Structure and Composition :

Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. However, the Ministry of Food Processing, Government of India has defined the following segments within the Food Processing industry:

• Dairy products
• fruits and vegetable processing
• Grain processing
• Meat and poultry processing
• Fisheries
• Consumer foods including packaged foods
• beverages and packaged drinking water
• Confectionery.
• and Organic food

While the industry is large in terms of size, it is still at a nascent stage in terms of development. Out of the country’s total agriculture and food produce, only 2% is processed. The highest share of processed food is in the grain processing and the dairy sector.

Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60% of processed foods. It has a highly fragmented structure that includes thousands of rice-mills and hullers, flour mills, pulse mills and oil-seed mills, several thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in the unorganised sector. In comparison, the organised sector is rela-tively small, with around 516 flour mills, 568 fish processing units, 5’293 fruit and vegetable processing units, 171 meat processing units and numerous dairy processing units at state and district levels.

Sector-wise Analysis

1. Dairy Sector:

Thanks to “Operation Flood”, India today stands first in the world in terms of milk production .The output is ex-pected to be about 108 million tonnes (estimate for 2007), growing at a compounded annual growth rate of 4%. Consumption of milk has registered a growth of nearly 8.4% (in urban areas) and is currently valued at US$ 16 billion.

Within India, the dairy sector also ranks first in terms of processed foods with 37% of the produce being processed. The organised sector processes an estimated 15% of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organised sector.

According to estimates of “Dairy India 2007”, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5% a year. Both production and consumption of milk and its derivatives are traditionally high in the country. The dairy exports in 2007-08 rose to US$ 210.50 million against US$ 113.57 million in the corresponding period, in the last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011.

Milk and milk products contribute to a significant 17% of the country’s total expenditure on food. Traditional dairy products account for about 50% of the total milk produced. The market for dairy products is expected to grow at 15-20% over the next three years.

• Ghee (or clarified butter) is the most widely marketed and branded product with a nation-wide penetration of 24.1%. It is estimated to be growing at a rate of 8% per annum
• The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. Its market size is estimated at US$ 450 million for 2005-06
• The cheese market is estimated at US$ 2.49 million for 2005-06 (54’000 tonnes in volume terms), growing at a rate of nearly 10% per annum. The organised cheese market is dominated by proessed cheese which ac-counts for 74% market share
• The ice-cream market in India is estimated at US$ 226 million in 2005-06, with the organised market at US$ 158.2 billion. This is currently growing at 20%.

Probiotic dairy products - containing live organisms building immunity and helping in digestion - are an emerging category in the Indian food market. Along with domestic dairy majors like, Amul and Mother Dairy, global players like Nestle have made significant investments to capitalise the potential of this particular niche segment. The latest entrant is Yakult Danone with its investment worth US$ 28.3 million and an additional US$ 20.8 mil-lion on the cards for the next 2-3 years.

According to the latest report on 'Indian Functional Foods and Beverage Markets' by Frost & Sullivan, the market of neutraceuticals and probiotics earned revenues of over US$ 185 million in 2007 and is projected to touch an estimated US$ 1.16 billion in 2012. Although the segment is currently in its nascent stage, it is poised for an upswing riding piggy-back on a healthy domestic economy and awareness of health products, thus giving a boost to this segment.

2. Fruits and Vegetables

India produces the widest range of fruits and vegetables in the world. It is the second largest vegetable and third largest fruit producer accounting for 8.4% of the world’s food and vegetable production. The share of organised sector in fruit processing is estimated to be nearly 48%.

Fruit production in India registered a growth of 3.9% during the period 2000-05 whereas the fruit processing sector grew several times faster at 20% over the same period. The total area under fruit cultivation is estimated at 4.18 million hectares.

The total area under vegetable cultivation is estimated at 7.59 million hectares. However, less than 2% of the total vegetables produced in the country are commercially processed, as compared to nearly 70% in Brazil and 65% in USA.

India’s installed capacity for fruits and vegetable processing nearly doubled during the 1990s, from 1.1 million tonnes in 1993 to 2.33 million tonnes in 2004. About 20% of processed fruits and vegetables are exported. Major products exported include fruit pulps, pickles and chutneys, canned foods, concentrated pulps and juices and vegetables.

Fruit exports have registered a growth of 16% in volume and 25% in value terms in 2005-06. Mango and mango based products alone constitute 50% of these exports.

3. Grain Processing (including baking products)

India produced nearly 209.32 million tonnes of grains in 2005-06. India’s production covers all major grains – rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the production of grains in the world. With a share of 40%, grain processing is the biggest component of food sector. Primary processing constitutes 96% with the remaining accounted for by the secondary and tertiary sectors.

Total rice milling capacity in the country is 186 million tonnes. There are about 516 large flour mills in the country, as well as about 10’000 pulse mills.

Soya food segment is also growing due to increased health consciousness and abundant production of quality soya bean (3.72 million tons/year) in the country. Soya bean is grown mainly in Madhya Pradesh and measures are being taken to extend its cultivation further.

Bread is slowly coming to be a staple product consumed by people of all economic classes in India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons, growing at 7.5%. About 55% of bread production comes from the organised sector.

India is the second largest producer of wheat in the world with an output of more than 70 million tonnes. Branded ‘atta’ (wheat flour) is an important item in this segment with an estimated market of US$ 195 million.

4. Meat and Poultry Processing

India has the largest number of livestock population in the world accounting for 50% of buffaloes and 16% of the goat population. Meat production grew at a CAGR1 of 34% during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood at US$ 0.104 million in 2005-06.

Most of the animals in India are not bred for meat. Animals generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. Only 11% of the buffalo population, 6% of the cattle, 33% of the sheep and 38% of the goat population is culled for meat. Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world average of 35.5 kg.

Indian poultry meat market was approximately US$ 2.03 billion in 2005. The country's poultry market is expected to grow at 12% -15% per annum. At the same time, fuelled by a booming retail sector, the market for processed meat is also growing at an estimated 15% - 20% per annum. Favourable conditions such as rising incomes and a young and urban population have fuelled increasing domestic demand. The rapidly growing sector offered investment opportunities for foreign players in activities such as breeding, animal health, feed, equipment, processing and retail distribution.

5. Fisheries

India with its considerably long coastal lines enjoys a natural advantage in the marine food sector. India is the third largest fish producer in the world and second in in-land fish production. The fisheries sector in India has been classified into marine, inland and aquaculture. The fisheries sector contributes 1.1% to the country’s GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector.

According to the estimates by Marine Products Export Development Authority (MPEDA), Indian seafood ex-ports rose to US$ 1.55 billion during 2007-08. Frozen shrimp accounted for 52% of total marine exports at US$ 980 million followed by frozen fish at US$ 326 million.

India’s fish production stood at a level of 6.7 million metric tons in 2007. Of this, about 60% (3.9 million tons) came from marine resources. Currently fish processing is mostly targeted for export markets. There are over 369 freezing units with a daily processing capacity of 10’266 tonnes and 499 frozen storage units with a capacity of 134’767 tonnes.

Processed fish product exports include conventional block frozen products, individual quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc.

6. Packaged Foods

The packaged foods segment in India registered a growth of 8% in 2005-06. Noodles/vermicelli is the fastest growing category in this segment with a CAGR at 15%. The market for branded noodles is estimated at 230 million servings per year.

The soups market is still small and nascent in India and is approximately US$ 14 million in value. The market for culinary products is estimated at US$ 475’000 and estimated to grow at 18% to 20% per annum. Products like tomato ketchup and jams currently have low penetration levels, but are growing rapidly. Ketchups, for ex-ample, have a penetration of just 3% in India; however, this category is estimated to be growing at 20% per annum.

7. Beverages (including alcoholic and non-alcoholic):

The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. According to industry experts, the market for carbonated drinks in India is worth US$ 1.8 billion while the juice and juice-based drinks market accounts for US$ 300.67 million, of the approximately US$ 2.38 billion packaged beverages category. Growing at a rate of 25% per cent, the fruit-drinks category is one of the fastest growing in the beverages market.

The US$ 1.80 billion carbonated drinks category is expected to face the heat of the rising competition from categories falling under the health umbrella, i.e. juice and juice-based drinks, energy and sports drinks, malted beverages, probiotic drinks and bottled water. They are considered a socially acceptable alternative to alcoholic beverages.

At US$ 300.67 million, the juice and juice drink category is among the fastest growing segments While fruit drinks as a category is growing at 18% - 20%, carbonated soft drinks are growing at 6% - 8% driven by the positive changes in India’s consumer profile.

Hot beverages include health drinks such as white beverages (Horlicks, Bournvita, etc) and brown beverages such as tea/coffee as well as branded drinks (Boost). The total size of this market is estimated at US$ 333 million by value and 85’000 tonnes by volume. White beverages account for 65% of the market and brown beverages constitute the remaining 35%.

India is the largest producer of tea in the world accounting for 28% of the total global production, at 857 million kgs. Tea production in India has been growing at 1.2% per annum and India is the fourth largest exporter of tea in the world with estimated exports of US$ 5 million in 2002-03. India is also the fifth largest producer of coffee accounting for 4% of the total production in the world. Nearly 75% of India’s production is ex-ported and coffee exports stood at US$ 5.2 million in 2005-06.

Additionally, the market for alcoholic beverages has also been growing consistently. 'The Future of Wine', a report on the state of the wine industry over 50 years, prepared by Berry Bros. & Rudd, one of the oldest, independent wine merchants in Britain, suggests that the market for wine in India was growing at over 25 per cent per year.

Approaching the milestone of one million cases a year, the Indian wine market has also recorded an impressive growth rate. An impressive 59.84% growth of wine production in Maharashtra bears testimony to the fact.

Global wine majors have already set up shop in India to tap the vast potential. However, domestic companies control 80% of the market and are way ahead of the MNCs, producing nearly 800’000 cases of wine in a year. And, while Bangalore, Chandigarh, Mumbai are reporting high growth in consumption, Nashik, the capital of Indian wines, registered a 100% rise.

Out of the total consumption of grape wine in India, around 80% wine consumption is from the major cities. Although alcohol consumption level in India is lower than the leading countries of the world, such as, Italy, France, USA, the future growth potential is immense.

8. Snacks and Confectionery

The Indian market holds enormous growth potential for snack food, which is estimated to be a market worth US$ 3 billion. The market is clearly and equally divided into the organised and unorganised sector. The organised sector of the snack food market is growing at 15% - 20% a year while the growth rate of the US$ 1.56 billion unorganised sector is 7% - 8%.

Consumption level of commercial savoury snacks is 10 times higher than that in the rural markets. Around 1’000 snack items and 300 types of savouries are sold in India. The segment is largely dominated by potato chips and potato-based products with over 85% share of the salty snack market.

9. Organic Food – An Emerging Trend

While organic food and health food are emerging as a global trend in the food and food processing sector, India remains a traditional grower and consumer of organic food. The global retail market for organic food has grown to US$ 100 billion from US$ 35 billion over the last three years. The exports of organic food from India have grown to US$ 65 million over the past one year from US$ 21.6 million two years ago.

Some players, like Navdanya, organically cultivates crops like jowar, bajra, millet, in its 21 acre farm in Dehradun and sells it from its retail outlets in Delhi and Mumbai. The number of such growers has been rising in the Dehradun valley and Bundelkhand. APEDA in association with the Ministry of Agriculture has taken an initiative to convert 20’000 farmers and a total area of 75’000 hectares to organic farming over the next three years.

Following suit, the Darjeeling Tea Association (DTA) has mounted efforts to increase the production of organic tea. According to the industry experts, about 37% of the total crop grown on the slopes of the eastern Himalayas, at present, is organic tea, as per certifications given by European and Japanese agencies. DTA is aiming to organically produce the majority of the champagne of teas by 2010.

Next: Market Players

Indiabiznews, November 29, 2009