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Food processing: Indian advantage... - Views on News from Equitymaster
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  • Oct 24, 2007

    Food processing: Indian advantage...

    The food processing industry is the fifth largest industry in India and contributes around 6.3% of the GDP. However, the food processing industry in India is at a nascent stage with only 2% of the total produce being processed. India was once a net food importer but now produces a food surplus, India has the potential to become one of the leading players in the industry, due to its low labor and food production costs, government initiatives (tax holidays) and the availability of raw materials.
    Per capita food consumption
    US 2.07
    Japan 4.00
    UK 3.67
    China 0.23
    India 0.19

    Arable land: India has the second largest arable land in the world with 151 m hectares. 55 m hectares of land is irrigated making it the No 1 in the world. Further, it has diversified agro climatic zones across the country and the potential to cultivate a vast range of agricultural products. These advantages can be leveraged for India to be a leading food supplier to the world.

    Food demand curve: As seen from the chart India's per capita consumption is very low as compared to its global peers, indicating a huge opportunity. India is moving up the food demand curve. With demographic changes, rising incomes and income distribution the move towards higher quality and convenience products provide a huge potential. Time saving products and 'quick fixes' are important to 82% of European and US consumers. This could explain why prepared meal consumption in Europe and America is forecast to double in ten years, to exceed US$ 40 bn by 2009, up from US$ 29 bn in 1999. Though currently India is at the mass-market level, with changes like rising income and consumerism, companies are targeting the food segment.

    Manpower: Along with cheap labour we have a vast pool of skilled manpower in research and extension. Food processing sector employs 13 m people and has the propensity to promote 2.4 times the indirect employment of its direct employment creation. Over the last decade food processing has grown at a rate of 7.1% per annum. The higher rate of growth as compared to the agriculture growth rate is indicative of its low base, the increased availability of surpluses, changing lifestyle and higher disposable income. India's comparatively cheaper workforce can be effectively utilised to setup large low cost production bases for domestic and export markets.

    Exports: The sector accounts for 13% of the country's exports and 6% of total industrial investment. Export of processed food has jumped from Euro 4.7 bn in 2003 to Euro 13.8 bn in FY07. The ministry of food processing aims to increase India's share in global processed food trade from current 1.6% to 3% in the next 8 years. Further the retail boom in the country has also given a fillip to the nascent food-processing sector. 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.

    Seeing the huge scope available in sector, many corporates have ventured into the area of food processing. Even MNCs are increasing their product portfolio. Nestle, HUL and ITC are increasing their product portfolio with health and convenience foods. Reliance and Bharti too have entered the food processing segments with agri-produce and food retail ventures.

    Bon appetite: India presents a huge untapped opportunity for the food-processing sector enhanced with low penetration levels and a liberal regulatory regime. The food processing industry is being recognised as a 'sunrise industry' in India having huge potential for uplifting agricultural economy, creation of large scale processed food manufacturing and food chain facilities, thereby further creating employment and export earnings. Further with 300 m upper and-middle-class consumers of processed and packaged food in the country, and another 200 m are likely to be added by 2010. India is well placed to take the advantage due to its strong agricultural base and also become a sourcing hub. Both as a producer and an exporter it can make a mark.



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