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Indian food market showing consistent scaleup rate for some years now
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Wednesday, 04 February, 2015, 08 : 00 AM [IST]
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Anurag More and Rashmi Nair
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The Indian processed food market, taking giant strides at US$100 billion, has been towering over the US$191 billion (Rs 8,600 billion)-strong Indian food market, showing a consistent scaleup rate for some years now.
According to MoFPI (ministry of food processing industries), about 60 per cent of the processed food market could be termed primary market, while the remaining could be counted as value-added processed food market.
Further, the Indian food industry is projected to grow to $300 billion by 2015, according to a report by a leading industry body and Technopack. During the period, the share of processed food in terms of value is expected to increase from 43 per cent to 50 per cent of the total food production.
Thus the processed food market in India is poised for mega growth in the coming years surpassing all the other food sectors in terms of increase in size and acceleration in expansion rate. A major driver for this growth will be the food processing industry in Maharashtra, which is among the leading states in the country recording robust expansion in the sector.
In this regard, Rajan Mathew, VP, sales & marketing, Desai Brothers Ltd, states, "The Maharashtra food processing sector’s contribution to Indian food processing industry is about 13 per cent, and with focussed approach, it can increase to 25 per cent.”
However, Vishvas Chitale, director, Chitale Dairy, slightly differs, "Though Maharashtra is a leading producer of agricultural, horticultural and marine products, it is poor as far as their processing is concerned. As per my estimates, the state’s overall processing rate - excluding those of dairy and foodgrains - is about seven per cent. It certainly can increase its value addition to 25 per cent over the next 10 years with proper focus and implementation policies."
He, nevertheless, adds, “Maharashtra accounts for about 90 per cent of India’s wine production, and is a leading processor of mangoes and onions. Oil is another commodity in which the state’s processing industry has a major share. It is also known for the processing of grapes, bananas, oranges, pomegranate, cashewnuts, strawberries, tomatoes, sugarcane, milk and milk products and fish. There is a good scope for the processing of all the aforementioned commodities, as there is a huge production base.”
A spokesperson from Fazlani Foods, is equally positive, “Maharashtra contributed to 14 per cent of the food processing sector, and it is a huge centre for fruit, vegetables, grains and beverages. The industry is growing at a really fast pace along with the states of Andhra Pradesh and Tamil Nadu.”
Advantage over other states
In terms of Maharashtra's advantage over other states, Mathew of Desai states, “Maharashtra is a biodiverse state with nine agro climatic zones and varying soil types suitable for agricultural development. One of the major horticulture states in India with more than 13.66 lakh hectare and four lakh hectare under vegetables.”
Maharashtra is the largest producer of seedless grapes - 78 per cent; banana – 75 per cent; mandarin oranges – 75 per cent; onion – 63 per cent; tomatoes – 42 per cent; and alphonso mangoes - (it accounts to 90 per cent of India’s mango exports). It has a large-scale sugar industry with 200 sanctioned and 150 productive coop sugar mills.
According to Mathew, Maharashtra accounts for 40 per cent of the seed industry in India. It also has more than 60 per cent of the arable area under drip irrigation; good supply of electricity required to build good storage and cold chain facilities; best infrastructure scope for developing frozen food plants and facilities; central location with good air and sea connectivity to international markets; India’s best climatic zone for poultry and dairy development; best suited for meat and meat processing plants; large and growing domestic consumer base, which is more developed for processed foods; skilled manpower with premier R&D centres, four state agri universities and six national research centres; and strong presence across value chain.
Chitale of Chitale Dairy points out, “For the last 40 years, Maharashtra has been a leader in food processing, owing to many advantages, such as political stability; friendly government policies (particularly from MoFPI); good work in basic agricultural research and hybridisation; forward-thinking farmers and good production supply; a good industry base; closeness to the market (a result of growing urbanisation) and high export potential.”
The spokesperson from Fazlani Foods states, “There is quite a significant presence of food processing multi-national corporations (MNCs) in Maharashtra (2,316 companies, third highest in the country). Maharashtra has provided some incentives through policy initiatives in the food processing industry and has been able to attract foreign investment.”
Steps taken by government to develop industry
According to Mathew of Desai, steps taken by government for the industry include:
FDI: The total inflow of foreign direct investment (FDI) in the food processing sector has been around Rs 52.7 billion (US$1.2 bn) between 1991 and November 2006. During the last five years, FDI witnessed an inflow of over Rs 24 billion of foreign investment. The highest investment in a single year was in 2001-02 amounting to Rs 10 billion.
Maharashtra was among the front-runners to receive the highest share of FDI in food processing during the last five years. There are 173 FDI proposals approved in the food processing sector with an investment of Rs 1,039 crore between August 1991 and March 2012.
Creation of Agri Parks and Zones: Eight notified Agri Export Zones for products like mangoes, grapes, and pomegranates. The state has two wine parks - Nashik and Sangli. Six food parks were established in the state during 10th Five Year Plan under MoFPI’s food park scheme. Under its Mega Food Parks Scheme, MoFPI has awarded final approval to the mega food park project in Paithan (Aurangabad) and in-principle approval to the mega food park project in Satara. There are approximately 10 projects approved by MoFPI under its Cold Chain, Value Addition and Preservation Scheme.
The Industrial Policy 2013: The state government has recently come up with the new Industrial Policy 2013. Main objective of the policy is to maintain its leadership position, sustained growth and create employment opportunities.
Package Scheme of Incentives, 2013: The state government has announced a Package Scheme of Incentives for the industrial sector. The scheme covers cold storages and mechanised food/agro processing industries (dairy, fruit & vegetable processing; grain processing; fish processing; consumer foods including packaged foods; non-alcoholic beverages from fruits & vegetables) in addition to other industries. It offers financial incentives linked to fixed capital, Industrial Promotion Subsidy (IPS), exemption from electricity duty, waiver of stamp duty, power tariff subsidy, capital subsidy to MSME for technology upgrade; quality certification; cleaner production and so on. Quantum of these incentives varies with turnover and location of the industry.
The spokesperson from Fazlani Foods states, “The ministry of food processing industries has been operating several plans and schemes for the development of the processed food sector in the country since the past two decades. Their latest scheme of mega food parks aims at providing a mechanism to link agricultural production to the market by bringing together farmers, processors and retailers to ensure maximising value addition, minimising wastages, increasing farmers’ income and creating employment opportunities.”
Challenges for the industry
Mathew of Desai lists out the challenges thus: Lack of suitable infrastructure in terms of cold storage, warehousing, etc.; Lack of adequate quality control and testing infrastructure; Inefficient supply chain and involvement of middlemen; High inventory carrying cost; high taxation; high packaging cost; affordability and cultural preference of fresh food; and Huge marketing costs in converting consumers to processed foods.
Meanwhile Chitale, opines, "The biggest challenge faced by the food processing sector is that it is dominated by unorganised players, who contribute to 80 per cent of the industry’s volume. There is a conversion of unorganised players to organised ones, but a fair distance still needs to be crossed."
He adds, “Other challenges are unavailability of processable quality and quantity of fruit and vegetables; low productivity of agri products; small landholdings of farmers; poor processing conversion; low technology base and low automation; labour-intensive operations, the high degree of seasonality and erratic input availability; high operating costs due to small-scale operations; and the fact that it is a less competitive sector.
According to the spokesperson of Fazlani Foods, Poor market linkages, a fragmented supply chain, along with inadequate forward integration, has resulted in suboptimal quality, lower prices, and high wastage of produce at the farm level. For smaller and distant farmers, it is still a stiff challenge to directly access markets and get the desired price for their produce.
The spokesperson adds, “Lack of processing-worthy produce. Indian agriculture is still dominated by the practice of production-driven market supply instead of market-driven production, which leads to an inconsistency in the quality of produce and the supply thereof. Thus, there is a severe need to focus on processing-worthy varieties of produce and ensure a year-round supply of the same.”
Steps for overcoming the challenges
Mathew of Desai states, “Infrastructure challenges: Most of the infrastructure issues are being addressed by the state and Central governments through policy changes and promoting investments in these sectors. Marketing Challenge of Processed Foods: Today it is easier to manufacture but the foremost challenge faced by any manufacturer of the processed foods is in converting the consumers from fresh to processed foods. This is being done by the individual manufacturer themselves and unless this conversion happens faster the manufacturer is bound to face financial difficulties.”
Spokesperson of Fazlani Foods states, “Government schemes such as mega parks are aiming to bridge the divide between the farmers/suppliers and the retailers, which will make for a smoother supply chain, The scheme is based on “cluster” approach and envisages a well-defined agri/ horticultural-processing zone containing state-of-the art processing facilities with support infrastructure and well-established supply chain. A smoother supply chain will guarantee the availability of produce if it is implemented correctly.”
Scope for further processing
Talking about scope for further processing, Mathew states, “Based on raw material availability in the state, the following processable activities hold potential in the state.”
Food grains (rice, jowar, bajara etc.): Noodles, flours (fortified), biscuits & bakery Breakfast cereals & mixes maize: Flour, corn flakes, corn meal, corn oil, starch and its derivatives (like glucose, starch), ethanol, alcohol, poultry feed and so on
Pulses: Ingredient to various mainstream processing items such as snacks
Potato: Chips, flakes, powder, fries, starch and so on
Oil seeds: Refined oil, cattle feed
Vegetables: Okra, carrot, chilli, peas, beans and so on: Fresh cut, frozen and assorted products
Tomato: Puree, juice, concentrate, ketchup, sauce and so on
Guava: Juice, concentrate, fruit drinks, frozen halves, candies
Citrus fruits like orange: Juice, candy, powder
Grapes: Wine
Banana: Chips, other processed products
Mango: Pickle, aam papad, chutney, candy, dried mango powder and so on
Milk: Butter, crème, ghee, cheese, flavoured milk, milk powder, ice cream, curd, buttermilk and so on
Poultry: Processed meat and frozen meat products, eggs and chicken meat
Frozen Foods: Both vegetarian and meat & meat products
The spokesperson from Fazlani Foods states on a concluding note, “Commodity-based processing currently makes up nearly 66 per cent of the processed food market. Value-added processing, although currently low, is experiencing faster growth, at a CAGR of 10 per cent. The high growth sectors are dairy, health foods, RTE, organic foods, fruit juices and convenience foods, among others.”
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