&

FOOD PROCESSING &

FOOD PROCESSING
EQUIPMENT INDUSTRY:
OUTLOOK SURVEY

The Economic Times an RedSeer Consultings Food Processing & Food

Processing Equipment Industry Outlook Survey
The Economic Times and RedSeer Consulting, the research and advisory firm surveyed
49 companies in the food processing and food processing equipment industry during
the first quarter of FY2015. Participants were asked about business conditions in their
sector, revenue growth opportunities, investment plans and any barriers to growth that
may affect the business. They were also asked a variety of questions about the overall
growth of the industry, including the factors that might affect the sectors recovery, and
to assess the impact of economic conditions on their business expansion plans.
The responses were analysed to review the existing market conditions and to project
future growth opportunities. A comparative study was carried out to assess the findings
against those of a similar survey conducted on the same participants in the previous
financial year.

Structure of the Report

Industry Insights
Key Findings
Economic Outlook
Growth and Challenges
Expansion and Future Strategies
Drivers and Inhibitors
Final thoughts from RedSeer Consulting

Industry insights
Food production in India has witnessed significant growth in recent years, making India
the second largest producer of food in the world next to China. A stable monsoon in the
past decade, which still meets more than 60% of irrigation requirement, has been a
major driving force behind increasing food production. The projected total food grain
production in India is expected to be around 261 million tonnes in FY14-15 in
comparison to estimated 259 million tonnes in the FY13-14 and 255 million in the
preceding year.1
Total food grain production (in millions tonnes)
259

0.8%

18.7%

261

218

2009-10

2013-14E

2014-15P

Availability of adequate, timely and assured irrigation for crops, low awareness among
farmers on newer farming and crop technologies, access to credit for farmers to buy
modern inputs for farming operations especially for the bottom 40% remain the major
causes of concern. India ranks seventh in term of overall food wastage and first in
wastage of cereals, pulses, fruits and vegetables. Agriculture produce to the tune of Rs.
50,000 Crore is wasted every year in the country.2
Annual cumulative wastage percentage in various commodities

0.8%
Milk

2.3%

2.9%

Meat

Fisheries

6.0%

6.0%

6.1%

Cereals

Oil Seeds

Pulses

18.0%

3.9%

Poultry

Fruits &
Vegetables

Food processing sector could play an important role in increasing farm gate prices,
reduce wastages, ensure value addition, and promote crop diversification. Realizing the
potential of the sector, the government of India has initiated many extensive reforms.
For promotion and development of the sector, FDI up to 100% is allowed. The
government has allocated a sum of Rs 5,990 Crore (US$ 1 billion) under various
schemes of the food processing industries during the 12th Five Year Plan. In addition,
the sector has attracted foreign direct investments (FDI) worth US$ 5,360.89 million
during the period April 2000January 2014.3
1

Reserve Bank of India and Union Budget, 2014

Central Institute of Post-Harvest Engineering and Technology (CIPHET), Ludhiana

Despite continual effort of the government, processing activity still remains at a nascent
stage. Fresh or unpackaged foods dominate the food basket of most Indian consumers.
Level of processing across segments4,5
Segment

% processing

Comments

F&V

2.2%

USA (65%), Philippines (78%), China (23%), Thailand (30%),

Malaysia (80%)

Fisheries

26%

60-70% for developed nations

Poultry

6%

60-70% in developed countries

Meat

20%

60-70% in developed countries

Milk

35%

60-75% in developed countries

Strong Domestic Demand

Rising Exports Potential
Supply Side Advantages
Strong Policy Support
Contract farming resulting in
guaranteed returns to
farmers
Growth of organized retail

Erratic power supply

Industry at a nascent stage
Supply chain and distribution
network
Rising energy costs
Shorter shelf life
Government procedures
Marketing costs

Impediments

Drivers

Nonetheless, increasing urbanization, income levels and education levels are driving a
gradual shift towards processed food. The following diagram lists leading drivers and
impediment to future of the industry.

The projected GDP of the food processing industry in India is around Rs. 1, 03,943
Crores in FY2015, 33% more than the size of industry in FY2012.6 The sector is
expected to expand further at a growth rate of 9% annually to reach Rs. 6, 00,000
Crores by 2030.7
Gross Domestic Production Food Processing Industry (in Rs. Crores)
103,943

52,161

2006-07

57,320

60,378

58,752

2007-08

2008-09

2009-10

MoFPI Annual Report 2007-08

OSEC Industry Reports

Ministry of Food Processing Industries

CII-McKinsey Report

67,508

2010-11

78,094

2011-12

2014-15P

Major segments in food processing industry include fruits and vegetables, dairy, grains,
meat and poultry, fish and consumer foods (includes packaged food, packaged drinking
water, alcoholic and non-alcoholic beverages). Following table represents total
production of major food categories.
Food Production by Category in Lakh Tonnes
2,590
2,270

1,324

Food grain

Fruits and
vegetables

Milk

91

37

Fisheries

Broiler meat

Packaged food segment is primarily driven by urban population which account for more
than 78% of the total market. It is presently valued at US$ 39.7 billion and is expected to
reach US$ 65.41 billion by 2020. Other major food segments such as packaged drinking
water, confectionery, beverages etc., have been growing at double digit growth rate.
Governments continued effort in improving the overall food supply chain is expected to
open plethora of opportunities for companies in the agriculture value chain. The food
processing industry is expected to be one of the biggest beneficiaries of this process.

Key Findings from the Economic Times and RedSeer

Consultings Food Processing & Food Processing Equipment
Industry Outlook Survey
The Economic Times and RedSeer Consulting surveyed 49 companies in the food
processing industry with an average size of 132 employees having 70% permanent and
30% part-time employees with estimated average revenue of INR 72 Cr. Participants
included business owners and unit heads who spoke optimistically about the upcoming
financial year which included the revenue, the company headcount, the industry growth
and the capital expenditure. They also spoke about input costs being the greatest threat
to the company margins. The participants emphasised on target marketing and
geographical expansions being the top most priorities for the companies. The survey
comprised of companies in three major categories: processed food, perishable food, and
kitchen appliances.
Survey Key Findings

Nearly half of the business owners and unit heads believe that there would be a slight
improvement in the economy in the wake of the general elections, and the other 40%
of the respondents feel that the economic growth would remain same in comparison
to FY14

The survey shows that most of the respondents (~78%) are of the opinion that their
revenues will increase in the current fiscal year in comparison to last year. A similar
trend has been observed for the headcount and the profit margins

The respondents (~86%) point out that input costs have increased significantly. As a
result, input cost is seen as a major threat to company margin by around 54% of the
responding companies followed by marketing costs

Most of the respondents state that economy followed by quality measures would be
biggest bottlenecks in the growth of their companies

The companies look to focussing on improving their marketing and advertising

programmes, and to invest in new product development and improve their quality
standards

More than half of the respondents (~54%) state that the cost of raw material local
and imported is expensive and it directly affects the issue of rising input costs and
becomes a threat to the profit margins of the company

Around 50% of the respondents state that cost of quality control, certifications, and
marketing required for domestic and export market is reasonable

Around 56% of the respondents state that firms operating at national/state levels are
the biggest competitors for their business followed by the local firms operating in the
same state (~53%)

96% of respondents expect an increase in the revenue, while 86% say they would
recruit in the coming 12 months

To counter economic and input cost uncertainties and attain vertical growth target
and improved marketing (~38%) along with entering into new markets (~35%) are
key priorities of the companies in the coming 12 months

The companies also intend to focus on cost reduction (~31%) and new product
development (33%) and their capital expenditure plans are in line with these priority
areas with 56% planning to invest in new products and 42% in marketing and
advertisement

Around 79% of the respondents say that their capital spending plan will increase in
the next 12 months

More than 90% of the respondents are optimistic about the positive growth of the
industry next year

Performance of the economy is identified as a major issue hindering the growth of the
industry by an overwhelming 68% of the respondents

Complex and cumbersome taxation policy is highlighted as a major factor impacting

the overall business environment for the sector, which has deteriorated further in the
past 5 years

Around 76% of the respondents feel that the government should make effective
changes to the tax policies and simplify government procedures

From industry initiative perspective, business owners and unit heads say that
improving productivity at root level, with benchmarked industry quality measures
would improve the competitiveness and the business environment

Economic outlook
Nearly half of the business owners and unit heads believe that there would be a slight
improvement in the economy in FY2015. Around 40% of the respondents believe that
the economic condition will remain same in FY2015 as it was in FY2014. The survey
was conducted before the general election results were announced, and many at that
time were of the view that a regime change will expedite many of the impending bills,
which will boost economic growth.
Economy, one year from now
46%

50%
40%

39%
~46 of the respondents feel that there will
be slight improvement in the overall
economy of the country

30%
20%
11%
10%

2%

2%

0%
About the same

Significantly improved

Slightly improved

Slightly worse

Significantly worse

Growth and Challenges

The survey shows that most of the respondents (~78%) are of the opinion that their
revenues will increase in the current fiscal year. A similar trend is observed for
headcount and profit margins of the companies surveyed. The respondents (~86%)
point out that input costs have increased significantly. As a result, input cost is seen as a
major threat to company margin by around 54% of the responding companies. This was
followed by marketing cost. For 65% of the responding companies, the input cost
increased by more than 10%. However, only 32% managed to increase their pricing by
more than 10%.
Most of the respondents have an opinion that economy followed by quality measures
would be the biggest bottlenecks in the growth of their companies. To counter these
bottlenecks and to increase their competitiveness, the companies would focus on
improving their marketing and advertising programmes, investing in new product
development, and improving their quality standards.
More than half of the respondents (~54%) state that the cost of raw material local and
imported is expensive and it directly affects the issue of rising input costs and is a
threat to the profit margins of the company. Around 50% of the respondents also
indicate that cost incurred for the technology is expensive and significantly contributes
towards the rising input costs.
Most of the respondents (~40%) have an opinion that the cost of the labour, machinery
and power is reasonable, and 50% of the respondents state that cost of quality control,
certifications, and marketing required for domestic and export market is reasonable.

Around 56% of the respondents state that firms operating at national/state levels are
the biggest competitors for their business followed by the local firms operating in the
same state (~53%). Only 26% of the respondents view international companies as a
competition.
Revenue growth in last year
30%

26%
20%

20%
10%

15%

17%

15%

~78% of the respondents stated that their

revenue increased compared to the last
year. Around 1/5th of the respondents
stated that there was no change in the
current revenue of the company.

7%

0%
Decreased by 1-30%

Increased by 1-10%

Increased by 10-20%

Increased by 20-30%

Increased by more than 30%

No change

Company headcount since last year

40%

34%

30%

25%
20%

20%
10%

14%
5%

Around 60% of the respondents stated that

the employment in their companies is
higher in comparison to FY14, and around
5% of the respondents were of the view
that the headcount had decreased

2%

0%
Decreased by 1-10%
Increased by 10-20%
Increased by more than 30%

Increased by 1-10%
Increased by 20-30%
No change

Profit margins compared to last years

40%
29%

30%

22%

20%
16%

20%
10%

4%

4%

4%

0%
Decreased by 1-10%

Decreased by 10-20%

Increased by 1-10%

Increased by 10-20%

Increased by 20-30%

Increased by more than 30%

No change

29% respondents stated that the profit

margins of the company increased by 1020 percent and twenty-two percent
respondents stated that there was no
change in the profit margins.

Threats to company margins

60%

54%
35%

40%

20%

10%

19%

17%

15%

4%

2%

More than half of the participants surveyed

stated that of all costs, input cost will be
the greatest threat to the companys profit
margins in the coming 12 months, followed
by marketing cost

0%
Input costs
Decreased sales volume
Inventory carrying costs
Regulatory Compliance

Discounting and incentives

Marketing Costs
Administrative Costs
Any other

Company increase in input cost since last year

50%
41%
40%
30%
21%
16%

20%
10%

14%
4%

Of the people surveyed, 4/5th of the

respondents stated that there was a
significant increase in the input costs as
compared to last year, out of whom 4%
stated that the increase was over thirty
percent.

0%
Increased by 1-10%
Increased by 20-30%
No change

Increased by 10-20%
Increased by more than 30%

Pricing compared to last years

40%

35%

33%

35% respondents feel that there has been

no change in pricing the products as
compared to that of the last year and
65% respondents stated that there was
an increase in the pricing of products

30%
17%

20%
11%
10%

4%

0%
Increased by 1-10%
Increased by 20-30%
No change

Increased by 10-20%
Increased by more than 30%

Cost of Items
Export marketing
Domestic marketing
Quality control
Land
Machinery
Power
Skilled labour
Technology
Imported raw materials
Raw materials

0%
Very economical

20%

40%

Economical

60%

Reasonable

80%

Expensive

100%

Very expensive

Expansion and Future Strategies

When the respondents were surveyed about future growth of their company, 96%
responded that they expect there will be in an increase in the revenue, while 86% say
they would recruit in the coming 12 months.
To counter economic and input cost uncertainties and attain vertical growth, targeted
and improved marketing (~38%) along with entering into new markets (~35%) are key
priorities of the companies in the coming 12 months. The companies will also focus on
cost reduction (~31%) and new product development (33%). Capital expenditure plan
of companies are in line with these priority areas with 56% planning to invest in new
products and 42% in marketing and advertisement. In addition, expanding facilities is
also a focus area for capital spending.
Upon asking about their capital spending plan, around 79% of the respondents said that
it will increase in the next 12 months.
Expected revenue growth in FY2015
38%

40%

38% respondents said that they

expect their company revenue to
increase at a rate of more than 20%,
a year from now

30%
22%

20%

20%

16%

10%

4%

0%
Increase by 1-10%
Increase by 20-30%
No change

Increase by 10-20%
Increase by more than 30%

Expected Headcount FY2015

40%
32%

30%

Around
1/3rd
of
the
total
respondents stated that they expect
their company revenue to increase
by 10 to 20% in the next 12 months.

30%
18%

20%

14%

10%

5%

2%

0%
Decreased by 1-10%

Increased by 1-10%

Increased by 10-20%

Increased by 20-30%

Increased by more than 30%

No change

Priority for sustainable growth

38%

40%

35%

33%

31%

30%

The respondents stated that their main

priority over the next 12 months would be
targeted marketing followed by geographic
expansions.

17%

20%
10%

6%
2%

0%
Cost Reduction
Security of Supply
Pricing Strategy
No Planned Change

Improve targeted marketing

New Product Development
Geographical Expansion

Focus of capital spending

60%

56%

38%

40%

42%

21%

20%
6%

56% of the respondents would focus on

spending on development of new
products/services followed by extensive
Advertising and marketing techniques

17%
2%

0%
New Products or services
Expanding facilities
Geographic Expansion
Employee Salary and Training

Information Technology
Advertising and Marketing
Research & Development

Expected capital spending

60%
42%
40%
17%

20%

17%

10%
2%

10%

Around 2/3rd of the participants

indicate that they are going to
increase their capital spending by
10-20% in the coming year, whereas
few said that they would be cutting
down on the capital expenditure

2%

0%
Decrease by 1-10%
Increase by 1-10%
Increase by 20-30%
No change

Decrease by 10-20%
Increase by 10-20%
Increase by more than 30%

Drivers and Inhibitors

More than 90% of the respondents are optimistic about the positive growth of the
industry next year. Performance of the economy has been identified as a major issue
hindering growth of the industry by an overwhelming 68% of the respondents.
Following are major costs incurred during the operation and running of the business:
Major costs head as percentage of total cost
Interest rate at which loan is available or taken

12%

Cost of raw-material

53%

Power cost

11%

Complex and cumbersome taxation policy is highlighted as a major factor impacting the
overall business environment for the sector, which has deteriorated further in the past
5 years. As a result, around 76% of the respondents feel that the government should
make effective changes to the tax policies and simplify government procedures.
Despite deterioration in the availability of skilled labour and regulatory framework in
the past 5 years, the respondents are satisfied with these factors. There has also been
deterioration in the quality of power supply.
From industry initiative perspective, business owners and unit heads say that
improving productivity at root level, with benchmarked industry quality measures
would improve the business environment along with the competitiveness.
Industry/Sector Growth
60%
40%

40%
17%

20%

19%

15%
6%

4%

0%
Decreased by 1-10%
Increased by 10-20%
Increased by more than 30%

Increased by 1-10%
Increased by 20-30%
No change

90% of the respondents have an

opinion that industry would increase
in the coming years.

Issue facing the industry

80%
68%

60%

68% of the respondents feel that the

biggest issue facing the industry in
the coming next 5-10 years would be
the overall economy of the country.

40%
20%

23%

20%
7%

9%

14%

0%
Changing consumer demand patterns

Supply(food or raw material)/commodity prices

Unavailability of quality manpower

Limited access to credit

Incresed Govt. Regulations

Declining
Improving
Imrovement / detoriation in the Factor

Overall economy

Current and past trends impact of various factors on the industry

3.0

8
2.5

3 6

10

5
2.0

9
11

4
2

1.5
2.0

2.5

3.0

3.5

Current Rating of Various Factors

Very Poor

Excellent

Taxation Policy

Electricity

Innovation and R&D

Availability of Skilled Labor

Environmental Regulations

10

Training Facilities

Lobbying

Access to Capital

11

Supply Chain

Regulatory Framework

Quality Management

Different components of business environment in the industry were rated on a scale of 1 to 5. 1 being very poor and 5 being excellent.
Also the trend in these in last 5 years were rated from 1 to 3 (1 is declining, 2 is no change and 3 is increasing).

Final Thoughts from RedSeer Consulting

Conducted in the wake of the general elections, the business owners and the unit heads
believe that the economy would slightly improve in the current fiscal year. The belief
that there would be a slight improvement in the overall economy will also see an
increase in the revenue of the company, which increased for most companies in the
previous year. To support future growth, companies would focus on increasing their
capital spending in areas of marketing, new product development, geographical
expansion, and expanding facilities. Expensive technology poses a risk to their planned
capital expenditure in the next few years.
Companies feel that increasing input cost is the biggest threat to their bottom line,
which increased for most of the companies in the previous year. Marketing cost and
regulatory compliance are other areas which have major impact on the bottom line of
companies. Only a quarter of companies have managed to increase their prices in line
with rising input cost while others have focussed primarily on cost reduction to boost
their bottom line.
Compared to food processing equipment industry, more number of respondents from
food processing industry expect an increase in their profit margin. Accordingly, their
expectation on capital spending is higher than that from food processing equipment
industry.
Economic uncertainty and lack of standardised quality practices are major bottlenecks
for future growth. Simplification of government procedures and taxation policies are
considered biggest business environment issues. While business owners and unit head
expect government to tackle these issues, they are emphasising on improving the
productivity at root level with standardised quality practices to improve the overall
competitiveness of the industry.