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“India among top five markets for packaged food”
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Tuesday, 04 April, 2017, 08 : 00 AM [IST]
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 German Engineering Federation (VDMA) in India strengthens Indo-German economic relations in different engineering sectors. It promotes the activities of VDMA member companies in India. Among its various activities, it maintains close relations with the Indian industry, Indo-German companies, embassy and consulates and various Indian industry associations, particularly, the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), the Engineering Export Promotion Council of India (EEPC), the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Federation of Indian Export Organisations (FIEO), the Chemical and Allied Export Promotion Council of India (CAPEXIL), the Indian Chamber of Commerce (ICC), and the Indo-German Chamber of Commerce (IGCC).
Its activities have led to closer co-operation between the specialised associations within VDMA and the equivalent Indian associations. The office also offers assistance to individual member companies in identifying potential partners in India. In an email interaction with Anurag More, Rajesh Nath, managing director, VDMA India, spoke about the Indian packaging machinery sector vis-a-vis its overseas counterparts. Excerpts:
Where does the Indian packaging machinery sector stand vis-a-vis its overseas counterparts?
The packaging industry of India, which is worth US$17 billion, constitutes around four per cent of the world’s packaging industry. Over the last five years, the industry has seen an annual growth of 15 per cent and the development of packaging machinery is on an upward trend. Both primary and secondary packaging have tremendously grown over the past few years. The Indian packaging industry is expected to become the fourth-largest packaging market in the world.
In the Indian packaging industry, processed food packaging represents 48 per cent of the total, while personal care packaging accounts for 27 per cent, pharma accounts for six per cent, and the share of the rest is 19 per cent.
The per capita consumption of packaging in India is merely 4.3kg per person per annum. In comparison, Germany’s per capita packaging consumption is 42kg and that of Taiwan is 20kg. To meet the rising demand for processed and packaged food and beverages, companies have to expand their production, and as a result the demand for state-of-the art processing and packaging technology will grow.
Export-oriented manufacturers, in particular, favour high-tech solutions in order to meet the international standards and to be competitive. More than 80 per cent of the total packaging in India constitutes rigid packaging. The remaining 20 per cent comprises flexible packaging. There are about 600-700 packaging machinery manufacturers, 95 per cent of which are in the small and medium sectors located all over India.
The dynamic development of the Indian food and beverage industry is an ongoing process accompanied by significant investments in food processing and packaging machinery over the last few years. In 2015, Indian imports of foreign food processing and packaging machinery reached a new peak. Investments in foreign machines and equipment increased by 30 per cent and amounted to €734 million.
Around 40 per cent of these imports were packaging machines, which were mainly imported from Italy and Germany. Sixty per cent of the Indian imports were processing equipment for different foodstuffs, e.g. for the production of confectionery and bakery products, for beverage production as well as machines for fruit and vegetable processing. The main supplying countries of food processing machines for the Indian industry - depending on the sub-sectors – are Germany, Italy, Switzerland and China.
What will be the market size and the growth rate of the Indian packaging machinery sector in 2020?
India is one of the top five markets for packaged food in the world and the second-largest in Asia with a sales volume of 34 million tonne in 2015. The British market research company Euromonitor International expects that the total sales of packaged food will increase by roughly seven per cent annually within the next five years.
In the year 2020, packaged food sales will reach 47 million tonne. According to the forecasts of Euromonitor, India will become the third-biggest market for packaged food in 2020, after China and the United States.
The food packaging industry is India’s fifth-largest sector with a current worth of nearly $40 billion. By 2020, it is expected to reach over $65 billion. With a per capita consumption of 24kg per year, the Indian packaged food market is still at an early age.
Due to rising incomes, urban lifestyle changes and modern retail trade, the food packaging market will expand distinctly. As urban regions account for more than 80 per cent of the demand for packaged food, there is a huge growth potential in the semi-urban and rural regions.
The main categories of packaged food are bakery products, canned processed food, frozen processed food, meal replacement products and condiments. Some emerging new categories in this segment are processed dairy products, frozen ready-to-eat foods, diet snacks, processed meat and probiotic drinks.
What are the key market trends impacting the growth of the sector?
A wide array of products, coupled with increasing global connectivity, has led to a change in the tastes and preferences of domestic consumers. This trend has been bolstered by rising incomes, increasing urbanisation, a young population and the emergence of nuclear families.
Food packaging has enabled today’s consumers to look for various options, and compare the value offerings thereof, before making a purchase. Packaging has also helped enhance the carry ability of products and increase their shelf life. Vice versa, the rising demand for food and beverages boosts packaging industry as well.
The technological advancements have been rapid with the advent of the space and the information technology age, which gradually required and also facilitated the changes in consumer food habits and preferences across the world. These changes brought in technologies like juice concentrates, preservatives, colourants, self-cooking meals (ready-to-eat/cook foods), reconstituted foods, fruit juices, etc.
While some of the Indian players are making use of the newer technologies to increase production, meet international quality standards and thereby increase profitability, since the industry is largely unorganised the adoption has been sporadic.
Even though, the market opportunities have been emerging in the recent past, requirement of investments, lack of bank credit facility and long gestation period have been impeding the adoption of newer technologies.
What are the key factors driving the packaging machinery sector in India?
The Indian middle-class is growing rapidly and it simply loves to buy. They are on the lookout for premium brands, especially for confectionery products like chocolate. But the premiumisation trend is not only noticeable in chocolates but also in biscuits. These trends are expected to continue even years from now.
Rural India provides growth opportunities for packaged food and beverages. Almost 65 per cent of the Indian population lives in rural regions. The rural population benefits from investment in infrastructure and rising wages. Food processing companies are realising the potential of rural India and are trying to expand their presence in these areas. They are launching their products in smaller pack sizes and at low price points to attract consumers. As India's soft drinks market is slowly reaching maturity in urban India, rural India is the new target for most of the manufacturers of soft drinks.
Packaging machines such as automatic form-filling and sealing machines, tetra pack aseptic packaging machines for sterilised filling and packing of liquids, and testing instruments offer considerable business opportunities. The Indian packaging machinery manufacturers in the unorganised sector mostly fabricate general-purpose equipment to serve the basic needs of the industry.
One area that has been identified as having good market potential is equipment for manufacturing aluminum beverage cans. Machinery for cleaning and drying containers; automatic high speed labelling machines and capping machines; sealing machines for cans, boxes, and other containers; machinery for filling, and closing bottles and cans; packing/wrapping machines; and moulding machines also offer good prospects.
What are the challenges faced by the sector?
The challenges that the industry is facing today include lack of regulatory clarity in packaging, insufficient consumer awareness of sustainable packaging and uncertainty about green packaging materials.
For raw and processed foods, India needs packaging material which is suitable to the country's climatic variations. The country's heat and high humidity are two problems that can reduce the shelf life of packaged goods.
It would be particularly important to focus on the seals and maintaining their integrity. But more important than the climate is perhaps the lack of a good supply chain or refrigeration in retail outlets and at home. This is a big barrier to many of the packaged food formats familiar to consumers in the West.
At the same time, a heavy focus on cost means that cheaper flexible packaging formats are often chosen over rigid packs that may offer greater protection for the product but that would force a higher retail price.
What steps are being taken to overcome the same?
Rigid and flexible are the two most significant types of packaging in use today. Rigid packaging dominates with about 80 per cent market share. However, there is a shift in demand and flexible packaging demand is increasing. The key advantages of flexible packaging over rigid include light weight, small pack size, and energy savings, ease of storage and transportation and convenient disposal.
Moreover, spouted stand-up bag is a smart innovation for packaging liquids of all kinds. After pouring, the caps can be tightened to keep the product safe. For sauces, etc., stand-up pouches can be fitted with pour spouts and easy screw-on caps. As the Indian food and beverage industry is growing rapidly, creating awareness of product possibilities by utilising advanced packaging and processing technologies is very important so that the latest and best technologies can be adapted.
With India being the second-biggest producer of food and beverages after China, the market has a huge potential for foreign direct investment (FDI) concerning the technology of food processing and food packaging machines.
VDMA India helps the Indian companies to connect with German companies in order to build cooperation, exchange technology and provide them with the newest information about innovations within the food packaging industry.
What are the market opportunities and threats faced by the vendors in the Indian packaging machinery sector?
Indian imports of packaging equipment consist mainly of highly-automated advanced machines and systems. The major equipment suppliers to the Indian market include Germany, Italy, Switzerland, and others including Taiwan and the United States.
Technology, price, delivery, and performance standards are critical factors that determine whether packaging equipment can be sold in the Indian market. Due to intense competition in the end-user market, the cost of equipment and low running cost remain one of the primary factors that influence the sale of the packaging equipment.
Upgrading would be another extremely important factor in the buying decision of Indian end-users. After-sales service is also a key concern of buyers. The unorganised segment probably represents the largest opportunity in terms of volume. As buyers/end-users become more quality-conscious, it will become imperative for this segment to upgrade its equipment.
The key factors that affect sales to this segment are the cost of the equipment, lower processing cost and being able to seamlessly incorporate the equipment in facilities. As in all cases, the presence of after-sales support would be treated as a prerequisite.
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