses on ease of doing business and simultaneously imposes barriers through restrictions, approvals and licenses. The government encourages exports and then abruptly comes up with a notification banning export of certain products. Business houses can’t run like that. We need more clarity and decisions have to be made keeping a long-term time frame. There are so many Acts that it will puzzle a new entrepreneur," Piruz Khambatta, Chairman & Managing Director, Rasna International, tells The Dollar Business.

Easy availability of a wide range of food products under one roof at large stores have spurred
the demand for processed food products across the country.

While government statistics underline the faster growth of the processed foods sector against agriculture or manufacturing sectors, this growth is as yet unable to counter the annual tentative perishables loss, which ranges from 4% to 18% (by value) across various food categories. According to a recent report titled 'Food & Agriculture Outlook' from consulting firm Technopack, "The annual tentative perishables loss is in the range of $7 billion to $9 billion. This wastage has attained a threshold at which a population of about 175 million can be fed annually." Perishability is high specifically in key sectors such as fruits & vegetables, dairy, seafood, and supply chain improvements are required if the industry wants to tap opportunities that these sub-sectors offer. "In our entire agri-range, for example in cereals, wheat, oilseeds, fruits and vegetables, losses arising out of wastage are really very high – ranging from 4% to even 30% in some perishable segments. All these wastes could have been processed further but so far we have not been able to do so," agrees D. V. Malhan, Executive Secretary, All India Food Processors Association (AIFPA). The high wastage level clearly reveals that the extant state of our infrastructure is incapable of coping with crop surpluses. 

Serving The Worldserving the world

When it comes to the potential of the processed foods sector, the sector can definitely fetch more profits as compared to other sectors in the consumable category. However, what is required to succeed in the sector is highly skilled manpower, innovation in raw material sourcing and marketing, investments in technology and R&D and, of course, new product development on a continuous basis. Although the sector is susceptible to volatility in food consumption pattern and the vagaries of the monsoons, if someone is ready to take the plunge (with the correct approach) the current global market for processed food is huge. "The food and agri-business has a massive economic, social and environmental footprint. The $5-trillion industry represents 10% of global consumer spending, 40% of employment, and 30% of greenhouse gas emissions," Iride Ciaccia, Project Manager, LC International, an Italy-headquartered international consulting group that assists companies to get into food business in their targeted markets, tells The Dollar Business.

When compared to its developed counterparts, the country's processed foods sector still lags behind in several aspects – the first and foremost being the low processing level. Though India’s agricultural production base is reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2%, around 35% in milk, 21% in meat and 6% in poultry products. By international comparison, these levels are significantly low – processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. "We have a very low processing level in India when compared to our global counterparts – while we have a processing level of 4-6% here in India, it's 80% in USA and 70% in France. Even if we compare ourselves with developing nations, we lag behind many of them. For example, we have processing levels accounting up to 80% in Malaysia and 30% in Thailand," agrees Malhan.

So, what makes the processed foods segment thrive in these countries, where as a country like India, which produces agri-commodities in abundance, lags behind? "The food value chain in India is different from many other markets like US due to a unique consumption pattern in the country and presence of both organised and unorganised players. As a result, consumption at the retail level consists largely of non-processed products or food with very limited processing in key categories like fruits and vegetables, meat and poultry, dairy, grains, and pulses," states a joint report titled, 'Feeding a Billion: Role of the Food Processing Industry' by AT Kearney and FICCI.

Another significant factor that contributes to the growth of the sector in developed economies is that a majority of the contribution comes from small and medium-sized enterprises (SMEs). For instance, about 99% of all enterprises in the food sector in Europe fall in organised SME category. Although even in India the food processing sector largely comprises SMEs which account for more than 50% in value terms and 70% in volume terms (as per Dun & Bradstreet), they are largely concentrated in the unorganised segment. This makes it difficult for them to have access to government incentives and finances, which in turn hampers their growth as well as the quality of their produce. Not to say, adherence to global standards is also negligible. All this makes marketing of India-made processed foods all the more difficult in overseas market, particularly in developed countries.

"In developed countries, it is not always easy to market India-made processed foods because there is a lack of trust in Indian processed foods. India needs a broader organisational structure at the  government level that can handle these issues, and a concrete certification system for processed foods that are aligned with global standards," says Iride. Innovation and new product launches are also key priorities for companies in the processed foods sector in the developed countries. If India needs to increase its share in the processed foods segment in the domestic as well as international markets, the country’s SMEs need to lead from the front. How that will happen in an "organised" and "documented" fashion is an apposite question for the Ministry of Food Processing Industries. 

FDI. FDI. FDI. Again, FDI.

Food processing is recognised as a priority sector in the new manufacturing policy and in the recent budget, attractive fiscal incentives have been announced by the government. These mainly relate to foreign direct investment (FDI), subsidies, tax rebates, depreciation benefits, as well as reduced Customs and Excise duties for food processing machinery.

Interestingly, the BJP-led National Democratic Alliance (NDA), before coming to power at the Centre, was against 100% FDI in the retail sector. However, waking up to ground realities and needs of the processed foods sector, the party has now softened its stand on the issue and on February 29, 2016, while announcing the Union Budget 2016-17, allowed 100% FDI in multi-brand retail for food products that are fully grown and processed in India. Speaking to The Dollar Business, Harsimrat Kaur Badal, Union Minister for Food Processing Industries, Government of India, says that the government's nod to allow 100% FDI into this segment will be a game changer for the sector. “I believe this can play a catalytic role in setting up the infrastructure from farm-to-fork. We are at 10% of our potential today and have 90% to go. This will not only boost infrastructure and strengthen the local supply chain in the agriculture sector, but will also benefit farmers and MSMEs across the country, in a big way,” she says. 

“A lack of trust makes it difficult to market indian processed foods across developed markets”

The decision not only seems to be a positive for the Indian economy, but would have a huge multiplier effect on the processed foods sector that has been grappling with problems like lack of funds and infrastructure, and obsolete technology, among others, for long now. Allowing FDI into the sector will also boost productivity of the sector by reducing post-harvest wastage, helping crop diversification, incentivising global players to invest and produce in India and creating large number of jobs.

For the uninitiated, the food processing sector in India received FDI worth about $6.55 billion between April 1, 2000 and September 30, 2015 (DIPP data). However, what's more encouraging is that the Confederation of Indian Industry (CII) estimates that the Indian processed foods sector has the potential to attract as much as $33 billion of FDI over the next 10 years – a big number! In a bid to support export-related activities in the sector, the food ministry is also planning to set up 42 mega food parks (of which two are already operational and 35 have got final approval) and these food parks could really change status quo for a large number of MSME players in the sector. 

Good Things Take Time

The Mega Food Parks Scheme (MFPS) was introduced by MOFPI in 2008 in an effort to develop common infrastructure for food processing units, similar to special economic zones (SEZs). The objective was to create a post harvest infrastructure to reduce wastage of perishables, increase processing of food products and increase the country’s overall share in global processed foods market.

The business model is based on a hub and spoke architecture comprising raw material collection centres (CCs) and primary processing centres (PPCs) and these facilities are linked to a Central Processing Centre which acts as a hub. Common facilities and enabling infrastructure like modern warehousing, cold storage, sorting, grading, packaging, pulping, ripening chambers and tetra packaging units, roads, electricity, water, ETP (effluent treatment plant) facilities, etc., at processing centres help in reducing the cost of individual units significantly and make them more viable. Induction of latest technology, quality assurance of processed food products through better process control and meeting of environmental and safety standards are other benefits of food parks. The parks enable supply chain infrastructure and facilitate backward integration and cluster farming. These mega food parks are being set up in collaboration with private players, with participation of union and state governments.

While MOFPI has already approved 35 mega food parks, only a few have started operations so far. So, what is it that is stopping them from gaining momentum, despite the ministry pushing for them so hard? "Understanding of the mega food park concept and a grasp of the intricacies involved in establishing and running a mega food park is missing among some of the promoters of food parks, which is a reason for the delays in execution of projects," Raveendra Nalluri, Executive Director, Srini Food Park, an operational food park located in Chittoor district in Andhra Pradesh, tells The Dollar Business.

Nalluri believes the very concept of food parks in India is at a nascent stage and it requires more than financial investment and acquisition of land by promoters. Nalluri says when he and his associates started the Srini Food Park project in 2009, he had to personally devote time in travelling to different parts of the world to learn the finer details of executing a food park project. "However, the biggest challenge was getting approval from banks as it was a new project and followed the SPV (special purpose vehicle) model. Getting on board a consultant capable of setting up a mega food park was also difficult. We couldn’t find anyone with practical experience. So, we conducted field visits to plants across India and abroad and learnt everything on our own," he adds.

Cooperation of state governments also plays a big role in the success of a food park. Furthermore, while selecting the location of a food park, government agencies need to keep into account the logistics, availability of raw material and sea and air connectivity into account. Considering all this and the stage at which the maximum mega food parks are stuck at the moment, it's still a long wait until players in the processed foods industry actually reap benefit out of the concept.  

Old Wine in New Bottle?

While most policies and initiatives launched by the current government seem nothing but modified versions of older ones, the industry has welcomed the Rs. 2,000 crore Food Processing Fund (FPF) to be disbursed under the supervision of NABARD.

The fund will provide the much-needed financial assistance to SMEs looking for financial assistance to sustain business growth. Like other manufacturing sectors, the food processing sector also requires funds to meet its working capital requirements as payment realisation in the segment takes a few month time and business is mostly cyclical in nature.

While financial assistance under FPF has also been extended to mega food parks, loans at concessional rates of interest may be availed from this fund for establishing food parks and food processing units in the designated food parks. Till December 2015, A plant of the Moscow Brewing Company, which is currently renowned for being the most modern beverage processing plant in Russia. India needs such present-day facilities too.MOFPI had notified 148 food parks in which concessional credit could be availed of by food processing units, and loans of Rs.519.20 crore had been sanctioned to 12 Mega Food Park projects. However, industry players have expressed dissatisfaction with the tardy pace of loan dissemination by NABARD and have suggested that the loan amount should be deposited to the bank accounts of the eligible entities as is being done with disbursement of subsidy.

Realising the direct engagement and betterment of the cold chain industry in furthering the cause of processed foods industry, the government has initiated related actions such as the Cold Chain Scheme, modernisation of abattoirs, Food Testing Laboratories, and the Technology Upgradation Scheme, among others. In terms of tax rebate, the services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables have been exempted from service tax with effect from April 1, 2015.

This will provide further impetus to the cold storage industry, which is already growing annually at 28% and whose total value in India is expected to reach $13 billion by 2017.

A plant of the Moscow Brewing Company, which is currently renowned for being the most modern
beverage processing plant in Russia. India needs such present-day facilities too.

Innovation Is the Key

Though the industry in India is moving from the unorganised to organised format due to demanding quality standards and technology adoption, it still has a long way to go before it comes at par with those across other developing and developed peers.

Innovation in terms of development of new food products or flavours, packaging, and value addition are some of the activities a F&B player needs to continue with and invest in to remain relevant and competitive. If we take examples of French dairy major Danone’s yoghurt or American QSR brand Dunkin Donuts’ doughnuts or smoothies, their products have become their brand’s biggest mascots. These global brands have become popular and "loved" by simply innovating new categories in their existing portfolios. While Danone has a series of flavours to suit the taste buds of locals where it has a presence, Dunkin Donuts’ has crafted a brand out of doughnuts and smoothies.

Callebaut, Barilla, Bayernland, and Beni di Batasiolo are some privately or family-owned companies that have earned a name around the world in their respective F&B categories by keeping their products simple yet exotic. Indian MSMEs in the business can learn a quick lesson or two from their books. [Not to say there is a lack of inspiration on the Indian front. Brands like Cremica, Priyagold, Karachi Bakery, Rasna, Nectar Fresh, etc., have more than an instance of hardships, trails and successes to share.]

Unlike Europe, which has a long and rich history in the food processing sector, the Indian processed food sector came to life in the early 90s after the liberalisation of the economy. For long, India lacked an institution which could produce skilled manpower capable of carrying out R&D in the processed food segment. Whatever little innovation took place was due to the efforts of individual entrepreneurs. However, after persistent demand of the food industry, MOFPI invested Rs.500 crore to set up the Tomatoes being cleaned manually before being processed. Lack of automated processes and machinery lead to great damages being borne by India's agricultural community.National Institute of Food Technology Entrepreneurship and Management (NIFTEM) in 2006 with the sole purpose of producing professionals in the field of food technology and management. But is one institute enough to cater to a population of more than a billion?

"As consumers become more knowledgeable and time-starved with respect to food, the demand for value-added food (such as functional and ready-to-eat foods) is likely to increase in the coming years. Significant skill-enhancement training would be required to tap the potential of these segments," states a report from NSDC and KPMG. Setting up of an innovation fund or a similar fund to promote innovations and technology development in food processing can help the sector cover a long way. However, considering how some innovations have been treated by the Food Safety and Standards Authority of India (FSSAI) in the past, success of such funds remains doubtful. [To read more, please read the story titled 'Low Standards of Standardising' featured in the March 2015 issue of The Dollar Business] 

Tomatoes being cleaned manually before being processed. Lack of automated processes
and machinery lead to great damages being borne by India's agricultural community.

Safety First

One of the biggest nightmares for food product exporters are tariff and non-tariff barriers imposed by developed countries. A majority of agriculture products are produced by marginal farmers who own very small pieces of land. Due to fragmented landholdings, mechanisation of farming or control over the quality of produce still remains a challenge for the food processing sector in India.

Even a minor trace of any banned insecticide, contaminant, toxin or residues can result in the banning of the entire shipment or even all shipments for a season. Sometimes banned substances can get into processed food even at the post-harvest stages like storage, transportation, processing or packaging. Hence, Indian processed foods players need to adapt to global quality standards and set up laboratories to check the quality of export-oriented shipments (and which, as per The Dollar Business Intelligence Unit's field surveys/reports, they already have, to an extent).

Considering this, the Food Safety and Standards Authority of India (FSSAI), the statutory body for food quality monitoring in India, has been insisting upon product-by-product approval for all food items that have not been allocated any specific standard in The Food Safety and Standards Regulations (FSS) Regulations, 2011. Meat processing under controlled environment. India is a major exporter in this segment.However, this has not gone well with processed foods manufacturers. Due to FSS, the launch of new products are getting delayed, which has discouraged a lot of food processors who wanted to experiment and come up with innovative food products. However, the positive development is, due to the intervention of MOPFI, FSSAI in the last few months has approved more than 8,000 new additives that are in harmony with the International Codex Standards. The department has also notified an amendment to the regulations as a result of which non-standardised food products, called proprietary foods (except novel food and nutraceuticals) that use ingredients and additives approved in the regulations, will no longer require product approval. This has provided considerable relief to the industry. But then, there remain a lot of areas where the regulator and the industry are at loggerheads. Speaking to The Dollar Business, Amit Lohani Convener, Forum of Indian Food Importers (FIFI), opines that India needs to update its standards as per the development in the sector globally. Agreed! 

Meat processing under controlled environment. India is a major exporter in this segment.

Wake Up! India

India, with its huge young population and rising disposable incomes has become a market where all global majors in the F&B segment want a play. And the reason is simple. The average Indian consumer is reportedly spending almost 31% of his/her earnings on processed food products. PwC estimates the share of processed and packaged foods to increase to over 40% of overall intake by 2025-2030.

What's more important is that India is being viewed at as not just a consumer market. The world has increasingly started viewing India as a major sourcing hub. Hence, it's up to Indian exporters on how they want to leverage this opportunity – by continuing to be a supplier of raw materials or by value adding and becoming a force to reckon with in the global processed foods market.

Though India's exports of processed foods have been rising continuously over the past few years and stood at Rs. 31,563.43 crore in FY2014-15 [value of the exports has been rising at an average annual growth rate of 20.53% for five years ending 2014-15], the majority of it constituted products that don't require much value addition like dried and preserved vegetables (Rs.847.11 crore), pulses (Rs. 1,209.51 crore), groundnuts (Rs. 4,675.35 crore), cereal preparations (Rs. 3,038.79 crore). India still lags way behind its global peers when it comes to value addition. For instance, USA exports processed foods worth over Rs.3 lakh crore annually. Even a small country (in terms of geographical area) like Italy exports processed foods worth over Rs.1.2 lakh crore each year. And not to forget, these countries exported more of high-value added processed food products as compared to just basic agricultural food items. So what is stopping India?

Three paragraphs. Three arguments.

In the farm sector, India has figures to match the biggest of economies. Perhaps, this is the only sector where exporters do not have to face competition from China. India has the largest livestock population and is the largest producer of milk in the world (accounting for about 18% of global production), but when it comes to exports of value-added dairy products, for instance cheese, India doesn't feature even in the top five exporters of the product. While Indian companies like Amul and Mother Dairy have built brand names for themselves, A view of a cow milking facility. India has the largest livestock population and is one of the largest producers of milk in the world. However, the country lags behind its peers when it comes to exports of value-added dairy products.India still lacks a global brand and hence exports to developed countries remain low.

India is the second-largest producer of fruits and vegetables with an average annual production of 150 million tonne, and is the third-largest producer of food grains with a production of 230 million tonnes per annum. It is also the third-largest producer of fish with a production of 7 million tonnes per annum. But when it comes to processing them and value adding them for the purpose of exports, India falters.

World Bank data shows that about 60.3% of India's land area is arable. In fact, India has the second-largest agricultural land bank after US. All 15 major climates in the world exist in India. 46 out of 60 soil types and 20 agri-climatic regions make it an ideal destination for investment in the processed foods sector and create backward linkages with farmers and producers. Yet, India's produce isn't revered as the best in the world!

So, what is stopping the country from realising its potential in the processed foods sector?

A view of a cow milking facility. India has the largest livestock population and is one of the largest producers of milk
in the world. However, the country lags behind its peers when it comes to exports of value-added dairy products.

Speed Breakers

The bane of the Indian food processing industry has been the enormous wastage of produce due to lack of proper transportation and storage facilities. While our rail and road networks are getting better with time, we also need to plug other gaps like development of more number of mother warehouses and cold storages. To ramp up production and minimise wastage, there is definitely a need for adequate infrastructure across storage, transportation and processing. Notably, in the Budget 2016-17, in a bid to encourage use of refrigerated containers in the supply chain, the basic Customs duty and Excise duty on it was reduced from 10% to 5% and 12.5% to 6% respectively.

From roads to water. India despite being a river-rich country has failed to exploit its waterways. Critics say it's cheaper to ship products by sea from Mumbai to Shanghai than transporting them by road from Raipur to Mumbai. India needs to take measures to find alternative cost-effective modes of transport to save on freight, which can help exporters offset competition.

Indian exporters too need to keep an eye on prevailing trends in the global market. For instance, there is a shift from carbohydrate staples to animal sources and natural sugar. Going by this pattern, in future, there will be an increasing demand for prepared meals, snack foods and convenience foods and further on, the demand will shift towards functional, organic and diet foods. India exporters need to read such trend well if they desire to cater to world market.

Growth in demand for food processing machinery can be seen as a positive indicator of the health of the processed foods sector. During FY2015, An attractive and engaging packaging could help boost marketing of a food product. More producers as such are now moving towards sophisticated packaging processing machinery worth Rs. 1,133.76 crore was imported as against Rs.710.76 crore in FY2014 (DIPP data) signifying a growth of over 60%. Most manufacturers and exporters, The Dollar Business spoke to, emphasised on the need for upgradation of technology to be able to produce according to international standards and in turn access global markets. The numbers probably show that we are moving in the right direction. Probably.

Processed food players also need to strengthen their backward integration through initiatives like agriculture extension services. This will not only drive higher productivity, but will also improve quality and help them meet global standards. "This is also the only sector which can boost a sustainable model for agriculture. This sector surely deserves more concessions as far as tariffs and taxes are concerned. Large scale awareness drives and training programmes on creating more hygienic food and adhering to global standards can surely boost the country's export potential," says Dr. Ajit Kumar, Vice Chancellor of NIFTEM. 

An attractive and engaging packaging could help boost marketing of a food product.
More producers as such are now moving towards sophisticated packaging solutions.

The Way Forward

With growing awareness, health consciousness, need for convenience and improving lifestyles, the share of processed food is gradually and steadily increasing in the consumer’s platter across the world. No doubt, if we produce quality products at the right prices and serve them to the right audience, investments in the sector are bound to generate huge positive returns.

While MOFPI has been taking policy and infrastructure initiatives to keep the sector on the growth track, it's time the Indian processed foods exporters also start taking the next step – in terms of diversifying from the traditional markets like Middle East and Africa to North American and European markets, where food safety and quality assurance mechanisms are more stringent. Once that's achieved, there should be no looking back for the Indian processed foods sector! Start anywhere, we say. Just start!


"The protectionist attitude that India had in the past needs to change”

 Amit Lohani, Convener, Forum of Indian Food Importers (FIFI) & MD, Max Foods
Amit Lohani, Convener, Forum of Indian Food Importers (FIFI) & MD, Max Foods

TDB: What's your observation of the food processing sector in India?

Amit Lohani (AL): The major challenges before the Indian food processing sector can be broadly categorised into two types – tariff barriers and non-tariff barriers. In terms of tariff barriers, India has one of the highest duties in the world on imported food, wine, and beverages which ranges from 30% to 180%. Due to this, imported food products become very expensive in India. For example, wine which is sold in California or Spain for about $1, costs around $15-20 in India. Similarly, prices of other food products are also high when they go for sale in India. The basic customs duty is usually about 30% and then there are additional levies like countervailing duty (CVD), VAT, Central Sales Tax (CST), cess, octroi, etc. This makes Indian market not a very lucrative proposition in terms of tariff. However, India has a large middle and upper middle-class population and a majority of it aspires to buy international brands, so it makes the country an attractive market for international players. The non-tariff barriers are the food safety and labelling regulations imposed by the government on imported food products and beverages. India has one of the most stringent norms in the world in terms of labelling. India is the only country to have red dots and green dots referring to non-vegetarian and vegetarian products respectively. No other country has a maximum retail price (MRP) regime. Across rest of the world the prices are determined by the retailer based on the location of the store and the cost factor of that particular store. For example, store rental at Khan Market in New Delhi is about Rs. 2,000 per sq. ft. whereas the rent for a store in Lucknow is Rs.10-45 per sq. ft. If a product is sold at the same price at both the stores, it becomes a challenge for the retailer at Khan Market to maintain a decent profit. The Indian government is amending laws and regulations related to the food & beverage (F&B) sector but the country has not been able to align to international norms like Codex and others, which are approved and accepted by more than 200 countries across the world. 

TDB: You had earlier pointed out that there is no uniformity in food safety regulations and FSSAI has not been able to implement Codex across all segments. What is the scenario now?

AL: In the last nine months things have changed after Ashish Bahuguna and Pawan Kumar Agarwal joined FSSAI as Chairperson and CEO respectively. There are about 9,000 additives which have been approved. Earlier, when these additives were not in the FSSAI approved list, products carrying these additives were considered as proprietary foods and it was a major challenge to get approvals for these products. A lot of deliberation is going on between the industry and the food safety authority due to which there has been progress with regard to issues with FSSAI. The food safety authority is a relatively newer authority, hence it will take some time to resolve all issues. The protectionist attitude that India had in the past needs to change. 

TDB: Why is labelling such a major issue for F&B importers?

AL: India is a large country but import of processed F&B products is very small in terms of volume. India-specific labelling is a big challenge. For example, if we approach a company abroad to do an India specific labelling for two pallets, it will not be feasible for the manufacturer. There are some labelling norms in India which are not applicable elsewhere. For example, food products in India come with a date of manufacture whereas in rest of the world there are only best before dates printed on products. 

TDB: When Maggi was banned by FSSAI, it left consumers confused as to whether to follow FSSAI or a company which they had trusted for decades. How can such issues be addressed?

AL: Let’s take an example to clarify this. The earlier norm on food safety, the Prevention of Food Adulteration Act, 1954, stated that a certain amount of sugar needs to be used to preserve jams. However, over a period of time, there has been development in the methodology of jam making, preservation and in the material used for packaging of these products. Hence, the quantity of sugar used to prepare jam has reduced in other countries, whereas in India we have to follow the old norm laid down by the 1954 Act. Countries in North America, European Union, Middle East and South East Asia, etc., follow the internationally approved Codex norm, and jams prepared there have lesser amount of sugar but we can’t import that as we still follow the old rule. This doesn’t mean that the product is unsafe to use. India needs to update its standards as per the development in the sector globally. 

TDB: You mentioned about trade barriers put up by India to restrict import of certain food products but Europe and many other countries do the same to protect domestic producers – Europe restricts Indian milk products. So why can’t we, if their products don't adhere to our norms and standards?

AL: Trade barriers should not be there, be it from a developing economy or a developed nation. Products like olive and cheese are not produced in India. Only 3% of India’s total milk production is processed whereas developed countries process around 95% of their milk. So a large part of our milk is consumed without any value addition. You would be amazed to know that milk price in India is one of the highest in the world. Even countries like Italy which are considered expensive, sell milk at price almost 20% lower than that in India. Imports of such products make market more competitive. If demand for an imported product rises to a critical level, it could be produced in India as is the case with cheese. 

TDB: How difficult is it to convince buyers to pay a higher price for an imported product?

AL: We import products which have a unique selling proposition. For example, in the edible oil segment, we import olive oil which is not produced in India and is available only in certain European countries. Products which have a value proposition in terms of health or other factors will be accepted by consumers. We should also look at technology transfer as the demand for a product increases. Domestic companies too source ingredients from international companies. For example, the gluten used to produce bread is imported as is the ice cream mix used to produce ice cream. However, when it comes to processed food, domestic companies are against imports and complain that it will ruin the Indian market. We have been trying to make the domestic industry understand that there is a need for imported ingredients as well as finished products. The processed foods sector abroad is much more mature and developed and they will create benchmarks which will help the Indian processed foods sector grow. We can even become a production hub like Thailand, Indonesia or Malaysia. These countries are among the largest manufacturers of biscuits in the world and are now fulfilling the demand of the entire South East Asian market. They have developed their biscuit manufacturing bases in the last 20 years and are exporting about 70% of their total biscuit production. India has the potential to be a hub of manufacturing international standard processed food products to cater to the needs of at least the Asian market.


"Indian products are now being widely accepted in international markets”

 Arjun Gadre, Managing Director, Gadre Marine Export Pvt. Ltd.
Arjun Gadre, Managing Director, Gadre Marine Export Pvt. Ltd.

TDB: How has your experience in the food processing sector in India been?

Arjun Gadre (AG): India is a huge market for all types of consumer products. We entered the Indian market in 2004 with an aim to be the top retail brand in the Indian retail industry for seafood. Over the years, the brand has achieved considerable growth in the Indian retail industry. Gadre had sales of 250 tonne last fiscal, and we are targeting 500 tonne this fiscal. Our current distribution system works without any problems. We haven’t really thought of changing it yet. We are available in more than 500 outlets across 20 cities in India. The capacity of domestic market has not fully evolved. Once the domestic market matures, things will turn out better and we will review our distribution and logistics at that point of time according to requirements. 

TDB: What are the major challenges before the food processing industry?

AG: Consumer awareness is one of the biggest hurdles in our country. The typical Indian consumer needs to be educated about quality and hygiene. Consumers tend to think that frozen or processed food is not fresh. However, this isn’t correct. If you look at the process, especially with our brands, you will notice that our frozen products are absolutely fresh. Eventually awareness and growth in modern trade will help in the growth of this category. 

TDB: What are the major regulatory hurdles before the industry? And what are the major changes in terms of regulations and taxation that you look forward to?

AG: Fish processing industry faces problems like environmental issues, decline in the catch of fish, over-exploitation of resources, and fluctuation in prices. We need to address these for sustainable growth of the marine food industry. As far as taxation hurdles are concerned, one problem is the aggressive revenue administration, perhaps because we are a developing country. Other problem areas are a long-drawn dispute-resolution mechanism and ambiguous legislations. 

TDB: In the last decade, how have export markets changed for Indian processed food? How easy or difficult is it to market India-made processed foods in the overseas market, particularly in the developed countries?

AG: Indian products are now being widely accepted in international markets. Made in India food products are present in supermarkets in most countries. The weakening of the euro and yen is a major issue in terms of price realisation and profits. Moreover, India does not have many free trade agreements and hence import taxes also pose obstacles. 

TDB: What are some of the major export markets for your products?

AG: We export to a lot of countries, some of which are Belgium, Greece, Italy, Korea, Netherlands, Spain, UK, USA, New Zealand, Vietnam, Japan, UAE, Indonesia, France, Hong Kong, China and Australia. Since we are present globally, we haven't been targeting any specific country. Also, in the coming months, we plan to expand our wings further. 

TDB: What is your outlook for the Indian food processing sector?

AG: We look forward to the GST bill being passed. It will help the trade. It will also help us to keep uniform pricing in all the states, as under the current system there are different VAT structures across states in India.


"FSSAI discourages the industry to innovate in existing product lines"

 Ayush Agarwal, Director, Calpro Foods Pvt. Ltd.
Ayush Agrawal, Director, Calpro Foods Pvt. Ltd.

TDB: How has your experience with food processing sector in India been – with regard to setting up and running a food processing unit, scope for product innovation and Central and state governments’ policies for the sector?

Ayush Agrawal (AA): The government does realise the immense potential and the need of a robust food processing industry. They have emphasised on building infrastructure, allowed FDI in the sector and promoted various financial schemes to support their vision. However, a lot more needs to be done, especially for small and medium enterprise (SMEs) which are the backbone of the Indian food processing industry. As the industry is still at a nascent stage, we have problems in sourcing inputs of consistent quality, getting skilled manpower and are burdened with heavy taxes. We need strong support at grass-roots level from the government. Another major obstacle is a lack of R&D and unavailability of equipment and machines for producing premium and novel food products. Costs of imports for such machines with the existing duty structure make them prohibitive. The need of the hour is to allow duty free imports of high-tech machines for product innovation in food processing. Further, the Food Safety Standard Authority of India (FSSAI) discourages the industry to innovate in existing product lines or experiment with new product categories. This needs to be reviewed, as we need to constantly provide new products to our customers. 

TDB: What are the major challenges before the food processing industry in general and specifically segments that you operate in?

AA: The Emerson food wastage and cold storage report cites studies that have pegged the value of fruits, vegetables and grains wastage in India at Rs. 44,000 crore annually. Fruits and vegetables account for the largest portion of that wastage. 18% of India’s fruit and vegetable production – valued at Rs. 13,300 crore – is wasted annually. This is our biggest challenge. We must act fast to process these perishable fruits and vegetables into non-perishable value-added products with long shelf lives, that can be thereon exported. The second big challenge is that processed food is perceived to be unhealthy or unsafe. Because of the recent events with Nestle and others, a major section of consumers are concerned and have been avoiding processed food altogether. This needs to be addressed immediately by the industry as a whole. In the bakery segment where Calpro Foods predominantly operates, we face similar issues as the product's shelf life is short, especially for breads and cakes. Expensive and unreliable cold storages and lack of uninterrupted electricity across India make frozen items inviable. Additionally there are challenges in making baked goods, especially wheat-based products, healthier as well as tastier. 

TDB: What are the major regulatory hurdles before the industry? What changes to the taxation and regulatory frameworks could give this industry the much-required impetus?

AA: The scope and ambit of Food Safety Standard Authority of India (FSSAI) is in fact a deterrent to the industry to innovate in existing product lines or experiment with new product categories. This has perhaps become the biggest impediment to the industry. Food regulatory bodies in many developed economies have already laid down guidelines for food categories.  We can simply take this as a base and make changes and add categories relevant to India. There is no point in reinventing the wheel with food regulations. Secondly, the onus should be on the regulator to prove a new food product launched is unsafe. They have the means and the resources. This will also make companies more compliant as they will carry the risk of product recall and destruction of inventory. 

TDB: In the last decade, how has export market changed for Indian processed food? Are Indian products now more acceptable in global markets or do we just cater to the Indian diaspora?

AA: Food products account for 13% of India’s total exports. Though exported globally, most of these products are for the Indian population settled abroad. The big markets for Indian processed foods are Middle East and South East Asia. Acceptability is still low especially in the developed countries. APEDA does provide a host of opportunities for companies to participate in global exhibitions. But the focus is still on Basmati rice. The industry needs to come together and conduct mammoth marketing exercises to show that processed food products from India are safe and hygienic. 

TDB: What is your outlook for the Indian food processing sector?

AA: India’s food processing sector has grown at an average of 8.4% during the last five years ending FY2016. The trend is expected to continue, providing ample opportunities for the industry. With rising income levels, affluence and a growing middle-class the desire for branded food is also increasing. The industry will not only grow in globally known processed food categories like snacks and juices, but also in many traditional Indian categories. We have already seen how idli mix and gulab jamun mixes have opened new product lines! We will see more such products. This will make the market grow in the rural and semi-urban areas, which account for 70% of India’s population. In near future, many hurdles and challenges will be resolved and big F&B companies will make India their food processing hub, for not just Indian and other Asian markets, but also for their own population.


"Reality is, banks are not keen to lend to MSMEs in the food processing industry"

 D. V. Malhan, Executive Secretary, All India Food Processors’ Association (AIFPA)
D. V. Malhan, Executive Secretary, All India Food Processors’ Association (AIFPA)

TDB: AIFPA is the oldest association in the food processing sector. What are its core activities?

V. Malhan (DVM): Yes. We're more than 70 years old. Our birth happened even before India won Independence, and since then, we've been concerned about the development of this sector. I would like to add an interesting fact here – given that in those initial times when there was not much awareness about the concept of food processing and the sector was largely about food preservation, essentially confined to vegetable pickles and fruit jams (murrabbas), our organisation was called All India Food Preservers Organisation. But as time passed and we became more aware of the latest challenges, we renamed it to All India Food Processors Association (AIFPA). Today, we represent, promote, encourage and support the Indian food processing industry. We are active in seeking redressal of the problems faced by the food processing industry in India. We also work towards improving the product quality standards to match global standards. 

TDB: According to you, what are the main problems hurting the Indian food processing sector?

DVM: Wastage of agricultural produce is the biggest issue hurting the sector –not just at the farming stage but across the entire supply chain. I believe our insufficient storage systems, transport flaws, handling and processing issues, have all contributed to unacceptable levels of wastages and value loss. That’s the reason we have such a low processing level in India of anywhere between 4-6%, when compared to our global counterparts – 80% in USA, 70% in France. Even if we compare ourselves with developing nations, we lag behind many of them. For example, nations like Malaysia and Thailand process up to 80% and 30% of their produces respectively. In our entire agri-range, for example in cereals, wheat, oilseeds, fruits and vegetables, losses arising out of wastage are really very high – ranging from 4% to even 30% in some perishable segments. All these wastages could have been processed further but so far we have not been able to effectively do so. However, of late, I see things moving in the right direction. Lack of value addition is another area where we need to focus on. For this, we need to empower our processors with the latest technological know-how and skill sets. And we are working in this direction. We need to make the food processing industry lucrative enough for our processors – for whom cost of finance is still a big challenge. Despite, food processing having been acknowledged by the government as a priority sector, the reality is that banks are unenthusiastic about lending to MSME players. Their doors are open only for big corporations. 

TDB: Please tell us about the endeavours aimed at improving the state of affairs in the food processing industry?

DVM: We are working in close coordination with all the stakeholders of the industry to improve the situation in the food processing sector. We are happy with the initiatives taken by the current government. We are continuously in discussion with them and we believe the Union Cabinet Minister of Food Processing, Harsimrat Kaur, is doing a wonderful job in this regard. She knows the nuances of the trade and we are quite hopeful that under her leadership, things will soon change. We are also happy with the vision document launched by the Ministry of Food Processing. The recently announced 100% foreign direct investment (FDI) in multi-brand retail for food products is a good move that we believe will reduce wastage, help our farms diversify, and will encourage big MNCs to come to India and produce locally rather than import. 

TDB: It has been a couple of years since the Food Processing Ministry had approved 42 mega food parks, however only five of them have started operations so far. What, as per you, is the reason behind this slow progress?

DVM: A mega food park is a great concept taken from developed economies and I believe this can turn around the scenario in this sector. Apart from concerns about the availability of raw material, logistics, etc., I personally believe many MSME players are still not wary about the whole concept – they fail to understand how this is going to be a cost effective proposition for them in the long run, given the fact that ownership of the place will not rest with them. I guess, some of them may be thinking, unlike opening a factory anywhere else where they have the liberty to wind it up at will (or dispose of), they may not have the required freedom with these mega food parks. There is a need for awareness creation about the benefits of the scheme. 

TDB: What are the major regulatory hurdles before the industry?

DVM: There is still a need to bring in more uniformity with regards to sales tax and VAT applicability. Today, many states indulge in arbitrary tax slabs – for example, on bread, some states have 4% VAT, some have zero, and given the federal set up of the country there is nothing much we can do. Complex tax policies are also a big hindrance. A different labour policy in each state is not doing any good to the industry. Inspector Raj with regards to raw material inspections is still rampant in many states. We are continuously raising these concerns with the relevant stakeholders and we aim to bring in uniformity in structure and streamline processes very soon. 

TDB: Please tell us about the key measures that you feel are necessary to increase export-competitiveness of Indian food producers and processors.

DVM: We need to first empower our agri-growers i.e., our farmers. We need to urgently address their issues because all the food processing stems from their farms in the first place. I believe we are working in the right direction in this regard. Another issue is that quality-wise, our products are not export-ready. For example, we produce a lot of tomatoes but most of them are not of export-quality. So processing will help. Further, technology upgradation is one factor which can make a difference. 

TDB: Do you think fairs like Aaahar International have been beneficial to the sector?

DVM: I believe, events such as Aaahar International Fair bring in real benefits to our food processors fraternity. These events are a great platform to showcase our products, to know what’s available in other countries and where we stand when compared to other overseas players. They also offer an excellent platform for knowledge sharing and business collaborations.


"India still has a long way to go when it comes to exports of processed foods”

 Iride Ciaccia, Project Manager, LC International, Italy
Iride Ciaccia, Project Manager, LC International, Italy

TDB: How does LC International support SMEs and large food processing firms in getting greater market access and attain operational excellence in domestic and overseas markets?

Iride Ciaccia (IC): LC International provides effective tools for entrepreneurs for developing projects aimed at internationalising SMEs, supporting their integration, expansion and consolidation, or even the creation of their holding structures in foreign markets such as India, Brazil, China and USA. Thanks to our offices in USA, China and Croatia, we can assist them in the export process, facilitate all their import operations and help them in product marketing. We also help Italian brands to get into their targeted markets. LC International is the perfect consultant for companies keen to invest in new markets or enhance existing activities in established ones. 

TDB: Which countries are the largest producers and exporters of processed foods in the world? And what are the major reasons for the growth of the sector in these countries?

IC: LC International mostly deals with organic processed foods and wine and high-quality food made in Italy, which is part of the luxury-excellence of Italian food. Regarding the largest producers and exporters of processed foods, it depends on the type of food. For instance, in fruits and vegetables, North America and Europe are very big players. However, it's China that is the leader in the export of these products followed by USA and Europe. Half of all processed fruit and vegetable products that are traded are sourced from Europe. For wine, France, Italy and Spain are in the top ten and Italy produces about one-third of the worldwide production of wine. These countries have a leading role in the export field too, especially for high quality wines. The major growth reasons in these countries are the quality of food and wine as the European produce is strictly controlled by EU laws, and they are synonymous with healthy eating. Regarding the Chinese food industry, that continues to grow. Many food manufacturers there have launched new strategies, including employing high-quality ingredients, introducing new technologies and diversifying product lines. 

TDB: How is the current global market for the processed food sector? What impact has falling commodity prices had on the processed food trade?

IC: The current global market for processed food is huge, especially for food and agri-business that have massive economic, social, and environmental footprints. The $5-trillion industry represents 10% of global consumer spending, 40% of employment, and 30% of greenhouse-gas emissions. Developing countries exporting agricultural commodities have obviously been particularly concerned by recent low global price levels and, given the inelastic nature of demand for their commodities, the consequent decline in their export earnings. Overall, I think there are still good opportunities to enhance import-export earnings everywhere – it depends on your commercial strategies. 

TDB: In terms of competitiveness, how would you rate the Indian processed foods industry?

IC: I think the Indian processed foods industry is growing significantly and the food and agri-business sector is one of the key areas where India could be globally competitive. However, there are some critical issues such as high duties on incoming products and the fragmentation of internal distribution. India needs a big push towards modernisation of infrastructure and significant reforms to allow foreign operators to access business opportunities in an easier way. 

TDB: How different are the challenges faced by Indian SMEs as compared to SMEs in developed countries?

IC: The food industry is characterised by fragmentation. There are a few European multinational companies competing worldwide with a wide variety of products, but most of the enterprises in the food sector are small and medium sized enterprises (SMEs). Innovation and new product launches are key priorities for companies in the food processing industry in the developed countries, especially after the globalisation. With globalisation, there is an urgent need of a dynamic and self-sustaining culture of innovation all around the world. In India, given the nascent stage of the food processing industry, spend on internal research and development has been significantly low even for large companies in the organised sector. SME contribution to the Indian GDP is 8% and the sector has registered a growth rate of 10.8%. Despite this high growth rate, SMEs in India are facing a number of problems like sub-optimal scale of operations, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and a turbulent and uncertain market scenario. Overall, I still think that India has great potential and it is a market that is currently developing very fast, in particular in the organic sector, which is our focus. 

TDB: In the last decade, how has the global export market changed for processed foods? How easy or difficult is it to market India-made processed foods in the overseas market, particularly in developed countries?

IC: While in developed countries the food trade has increased only minimally, developing countries have generally fared much better. Geography, demographics and policy choices largely determine a country’s deficit or surplus position with respect to agricultural trade. In general, countries in Latin America, East Africa and South Asia tend to be net food exporters, while most of the remaining Asian and African countries are net food importers. Since 2008, many African as well as Asian economies have experienced an increasing reliance on imported food products.

Developed countries, on the other hand, have maintained a much more neutral position. In developed countries it is not always easy to market India-made processed foods because there is a lack of trust in Indian processed foods, especially compared to the European ones. Talking about organic food in India, I have experienced a massive presence of counterfeit organic products. Conversely, I have also come across Indian organic products that are completely genetically modified and pesticides free but lack any certification recognised by an authority. India needs a broader organisational structure at the  government level that can handle these issues, and a concrete certification system for organic processed foods that are aligned with the European standards. In this sector, India has to be more organised at every level with a governmental body which can control all the food ingredients both for import and export sector. With these in place, it would be easier for Indian producers to access global markets.


"The government needs to sort out policy-related issues of the sector"

 Swati R. Paradkar, President, Shri Mahila Griha Udyog Lijjat Papad
Swati R. Paradkar, President, Shri Mahila Griha Udyog Lijjat Papad

TDB: Please tell us about the initial journey of Udyog Lijjat Papad?

Swati R. Paradkar (SRP): Let me briefly take you through the journey of Lijaat papad. The day was March 15, 1959. It was a hot summer day when most of the women of Lohana Niwas, an old, large residential building in Girgaum, a thickly populated area of South Mumbai, were busy attending to their usual domestic chores. But a few of them, seven to be exact, came out of their rooms and gathered on the terrace of the building No.15/H. They soon started a small function, which hardly drew anybody’s attention. A handful of social workers were also present. The gathering was over soon but only after rolling out four packets of papads and taking a firm decision to continue making papads. That’s how a pioneer batch of seven ladies had set the ball rolling. As the days went by, more and more ladies joined us and the institution started to grow. Those early days were not easy. Today, I can say, the institution has had its own share of trials and tribulation. In fact, the faith and patience of the members were put to test on several occasions. What really helped the institution was the excellent quality of papads, which has remained uniform from the very first day of its production. At no time have our members allowed it to deteriorate. I can say, the principles, upon which the institution is based, have today made Lijjat Papad a successful organisation. We have made exemplary progress in the last 56 years of existence. The membership which was just seven, in the beginning, stands at around 45,000 today. 

TDB: Apart from its flagship product – Lijjat papad – Shri Mahila Griha Udyog is also known for many other products offerings. Can you shed some more light on them?

SRP: Besides Lijjat Papad, we today have a broad range of food products that include spices, wheat flour, chapaties, appalam, and also non-food items like detergent powder and laundry soaps, etc.  

TDB: So, which overseas markets is Shri Mahila Griha Udyog Lijjat Papad currently exporting to?

SRP: Besides catering to the domestic market, we are today successfully exporting to various merchant exporters in countries like UK, USA, Thailand, Singapore, Hong Kong, Holland, Japan, Australia and Middle East countries among others. There is a strong demand for our products amongst Indian diaspora who want the authentic taste of home outside India. This has helped spur growth for our products across global markets. 

TDB: How do you view the current state of affairs of the food processing sector in India?

SRP: Despite being at a nascent stage, Indian food processing sector, of late, has shown remarkable progress. I believe in times to come, things will only improve as the current government and the Union Cabinet Minister of Food Processing, Harsimrat Kaur, have been quite successful in giving a much-needed direction to the sector. The sector has huge employment potential and I think the mega food parks and the 100% foreign direct investment (FDI) in multi-brand retail for food products will surely add to the progress of the sector. Also, I think easing credit facilities to our MSMEs, introducing new technologies and encouraging new investments into the sector is the need of the hour. Going forward, I envision schemes such as ‘Make in India’, ‘Stand up India’, and Mudra to play crucial roles in enhancing the development of the sector. 

TDB: Experts say despite being a major producer of food grains, India has not been able to fully exploit the true potential of its food processing sector. What is your take?

SRP: This statement is true to a large extent. This is mainly because of the fact that agriculture and food processing sectors are interlinked and we see a high degree of wastage in the sector – both at the farm level as well the entire supply chain. It's high time that we work together to curb this wastage. And it will not happen unless and until we succeed in creating adequate storage facilities and warehouses. When it comes to the farm sector, India has a very high spoilage rate and as a result, a lot of food grains get wasted each year. Apart from logistical flaws, factors such as a lack of warehousing capacity, sub-par storage conditions, spoilage during transportation and exposure to elements of nature, all are acting as a drag in the way of this sector’s progress. I believe, with due planning, if we are able to utilise our food grains properly, we would be able to see our food processing levels rise dramatically.    

TDB: What key measures do you feel are necessary to increase export-competitiveness of Indian processed food players. Also tell us about your endeavours in this regard.

SRP: As a member of the National Food Processing Development Council, we regularly put forward our suggestions to the government. I believe, it’s high time all states in the country come forward and join hands to make the National Food Processing Policy a reality. I believe all the obstacles in our way can and should be resolved. Also the government needs to sort policy-related issues of the sector within a stipulated time. Such endeavours will only bring robustness and efficiency to the sector. We also need to upgrade the technology we use today; obsolete technology is a reason why we lag behind in the global marketplace. Further, value addition to raw produce in India is currently only 7%, compared to 23% in China. Hence, going forward, we also need to add more value to our farm products so that they fetch us good prices, both in domestic as well as overseas markets. Also, as is the case in developed economies that boast of a great processed foods industry, inhouse research and new product development as well as collaborative research with leading institutions are a must. India is yet to develop a robust and efficient networked collaboration mechanism. Despite the existence of a strong and wide network of R&D institutions such as CSIR, ICAR, ICMR, etc., their linkages with the end users like farmers and industry is not well-established. It’s time we work on turning this around. Initiatives like the Mega Food Parks can to some extent help in this respect by providing common R&D facilities to producers, but producers also need to do their bit to go up the value chain.


"We need a single window system for procuring licences” 

 Harish Ramnani, Director, Karachi Bakery India Pvt. Ltd.
Harish Ramnani, Director, Karachi Bakery India Pvt. Ltd.

TDB: You are a household name in bakery business. How has your experience been so far in this segment?

Harish Ramnani (HR): Our brand was established in 1953. However, we got into the confectionery business in the year 2000. It has been quite a challenging task for us as our business involves a huge requirement of skilled manpower. We are known for our handmade cookies and therefore procuring skilled labour is our biggest challenge. As to availability of machinery and equipment, there has been a vast improvement in the line of cookie-making machines. Technology has gone beyond imagination nowadays and it helps in creating and innovating new products and categories. As far as taxation is concerned, our products suffer from an excise duty of 6% on the MRP which thereby makes it slightly heavy for the customers’ pocket.  

TDB: What are the major challenges in the food processing industry in general and specifically in your segment?

HR: The major challenge in our industry is to get the right consistency and quality of the raw material that we use and maintaining the right temperature at the warehouses for our products. Also, as I mentioned earlier, finding skilled manpower for our products is a major challenge too. And how can we forget about food wastage; it is part and parcel of the industry. Lastly, since we are known for the quality and taste of our biscuits, we keep a close eye on our quality control checks as we have to deliver a consistent product throughout. 

TDB: What are the major regulatory hurdles before the industry? What changes in the regulatory and tax regime do you look forward to?

HR: The major regulatory hurdle we face is that we have to go through multiple regulatory boards to procure fresh licences. Had it been a single window system, it would have consumed lesser time and helped companies grow faster. 

TDB: In the last decade, how has exports market changed for Indian processed foods?

HR: In the last couple of years, we have seen an increasing demand for our products overseas. As our brand is well known, it is easier for us to make inroads in these markets. It is necessary for Indian processed food manufacturers to keep investing in consumer awareness which will allow their products to gain global acceptance. 

TDB: What is your outlook for the segment that you operate in?

HR: The overall outlook is that the demand for premium cookies should grow by 10% or more in the coming years in comparison to the regular biscuits sold. For our sector, the future is bright. 


"Encouraging people to consume stored products is a big challenge in india"

 Mahendra Swarup, President, Federation of Cold Storage Associations of India
Mahendra Swarup, President, Federation of Cold Storage Associations of India

TDB: What are the major challenges faced by the cold storage industry?

Mahendra Swarup (MS): The overall business environment to set up a cold storage unit in India is quite favourable. There are not many difficulties before the industry except marketing. In our country, consumers are not habituated to purchase refrigerated fruits or vegetables. One of the main reasons for less demand of stored fruits or vegetables is that fresh farm produce is easily available throughout the year and these products are sold to the consumers at lower prices as compared to stored ones. Encouraging people to consume stored products remains a big challenge for the industry. On the other hand, lack of stable power supply and higher per unit cost of electricity are some of other difficulties for cold storage chains in the country. 

TDB: When it comes to regulatory and taxation regimes governing the industry, what changes would you like to see in the current scheme of things?

MS: Practically, there are not many policy hurdles for the cold storage industry. As far as regulatory challenges are concerned, there are some regulations in Uttar Pradesh and West Bengal that require urgent government attention. We have urged the governments in these states to review the regulations as per current industry requirements. The existing regulations were conceptualised about forty years ago and the cold storage industry has undergone many changes during this period. Hence, outdated regulations need to be amended as per the current industry scenario. 

TDB: How can an efficient cold chain system boost the country’s exports of processed food products?

MS: Existence of an efficient cold storage chain can definitely boost country’s food product export. Food products which are well-packaged and stored in a safe manner in a cold storage and transported by refrigerated vans and reefer containers will certainly gain more acceptance in the overseas market due to its quality. However, India still lacks modern pack house facilities. We need to work on this area if we really want exports of food products from the country to pick up. 

TDB: What is your outlook for the cold storage industry?

MS: Cold storage industry is bound to increase manifold. It has got a very bright future. At present, we are working only in limited fields. Various products like pharmaceuticals, dairy, fish and meat products, and some varieties of seeds need cold storage facilities to a greater extent, one which is currently in short supply. Hence, there is a scope for growth in and demand for cold storage units in India. As consumers become upwardly mobile, demand will grow.


"Training and Awareness building is the key to success in the sector”

 Dr. Ajit Kumar, Vice Chancellor, National Institute of Food Technology Entrepreneurship and Management (NIFTEM)
Dr. Ajit Kumar, Vice Chancellor, National Institute of Food Technology Entrepreneurship and Management (NIFTEM)


TDB: Can you please quickly run our readers through the history, activities and achievement of your organisation?

Dr. Ajit Kumar (AK): I regard the National Institute of Food Technology Entrepreneurship and Management (NIFTEM) as a unique institution in the country. We have a multifaceted mandate.  NIFTEM was essentially conceptualised by the Government of India on persistent demand from the food industry to have an apex body as a ‘one stop solution provider’ for the various problems of the sector. And ever since inception, we have been aspiring for excellence in research and education (in a non-traditional way) to meet the shortfall of skilled manpower in the food processing sector, manpower which is competent in both food technology and entrepreneurial management. We aim to build techno-managers who are equally qualified in both technological and managerial aspects of the trade. Apart from academics, we do entrepreneurship development, consultancy, industrial research, skills development and industry connect. For these, we have roped in talented and dedicated faculty members from India and abroad. With such rich exposure, we believe our students develop the technical knowledge and the managerial ability to achieve success in the food processing sector. We are also actively involved in world-class research in this sector. We also run short-term training programmes for rural youth and farmers. We are also involved in large scale training of farmers to actually transform them into micro-entrepreneurs. We go to various villages, ‘adopt them’, teach them various ways and tools of value additions. Till date, we have adopted 39 villages across the country.  

TDB: What other activities are you undertaking to promote the Indian food processing sector?

AK: We work both as a sector promotion organisation and a business promotion organisation of the food processing sector in the country. In order to meet demand in this crucial sector, we have adopted a multi-pronged approach. Apart from ‘Skill Development and Entrepreneurship Development’ for the sector, we are facilitating business incubation services, cutting edge research and innovation for development of the sector, functioning as a knowledge repository, working for the up-gradation of SME food processing clusters, providing intellectual backing for regulations governing food quality and safety and promoting cooperation and networking among existing institutions within India as well as abroad. 

TDB: There is a perception that large Indian conglomerates are not investing in the processed food and beverage segment as much as they do in other sectors? How do you see this?

AK: I do not believe this notion to be correct. Because you see these days, all the big business houses are present in the segment and they are doing excellent business. Tata, Godrej, Ambani, Adani – everyone is here. Many MNCs are coming in as well. That is the reason that I think of this sector as a gold mine. The recently-announced 100% foreign direct investment (FDI) in multi-brand food retail is also going to further motivate global MNCs to come here and make in India, instead of importing from overseas destinations. 

TDB: While India has close to 1.5 billion people, it has failed to create a large multinational corporation in the F&B segment like those in US or Europe. What's your take?

AK: Yes, that is true. Despite the fact that our processors have made great strides in the recent past, the sector is still comparatively at a nascent stage. Earlier, there was not much focus on the sector and I believe as an industry it got the attention of the policymakers only recently. But one thing is certain – things are now moving very fast. Today, the sector is growing at a CAGR (highest of all sectors) of 10-11%. Other sectors are growing at about 5-7%. 

TDB: In your opinion what more should the Centre and states be doing to boost India’s growth in the processed foods sector?

AK: We need to do a lot to provide the much-needed impetus to the sector. Initiatives like training of farmers and rural youth at their doorstep, creating an enabling infrastructure in rural areas to enable value additions in food and creating as many cold chains as possible can help the Indian processed food sector in a big way. We also need to provide a big push to in-house manufacturing of precision equipment that are needed by our food processing industry. Presently these are being imported and as such are very costly. It’s high time we manufacture such tools in the country. 

TDB: How do you see the current government's efforts in this direction?

AK: I believe the government, including Union Cabinet Minister for Food Processing Harsimrat Kaur, is working in the right direction. I believe, it’s due to the minister's efforts that we now have 100% foreign direct investment (FDI) in multi-brand retail for food products. But we need to focus on value additions. Training of farmers is also much needed to achieve a sustainable model of agriculture as practiced elsewhere across the globe. Our Prime Minister Narendra Modi’s unique campaigns such as Stand up India, Make in India, Skill India and Mudra, all can play a big part in enhancing the development of the sector. 

TDB: What key measures do you think are necessary to enhance the competitiveness of Indian processed foods exporters?

AK: We need to give more concessions to the food industry as it is the highest employment generator for the country. This is also the only sector that can give a big boost to a sustainable model for agriculture. This sector surely deserves more concessions as far as tariffs and taxes are concerned. Large scale awareness drives and training programmes on creating more hygienic food and adhering to international standards can surely boost our export potential. The idea of mega food parks is really praiseworthy. A small unit cannot set up an effluent power plant, R&D facilities and cold storage facilities, and this is where the food parks will add value to the producers. We need more such parks to promote exports from SME units.


"Government imposes barriers through restrictions, approvals and licenses"

 Piruz Khambatta
Piruz Khambatta, Chairman & MD, Rasna International; Chairman, CII National Committee on Food Processing; Chairman, CII Task Force on Processed Food Outsourcing; and Member, Consultative Committee (MICC) of Ministry of Food Processing Industries

I have been closely associated with the sector for a long time now. I have been chairing the food processing committee of CII for the last 10 years and have also been the President of the All India Food Processors’ Association. I am also on the panel of various government committees on VAT, FSSAI and other regulatory matters and am quite upbeat about the development in this sector.

Around 10-15 years ago when we introduced a new product, people were apprehensive about it as the consumer at that time was more into basic food products and was hesitant to try new food items. It was very difficult to motivate people to break away from their regular food habits. For example, it was a rare instance to notice corn flakes in the breakfast table of a common Indian family. It took so many years for Kellogg's to convince people to add corn flakes on their breakfast menu and they still have not succeeded to the extent they would have liked to. India’s per capita consumption of juice is also less than that in many developing countries. 

However, in recent years there has been a growth in modern retail and the penetration of super markets and malls has increased. More people are travelling abroad. People are becoming aware of various food and beverage products and are ready to experiment with their food. Now products like oats or organic products are easily accepted by consumers. In the value-added processed food and drinks segment there is scope for large multinationals (MNCs) as well as small and medium size companies. 

Another change that has taken place in the Indian food market is that the base of mass consumption has also increased. Now people in rural areas or low-income groups are also spending more money on food items like tomato ketchup. 

The perception about processed food of Indian origin has changed among consumers in developed countries. Now, whether it is about brand value or quality, people in export markets are taking Indian food products seriously. This is why I believe there is a greater potential for growth of processed foods in the export markets as compared to the domestic market. However, Indian companies have to put in more efforts to increase the marketshare of Indian F&B products abroad. Export markets require a different approach. We have a different logo for export markets and there are differences in product taste, colour and packaging to suit the requirements and taste of the overseas market. 

Companies need to invest in the agriculture sector, largely in export-oriented agriculture, like cultivation of farm products like gherkins and exotic crops which have a good demand in overseas markets. There is also a scope for contract farming of grapes for exports. Companies are now investing in direct farming or co-operative farming or contract farming, but not in the conventional way. When the focus is on export-oriented farming, there is an emphasis on value-addition like inventing newer varieties of seeds. Acres of grapes and gherkins are being cultivated only for export purpose. A lot of work has been done in the agriculture sector by private companies, both in the fresh and processed food segments, where companies are also getting into basic agriculture. 

The biggest challenge for the processed foods sector is finding people with the right set of skills. Although there are institutions in agriculture and food sector, there is a scarcity of people in the field of research and management in this segment. Our agricultural colleges are not paying much attention to skill development. The IT industry in India has grown because the country has some of the best human resources in the world. That is not the case in the food sector. We hardly have enough patents in the food and agriculture sector. Even Indian products like parathas and curries are better made in UK than in India. Some recent positive developments are institutions like NIFTEM, which in collaboration with the industry is focusing on research and development and skill development. 

Government policies too lack clarity. The government stresses on ease of doing business and simultaneously imposes barriers through restrictions, approvals and licenses. The government encourages exports and then abruptly comes up with a notification banning exports of certain products. Business houses can’t run like that. We need more clarity and decisions have to be made keeping a long-term time frame. There are so many acts that it will puzzle a new entrepreneur. Companies need to maintain a full team just to understand various acts and provisions related to taxation and other company laws and regulations involved in the business, like FSSAI, essential commodity act and several other acts and rulings. For example, there is a rule on packaged commodities, as per which, wherever quantity is mentioned, the law requires it to be mentioned in grams. The notification says to print grams as ‘g’ on the package and there are many cases of people being prosecuted just because they fail to adhere to this print guideline and print 'gram' or 'grm' on the package. For a consumer it doesn’t make any difference whether it is ‘gram’ or ‘grm’ or ‘g’. However, I must say processes for getting licences have become faster, which is a great positive in the sector. 

Taxation is also another area of concern. Many states classify processed food as a premium product and as such processed products like macaroni and pasta attract 15-20% tax. When a consumer buys a processed food worth Rs.100, he pays about 25% of that to the exchequer in various forms of tax like VAT, octroi and excise, etc. Because of the higher cost, common people can’t afford these products, whereas if we take instance of places like Dubai or Saudi Arabia, there are no taxes on food products. Even in Singapore, tax on food products is just 4%. In India, we need to bring down taxes on these products. 

Cost of freight is also high in the country. The cost to ship goods from Ahmedabad to Dubai is about $80 whereas the freight cost to transport a container from Ahmedabad to Delhi is a whopping $600. The cost of freight for F&B companies is around 15% of the production cost. Trailers burn a lot of expensive fuel due to poor road connectivity, long waiting time at state borders and at many checkpoints. All these factors add up to high freight costs and transport time. There are food products with a shelf life between a couple of weeks to a month and if the shipment spends 10 days in transport the retailer has little time to sell the product before it expires. 

It takes an average of 7 to 10 years to establish a food brand in India and there is no short-cut. Especially in value-added products like premium biscuits, noodles, food confectionery or ready-to-serve drinks like Rasna, where margins are high, it takes years to establish a brand or a new product. A company in this segment needs deep pockets to sustain as both distribution and advertising costs are high. And finance is another challenge for micro, small or medium size enterprises in the sector. There is a need to make finance easily accessible for the industry to grow. 

Mega food parks failed to take-off earlier because of various regional issues like road connectivity and land allocation. In the last year, however, food park projects have been executed at a much faster pace. The food processing ministry has been doing lot of work to encourage the sector. For example, if a company sets up its unit inside a food park, it will be eligible for loans from NABARD. The Union Cabinet Minister of Food Processing has been very proactive in allocating more number of food parks and she has also allocated more funds for the food park from the Union Budget. The minister is a good brand ambassador of Indian food exports and she has managed to convince the government to allow 100% FDI in food retail. 

Overall, there is a lot of potential in the sector and a lot of work has also been done, but we need to do more for the sector to achieve its true potential.


"North eastern states have a lot of potential in Processed foods sector”

Is India making, baking, packing, transporting and serving it right? 

Dr. Sriparna B. Baruah, Head, CIE, Indian Institute of Entrepreneurship, Guwahati

TDB: The North East has a conducive climate for farming of fruits and vegetable, but why do we not see progress in the food processing sector in this zone?

Sriparna B. Baruah (SBB): A combination of factors has played a role in the lack of progress in this region. The first is that historically, people from the region are not very enterprising. Due to the good weather conditions and availability of enough livelihood and resources, people do not need to work too hard. Infrastructure is another factor affecting the growth of industrialisation in the region. Connectivity in North Eastern states is still in a very bad state. Though there are some developments taking place to connect state capitals, but if we take the example of a state like Arunachal Pradesh, there is very poor connectivity to Tawang. There are no flights to many parts in the region. Another major reason for lack of growth is insurgency. Due to insurgency, in the mid-80s, many families sent their children outside the North Eastern states for education. However, in the last 2 to 3 years some positive changes are taking place. Some students who had moved outside have started coming back or they are looking for opportunities to come back to their respective states to start their own enterprises. 

TDB: Bhutan and Nepal, which are in many ways similar to the North Eastern states, have some well-known F&B brands. What is different?

SBB: The North Eastern region is primarily a rural and agrarian economy, hence if youths in rural parts can be connected to skill development programmes, it could help growth of various agro-based enterprises including food processing units. I have not seen any SEZ being very vibrant in the region. There has been news about inauguration of food parks taking place, but nothing much has happened on the ground. If these units can be made vibrant, a lot of development can happen in the region. When we talk about growth of sectors like food processing, industry association has to play a very big role in grooming local entrepreneurs. A proper stock is required on part of the state and union governments to address challenges faced by entrepreneurs in the region. 

TDB: Among North Eastern states, apart from Assam, which ones have the most conducive environment to attract business in this sector?

SBB: Tripura offers a very good business environment. The state government has managed to attract some investment. The state government in Meghalaya is also very proactive and connectivity in the state is also not as bad when compared to other states in the region. Sikkim is also another state which has a good potential. Connectivity is a bottleneck in states like Mizoram and Arunachal Pradesh.


"Mega food parks need longer gestation periods”

 Dr. Sriparna B. Baruah, Head, CIE, Indian Institute of Entrepreneurship, Guwahati
Dr. Sriparna B. Baruah, Head, CIE, Indian Institute of Entrepreneurship, Guwahati

TDB: The Food Processing Ministry plans to set up 42 mega food parks, of which 35 have got final approval but only a few food parks, including yours, are actually operational. What is the reason for the slow progress in commissioning of mega food parks?

Raveendra Nalluri (RN): Recently a few more mega food parks have been inaugurated by the Ministry. One is in Punjab, one in Indore and one more in Jharkhand. From an operational point of view, a food park promoted by the Future Group is operational in Tumkur in Karnataka, which was inaugurated by Prime Minister Narendra Modi. Some food parks have started off slow, as they have some issues related to land. If we see it from the overall point of view, understanding of the mega food park concept and a grasp of the intricacies involved in establishing and running a mega food park is missing among some promoters of food parks, which is a reason for the delays in execution of projects. 

TDB: Did you face difficulties in getting finance for the project?

RN: The biggest challenge for any food processing unit or a mega food park is getting finances. The Ministry has introduced a financing programme through NABARD and has allocated Rs.2,000  crore for the purpose. However, NABARD not being a traditional bank, delayed the financing of some projects. Mega food parks are agri-infrastructure projects and the term of the loan is longer in rest of the world. In India, loans are being given for a timeline of 7-10 years. In our case, SBI has given us a 10-year timeline. But the loan being given by NABARD has a 7-year term, which includes 2 years for park construction. This means the entire loan needs to be paid back in 5 years, which is impractical! Agri-infrastructure projects are not like traditional infra-projects, as we have to deal with issues like market conditions, the pace at which food units set up their plants in a park, and more importantly environmental and climatic conditions which are not in our control. The gestation period is much longer as compared to other sectors. 

TDB: How does climate change affect the sourcing of raw material?

RN: It has a big impact. When a business chalks out plans for investment and does capacity calculation, it is done based on the historical data available for crop production. We have tried to offset some of those factors by using our capacity to process short crops like tomato, and other crops which have a shorter harvest time. We encourage farmers to work on a contract farming basis where we can provide them some support in terms of seeds and other benefits to make up for the losses due to changes in climatic conditions.


"The processed food sector has given a boost to the packaging industry”

 Gopal Agarwal
Gopal Agrawal, Partner, Singhi Advisors

TDB: Please give us a brief outline of the prevailing trends in the processed food packaging industry?

Gopal Agarwal (GA): Paper and cardboard packaging hold a majority market share of almost 60-70% in the packaging sector in India, followed by flexible packaging which accounts for 15%. Companies in flexible packaging segment are gaining some additional profits, especially because of the drop in crude oil prices. Overall, in terms of flexible packaging, the cost of packaging is going down in India and elsewhere in the world. The market for processed food is growing in India and has given a boost to the growth of packaging sector in the processed food segment. While packaging sector in the processed food segment is growing at a CAGR of 3-4% globally, it's growing at a CAGR of 8-10% in India. 

TDB: Does the drop in the cost of raw material for flexible package manufacturing really translate into higher profits for its manufacturers?

GA: The market for the packaging material operates more like a B2B business. It deals with a large customer base and the business model for packaging companies is more of a cost-plus model. Hence, they have to pass on the savings in raw material cost to their clients. So, the declining price trend will actually benefit end users including food processing companies. Of course, it will help improve profit margins for packaging companies as well. 

TDB: If we look at special packaging materials like the ones which give processed food longer shelf life, do you think packaging companies in this segment command prices?

GA: Yes, at present there are not many options available for food processing companies and as such they have to pay premiums for such packaging. It is largely because of the acceptability of processed food coming in this special packaging. These products are popular because they enhance the shelf life of a product. 

TDB: What kind of growth is expected in the food related packaging in the coming 4-5 years?

GA: The segment is expected to grow at a CAGR of 10-12% in the near future, and within the segment, flexible packaging is going to register a growth of more than 15%. As consumers move towards organised retail, growth will be quicker. Consumers will differentiate products on the basis of branding and shelf lives and premium products will be in demand. As such, consolidations can be expected, similar to those that happened in recent past like Amcor acquiring Packaging India Private Limited from Essel Propack for Rs.165 crore and specialty packaging major Huhtamaki taking over Positive Packaging for $336 million.

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swot may 2016

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swot may 2016