Report of Rabobank Australia India

8/3/2019 Report of Rabobank Australia India

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Strengthening the India Australia corridorin select Food and Agribusiness sectors

FINAL REPORT

Submitted to

Submitted by

Rabo India Finance Ltd

June 2007


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Acknowledgement

We express our deep gratitude to the NFIS team including Dr. Susan Nelle, Managing

Director as well as Reetica Rekhy, Project Director - Innovation and Theo Simos,

Project Director Market Development, for their unstinted support and encouragement

in the preparation of this document. Had it not been for their keen enthusiasm, this

milestone would have been extremely difficult to reach. We would also like to thank

other key members in Austrade for providing us with important insights and sector

support, which helped in preparation of this report.

We sincerely thank representatives of companies and industry associations whoprovided their inputs, on the basis of which this document has been prepared.


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TableofContents

NO. CHAPTER PAGE

Executive Summary . ... .... 4

1. Background .. . .. ... . 8

2. Project Methodology .. .. .. . 9

3. Food Retail and Food Service trends ........ . 13

4. The Cold Chain Opportunity .. 25

5. Fru it and Vegetables ... 28

6. Dairy . . .. 56

7. Grain based foods .. 81


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ExecutiveSummary

India is the largest democracy in the world with a stable political system. India is the

third fastest growing economy in the world with the GDP growth rate peaking to 9.2%

in the year 2006-07. This USD 1 trillion economy with a wealthy middle class

population of 300 million is an attractive destination for foreign investors due to its

established and fair judicial system, the widespread use of English in business and

commerce and highly skilled and relatively low cost work force. Also, India has

probably the most open and liberal investment regimes among the emerging

economies, with a conducive environment for Foreign Direct Investment (FDI). ThoughIndia is widely acknowledged as an Information Technology (IT) and Information

Technology Enabled Services (ITES) superpower, the most recent development in the

Indian economic landscape is the emergence of organised retail.

Retail business in India is estimated to be at USD 321 Billion of which organised retail

is only USD 12 Billion. Organised food retail market is estimated to be USD 1.5 to 2

billion. With the involvement of large Indian business houses and arrival of world's

leading retail chains, the organised retail is growing at 44% per annum and the

organised food retail is growing at 25% per annum. The growth of organised food retailhas let to opportunities for both domestic and international players in food processing

to enter the Indian market with their high quality and niche products.

With this background in mind, National Food Industry Strategy (NFIS) has mandated

Rabo India Finance (RIF) to undertake a study on three agribusiness sectors of

significance to both Australia and India viz. fruits and vegetables, dairy and grains.

Fruit and Vegetables

In case of Apple and stone fruits there exists opportunities in varietal development and

enhancement of productivity from the current production scenario. Large area suitable

for apple growing in India makes it an ideal location for setting up production base for

high quality apples. There exists large potential for import of apples, especially in the

off season. However, Australias shrinking production base, with little export surplus

could be a concern area. Exports of stonefruits from Australia could be routed through

the apple trade channels to ensure synergy.


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Dependence on old cultivars and unscientific post harvest practices weakens the

domestic production of the studied fruits and vegetables. Stone fruit production is

commercially unviable currently due to lack of varieties with high keeping quality

thereby hindering the marketability. The current stone fruit production is mostly

traditional and rainfed. Opportunity exists for providing know-how for better agronomic

practices such as high density planting and micro irrigation techniques. Production

partnerships for relatively new fruits such as raspberries and blueberries is viewed as

another attractive opportunity especially in areas with highly suitable chilling conditions

required for his produce. Varietal development and productivity improvements are

desired in the case of strawberry.

Partnering in setting up of cost efficient cold chain logistics and cold storage

infrastructure is clear opportunity in the fresh produce sector. Absence of cost effective

Controlled Atmosphere (CA) storage which can store apples for long duration such as

six months and targeting the lean season of domestic apples offers a potential

opportunity. Cost effective refrigerated transport systems would enhance the

commercial viability and marketability of these products.

Frozen vegetables, such as peas offer opportunities for technology transfer in the areas

of advanced freezing process and equipments. Sweeter varieties of peas and green

peas based snacks could be launched to target niche urban consumer markets.

Opportunities also exist for new processed products and processing technologies for

berries and stone fruits - to be used in fruit fillings, ice creams etc. Given the positive

demographic trends such as rising income levels, growth in organised retail and

increasing health consciousness, the concept of juice bar chains leveraging on

Australias strong expertise could be a winning opportunity.

DairyIndia is the largest milk producer in the world with production expected to touch 100

million tonnes by 2007. India produces around 15% of the total milk produced in the

world. India contributes 4 million tonnes to the worlds incremental production of 7.5

million tonnes. The per capita availability of milk is 241 gm/day which is lower than the

global average of 285 gm/day.

The average productivity of milch animals is among the lowest in India (the average is

less than one fifth of Australia). Dairying in India is mainly done by farmers, who on an

average hold two to three milch animals. Improper cattle rearing methods, lack of feed


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input to the milch animals, tropical climate and low yielding indigenous breed are some

of the major deterrents for increased productivity of milch animals.

India has a unique pattern of production and milk collection. It follows a three tier

system with farmers producing milk as the first tier, dairy cooperative societies and the

district milk union forming the second and the third tier. These cooperatives form part

of a national milk grid that links milk producers throughout India with consumers in

more than 700 towns and cities and bridges seasonal and regional variations in the

availability of milk. However, quality of milk at the back end is the major issue of

concern in India.

Most of the dairy plants in India (organized) have ISO HACCP certification. The

organized sector handles around 17-18% of the total milk production in India; the rest

is handled by unorganized ones and used for personal consumption. The problems in

processing include supply imbalances during the lean(summer) and flush(winter)

season, regional demand supply imbalances, lack of large scale processing, limited

commercialization of Indian dairy, lack of packing technology and inefficient distribution

infrastructure network. The farm gate prices of milk produced in India is among the

lowest in the world and with many milk deficient countries surrounding India, thereby

offering export opportunities. The market for milk based products viz. cheese, ice

cream, dahi, paneer, khoa, butter, etc. is increasing at double digit rates in India.

There is ample scope for setting up large scale dairy farms in India to produce cheap

milk and cater to the demand of Indian population also the set up can be used as a

sourcing base for exports of milk and milk based products to neighbouring countries.

Grain based foods

Indias wheat production would be stagnated between 72 to 73 million tonnes in the

years to come as the area under cultivation and productivity has stabilised at 26 million

hectares and 2.7 tonnes per hectare. The inability of the public procurement system to

procure enough wheat for food security purpose and the increasing demand for wheat

has forced India to import wheat from the international market and this trend might

continue on and off in the years to come depending on the monsoon. At present only

10% of the total wheat is processed into value added items like branded atta, biscuits,

breads and namkeen. The processed wheat based products market is growing at an

average of 6% while the wheat production is stagnating.


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Australian businesses have good opportunities for partnering with Indian business in

developing the wheat based products market. Indian bread market is about INR 38

billion (USD 0.90 billion) growing at about 6%. Australian companies can join hands

with SMEs for new product development and technologies for instant mixes. Indian

biscuit market is INR 69 billion (USD 1.7 billion) growing at about 7.5% per annum.

Opportunities for Australian companies lie in joining hands with SME players to make

different varieties of cookies and biscuits with limited transfatty acids. Bakery

franchising is another area of interest for the Indian investors wherein Australia has

good expertise. The pasta market in India is currently small but is growing at a rate of

about 7-9%. Australian firms could explore direct exports of its pasta into India and

develop the market further. Growth of organized retailing also provides enough

opportunities for pasta exports into India.


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Chapter 1

Background

The food and agribusiness sector in Australia enjoys a reputation for producing high-

quality, environmentally-friendly agribusiness products, technologies and services. This

has been achieved through innovation, the persistent application of sustainable

agricultural and resource management practices, ongoing successful government and

industry partnerships.

On the 28th of February 2007, the Australian Minister for Trade announced in a Joint

Ministerial Council meeting with the Indian Commerce and Industry Minister, a joint

study of the opportunities for participation of the Australian agri-food industry in the

innovative development of the Indian food supply chain.

The aim of the joint study was to assess the issues and opportunities in the Indian food

processing industry and to examine specific agri-food supply chains where Australian

expertise and participation could benefit the development of the food industries in both

countries.

National Food Industry Strategy (NFIS) Ltd (an industry-led company, funded by theAustralian Government to support Australia's food industry towards a sustainable and

profitable role in the global food industry) has provided the project management and

direction to the study in both India and Australia with support from Austrade and the

Commonwealth Department of Agriculture, Fisheries and Forestry.

The research in India was conducted by the Strategic Advisory & Research (Food &

Agribusiness) division of Rabo India Finance Ltd (100% subsidiary of Rabobank

International, headquartered in the Netherlands).


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Chapter 2

Project Methodology

The study has sought to undertake a general assessment of the issues and

opportunities in the innovative development of the Indian food processing industry

through supply chain analysis and opportunity identification in select food and

agribusiness sectors.

2.1 Project Methodology

The summary of the components highlighted below was undertaken by Rabo India,

Assess opportunitiesfor leveraging on theexpertise of Australiain the select sectors.

C

Detailed supply-chainanalysis (includingconstraints and gaps)for selected sectors.

B

Shortlist sectorsof interest forfurther study

A

A) Shortlisting of sectors

The sectors of interest, shortlisted in consultation with NFIS, based on relativestrengths of Australia were Fruit and Vegetables, Grain based foods and Dairy.

Specific sub sectors within the above 3 sectors to be studied by Rabo:

1 ) Fru i t s & Vege tab les Fruits:

Berries (raspberry, blueberries, strawberry), Apples, Stone fruits/summer

fruits (cherries, peaches, apricots, nectarines, plums)

Vegetables:

Broccoli, Broccolini, Potato, Peas (frozen), Mixed vegetables (frozen), stir fry

vegetable mixes (frozen), Frozen French fries, Soups (instant mixes)

Note - Grading, sorting, packaging, labelling, presentation, storage, transport

and logistics of fresh produce on farm or off farm (ie at grower and/or packer

levels) for sale to retail / foodservice channels would be considered as part of

value addition.


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2 ) Grains Wheat

Durham wheat (variety) processed into Pasta, Noodles etc

Other functional foods Biscuits, Breads such as wholemeal, wholegrain,

multigrain etc, gluten free products/gluten substitutes etc.

Indigenous varieties of wheat varieties having more nutritional value (link

to work done by M S Swaminathan Foundation).

Grain based specialty Ingredients- that go into products like Cake Mixes,

Gluten etc.

Barley (processed)

3) Dairy

Major dairy food ingredients

Greater focus on value added products such as Frozen & Flavored yogurts,

Sorbets etc.

Other High end / value added products

4) Food Retail

Synopsis of players in Food Retail and their plan of expansion to give an idea

as to how fast retail is expanding and its potential impact on the agri-food

industry.

B) Detailed Supply Chain analysis

The scope of the field research was focused yet extensive and covered the following

issues

Assessment of the rapidly developing food retailing sector

Detailed supply chain analysis with a view to evaluating constraints in the Indian

industry

o Field level issues

o Production level issues

o Post harvest practices processing

o Marketing

o Cold storage related issues

o Legal & taxation issues

o Quality & hygiene standards

o Research, training & development


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The study was conducted through secondary data research, meetings and discussions

with stakeholders, some of whom included:-

Food processor companies

Cold chain suppliers / technology providers

Industry associations

Importers /exporters

National institutions / universities concerned with research in food processing

Government departments

Based on the supply chain analysis Rabo India also highlighted opportunities that exist

in each of the sectors studied across the supply chain, which would specifically leverage

on the expertise of Australian companies. At the end of the supply chain analysis, an

interim presentation was made to the NFIS team via video-conference.

C) Identification of potential opportunities based on Australian agri-food

expertise

NFIS Ltd. and Rabo India organised focused workshops in three major cities in India

(28 May 2 June 2007) to engage leaders in the Indian agri-food industry by

presenting the interim findings of the study to test and validate the opportunities

identified in the sectors studied. Leading Indian companies (such as Reliance Retail Ltd)

active in dairy, horticulture and grains, participated in these forums. Key personnel

from CII, Austrade and DAFF staff in India also attended the workshops.

The workshops were followed by one-on-one meetings between NFIS Ltd and senior

management (CEOs/MDs) of Indian organisations who had expressed keen interest in

exploring potential commercial opportunities. Specific collaboration opportunities were

explored in these meetings, which NFIS Ltd. promised to take back and present to a

select group of leaders in the Australian agri-food industry.

The high level of enthusiasm and response of the various stakeholders confirms the

value of these initiatives in focusing attention on the contribution that Australia can

make to the Indian food industry while also providing impetus for growth, development

and innovation within the Australian agri-food sector.

Further to the India testing, Mr Rajesh Srivastava (Managing Director, Rabo India

Finance), visited Australia in the week of 25 June 2007 to provide private briefings to

select Australian companies with an interest to seriously explore the possibility of


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engaging in the Indian food processing market. The companies were invited based on

their potential fit with identified opportunities (and in some cases, with Indiancompanies that have expressed a genuine interest in exploring a potential commercial

opportunity with an innovative Australian food company).

2.2 Timeframe

Milestone Timeline

Identification of sectors for study March 14, 2007

Completion of general assessment of issues, supply chain

mapping and identification of related Australian expertise

April 30, 2007

Draft interim presentation (submission by email) 7 May, 2007

Interim Presentation (By Video conference) 14 May, 2007

Assessment of potential investment/development opportunities

for mutual benefit India testing (Chennai, Mumbai, Delhi)

29 May 2 June, 2007

Final report (by email) 23 June, 2007

Assessment of potential investment/development opportunities

for mutual benefit Australia testing with selected companies

25-28 June, 2007

2.3 Project TeamThe Engagement was handled by a responsive, effective and flexible team whose

members between themselves have the relevant business experience and capabilities

to provide value added solutions on this assignment. The team was led by Rajesh

Srivastava, Managing Director and Head, Corporate and Commercial Banking, Rabo

India Finance.

The other team members comprised:

S. Venkatraman, Director, Strategic Advisory, Food and Agribusiness

Dr. C Prabhu, Associate Director, Strategic Advisory, Food and Agribusiness

Manoj Nair, Manager, Strategic Advisory, Food and Agribusiness

Vaishali Chopra, Manager, Strategic Advisory, Food and Agribusiness

Cherry Jacob, Manager, Strategic Advisory, Food and Agribusiness

Pawan Kumar, Manager Strategic Advisory, Food and Agribusiness

Abhinesh Gopal, Associate, Strategic Advisory, Food and Agribusiness


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Chapter 3Food Retail and Food Service trends

3.1. Food retail in India

Indian retail is gradually inching its way toward becoming the next boom industry. Over time it

has emerged as one of the most dynamic and fast paced industries. Retail industry is growing

at a rate of 5% with total revenues of USD 321 billion and is expected to be worth USD 637

billion by 2015 with a growth rate of 7-8%.

Exhibit 3.1 Growth of I ndian Retail (USD billion)

0

50

100

150

200

250

300

350

400

450

1998 2000 2002 2004 2006 2008 2010

Estimated Retail growth in USD billion Source: AT Kearney- CII

The organized retail industry is estimated at USD 12 billion in size in 2006. It is projected to

grow at a CAGR of 44% to USD 75 billion in 2011.

Exhibit 3.2 Share of organized retail across secto rs

0

10

20

30

40

50

60

70

80

Food and

Grocery

Clothing and

Textile

Consumer

Durables

Jewellery and

Watches

Home and

Dcor

Furnishing

Beauty Care

0

5

10

15

20

25

Market Share (Total Retail) Market Share (Organised Retail)

Market Penetration of Organised Retail

Source:CII-AT Kearney


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Retailing in India accounts for 10% of its GDP and around 8% of the employment. Food retail

in India accounts for around 65% of the total retail and is characterised by the sheerdominance of a large number of small unorganized retailers. Organised food retailing is still at

its infancy stage, having a share of less than 1% of total food retail market in India. Indian

food retail market is estimated to be worth USD 210 billion with organised food retailing being

USD 1.5-2 billion.

Despite the fact that food is the largest category in the consumers spending basket, with a

share of around 50%, organized food retailing is faced with certain limiting factors like lack of

industry status, capital constraints, high tax rates, highly fragmented supply chain, restrictive

land laws and lack of infrastructure.

For long, Indian consumers have been deprived of quality food products, wide variety and

value added service at the retail front because of the highly fragmented nature of food

retailing. Organised food retailing has the potential to bridge this gap. This represents a great

opportunity for the growth of organised food retail in India.

Organised food retail in India, which has been growing at a rate of 25%, is expected to

witness a growth rate of 30-35% in the coming 5 years. Indian food retail is witnessing a

swing from being unorganised to organised due to factors like increased disposable incomes,

increase in double income nuclear families, burgeoning middle class, increased urbanization,

increased quality consciousness, availability of quality retail space and greater need for

convenience among consumers.

Food and grocery retail in India is highly unorganized with around 6.5 million mom & pop

stores and the presence of only a few national food retail chains. Most of the current leading

retail chains are present predominantly in particular regions, like Subhiksha, Food World,

Nilgiris and Margin Free which are concentrated in South India. Indian organized food retail

has been characterised by the presence of regional players.

Organized food retailing is a sunrise industry with a bright future, as is evident from the fact

that a large number of big corporates are making their entry into the sector with huge

investments. Large international retailers like Wal-Mart, Carrefour and Tesco are vying for a

share of the large Indian retail sector pie.


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Exhibit 3.3 Major retailers in India

RetailerName

Outlet type Ownership No. ofoutlets

Expansion plans Annualsales

(2005-06)

USD

Locations

Reliance

retail

Plans for

hypermarkets,

supermarkets

& convenience

stores

Local (Reliance

Industries)

180 Plans for 3000 stores,

2500 supermarkets,

1000 hypermarkets in

over 100 cities by

2009

N/A Andhra

Pradesh,

Rajasthan,

Tamil Nadu

My dollar

store

Convenience

stores

Local

franchisee of

My Dollar storeof the U.S

42 400 stores by 2010 10 MN 28 cities all

over the

country

StarIndia

bazaar

Hypermarkets Local

(operated by

Trent, the

retail division

of Tata

group)

1 In Ahmedabad

further stores are

planned for Mumbai &

Bangalore. Plans to

open 8 -10 SIB across

India By 2008

7 MN Delhi and

Northern

India

Spinach Supermarkets Local (a

neighbourhood

Store operation

established in

2006 by

Wadhwan

Family)

24 Aim to have 1500

stores by 2010-12 of

which 300-500, should

be by acquisitions

N/A Mumbai

Radhakrishna

Foodland

Supermarkets Local (holds

the license

from Spar

international)

4 Plans to open 8-10

new

outlets in Mumbai by

mid 2007

N/A Mumbai

Sabka

Bazaar

Supermarket Local (parent

company-

Home Stores

belongs to

Shahidgroup)

40 Aim is some 100

stores in Delhi and

northern India

N/A Delhi

Shoprite hypermarket Local

(franchised

from South

African

retailer

Shoprite by

Indian

company

Megasave)

1 Plans to add 2-3 new

outlets by 2007

12.5 MN Mumbai


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Retailer

Name

Outlet type Ownership No. of

outlets

Expansion plans Annual

sales(2005-06)

USD

Locations

Metro Cash &

Carry *

Cash & carry Foreign

(Metro AG,

Germany)

3 Plans to open 18

outlets by 2010 in

Kolkata, Hyderabad,

Delhi, Mumbai,

Chennai, Pune,

Ludhiana &

Chandigarh

80 MN Bangalore

and

Hyderabad

Trumart Supermarkets

&

Conveniance

stores

Local

(Pyramid

retail)

8 Plans for 69 Trumarts

by 2007 & 128 by

2010

22 MN Maharashtra

and Gujarat

Food Bazaar Hypermarkets

&

Supermarkets

Local

(Pantaloon

group)

72 Plans for 250 stores

by 2010

76.2 MN National

(major

metros and

cities)

Spencers

**

Hypermarkets,

supermarkets

& convenience

stores

Local (RPG

group)

125 15 new stores in 10

cities by December

2007 & more to open

in west and north by

2008

76.2 MN Major cities in

South India

Food world Supermarkets Localsubsidiary of

Dairy Farm

International

(Jardine

Matheson

Group)

46 Plans aggressiveexpansion within 2-3

years

N/A Mumbai,Hyderabad

& Vizag

Nilgiris Supermarkets

&

Conveniance

stores

Local (Private

owned

Franchisee

private

equity fund

Actis holds a

51% share

51 Plans rapid expansion

by franchising

66.6 MN Major cities

of South

India

Trinethra

***

Supermarkets

& convenience

stores

Local

(Trinethra

group)

acquired by

the local

conglomerate

AV Birla

170 Aggressive plans to

launch 25stores in

Kerala over the next

six months

67.4 MN Major cities

in Andhra

Pradesh,

Tamil Nadu,

Karnataka &

Kerala


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Retailer

Name

Outlet type Ownership No. of

outlets

Expansion plans Annual

sales(2005-06)

USD

Locations

Margin free Discount

stores &

supermarkets

Local

Cooperative

(Consumer

protection

& Guidance

society)

300 Rapid expansion plans

In south india

135 MN Major cities

of Kerala

Tamil Nadu

and

Karnataka

Subhiksha Discount

stores

Local

(Subhiksha

Trading

Services

Private ltd.)

650 Plans for 1000 store

all over the country,

mainly in Maharashtra

by 2007

74 MN Major cities

Tamil Nadu,

Andhra

Pradesh,

Pondicherry

and NCR

Delhi

Adani Stores Supermarkets

&

Convenience

stores

Local

(acquired by

Reliance)

47 Expansion plans

expected to be

announced

24.7 MN Gujarat

Source: KSA Technopak

3.2 Changing Consumer trends

Consumerism is on the rise

Increase in disposable income levels, a burgeoning middle class, young population, changing

lifestyle, increasing double income nuclear families are some of the drivers that are paving the

way for organised food retailings growth in India.

From save to spend

Due to changes in lifestyle, increasing disposable incomes and easy availability of credit,

Indian food retail is witnessing a paradigm shift in consumer behaviour: it has transformedfrom save to spend. Today, many consumers are giving greater importance to quality and

convenience than price.

Young population backed by ability and w illingness to spend

India has the youngest population in the world with more than 53% below the age of 25

years. Nearly 26-27% of the population is in the age group of 20-34, which is the age group of

new age consumers, who have the ability as well as the willingness to spend on quality

products. This is in contrast to the situation in many other countries, where the larger share of


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retailing. With an increasing number of population migrating to cities, urbanization is on a rise

in India favouring the growth of organized food retail.

Exhibit 3.6 Grow ing urbanization in India

% of total population 1999 2004 2009

Urban 27.4 28.5 30

Rural 72.6 71.5 70

Source: EIU, July 2006

Growing middle class

At present, Indias middle class stands at more then 350 million out of the total population of

1.1 billion. Largely, middle and high class customers are the ones who shop at modern retail

outlets.

Increasing population of working w omen

The population of working women in India has increased from 22% in 1991 to 26% in 2001.

An increase in number of working women has increased both consumption as well as the

purchasing power. Due to scarcity of time, working women are shifting to ready to eat, ready

to cook and processed food. Further with domestic help becoming more expensive, women are

left with no other option but to go for time saving and processed and semi-processed food,

fuelling the growth of organised food retail.

3.3 Key market drivers

Organised food retail is showing an upward growth trend backed by a number of key market

drivers, like availability of quality retail space, easy availability of finance, increasing health

consciousness, increasing quality consciousness and need for convenience.

Availability of quality retail space

Until the late 1990s, the high cost of real estate meant that organized food retail businessmodels were not financially viable in metropolitan areas. In the last few years, by contrast, a

lot of mall space has been created. About 300 malls are at various stages of construction in

different parts of India including metro and mini-metro towns giving a boost to the modern

food retail. A further rise in the number of malls is expected in the coming years giving a

boost to the organized food retailing.


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Exhibit 3.7 I ncrease in number of shopping malls in I ndia

0

100

200

300

400

500

600

2000 2005 2008 2010

No:ofmalls

Source: India Retail Report 2006 KSA Technopak

Easy availability of finance

Nowadays with aggressive lending by banks and finance companies at fairly low rates of

interest, availability of finance has eased up. Owing to this fact, the tendency to save money is

also getting dissolved. Cash is giving way to credit cards. Consumer credit, especially through

credit cards, has been growing year-on-year. This ease of credit availability has not only

increased the buying capacity of the consumers but is also acting as a catalyst in increasing

the propensity to spend.

Branded foods leading ways to modern retail outlets

With changing consumer life styles and rising disposable incomes, branded and convenient

foods are gaining vast popularity. The market for branded foods is growing at a healthy rate of

10% -15%, representing a growing opportunity for the organised food retailers.

Increasing health consciousness

An improvement in the standard of living has caused people to become more health and

environment conscious. This is driving the growth for hygienic and healthy food products. A

large number of players dealing in fruit juices, edible oils and dairy are adopting the health

planks for positioning their products, realising the importance of health to the consumers.

Need for convenience

The modern day consumer is looking for convenience, not just in purchasing but also in

carrying, cooking and eating. Portability and single serve packaging are on the rise to meet

the need to "eat where you are". Convenience, together with health consciousness, has played

an important role in growth of categories like mineral water and packed fruit juices

contributing to the growth of organised food retail.


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Exhibit 3.8 Evolving food demand in India

Source: Rabobank International

Afric (Sub- Saharan)

India China,Latin America

EasternEurope

North America,Japan, WesternEurope, Australia

Surviving MassMarke

ConvenienceFood ServiceSnacking

Quality

HygieneHighTechnology

Diet /functional /organic foods

Conveniencefoods

Snacks /repared

meals

Dairy, meat,fresh fruitsfruit juices,

beverages

Carbohydrate

staples

One stop shoppingWith increasing number of working couples, rise in number of nuclear families and long

working hours, the time left for food and food related shopping is decreasing. Modern food

retail outlets are offering one stop solutions to consumers. Consumers can find everything

from fresh fruits and vegetables, staples, and processed foods to grocery items under one roof

at modern retail outlets. Moreover, these outlets offer a wide variety of products at reasonable

prices besides self service facilities and attractive ambience.

3.3 Fresh produce retailing

The Indian retail market for fresh foods, until recently a fragmented and unstructured one, is

undergoing a rapid transformation as more and more large-scale retail operators (Indian and

international) are entering this sector. India is the second largest producer of fruits and

vegetables in the world. At present, the organised retailing part of the total USD 35 billion

(INR 1.45 trillion) fruits and vegetables business in India is estimated at about USD 73 million

(INR 3 billion).

Indian fresh produce market has been dominated by street-side vendors and open

marketplaces where vendors bring in fresh produce from the wholesale market on a daily basis

using the existing available mode of public transport and dispose off the leftover produce at

throwaway prices at the end of each day. India has a very inefficient supply chain and very

poor logistics that is evident from the fact that 30 - 40% of the fresh produce rots before it

can be sold. In the supply chain as many as 8 middlemen are involved who eat away the

margins of the farmers, reducing farmers share in consumers price to only 30 - 40 %.


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In spite of all these limitations, organised fresh produce retail has a tremendous potential to

grow as fresh food accounts for 50% of the food and grocery bill of consumers in India.Already around 400,000 sq.ft. of retail space is dedicated to fresh produce retailing. This

segment today attracts as much as 70% of total investment in retailing. With consumers

becoming more quality and health conscious, footfalls have risen by nearly 25 % to a fresh

produce store.

Exhibit 3.9 Major players operating in fresh produce retailing

Retailer Parent Offering No. of

stores

No. of stores

by 2009

Investment

Planned 09

(INR Bn)

USP

Reliance

Fresh

Reliance Retail F&V, dairy, bakery

products, processed

foods, beverages,

snacks, staples

180 1,500 250 (total for

retail operations)

3 price ranges

for common

vegetables

Subhiksha Subhiksha

Trading

Fruits and vegetables 650 2,000 6 Prices cheaper

by 10% from

others

Spencers RPG Group F&V, bakery products,

chilled & frozen foods,

meat, fish, poultry

125 2,000 10 Live kitchen

during

weekends

Food

Bazaar

Future Group Staples, cut fruits and

vegetables, dairy and

bakery products, tea

72 350

(farm fresh)

8

(farm fresh)

Touch, feel,

taste & smell

products

Natures

Basket

Godrej Agrovet F&V, Indian sweets,

dairy products, fresh

juice caf, frozen

meats, Thai food

mixes

7 20-23 0.15 Targets the

upper class,

stores in up

market areas

Spinach Wadhawan Food

Retail

Snacks, bakery, dairy

products, groceries,

F&V, frozen foods,

meat, fish, poultry

24 800 12 - 15 Personalized

service

Many other big players, besides the above, are also investing heavily to enter the segment,

e.g. Aditya Birla Retail, Bharti-Wal-Mart. In the current scenario, retailers have adopted

different means of sourcing fruits and vegetables. Most of them source a part of their

requirement from the traditional wholesale markets, e.g. Food Bazaar, Reliance Retail. Many

retailers are procuring through contract farming which is helping in meeting their quality

requirements, in addition to quantity requirements. Subhiksha is procuring 20% of its

requirement from Nasik farmers through contract farming. Reliance is also procuring a part of

its total requirement through contract farming in Punjab and Haryana. Some professional

players have come up in the market to serve the back end needs of retailers. These companies


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source fresh produce from farmers and supply it to the retailers at fair prices. DSCL is one

such player, currently supplying to Food Bazaar, Subhiksha and Spencers. FieldFresh, a jointventure between Bharti Group and NM Rothschild, is supplying premium quality fresh produce

to markets worldwide.

FieldFresh is also planning future investments to the tune of USD 220 million in the backend,

including investments in cold chains and warehouses. Reliance Retail has established

relationship with a large number of farms in Maharashtra and Karnataka and has its own cargo

carriers for moving produce from the farms to the food processing plants or retail outlets;

Reliance Retails has also invested heavily in tracking systems to monitor the movement of

goods and plan inventories and has entered into tie-ups with food processing plants to ensure

quantity and quality of output. Total back-end creation investment by all retailers is estimated

at USD 500 million.

3.4 Food service in I ndia

Currently in India, close to 28% of the population live in urban areas and this share is

expected to grow to 40% by 2025. Currently, Indias food service sector sales are estimated

at USD 10 billion (INR 434 billion). About 4.5% of urban consumers eat outside of their home

at least once a week, and about 12% eat out once a month. Further, about 15% of food

expenditure of the Indian middle class is out of home. However, the share of organised

players in food service sector is less than 5%.

Exhibit 3.10 Major food chains in I ndia

Name of Chain No. of Outlets Format

McDonalds 108 Quick Service

Pizza Hut 126 Pizza

Pizza Corner 47 Pizza

Dominos Pizza 105 Pizza

Subway 65 Burgers

KFC 15 Quick Service/ Chicken

TGI Fridays 5 Casual dining

Baskin Robbins 200 Ice cream

Cookie Man 25 Cookies

Barista Coffee 176 Coffee bar

Caf Coffee Day 400 Coffee bar

Nirulas 63 Indian Quick Service

Moti Mahal 30 Mughlai

Source Rabobank research


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Exhibit 3.11 Segment-wise market share of different food service formats

Others

16%

Hotels &

Lodgings

9%

Cafs

17%

Restaurants

39.4%

Pubs, Clubs

& Nightclubs

15%

Takeaways

3%

Source Data Monitor, 2005

Increasing out-of-home food consumption represents a significant opportunity for

foodservice companies. The organized fast food business in India is estimated at over

INR 20 Bn (USD 445 mn), and growing at high double-digit rates. The changing

consumer orientation towards branding, food safety and hygiene (in both kitchen and

dining areas) and increasing propensity for out-of-home food consumption is spurring

the development of organized foodservices. Several multinational foodservice majors

have forayed into India over the last few years including McDonalds, Pizza Hut, KFC,

Dominos, Subway etc. On the back of these developments, several home-grown

players have also emerged such as Caf Coffee Day, Pizza Corner, Mars Group of

restaurants etc., each of which has distinct positioning planks such as value-for-money,

fine dining etc. Some of the specific opportunities include associating with Indian

Companies for setting up bakery and bread cafes as well as juice bars.


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Chapter 4

The Cold Chain opportunity

It is estimated that there are 3500 cold storage units in India, with a storage capacity

of more than 10 million tons. In value terms, the market size of cold storage in India in

2003-04 stood at INR 1,250 million. Average growth rate of commercial and industrial

refrigeration is estimated at 10% p.a. Most cold stores do not offer multiple product

capabilities, multi-temperature facilities or controlled atmosphere provisions

Out of the total cold storage capacity in the country, nearly 48% (4.83 million tons) of

the share is with a single state i.e. Uttar Pradesh where the cold storages are mostly

used for potato and potato seed. It is followed by West Bengal with a cold storage

capacity of 2.24 million tons (Share 26%). The Western part of India has a cold storage

capacity of 0.5 million tons, out of which the State of Maharashtra has a capacity to

store 0.35 million tons.

The cold chain infrastructure sector is largely fragmented and characterized by very

few integrated logistics management players. Most of the players are independent cold

storage houses. The few integrated players like Snowman, Frick India, Chaitanya Cold

Storage, Fresh Express and Kausar have been successful because they offer completelogistics management services, secondary distribution services and have infrastructure

to handle large customers, with operations across the country. Going forward,

competition in this segment in expected to increase.

The rank wise commodities stored in the cold storage are potatoes, apples, spices,

dairy products, marine products, other fruits and vegetables. Nearly 80% of the

capacity gets utilized in the storage of potatoes and potato seed.

Other aspects of Cold Chain storage:

Potato constitutes over 90% of the tonnage currently handled, indicating low level

of cold storage usage in fresh produce sector (only 0.11 million tons - less than

0.1% of annual production)

About 15,000 more cold storage units required at an investment of USD 6 billion in

the coming 10 years

Over 3,000 reefer trucks required at an investment of USD 130 million for domestic

transportation of fresh produce over the same period

Operating costs for Indian cold storage units are over USD 60 per cubic metre per

year compared to less than USD 30 in the West.


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Energy expenses make up about 28% of the total expenses for Indian cold storages

compared to 10% in the West. These factors make setting up of cold storages difficult, unviable and uneconomical.

About 30-35% of the losses can be reduced by transporting the freshly harvested

fruits and vegetables in refrigerated containers thus closing this gap in the cold

chain.

There exists a need for about 20,000 refrigerated containers of standard TEU size (with

about 0.24 million sq. meters using solar PV panels fixed on their rooftops to be totally

independent of the power grid or DG sets using fossil fuels, valued at USD 0.53 billion),

to transport the freshly harvested produce, placed strategically at various locations inthe farms all across the country. Commercially, the payback period for this mammoth

project is quite attractive. Refrigerated containers score substantially over conventional

refrigerated trucks in terms of suitability for this application in Indian terrain.

Exhibit 4.1 Organised Players in Indian Cold Chain Industry

Player Key customers Service Operations

Snowman

(Gateway

Distriparks)

HLL, Amalgam, GCMMF,

Mother Dairy, Baskin

Robins, Mars, etc

Integrated

Logistics

National player, 16 cold stores

across India, 90 reefer trucks, runs

specified reefer truck routes

Frick India HLL, Allana, Al Kabeer Refrigeration

Equipment and

Storage

Services

2-3 cold stores, centred around

Delhi

Chaitanya

Cold Storage

Joy ice creams, Farm

Suzanne, McCain Foods,

Dominoes, Pizza Hut,

Vadilal Ice Cream

Storage and

Transportation

1 cold store in Bangalore and 10-

15 reefer trucks around Bangalore;

reports suggest that the

transportation business has been

sold/hived off

Fresh

Express

Nestle, Cadburys Storage and

Transportation

2 cold stores in Western India, and

10-15 reefer trucksKausar Cadbury's, Dominos,

Nestle, Dabur

Transportation

(full

truck load

basis)

Delhi based, specialises in

refrigerated transport solutions to

its customers

Radhakrishna

Foodland

McDonalds, hotels &

restaurants

Integrated

Logistics

Nationally integrated service

provider in times to come

Western F&V business Storage and

Refrigeration

Equipment

1 cold store in Mumbai,

1 in Chennai


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Exhibit 4.2 Typical margins in cold chain

Manufacturing Warehousing Transportation Distribution Retailing

% of

MRP 1-2%62-71% 3-4% 10-12% 15-20%

Logistics takes 14 -18% of MRP

Distribution offers the largest margins in cold chain logistics. Currently, there are some

fragmented regional players in secondary distribution but none at the national level,

besides Snowman. A player in cold chain logistics in India would be able to perform

best by offering integrated logistics management services, secondary distribution and

national coverage. There are very few players currently who have the capacity and

reach to cater to the burgeoning demand for cold storage, in terms for pan-India

connectivity and specific cooling requirements.


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Chapter 5

Fruit and Vegetables

India is the worlds second largest fruit and vegetable (F&V) producer, accounting for

9.2% of total global production. India produced 80.3 million tonnes of vegetables in

2005 (10.2% of global production) and 47.3 million tonnes of fruit in 2005 (7.8%, of

global production)1. Horticulture crops cover 13.6 million hectares, which is

approximately 7% of the total grossed cropped area of the country and contributes

18%-20% of the gross value of Indias agricultural output. The export of fresh fruit and

vegetables from India in 2005-06 is estimated at 1.45 million tonnes valued at INR

16.6 billion. The main export produce are onions, mangoes and grapes.

It is estimated that less than 2% of the total fruit and vegetables produced in India is

processed into categories like jam, pickles, ketchup, sauce, juices, pulp, cooked and

fresh cut and packed products. The bulk of fruit and vegetable produce is traded in

domestic markets for daily consumption. Data released by National Sample Survey

Organization (NSSO) in 2004 estimates that consumer demand for fresh fruits and

vegetables is growing at a CAGR of 11%. Though about 2% of this growth rate is

attributable to population growth, about 9% is due to changing diet thus increasing

consumption of fruit and vegetables.

5.1 F&V supply chain

The fruit and vegetable supply chain differs according to the type of the crop, nature of

market which is being serviced and the proximity of production to the market.

Exhibit 5.1: Fruit and Vegetable Supply Chain

Hand Cart Vendor

WholesalerVillageCommissionAgent

MarketCommissionAgent

Sub-Wholesaler Roadside

Vendor

Source: Rabobank Analysis

1 Source: FAO Database 2005

ConsumeFarmer

Trader /Transporter

Retailer

Supermkt

r

ContractCultivation

IntermediateProcessor

FinalProcessor

F&V Marketing Company


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Exhibit 5.1 illustrates a typical fruit and vegetable supply chain in India consisting of

four to ten participants, depending on the market conditions. Due to the lack of a coldchain, highly perishable crops like green leafy vegetables have a shorter chain where

the farmer sometimes sells the produce directly at the market. Contract production in

case of fruit and vegetables amounts to less than 2% of total production in India; the

bulk of the production is direct cultivation by farmers who are fully exposed to the

market risk.

Due to the long and inefficient supply chain, consumer prices keep fluctuating with a

small share of the consumer rupee reaching the farmers. The mark-ups by each

participant in the chain cause the farmer to receive as little as 35% of the price paid by

the consumer (see Exhibit 5.2).

Exhibit 5.2 : Price build-up along the Apple supply chain (percentage)

36.30%

100.0%

8.9%

5.0%

5.6%

5.6%4.1%

2.9%

11.6%

1.8% 1.0%

7.2%

10.0%

0%

20%

40%

60%

80%

120%

100%

FarmerSelling

price

Orchard

OwnerMargin

Packaging

Transportation

toDelhi

Wastage

Commission

agent-Delhi

Transportto

Mumbai

Commission

agent-Mumbai

Wastage

Wholesaler

commission

Local

Transportation

RetailerMargin

Finalpriceto

customer

Source: Market Sources

Contract cultivation is in a nascent stage in the Indian market. There is no provision for

legal contracts which bind the farmers and the procurer; hence there is a high chance

of default at either end. Contract cultivation in India occurs mostly on a relationship

basis with the farmers with companies trying to assist farmers in different areas with

the ultimate goal of higher stable returns for the farmers.

5.2 Consumer behaviour in F&V purchase

Consumers in India typically purchase vegetables once every two to three days,

although in some regions (East and South India) this is done on a daily basis.

Procurement of fruit is generally less frequent, usually once in a week. Retail sales


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occur primarily at fruit/vegetable markets, followed by roadside vendors, door-to-door

vendors and wholesalers. Shopping for fresh produce is usually undertaken by the leadmale or female member of the family. Consumers prefer to have a look and feel of the

product before buying and thus most of the purchasing is done at wet markets.

The key parameters that influence where consumers purchase are the quality of the

produce, price, variety of produce, proximity, cleanliness, ambience, habit, relationship

with retailers and bargaining capacity. Retail markets rate highly in terms of quality,

price, and variety while doorstep vendors rate well in terms of convenience, quality and

cleanliness. Overall, most consumers consider retail markets the preferred location for

the purchase of F&V produce, followed by doorstep vendors and roadside vendors.

Consumers prefer to buy the quantity based on need. While pre-packed formats for

F&V are not yet popular in India, changing lifestyle patterns, an increase in nuclear

families and more working couples have generated a shift among some consumers to a

preference for cut and packed fresh vegetables.

The demand for imported fresh fruit and vegetables is growing rapidly amongst urban

consumers, despite the products being three to four times more expensive than their

domestic counterparts. There is now a high degree of health consciousness among the

urban consumers and they are willing to pay a higher price for the quality of the

produce delivered.

5.3. Marketing and Market intelligence

5.3.1 Domestic marketing

All sales of F&V in the domestic market are controlled by agricultural markets,

established and regulated under the respective State APMC Acts. The geographical area

in a State is divided and declared as a market area wherein the markets (mandis) are

managed by the Market Committees constituted by the State Governments. Once a

particular area is declared a market area and falls under the jurisdiction of a Market Committee,no other person or agency is allowed to carry on wholesale marketing activities.

The current system of agricultural markets is associated with several problems:

It discourages direct farming arrangements between farmers and processors /

corporates who are keen to source appropriate quality raw material for their

requirements. The APMC acts require such corporates to pay the mandi cess even if

they are not utilizing the mandi infrastructure.


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The commission agents in the existing mandis have become extremely powerful in

the fresh produce channel; often the farmer (who does not actually visit the mandi)

is not paid the fair price fetched by his produce. The amount of power wielded by

commission agents is evident in the price quoted in the grey markets for a license

to become a mandi commission agent.

5.4 Issues in F&V supp ly chain

Some of the key issues which affect the trade of F&V products in the Indian market are

identified below.

1. Low Yields

The average Indian yields are low in comparison with the worlds best. Indian yields are

among the best in banana and grapes. However they are extremely low in most other

F&V produce. One of the important reasons is the inappropriate varieties being

propagated in India. In the case of bananas and grapes, new varieties have been

introduced and adopted rapidly and successfully. The key factor contributing to success

in these two cases has been the low gestation period for changing the varieties.

2. Inappropriate varieties

Apart from leading to low yields, Indian varieties in several F&V are associated with

other issues:

Lack of amenability to processing such as for oranges, potatoes and tomatoes.

Low shelf lives and therefore high cost of transport for domestic as well as export

markets

Initiatives based on varietal change can have a long gestation period, thus deterring

entry of corporates into the sector.

I n i t i a t i v e - P e p si a n d G ov e r n m e n t o f Pu n j a b

Pepsi and Government of Punjab have partnered to propagate new varieties of citrus

fruits in the state. At present, Pepsi is importing FCOJ (Frozen Concentrate of Orange

Juice) which is a raw material for Tropicana juice, marketed in India. The citrus fruit

which will be cultivated in Punjab, will replace imported FCOJ. The Punjab Government

has been actively engaged in providing requisite facilitatory support to Pepsi through

purchase of germplasm, providing land for demonstration plots and engaging in

demonstrations via Punjab Agriculture University (PAU) and the State Horticulture

Department (See Exhibit 5.3)


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Exhibit 5.3 : Peps i-Punjab Government project on Oranges

GermplasmQuarantine

andselection

Demonstration Propagation Growing

Pepsi

PunjabGovt

Pvt

Nurseries

Farmer

Identifiedclassicalvarieties inFlorida

Paid for thegermplasm

Done at greenhouserun by Pepsi(technical expertise)

Invested in thegreenhouse

Numerousdemonstration plots;the first one run byPepsi on land leasedby Government

Other plots run by PAU/ Horti dept with costfooted by Govt

Initial propagation atPepsi greenhouse;saplings sold at pricedecided jointly withGovt

Private nurseries to growbased on training given

by PAU; nurseriesenthusiasm based onfarmer demand; successof crop in demonstrationplots

Saplings bought byfarmer to beplanted in freshorchards / toreplace oldorchards

Group of farmers sentto Florida for training (atown cost of farmer)

3. Financing of farmers

The gestation period for cultivation of any fruit is typically at least 3-4 years. Producers

are unable to obtain financing for such a time period from banks/financiers ataffordable rates. Without adequate financing which addresses the need for a

moratorium period, it is difficult to encourage farmers to experiment with new

varieties, which may be more remunerative. Lack of financing from banks / financial

institutions leads the farmers to middlemen, who advance money to the grower or take

the farm on lease.

4. Supply chain constraints

The supply chain is characterised by the presence of large number of intermediaries

which leads to additional mark-ups on the final selling price. This leads to high pricesfor the consumer, most of which are absorbed by chain constituents resulting in low

returns for the farmer.

5. Post-harvest facilities

Insufficient knowledge of post-harvest operation and lack of facilities for pre-cooling,

grading and packing compound the post-harvest losses and wastage in fruit and

vegetables.


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6. Lack of cold chain and proper transportation

In India, fresh F&V is usually transported in trucks at ambient temperature. Theproduce is stacked in piles in the vehicle and no scientific storage mechanism is

followed, resulting in damage and wastage in F&V. The labour used for handling F&V is

not trained in handling further leading to loss in value. It is estimated that the wastage

in the Indian market is about 35% of the total F&V produced.

7. Insufficient market links

Production and demand are not coordinated due to the lack of market information at

the farm end. The farmer is not oriented towards commercial demand-driven

production, which results in frequent surplus. The production and high demand areas

are also not linked for efficient marketing of perishable products.

Indian products (both processed and fresh) need to be de-commoditised through

effective marketing highlighting differentiating attributes, supported by tactical

initiatives such as sales promotions and participation in marketing fairs/trade

exhibitions etc. Further, there is a need to develop processed F&V based products

which are tailored for the palate of the importing market.

8. Space constraints at market yardsDemand and arrivals at the markets have been growing steadily over the years but the

size of the premises has remained constant, leading to capacity constraints. In

addition, they are located in areas of high pedestrian and road traffic which, combined

with the narrow roads in the area, result in congestion and traffic jams that hinder

transport of the produce both in and out of the markets.

9. Lack of infrastructure facilities

Most of the markets do not have proper loading bays for the produce and arriving

goods have to be carried from the roadside (where the vehicles are usually parked)

through a stream of vehicular and pedestrian traffic into the main market. The

movement of goods is undertaken by porters who carry weights ranging from 50 to 120

kg per head at a time. Storage facilities are minimal due to the space constraint, which

leads to a high level of wastage. Grading, sorting and packing facilities are rudimentary

(either manual or non-existent). Waste disposal facilities are also rudimentary, leading

to low hygiene levels.

10.Weak credit support

Lack of organised credit facilities in the chain affects production and market

participants. Commission agents pay sellers in cash but provide a credit period to a


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buyer, which leads to resource crunch. They are also unable to obtain credit from

banks as the title to goods is transferred directly from the seller to the buyer. Inaddition, the commission agents also suffer losses of 15% to 30% annually due to non-

payment of dues by buyers. The credit rates available in the market are exorbitant,

usually from unorganised sources.

11.Unscientific pricing

There is a wide fluctuation in F&V prices in the Indian market, and this is attributable to

lack of transparent trading systems and cartelisation at the marketplace among large

traders.

Given the agro-climatic diversity and suitability for producing a wide range of F&V crops

throughout the year, India has the potential to become a production hub for fruits and

vegetables for the world market. To realise the benefits of the export opportunities in

the future and also to successfully meet the domestic demand, it is essential to develop

the marketing chain in F&V.

5.4 F&V Based P rocessed Foods

Less than 2% of the total F&V produced in India is processed either into the

categories listed in Exhibit 5.4 below or into fresh packed F&V. There are no official

statistics available on the size of these processed F&V categories.

Exhibit 5.4 : Processed F&V (Estimated Industry Size)

Industry size

INR mn (USD mn)

Category

Organized Unorganized

Key players in organized segment (branded

and packed products)

Jam 1000 (23) 550 (13) Unilever, Mapro, Marico, Malas

Pickles 1700 (40) 11000 (256) Priya foods, Praveen, Desai Brothers, Cavin

Kare, GD Foods

Sauce / Ketchup 1200 (28) 4500 (105) HLL, Nestle, GD Foods, Heinz

Pulp / concentrate 4800 (112) - Foods and Inns, Jain Irrigation

Juices / Fruit based drinks 6500 (151) - Pepsi, Dabur, Parle, Godrej, Mother Dairy

Squashes 1400 (33) 2700 (63) HLL, Haldiram, Mapro

Ready to Eat Vegetables 1300 (30) - Tasty Bite, ITC, MTR

Potato chips 3200 (74) 3500 (81) Pepsi

Cooking pastes 400 (9) - Dabur, Unilever

Total 43750 (1017)

Source: Rabobank Analysis


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Fresh packed F&V, primarily an export led business, is a large industry in India, and is

growing rapidly. India exported about 1.45 million tonnes (INR 16.6 bn) of fresh F&V

in2005-062. Export of these products has been growing at a CAGR of over 13% during

the last 5 years. However, these volumes are insignificant, at less than 1% of total

production. There has been an increase in proportion of graded, packed F&V. The focus

on specific varieties for different markets has increased in the past, exports were

primarily targeted at the Indian ethnic population while now, Indian exports compete

with other global suppliers across markets to cater to a broader spectrum of world

demand.

The Indian consumers preference for preparation of F&V based foods at home

continues, although there is gradual acceptance of processed foods. A continuation of

this trend is expected in the next ten years, which implies significantly higher growth

potential for fresh packed F&V as opposed to processed F&V.

The F&V based processed food sector is not a very large industry. Historically many

F&V based products were reserved for the small scale Industry by Government

Legislation. The restrictions have now been lifted for most products. However, due to

the past restriction, a significant proportion of F&V units are still housed in the small

scale sector. Therefore processing is characterized by a high degree of fragmentation

and low capacity utilization. The single largest issue with the processing sector is the

lack of scale in most units, which in turn is linked to absence of backward and forward

linkages, low adherence to quality standards and inability to invest in market

development.

The various schemes of the Government have hindered scale through:

low ceilings on subsidies available for promoting investments (promoters prefer to

set up two small plants rather than one large plant)

Agriculture Produce Marketing Committee (APMC) Act which hinders backward

linkages

While there are no Central taxes on locally manufactured, F&V based processed

foods, there are several state levies such as sales tax, octroi etc. which effectively

translate into higher consumer prices which in turn impacts consumption.

2 Source: APEDA


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5.4.1 Prevention of Food Adulteration (PFA)

Several studies and analyses have been conducted on the problems faced by the fruit

processing industry due to the multiplicity of ministries and laws that control the food

industry. Some of the overlaps between 2 such laws (FPO3 and PFA) are given below

as examples of the operational problems for the industry.

FPO allows use of artificial sweeteners in Fruit products. PFA does not [Rule 47]

The emulsifiers and stabilisers permitted for use [eg. in Jams, Marmalade & Fruit

Chutney] under PFA and FPO differ.

As per FPO, jam should have a minimum % of soluble solids (sugar content). This

implies that an All-fruit No sugar jam cannot be marketed.

The proposed Integrated Food Law would be able to address the above issues

effectively.

5.5 Apple

5.5.1 Production

Indian apple production is about 1.7 million tonnes and India is the tenth largest

producer of apples in the world.

Exhibit 5.5 : Area and P roduction of Apple

0

100

200

300

87-88

92-93

94-95

96-97

98-99

00-01

02-03

04-05

Area

0

500

1000

1500

2000

Pro

duction

Area (In ' 000 HA) Production (in ' 000 MT)

3 Fruit product order


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Exhibit 5.6 : Apple productivity and percentage of total fruit area, & production

The low levels of productivity, about 7.5 tonnes/ ha against a world average of 13

tonnes/ha, is one of the major challenges. The current production area of 0.2 mn ha

area has grown by 15% from the previous year. Though the production ischaracterized

by slow growth and low yields, there has been an upward trend since the last three

years. Indian apple-producing regions are exposed to the variable precipitation

associated with the sub-continents monsoon climate.

0

2

4

6

8

87-88

92-93

94-95

96-97

98-99

00-01

02-03

04-05

0

2

4

6

8

% of Total Fruit Area

% of Total Fruit Production

Productivity (In MT/HA)

7

Exhibit 5.7 Apple production regions


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Exhibit 5.8 : State-wise Area, Production & P roductivity of App le (2004-05)

States Area(in ' 000 Ha)

Production(in ' 000 MT)

Productivity(MT/Hectare)

Growing areas

Jammu & Kashmir 108 1093 10

Srinagar, Budgam,

Pulwama, Anatnag,

Baramullah, Kupwara

Himachal Pradesh 86 528 6Shimla, Kullu, Sirmour,

Mandi, Chamba, Kinnaur

Uttarakhand 28 109 4

Almora, Pithoragarh,

Tehri Garhwal,

Uttarkashi, Chamoli,

Dehradun, Nainital

Arunachal Pradesh 8 10 1

Tawang, West Kanneng,

Lower Subansiri

Others 0.3 0.1 0.4 Nagaland, Sikkim

India 231 1739 8

About 99 percent of Indias apple area falls under the North Western Hills region,

covering 6 districts of Jammu & Kashmir, 6 districts of Himachal Pradesh and 8 districts

of Uttarakhand. In the north-eastern hills region, good quality apple is grown in a small

area in Arunachal Pradesh. Apple is also grown in Sikkim and Nagaland but with limited

success.

5.5.2 Seasons and Varieties

Most of the apples grown in India are variants of the Red Delicious or Royal Delicious

varieties and the harvest period in India is from June to November. Although some

harvest activity begins as early as June, the bulk of the harvest occurs during

September and October.

The post harvest loss at 20 % is mostly due to poorly coordinated collecting and storing

systems. The collection, grading and storing is not carried out in a scientific manner.

Grading standards are only partly fixed. Based on the current storage situation, apples

can only be stored in chilled rooms for a time not longer than 6 months, that too with arelatively high quality loss. Moreover, due to the lack of protocol for post harvest

handling, quality losses in storage due to drying out of apples is common. Due to this,

farmers have started to sell their produce directly to traders in India with the risk of

having no influence on sales prices. There is no traceability system in place.

Most apple orchards in India are old and the low productivity and poor quality of apples

is linked to monoculture of a few old cultivars (older than 30 years) that have

degenerated over the years and hence cannot cater to the growing demand for bright

red apples. Further, research and extension work specifically has not yielded results on


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the ground partly due to the low priority of government on horticulture compared to

staples. This offers a potential opportunity for the Australian companies to develop newvarieties such as Red Chief from Australia which is currently imported from Chile.

Training in production, post harvest process, traceability and development of protocol

in these processes are other opportunity areas

5.5.3 Consumption and Demand

The current consumption of apple in India is 1.2 kg per capita/year and the total

market demand is estimated to be 1.74mn tonnes. There has been no significant

increase in per capita consumption of apple over the last ten years

Exhibit 5.9 : Market Demand and per capita Apple Consumption

0 .0

0 .4

0 .8

1 .2

1 .6

1 99 5 2 0 00 20 05

kgpercapita/year

0 .0

0 .4

0 .8

1 .2

1 .6

2 .0

Milliontonnes

P e r c a p it a C o n s u m p t io n M a rk e t i n M n t o nn e s

Apples are generally the most expensive of Indias major domestically produced fruits

followed by grapes. Other major fruits, including bananas, mangoes, and oranges are

produced and consumed in larger quantities than apples and their wholesale prices are

significantly lower than apple prices in most of the seasons.

Exhibit 5.10 : Average wholesale price of main fruits (INR / kg)

-----------------------------------------------------

0

10

20

30

40

50

60

Apple Mango Banana Grapes Oranges

ce

Pr

W

oesae


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Apple demand is highly price elastic and the Indian customer preference is for

Red colour Sweet taste

Crunchiness

Uniformity in shape and size

Exhibit 5.11 : Cost build-up for domestic apples in India

Supply chain USD/20 kg box % Margin

Farmer realisation 6.6

Farmer Cost 1.9

Commission agent 0.7

Farmer Sale price 9

Wholesaler cost 0.1

Wholesaler margin 1.9 17

Wholesaler sale price 11.2

Sub wholesaler margin 2.2 16

Sub wholesaler sale price 13.4

Retailer Cost 1.4

Retailer Margin 5.1 25

Consumer price 20.0

The poor quality of domestic apples is largely due to poor grading, packing,

refrigeration and transport practices. Opportunities exist for Australian companies to

develop cost effective CA storage systems, which could store apples for longer

durations.

5.5.4 P rocessing

Less than 1% of apple production is being processed in India. Main processed products

in apple are Apple juice concentrate, jams, and squashes. Processing cost is usuallyUSD 1/kg of Apple concentrate (6kg of apples required for 1 kg of concentrate, apple

procurement cost for processing is USD 0.09/kg). Usually culled fruit from the table

grade is used for processing. Processable varieties of apple is absent in India. Even the

main variety Maharaji is a sour variety. As most of the apples, irrespective of quality,

are sold in the market as table apples, there are not enough apples available for being

processed.

There is a dearth of quality storage facilities for apple and an estimated CA storage

capacity in the country is about 24000 tonnes. Though the private entrepreneurs are


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interested in setting up CA facilities, currently the capital expenditure cost for CA

facility is prohibitively high at USD 560/tonne. In terms of processing apples, basicrequirements on food safety (HACCP) and food hygiene are fulfilled. However, there is

a need for further improvement on the quality aspect. Currently there is no facility for

specific training of operators working in apple processing plants and no organization

available for specific product development in processed apple varieties.

HPMC

Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd.

(HMPC), is a state public undertaking set up with the objective of marketing of fresh

fruits and processing of all types of surplus fruits. HPMC is producing a variety ofprocessed products. HPMC has fruit processing plants of about 20,000 Tonnes capacity.

It is the main producer of Apple Juice Concentrate in the country. Besides, Apple Juice

Concentrate, the Corporation is producing concentrate of Orange, Pear, Plum and

Strawberry besides pulps of all the above fruits. It is also producing various squashes,

jams, canned products, apple cider, cider vinegar, Apple and Plum wine, juices in tetra

paks, natural and blended juices, baby corn, mushroom in brine and varieties of

pickles.

5.5.5 Trade

Exhibit 5.12 : Fresh apple imports

0

5

10

15

20

25

30

35

99-00

00-01

01-02

02-03

03-04

04-05

05-06

(000'

tonnes)

Imports in apple had been growing since 1999 after the trade liberalization and is on

the rise in the year 2006-07 touching about 75000 tonnes with a year on year increase

of 50%. Apple imports have a seasonality window of December to July. Imports are

mainly from United States and include Washington Red Delicious Varieties followed by

Chinas Fuji Variety apples and other imports from

Report of Rabobank Australia India

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