CONSUMERMARKETS

Food Processing Sector in India

–Challenges & Opportunities

Ramesh Srinivas,
Executive Director, KPMG

July 28, 2009

BUSINESSADVISORY
Agenda

1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

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 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 3
Food Processing Sector in India
Food is the largest consumption category in India...

C A GR : 5.32%
Food Consumption in India
250 Source: BM I, Q12009 & CSO
229.7

210.3
198
200 191.4
184.4
180.1
168.6
157.7
151.7
150

100

50

0
2005 2006 2007 2008e 2009f 2010f 2011f 2012f 2013f

Significant Opportunity

India as a huge Consumer Market

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Food Processing Sector in India
India has huge supply advantages due to diverse agro-climatic conditions and wide
ranging raw material base…

• 52% cultivable
land compared to • Largest livestock
11% world population
average
• All 15 major
climates in the • Largest producer
world exist in of milk
India

• 46 out of 60 soil Significant Opportunity

• Largest producer
types exist in
cereals
India India as a global
sourcing hub
• Second-largest
• 20 agri-climatic fruit and
regions vegetable
producer
• Sunshine hours
• Among the top five producers
and day length
worldwide of rice, wheat,
are ideally suited
groundnuts, tea, coffee, tobacco,
for round the year
spices, sugar and oilseeds.
cultivation

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 Food Processing Sector in India
Huge wastage across the supply chain leads to lower level of processing and hence
low value addition…

Field Losses Developin

Producer

(Pest, Diseases, Rodents etc))

g
Countries
Pre-Processing –
(e.g. inefficient harvesting, drying, milling) Relatively Level of Processing across Segments
high losses
Segment India Other Countries
Transport
in the
(e.g. spillage, leakage) initial parts
of the Fruits and 2.2% US A (65 %),
value Vegetables Philippines (78%)
Storage chain
(e.g. technical deficiencies) Rich China (23)%;
Countr
Processing & Packaging ies – Marine 26% 60-70% in developed
(e.g. excessive peeling, washing) High countries
losses Poultry 6%
at a
Marketing Buffalo Meat 20%
(e.g. spoilage, rotting in stores) later
stage in
the Milk 35% 60-75% in developed
Wastage by Consumer food countries
Consumer

(e.g. overeating, food wastage)

chain

Britt-Louise Andersson, SIWI

Field Fork

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Indian Food Trade
Supported by a committed government in improving the food trade and providing a
conducive atmosphere for agriculture, India is a net exporter of agricultural
products. …

India’s Position in Global Trade

• India stands a distant 21st for the year 2007, with a 1.4%
share in the global trade.

• During the period 1980-2007, India’s share in the global

exports have increased from 1.1% to just 1.4%, the
majority of the increase happening in this decade.

• However, Export of Processed Food and Beverages is

growing faster than the overall Food and Beverages…

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Indian Food Trade
India exports mostly to the proximate countries…

40% South Asia

34%
35%
Share of Trade

30% 29% Middle East

25%
East Asia
20%
17%
15% Western Europe

10% 10%
Rest of the World
7%
5% USA & Canada
Africa 1% 1%
0%
0 2000 4000 6000 8000 1
0000 1
2000 1
4000
Distance(Kms)

India’s geographical situation gives it the unique advantage of connectivity to Europe, the Middle
East, Japan, Singapore, Thailand, Malaysia and Korea.

Globally, most of the countries import from countries that are geographically closer.

• For example, 45% of USA imports are from Canada and Mexico.
• EU imports 50% from Spain, Netherlands, France, Italy, Belgium and Germany

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Indian Food Trade
Case Study: Chile has successfully overcome the distance barriers in trade…

Chile’s strategic approach to boost exports

Encourage an internationally competitive environment

Lower export transaction costs

Long term view of enterprise level support

Coordinate export support program through a central technical agency

Facilitate FDI

Promote private sector investment in infrastructure development

Encourage innovation

In the period 1975-2008, Chile’s Food Processing Market increased from USD 1.5 Billion to
USD 58.9 Billion.
Also, the number of export markets increased from 50 to 181.

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Industry Growth Drivers - Demand
Urbanisation, rise in disposable incomes and changing lifestyle and aspirations are
leading to significant demand for processed food…

Increasing spends on
health foods

Increasing Increasing Nuclear

Urbanisation – Families and
Lifestyle and Working Women
Aspirations
Food
Processing
Demand
Drivers
Changing
demographics – Rise Demand for
in disposable Functional Foods
incomes

Organised Retail and

Private Label
Penetration

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Industry Growth Drivers - Policy
Supportive Policy, in light of the significant employment and trade potential, to
boost the quantity and quality of output in the sector is also driving growth in the
sector…

Food Processing
Industry

dna R H
y gol onhc eT
noi t adar gp U

gni t s et dooF

t ne mpol eve D
t ne mpol eve d

l a noi t uti t s nI
er ut c urt s arf nI

/l ort no C ytil au Q

D&R, yr ot ar obaL
Policy Support

Infrastructure Technology Quality Control/ R&D HR and Institutional

Development Upgradation Development
• Setting up a network of
laboratories • Financial assistance to
• Mega Food Parks • Grant of 25% of the
• Higher level of set up training centres
cost of plant &
assistance to research • Establishment of
• Integrated Cold Chain machinery and institutes
technical civil NIFTEM
(maximum of Rs 50 • Assistance for organising
• Modernisation of • Strengthening of State
lakhs in general areas promotional activities
Abattoirs Nodal Agencies
and Rs 75 lakhs in • 50-100% subsidy to
difficult areas) private companies/state • IT
governments, which set
up quality testing
laboratories
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 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 12
Challenges in the Sector
Challenge 1: Productivity Issues

India's overall agriculture productivity is still low…

Source: Innovative technology to ensure food security, UNI (United
News of India), 25 March 2009

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Challenges in the Sector
Challenge 2: R&D

Key Problems in Indian R&D

Commodity-centric Lack of a holistic approach involving a matrix of farm

R&D enterprises

Compartmentalization Lack of effective bilateral flow of information amongst

of R&D agencies research, extension, and implementation departments

Lack of large-scale on-farm validation of techniques and

Poor validation and
feedback thereon, leading to practically no scope for
feedback mechanisms enhancement
A seven-step mechanism is required to set-up a research-development-technology transfer
continuum involving all stakeholders
1. Problem identification and prioritization

2. Convergence of existing technologies to match the need

3. Generation of need-based viable technologies using the holistic farming system approach

4. On-farm assessment and evaluation

5. Feedback on the technologies

6. Refinement of technologies, if necessary

7. Ensuring timely availability of inputs

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 Challenges in the Sector
Challenge 3: Human Resource Development

stry is in dire need of highly skilled/trained manpower across different levels to handle various ope

• Emphasize food safety in storage conditions

• Training in Warehousing and Distribution

• Managerial and Industry level Regulatory

Operational level and trade
• Platform to make policy
issues
HRD Warehousing decisions
&
Distribution • Inclusion in academic
• Food safety curriculum
Enforcement Food production
awareness

• Auditing and
inspection skills • Institutional Development

• Process
• Focus on packaging techniques, storage and
development safe transportation

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Challenges in the Sector
Challenge 4: Supply Chain Hindrances

Necessity for a Strategic focus on Supply Chain in FPI

Seasonality Seasonal production Vs Year-round Processing Operations

Perishability Highly perishable nature of raw materials

Variability
Variable quality of raw materials due to cyclic variations and changing weather condition

• This situation discourages processing units to reach optimum size and

achieve economies of scale.

• Additionally, lack of consistent quality hinders small scale units to

build brand equity for themselves in international and domestic
markets.

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 Challenges in the Sector
Challenge 5: Low Adherence to Quality Standards

sing need for food processors to adhere to quality standards for both domestic as well as export m

Increasing GlobalisationStringent Safety Norms

Rising Customer awareness on Quality and Health

• Lack of requisite controls across the agri-value chain-from farm

inputs to storage of produce to food processing techniques

• Poor compliance to requisite food standards in export countries

• Absence of basic standardization and certification infrastructure

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 17
 1 Food Processing Sector in India

2 Challenges in the Sector

3 Opportunities & Recommendations

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 18
Opportunities & Recommendations
Food Processing sector has strong synergies with the inclusive growth mandate of
the government and also provides a platform to significantly transform the face of
rural India…

A developed Food Processing sector will help overcome the biggest challenges in
front of India:

• Low farmer income and high subsidies

• High wastage along the value chain

• Poor hygiene and safety standards

Given the huge potential opportunity, players should consider the constraints as
opportunities waiting to be exploited and make investments for the overall growth
of the industry.

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 19
Opportunities
High domestic demand and supportive policy provides significant opportunities
across the Food Processing value chain…

Food Safety
Quality Control
Mega Food Parks Management
Labs
Systems
Key
Integrated Cold Joint Research
Opportunitie Training Facilities
Chain Facilities
s
Backward and
Customised Farm
Forward B2B Sales
Equipment
Integration
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Recommendations
Recommendations for the Food Processing Industry in India

Promote Processable
Nutrition Foods variety of Crops

Increase
Support Promotional
Backward A Dynamic Activities
Integration Food
Processing
Industry
Investment in
Market Access
Hard/Soft
to farmers
Infrastructure

Technology Harmonisation
Upgradation of Taxes

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 21
© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 22
 Mr Ramesh Srinivas
Executive Director
KPMG Advisory Services Private
Ltd
+91 98450 21939
rameshs@kpmg.com
www.in.kpmg.com

© 2009 KPMG Advisory Services Private Limited, an Indian private limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 23