blue bird institute of research executive summary

Blue Bird Group

Blue Bird Institute of Research Food Industry..1..

Food Industry

August, 2006

Report

Blue Bird Institute of Research Executive Summary After IT (Information technology), and BT (Bio Technology) now it is the turn of FT (food technology), which will drive the economy and will attract more domestic and international investment. Though fooding is inherent need of human being to survive, this industry is still a virgin territory in most of the emerging economies and lot more can be done in the developed economies. The basis of civilization, culture and home is constituted by the collection, distribution and preparation of the food. Pickling, salting, drying and other methods of food processing are almost as old as mankind itself. Food processing is a multi faceted endeavor and its further complexity lies in terms of the enabling environment, the status of the production of the basic plant and animal, materials, the industry and then consumer or the market. In India, food processing industry is one of the most lucrative and a dynamic industry, as it is the second largest food producer country after China. India has around 3,600 traditional foods. Each has a health angle. We can leverage this for the growth by harnessing value addition. Today the Indian food market is around Rs 2500-bn and is estimated to be double in the next 10 years. The Food Processing Industry sector in India is one of the largest in terms of production, consumption, export and growth prospects. The government has accorded it a high priority, with a number of fiscal relief and incentives, to encourage commercialization and value addition to agricultural produce; for minimizing pre/post harvest wastage, generating employment and export growth. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs.250,000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80,000 crores (US $ 22.2 billion). But the Indian food processing market is highly unorganized and fragmented. Since the last few years due to the demographic change, changing life style and increased number of women participation in the work force, has changed the food industry scenario. Recently a lot of reforms have been initiated by the Government of India including the legal regulations and frameworks. The much-awaited ""Integrated Food Law"", is likely to respond to the most critical issues of food quality standards that are considered sore by many domestic and foreign marketers. The technology which will bring revolution in this industry in near future is nanotechnology – genetically engineered food. The technology offers challenges for both industry and Government. The worldwide nanotechnology food market will be around $20.4 billion by 2010. Nanoscale biotech and nano- bio-info will have big impacts on the food and food processing industries. Indian food processing sector stands among one of the largest sector in the Indian economy. The size of the market is around 69.5 billion US dollars. It enjoys a lot of advantages from India’s agro based economy and rich natural resources. The industry's current growth rate is 7.1 percent and it is expected to increase to 10 percent by next year. The ministry of food processing estimates that the food processing industry will Research Analyst: S.Vikram Raju For Private Circulation Only Contact : [email protected]

Blue Bird Group


attract an investment of capital, human, technological and financial resources of over Rs 1,40,000 crore in the next decade. The Rs 4, 60,000-crore (2003-04) food processing industry is becoming increasingly attractive to the Indian corporate sector. Govt. is targeting Rs 1, 00,000 crore of investment in the food processing sector by 2015 by attracting foreign and domestic companies through a Uniform Integrated Food and Safety law to facilitate their projects in India. The food processing sector is throwing great opportunities for leading Indian and foreign companies to invest in it. The Minister of Food Processing claimed that over $ 22 billion would be invested in processing and packaging of fruits, vegetables and other agriculture products in the next eight years as many international brands like Wall mart and French companies have been evincing keen interest to enter Indian market. The food processing industry includes each and every aspect having its destination as food items i.e. edible and potable. Therefore it is a vast segment in itself. It can be considered as a summation of various activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. The industry can be classified in categories such as dairy products, grains, fruits and vegetable, fish, meat and poultry, packaged foods and beverages etc.

Highlights India’s one billion population is growing by --- million people a year. With these numbers and booming economy, India is world’s one of the largest consumer of the food. In the production front also the country is leading the world. India ranks amongst the largest producers of milk, tea, fruits and vegetables in the world, but its share in the Rs280bn global trade in processed foods is less than 1.5%. India is the land of spices producing all varieties worth over Rs. 3500 crores (US $ 900million) amounting to 25-30% of world production, which is processed for value-addition and export. The food processing sector in India is still in its nascent stage. Even today, most of the grains, sea food and other similar items are consumed fresh. Now the Urban population is looking for organic foods. The Rs 2500-bn food market in India has been growing at the rate of 5% a year and the size of the processed food market is estimated to be nearly Rs 16.50 bn and is growing at 10 to 15% per annum. Highly fragmented and highly unorganized sector. Industry is still dominated by unorganized players. In organized sector, the top players are FMCG companies. MNCs like HLL and Nestle are making entry into the sector. The industry contributes 10% to the total exports of the country. India is the net exporter of food and related products. Major export – cereals and marine products. Major Imports – edible oil and pulses India has a big non vegetarian market. The entire potential is yet to be exploited in terms of yield or resource utilization. The changing demographic and psychographic profiles of Indian consumers are the driving forces.

Blue Bird Group


An average Indian spends about 50% of its household expenditure on food items. The Indian middle class spends an estimated Rs 378 bn annually on food and groceries alone. The ready-to-eat segment is growing faster as technology is improving and so is lifestyle.

Performance of Ag. processed foods in 2005-06

0

200400

600

800

10001200

1400

1600

Apr-Aug 2004-05

Apr.-Aug 2005-06

Value (Rs. M)

Basmati and cereals

Live stock products

Pro. Fruits &veg

Other processed Products

Total processedproducts foodsexports

Sources: DGCIS Production of major live stock products and fish. Year Milk (Million tonnes) Eggs (Million nos.) Fish (Thousand tonnes) 1950-51 17 1832 752 1960-61 20 2881 1160 1970-71 22 6172 1756 1980-81 31.6 10060 2442 1990-91 53.9 21101 3836 2000-01 80.6 36633 5656 2001-02 84.4 38729 5956 2002-03 86.7 39623 6200 2003-04 88.1 40403 6399 2004-05 91 4000 N.A. Source: department of Animal Husbandry and dairying

Blue Bird Group


Blue Bird Group


Industry Scenario The industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP growth rate of 6-8 per cent, during the tenth five-year plan period. Value addition of food products is expected to increase from the Current 8 per cent to 35 per cent by the end of 2025. Fruit & vegetable Processing, which is currently around 2 per cent of total production, will increase to 10 per cent by 2010 and to 25 per cent by 2025. In a whole the sector is offering a growth of 150% in sales. The UK, the US and Japan they are processing 80 per cent, 70 per cent, 75 per cent (of food), whereas India is processing just 7 per cent. This shows a tremendous growth potential in the country.

food processing

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

UK US Japan India

The Food Processing Industry sector in India is one of the largest in terms of production, consumption, export and growth prospects. The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialization and value addition to agricultural produce; for minimizing pre/post harvest wastage, generating employment and export growth. The food processing industry benefits from low cost, high-quality raw materials (agricultural products), a stable workforce, and the lowest energy costs. PRODUCT RANGE The important items manufactured in the country are fruit pulps particularly of tomatoes & mangoes, ready to serve juices, canned fruits, jam, pickles, squashes, etc. Recently, items like frozen fruits, pulps, dehydrated & freeze dried vegetables, canned mushrooms etc. are also being produced. In the coming years new items like carbonated fruit drinks, dehydrated and freeze dried fruits, fruit juice concentrate are expected to be manufactured.

Blue Bird Group


Industry Structure Food processing sector includes each and every aspect having its destination as food item, i.e. edible and potable. Processing include packaging, frozen food refrigeration and thermo processing. Fruits and vegetables, fisheries, milk and milk products, meat and poultry, package/ convenience foods, Alcoholic beverages and soft drinks and grains are important sub sectors of the food processing industry.

The sector can be divided into two sections

Organized Sector Unorganized Sector

The industry is highly fragmented and a major part is processed by unorganized sector. Indian food processing industry has a lot of untapped potential. Out of the total agriculture and food produce in India; only 2 per cent are processed. In dairy sector, only 37 per cent of the total produce is processed making it the highest. Still, only 15 per cent is processed by the organized sector. Level of Processing in Food Processing Sector Items Organized sector Unorganized sector Total Fruits and vegetables

1.2% 0.5% 1.8%

Dairy Products 15% 22% 37% Meat 21% - 21% Poultry 6% - 6% Marine Fisheries 1.7% 9% 10.7% Shrimps 0.4% 1% 1.4% Source: Cygnus Report, Indian Food Processing Sector, 2005. Food Processing Units in Organized Sector (Numbers) Flour Mills 516 Fish processing units 568 (+ 482 cold storage units) Fruits and vegetable processing units 5,293 Meat processing units 171 Sweetened & aerated water units 656 Milk product units 266 Sugar Mills 429 Solvent extract units 725 Rice mills 139,208 Modernized Rice Mills 35,088 Source: Ministry of Food Processing India, Annual Report 2004

Blue Bird Group


Primary food processing is a major industry with lakh of rice-mills/hullers, flour mills, pulse mills and oil-seed mills. There are several thousands of bakeries, traditional food units and fruit/veg./spice processing units in unorganized sector. In the organized sector, there are over 820 flour mills, 418 fish processing units, 5198 fruit/veg processing units, 171 meat processing units. Market Segmentation The ministry of Food Processing, Government of India indicates the following Segments within the Food Processing industry

• Dairy, fruits & vegetable processing • Grain processing • Meat & poultry processing • Fisheries and • Consumer foods including packaged foods, beverages and

Packaged drinking water. Food: Includes fresh and frozen food and food storage, processing technology, beverage technology, water purification and bottling technology, bakery and confectionery machinery, ingredients and technology. Dairy, fruits & vegetable processing India is the largest milk producer in the world and about 15% of the total milk production is processed through the organized sector. Dairy development in India has been acknowledged the world over as one of modern India's most successful developmental programme. The milk producing states in India are

The manufacturing of milk products is concentrated in these milk surplus States . In 2005, India had produced 95.1 million tones of dairy products. India's milk and milk products output (milk equivalent) growth is expected to out beat the growth of the global market. While world milk and milk products output is expected to grow by 2.6 % in 2006, India is expected to register up to 4 % increase. The country will account for nearly half of the expected 5 per cent growth in Asia.

Uttar Pradesh Punjab

Haryana Rajasthan

Karnataka Andhra Pradesh

Tamil Nadu Gujarat

Maharashtra

Blue Bird Group


India’s milk production increased from 21.2 million metric tons in 1968–69 to 88.1 million metric tons in 2003–04. Per capita availability of milk increased from 112 grams per day in 1968–69 to 231 grams per day in 2003–04. India’s 3.8 percent annual growth of milk production surpasses the 2 per cent growth in population; the net increase in availability is around 2 per cent per year.

Blue Bird Group


Break up of total milk production

Cow Buffalo Others

World 85% 11% 4%

India 42% 55% 3%

Proportion of cow milk in India is much lower than the world level. The important items manufactured in the country are fruit pulps particularly of tomatoes & mangoes, ready to serve juices, canned fruits, jam, pickles, squashes, etc. Recently, items like frozen fruits, pulps, dehydrated & freeze dried vegetables, canned mushrooms etc. are also being produced. In the coming years new items like carbonated fruit drinks, dehydrated and freeze dried fruits, fruit juice concentrate are expected to be manufactured. India produces large variety of fruits & vegetables - tropical, sub-tropical or temperate. These include mango, banana, apple, orange, chikoo, ber, pomegranates, etc., and vegetables like potato, tomato, onion, cauliflower, cabbage etc. The total area under fruits and vegetables cultivation is estimated to be at 5.63 and 5.6 million hectares. Grain Processing

Blue Bird Group


India produces about 200 million tonnes of different food grains every year. All major grains --paddy, wheat, maize, barley, millets like: jowar (great millet), bajra (pearl millet) & ragi (finger millet) are produced in the country. self sufficient in grain production, India is the second largest rice producer in world, with a 20% share . According to the CMIE (Centre for Monitoring Indian Economy) India’s food grain production is expected to rise to 208.5 million tonnes in the fiscal year ending in March 2006, from 204.6 million tonnes last year. Meat and poultry processing Animal Husbandry: Includes dairy farming products; milk collecting and processing; technology and equipment; sheep farming; animal health; meat and halal slaughter equipment; poultry, veterinarian supplies and services, animal feeds, meat packaging, cold storage and transportation. India's livestock population is largest in the world with 50% of world's buffaloes and 20% of cattle’s, but only about 1% of total meat production is converted to value added products. India has a livestock population of 470 million which includes 205 million cattle and 90 million buffaloes. The country produces about 450 million broilers and 30 billion eggs annually. Animals which are generally used for production of meat are cattle, buffalos, sheep and goat, pigs and poultry. Methum is also slaughtered for meat in North East and Sikkim. Rabbit meat is also used as a speciality in Kerala and some other States.

Fisheries Fisheries: Includes commercial fishing, aquaculture, fishing equipment, boats, nets, technology, fish farming, small aquarium tanks and fish, storage, processing and marketing. India has large marine product

Blue Bird Group


and processing potential with varied fish resources along the 8041 km. long coastline, 28000 km. of rivers and millions of hectares of reservoirs & brackish water. Units mostly exist in the small scale sector as proprietary/partnership firms or fishermen co-operatives. Over the last decade, the organized corporate sector has become increasingly involved in preservation, processing and export of coastal fish. But the wide variety of fish resources found in Indian inland waters, coastal areas and deep seas comprising India's Exclusive Economic Zone, still remain grossly under utilized. PACKAGED / CONVENIENCE FOOD SECTOR Packaged food products have been growing by penetrating the large potential presented by India’s strong middle class. Due to growing urbanization and changing food habits, the demand has been rising at a good pace and there is enough latent market potential waiting to be exploited through developmental efforts. Soya food segment is also growing due to increased health consciousness and abundant production of quality soyabeen (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.

Blue Bird Group


BEER & ALCOHOLIC BEVERAGES In earlier years the policy of the Indian government was to discourage the consumption of alcoholic beverages. This even went so far as to involve total prohibition in some states. However, the resulting problems of illicit distillation, the leakage of government excise revenue and the problems involved in enforcement, led to a review of this policy. The importation of potable alcohol is subject to government licensing. Alcoholic drinks carry a very heavy tax burden which is itself a major source of revenue for state governments. Liquor manufactured in India is categorized as beer, country liquor and Indian Made Foreign Liquor (IMFL). IMFL production includes wines, whisky, rum, vodka, gin and brandy. Draught beer has been recently introduced and has done well in the places in which it has been introduced. Canned beer is an even more recently introduced new beverage. Production of Alcohol drinks from non-molasses sources is very small in the country compared to the total production of Alcoholic drinks. It is in this context that Government of India encourages foreign investments as well as up gradation of technology in the field of non-molasses based alcoholic drinks and beer provided the Indian partner is in possession of a valid Industrial License under Industries (Development & Regulation) Act, 1951.

Blue Bird Group


Export India has been in the export market of food processing for almost 30 years. Among the popular items in export are mango chutneys, pickles. Fruit juices, canned and dehydrated mushrooms, frozen & canned fruit & vegetables. Food processing is a sunrise sector, having tremendous potential to grow, export of processed foods at around 14% and stood at $2.4 billion in 2003-04, and the figure is expected to double in the next 5 years. India now exports processed foods to 175 countries. India’s top export destinations indicates that the country has a favorable market positions in Saudi Arabia, Bangladesh and Malaysia but it has yet to make its presence felt in other key markets like Japan, United States and Germany and Italy. India is looking for developing value added products to cater to the needs of different consumers in various countries at competitive prices. The ministry is keen on developing ‘Made in India’ brand in international market with assured quality and consistent supply. Marine products export was the single largest constituent of the total exports of processed foods contributing over 40% of total processed food exports. Exports of marine food products were around US$ 1325.7 million in fiscal year 2004. Exports in this category have been almost consistent for the past few years. Exports of processed fruits and vegetables increased to US$ 326.5 million in 2005 from US$ 245 million in 2004. The exports of animal products from India also increased from US$ 440.6 million in 2004 to US$ 502.7 million in 2005. . Exports of food products constituted 10 per cent of total Indian exports.

Blue Bird Group


Chart:

Processed food exports were at over Rs.13, 500 crores (US $ 3.2 billion) in 1998-99. Out of these exports, rice accounted for 46%, whereas marine products accounted for over 34%.

Blue Bird Group


Government Rules and Regulations: Government has formulated and implemented plan schemes to provide financial assistance for establishment and modernization of food processing units, creation of infrastructure, support for R&D, human resource development besides other promotional measures to encourage development of food processing industries. Incentives Government has allowed under Income Tax Act, a deduction of 100 per cent of profit for five years and 25 per cent of profits for the next five years in case of new agro processing industries set up to process, preserve and package fruits and vegetables. Excise duty of 16 per cent on dairy development has been fully waived for promotion of dairy processing industries and excise duty on meat, poultry and fish products has been reduced to 8 per cent while on food grade hexane used in edible oil industry has been reduced from 32 per cent to 16 per cent. !00% FDI is permitted in the food processing sector except in the case of food retailing, plantations and alcoholic beverages Licensing There is no requirement for license for setting up an enterprise in fruit and vegetable industries. However, establishing a 100 per cent Export Oriented Units (EOU) requires specific government approvals. Some processing items are exclusively reserved for small scale sector. These include pickles and chutneys etc. Export of marine products is allowed only after registration of the units as an exporter with the Marine products Export Development Authority (MPEDA), Cochin. Export of meat is subjected to pre-shipment inspection and a certificate is required from State Animal husbandry Department/Directorate of Marketing and Inspection that the meat was obtained from healthy animals, slaughtered in a licensed slaughter house, and is fit for human consumption. In addition, a certificate specifying that the meat has been tested and found free of specific micro-organisms is required. A license is required under this order to set up of a factory for producing/processing meat products. The export of canned and other value added meat products, additionally require certificate of tests performed as per the standards specified under the Meat Products Order from the Directorate of Marketing and Inspection, Faridabad Slaughter of cows is banned in most of the states. Export of beef is prohibited. A No Objection Certificate (NOC) has to be obtained from the district administration for the slaughter of cattle, buffaloes etc. Permission from the civic bodies/state government (Department of Animal Husbandry) is also required before setting up a meat-processing unit integrated with a slaughterhouse. Milk and Milk Products Order (MMPO) regulates milk and milk products production in the country. The order requires no permission for units handling less than 10,000 litres of liquid milk per day or milk solids upto 500 tone per annum (tpa). Subsequent to decanalisation, exports of some milk based products are freely allowed provided these units comply with the compulsory inspection requirements of concerned agencies like: National Dairy development Board, Export Inspection Council etc. Bureau of Indian standards has prescribed the necessary standards for almost all milk based products, which are to be adhered to by the industry. Since liberalization, there is no license requirement for setting up or capacity expansion of roller flour mills. The mills can obtain their wheat supply from any source. Also there is no license requirement or price/distribution controls on manufacture of wheat products.

Blue Bird Group


Regulations Fruit and vegetable processing sector is regulated by the Fruit Products Order, 1955 (FPO) which is issued Industry Insight – Indian Food Processing under the Essential Commodities Act. The Ministry of Food Processing Industries enforces this order. The order defines the product specifications and quality control measures and addresses issues pertaining to production-hygiene, re-labeling and marketing of these products. The FPO order also underlines the pre export inspection. Exemptions are granted to identified export houses. The Meat Products Control Order, 1973 under the Essential Commodities Act, 1954 regulates the manufacture, quality and sale of all meat products and is operated by the Directorate of Marketing and Inspection, Faridabad. The Rice Milling Industry (Regulation) Act 1958 and Rice Milling Industry (Regulation & Licensing) Rules 1959 have been repealed w.e.f 28th May, 1997. Further, rice milling and pulse milling sectors, which were earlier reserved for the small scale sector, have now been de-reserved. As such, no license/permission is now required for setting up a rice mill/pulse mill. The packaging laws and regulations affecting food products are mainly covered under the Standards of Weights and Measures Act, 1976, and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 (SWMA) specifying the quantity and package-labeling regulations for all products. The Prevention of Food Adulteration Act, 1954, and the Prevention of Food Adulteration Rules, 1955 (PFA) specify food adulteration/contamination norms and permissible ingredients` from consumer health and safety point of view. The Agmark Rules relate to the quality specifications and needs of certain agricultural products to be eligible for Agmark certification. Some of the food products like edible nuts; honey etc may be covered under this.

Blue Bird Group


Current Trend The popularity of ready to eat food packs are increasing day by day. Consumers want value for money both in terms of quality and variety. Food safety is the buzz word of the industry. Corroborating this trend Government is also keen on boosting this industry. Size of the semi-processed and ready to eat packaged food industry is over Rs. 4000 crores (US $ 1 billion) and is growing at over 20%. Germany and Singapore both are exploring the potential of the food processing sector in West Bengal and is identifying joint ventures and strategic business alliances. A sea change in the Indian food retailing sector has got the attention of the Italian food processing and packaging industry. Representatives of several conglomerates from the Emilia-Romagna region of northern Italy are now in India — in Hyderabad, Mumbai and Kolkata to look out for opportunities. The Government is focusing on agrizones and the concept of mega food parks. Twenty mega food parks will come up across the country in various cities to attract Foreign Direct Investment (FDI) in the food-processing sector. The Government approved 105 proposals between January 2002 and May 2005 from foreign industrialists to set up food processing industries in India involving Rs.643.47 crore (US$ 144 million). Presently the ministry has released a total assistance of Rs.105.22 crore (US$ 23 million) to implement the Food Parks Scheme. It has so far approved 50 food parks for assistance across the country. The Centre also plans Rs.100 crore (US$ 22 billion) subsidy for mega food processing parks. The opportunities lie not only about foreign companies arriving the country attracted by the prospective size of the market. It is also about the migration of the Made in India tag on food products traveling abroad. Indian food brands and fast moving consumer goods (FMCGs) are now increasingly finding prime shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR Foods' ready-to-eat food stuff, ITC's Kitchen of India and Satnam Overseas' Basmati rice. Many non-traditional vegetables mainly processed mushrooms & gherkins, and other like: asparagus, celery, bell pepper, sweet corn, green and lima beans and organically grown vegetables are also increasingly being exported . .

Blue Bird Group


Market Growth Drivers Going by the current growth divers, the future of food processing in India looks very promising. Following can be considered as growth drivers; India’s retail business is on zoom : There has been an emergence of new trends of retailers in India apart from Textile during the recent times. The food retailing is one of them. There are large number and variety of retailers in the food-retailing sector. In the unorganized sector traditional retailers, who operate small single-outlet businesses mainly using family labour, dominate .On the other hand, in the organized sector, super markets (mostly run by FMCGs) accounts for a small proportion of food sales in India. However the growth rate of super market sales has being significant in recent years because of the increase in the per capita income and standard of living. They prefer to shop at super market due to convenience, hygiene and attractive ambience. Changing demographic profile : There is a shift in the demographic profile of the country. The literacy rates, educational level, composition of population, low rate of fertility and morality increases the population of old age persons. There is an increased participation of the young people in work force which has a stimulating aftermath in more and more number of people shifting to processed food for convenience. Changing life style: In the past few decades, there is a tremendous change in the life style of the Indian population. The Indian culture has been shifting from joint families to nuclear family. There is a substantial increase in the literacy rate and educational level. Due to the urbanization and more no of women participating in the work force, there is a gradual shift to processed foods. Again with the emergence of MNCs and BPOs the western culture is proliferating which has changed the demand patterns and provided the much needed impetus to the processed foods. In addition, more people are now days demanding quality and salubrious foods, which ultimately hinges on processed foods. Government support : Since the independence, GOI has been giving much importance to the food industry due to its competitiveness. Now the government is looking for tax sops for the growing industry. Lot of other measures are constantly taken by the government to attract FDI (Foreign direct investment). The draft food processing policy 2005 has addressed sector specific issues and certain measures to solve them. The ministry of food processing is keen on bringing the quality of domestically processed food to international standards and asked the quality council of India (QCI) to frame guidelines on safety and standard practices in food processing units.

Blue Bird Group


Concerns The food industry is still in its nascent stage and facing various bottlenecks. Following are some of the concern Rising costs and low price-elasticity for processed foods can be more nutritious- Due to the high input cost, the rising cost is one of the critical issues. The supply chain networks are large and fragmented, transaction costs are high. This restricted the sector’s ability to provide value added products. Unorganized sector - The industry is highly dominated by unorganized sector and small players. The industry requires large players which can establish huge marketing network and can invest in technology. Not only MNCs but also the large Indian companies should get into the industry. Consumer attitudes - Consumer’s attitude and preferences must change regarding processed foods, that these foods can be more nutritious. For example Indian consumers still prefer a live bird to a processed and frozen chicken. Lack of Facilities- The Indian food processing industry lacks economies of scale, skilled manpower and top class research institutes. There are very few institutes like the Central Food Technology Research Institute, My sore. The country needs more such research organizations. There are no regional training Centres to encourage entrepreneurs. There is a need for distribution network and cold chain. Restricted ability to offer value added products – Though food processing is an important step in value addition to the food chain, India is far behind the developed countries. Even compared to countries like Philippines and China, where value-addition is 45 per cent and 23 per cent respectively, India is far behind at a meager 7 per cent in value-addition to food produce. It requires a strong development of marketing channels and linkages between industry, government and institutions.

Blue Bird Group


Future Outlook Realizing the need to develop the food processing sector faster, the Union ministry of food processing industries has recently come out with a vision and policy document aiming at doubling the market size of food processing industry to Rs 8.2 Lakh crore by 2009-10 and trebling to Rs 13.50 lakh crore by 2014-15. The government has drawn elaborate targets under its national policy aiming at increasing annually the level of food processing at 10% by 2010 and to 25% by 2025. For this ministry sees the need for Rs 99,700 crore investments for building processing capacity, infrastructure and market development in the next ten years. Brand-buying is the best option for the food processing industry. Companies have to be innovative and must target the high end of the market. Food processing adds value to the agrarian economy, provides large-scale employment and offers immense scope for exports. The sectors can provide higher employment opportunities and growth momentum to the economy. Good prospects for aspiring entrants are – corn, flour, fruits, flavorings, infant formula, juices and concentrates, lobster, pork& poultry, tree nuts like almonds. These are in high demands in international markets. The FDI (Foreign direct investment) in the retail sector of the food industry can provide the much needed impetus for the faster growth of the industry. It will bring better and sturdier supply chain management and best practices of the logistic and marketing in the industry. It will also bring a healthy competition and wider choices of shopping for the consumers. The industry will be sustain ably developed in a corporate setting with respect to economic, environmental and social development. The multinationals now entering the food industry have an international marketing network and have their brand loyalties all over the world. This will enable the Indian products reaching all over the world in the form and packing required.

Blue Bird Group


Technology for Food Processing Food processing can be considered as a panacea for the vulnerability of unprocessed food s to spoilage by bio chemical processes, microbio attack and infestation. The right post harvest practices such as good processing techniques, proper packaging, transportation and storage (of even processed foods) can play a significant role in reducing spoilage and extended self life.

The challenges for food preservation, distribution and processing sectors are diverse and demanding that need to be addressed on several fronts to derive maximum market benefits. In the emerging scenario, there is food engineering professional, who needs to develop an appreciation of R&D and innovation in critical technology areas such as newer or novel process development in preservation and storage techniques, rheology, colloids and dispersal system, packaging-polymers and composites, sensors for detection and process control, bioprocess engineering and so on…

The Indian Institute of Technology (IIT) , by conceptualizing the food technology has developed

certain products in the following areas Supercritical Fluid Extraction (SCFE) Process Controlled Atmosphere (CA) Technology for long term storage of food grains Engine exhaust truck Refrigeration System (TRS) Liquid nitrogen based individual quick freezing (IQC) technology for seafood

SCFE Process is the panacea for the domestic industries to compete in a fast growing international market for value added natural products. Product extracted using this technology have the advantages of purity, high concentration and extended shelf life. The process allows flexible operating conditions for multiple product extraction and simultaneous fractionation of extract. It uses supercritical CO2 as solvent to eliminate toxic residues. Presently the high cost of imported SCFE equipment deters economically viable use of SCFE technology. Designed in IIT Bombay, this state of the art safety process control has been licensed and has been sold to many industries in India and abroad. Controlled Atmosphere (CA) Technology for long term storage of food grains This is for the preservation of the quality of food products during storage units. CA storage consists of reduction of Oxyzen by elevating nitrogen and/ or carbon dioxide concentration in storage units. Instead of the widely used technique of chemical fumigation, which is not environment friendly, it uses pressure swing absorption N2 generator.

More recently another project on black tea storage has been executed. Engine exhaust-fired Truck Refrigeration System (TRS) Proper refrigeration is essential and critical for the transportation of perishable items.

Blue Bird Group


The engine exhaust-fired TRS can replace the conventional dedicated engine-driven vapour compression truck refrigeration system (DEDVCRS) used for transporting fresh fruits, flowers and vegetables, frozen vegetables, fish, meat and ice cream. The TRS can be slightly modified for use in milk transport trucks. The salient features of the system are: rugged and reliable design due to few moving parts, low life-cycle costs due to lower initial and operating costs, and the use of environment friendly ammonia as refrigerant. Liquid nitrogen based individual quick freezing (IQC) technology for seafood A similar 'Shipboard Chilling System' for small fishing trawlers is being transferred to an Indian client for commercialization. Using these systems, the cost of co-generating power for hot and cold utilities can be 15 to 50% lower than current methods, where a significant amount of heat is lost to the atmosphere from the engine cooling water and exhaust gases. Successful implementation of these technologies will help reduce fuel consumption, and also save valuable foreign exchange in importing the DEDVCRS, or its components. Liquid nitrogen based Individual Quick Freezing (IQF) technology for seafood India has excellent potential for development of the seafood industry, which has emerged as an important foreign exchange earner. The industry has recognized the need for IQF technology, which is far superior to the conventional processes in terms of quicker freezing time, better flavour and shape retention etc. Compared with the IQF process using mechanical refrigeration (currently being used in India), the cyrogenic process developed at IIT Bombay uses liquid nitrogen as the freezant. The seafood is frozen individually by direct contact with nitrogen vapours and liquid nitrogen spray. This offers greater convenience to the consumers and adds value to the products.

Blue Bird Group


Growth Opportunities The removal of restrictions on foreign investment in food retailing in India opens up opportunities for international supermarket chains. India is an ideal hub between the key Middle East and Far East markets and can leverage on it. Fortunately India is an organic country and thus offers good opportunities for the organic sector. India had only just begun to certify its organic production as the sector moved to a more commercial footing. The fast developing green food (organic food) sector is one of the pillar of this industry. Today the organic food industry is big business in the United States and Europe. In the U.S., organic product sales represent a $6 billion industry. Combined with organic sales in Europe, this industry now tops $10 billion annually. Growth in overall sales for organic products rose 20 to 30 percent annually over much of the past decade. India will also follow the same trend. Organic food farming offers great opportunities to exporters and brings in huge revenue. Presently around 53% of organic food produced in India is exported, whereas merely 2.5% population of India consumes the organically grown food. The reason being the moderately higher cost of organic food, as it costs around 25% more. Organically cultivation is not only cost effective, it also generate higher yield. Therefore green food holds immense potential for growth in near future. This is in line with the expectation that in the next decade. It is expected that about 9-14% of the cultivated land such as Punjab would have organic farming and viticulture. While already companies like Tropicana and Pepsi have worked for citrus growth, Bharti Group for horticulture, Nasik-based Sona Somant Group for viticulture and search is on for organic sector. With growing health awareness and increasing demand for foods like diabetic-free and cholesterol-free, every one is looking at health foods and neutraceuticals. Therefore, the market is huge; the volume is enormous.

Blue Bird Group


The growth driver that will drive the Industry for the next 25 years: Nano Technology. Nano technology will have a huge impact on food processing industry. Tomorrow we will design food by shaping molecules and atoms. The crux of the food processing industry is constant improvement of safety and quality of food. Nano technology will change the conventional food production process to much faster rate. The technology can make the products cheaper, the production more efficient, more safe and more sustainable using less water and chemicals. Producing less waste and using less energy. This has hold tremendous potential for pollution prevention and sustainability, especially in the areas of clean water, energy and efficient sensors. The impact for the food industry will change of 40% to 60% by 2015.

The nano food market is surging around the world. USA is the leading country for developing the technology followed by Japan and China.

number of companies involved in nano food market

69200

2000

0

500

1000

1500

2000

2500

2002 2004 2010

More and more number of companies are coming into this unploughed field. The nano technology is capable enough to take the challenges of climate change, cost efficiency and population growth.

Nano Food Market in Rs. Billion.

2.6

7

20.4

0

5

10

15

20

25

2004 2006 2010

Blue Bird Group


Market Players Presently there are around 49 companies are performing in this sector and the aggregate revenues of this sector are around Rs.2270.2 million. Recently the industry scenario has been changed from supply driven to demand driven. As the industry is under essential consumer products and utilities, so it will not be much affected by economic expansion and contraction. Thus industry can be considered as a stable industry. Leading companies in food processing are

Britannia Industries Glaxosmith Kline production Hatsun Agro Production Heritage Foods Kwality dairy Lotte India Corporation Nestle India SKM Egg production Cadbury Dabur India Foods & Inns Godrej Foods Hindustan Lever ITC 10 United Beweries Adarsh derivative ADF foods

Agro Dutch indst. Bambino AgroInds Carnation Health Chaman lal seth Chordia food DFM foods FLEX foods Food& inns Freshtrop foods Heritage foods Himalaya Intl. Hind Inds. J.K. Dairy Kovilpatti

Britannia Nestle India Godrej Foods Kwality dairy Flex foods

Blue Bird Group


Domestic Companies Profile Vadilal Groups The 70-year-old Vadilal Group has three companies listed on the Bombay Stock Exchange (BSE) — Vadilal Industries Ltd, which manufactures ice-cream and frozen food, Vadilal Enterprises which markets food products and Vadilal Chemicals Ltd dealing with specialised industrial gases and other chemicals. It has two ice-cream and processed food plants in Gujarat and Uttar Pradesh and the proposed third unit in West Bengal. The company is expanding capacity at its processed and frozen food plant at Dharampur in Valsad district of South Gujarat to one lakh kg per day. This plant, started as a horticulture processing industry in 1991, manufactures ready meals and fruit pulp, besides preserved vegetables and fruits, the majority of which is exported to fetch about Rs 25 crore per annum. Vadilal claims to be the largest brand in Gujarat, with about 80 flavours and 70 per cent market-share; its national share is 25 per cent in an industry worth about Rs 800 crore. MTR Foods Limited The company is a subsidiary LP Investments Ltd. which is a wholly owned subsidiary of Jagatjit Industries Ltd. Turnover is estimated at US$ 261 million (Rs12bn), with the export market accounting for approximately 10 per cent of MTR’s total sales. Flagship products are ready-to-Eat curries and rice, Ready-to-Cook gravies, frozen foods, ice creams, instant snack and dessert mixes, spices (turmeric, coriander, black pepper), pickles and papads. After establishing itself as a popular brand in the south, now MTR is foraying into the west and north Indian markets in line with the rapid expansion of its products. Godrej Industries Limited Godrej foods is a leading manufacturer of a range of Edible Oils, Processed Foods and related products. It produces many famous brands like Godrej Jumpin fruit drinks and Godrej Tomato Puree. The division has two state-of-the-art manufacturing facilities and a national network consisting of 800 distributors. The wide variety of food products Industries include the Jumpin' and XS range of fruit drinks, tomato puree, and health and dietetic foods. Dabur India Limited Closely held listed company with Promoters’ holding at 78.4% of the total share capital. Dabur Foods is a 100% subsidiary of Dabur India Turnover of Rs 858 million in 2004 Beverages and Culinary Fruit juice, cooking pastes, coconut milk, tomato puree,lemon drink, chilli powder and honey. Haldi Ram : The company’s footprints are present in more than 16 countries such as UK, USA, Canada, Australia, Europe, Singapore, Malaysia, Srilanka, The Middle East and Arab Countries. The product range consists of

Blue Bird Group


the famous Kaju Katli, Bengali Rasgulla, Cham Cham, Gulab Jamun, Raj Bhog, Kesar Anguri to name a few. The Namkeen (Salty range) consists of the famous Bikaneri Sev, Aloo Bhujia, Moong Dal, Khatta Mittha, Classic Dal, Cornflakes, Potato Chips, Moth and variety of Papads. Soft drinks (Sharbats) the range includes exciting flavours like the Royal Badam, Rose Squash, Orange Squash, Khus Squash & Thandai which serves as energy supplements and coolants, In addition Haldiram’s enjoy’s a strong market share in Processed Milk, Bakery and Ice Creams. Plans are the pipeline to export Food Products under the “Mo’pleez” brand name with and expanded product base.

Year End Networth

Capital Employed Gross Sales PBIDT PAT EPS

ROCE (%)

RONW (%)

Dabur Foods 200403 -100.7 145.5 858 37.4 14.6 1.46 15.36 -190.85 Haldiram Foods 200403 220.7 395.3 626.4 45.4 16.6 9.59 8.31 9.76

Hind.Foods 200503 16.1 70.4 22.8 7.6 4.9 0.98 7.73 16.01

M T R Foods 200503 190.8 578.5 1325.7 64.2 -8.9 0 4.88 -4.56 Priya Food Prod. 200503 102.2 130.3 556.4 14 3.7 3.11 7.04 3.69

Vadilal Enterp. 200503 25.2 181.2 1124.8 45.9 4 4.65 9.22 17.24

Vadilal Inds. 200503 238.3 596.4 1163.8 85.7 14.1 1.89 10.4 6.62

TTM End

Price Earning (P/E)

Price to Book Value ( P/BV)

Price/Cash EPS (P/CEPS) EV/EBIDTA

Market Cap/Sales

Hind.Foods 200512 0 0 0 13.79 0 Vadilal Enterp. 200512 7.72 2.84 1.8 4.53 0.07 Vadilal Inds. 200512 11.91 0.81 4.98 7.31 0.17

Blue Bird Group


MNC Companies Profiles Britannia Industries Largest manufacturer of Biscuits in India. Its Product range includes breads and cakes. One of the best known brands, Britannia is the largest company in the Indian food processing industry. Four production facilities with over 4367 employees. Extensive all India distribution network of over 600,000 outlets, making it among the most wide spread in the industry. It is one of the big exporters of various types of Biscuits. Glaxo smith CHL Nestle India The Leading Food & Beverage Company of the World. Emerging towards more differentiated, higher growth, higher margin segments of the food industry.

Company Name Year end Gross sales PBIDT EPS ROCE %) RONW(%)

Britannia Inds. 200503 16154.5 2413.1 60.31 44.37 28.95

GlaxoSmith C H L 200512 10890.2 2084.9 24.35 33.18 21.33

Nestle India 200512 26438.9 5261.1 28.6 134.9 91.92

Blue Bird Group


Blue Bird Institute of Research ( www.bbcml.com )

Hyderabad

Plot No. 29B, Film Nagar, Road No: 8,Jubilee Hills, Hyderabad - 500 033.

Tel: 040 - 23552221, 23546453

New Zealand 32 St. Benedicts Street, Newton road, Auckland,

New Zealand.

Malaysia No:7, Wangsa Baiduri 4, Persiaran Wangsa Baiduri,

47500 Subang Jaya, Selangor, Malaysia.

USA

08 Finch Road, Ring wood, New Jersey-07456, USA

Important Disclaimer: Blue Bird Institute of Research, a division of Blue Bird Capital markets limited is an investment advisory organization. This report is prepared and published by the research team of Blue Bird Institute of Research is subject to change without any notice. The opinions expressed are based on the understanding of the research team and does not guarantee, expressed or implied, the correctness of the same. Blue Bird Institute of Research takes no responsibility of data provided and accuracy or completeness of information available in this report. This is intended for private circulation and should not be taken as recommendation to trade in the securities mentioned. Blue Bird Institute of Research and its associate companies, may have long or short positions in securities discussed in this report. They may engage in transactions involving securities and may act or have acted as advisors to the company or other investors. BBIR may have a potential conflict of interest with respect to companies mentioned in this report or its views at any point in time may be inconsistent with any recommendation and related information and opinions expressed herein. BBIR may seek to engage in or providing corporate finance, investment banking or any other advisory services to the company mentioned in this report. This document is strictly for use to the recipient. The material provided cannot be reproduced, published, resold, altered in any form or distributed in any manner without the prior written consent of Blue Bird Institute of Research. Blue Bird Institute of Research will strive to provide the most updated information on reasonable basis; however, we are not under any obligation to keep information current. The information provided in this report is solely for informational purpose and may not be understood or treated as an offer document or solicitation to trade in securities or financial instruments of the mentioned company. The report may be accessible to different people at different times, and in no form should any recipient or reader of the report be considered as a customer of Blue Bird Institute of Research. The information published and opinions expressed may not be suitable to all kind of investors, who must make their own assessment and judgment about the company, based on their own investment objectives and risk profile. The opinions expressed in this report may change in the event of scenarios such as a change in interest rate, exchange rate or any such macro economic factors or otherwise. Projections are based on our understanding of company’s future performance and actual results may differ from those presented in the report. The projections are subject to change without any notice. Blue Bird Group, Blue Bird Institute of Research, its promoters, its directors and its employees do not accept to bear any loss direct/indirect arising out the acts of the reader. The reader is always guided to make his individual and independent assessment of the situations and base his investment decisions on them and not as per this report.

blue bird institute of research executive summary

Documents