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India’s food industry overcoming regulatory jolts, on road to recovery
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Wednesday, 10 August, 2016, 08 : 00 AM [IST]
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Ashwani Maindola, New Delhi and Pushkar Oak, Mumba
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The Indian food industry, which had been beset by regulatory issues in the past one year, is recovering, with most of the issues having been ironed out by the government.
Maggi
Nestle’s Maggi noodles allegedly had a high monosodium glutamate (MSG) and lead content, which resulted in a ban of all its variants.
This, in turn, led to the contraction of its market from approximately Rs 360 crore a month to a mere Rs 56 crore.
V Chaitra Narayan, associate director, food and beverage practice, Frost and Sullivan, said, “Before Maggi was hit, the total packaged food market in India was valued at $42.5 billion.”
“Of this, noodles accounted for about $737 million. That meant approximately 3,40,000 metric tonnes of noodles,” she added.
“Noodles was one of the fastest-growing segments at a growth rate of close to 17 per cent in volume terms. Maggi held almost 73 per cent of the market and remained unbeatable,” Narayan stated.
The market reduced by almost 25-30 per cent. Maggi’s share dropped to 42 per cent, and that of its immediate competitor, ITC, rose from 13 per cent to 33 per cent.
The overall market was worth $530 million. Volumes could have reduced to about 2,50,000-2,70,000 metric tonne.
The decline in the noodle market was compensated by other markets as consumers moved to other snacks.
Bread
A non-governmental organisation (NGO) brought out a report highlighting the possible presence of potassium bromate, a carcinogen, in bread.
The industry was forced to respond. Taking a cue from the Maggi incident, the bread industry reacted quickly and withdrew its usage, thereby preventing it from snowballing into a major controversy.
Patanjali’s entry
The entry of Patanjali products has also changed the dynamics. A great deal of interest has been generated around packaged food by the brand.
“There have been a few distribution issues which have hampered the penetration of the product,” Narayan said.
“We will have to wait and watch how the company sustains the scale of operation and distribution,” she added.
Product approval
The biggest cause of concern was product approval, which had, in fact, halted the progress of the Indian food processing industry. At times, even the ministry of food processing industries (MoFPI) was forced to state its displeasure.
Of late, FSSAI’s clarification and rectification on MSG has helped the sector recover lost ground to a large extent.
“Sometime ago, there were some regulatory hurdles, but now those are being overcome. FSSAI is looking into the subject addressing those issues,” said Sagar Kurade, president, All India Food Processors’ Association (AIFPA).
“Product approval was an issue. Now FSSAI has released 11,000 approved ingredients. Ninety to 95 per cent products do not need approval if using approved ingredients,” he added.
Investments were also impacted for some time, but now things are rolling and investments are currently happening in the sector.
“I do not have the figures, but on the ground, I can see entrepreneurs coming in and looking at tie-ups with multinationals, as consumers are now more aspirational in terms of novelty and health of the products,” Kurade said.
Consequences of the decline
Consumption at restaurants and outlets picked up as it was deemed fresher and healthier (without any preservatives or additives).
Although there has been a slowdown in the consumption of packaged food, it is expected to pick up in the next few months.
It is difficult to provide a specific number regarding who gained how much, but at the end of 2015, the market was estimated to be $38.5 billion.
Barriers have been broken
Rajesh Srivastav, chairman and managing director, Rabo Equity Advisors, said, “Last year’s ban on Maggi impacted the sector, but now the companies are recovering.”
“People are coming back to the food industry, as major barriers have been broken in recent times. Last year was subdued while the controversy added to the woes,” he added.
“But although the recovery is good, it looks sluggish at the moment. In a year’s time, we expect the sector to recover completely,” Srivastav said.
After the clarification by the Food Safety and Standards Authority of India (FSSAI), Nestle, in April 2016, announced that Maggi had further strengthened its leadership position with a market share of over 50 per cent as per Nielsen’s report.
S D Saravana Guhan, executive vice-president, India and International, & Samhoud Food BV, Mumbai, said, “The food industry in India was hit last year when several noodle manufacturers were in trouble.”
“But by the end of 2015, it began to recover. Even established noodle manufacturers revived their brand strategies to come out of the bad phase,” he added.
Speaking on the food industry today, Guhan said, “The industry is recovering well, as the companies that were hit came up with new product variants and gained a good share.”
“Maggi today has a market share of approximately 40 per cent. Meanwhile, on a positive note, the food industry has learned to adhere to the laws and regulations,” he added.
“Several organisations now have a dedicated legal team following the new introductions in the laws or amendments in the laws,” Guhan stated.
He added, “Last year, the food industry was hit. But it has definitely created an atmosphere for safe food and compliance, especially at the small and medium enterprises (SME) and micro, small and medium enterprises (MSME), which were usually left out.”
Foreign direct investment
The foreign direct investment (FDI) decision has also put India on the radar of multinational companies, who can’t afford to lose the huge consumer base.
“All that they were perhaps looking for was a cohesive regulatory environment, which now certainly has changed for the better,” Kurade said.
“We are working with MoFPI on new schemes. The National Mission on Food Processing (NMFP) was over, and we are in continuous talks with the ministry for a new scheme to promote the food processing sector in a better way,” he added.
Kurade appeared confident of recovering from the controversies. “The industry has learnt a lesson from these controversies and overcome, be it noodles or bread. I am quite confident that investments will come to the food processing industry in India. I see a bright future for the sector,” he said.
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