FNB News - India food industry - High-growth, high-profit sector

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India food industry - High-growth, high-profit sector

Monday, 21 December, 2015, 08 : 00 AM [IST]

Ashwani Maindola, New Delhi

The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year.

In India, the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry.

Accounting for about 32% of the country’s total food market, the food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.

The Government of India has been instrumental in the growth and development of the food processing industry. The government through the ministry of food processing industries (MoFPI) is making all efforts to encourage investments in the business. It has approved proposals for joint ventures (JV), foreign collaborations, industrial licences and 100% export oriented units, says a report by the Indian Brand Equity Foundation, a ministry of commerce institution for promoting Brand India.

Harsimrat Kaur Badal, Union minister for food processing industries, states that food processing sector has emerged as an important segment of the Indian economy in terms of its contribution to GDP, employment and investment. It constitutes 9-10% of the GDP in manufacturing and agriculture sector respectively and accounts for 12% of India’s export along with 7% of total industrial investment fixed in capital in registered sector.

“We would like to double the growth in food processing in the country,” said Badal.

Similar sentiments were expressed by industry giants. Siraj Chaudhry, chairman Cargill India, said, “India is a great place to be for food processing industries. Income levels are rising and first expression of income increase is in food consumption. And across subsectors moving from carbohydrates to protein to fruits and vegetables, there is great opportunity.”

Market Size
The Indian food processing industry accounts for 32% of the country’s total food market, 14% of manufacturing GDP, 13% of India’s exports and 6% of total industrial investment. During FY11–15, India's exports of processed foods and related products (inclusive of animal products) increased at a CAGR of 23.3% to US$21.5 billion.

Investment
Further, with regard to investments, the report explains that according to the data provided by the Department of Industrial Policies and Promotion (DIPP), the food processing sector in India has received around US$6,429.15 million worth of foreign investments during the period April 2000-June 2015. The Confederation of Indian Industry (CII) estimates that food processing sector has the potential to attract as much as US$33 billion of investment over the next 10 years and also generate employment of nine million person-days.

According to MoFPI, of the total investments worth over US$12.584 billion attracted by food processing sector as of December 2014, Gujarat attracted the highest share (US$2.5154 billion) at 20%. Further, the private sector accounted for over a whopping 97% of the total investment attracted in Gujarat, which has a 20% share of the total investment. It was followed by AP with 14%, Karnataka 13%, Maharashtra 9% and West Bengal 6%.

So far, from April to November 2015, around Rs 3,500 crore FDI has been recorded.

Major Investments in Recent Past
Gujarat Cooperative Milk Marketing Federation (GCMMF), popularly known as 'Amul,' plans to invest Rs 5,000 crore (US$753.16 million) to establish 10 new processing plants as well as expand the current capacity to touch 32 million litre per day (MLPD) by 2020.

ITC Ltd plans to invest Rs 800 crore (US$120.51 million) to set up a world-class food processing facility in Medak, a district located in Telangana. The company has also formulated plans to enter the dairy market.

However there are words of caution as well. V L Rajesh, CEO, food division, ITC Ltd, says that a lot of work is required. “Lot of investment is required, regulatory clearances and facilitation is required and it should be made easier for the industry to invest.” He added that regulatory mechanism is beginning to work better now.

Government Initiatives
Also IBEF says in its report that in order to promote food processing industries, increase level of processing and exploit the potential of domestic and international market for processed food products. Vision Document-2015 prepared by MoFPI envisages trebling the size of investment in the processed food sector by increasing the level of processing of perishables from 6% to 20%, value addition from 20% to 35% and share in global food trade from 1.5% to 3% by 2015. According to the ministry, an investment of Rs 100,000 crore (US$16 billion) would be required in 2015 to achieve these targets.

Some of the major initiatives taken by Government of India to improve the food processing sector in India included Badal inaugurating the first-of-its-kind Rs 136 crore (US$20.49 million) mega international food park at Dabwala Kalan, Punjab.

Further, the ministry announced a scheme for human resource development (HRD) in the food processing sector. The HRD scheme is being implemented through state governments under the National Mission on Food Processing. The scheme has the following four components: Creation of infrastructure facilities for degree/diploma courses in food processing sector; Entrepreneurship Development Programme (EDP); Food Processing Training Centres (FPTC); Training at recognised institutions at state/national level.

MoFPI has taken some new initiatives to develop the food processing sector which will help to enhance the incomes of farmers and export of agro and processed foods among others.

The Government of India has approved the setting up of five Mega Food Parks in the states of Bihar, Maharashtra, Himachal Pradesh and Chhattisgarh. The government plans to set up 42 such mega food parks across the country in next three to four years.

In the Budget 2015-16, a corpus of Rs 2,000 crore (US$301.27 million) was created under National Bank for Agriculture and Rural Development (NABARD) to provide cheaper credit to food processing industry. Excise duty on plant and machinery for packaging and processing has been brought down to six% from 10%.

A report by Grant Thornton and PHD Chambers states that the government has taken initiatives like promoting innovation and entrepreneurship culture at grassroots level, ministry of MSME under its scheme for Promotion of Innovation, Entrepreneurship and Agro Industry has been allotted a budget of .

Also the Reserve Bank of India (RBI) has revamped priority sector lending (PSL) norms. Banks can meet their entire agriculture lending target - 18 per cent of their net loans disbursed in the previous year – by funding indirect agriculture, which includes loans to companies engaged in the agriculture sector. Now, food and agro processing units will be treated as part of agriculture and there is a corpus of Rs 2,000 crore for setting up of units in the designated food parks.

High growth sub-segments include processed milk, flavoured milk, curd & yogurt, ice cream, skimmed milk, dairy whitener, pulps, concentrates, pickle, potato wafers/flakes, fruit beverages, spices, breakfast cereal, biscuits, pasta, instant noodles, ready-to-eat & ready-to-cook meals, noodles & vermicelli and RTE non-veg meal. Medium growth sub-segments include milk, ghee, cheese, frozen dehydrated, pulses, and instant mixes, cattlefeed while bread is considered a saturated market with low growth.