Food Distribution In India Profile 2009 -...
Transcript of Food Distribution In India Profile 2009 -...
Food Distribution In India Profile 2009
FOOD DISTRIBUTION IN INDIA
Gunender Kapur
FOOD DISTRIBUTION IN INDIA
Gunender Kapur
India - Huge & Growing Market
� Indian Agriculture sector contributes 17% to the GDP and provides
60% of employment
� Food is the single largest component of private consumption
expenditure, almost 53% of the total
� Consumption of food products is growing at 7.8% per annum
� Consumer demand for foods is diversifying in favor of perishables
such as fruits, vegetables, milk and animal protein
Food Market Break-upIndian Food Market: Sectoral Break-up, 2006-2007 (US
$billion)
Packaged Foods segment is
the fastest growing across
sectors
India Food Industry
� Indian Food consumption is at $ 200 bn in of which Food Processing industry
contributes a share of 43% ($ 85 bn)
� Directly employs about 2 mn people
� Highly fragmented and dominated by the unorganized sector
Source: Ministry of Food Processing Industries, Technopak Analysis, * Projections
INDIAN FOOD INDUSTRY : KEY STATISTICSINDIAN FOOD INDUSTRY : KEY STATISTICSINDIAN FOOD INDUSTRY : KEY STATISTICSINDIAN FOOD INDUSTRY : KEY STATISTICS 2002-032002-032002-032002-03 2006-072006-072006-072006-07 2010-113*2010-113*2010-113*2010-113* 2014-15*2014-15*2014-15*2014-15*
Food Industry Size ($ billion) 175 200 250 300
Food Processing Industry Size ($ billion) 70 85 110 150
% Food Processing Industry in total Food Industry 40% 43% 44% 50%
Size of organised sector in Food Processing Industry ($ billion) 13 23 37 60
Organised sector in food processing % of total food indutry 8% 11% 16% 20%
Segment Dairy SectorFruits &
Vegetables
Meat & Poultry
ProcessingFisheries
Packaged Foods
BeveragesStaple Foods
Growth rate of the market
15% 20% 10% 20% 8% 27% 85%
Key Segments
Value added milk
products like butter,
cheese & ghee
Raw fruits & vegetables, fruit pulps,
canned fruits and pickles
Cattle, buffalo and
poultry
Marine fisheries,
frozen products
and minced fish
products
Noodles/ vermicelli
Fruit based drinks and carbonated
drinks
Sugar, wheat
flour and salt
Extent of processing
37% 2% 1% 12% 3% N/A -
Share of organized
sector15% 48% 5% - 80% 77% 50%
Food Processing Segments
Food Target 2015 US$ 310 billion
• Estimated investment opportunity of about US$24 billion in the next 8 years
• Major investment opportunities lie in processing milk, sugar, fruit, vegetables, grain-based snacks and marine product
• An estimated 30% of new capacity could be for the export market
Key Growth Drivers
� Increase in per capita disposable income by 8%,
� Increase in per capita expenditure on food by 20%
� Literacy levels increasing. Literacy rate 66% in 2007
� Indian media industry growth projected at 18% CAGR between 2008-12
� Increasing Urbanisation
� Growth of Organized retail
� Increasing health awareness driving demand for Functional Foods
Challenges In the SectorFragmented Land Holding
CONTROL
� Support to small farmers to grow high
value crops, and land policy reforms
such as legalization of land leasing
throughout the country
� Public investment in agricultural
infrastructure
THE CRISIS
� Fragmented holdings of land—the
average size of holdings declined from
2.63 hectare in 1960-61 to 1.06 in
2002-03, making it difficult for farmers
to come out of the poverty trap
� Over-dependence on agriculture for
employment due to slow growth of
non-farm sector in villages
Stagnating Yields
Productivity- barely growing
� Weak Framework for Sustainable Water Management and
Irrigation:
� Inequitable allocation of water
� Deteriorating irrigation infrastructure
� Groundwater tables have dropped rapidly
� Unreliable or expensive electricity also hamper the growth in food
production
� Multiplication, distribution and availability of good quality seed is
crucial to accelerate food production
Infrastructure
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
Challenges in the Sector
� Production not directly demand or consumer preference led:
Leads to famine or feast syndrome
� Package of Practices: lack of farmer knowledge of efficient crop
management practices.
� Cost & quality of distribution: The fragmented retail structure
results in inefficient storage and transportation of food products,
wastages, value loss, and high cost of distribution.
� Presence of intermediaries: Numerous intermediaries, lead to
cost addition without value addition while blocking the information
flow
Challenges in the sector -
� Cost of packaging: Higher, on account of high cost
packaging material varying from 8-20% including statutory
levies (taxes, octroi, freight) on packaging, significantly
reducing the consumer’s affordability.
Challenges In The Sector-
� Tax Structure
� The incidence of taxes on food processing is high in India as compared
to other countries thus reducing the affordability.
� Central & state tax levies together increase costs by 30-40%. As
against UK, Ireland, Malaysia etc where there is Zero taxation on Food
& Beverages (excluding liquor)
Front End Challenges
Organised Retail
Very Rich
Consuming Class
Climbers
Aspirants
Destitutes
The Metros
Population > 1 MN
• 36 cities
• 117 MN population
Rural India
• 4,200 small towns
and 650,000 villages
• 766 MN population
Tier II Town
Population < 1 MN
• 748 towns
•120 MN population
Many INDIA’s
� Investment in infrastructure is less than 5% of the GDP
� Availability & cost of Real Estate
� Urban Land Ceiling Act (ULCA) is archaic
� Availability of public transport/ parking space
Real estate/infrastructure
Source: India infrastructure Report (IIR)
Lack of reliability in supply chain
� Infirm agri supply chain – leads to value & quantity loss.
� Poor physical conditions of roads - less than half of the roads are paved.
� Over-burdened ports - turnaround time is high.
� Non-existent warehouse standards - no standards for suppliers, and little vendor compliance.
� Disorganized trucking operations – difficult to manage volumes.
� Non existent tracking systems -IT implementation is low.
• Farmers – Production not demand linked, low productivity & realisation, lack of services such as credit, insurance etc.
• Numerous intermediaries, lead to cost addition without value addition while blocking the information flow
• Inefficient supply chain & lack of infrastructure lead to wastage & high consumer prices
Agri Supply Chain
Farmers
Traders
Commission Agents
Wholesalers
Retailers
0
20
40
60
80
100
Farm
er
Trade
r
Com
missio
n Age
nt
Who
lesa
ler
Ret
aile
r
Con
sum
er
Quantity drop through Food Supply ChainConsumer Price is 3.5 times of
Farm Gate Price
Source : KSA Analysis
Price Increase through the Chain
100125 131
196
344
0
100
200
300
400
Farm
er
Trade
r
Comm
issio
n Age
nt
Whole
sale
r
Retail
er
Abnormal Cost Addition
Very High Wastage
Illustrative Example – the humblepotato!
• FDI in Retail
� Lack of recognition of ‘Retail’ as an Industry
� Procurement & movement of goods, specifically agri product
� Implementation of model APMC Act
� Ability of farmers to directly sell produce to 3rd party of their
choice (trader / corporate entity / wholesaler) has increased
realizations
� An increasing no. are entering into agreement with corporate
customers
� 15 states have implemented the new act
Regulatory/Legislation
Range availability
� Food market largely loose - Not enough branded products to
stock shelves
� Vendors struggling to meet good fill rate levels
� Imported products – high price points and less consumer
relevance.
Talent
� Shortage of trained personnel - The retail sector will
require 1.5 million trained personnel in the next 5 years.
� Employee attrition - low now but expected to worsen.
� Improper training – leads to retail customer dissatisfaction.
Source : KSA Analysis
Reliance - Initiatives
� Backward disintermediation leading to:
� Better Prices to the farmers
� Eliminating of wastage across the supply chain
� Procurement of milk & vegetables from farmers at good prices
� Creating infrastructure to reduce wastage
� F&V:
� 38 Collection Centers & 15 CPC’s
� Quantity Bought- 900 mT /day
� Dairy:
� 2100 VPP (Village Pooling Points across 5 states)
� 60 Chilling Centers/Bulk Coolers
� Quantity bought (Milk) - 2.81 lac litres/ day
� Provide farmers with best agri inputs, education and services
� Launch differentiated processed products in general trade
Reliance – Initiatives
500g_Tur_Dal_R2-...
Noit_323_Atta_W...
Opportunities
Scope for Imported foods in India
� Market for the imported food products and fresh fruit
stands at more than US$1.1 billion per annum and is
growing steadily
� Growth of organized retail, food service industry
� Major high value imported food items: Dry Fruits, Fruit
Juices, Ketchup, Chocolates, Sauces, Specialty
Cheese, Potato Chips, Canned Fruits & Vegetables,
Cookies, Cake Mixes
Importing Processed Food products
Import regulations -
� No specific export certificates required from country of origin for imports of
processed food products
� All processed food and beverages products imported into India should meet the
requirements established under various domestic food laws, such as:
� The Prevention of Food Adulteration (PFA) Act, 1954, and PFA Rules of 1955, as
amended.
� The Standards and Weights and Measures Act, 1976
� Meat Food Products Order,1992
� Milk and Milk Products Order, 1992
� Fruit Products Order, 1955
Best High-Value Product Prospects
Export Potential
Currently, only 2% of the country's fruit and vegetable produce is processed and India's share of the global market stands close to a dismal 0.03%.
The national policy aims to increase the level of food processing from 2 per cent to 10 per cent in 2010 and to 25 per cent in 2025.
31
Food Processing Sector in India
• 52% cultivable land compared to
11% world average
• All 15 major climates in the
world exist in India
• 46 out of 60 soil types exist in India
• 20 agri-climatic regions
• Largest livestock population
• Largest producer of milk
• Largest producer cereals
• Second-largest fruit and vegetable
producer
• Among the top five producers worldwide of rice, wheat, groundnuts,
tea, coffee, tobacco, spices, sugar and oilseeds.
• Sunshine hours and day length are ideally suited for round the year
cultivation
SignificantOpportunity
India as a global sourcing hub
India has huge supply advantages due to diverse agro-climatic conditionsand wide ranging raw material base…
Way Forward
Policy Initiatives
� The Indian government has abolished licensing for almost all food and agro-processing industries except for some items like beer, and items reserved for SSI.
� Automatic investment approval up to 51 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector, except malted food, alcoholic beverages and those reserved for small scale industries (SSI)
� Most of the items can be freely imported and exported except for items in the negative lists for imports and exports.
� Zero import duty on capital goods and raw material for 100 per cent export-oriented units.
Policy Initiatives
� Wide-ranging fiscal policy changes have been introduced progressively.
� Excise rates have been reduced substantially in many categories:
� 24 to 16 percent on aerated drinks,
� 16 to 12 percent on packaging paper,
� 16 to 8 percent on meat, poultry and fish,
� 32 to 16 percent on food grade hexane used in edible oil industry,
� 8 to 0 percent on all kinds of food mixes including instant mixes.
� Processed food items like condensed milk, ice cream, preparations of meat, fish and poultry, pectins, pasta and yeast , soya bari (food supplements) and ready to eat packaged foods, hydrogenated vegetable fat are totally exempt from excise duty
Policy Initiatives
� Custom Duty Relief
� Custom duty reduced from
� 7.5% to 5% on food processing machinery
� 20% to 10% on refrigerated vans
� 65% to 50% on sunflower oil (crude)
� 75% to 60% on sunflower oil (refined).
� Special additional duty of 4% waived in the case of refined edible oil.
� Customs duty on packaging machines reduced from 15 percent to 5 percent.
� For making value addition in palm oil sector, customs duty on refined palm oil are fixed at 75% whereas the same for crude palm oil remains at 65%.
� Income tax rebate allowed (100% of profits for 5 years and 25% of profits for the next 5 years) for new industries in fruits and vegetables besides institutional and credit support.
Mega Food Parks
� The Government is developing 30 mega food parks which would cover
the entire food processing cycle 'from the farm gate to the retail outlet'.
� Provision of common facilities like cold storage, food testing effluent
treatment plant, power, water supply, etc
� Government would provide a grant of US$ 12.53 million for each one,
private investment to the tune of US$ 75.21 million would be
encouraged in these parks.
� The first five such parks would be set up in Punjab, Maharashtra,
Andhra Pradesh, Jhark-hand and the North-East region in the first
phases.
37
• 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
Food Processing sector has strong synergies with the inclusive growth mandate of the government and also provides a platform tosignificantly transform the face of rural India…
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.
Outlook