Source- Religare
The information presented in this section has been obtained from publicly available documents from various sources, including officially prepared materials from the industry websites/publications and company estimates. Industry websites/publications generally state that the information contained in therein has been obtained from sources believed to be reliable but their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although the Company believes industry, market and government data used in this RHP is reliable, it has not been independently verified. Similarly, internal Company estimates, while believed to be reliable, have not been verified by any independent agencies.
The Indian Agriculture Industry
Agriculture accounts for 18% of India's GDP and more importantly, about 2/3rd of the country's population is dependent on agriculture and allied activities for their livelihood. From a nation dependent on food imports to feed its population, India today is not only self-sufficient in grain production, but also has a substantial reserve. The progress made by agriculture in the last four decades has been one of the biggest success stories of free India.
This increase in agricultural production has been brought about by bringing additional area under cultivation, extension of irrigation facilities, the use of improved high yielding variety of seeds, better techniques evolved through agricultural research, water management, and plant protection through judicious use of fertilizers, pesticides and cropping practices.
Share of Agriculture and Allied Sectors in Gross Domestic Production of India (at current rate):
(Rs. in crores) G.D.P. G.D.P. % Share of (Total) (Agriculture & Agriculture and Allied Sector) Allied Sector
1999-2000 1786525 446515 25.0 2000-01 1925416 449746 23.4 2001-02 2100187 487063 23.2 2002-03 2265304 472679 20.9 2003-04 2549418 533642 20.9 2004-05 2855933 536629 18.8 2005-06(Q) 3250932 595058 18.3
(Q) : Quick Estimates
(Source - Central Statistical Organisation, New Delhi)
Deviations in foodgrains and agricultural output from its long-term trend are determined by, among other factors, variations of monsoon around its long-term trend. With this asymmetric response of food grains production to monsoon variability has led to-(a) poor agricultural growth; (b) reduction in the share of agriculture in GDP; (c) creating inflationary pressure in some primary products; and (d) reduction the potential growth of other sectors by dampening demand.
The structural weaknesses of the agriculture sector reflected in low level of public investment, exhaustion of the yield potential of new high yielding varieties of wheat and rice, unbalanced fertilizer use, low seeds replacement rate, an inadequate incentive system and post harvest value addition were manifest in the lackluster agricultural growth during the new millennium.
Table 8.3 : Annual average growth rate (at constant prices)
(per cent) Five Year Plan Overall GDP growth rate Agriculture & Allied Sectors
Seventh Plan (1985-90) 6.0 3.2 Annual Plan (199D-92) 3.4 1.3 Eighth Plan (1992-97) 6.7 4.7 Ninth Plan (1S97-2002) 5.5 2.1 Tenth Plan (2002-07) 7.6 2.3 2002-03 3.8 -7.2 2003-04 8.5 10.0 2004-05 (P) 7.5 0.0 2005-06 (Q) 9.0 6.0 2006-07 (A) 9.2 2.7
P: Provisional,
Q: Quick estimates.
A: Advance estimates
Note : Growth rates prior to 2001 based on 1993-94 prices and from 2000-01 onwards based on new series at 1999- 2000 prices.
Source : CSO
Low yield per unit area across almost all crops has become a regular feature of Indian agriculture. For example, while India, accounting for 12 per cent of global production of wheat, had average yield slightly lower than the global average, it was less than a third of the highest level estimated for the UK in 2004-05. For major oilseeds, Indian yields are a third and 46 percent, respectively, of the global average. While agro-climatic conditions prevailing in countries may partly account for the differences in yield levels, nonetheless, for major food as well as commercial crops, there is tremendous scope for increasing yield levels with technological breakthroughs.
Agricultural Production and Growth in 2006-07
Agriculture, and especially a variety of crops produced under diverse climatic situations in different cropping systems, supports 115.5 million farm families. The distribution of farm holdings is dominated by small and marginal farmers. Rainfed agriculture constitutes about 60 per cent of the net sown area. These areas are the major domain of oilseeds, pulses and coarse cereals production. The intensity and distribution of rainfall determine the crop prospects in a majority of the areas.
Table 8.6 : Foodgrains production
(Million tonnes) Crop/ Year 2001-02 2002-03
Rice 93.3 71.3 Wheat 72.8 65.8 Coarse Cereals 33.4 26.1 Pulses 13.4 11.1 Foodgrains (i) Khasif 112.1 87.2 (ii) Rabi 100.8 87.6 Total (i)+(ii) 212.9 174.8
* 2nd advance estiamtes (2nd AE).
Source : Ministry ol Agriculture.
2003-04 2004-05 2005-06 2006-07'
88.5 83.1 91.8 90.0 72.2 68.6 69.4 72.5 37.6 33.5 34.1 32.0 14.9 13.1 13.4 14.5 117.0 103.3 109.9 107.2 96.2 95.1 98.7 102.0 213.2 198.4 208.6 209.2
Table 8.7 : Commercial crops production
(Million tonnes) Crop 2001-02 2002-03
Groundnut 7.0 4.1 Rapeseed & Mustard 5.1 3.9 Soyabean 6.0 4.7 Other Oilseeds 2.6 2.1 Total nine Oilseeds 20.7 14.6 Cotton @ 10 8.6 Jute & Mesta@@ 11.7 11.3 Sugarcane 297.2 287.4
@ Million bales of 170 kg each @@ Million bales of 180 legs. each.
* 2nd advance estimates.
Source : Ministry of Agriculture.
2003-04 2004-05 2005-06 2006-07*
8.1 6.8 8.0 4.4 6.3 7.6 8.1 7.6 7.8 6.9 8.3 8.7 3.0 3.1 3.6 2.9 25.2 24.4 28.0 23.6 13.7 16.4 18.5 21.0 11.2 10.3 10.8 11.4 233.9 237.1 270.0 315.5
Agricultural Marketing
Efficient marketing with a dynamic supply chain is essential for the development of the agriculture sector. Agricultural production in the country end-March 2006 was serviced through 7,566 regulated agricultural markets. There were 21,780 rural primary/ periodic agricultural markets, out of which about 15 per cent functioned under the ambit of regulation. There are already some examples of novel private sector initiatives to improve the marketing channels in agriculture TE - Choupal operated by ITC.
Outlook
The short-term outlook for agricultural sector appears bright. However, the production of oilseeds is expected to witness a decline of 15.7 per cent. There has been a sharp increase in the area under wheat with high domestic and international prices providing incentives to the farmers (Source: Economic survey 2006-07). Together with better crop prospects, this augurs well for farm income. In the medium-term, the prospects for agriculture will be determined by the pace and quality of reforms in this sector; the ability to increase investment in surface irrigation, ground water recharge of aquifers, and restoration of water bodies; and developing high-yielding varieties of non cereal food and cash crops.
Indian Food Processing Industry
Food processing involves any type of value addition to agricultural or horticultural produce and also includes processes such as grading, sorting, packaging which enhance shelf life of food products. The Industry provides vital linkages and synergies between industry and agriculture.
India has a strong competitive advantage in food processing being blessed with unsurpassed natural advantages. India ranks first in the world in production of cereals. It is among the top five producers of wheat and oilseeds. This gives it the unique advantage and tremendous potential for processing of agriculture produce.
India with arable land of 184 million hectares, produces 204 million tonnes food grain which is third largest in the world. India's agricultural production base is quite strong but at the same time wastage of agricultural produce is massive. Value addition is 20%. India's share in world trade in respect of processed food is about 1.6%. (Source: MOFPI annual report 2005-06)
While the industry is large in size, it is still at a nascent stage in terms of development. Of the country's total agriculture and food produce, only 2% is processed. Milling of wheat and pulses is the most important activity in food grains processing. Branded wheat flour is becoming popular in both the domestic as well as the export market.
The Food Processing activity is poised for rapid expansion. The Ministry of Food Processing Industries, Government of India estimates the size of the Processed Food Industry at Rs.1440 billion. The unorganized small players process more than 75% of the industry output in volume terms and 50% in value terms. Average Growth rate of Food Processing Industries during the last five years (upto 2003-04) has been 7.15% (Source: MOFPI annual report 2005-06).
Major Challenges for the Indian Food Processing Industry
Food processing industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, lack of processable varieties of farm produce, seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference of fresh food. Major Challenges for the Indian Food Processing Industry are:
- Consumer education that processed foods can be more nutritious
- Low price-elasticity for processed food products
- Need for distribution network and cold chain
- Backward-forward integration from farm to consumers
- Development of marketing channels
- Development of linkages between industry, government and institutions
- Taxation in line with other nations
- Streamlining of food laws
Unprocessed foods are susceptible to spoilage by biochemical processes, microbial attack and infestation. The right post harvest practices such as good processing techniques, and proper packaging, transportation and storage (of even processed foods) can play a significant role in reducing spoilage and extending shelf life. The challenges in processing lie in retaining the nutritional value, flavour, aroma, and texture of foods, and presenting them in near natural form with added conveniences. However, such qualities cannot be readily quantified and correlated with physico-chemical parameters, sensory evaluations providing the only means of benchmarking. Besides, processed foods need to be offered to the consumer in hygienic and attractive packaging, and at low incremental costs.
The challenges for the food preservation, distribution and processing sectors are diverse and demanding, and need to be addressed on several fronts to derive maximum market benefits. Presently, the organizations addressing the educational and R & D requirements are too few, and there is a pressing need for supplementing their efforts. In the emerging scenario, the Food Engineering professional needs to develop sufficient awareness and appreciation of the relevant principles of life sciences, and physical sciences, as well as of a wide variety of other topics including: nutrition, preservation and storage techniques, processing unit operations, bio-processing, waste management, distribution and supply chain management, food laws and regulations.
Grain Processing
India produces more than 200 million tonnes of different food grains every year. All major grains - rice, wheat, maize, barley and millets like Jowar (great millet), bajra (pearl millet) & ragi (finger millet) are produced in the country. About 15 per cent of the annual production of wheat is converted into wheat products. There are 10,000 pulse mills in the country with a milling capacity of 14 million tonnes, milling about 75 per cent of annual pulse production of 14 million tonnes.
Economic Survey 2006-07 says:
The increasing trend in gross domestic savings as a proportion of GDP observed since 2001-02 has continued with the savings ratio rising from 26.4 per cent in 2002-03 to 29.7 per cent in 2003-04, 31.1 per cent in 2004-05 and 32.4 per cent in 2005-06.
As the savings rate has gone up, private final consumption expenditure (PFCE), at current prices as a proportion of GDP, has shown a declining trend particularly from 2001-02. PFCE as a proportion of GDP declined from 63.1 per cent in 2002-03 to 62.1 per cent in 2003-04, 60.0 per cent in 2004-05, and further to 58.7 per cent in 2005-06. This decline has also been accompanied by substantial changes in the consumption basket in terms of the shares of different commodity groups. In PFCE, the share of food, beverages and tobacco came down from 43.3 per cent in 2002-03 to 39.4 per cent in 2005-06.
The food industry is on a high as Indians continue to have a feast. Fuelled by what can be termed as a perfect ingredient for any industry - large disposable incomes - the food sector has been witnessing a marked change in consumption patterns, especially in terms of food.
Growth Drivers
Changing age profile of the Indian population
As a consequence of the high birth rates prevalent until the 1990s, a large proportion of the Indian population is relatively young - in the age group of 20- 59 years. This group is also high in consumption and therefore, this trend is expected to provide a further boost to the growth of consumption in India.
Changing lifestyles
Urban consumers in India have become more exposed to western lifestyles, through overseas travel and presence of foreign media in India. Increase in the population of working women and increasing prevalence of nuclear double income families, especially in urban areas, are other trends shaping lifestyles. The food processing sector has been impacted by these trends as there has been an increase in the demand for processed, ready-to-cook and ready-to-eat food.
Growth of Retail Industry
One of the segments of the food industry that has been experiencing a growing interest has been food retailing. At present, only 1 per cent of the food items retailed in India flow through the organised retail channel. But this situation is expected to change due to the following reasons: changing lifestyle, increasing number of nuclear and dual income families, changing consumer tastes, increasing disposable incomes among others.
Some of the players that have shown a keen interest in this segment are Reliance, Tatas, ITC Group, Lohias-promoted Indo Rama, Mumbai-based RK Hospitality, Kishore Biyani with his Big Bazaar, RPG group.
Advantage India
Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products. The semi-processed and ready to eat packaged food segment is relatively new and evolving. India has the largest irrigated land in the world.
India's comparatively cheaper workforce can be effectively utilized to set up large low cost production bases for domestic and export markets. Cost of production in India is lower by about 40 per cent over a comparable location in EU and 10-15 per cent over a location in UK.
Along with these factor conditions, India has access to significant investments to facilitate food processing industry. There have been increasing investments not only by domestic firms and Indian government, but also foreign investors.
Industry competitiveness
The Indian food processing sector is highly competitive. There are a large number of players in the organised as well as unorganized sector. The organized sector is small but growing. The sector offers potential for growth and a large number of MNCs have entered into India to leverage this opportunity such as Unilever. These players face competition from strong Indian brands. Companies have adopted various strategies to maintain and increase their market share in India. These include competitive pricing, aggressive advertising campaign, expansion plans etc.
High level of competition within the industry has lead to innovations in several areas, thereby raising the overall capability levels in the sector. This will facilitate sustained growth in the sector and help it to become globally competitive.
Policy Initiatives
Government is actively encouraging investment in agro processing industries to reduce wastage and encourage value addition. A strong and dynamic food processing sector plays a significant role in diversification of agricultural activities, improving value addition opportunities and creating surplus for export of agro-food products.
The Government has formulated and implemented several schemes to provide financial assistance for setting up and modernizing of food processing units, creation of infrastructure, support for research and development and human resource development in addition to other promotional measures to encourage the growth of the processed food sector.
- Most of the processed food items have been exempted from the purview of licensing under the Industries (Development and regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.
- Food processing industries were included in the list of priority sector for bank lending in 1999.
- Automatic approval for foreign equity up to 100 per cent is available for most of the processed food items except alcohol, beer and those reserved for small-scale sector subject to certain conditions.
Future Outlook
Indian food processing industry has seen significant growth and changes over the past few years, driven by changing trends in markets, consumer segments and regulations. These trends, such as changing demographics, growing population and rapid urbanization are expected to continue in the future and, therefore, will shape the demand for value added products and thus for food processing industry in India. The Government of India's focus towards food processing industry as a priority sector is expected to ensure policies to support investment in this sector and attract more FDI. India, having access to vast pool of natural resources and growing technical knowledge base, has strong comparative advantages over other nations in this industry. The food processing sector in India is clearly an attractive sector for investment and offers significant growth potential to investors.
The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and generate employment of 9 million person-days.
