CHAPTER: 1

INTRODUCTION

1.1. Introduction of Report

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This report provides an overview of our food production and consumption system, its impacts on the environment and its vulnerability to environmental problems and resource constraints. The aim of the report is to identify any significant challenges to the future security of the food system in India that arise from environmental and resource issues, and the risks, constraints and social or political responses to these. The report also considers a range of response strategies being developed and explored at various points across the food system. Upon completion, this work will be circulated as a discussion paper to researchers, government policy officers, and other stakeholders. This is intended to inform and stimulate: Clarification (confirm or modify) the set of expected policy challenges. Policy responses and program development where sufficient evidence exists. More detailed studies (further research) where evidence or further investigation is Needed. Collaboration across complex issues in the food system. The food system includes the interdependent parts of the system that provides food for local consumption and for export. It includes all the components and processes by which food is produced (grown and/or processed), stored and distributed, delivered to endconsumers and consumed (including further processing and storage) as well as all the processes that deal with waste along the food chain Food security has been described as the state in which all persons obtain nutritionally adequate, culturally acceptable, safe foods regularly through local non-emergency sources. The Indian Governments investment in food security focuses on regular access to healthy eating, noting that access is fundamentally dependent on secure food supplies

The policy objective of food security requires attention to potential risks and challenges to the ongoing security of food supplies for all Indians, where security refers both to provision and to accesses. Food security is being increasingly challenged by resource constraints (eg. water, energy, land, oil, agricultural inputs) and environmental risks such as climate change. In recent years Significant concern about food security and supply in the India has stimulated numerous investigations. The possible impacts of resource constraints and environmental risks on the Indian food system and food security are examined throughout this report, guided by reference to research and policy development occurring in other comparable economies. Policy responses to environmental risks and the need to reduce the environmental impacts of the food system, will also present challenges. For example, the impacts of climate change are already (and will continue to be) a significant driver for change in production of food. But the social and economic adjustments aimed at mitigating climate change (e.g. emissions trading) will themselves become pressures for the food system. There are other non-environmental pressures on the existing food system for India with possibly significant consequences such as the health and wellbeing of the community. The role of food production systems, consumption patterns and food-processing, on diet and nutrition, has been the subject of interdisciplinary research in India and are under further investigation elsewhere. This area is addressed briefly in this document, but only to identify possible intersections of the health and environmental implications of the food system.

1.1 .2. Scope of the Report

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The report covers an overview of the global food processing industry along with the position of the Indian food processing industry in the global scenario.

The report will focus on the dynamics of the industry, the market segments, the growth of the sectors in India and what are the challenges and opportunities that the industry is facing. On the competitive landscape, the report lays out the major food processing companies that functions within the Indian industry and the strategies these companies are following to capture the major chunk of the market share.

The concluding part of the report covers the drivers of the industry and the future Prospects of the food processing industry in India.

1.1.3 Research Objective

To analyze the market share of organized Food Processing sector compare to

other unorganized Food Processing sector

To study the future growth of Food Processing Industry in India To make a comparative analysis of Indian Food Processing Industry with the Food
Processing industry in the world

To make the financial analysis of Indian Food Processing Industry To study the sustainability of Indian Food Processing Industry To study the Resources and the constraints of the Indian Food Processing Industry To study the impact of Food Processing Industry on Indian Economy To study the marketing and technological skills required for the nature and the
scope of the Indian Food Processing Industry.

To study the effect of MNCs in the Indian Food Processing Industry.

TO STUDY THE DRIVING FORCES THOSE ARE AFFECTING INDIAN FOOD PROCESSING INDUSTRY.

1.2. Introduction of Food Processing Industry

1.2.1. The History of Food Processing Industry
The origin of food processing goes all the way back to ancient Egypt, yet the period of those developments seems to symbolize the history of the culture of mankind. Nowadays, bread, which is characterized by its use of the fermentation action of yeast and which uses wheat flour as its raw material, is baked all over the world. The origins of beer also go back to Babylon and Egypt in the period from 3,000 to 5,000 BC. The foundation of the modern industry was built up with the introduction of machinery and technology of new methods from Germany. Nowadays, the processed foods that are thriving in grocery shops are modern processed foods and traditional foods, but their manufacturing technology, process control and manufacturing and packaging environmental facilities have been advanced and rationalized to an incomparable extent in the last 30 years. As a result, products with high quality and uniformity are now being
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manufactured. This is based on the advancement of food science, and is, moreover, due to the general introduction of hygienics, applied microbiology, mechanical engineering, chemical engineering, electronic engineering and high-polymer technology. The most remarkable developments until now have been convenient pre-cooked frozen foods, retort pouch foods and dried foods. The mass production of excellent quality processed foods without using unnecessary food additives has been made possible in the last 30 years by grading and inspecting the process materials, carrying out proper inspections of processed foods, and advances in processing technology, installation and packaging technology and materials. The history of processed food is the history of the rationalization of advanced technology related to raw material treatment operations, processing operations, storage operations, other processing equipment, cleaning of facilities, sterilizing and conservation treatment operations and effluent and waste treatment operations. Worthy of note recently are developments in container and tank lorry transportation, concentration using membrane technology in processing operations, vacuum refrigeration, vacuum freezing and pressurized extrusion molding using two axle extruders. In storage operations, technologies such as vapor drying, heat exchange sterilization, deoxygenating agents, sterile filling packaging and PET bottle packaging have been developed. We have heard the plans of soft drinks manufacturers who want to switch from active sludge methods of wastewater treatment to methane fermentation methods.

1.2.2. Global food processing Industry

Food industry is not a formally defined term; however, it is usually used in a broadly inclusive way to cover all aspects of food production and sale. The Food Standards Agency, a government body in the UK, describes it thus: "The whole food industry from farming and food production, packaging and distribution, to retail and catering."

The Economic Research Service of the USDA uses the term food system to describe the same thing: "The world food system is a complex network of farmers and the industries that link to them. Those links include makers of farm equipment and chemicals as well as firms that provide services to agribusinesses, such as providers of transportation and financial services. The system also includes the food marketing industries that link farms to consumers and which include food processors, wholesalers, retailers, and foodservice establishments food chain.

Table 1.1. Consumer expenditure on food and drink 200107 (US$ billion)

Source: - FICCI Critical of EUs New Food Safety Law. Web http://www.bisnetindia.com/bishtml/060012502441.htm

Supply chain of food processing industry and factor affecting in each activity

Agriculture

Agriculture is the process of producing food, feed, fiber and other desired products by the cultivation of certain plants and the raising of domesticated animals (livestock). The practice of agriculture is also known as "farming", while scientists, inventors and others devoted to improving farming methods and implements are also said to be engaged in agriculture. More people in the world are involved in agriculture as their primary economic activity than in any other, yet it only accounts for twelve percent of the world's GDP. Total agricultural trade consists of food and non- food commodities in both raw and processed forms. Classification of agricultural trade is a breakdown of agricultural trade into four components. bulk commodities, processed intermediate products, fresh horticultural products, Processed consumer goods. Over the years the share of bulk commodities in total agricultural trade has gone down. Decreased demand for bulk commodities has been compensated by the growth in intermediate processed products, which are essentially processed bulk commodities. Processed intermediate products such as vegetable oils, flour etc. The share of fresh horticultural products, i.e. products that are consumed without further processing, in total agricultural trade is nearly constant.Recent improvements in transportation technology have played a role in promoting trade of fresh products. The faster growing categories in agricultural trade are non-bulk packaged processed food products, which are marketed under different brands. Developed countries have played an important role in promoting trade in processed food products. Share of these countries in import of processed food products is more than developing countries, whereas in case of bulk commodities share of developing countries exceeds the import of developed countries.

Food processing
Food processing is the methods and techniques used to transform raw ingredients into food for human consumption. Food processing takes clean, harvested or slaughtered and

butchered components and uses them to produce marketable food products. Consumer expenditure on processed food and drink 200107 (US$ billion), as shown in below Chart Graph:-1.1 Consumer expenditure on food

Sources: - Food Corporation of India, web http://fciweb.nic/Consumerexpen/.in

Whole Food processing industry in divided mainly six sectors which are as shown in figure 3 and food product cover in these sectors and shown in table 2

Figure: - 1.3. Major sector in food processing industry

Table:-1.2 Segmenting food product according to Food processing Sector

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1.2.3. Activity Use to Raise the Growth of Food processing Industry

Food industry technologies

Sophisticated technologies define modern food production. They include many areas. Agricultural machinery, originally led by the tractor, has practically eliminated human labour in many areas of production. Biotechnology is driving much change, in areas as diverse as agrichemicals, plant breeding and food processing. Many other areas of technology are also involved, to the point where it is hard to find an area that does not have a direct impact on the food industry. Computer technology is also a central force, with computer networks and specialized software providing the support infrastructure to allow global movement of the myriad components involved. Marketing

Marketing is all about selling and buying of goods and services in exchange for money. This is a very narrow view. There are three major facets of marketing. First is the

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production-driven approach where stress is laid on selling whatever is produced. This works during scarcity of goods. And the producers key function here is to sell goods available at affordable prices. Most small and micro enterprises follow this approach. The second is the sale-driven approach that revolves around personal selling and advertising to convince customers to buy your product. This approach is adopted when there is an abundance of supply in the market. The last is the consumer-driven approaches, which focus on promoting sale by meeting the customers expectations in terms of quality, looks, aesthetics, and prices and after sales-service. The earlier two approaches where goods are tailor-made are producer-oriented and may not work satisfactorily as they require a proper understanding of the consumer behaviors, preferences, tastes and needs before undertaking production. The third being consumer-driven, lasts.

This is why sales becomes a small part of an entire system called marketing that addresses planning, pricing, promotion and distribution of goods and services to satisfy customer needs. Food processing industry is totally consumer driven. Therefore, you must understand that marketing is not just selling, but much More, and includes: I. Market Assessment Ii. Market Segmentation Iii. Market Targeting iv. Developing Market Mix As consumers grow increasingly removed from food production, the role of product creation, advertising, publicity become the primary vehicles for information about food. With processed food as the dominant category, marketers have almost infinite possibilities in product creation so food processing industry have to focus on market assessment , market segmentation market targeting and develop market mix. Labor and education

Until the last 100 years, agriculture was labor intensive. Farming was a common occupation. Food production flowed from millions of farms. Farmers, largely trained
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from generation to generation, carried on the family business. That situation has changed dramatically. In North America, over 50% of the population were farm families only a few decades ago; now, that figure is around 1-2%, and some 80% of the population lives in cities. The food industry as a complex whole requires an incredibly wide range of skills. Several hundred occupation types exist within the food industry. Research and development

Research in agricultural and food processing technologies happens in great part in university research environments. Projects are often funded by companies from the food industry. There is therefore a direct relationship between the academic and commercial sectors, as far as scientific research.

1.2.4. Outline of Prominent Food Companies in world

The Food World is the biggest directory for food, beverage and agriculture industries, worldwide. . Both Archer Daniels Midland and Cargill process grain into animal feed and a diverse group of products. ADM also provides agricultural storage and transportation services, while Cargill operates a finance wing. Bunge is a global processed soybean exporter and is also involved in food processing, grain trading, and fertilizer. Dole is the world's largest fruit company. Chiquita Brands International, another US based fruit company, is the leading distributor of bananas in the United States. Sunkist Growers, Incorporated is a U.S. based growers cooperative. Tyson Foods is the worlds largest processor and marketer of chicken and the largest beef exporter from the United States.
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 Smithfield is the world's largest pork processor and hog producer. Nestl is the world's largest food and beverage company. Kraft Foods is the largest U.S. based food and Beverage Company. Unilever is an Anglo-Dutch company that owns many of the world's consumer product brands in foods and beverages. Sysco Corporation, mainly catering to North America and Canada, is one of the world's largest food distributors.

1.3. Indian Food Processing Industry

1.3.1. History of food processing Industry in India
Food processing dates back to the prehistoric ages when crude processing incorporated slaughtering, fermenting, sun drying, preserving with salt, and various types of
cooking (such as roasting, smoking, steaming, and oven baking). Salt-preservation was

especially common for foods that constituted warrior and sailors' diets, up until the introduction of canning methods. Evidence for the existence of these methods exists in the writings of the ancient Greek , Chaldean, Egyptian and Roman civilisations as well as archaeological evidence from Europe, North and South America and Asia. These tried and tested processing techniques remained essentially the same until the advent of the industrial revolution. Examples of ready-meals also exist from pre industrial revolution times such as the Cornish pasty and the Haggis. Modern food processing technology in the 19th and 20th century was largely developed to serve military needs. In 1809 Nicolas Appert invented a vacuum bottling technique that would supply food for French troops, and this contributed to the development of tinning and then canning by Peter Durand in 1810. Although initially expensive and
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somewhat hazardous due to the lead used in cans, canned goods would later become a staple around the world. Pasteurization, discovered by Louis Pasteur in 1862, was a significant advance in ensuring the micro-biological safety of food. In the 20th century, World War II, the space race and the rising consumer society in developed countries (including the United States) contributed to the growth of food processing with such advances as spray drying, juice concentrates, freeze drying and the introduction of artificial sweeteners, colouring agents, and preservatives such as
sodium benzoate. In the late 20th century products such as dried instant soups,

reconstituted fruits and juices, and self cooking meals such as MRE food ration were developed.

In Western Europe and North America, the second half of the 20th century witnessed a rise in the pursuit of convenience; food processors especially marketed their products to middle-class working wives and mothers. Frozen foods (often credited to Clarence
Birdseye) found their success in sales of juice concentrates and " TV dinners".

Processors utilized the perceived value of time to appeal to the postwar population, and this same appeal contributes to the success of convenience foods today.

Benefits
More and more people live in the cities far away from where food is grown and produced. In many families the adults are working away from home and therefore there is little time for the preparation of food based on fresh ingredients. The food industry offers products that fulfill many different needs: From peeled potatoes that only have to be boiled at home to fully prepare ready meals that can be heated up in the microwave
oven within a few minutes.

Benefits of food processing include toxin removal, preservation, easing marketing and distribution tasks, and increasing food consistency. In addition, it increases seasonal availability of many foods, enables transportation of delicate perishable foods across long distances, and makes many kinds of foods safe to eat by de-activating spoilage and
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pathogenic micro-organisms. Modern supermarkets would not be feasible without modern food processing techniques, long voyages would not be possible, and military campaigns would be significantly more difficult and costly to execute. Modern food processing also improves the quality of life for allergists, diabetics, and other people who cannot consume some common food elements. Food processing can also add extra nutrients such as vitamins. Processed foods are often less susceptible to early spoilage than fresh foods, and are better suited for long distance transportation from the source to the consumer. Fresh materials, such as fresh produce and raw meats, are more likely to harbour pathogenic micro-organisms (e.g. Salmonella) capable of causing serious illnesses.

Drawbacks
In general, fresh food that has not been processed other than by washing and simple kitchen preparation, may be expected to contain a higher proportion of naturally occurring vitamins, fibre and minerals than the equivalent product processed by the food industry. Vitamin C for example is destroyed by heat and therefore canned fruits have a lower content of vitamin C than fresh ones. Food processing can lower the nutritional value of foods. Processed foods tend to include food additives, such as flavorings and texture enhancing agents, which may have little or no nutritive value, or be unhealthy. Some preservatives added or created during processing such as nitrites or sulphites may cause adverse health effects. Processed foods often have a higher ratio of calories to other essential nutrients than unprocessed foods, a phenomenon referred to as "empty calories". Most junk foods are processed, and fit this category. High quality and hygiene standards must be maintained to ensure consumer safety and failures to maintain adequate standards can have serious health consequences. Processing food is a very costly process, thus increasing the prices of foods products.
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1.3.2. Current Market Overview

India is a country of striking contrasts and enormous ethnic, linguistic, and cultural diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven Union Territories (under federal government rule). The states differ vastly in resources, culture, food habits, living standards, and languages. Vast disparities in per-capita income levels exist between and within Indias states. About 75 percent of the countrys people live in its 550,000 villages; the rest in 200 towns and cities. There are 27 cities with a population above one million people. India has the largest number of poor, with 35 percent of the population surviving on less than $1 per day, and 80 percent of the population surviving on less than $2 per day1. Nearly 51 percent of Indians consumption expenditures go for food (54 percent in rural area and 42 in urban areas) 2; mostly for basic items like grains, vegetable oils, and sugar; very little goes for value added food items. In recent years, however, there has been an increased shift towards vegetables, eggs, fruits, meat, and beverages. Religion has a major influence on eating habits and, along with low purchasing power, supports a predominantly vegetarian diet. Some observers of Indias economic scene are, however, highly optimistic about consumption growth potential, and believe that rising income levels, increasing
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urbanization, a changing age profile (more young people), increasing consumerism, a significant rise in the number of single men and women professionals, and the availability of cheap credit will push India onto a new growth trajectory. These segments of the population are aware of quality differences, insist on world standards, and are willing to pay a premium for quality. Nonetheless, a major share of Indian consumers has to sacrifice quality for affordable prices. Potential US exporters should also bear in mind that Indias diverse agro-industrial base already offers many items at competitive prices. Results of the Market Information Survey of Households, conducted by the National Council of Applied Economic Research, show that the share of households in the upper middle/high income group (annual household income > Rs. 90,000, or $11,200 on purchasing power parity basis) has grown from 14% in 1989-90 to 28% in 2001-02, and is projected at 48 percent in 2009-10. Correspondingly, there has been a decline in the low-income group. Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010. By 2025, 40 percent of Indians are expected to be urban dwellers. Structural reforms and stabilization programs during the 1990s have contributed to Indias sustained economic growth, which has been relatively strong over the past two decades, averaging 6 percent annually. Since 1996, the Indian government has gradually lifted importlicensing restrictions, which had effectively prohibited imports. On April 1, 2001, all remaining quantitative restrictions were removed, putting India in compliance with its WTO commitment. Nonetheless, the government continues to discourage imports, particularly agricultural products, with the use of high tariffs and non-tariff barriers. Import tariffs on most consumer products, although declining, are still high, ranging from 30.6 to 52.2 percent. Some sensitive items, such as alcoholic beverages, poultry meat, raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Nontariff barriers include unwarranted sanitary and phytosanitary restrictions and onerous labeling requirements for pre-packaged foods. Other factors adversely affecting imports include a poorly developed infrastructure (transportation and cold chain), a predominantly unorganized retail sector, and outdated food laws.

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However, some positive factors are: Rising disposable income levels Increasing urbanization and exposure to Western culture Growing health consciousness among the middle class Growing consumerism Changing age profile Increasing availability of cheap consumer credit Current status of industry is shown in below table

Table1. 4. Status of Food Processing Industry in India

Sources: All India Food Processors Association http://www.aifpa/foodindustry/.com

India is a major producer of many agricultural commodities and it accounts for nine per cent of the worlds fruit production and about 11 per cent of the vegetable production. But the level of processing and value addition of fruits and vegetables is

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just two per cent of the total production, compared to 65 per cent in the USA, 23 per cent in China and 78 per cent in the Philippines as given in the figure below.

Graph: 1.2 food proessing perecentage in different country

Sources: - web http://www.fmi./worldfoodprocessed. /org

There is huge wastage of perishable agricultural commodities. The position in the country with regard to other products also is not very encouraging. The overall level of processing of agricultural commodities in the country is estimated at six per cent. The annual loss on account of wastage of agricultural commodities is estimated to be about Rs 50,000 crore.
At present, the food processing sector employs about 13 million people directly and about 35 million people indirectly. In 200607, food processing sector contributed about 14 per cent of manufacturing GDP with a share of Rs 2,80,000 crore. Of this, the unorganised sector

accounted for more than 70 per cent of production in terms of volume and 50 per cent in terms of value.

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CHAPTER: 2

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Indian Food Processing Industry Performance

2.1. Market Definition
The market for food processing industry is the complex in nature; it is global collective of diverse businesses that together supply much of the food energy consumed by the population. Only subsistence farmers, those who survive on what they grow, can be considered outside of the scope of the modern food processing industry. The food processing industry includes: Regulation: local, regional, national and international rules and regulations for food production and sale, including food quality and food safety, and industry lobbying activities

Research and development: food technology

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Financial services insurance, credit Manufacturing: processed packed food, food processing machinery and supplies, food processing construction, etc. Food processing technology: preparation of fresh products for market, manufacture of prepared food products Marketing: promotion of generic products (e.g. milk board), new products, public opinion, through advertising, packaging, public relations, etc Wholesale and distribution: warehousing, transportation, logistics Retail: supermarket chains and independent food stores, direct-to-consumer, restaurant, food services.

2.2. Market Segments For Food Processing Industry

2.3 Food Processing Sector overview
Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The Ministry of Food Processing, Government of India has defined the following segments within the Food Processing industry: Dairy, fruits & vegetable processing Grain processing Meat & poultry processing Fisheries
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 Consumer foods including packaged foods, beverages and packaged drinking water. While the industry is large in terms of size, it is still at a nascent stage in terms of development. Out of the countrys total agriculture and food produce, only 2 per cent is processed. The highest share of processed food is in the Dairy sector, where 37 per cent of the total produce is processed, of which 15 per cent is processed by the organized sector. Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around. Table: 2.1 Indias food-processing sector

Indias food-processing sector, though still developing, contributes 14 percent to the manufacturing GDP (5.5 percent of aggregate GDP), produces goods worth rs. 2.8 trillion ($64 billion), and employs 13 million people1. Much of Indias food-processing industry is small-scale and involves very little value addition, although in recent years several multinational food-processing companies have started operations in India. A plethora of internal restrictions, including (a) prohibition on foreign direct investment in retail, (b) prohibitions on contract farming, (c) barriers to interstate commerce based on revenue and food security concerns, (d) some of the highest taxes on processed foods in the world, and (e) inefficient in infrastructure and marketing networks seriously constrain growth of the sector.
1

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The almost year-round availability of fresh products across the country, combined with the consumers preference for fresh products and freshly cooked foods has dampened demand for processed food products. The level of processing varies across segments ranging from less than 2 percent of the production in the case of fruits and vegetables to over 90 percent in non-perishable products such as cereals and pulses. In the latter, however, processing involves very little value addition, and is mostly confined to grading, cleaning, milling, and packing; with negligible use of additives, preservatives, and flavors.

Table: 2.2 Level of processed food in year 2008 Product Fruits & vegetables Milk Meat Poultry Marine fisheries Shrimp Level of Processing (% of total production) Organized Unorganized Total Sector Sector 1/ 1.2 0.5 1.7 15.0 22.0 37.0 21.0 0 21.0 6.0 0 6.0 1.7 9.0 10.7 0.4 1.0 1.4

Source: Rabobank Analysis

Source: - Web http://www.nasftlevelprocessing.org/

Table 2.3 level of processing Forecasted

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Unorganized in fruits and vegetables includes unbranded pickles, sauces, and potato chips, but excludes processing by street vendors; unorganized in dairy includes processing by sweet food makers; unorganized in marine products includes processing by small fishermen. . At present, most inputs for the food-processing industry are sourced domestically, with the exception of some bulk commodities that are in short supply, such as pulses and vegetable oils, dried fruits and nuts, and small but increasing quantities of food additives and ingredients such as soy proteins, whey, and flavors and essence. India annually imports vegetable oils valued at over $2.6 billion and pulses valued at $560 million. Imports of food ingredients were valued at $170 million in 2007/08, and include mostly spices and condiments, dairy products, cocoa products, fish and fish products, fruit juices, and other ingredients (yeasts, sauces, soft drink concentrates, flavoring materials, soy protein concentrates and isolates, etc.). Unorganized, small players account for more than 70 percent of the industrys output in volume and 50 percent in value terms. Most of them operate locally, add little if any value to products, and use outdated technologies. The governments policy of reserving the food-processing sector for small-scale units, effective until 1991, discouraged largescale domestic and foreign direct investment in the food-processing sector. However, following economic liberalization in 1991, the food-processing industry was opened, resulting in increased investment in this sector, both domestic and foreign. Over the last few years, several large companies, both Indian and foreign, have invested in the foodprocessing business in India, resulting in significant growth in this sector. Some of the major players in Indias food-processing industry are listed in this report.

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There are hundreds of medium-sized regional companies, some of them aspiring to emerge as national players with their own established brands, who pose some competition to large firms .The domestic organized processed-food market is expected to triple in the next 10 years from about $100 billion in FINACIAL YEAR 2004 to $310 billion in FINACIAL YEAR 2015. India aims to increase its share of world trade in this sector from 1.7% currently ($7.5 billion) to 3% by 2015 ($20 billion) Graph 2.1 FMCG Market Size forecasting

Sources:-web http://www.foodprocessing/marketsize/.com

So here we have estimated that production of processed food is increasing linearly with respect to FMCG Market size till 2015 E ,its shows that very good potential of proceeds food in coming future.

2.3. Food Processing Segment Analysis

Fruits and Vegetables processing
India produces the widest range of fruits and vegetables in the world. It is the second largest vegetable and third largest fruit producer accounting for 8.4 per cent of the worlds food and vegetable production. The share of organised sector in fruit processing is estimated to be nearly 48 per cent. Fruit production in India registered a growth of 3.9 per cent during the period 2004-2008 whereas the fruit processing sector grew several times faster at 20 per cent over the same period. The total area under fruit cultivation is estimated at 4.18 million hectares. The total area under vegetable cultivation is estimated at7.59 million hectares.However less than 2 per
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cent of the total vegetables produced in the country are commercially processed, as compared to nearly 70 per cent in Brazil and 65 per cent in USA. Indias installed capacity for fruits and vegetable processing nearly increase by 5 fold during the 1990s, from 1.1 million tones in 1993 to 5.33 million tones in 2008. About 20 per cent of processed fruits and vegetables are exported. Major products exported include fruit pulps, pickles, chutneys, canned foods, concentrated pulps and juices and vegetables. Fruit exports have registered a growth of 16 per cent in volume and 25 per cent in value terms in 2007-08. Mango and mango based products alone constitute 50 per cent of the exports. The growth trend from 2004 to 2008 remained upward, being 21.8% in the first year, 25.2% in the second and 11.76% in the third. During 20062007, this sector showed a negative trend of 4.2% over the preceding year and 20072008 registered a positive growth of 3.3%. Though the detailed reason for this trend could be ascertained by ground-level research, the factor responsible for negative growth in 20062007 was excise duty of 8% on processed (Fruit and Vegetables) F&V products, as against no duty in the preceding years.

Table:-2.4 Fruits and vegetables units

Sources: - Web: http://www.foodwatchtrends.com/newsltr.htm

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Out of the 5198 F&VP enterprises in 2008, 2002 (38%) were home-scale (household) units, 1083 (21%) cottage, 834 (16%) small-scale, 598 (12%) large-scale and the remaining 681 (13%) were only relabellers

Sources: - Web: http://www.foodwatchtrends.com/newsltr.htm

Figure: - 2.3 Type of units in food processing in India The utilization of fruits and vegetables for processing in the organized & unorganized sectors is estimated to be around 2% of the total production. Over the last few years, there has been a positive growth in ready to serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, tomato products, pickles, convenience veg-spice pastes, processed mushrooms and curried vegetables. The domestic consumption of value added fruits and vegetable products is also low compared to the primary processed food in general and fresh fruits and vegetables in particular, which is attributed to higher incidence of tax and duties including that on packaging material, lower capacity utilization non-adoption of cost effective technology, high cost of finance, infrastructural constraints, inadequate farmers-processors linkage leading to dependence upon intermediaries. The smallness of units and their inability for market promotion is also another main reason for inadequate expansion of the domestic market. In order to give fresh impetus to processing of Fruit and Vegetables Government has allowed under I.T.Act 100%
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deduction of profit for first five year and 25% deduction for another five years for new upcoming F & VP units. Less than 2 percent of all fruits and vegetables produced in India are processed. The main products, the industry size, and major players are shown in the following table: Table: - 2.4 Main products, the industry size, and major players

Source: - web http://www.foodprocessing.com

Dairy Processing
India stands first in the world in terms of milk production .The output is expected to be about 108 million tons for 2008, growing at a compounded annual growth rate of 4 per cent. Consumption of milk has registered a growth of nearly 8.4 per cent (in urban areas) and is currently valued at US$ 16 billion. The dairy sector ranks first in terms of processed foods with 37 per cent of the produce being processed. The organised sector processes an estimated 15 per cent of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organised sector. Milk

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and milk products contribute to a significant 17 per cent of the countrys total expenditure on food. Traditional dairy products account for about 50 per cent of the total Milk produced. The market for dairy products is expected to grow at 15-20 per cent over the next three years. Ghee is the most widely marketed and branded product with a nation-wide penetration of 24.1 per cent. It is estimated to be growing at a rate of 8 per cent per annum. The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. Its market size is US$ 450 million for 2008-09 The cheese market is US$ 2.49 million for 2008-09 (54000 tones in volume terms), growing at a rate of nearly 10 per cent per annum. The organized cheese market is dominated by processed cheese which accounts for 74 per cent market share The ice-cream market in India is estimated at US$ 226 million in 2008-09, with the organized market at US$ 158.2 billion This is currently growing at 20 per cent Organized dairy industry accounts for less than 15% of the milk produced in India. The rest of the milk is either consumed at farm level, or is sold as fresh, non-pasteurized milk through unorganised channel. The share of organised industry is expected to rise rapidly especially in the urban regions. India, with its status as the largest milk producer in the world, is on the verge of assuming an important position in the global dairy industry. Many international dairy companies are viewing India with an eye to tapping its vast growing market for dairy products. Total milk production in the country is around 91 million tones. Per capita of milk consumption is 75 Kgs. (NDDB).19 units have been sanctioned financial assistance under the plan scheme of the Ministry during the year 2008-09. About 37 percent of Indias milk production of 91 million tons is processed, 15 percent in the organized sector and 22 percent in the unorganized sector. A major share of the milk
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processed in the organized sector (mostly by dairy cooperatives) is in the form of packaged liquid milk. Other processed items include ethnic sweets, milk powder, ghee (melted, clarified butter), butter, cheese, and ice cream. In the unorganized sector, a major share is processed into milk-based sweets, and a smaller share for making yogurt, butter, and ghee. The main products, the industry size, and major players are shown in the following table: Table: - 2.5 Dairy processed Product and there Industry size

Sources: - web: http://www.dairyfoods.com/

Going by FAO estimates, while world milk production fell by 2% in the last three years, the Indian production galloped by 4%. While consumption of liquid milk accounts for 46% of the total production, the rest is converted into milk products. Of this, the share of the organised sector is less than 10%. The products manufactured by the organised sector are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk, infant foods, etc. The products also include casein, lactose and dairy whiteners. Graph:-2.2 Dairy Growth

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Sources: Market Trends & Potentials of dairy sector in India, FAO Study Sources: - web http://www.dairyfoods.com/
Meat Processing:

India has the worlds largest livestock population, accounting for 50% of buffaloes and 1/6th of the goat population. Such a large population represents a challenge to retain existing productivity traits by application of modern science and technology. Rigorous efforts are being made to improve the condition of livestock by providing basic infrastructure and latest technology. FAO has estimated the existing production of meat and poultry products at 4.42 million tonnes. Only 11% of the buffalo population, 6% of cattle, 33% of sheep and 38% of the goat population is culled for meat. Meat production grew at a CAGR of 34 per cent during the period 1999-2004 and stood at US$ 12.44 million in 2008-09. Meat exports stood at US$ 0.104 million in 2008-09. Graph:-2.3 Meat Production

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Sources:-Web http://mofpi.nic.in/industryspecificinformation/index.htm

Production of meat & meat products is gradually increasing from the year 1995 onwards. Meat & Meat products are considered to be highly perishable commodities and can transmit diseases from animals to human-beings. Production of meat is governed under local by-laws as slaughtering is a state subject and Slaughterhouses are controlled by local health authorities. Processing of meat food products is licensed under Meat Food Products Order, (MFPO), 1973 which was hitherto being implemented by the Directorate of Marketing & Inspection (DMI) has since been transferred to the Ministry of Food Processing Industries w.e.f 19.03.2004. The Ministry of Food Processing Industries during the year 2004-05 assisted eight units including 100% E.O.U. for manufacturing of lamb/ chicken/meat products. Consumption per head of both fresh and processed meat is very low at 1.5 kg compared with world average of 35.5 kg. Indian poultry meat market was approximately US$ 2.03 billion in 2006. Indian broiler industry has seen a rapid growth in the last few years CAGR of more than 10 per cent a year since 1998. At present, only a small percentage of the meat produced is converted into value added products and most meat is purchased by consumers in the fresh/frozen form for conversion into products at home, restaurants, etc. Maximum conversion takes place in pork products.

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With growing urbanisation and increasing quality consciousness, the market for scientifically produced meat products is expected to grow rapidly. Demand is growing for ready-to-eat and semi-processed meat products because of changing life styles and increase in exports to neighbouring countries, especially the Middle East. India exports meat products worth Rs.8, 000 million mainly to countries in the Middle East and South East Asia. Meat processing is the new thrust sector for Indian industry with many processing centres being set up with advanced technology. Animals render extremely useful service in out transport system and agriculture. India needs technical cooperation to build up organised facilities for rearing meat producing animals, proper storage and refrigerated transport system. This sector has attracted an investment of Rs.9000 million, including foreign investment of Rs.5000 million, in the last six years since the initiation of the liberalization process. Indian consumers prefer mostly fresh meat from the wet markets. Only a very small share of production is further processed into value added products, mostly for export. Major players include VH Group, Godrej, Sugunas, and Arambagh in the poultry processing sector, and Allana's, Hind Agro, Al Kabeer in the buffalo meat (beefalo) processing sector. Cow slaughter is prohibited in most states due to religious sentiments. The below projections, it is expected that buffalo meat production will increase by 6% during the period 2005-15 with an increase in processing of 11%. Similarly, poultry meat production is expected to increase by 11% and processing by 25% in the corresponding period. Total investment in these two areas is project to be INR 19,368 million during that ten year period. A large part of that investment is expected to be in modernization of old slaughterhouses (abattoirs), or installation of new ones, and for poultry processing plants. This will also include equipment with quality control and other associated equipment for processing and packaging.

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Table:-2.6 Expected projections for buffalo meat production

Sources: - Meat Food Products Order, (MFPO), web http://mofpi.ic.in/food&health/food%20law.html

FISH PROCESSING
India is the third largest fish producer in the world and second in in-land fish production, India boasts of the seventh largest marine landing base in the world with an extensive 8,000 km coastline and an Exclusive Economic Zone (EEZ) of 2.2 million sq km, largely untapped, and a 29,000 km stretch of rivers and canals, 145 million hectares of reservoirs and 0.75 million hectares of tanks and ponds.. The Fisheries sector in India has been classified into Marine, Inland Aquaculture.

The fisheries sector contributes 1.1 per cent to the countrys GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector.

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Indias fish production stood at a level of 6.4 million tons in 2008-09. Of this, about 60 per cent (3.9 million tons) came from marine resources. Currently fish processing is mostly targeted for export markets. There are over 369 freezing units with a daily processing capacity of 10,266 tones and 499 frozen storage units with a capacity of 134,767 tones. Though Indias fish potential from the EEZ has been estimated at 3.9 million tones, the harvest is only of 2.87 million tones. This can be increased to 3.37 million tons by intense tapping in offshore and deep-sea grounds using modern technology. There is also a good scope to improve fish harvest from inland waters which, at present is 2.7 million tones. Besides, the fish potential in aquaculture and shrimp farming has also largely remained untapped. Though, traditionally, only local fishermen have tapped the vast marine and inland water resources to meet domestic demand, the organised corporate sector has become involved in preservation and export of coastal fish since the last decade. Marine fish found in India include prawns, shrimps, tuna, cuttlefish, squids, octopus, red snappers, ribbon fish, mackerel, lobsters, cat fish and countless other varieties. Domestic per capita consumption of fish is only 5 kg per annum against the world average of 12 kg. Indias per capita consumption is much lower than the Asian maritime countries (e.g. Japan86 kg). Indias 60% fish production is from marine sources. However, coastal fishing i.e. from the continental shelf constitutes the bulk of the marine catch. It is estimated that only 10% of the marine catch is accounted by deep-sea resources. Processing of produce into canned and frozen form is done almost exclusively for the export market. Totally, there are 396 freezing units with a capacity of 2,170 tonnes, 23 canning units of 84.5 tonnes capacity, 131 ice-making units of 1820 tonnes, 24 fish meal units with a capacity of 419 tonnes and 297 cold storage units with a capacity of 2,03,448 tonnes. This sector has attracted domestic and foreign investment to the tune of Rs.30,000 million in the last six years, of which the foreign component is around Rs.7,000 million.

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Considerable infrastructure facilities for processing of marine products have been developed over a period of 50 years. At present, there are over 369 freezing unit with a daily processing capacity of 10266 tons and 499 frozen storage with a capacity of 134767 tons. Apart from the above there are 12 surimi units, 471 pre processing and dry fish storages. 72 numbers of the freezing units mentioned above are having cooking facilities and 125 have IQF machinery. Ministry Food Processing Industries during the year 200708 (upto 31.12.04) assisted 18 processing units. Processed fish product exports include conventional block frozen products, individual quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc. Export of marine fish products touched of US$ 1.48 billion during 2004-05. Exports showed an increase of 11.97 per cent in volume and 11.1 per cent in value realization. Frozen shrimp is the largest item in terms of value contributing to 63.5 per cent of the total exports, and frozen fish is the largest in terms of volume contributing to 34.62 per cent. Performance of Indian seafood exports in 2004-05 was not on the expected lines. There was a declining trend in exports due to the adverse market situation prevailing in the major markets like USA, Japan and European Union. The anti dumping procedure initiated by the US Government has affected the Indian shrimp exports to USA. Added to this production of fish from capture sources is likely to be down due to tsunami factor As in the case of meat, most fish consumed comes from the wet markets. Processing is mostly for export, and includes conventional block-frozen and individual quick frozen products, minced fish items like sausage, cutlets, pastes, texturized foodstuffs, and dried fish. The frozen products usually undergo primary processing such as cleaning, deveining, descaling, peeling, etc.

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 Grain Processing
The grain processing industries include milling of rice, wheat and pulses and oilseeds. Financial assistance is provided for setting up/modernization/expansion of the units before their commissioning. The question of providing financial assistance under the Plan Scheme for setting up/modernization in the grain/rice/ pulses/flour milling sector has been reviewed. It was felt that priority should be given to processing and enhancing shelf life of perishable items so as to reduce wastage and encourage value addition in that sector. Considering that rice/pulses/flour are consumed in the processed form only and primary processing in these sectors adds little to shelf life, wastage control and value addition, it has been decided to not to accept fresh proposal for these sectors viz, Rice, Flour & Pulse Milling from the financial year 2004-05. However complete and viable cases relating to rice mill, flour mills and Pulses received by SNA till 31.03.2004 subject to prescribed conditions are being considered on merit for assistance. During this year upto 31st December, 2004, the Ministry has extended financial assistance for 27 rice milling, 13 flour milling, 21 edible oil milling and 8 in pulse milling sector. India produced nearly 209.32 million tones of grains in 2007-08. Indias production covers all major grains rice, wheat, maize, barley and millets like jowar, bajra and ragi. It ranks third in the production of grains in the world. With a share of 40 per cent, grain processing is the biggest component of food sector. Primary processing constitutes 96 per cent with the remaining accounted for by the secondary and tertiary sectors. Total rice milling capacity in the country is 186 million tones. There are about 516 large flour mills in the country, as well as about 10,000 pulse mills. The countrys current food grain production (including rice, jowar, bajra, maize, ragi, wheat, barley, gram and pulses) has been put at 225 million tonnes a year. Food processing industries play a crucial role in reducing post-harvest losses. Since most operations of this industry are rural based, it has the potential to generate high employment at low investment. Promotion of food processing also helps in energy conservation by reducing energy wastages in home cooking.

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Grain processing, with a share of 40%, is the biggest component of the food sector. Its basic feature is pre-dominance of the primary processing sector, sharing 96% of the total value, with the secondary and tertiary sectors adding about 4%. This area needs to be viewed as a high growth potential area. Indian Basmati rice commands a premium in the international market. The export of Basmati and non-Basmati rice has been steadily increasing. From Rs.3538.3 million in 19881989, the exports increased to Rs.92, 000 million in 2007-07. The country has a total paddy milling capacity of 286 million tonnes, of which 85 m tonnes is of traditional mills and 201 of modern mills. 75 percent of Indias wheat production is milled into wheat flour (atta) to make rotis or chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in the unorganized sector. Branded atta is a relatively new segment, developed to provide consumers a more hygienic quality, as compared to chakki atta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods. Bakery products constitute the largest segment of grain-based processed foods. Small and medium unorganized local players and a limited number of organized units dominate the industry.

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Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica. The grain-based snack market, comprising extruded snacks and savories, is estimated at around Rs. 29 billion ($667 million). Of this, the organized segment contributes only 15 percent of sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc. Breakfast cereal production in the organized sector is very small, and is mainly confined to corn flakes. Major producers are Kelloggs and Mohan Meakins. Pepsi is reportedly interested in investing in the breakfast segment over the next five years.

Beverage processing sector

The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. This segment is estimated at US$ 155 million out of which fruit juices and fruit-based drinks account for US$ 60 million. The market size of organised carbonated drinks is estimated at US$ 119 million. In the past decade the carbonated drinks market registered a healthy growth rate of 20 per cent, driven by the positive changes in Indias consumer profile. Hot beverages include health drinks such as white beverages (Horlicks etc) and brown beverages such as tea/coffee as well as branded drinks (Eg: Boost). The total size of this market is estimated at US$ 333 million by value and 85,000 tonnes by volume. White beverages account for 65 per cent of the market and brown beverages constitute the remaining 35 per cent India is the largest producer of tea in the world accounting for 28 per cent of the total global production, at 857 million kgs. Tea production in India has been growing at 1.2 per cent per annum and India is the fourth largest exporter of tea in the world with estimated exports of US$ 5 million in 2002-03. India is also the fifth largest producer of coffee accounting for 4 per cent of the total production in the world. Nearly 75 per cent of Indias production is exported and coffee exports stood at US$ 5.2 million in 2006-07. Beverage industry classified in three broad categories Alcoholic beverage Non Alcoholic beverage Aerated Soft drink bever
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(A). Alcoholic beverage India is the third largest market for alcoholic beverages in the world. The demand for spirits and beer is estimated to be around 373 million cases. There are 12 joint venture companies having a licensed capacity of 33919 Kilo-litres per annum for production of grain based alcoholic beverages. 56 units are manufacturing beer under licence from the Government of India the wine industry in India provides considerable opportunities for value addition and employment generation in the agro processing sector. Liquor made in India is categorized as beer, country liquor and Indian Made Foreign Liquor (IMFL). Country liquor is made from a variety of raw materials and has different names in different parts of the country. IMFL production comprises wine, vodka, whisky, gin, rum, brandy, etc. Pre-mixed drinks like gin and lime, rum and cola are being introduced in India now. Draught beer is another recent introduction and has done well where introduced. Canned beer is also a recent introduction. Current production is over 300 million litres. In all, Rs. 11,000 million including Rs. 7,000 million of foreign investment, has been made in this sector in the last six years. The Indian beer market, currently at Rs.7, 000 million a year, has been growing by 15% and now all world famous brands of liquor are available in India. The country has 212 distilleries with a yearly installed capacity of 1,933 million litres. However, there are only 24 units producing IMFL and 31 making country liquor. Alcohol produced by the rest is either sold as industrial alcohol or in bulk as potable alcohol to other distilleries for bottling or for making bottled alcohol (estimated 927.82 million litres). Raw material like Molasses, barley, maize, potatoes, grapes, yeast and hops for beer and alcoholic products industry are abundantly available in India

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Whisky, mostly low-priced, accounts for about 55 percent of the Indian spirit consumption, followed by rum, brandy, and vodka. Key players are UB, Shaw Wallace, Jagatjit Industries, Mohan Meakins, and International Distilleries. With the recent takeover of Shaw Wallaces liquor business by the UB Group, the latter has emerged as the worlds second largest liquor producer. Major multinationals operating in India includes Diageo, Seagram, and Baccardi Martini. UB, SABMiller, and Mohan Meakins are the major beer-producing companies. The wine market in India is nascent, having emerged as a distinct segment about a decade ago. Chateau Indage is the largest domestic player in wines, followed by Grover Wines and Sula Wines. Key international players who have a presence in India through distribution alliances include E&J Gallo, Hardys, Canandaigua, and Fetzer. (B) Non-alcoholic beverages India is the worlds largest tea-producing country with an annual production of around 860,000 tons and is also one of the worlds largest tea exporters. Tea processing includes withering, rolling, fermenting, drying, blending, packing, and branding. Instant tea production is limited. Major players are Tata Tea, HLL, Manjushree Plantations, Jay Shree, Goodricke, Harrison Malayalam, Eveready, and Warren. With an annual production of around 300,000 tons, India is a small but competitive producer of coffee. Traditionally a tea-drinking country, average annual coffee consumption in India is only ten cups per person. The instant coffee segment is entirely branded and packaged, and caters mostly to the export market. Major players are Tata Coffee, HLL, Nestle, Barista, Qwikys, Narasu, Leo, and ABCTC. (C) Soft drink The aerated soft drinks industry in India comprises over 100 plants across all States. It provides direct and indirect industry related employment to over 150,000 employees. It has attracted one of the highest foreign direct investments in the country. It contributes over Rs.1200 crore annually by way of excise duty, sales tax and related taxes. It has strong forward and backward linkages with over Rs.1000 crores relating to glass, plastic,
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refrigeration, sugar and transportation industry. The soft drinks constitute the 3rd largest packaged foods regularly consumed after packed tea and packed biscuits. The production of soft drinks have increased from 5670 million bottles in 2004-2005 to 6230 million bottles in 2006-2007 production of soft drinks has registered a gradual increase as follows:

Consumer Foods Including Packaged foods, Packaged Drinking Water&

Confectionary This comprises product groups like confectionery, chocolates, cocoa products, soyabased products, ready-to-eat foods, mineral water, high protein foods etc. This sector has attracted a whopping investment of Rs. 1, 28,000 million, including foreign investment of Rs.50, 000 million, since liberalisation. Soft drinks enjoy the biggest share in this. The Indian soft drinks market is worth Rs.22, 000 million a year. Statistically, this implies three bottles per Indian. Cola, orange and lemon are some of the accepted tastes in India. It is estimated that 65% prefer non-carbonated drinks. Lemon drinks continue to be very popular in the country. India produces a large range of cocoa and non-cocoa based confectionery items, besides other cocoa-based products. The production of confectioneries, except chocolates, is reserved for the small-scale sector. However, there are several large companies with an established market presence and brands in cocoa and non-cocoa confectionery markets. Confectionery output grew at a compound rate of 6 to 7% in recent years. Chocolate production is growing at the rate of 10 to 15% a year. Among the ready-to-eat products, the installed capacity in the organised sector is 33,400 tonnes for manufacture of pasta products like noodles, macaroni, vermicelli, etc. Besides, there are 10 units with an annual capacity of 9,340 tones for corn flakes, oat flakes and pearl barley.
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Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready to eat and ready to cook products, cocoa products, biscuits, soft drinks, beer, alcoholic beverages (non-molasses based), mineral and packaged Water. Bread and biscuits constitute the largest segment of consumer foods. Their Production is about 4.00 million tons per year. Manufacturing of bread is reserved for SSI Sector. Out of the total production of bread, 40% is produced in the organized sector and the remaining 60% in the unorganised sector. Similarly, production of biscuits in the organized sector is about 13.00 lakh tons and quantity of biscuits produced in the unorganized sector is about 3.80 lakh tons. According to available information, production of flakes is around 15,000 tons. Production of pasta products has registered a marginal growth in the organized sector but its growth in the unorganised sector is comparatively higher. During the year2006-07 (upto December 2007) 21consumer food processing units were sanctioned financial assistance by MFPI.

(A) .Packaged food

Packaged foods segment in India registered a growth of 8 per cent in 2005-06. Noodles/Vermicelli is the fastest growing category in this segment with a CAGR at 15 per cent. The market for branded noodles is estimated at 230 million servings per year. The Soups market is still small and nascent in India and is approximately US$ 14 million in value. The market for culinary products is estimated at US$ 475,000 and estimated to grow at 18 to 20 per cent per annum. Products like Tomato Ketchup and Jams currently have low penetration levels, but are growing rapidly. Ketchups, for example, have a

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penetration of just 3 per cent in India; however this category is estimated to be growing at 20 per cent per annum. Packaged food products have been slow in penetrating the large potential presented by India's 250 million strong middle class. But due to growing urbanization and changing food habits, the demand has been rising at a good pace and there is enough latent market potential waiting to be exploited through developmental efforts. Soya food segment is also growing due to increased health consciousness and abundant production of quality soyabeen (3.72 million tons/year) in the country. Soya bean is grown mainly in Madhya Pradesh and measures are being taken to extend its cultivation further (B) .Packaged drinking water There are 215 companies, which have been granted licence for manufacturing packaged Drinking water and 3 for manufacturing packaged natural mineral water. There has been a spurt in growth for the last 3-4 years, which can largely be attributed to a range of various packaged sizes to suit the consumers. 80% of the packaged water sale comes from the bulk containers (5 litres and above).

(C).Confectionary
The size of the Indian confectionary market is estimated at rs.26.0 billion ($600 million). Sugar confectionary accounts for 61 percent of this market, with the balance being chocolates, mints, and gums. The confectionary market has been growing at over 6 percent annually over the last five years. The gum-based confectionary segment has grown even faster at over 10 percent. The confectionary market is highly fragmented with several local players such as Parles, Nutrine, and Ravalgaon. Key foreign companies are Nestle, Cadburys, Perfetti, Lotte, Wrigley, Candico, and Joyco
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(D).Staples Bread, Wheat Flour, Salt and Sugar Bread is slowly coming to be a staple product consumed by people of all economic classes in India. Total bread production in the country in 2004-05 was estimated at 2.7 million tons, growing at 7.5 per cent. About 55 per cent of bread production comes from the organised sector. India is the second largest producer of wheat in the world with an output of more than 70 million tonnes. Branded atta (wheat flour) is an important item in this segment with an estimated market of US$ 195 million. 75 percent of Indias wheat production is milled into wheat flour (atta) to make rotis or chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in the unorganized sector. Branded atta is a relatively new segment, developed to provide consumers a more hygienic quality, as compared to chakki atta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods. Bakery products constitute the largest segment of grain-based processed foods. Small and medium unorganized local players and a limited number of organized units dominate the industry. Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica.

2.4. Indian Government policies and laws For Food Processing Industry 2.4.1. Understanding a countrys food regulations In addition to meeting a countrys sanitary and phytosanitary requirements, food must comply with the local laws and regulations to gain market access. These laws ensure the safety and suitability of food for consumers and, in some countries, also govern food quality and composition standards. Food regulatory requirements may be based on several factors such as whether a country adopts international norms developed by the Codex Alimentarius Commission of the Food and Agriculture Organisation of the United
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Nations and the World Health Organisation; good agricultural and manufacturing practices; or has its own suite of food regulations. Each country regulates food differently and has its own food regulatory framework. Usually more than one agency is involved (E.g. health and agriculture), they may have centralized or regionally controlled food regulations, and different agencies may be involved in enforcement activities. 2.5.2. Food Laws Food exporters will have to grapple with Indias varied and outdated food sector laws, particularly those pertaining to the use of additives and colors, labeling requirements, packaging, weights and measures, shelf-life, and phytosanitary regulations. Following the removal of quantitative restrictions on imports of food products in 2001, the GOI issued several notifications to make imported food products comply with domestic laws. Some of the major food laws affecting Indian food importers are: as amended. The Prevention of Food Adulteration (PFA) Act, 1954, and PFA Rules of 1955, This is a basic statute established to protect consumers against adulterated foods, and it encompasses food colors and preservatives, pesticide residues, packaging, labeling, and regulation of sales. This is similar to the Federal Food, Drug, and Cosmetics Act of the United States Food and Drug Administration. PFA standards and regulations apply equally to domestic and imported products. The PFA Act and Rules, and recent notifications are available at: http://mohfw.nic.in/pfa.htm The Standards of Weights and Measures Act, 1976, and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, As amended. This Act established standards for weights and measures to regulate interstate trade and commerce in goods that are sold or distributed by weight, measure, or number. The Rules formed under the Act require labeling regarding the nature of the commodity, the name and address of the manufacturer, quantity, date of manufacture, best-before date, and the MRP. These labeling requirements apply equally to imported and domestic packaged foods. This Act and Rules and recent notifications are available at: http://fcamin.nic.in/wm_ind.htm

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 The Plant Quarantine (Regulation of Import into India) Order, 2003, and amendments. These legislative measures regulate imports of planting seeds and agricultural products into India. These can be accessed from: http://agricoop.nic.in/gazette/gazette.htm. The Fruit Products Order, 1955 The fruit and vegetable processing sector is regulated by the Fruit Products Order, 1955 (FPO), which is administered by the Department of Food Processing Industries. The FPO contains specifications and quality control requirements regarding the production and marketing of processed fruits and vegetables, sweetened aerated water, vinegar, and synthetic syrups. All such processing units are required to obtain a license under the FPO, and periodic inspections are carried out. Processed fruit and vegetable products imported into the country must meet the FPO standards. The FPO can be accessed from: http://mofpi.nic.in/fpoact.pdf. Meat Food Products Order, 1992 This order administers the permissible quantity of heavy metals, preservatives, and insecticide residues for meat products. The Directorate of Marketing and Inspection, Ministry of Agriculture, is the regulatory authority. This order is equally applicable to domestic processors and importers of meat products. However, its implementation is weak, due to unorganized production in the domestic market and few subject imports. For details, see: http://agmarknet.nic.in/mfpo1973.htm Livestock Importation Act, 1898 Under the Livestock Importation Act, 1898, the government established procedures for the importation of livestock and related products to India, which are implemented by the Department of Animal Husbandry and Dairying, Ministry of Agriculture. These procedures are available at: http://dahd.nic.in/order/livestockimport.doc Milk and Milk Products Order, 1992 This order regulates the production, distribution, and supply of milk products; establishes sanitary requirements for dairies, machinery, and premises; and sets quality control standards for milk and milk products. Standards specified in the order also apply to imported products. The Department of Animal

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Husbandry and Dairying, Ministry of Agriculture, is the regulatory authority. For details see: http://dahd.nic.in/order/mmpo.doc The Food Safety and Standards Bill, 2005 The GOI is in the process of enacting an integrated food law, which is called the "Food Safety and Standards Bill, 2005," in order to establish science-based standards for articles of food and to regulate their manufacture, import, export, storage, distribution, and sale. The Bill would bring all existing foodrelated legislation under one umbrella, which would entail the establishment of a Food Safety and Standards Authority of India. It is expected that the Bill will pass through Parliament by the end of 2005 or early 2006. The full text of the Food Safety and Standards Bill, 2005, is available at: http://mofpi.nic.in/foodsfty.htm 2.4.3. Food Safety and Standards Act The Indian Parliament has recently passed the Food Safety and Standards Act, 2006 which overrides all other food related laws. When it comes into effect (date yet to be notified) it will specifically repeal eight laws: The Prevention of Food Adulteration Act, 1954 The Fruit Products Order, 1955 The Meat Food Products Order, 1973 The Vegetable Oil Products (Control) Order, 1947 The Edible Oils Packaging (Regulation) Order, 1998 The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order, 1967 The Milk and Milk Products Order, 1992 Any other order issued under the Essential Commodities Act, 1955 relating to food. The Act establishes a new national regulatory body, the Food Safety and Standards Authority of India, to develop science based standards for food and to regulate and monitor the manufacture, processing, storage, distribution, sale and import of food so as to ensure the availability of safe and wholesome food for human consumption. All food imports will therefore be subject to the provisions of the Act and any rules and regulations made under the Act. As an interim measure, the standards, safety requirements and other provisions of the repealed Acts and Orders and any rules and regulations made under them will continue to be in force until new rules and regulations are put in place under the Food
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Safety and Standards Act, 2006. For that reason, importers will for some time have to continue to take into account the provisions of those repealed Acts and Orders. 2.4.4. Food additives Information on permitted colouring, preservatives, flavouring agents etc. can be found in various sections of the Prevention of Food Adulteration Rules, 1955 in the Prevention of Food Adulteration section of the Ministry of Health and Family Welfare website. In 2004 India removed permission for xanthan gum to be used as a food additive (see Rule 13 of the Prevention of Food Adulteration (1st Amendment) Rules 2004. The decision was made despite the fact that the gum is widely authorized for use in food around the world and is included in the General Standards for Food Additives (GSFA) agreed by the Codex Committee on Food Additives and Contaminants. The move created widespread concern among Indias trading partners, including the EU, and in 2005 its use was reinstated as an additive in certain classes of food. DAFF is currently coordinating an approach to the Department of Health and Family Services on behalf of the Australian food industry to broaden the classes of food that can include xanthan gum as an additive. 2.5.5. Pesticides and other contaminants There are currently 194 pesticides registered in India and the Maximum Residue Limits (MRLs) permissible in food commodities can be found in Part XIV of the Prevention of Food Adulteration rules and at http://www.mohfw.nic.in/7.pdf For imported foodstuffs when the pesticides are not included in the Indian list, zero tolerance applies. However, FVG exporters are advised to check with Indian importers regularly. The regulation of pesticides and other contaminants may need further clarification upon implementation of the Food Safety and Standards Act, 2006, since the Act specifically excludes plants prior to harvesting and animal feed from its purview. 2.4.5. Health claims The Food Safety and Standards Act, 2006 requires that health claims or guarantees of efficacy of a food have to be based on an adequate or scientific justification. Such justification may include clinical trials, protocols or scientific studies and must be able to withstand verification in court if challenged. Manufactured and imported food claiming
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to be enriched with nutrients, such as minerals, proteins or vitamins, should indicate quantities on the label. 2.4.6. Genetically modified foods The Food Safety and Standards Act, 2006 prohibits the manufacture, distribution, sale or import of any genetically modified (GM) food, unless specifically allowed under the Act or regulations made there under. However, until such specific regulations are made, the Genetic Engineering Approval Committee (GEAC), under the Department of Environment, Forests and Wildlife, remains the decision-making authority on GM food issues, including their import. Therefore, at present, food ingredients and additives containing bioengineered organisms may only be produced, used or imported with the approval of the GEAC, such approval being granted for up to four years in the first instance, and thereafter renewable for 2 years at a time. New rules implemented in July 2006 under the Foreign Trade (Development and Regulation) Act, 1992 require all GM products, including. GM foods, food additives, or any food product that contains GM material, to carry a declaration stating that the product is genetically modified. In case a consignment does not carry such a declaration and is later found to contain GM material, the importer is liable for penal action under the Act.

2.4.7. Halal certification Halal certification for imported foodstuffs is not required by Indian authorities. However, exporters wanting to certify meat and meat products as Halal for export to India for commercial purposes should discuss the matter with the source establishment to ensure arrangements are in place. 2.5. Policy Initiatives So Far

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The food processing industry has been accorded the 'Sunrise Industry' status by the Government of India and has been identified as a thrust area for export promotion. Almost entire sector has been de-licensed and assistance for upgrading standards to international levels, and research and development activities is being provided. With a view to creating a conducive and enabling environment, the State Govt. has also identified food processing industry and declared it a priority area. The Industrial Policy1999 announced by Haryana Government inter-alia identified thrust areas to promote industrial investment in the State as under: "AGRO BASED AND FOOD PROCESSING INDUSTRIES Specialized industrial estates having infrastructural facilities of cold storage, post-harvest storage facilities, and facility of air freighting of fruits and vegetables will be developed. Cold chains for storage and transportation of farm produce will be encouraged in the private sector also". It may, be noticed that all benefits/facilities/incentives etc. available under industrial Policy-1999, shall continue to be available to food processing industry in the State. The institutional and administrative mechanism shall also remain the same for food processing sector.

2.5.1. Salient Features of Processed Policy The Policy on Food Processing Policy will seek to achieve the following objectives. Greater employment generation, higher household incomes and reduction of poverty Strengthening of food research, development, education and extension Efficient inputs
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Expansion of infrastructure through increased public and private sector investment Ensuring remunerative prices for food products through strengthening the marketing institutions and infrastructure and creation of a favourable economic environment for growth of the sector

Value addition to farm produces through agro- processing and improved postharvest facilities Revitalization of institutional finances for credit Higher exports and integration of local markets with global markets Creation of quality consciousness among processors and development of facilities for quality testing Adoption of international food standards in safety, quality and hygiene to meet the competitive challenges Create awareness and interest about processed food through print and electronic media using the tools of social marketing.

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CHAPTER: 4 Major Players of Food Processing Industry

4.1. Indian Food Processing Companies Profiles

Indian food processors may be divided into the following main categories: Large Indian companies that have their production base in India or neighboring countries (for tax-saving purposes)
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 Multinational and joint-venture companies that have their production base in India Medium/small domestic food-processing companies with a local presence Small local players in the unorganized sector

4.2. Major Indian player in Food processing Industry Overview I.T.C LTD

ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 19 billion* and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part."

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ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing Reach. ITC's wholly owned Information Technology subsidiary, ITC InfoTech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing.

ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 25,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3, 78,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement.

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GODREJ PROFILE
Started in 1897 as locks manufacturing company, the Godrej Group is today one of the most accomplished and diversified business houses in India. Godrejs success has been driven by the companys commitment to delivering innovation and excellence. Through the consistent application of this commitment and a century of ethical business conduct, Godrej has earned an unparalleled reputation for trust and reliability. In 1930, Godrej became the first company in the world to develop the technology to manufacture soap with vegetable oils; that spirit of innovation has continued throughout the organizations history. Today Godrej is delivering consumers exciting innovations across a spectrum of businesses. The companys pursuit of excellence is equally well established and enduring. In the 1944 Mumbai docks blast, Godrej safes were the only security equipment whose contents were unharmed; an equal level of product quality continues to be expected from every product bearing the Godrej brand name. Godrej management understands that the companys greatest asset is the trust and faith that consumers have reposed in it, and recognizes that the company must continue to earn this trust. This translates to the organization delivering outstanding quality and value in everything it does. Godrejs ethical and visionary practices have allowed the company to successfully expand into a number of businesses. Today Godrej is a leading manufacturer of goods and provider of services in a multitude of categories: home appliances, consumer durables, consumer products, industrial products, and agri products to name a few. A recent estimate suggested that 400 million people across India use at least one Godrej product every day. The group has more recently entered the real estate and information technology sectors, and management views these as avenues for enormous growth. The 6000 Crore - FY 2007 (US $1.5 Billion) Godrej Group is one of India's largest professionally run private sector groups. It has a well-established presence in varied businesses ranging from foods and consumer durables to real estate and information technology. In 1997, Godrej completed 100 years of service to the nation. Today, the name Godrej is synonymous with Quality & Trust. It is
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amongst the most admired Business Groups in India, delivering quality products and services to its customers at competitive costs. All this, with the highest international standards of customer care.

MTR Foods Limited Profile

MTR Foods Limited is amongst the top five processed food manufacturers in India. We manufacture, market and export a wide range of packaged foods to global markets that include USA, UK, Australia, New Zealand, Malaysia, Singapore, UAE and Oman. Starting with the legendary MTR restaurant in Bangalore, Indias silicon valley, we now offer ''complete meal solutions'. Our wide range of products include ready-to-eat curries and rice, ready-to-cook gravies, frozen foods, ice cream, instant snack and dessert mixes, spices and a variety of accompaniments like pickles and papads. Our deep understanding of culinary expectations and needs has resulted in many new and innovative products. Our investments in infrastructure and technology ensure that we can scale rapidly and bring these to market. Today, consumers across the globe count on us to bring them all-natural, wholesome and delicious food that is also convenient and no-fuss. We have also expanded our retail presence significantly: contemporary 'Namma MTR' and MTR kiosks now serve delighted consumers across Bangalore and Chennai.

Parle Limited Profile

Parle Products has been India's largest manufacturer of biscuits and confectionery, for almost 80 years. Makers of the world's largest selling biscuit, Parle-G, and a host of other
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very popular brands, the Parle name symbolizes quality, nutrition and great taste. With a reach spanning even the remotest villages of India , the company has definitely come a very long way since its inception. Many of the Parle products - biscuits or confectioneries, are market leaders in their category and have won acclaim at the Monde Selection, since 1971. With a 40% share of the total biscuit market and a 15% share of the total confectionary market in India, Parle has grown to become a multi-million dollar company. While to consumers it's a beacon of faith and trust, competitors look upon Parle as an example of marketing brilliance.

Dabur India Limited Profile

Dabur India Limited has marked its presence with some very significant achievements and today commands a market leadership status. Our story of success is based on dedication to nature, corporate and process hygiene, dynamic leadership and commitment to our partners and stakeholders. The results of our policies and initiatives speak for themselves.

Leading consumer goods company in India with a turnover of Rs.2233.72 Crore (FY07) 2 major strategic business units (SBU) - Consumer Care Division (CCD) and Consumer Health Division (CHD) 3 Subsidiary Group companies - Dabur Foods, Dabur Nepal and Dabur International and 3 step down subsidiaries of Dabur International - Asian Consumer Care in Bangladesh, African Consumer Care in Nigeria and Dabur Egypt. 13 ultra-modern manufacturing units spread around the globe Products marketed in over 50 countries

Wide and deep market penetration with 47 C&F agents, more than 5000 distributors and over 1.5 million retail outlets all over India.
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CCD, dealing with FMCG Products relating to Personal Care and Health Care

Leading brands

Dabur - The Health Care Brand Vatika-Personal Care Brand Anmol- Value for Money Brand Hajmola- Tasty Digestive Brand and Dabur Amla, Chyawanprash and Lal Dant Manjan with Rs.100 crore turnover each

Vatika Hair Oil & Shampoo the high growth brand Strategic positioning of Honey as food product, leading to market leadership (over 40%) in branded honey market Dabur Chyawanprash the largest selling Ayurvedic medicine with over 65% market share. Leader in herbal digestives with 90% market share Hajmola tablets in command with 75% market share of digestive tablets category

Dabur Lal Tail tops baby massage oil market with 35% of total share. CHD (Consumer Health Division), dealing with classical Ayurvedic medicines.

Has more than 250 products sold through prescriptions as well as over the counter Major categories in traditional formulations include: - Asav Arishtas - Ras Rasayanas - Churnas - Medicated Oils Proprietary Ayurvedic medicines developed by Dabur include: - Nature Care Isabgol - Madhuvaani - Trifgol Division also works for promotion of Ayurveda through organised community of traditional practitioners and developing fresh batches of students
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CHAPTER: 5

Analysis

5. Analysis For the food processing Industry

We are doing analysis for finding the answer of following things?
What is the future growth food processing Industry in India? Whether Indian food processing industry is attractive? What are the Resources and the constraints of the Indian Food processing

Industry?
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 What is the impact of Food processing Industry on Indian Economy? What is the impact of political and economical conditions of India on the Indian

Food processing Industry?

What are the driving forces that are affecting Indian food processing Industry?

For this we are using following tool for our Analysis Potter Five force Analysis SWOT Analysis PEST Analysis Driving Force Analysis Key Success factor Analysis Key challenge Analysis Tread Analysis

5.1. Porter Five Forces Analysis for Indian Food Processing Analysis
The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're looking to move into. With a clear understanding of where power lies, you can take fair
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advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations too.

Threat of Entry(high)

The threat of new entry is quite high: if anyone looks as if theyre making a sustained profit, new competitors can come into the industry easily, reducing profits Profitable markets that yield high returns will draw firms. The results is many new entrants, which will effectively decrease profitability. Unless the entry of new firms can

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be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition). Capital Requirements(low)

The capital costs of getting established in an industry can be reduce because of the government subsidies provided to food processing sector. Financial disaster for most participants is that the initial setup costs of new ventures were typically very low. Startup costs are so low that individual, self-financing entrepreneurs can enter. For example, in mineral water pouch business, costs for a company are around Rs 350,000 and reaming Rs 750,000 is subsidies by Government Economies of Scale(low)

In industries that are capital or research or advertising intensive, efficiency requires largescale operation. The problem for new entrants is that they are faced with the choice of either entering on a small scale and accepting high unit costs, or entering on a large scale and running the risk of underutilized capacity while they build up sales volume. These economies of scale have deterred entry into the industry so that the only new entrants in recent decades have been state-supported companies the main reason or source to achieve scale economies is new product development costs. Thus, developing and launching a new product is very costly. Segment of the market for food processing Industry is very narrowly define so potential customer are very few thats why companies are not able to achieve economies of scales.

Absolute Cost Advantages(high)

Apart from economies of scale, established firms may have a cost advantage over entrants simply because they entered earlier. Absolute cost advantages often result from the acquisition or alliances of low-cost sources of raw materials. Absolute cost advantages may also result from economies of learning. Amul cost advantage in
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Pasteurization milk results from its early entry into this market and its ability to move down the learning curve faster than local player and then making alliances with they produce milk but marketed by the brand name of Amul. So new enter company alliance with well establish large firm can easily enter in the company Product Differentiation (high) In an industry where products are differentiated, established firms possess the advantages of brand recognition and customer loyalty. New entrants to such markets must spend disproportionately heavily on advertising and promotion to gain levels of brand awareness and brand goodwill similar to that of established companies. One study found that, compared to early entrants, late entrants into consumer goods markets incurred additional advertising and promotional costs amounting to 2.12 percent of sales revenue. Alternatively, the new entrant can accept a niche position in the market or can seek to compete by cutting price. And in food processing industry there are many untapped market are available, so there are good opportunity for niche marketing in food processing industry e.g. sugar free is product that only targeting diabetic person and health conscious person only and it having 11% growth rate annually Access to Channels of Distribution (low)

Whereas lack of brand awareness among consumers acts as a barrier to entry to new suppliers of consumer goods, a more immediate barrier for the new company is likely to be gaining distribution. Limited capacity within distribution channels (e.g., shelf space), risk aversion by retailers, and the fixed costs associated with carrying an additional product result in retailers being reluctant to carry a new manufacturers product. The battle for supermarket shelf space between the major food processors (typically involving lump-sum payments to retail chains in order to reserve shelf space) means that new entrants scarcely get a look in. Governmental and Legal Barriers(high)

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Some economists (Amitabha Sen) claim that the only effective barriers to entry are those created by government. In taxicabs, banking, telecommunications, and broadcasting, entry usually requires the granting of a license by a public authority. From medieval times to the present day, companies and favored individuals have benefited from governments granting them an exclusive right to ply a particular trade or offer a particular service. In knowledge-intensive industries, patents, copyrights, and other legally protected forms of intellectual property are major barriers to entry. Regulatory requirements and environmental and safety standards often put new entrants at a disadvantage to established firms, because compliance costs tend to weigh more heavily on newcomers .e.g. Prevention of Food Adulteration laws is not only stringent one but time consuming also. It is considered as an archaic and no industry friendly food law. It substantial varies from Codex standard. Harmonization of multiple food laws is an urgent necessity. Retaliation (low)

Barriers to entry also depend on the entrants expectations as to possible retaliation by established firms. Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, sales promotion, or litigation. The major food processing company has a long history of retaliation against low-cost entrants. Parle and other budget food processing have alleged that selective price cuts by MNC and other major food processing like Britannia amounted to predatory pricing designed to prevent its entry into new routes.8 To avoid retaliation by incumbents, new entrants may seek initial small scale entry into less visible market segments. New entered company market and targeted the small segments partly because this segment had big opportunity and large profit (niche marketing).

Rivalry between Established Competitors (low)

For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. For most industries, the major
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determinant of the overall state of competition and the general level of profitability is competition among the firms within the industry. In some industries, firms compete aggressively sometimes to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising, innovation, and other non price dimensions. Six factors play an important role in determining the nature and intensity of competition between established firms: concentration, the diversity of competitors, product differentiation, excess capacity, exit barriers, and cost conditions. Concentration(high)

Seller concentration refers to the number and size distribution of firms competing within a market. It is most commonly measured by the concentration ratio: the combined market share of the leading producers. Where a market is dominated by a small group of leading companies (an oligopoly), price competition may also be restrained, either by outright collusion, or more commonly through parallelism of pricing decisions. Thus, in markets dominated by two companies, such as soft drinks (Coke and Pepsi), prices tend to be similar and competition focuses on advertising, promotion, and product development. Economists measure rivalry by indicators of industry concentration. The Concentration Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for major Standard Industrial Classifications (SIC's). The CR indicates the percent of market share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are available). A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.

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In food processing industry concentration ratio is high that indicate high concentration of market share is held by the largest firms like ITC (tobacco), Cadbury (chocolates) etc. As the number of firms supplying a market increases, coordination of prices becomes more difficult, and the likelihood that one firm will initiate price-cutting increases. However, despite the common observation that the elimination of a competitor typically reduces price competition, while the entry of a new competitor typically stimulates it, systematic evidence of the impact of seller concentration on profitability is surprisingly weak. Richard Schmalensee concluded that: The relation, if any, between seller concentration and profitability is weak statistically and the estimated effect is usually small. In pursuing an advantage over its rivals, a firm can choose from several competitive moves:

Changing prices - raising or lowering prices to gain a temporary advantage. Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself. Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry. Exploiting relationships with suppliers - set high quality standards and required suppliers to meet its demands for product specifications and price.

Diversity of Competitors (low)

The extent to which a group of firms can avoid price competition in favor of collusive pricing practices depends upon how similar they are in terms of origins, objectives, costs, and strategies. In food processing industry it is very low here firm always try to compete rival strategies and there product prices e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream and havmor ice cream etc Product Differentiation

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The more similar the offerings among rival firms, the more willing customers are to substitute and the greater the incentive for firms to cut prices to increase sales. Where the products of rival firms are virtually indistinguishable, the product is a commodity and price is the sole basis for competition. Commodity industries such as food processing agriculture, mining, and petrochemicals tend to be plagued by price wars and low profits. By contrast, in industries where products are highly differentiated (perfumes, pharmaceuticals, restaurants, management consulting services), price competition tends to be weak, even though there may be many firms competing. food processing industry it is very low here firm always try to compete rival strategies and there product prices because they have more or similer offering and there product are virtually indistinguishable e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream and havmor ice cream etc Excess Capacity and Exit Barriers

Why does industry profitability tend to fall so drastically during periods of recession? The key is the balance between demand and capacity. Unused capacity encourages firms to offer price cuts to attract new business in order to spread fixed costs over a greater sales volume. Excess capacity may be cyclical (e.g. the boombust cycle in the semiconductor industry); it may also be part of a structural problem resulting from overinvestment and declining demand. In these latter situations, the key issue is whether excess capacity will leave the industry. Barriers to exit are costs associated with capacity leaving an industry. Where resources are durable and specialized, and where employees are entitled to job protection, barriers to exit may be substantial. Conversely, rapid demand growth creates capacity shortages that boost margins. On average, companies in growing industries earn higher profits than companies in slow growing or declining industries see figure 3.4. In food processing industry it will not effect because food demand is always increase or maintain because it is directly related to population growth, and in this industry some exit barrier are working because of Government policies.

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Bargaining Power of Buyers (low) Also described as the market of outputs. The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes. Customer has enough option to switch so they have less bargaining power. The firms in an industry operate in two types of markets: in the markets for inputs and the markets for outputs. In input markets firms purchase raw materials, components, and financial and labor services. In the markets for outputs firms sell their goods and services to customers (who may be distributors, consumers, or other manufacturers). In both markets the transactions create value for both buyers and sellers. How this value is shared between them in terms of profitability depends on their relative economic power. Let us deal first with output markets. The strength of buying power that firms face from their customers depends on two sets of factors: buyers price sensitivity and relative bargaining power.

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Buyers Price Sensitivity (low) The extent to which buyers are sensitive to the prices charged by the firms in an industry depends on four main factors: The greater the importance of an item as a proportion of total cost, the more sensitive buyers will be about the price they pay. Beverage manufacturers are highly sensitive to the costs of metal cans because this is one of their largest single cost items. Conversely, most companies are not sensitive to the fees charged by their auditors, since auditing costs are such a small proportion of overall company expenses. The less differentiated the products of the supplying industry, the more willing the buyer is to switch suppliers on the basis of price.
The more intense the competition among buyers, the greater their eagerness for

price reductions from their sellers. As competition in the world food processing industry has intensified, so component suppliers are subject to greater pressures for lower prices, higher quality, and faster delivery. The greater the importance of the industrys product to the quality of the buyers product or service, the less sensitive are buyers to the prices they are charged. The buying power of necessary processed food product like suger salt etc. is limited by the critical importance of these components to the functionality of their product.

Relative Bargaining Power (high) Bargaining power rests, ultimately, on refusal to deal with the other party. The balance of power between the two parties to a transaction depends on the credibility and effectiveness with which each makes this threat. The key issue is the relative cost that each party sustains as a result of the transaction not being consummated. A second issue
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is each partys expertise in leveraging its position through gamesmanship. Several factors influence the bargaining power of buyers relative to that of sellers: Size and concentration of buyers relative to suppliers. The smaller the number of buyers and the bigger their purchases, the greater the cost of losing one.
Buyers information. The better informed buyers are about suppliers and their

prices and costs, the better they are able to bargain.. Keeping customers ignorant of relative prices is an effective constraint on their buying power. But knowing prices is of little value if the quality of the product is unknown. It always works in food processing industry because people are not having full information about the product like k special of Kellogg which reduces the cholesterol of the consumer. Ability to integrate vertically. In refusing to deal with the other party, the alternative to finding another supplier or buyer is to do it yourself. Large food processing companies such as Heinz and Campbell Soup have reduced their dependence on the manufacturers of metal cans by manufacturing their own. The leading retail chains have increasingly displaced their suppliers brands with their own-brand products. Backward integration need not necessarily occur a credible threat may suffice.

Buyers are Powerful in food processing industry

Buyers are concentrated - there are a few buyers with significant market share Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized Buyers possess a credible backward integration threat - can threaten to buy producing firm or rival

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Buyers are Weak in food processing industry Producers threaten forward integration - producer can take over own distribution/retailing Significant buyer switching costs - products not standardized and buyer cannot easily switch to another product. Buyers are fragmented (many, different) - no buyer has any particular influence on product or price Producers supply critical portions of buyers' input - distribution of purchases

Bargaining Power of Suppliers (low) Also described as market of inputs. Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. Analysis of the determinants of relative power between the producers in an industry and their suppliers is precisely analogous to analysis of the relationship between producers and their buyers. The only difference is that it is now the firms in the industry that are the buyers and the producers of inputs that are the suppliers. The key issues are the ease with which the firms in the industry can switch between different input suppliers and the relative bargaining power of each party. Because raw materials, semi-finished products, and components are often commodities supplied by small companies to large manufacturing companies, their suppliers usually lack bargaining power.

Suppliers are not Powerful because in food processing industry Credible forward integration threat by suppliers Suppliers concentrated Significant cost to switch suppliers
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Customers Powerful Suppliers are Weak because in food processing industry Many competitive suppliers - product is standardized Purchase commodity products Credible backward integration threat by purchasers Concentrated purchasers Customers Weak

Threat of Substitutes (high) In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminum can industry. The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). buyer propensity to substitute (low) relative price performance of substitutes(low) buyer switching costs (high)

Pressure from Substitutes Emerges Mainly From Two Factors

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1. Switching costs for customers to the substitute. 2. Buyer willingness to search out for substitutes. Also the threat of substitution may take four different forms, each of which we shall now discuss with reference to above factors. Substitution of need We take switching from one product (e.g. natural drink of Dabur) to another (fresh juice from local vendor or prepared at home). In this case, the buyers might be looking out for freshness and might not mind the nominal switching costs Food processing Industry will definitely remain, in one form or the other, as long as the manufacturers manufacture and consumers consume. Food processing industry does not seem to become extinct even in the future. The issue that remains to be addressed is just - what forms it keeps evolving into. Here the Substitutes of food processing industry are fresh fruits and vegetables and food as a raw material , but they are yet very well developed in India, so their threat are comparatively very high but food processing industry break the boundaries of food product availability in certain season and area that is why food industry will sustain for longer term. While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes.

Strategic Implications of the Five Competitive Forces

Competitive environment is unattractive from the standpoint of earning good profits when o Rivalry is vigorous o Entry barriers are low and entry is likely o Competition from substitutes is strong o Suppliers and customers have considerable bargaining power Competitive environment is ideal from a profit-making standpoint when o Rivalry is moderate

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o Entry barriers are high and no firm is likely to enter o Good substitutes do not exist o Suppliers and customers are in a weak bargaining position. But food processing industry is little bit attractive but not ideal, it gives considerable profit Because of the following point o Rivalry is moderate o Entry barriers are low and firm is likely to enter o Good have some substitutes but up to certain extant o Suppliers and customers are in a weak bargaining position

5.2

SWOT Analysis

Strengths
High quality natural environment, overall, the natural environment of the area is

of very high quality and exhibits great variety.

Good accessibility and linkages to parts of the area Parts of the area have good

accessibility. The north-south of India facilitates access to the more prosperous coastal areas covered three side of India which make good transport links, and also road links on shore, are well established due to which easy accessibility is there

high productivity in manufacturing due new technique and technology

development through R&D work in India, now company are paying more attention on R&D Program

flexible labour market, including good labour relations with low level of days lost 78

 distinctive culture created different market which are not dependable on each

Other which create good market potential for food processing industry

Social capital perceived quality of food product for life, now people are more

concern about their health they need quality food though out the year so they focused on quality food.

presence of a range of academic institutions which help to food processing

company to get good and well knowledge employees also high participation levels in education for 16-19 year olds in rural areas, growth of jobs and employment for m food processing Industry

new practices has offset long -run decline in traditional sector agriculture method

of doing farming , due to which good productivity is there and food processing have less bargain thert from supplier

Weaknesses Poor infrastructure or Inadequate infrastructure facilities, like cold storage and
village roads so they are not able to connected with good food processing companies in urban area

High tariffs, dated food laws, and unscientific polices pressurize companies to
depend on other company so expansion is difficult, so les growth in industry
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 They are lacking the availability of the trained manpower, because of

undulation rate is high and due to which many companies die because of poor managerial skills

Increasing competition from local players and MNC which directly affect the
small SME Growth

Long and fragmented supply chain creates improper management in food

supply and result increase in cost.

Consumer preference for fresh foods is very high today also 77% people frash
food not the packed food this is due to lack to knowledge about processed foods

Opportunities
Food processing industry is rising at the rate of 8% yearly. It shows the potential of the industry to grow in the future.

India is given by a strong income growth, change in lifestyle nuclear family and

both parent working culture and favorable demographic pattern for food processing industry.

Indian food processing Industry is the 5th largest industry in India .

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 Industry revenue is increasing at the rate of 5% per year.

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. It is one of the biggest emerging markets, with over 900 million population and a 250 million strong middle class. Rapid urbanizations, increased literacy and rising per capita income , have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50% of household expenditure on food items.

Demand for processed/convenience food is constantly on the rise. India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets. Liberalized overall policy regimes, with specific incentives for high priority food processing sector, provide a very conducive environment for investments and exports in the sector.

Threats
Due to globalization threats from the MNCs is increasing day by day.

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The facilities that are given by the non branded local retailers will reduce

the market share of our store.

Technology is upgrading day by day due to which requirement of trained

manpower is also increasing.

Continuous improvement in the supply chain is required; if it is not done

then it will become difficult to survive in such a tough competition.

Consumer buying behavior and the whole format of purchasing is altering

frequently.

A feeling of unstable government Self centered political leadership

Slow & Dysfunctional judiciary and corrupt law enforcers

Regulation, protection and restriction for processed food

To patent Indian intellectual property by outsider (unawareness about own

research)

Fast change Internet-information technology& new Inventions-

Technology-Innovations
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Regional-Religion-caste-culture conflicts

Critical Key Success Factors for Food Processing Sector

The Indian food processing industrys growth potential cannot be disputed; however, it requires certain competencies and success factors to fructify this potential. These include addressing the current gaps in the value chain as well as leveraging on the various advantages the country provides. Investors in the sector need to be aware of these factors and build the required capabilities in their Business to ensure success. Some of the key success factors are discussed below.

Integrated Supply Chain and Scale of Operations

While India ranks second in production of fruits & vegetables, nearly 20 to 25 per cent of this production is lost in spoilage in various stages of harvesting. The key issues are poor quality of seeds, planting material and lack of technology in improving yield. Ensuring good quality produce entails investments in technology and ability to sustain a long gestation period for the harvest. Good quality production also results in better quality of processed fruits. Hence there is a need to establish backward linkages with the farmers with the help of arrangements such as contract farming to improve the quality of the produce. Scale is a key factor in the processing industry. Nearly 90 per cent of the food processing units are small in scale and hence are unable to exploit the advantages of economies of scale. This is also true with land holdings. The country has only 3600 slaughterhouses, 9 modern abattoirs and 171 meat processing units, and a limited number of pork-processing units. This is one of the reasons penetration of processed meat is extremely poor at 1 per cent in India. These figures indicate both the need for scale, and the potential for growth offered by the sector.
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 Processing Technology
Most of the processing in India is currently manual. There is limited use of technology like pre cooling facilities for vegetables, controlled atmospheric storage and irradiation facilities. This technology is important for extended storage of fruits and vegetables in making them conducive for Further processing. In the case of meat processing, despite the presence of over 3600 licensed slaughter-houses in India, the level of technology used in most of them is limited, resulting in low exploitation of animal population. Bringing in modern technology is an area that existing as well as new investors in the sector can focus on, this will make a clear difference in both process efficiencies as well as quality of the end product.

Increasing Penetration in Domestic Market

Most of the processing units are export oriented and hence their penetration levels in the domestic market are low. For example, Penetration of processed fruits and vegetables overall is at 10 per cent The relative share of branded milk products especially ghee is still low at 2 per cent Penetration of culinary products is still 13.3 per cent and is largely tilted towards metros Consumption of packaged biscuits for Indian consumers is still low at 0.48 per cent while that for Americans is 4 per cent However, there is increasing acceptance of these products amongst the urban population. India has a large untapped customer base and even a small footprint in the domestic market would enable the player to gain significant volumes. Acceptance in the domestic market and hence higher penetration is driven by the following factors: Competitive Pricing

Consumers of processed foods are extremely price sensitive even a small change in pricing can have significant impact on consumption. For instance, the launch of PET bottles, new price points and package sizes in non-carbonated drinks (such as Coca Cola)
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has increased in-home consumption from 30 per cent in 2006 to 80 per cent in 2007. Competitive pricing also enables penetration in the rural markets. Brand Competitiveness Share of branded products in purchases of Indian consumers has increased by 25 per cent to 35 per cent. This is especially true for urban consumers. Branded products like Basmati rice and KFCs chicken have been very successful implying that there is a good demand for hygienic branded products at reasonable prices. Product Innovation Certain processed food categories such as snack foods are impulse purchase products where consumers look for novelty and new flavors and hence these categories lack brand loyalties. Visibility through attractive packaging boosts consumption. Increasing time constraints amongst the working middle class has boosted consumption of products like instant soups, noodles and ready-to-make products. Innovation in packaging and product usage is an important success factor for processed foods

5.4. Key challenges to development of Food processing sector Most of the challenges to food processing in India are typical to that of other developing countries socio economic environment, subsistence agriculture, fragmented value chains and lack of infrastructure for post harvest management and processing. Some issues are country specific: role of federal and state government, policies regarding marketing of agriculture produce, and food safety regulations.

i) Socio Economic Environment and Demand for Processed Foods: As highlighted in the vision document of the MOFPI, sub-optimal growth of the food processing industry can be attributed to the vicious circle of high unit cost low demand, low capacity utilization again leading to high unit cost. Affordability is also a major issue in the domestic market. Price differential between fresh and processed food in India is very high relative to convenience, hygiene and health values of the processed food. In the developed countries processed and fresh food compare well in prices.
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Further, low income Indians are very price sensitive since food accounts for over 50% of the family budget. Per capita income in India is US$ 640 as compared with US$ 1360 in China.

ii) Policy Issues in Food Processing

Agriculture Produce Marketing Committee (APMC Act)

Agricultural produce marketing in India has traditionally been dominated by government sector. Agricultural commodities are marketed through regulated APMC (Agricultural Produce Marketing Committee) markets. Agriculture is a state subject in India and as such the APMC Act is under the purview of the state government. Some of the key areas of concern regarding the APMC act are:
The APMC Act of most states prohibits transactions outside the regulated mandis

The APMC Act of most states does not encourage direct marketing and contract farming
The prohibitions under the APMC Act do not allow investment by the private

sector for improving the infrastructure They do not facilitate procurement of agricultural produce directly from farmers fields The purchaser has to be a registered agent at the wholesale market (Commission Agent).
These regulations can cause delay in supply and also loss of produce due to

multiple handling and the time involved in the same. In an effort to provide a fair playing ground to the private sector and to encourage private sector investment in the area of agriculture, the central government has proposed the Model Act

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which addresses most of the above concerns and enables companies to procure directly from farmers. Many states have already amended APMC
Act on the lines of the proposed Model Act, or are in the process of amending it.

Nevertheless, there are vested interests and the process in some states is much slower than others.

Essential Commodities Act

The Essential Commodities Act (ECA) 1955 was put in place after independence to control production, supply and distribution of essential agricultural commodities. At a time when India was facing acute food shortages, this act was put in place to ensure availability of food products. In the context of liberalization and a relatively comfortable food situation these controls are no more required. It is recognized that controlling the movement of products by licensing of dealers, limits on stocks and control on movements will only hamper the growth of the agricultural sector and promotion of food processing industries. This act has been amended in 2003 to encourage free movement of agricultural commodities across regions.

Food Quality Regulation

There are multiple laws/ regulations prescribing varied standards regarding food additives, contaminants, food colors, preservatives and labeling. Currently, there are 13 laws enforced by 9 ministries:
The Prevention of Food Adulteration Act (PFA), 1954 focuses primarily on the

establishment of regulatory standards for primary food products, which constitute the bulk of the Indian diet.
The Standards of Weights and Measures Act, 1976 and Standards of Weights and

Measure (Packaged Commodities) Rules, 1977 are legislative measures are designed to establish fair trade practices with respect to packaged commodities.
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 The fruit and vegetable processing sector is regulated by the Fruit Products

Order, 1955 (FPO), which is administered by the Department of Food Processing Industries.
Meat Food Products Order, 1992 administers the permissible quantity of heavy

metals, preservatives, and insecticide residues for meat products.

Milk and Milk Products Order, 1992 order regulates the production, distribution,

and supply of milk products; establishes sanitary requirements for dairies, machinery, premises; and sets quality control standards for milk and milk products. The Destructive Insects and Pests Act, 1914, and Plants, Fruits, and Seeds (Regulation of Import in India) Order, 1989 regulate imports of planting seeds into India, and prohibit imports of seeds for sowing and planting materials without a valid permit. As discussed in the section on enabling environment, there has been a move to harmonize these laws to one Food Safety and Standards Law.

Taxes on Processed Food

High level of taxes and multiplicity of taxes are the two key issues with food taxation. A study conducted by Arthur Andersen points out that the food taxation is highest in India among Asian countries of India, Indonesia, Philippines, Malaysia, Sri Lanka, China, and Thailand. The Central excise as well as the state taxes (octroi and sales) is applicable in India. According to the above mentioned study, excise duty on processed food is not levied in any of the other Asian countries except for Thailand where excise is levied just on carbonated drinks and fruit juices. In India, excise duty ranges from eight per cent to 18 per cent on processed food and 40 per cent on carbonated drinks. The study points
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out that octroi on food items is levied only in India while other Asian countries do not levy it. In India, Maharashtra levies the highest seven per cent octroi on processed food. Sales tax in India averages second behind that in China.

Credit

The agricultural supply chains in India are very fragmented with a large number of intermediaries. This structure of the chain leads to limited scale of financing as well as higher risk, given the lack of control each of the players has on the supply chain. At the farm level, financing is largely dependent on unorganized sources of credit due to bottlenecks in access, timeliness in availability and adequacy of credit from organized sources. The key hurdles faced by banks in financing farmers are their inability to provide adequate collateral as security and potential for default in the absence of an assured market for their produce The food processing enterprises primarily comprise small and medium sized companies, a large proportion of which have stand alone operations with no linkage with farmer, and reliant on other organizations to undertake marketing/further processing of their products. Consequently, companies in the food processing sector usually bear a steep cost of interest for the high risk perception associated with the nature of their operations. In contrast, agricultural supply chains in developed are well integrated/coordinated where large companies have interest in all levels of operation input supply, storage, transportation etc. A high level of integration leads to more control and less risk in the supply chain.

Scope of Center and State Government

Agriculture is a state policy in India. The central government can provide a direction for the states, but eventually the implementation rests with the state government. The progress in implementing various policies, projects and schemes depends on the initiatives, efforts and ideologies of state governments. For example, the Model Act

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which is an amendment to the APMC Act has been modified in about 15 states over the past 2-3 years, but many state governments are yet to modify the Act.

Iii) Traditional and Subsistence Farming, Market Linkages and Infrastructure

Similar to the situation in many developing countries, most of the farming in India is at subsistence level which leaves limited produce for marketable surplus. The approach to farming is traditional and modern practices of farming have not been widely adopted. Post harvest management and infrastructure has not received much attention, which limits the availability of storage of raw materials for processing. Further, sale of agricultural produce is characterized by a long chain of intermediaries, which has severe implications on cost efficiency and flow of information through the chain, about the quality and quantity required for processing. Similarly, traditional marketing channels for food retailing food distribution and retailing is also fragmented which leads to high distribution cost.

Iv) Institutional: Poor linkages between industry, Government and institutions

Traditionally, government has been the dominant player in the agricultural sector, especially in the areas of marketing and infrastructure development. The involvement of private sector has been limited to marketing of inputs and undertaking processing of some basic items. The linkages between private and public sector have been very poor but this situation is changing dramatically as many new initiatives are being undertaken in Public Private Partnership mode.

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5.5. Food Processing Industry Trends

Production:

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The food-processing industry in India has undergone big changes over the last six to seven years, in terms of types, variety, quality, and presentation of products, which is mainly a result of the liberalization that led to foreign direct investment (FDI) in the processed food sectors.

Most food-processing sectors have been brought under the liberal, transparent, and investor-friendly FDI policy, which allows 100 percent FDI.

However, the small-scale farming system in India, marketing problems, lack of grading and standards, poor distribution channels, and onerous government policies continue to pose problems for the processing industry to source the right type of raw materials and to discourage more investment in the sector.

Nevertheless, the proportion of FDI in the food-processing sector to total FDI into India is low, constituting about 4 percent of total FDI inflow from 1991 to 2004.

Several multinational companies, including US-based companies like Pepsi, Coca Cola, ConAgra, Cargill, Heinz, Kelloggs, IFF, and Mars (pet food only) have entered the Indian food-processing industry with significant investments.

Indian food and beverage companies are expanding their operations to neighboring countries like Bangladesh, Nepal, Sri Lanka, Commonwealth of Independent States countries, and the Middle East.

Takeovers and mergers are beginning to occur in the Indian food-processing sector, leading to consolidation.

The food-processing industry is beginning to focus on, and invest in, advertising and awareness campaigns about products and brands.

Companies have added extras to their existing brands, including stylish packaging.

The growth in the food-processing sector has generated increased interest in high quality food ingredients in order to produce high quality foods.
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The ready-to-eat food sector is growing at a high rate due to the changing lifestyles of the middle-class consumers (both partners working, etc.).

Some previously unknown regional brands are gaining national acceptance because of consistent quality and product safety, thereby providing some competition to established companies.

The GOI is in the process of enacting a Food Safety and Standards Bill, which if properly done and implemented, would provide increased transparency, better food safety management systems, and science-based standards.

Consumption The following factors influence the type and quality of inputs in processed foods: A large and an exceedingly wealthier middle class is creating growing demand for a wider variety of high quality processed foods. The changing age profile (sixty-five million people expected to enter 20-34 year age group by 2010) and increasing exposure to western-type products and lifestyles. The market entry of several multinational food-processing companies and ingredient suppliers. The increasing number of fast food chains. The recent trend toward a healthier lifestyle has generated a niche market for diet, healthy, low-calorie, and non-fat food products. The increasing urbanization and growing number of working women. A slow but steady transformation of the retail food sector in cities.
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Competition Indias domestic industry is the primary competitor for US food-processing and ingredients suppliers in India. India, with diverse agro-climatic conditions, has a production advantage in many agricultural goods, with the potential to cultivate a large range of agricultural raw materials required by the food-processing industry. India is a major producer of spices, spice oils, essential oils, condiments, and fruit pulps. Significant variations in food habits and culinary traditions across the country translate into a competitive advantage for small and medium local players, who are familiar with local food habits and markets. Some Indian food-processing companies have increased market share by decreasing product prices. High import duties on processed food and food ingredients make imports relatively costly. Existing domestic food laws restrict the use of several ingredients, flavors, colors, and additives, thus posing an additional challenge to US exporters interested in the Indian market.

Foreign competition to the United States is mostly from countries in closer geographic proximity to India, such as Australia and New Zealand. Suppliers from other countries often supply inferior goods at cheaper prices in comparison to those available from the United States. European suppliers are major competitors in the food ingredient sector. Several foreign firms, including some from the United States, have started operations in India.

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5.3. PEST ANALYSIS

Political Impact
Internal Political/Economic Events Increasing economic disparities among regions are emerging as a political risk capable of provoking serious socio-political tensions that could lead to localized violence from time to time. The states likely to be advancing economically are: Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil Nadu. Those likely to be lagging economically are: Assam, Bihar, Madhya Pradesh, Orissa, Rajasthan and
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Uttar Pradesh. Although this is essentially an internal situation it can, at times, interrupt the flow of imports and negatively affect the solvency of Indian importers.

External Political/Economic Events India has major disputes with Pakistan and China. India disputes Pakistan's claim to Kashmir and questions its claim to have stopped sponsoring terrorism in Kashmir. Relations with China are strained by its claim to Arunachal Pradesh and a portion of land adjacent to Jammu and Kashmir. Any outbreak of hostilities between India and its neighbours could disrupt trade and negatively affect the solvency of some importers. India could benefit greatly from free trade. However, there are wide gaps in the positions of major world traders on some important issues. If the talks should collapse with no progress, the concept of free trade will be in jeopardy and the gains India may make will be at risk. On the other hand the possibility of failure may spur participants to make major concessions and increase the convergence of positions

Policies A number of policy initiatives have been taken from time to time to promote growth of the processed food sector in the country. Some of these are: a) Most of the processed food items have been exempted from the purview of licensing under the Industries (Development & Regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages. b) Food processing industries were included in the list of priority sector for bank lending in 1999.

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c) Automatic approval for foreign equity upto 100% is available for most of the processed food items excepting alcohol and beer and those reserved for small scale sector subject to certain conditions.

d) Excise duty on processed fruit and vegetables has been brought down from 16% to zero level in the Budget, 2001-02.

e) In the budget of 2004-05 income tax holiday and other concessions announced for certain FPI sectors.

f) Delegation of powers to regional offices under Fruit Products Order 1973 has been recently done.

Developmental

a) Assistance under various plan schemes. b) Widening the R&D base in food processing by involvement of various R&D institutes and support to various R&D activities. c) Human Resource Development to meet the growing requirement of managers, entrepreneurs and skilled workers in the food processing industry. d) Assistance for setting up analytical and testing laboratories, active participation in the laying down of food standards and their harmonization with the international standards.

Promotional

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In order to create awareness about the potential and prospect of food processing industries in the country, this Ministry provides, a) Assistance for organizing workshops, seminars, exhibitions and fairs. b) Assistance for studies/surveys etc. c) Publications and films Regulatory

i) Implementation of Fruit Products Order (FPO), 1955. ii) Implementation of Meat Food Product Order, 1973.

Legal Impact
In addition to the general legal requirements, there are a few legal requirements that are specific to Food Processing Industries. A food processing enterprise has to comply with several compulsory legal requirements. Implementation of these norms with regard to Small and Medium Enterprises

Legal Requirements

a). Prevention of Food Adulteration Act (1954): which is the basic statute to protect consumers against supply of adulterated food. The Central Committee for Food Standards under the Directorate General & Health Services Ministry of Health and Family Welfare has specified the standards.

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b). Milk and Milk Products Order (MMPO): regulates milk and milk products production in the country. The order requires no permission for units handling less than 10,000 litres of liquid milk per day or milk solids upto 500 tap.

c.) Fruit Products Order (1955): regulates manufacture and distribution of all fruit and vegetable products, sweetened aerated waters, vinegar and synthetic syrups. The license is issued by Regional Director of MoFPI located at Mumbai, Delhi, Kolkatta, Chennai and Guwahati based on the satisfaction of the concerned officer with regard to quality of production, sanitation and hygiene, machinery and equipment and work area standards.

d). Standard of Weights and Measures (Packaged Commodities) Rules, 1977: lay down certain obligations for all commodities in packed form with respect to their quality declaration. The Directorate of Weights and Measures under the Ministry of Food and Civil Supplies operates these rules. e.) Export (Quality Control and Inspection) Act, 1963: is operated by the Export Inspection Council and under this act many exportable commodities have been notified for compulsory pre-shipment inspection unless specifically requested by the importer not to do so.

f). Voluntary Standards: are regulated by organisations involved with voluntary standardisation and certificates systems concerning quality parameters in food. They are the Bureau of Indian Standards (BIS) and Directorate of Marketing and Inspection (DMI). The food processing industries sector as a whole involves other legislations.

g). Oils, Deoiled Meal and Edible Flour Control Order 1967 and Vegetables Products Control Order, 1976: control the production and distribution of solvent extracted oils, deoiled meals, edible oil seed flours and hydrogenated vegetable oils (vanaspati).
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h). Meat Food Products Control Order, 1973: regulates manufacture, quality, and sale of all meat products and is operated by the Directorate of Marketing and Inspection.

Despite the size and the phenomenal potential that exists, retailing is among the lesserevolved sectors of the Indian Industry. Retailing as an industry is yet to be recognized in India. The policy environment is currently seen to be unfavorable to organized retailing. Given the huge investments that need to be made, a look on the Foreign Direct Investment Policy in the sector might be needed. Complex sales tax rates, octroi and excise structures are major deterrents. Other impediments to growth of retail include the bureaucracy, inflexible labour laws and multiple licensing requirements. Real estate in India is also not geared to facilitate organized retailing.

Restriction on FDI.

A strong FDI presence in food processing sector is expected to not only boost the retail scenario, but also act as a driving force in attracting FDI in upstream activities as well. This will be more prominent in food processing and packaging industries because many large retail chains also promote their own brands by way of backward integration/contract manufacturing.

In view of the demands made by industry and the need to boost the retail trade, the Government is actively considering removing the restrictions. A recent note circulated by the Ministry of Commerce has proposed permission for FDI up to 100 per cent in retail trade subject to Government approval on a case-to-case basis. However, this permission, if it is given, will be with lots of strings attached. Besides following rules on minimum capitalization, the foreign entrants will be expected to neutralize the outflow of foreign
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exchange (repatriation of dividends) by way of export earning on a year to year basis. The biggest opposition to allowing 100% FDI is the feared exit of the small retailers. Currently, moves are on to counter these apprehensions and the players are keenly awaiting the final decision from the Government.

Land and Property laws

There is a shortage of good quality space and rents are high for what is available. Compounding these shortages are the following problems. One of the drivers of property prices is the high demand for space in the cities. This demand is exasperated by the flow of black money (undeclared for tax purpose) that is generally invested in the property sector. Only Indians can own property in India, which complimenting the restrictions placed on FDI, restrict the entry of foreign players. Stamp duties on property deals are significant (12.5% in Gujarat and 8% in Delhi). The lease alone can cost up to 6-10 per cent of sales while it's just 3-5 per cent globally.

The initial urban planning of cities was done with smaller plots in mind which along with rigid building and zoning laws make it difficult for procurement of retail space. The urban land ceiling act and rent control acts have distorted property markets in cities, leading to exceptionally high property prices. The presence of strong pro-tenancy laws makes it difficult to evict tenants and make people reluctant to give real estate on rent. The problem is compounded by problems of clear titles to own

Labour Laws
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The labour laws instituted to protect store workers are not flexible enough to support the modern formats of retailing. These rigidities in the law constrain the operations of modern retail outlets. Working hours are restricted, with shops required to close one day of the week and the hiring of part-time employees is difficult, however, in Bangalore, the State Government has permitted flexibility in the use of labour without doing away with the associated benefits accruing to it.

Taxes

Corporation tax is 38% and this would be even higher at 45% for a foreign business.

Even essential basic foodstuffs are taxed (8% on milk). The varying sales tax rate across states make supply chain management an even more difficult task for retailers.

With the expected introduction of Value Added Tax (VAT) in April 2005, some of the sales tax anamolies in the supply chain could get correct over a period of time. However, retailers might also be additionally burdened as given below:Changing tax structure: Retailer margins to come under VAT net

In the tax regime contemplated from April 1 2003, VAT will be imposed at every stage between the manufacturer and the final consumer. Thus, margin payable to the distributor and the retailer will also be taxed.

As retailers and wholesalers would be taxed under VAT, their margins will decline. Companies, in turn, will come under pressure to increase trade and distributors margins to the extent of the tax being paid by them, thus pushing up the cost of the product. The MRP could therefore increase in order to neutralize
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the impact of VAT on margins. Goods with a long distribution chain between the manufacturer and final consumer, such as FMCG items and consumer durable, would be the worst affected.

Environment Impact
Most of the challenges to food processing in India are typical to that of other developing countries socio economic environment, subsistence agriculture, fragmented value chains and lack of infrastructure for post harvest management and processing. Some issues are country specific: role of federal and state government, policies regarding marketing of agriculture produce, and food safety regulations. As highlighted in the vision document of the MOFPI, sub-optimal growth of the food processing industry can be attributed to the vicious circle of high unit cost low demand, low capacity utilization again leading to high unit cost. Affordability is also a major issue in the domestic market. Price differential between fresh and processed food in India is very high relative to convenience, hygiene and health values of the processed food. In the developed countries processed and fresh food compare well in prices. Further, low income Indians are very price sensitive since food accounts for over 50% of the family budget. Per capita income in India is US$ 640 as compared with US$ 1360 in China. There is need for working out synergy between business and environment for sustainable development. The Govt. will bring together environmentalists, industrialists, policy makers and NGOs at State. National and International level to debate and discuss the best possible alternative to encourage development that is both economically productive and environmentally friendly. The Govt. will prepare action plan for management of green technologies to reconcile the growth of industry with that of sustaining the environment. The Govt. will strive to energize business as a sustainable partner in preserving the environment instead of viewing business as a destroyer of the environment. The Govt.

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will further encourage the use of green technologies and shall focus on speeding up innovation in industry and to institutionalize this. The Govt. will compliment the efforts of various other Govt. departments, Public Sector, Private Sector, Industry associations, Cooperatives, Consumer action groups, NGO etc. to provide a healthy, and enabling environment. The Govt. recognizes the need to achieve these objectives by way of removal of restrictions, private sector participation, enhanced Market opportunities, rationalization of tax structure and positive interface with the industry. A policy environment that actively welcomes large-scale investment in food will do much to stimulate this vital area of the economy.

Social Impact
Rapid transformation in the lifestyle of Indians, particularly those living in urban India, has resulted in dramatic increase in the demand for processed food. The main reason why processed food is luring the urban Indians is the convenience that it offers to cooking, as they don't need to spend hours in kitchen to get that appetizing food. Growth in working women's population and prevalence of nuclear families with double income are other trends causing this change in the lifestyle of Indians. Also, increase in overseas travel and the presence of foreign media in the country has resulted in more Indians opting for processed food. For instance, in 2007, above 5Million Indians had traveled abroad and the number is likely to rise by 15% to 20% every year. These trends have largely impacted the Indian food-processing sector, as there's been a jump in the demand for processed, ready-to-eat and ready-to-cook food. Amount of money spent by Indian on foods outside home has been assessed to have more than doubled over the last ten years to nearly $5Billion a year. Also, it's likely to double in the five years to come. These trends entail significant growth potential for the food processing industry in future and, as a result, add to the attractiveness of investment in this sector.

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"During the past five years, average monthly income has increased almost by 43 percent and disposable income of individuals has increased nearly to 45 percent. This growth in income will help the India processed food industry to boost further. The demographic trend and lifestyle patterns, of the society that a retailer intends to serve, decide the retailers strategy. Traditionally, children seldom accompanied their parents while grocery food shopping. Shopping for children was confined to that during festivals when dresses were brought for them. But, in the present day, due to scarcity of time, working parents prefer to spend as much time as possible with their children and this includes their shopping hours also. As the organization retail sector offers the option of entertainment along with shopping, the younger couples opt for these retail outlets for shopping Speaking at KSA Retail Summit, 2000, Peter Lau, Chairman of Giordano International, Hong Kong, said, "It is the format of consumer expectation that changes, not the goods or services they want. KSA Techno Park conducted a study on consumer attitude towards shopping in association with the market research firm ORG- MARG in January and February 1999. The study was spread over the four zones of India viz. North, South, West and East and covered a random sample of 7300 respondents in twelve cities. The results of this study clearly reflect that the buying patterns do vary according to the customs and lifestyle of a region. In the south approximately seven hours are spent on shopping per week. This figure is the highest amongst the four zones, which probably explains the more spurt of new malls and supermarkets in the south than in the other zones. Further, the study has attempted to find out what a customer expects out of a store. Here, the six attributes desired by most number of people (65% and above) are polite and courteous salespeople, quality of products, non intrusive sales persons, value for money, attractive displays and range of products.

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Although desired by a very low percentage of people (only 10%) yet the attribute of an entertainment centre for children has also figured in.That is to say, apart from quality and range of products, value for money and attractive displays, the human touch has a vital role to play. Smart, polite and courteous sales people might make all the difference for a store, which is like any other in terms of its Product offerings. There is also emphasis on schemes and promotions, which, as the study ratifies, do pull customers. Further the trend is towards more convenience and flexibility in terms of exchange/ return policies, which play a vital role in encouraging the purchase.

Technology Impact

Technology is probably the most dynamic change agent for the retailing industry. The computerization of the various operations in a retail store, including inventory management, billing and payments as well as database (of customers) management, widespread use of bar coding, point -of-sale terminals and Management Information System has changed the face of retailing drastically. Apart from providing the retailers with better and timelier information about their operations, the technology also does the job of preventing theft, promoting the store's goods and creating a better shopping atmosphere. These can be done with the help of closed circuit televisions, video walls, instore video networks, kiosks and other forms of interactive applications ranging from CD-ROMs to virtual reality to let customers select and buy products. They make the customer's life a lot easier by facilitating the use of developments like credit cards. Toll free 800 numbers have brought about a revolution in consumer's ordering and feedback mechanisms. These also pave way for tele-shopping and netshopping. Emerging technologies will also facilitate just-in-time management of certain products within the store. These trends are already visible in the music and greeting card industries.

Advancement in food technology can play an important role in not only harmonizing quality norms, but also by developing good manufacturing practices, including
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conformity to traceability norms hazard analysis at critical control points (HACCP). The area where the technology can help is the fixation of the rational maximum residue limit (MRL) for pesticides and veterinary drugs in food, which can be acceptable for implementation by member countries of Codex. Codex has also mincorporated HACCP system for identifying risk and their control. HACCP also covers pathogenic bacteria also. Though the quality norms of these global bodies are accepted as base for reference, countries are allowed to set more stringent norms. The developed countries, who are technologically advanced are in a more advantageous position to set stringent norms, which many feel, could act as non-tariff barriers in trade.

5.4. Driving Forces for the Food Processing Industry

In the international steel industry, there are a number of factors which are having a major impact on the overall developments and trends in this industrial branch. These include: Continuing globalization and concentration of steel producers Increased worldwide competition resulting from deregulation and removal of trade barriers and tariffs Relocation of production sites for semi-finished products to strategic locations along the coast Tightening of environmental regulations with respect to emissions (e.g., Kyoto protocol) and the treatment of waste materials In addition to these factors, steel producers must also focus on and respond to the main driving forces behind developments in the Food processing industry these Driving forces can be defined as: Raw materials Products Costs
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 People The driving force: raw materials Over the long term, the margin between revenues and food processing production costs is expected to narrow as the worldwide demand for limited energy supplies continues to increase, thus driving the costs for these in an upward spiral. One escape from this tightening revenue-cost shear would be the greater and direct usage of less expensive and more widely available raw materials At the same time, the protection of the environment through the application of innovative process technologies which reduce emissions and wastes (sludges, dusts, CO2), in combination with advanced recycling solutions that convert wastes into valuable products, will eventually become mandatory in the industry. The driving force: products A paradigm shift can be observed in the food processing industry today in that companies are becoming less and less technology-oriented and more and more value-enhancement oriented. This is reflected by the efforts of producers to improve the quality and value of their products as exemplified by the development of genetically modified food a development, which is especially supported by the R&D. The creation of higher-value food product through innovative product development is an important step for maintaining and expanding existing markets, as well as for securing niche markets. Examples of new food product for special applications include Athletic food, food for reducing Cholesterol etc. This paradigm shift is also seen by the efforts of producers to elongate the value-added chain in production through the increased installation of downstream facilities, as well as by the manufacturing of, for example, food product for premium segments like diabetic chocolate, fortified food from that higher revenues can be obtained. The prediction, control and improvement of product quality are achieved by the installation of fully automated plants, beginning with the processing of the raw materials up to the dispatch of the finished products. The driving force: costs

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In addition to the production of higher-value products, the permanent reduction of costs is the second major lever which is applied by processed food producers to escape the shear of decreasing margins between revenues and costs. This cost reduction can be realized through an improvement of business processes (investment strategy, organizational aspects, flexible and just-in-time supply, etc.), by measures to secure Total Cost of Ownership (TCO) in the supply chain through lifecycle partnerships with suppliers and service partners, as well as by the permanent optimization of production routes, equipment and logistics. Fast implementation of best practices (benchmarking) through the application of knowledge-management tools and the maximum employment of automation systems are further decisive steps towards reducing costs and increasing profits.

The driving force: people The greatest asset of any company is its staff of highly qualified and motivated personnel. Therefore, aspects of health, safety on the job, working environment and training/education are becoming increasingly more important to ensure that plants are ideally operated and maintained for their entire service life. This also implies full automation and roboterization in dangerous working areas, such as in the boiler chamber and on the milling platform, as well as personnel networking and knowledge management to ensure continual improvements in plant operations and production. Modern idea management systems help to exploit the vast creativity potential and motivation of employees.

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CHAPTER: 7 Financial Analysis

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7. Financial Analysis
7.1. ANALYZING INDUSTRY ATTRACTIVENESS
The profitability of different Indian industries. Some industries (such as tobacco, food processing, pharmaceuticals, and medical equipment) consistently earn high rates of profit; others (such as iron and steel, nonferrous metals, airlines, and basic building materials) have failed to cover their cost of capital. The basic premise that underlies industry analysis is that the level of industry profitability is neither random nor the result of entirely industry-specific influences it is determined by the systematic influences of the industrys structure. The Indian pharmaceutical industry and the Indian steel industry not only supply very different products, they also have very different structures, which make one highly profitable and the other a nightmare of price competition and weak margins The food processing industry produces a commodity product with inclining demand, strong substitute competition, massive overcapacity, and is squeezed on one side by powerful customers.

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Table: 7.1 Attractiveness of the industries

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(Source: G. Hawawini, V. Subramanian, and P. Verdin, Is Firms Profitability Driven by Industry or Firm- Specific Factors? A New Look at the Evidence, Strategic Management Journal 24 (January 2008): 116).

Food processing industry having 2.5 positive value of EVA/CE and ROA is 8.5% which means companies in this industry is efficiently investing their money

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Table:-7.2 ROE of the industries

INDUSTRY

ROE (%) (2008-09)

INDUSTRY

ROE (%) (2008-09)

(Source: Fortune 1000 by Industry)

Food processing Industry have median ROE 20.5% which is very good for the investors of food processing company and this show how efficiently industry is growing
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7.2. Ratio Analysis of food Processing Industry

Profitability ratios (%) Food Products 4-Mar On Total Sales EBIT/Sales( gros s margin) PAT/Sales( net margin) No of companies

5-Mar

6-Mar

7-Mar

8-Mar

9-Mar

3.63286 91 0.59372 17

3.446298 42 0.298888 55

4.536096 24 1.145913 3

6.733976 27 3.020749 08

7.281305 45 3.356271 6

5.865203 91 2.669384 67

742

840

866

849

804

711

Gross margin: It shows management is efficiently produce each unit of product , but

it is fluctuating minor because of changing in tax structure every year and also change in sale every year and there are many other reason like o Change in sales price o Price change in cost of goods o Combination both
Net Margin: Firm in industry have enough capacity to withstand against adverse

economic condition. It is having fluctuation because of change in sales price and goods price take place every year
Return ratios % Food Products 3-Mar On Net worth PAT/net worth( ROE) On Capital Employed EBIT/ capital employed(ROI) PAT/capital 30.62898 297 30.33298 608 31.29865 106 33.26223 355 33.522 027 32.62731 532 4-Mar 5-Mar 6-Mar 7-Mar 8-Mar

31.40873 8 20.40950

27.53270 8 20.21988

29.31656 1 20.85618

39.10510 2 22.16568

38.561 4 22.338

32.29332 6 21.60636 115

employed(ROI AFTER TAX) No. of Cos.

1 742

0 840

7 866

0 849

1 804

5 711

ROE: Its shows that the entire firm in industry is very well utilizing their own

resources fluctuation is there show change net worth (due to utilization of reserve for investment) or profit after Tax
ROI: It is good satisfy the lender and investor in the firm present in food processing

sector, here we have to find both ROI before Tax and After Tax because taxes are not controllable by management and since firm opportunities for availing tax incentives differ, it may be more prudent to use before Tax measure of ROI, but it is also fluctuating because there is change in debt net worth residue income Working cycle & turnover ratios Processed Foods March-04 March-05 Working cycle (days) Raw material cycle Work in process Finished goods cycle Debtors Creditors Net working capital cycle Turnover ratios (times) Raw material turnover Finished goods turnover Debtors turnover Creditors turnover March-06 March-07 March-08 March-09

39.022725 6 4.6737288 6 18.721881 5 35.581138 7 88.370722 8 9.6287519 3

36.805913 9 4.8214370 7 15.835563 7 31.699084 8 76.998734 3 12.163265 2

48.391553 2 4.2742723 4 11.913957 6 30.878836 7 82.055051 6 13.403568 3

52.956864 4.1179494 8 12.099139 7 28.250349 5 86.313606 7 11.110695 9

55.2282036 4.68214394 14.5404523 27.0889532 79.3147194 22.2250337

52.3420147 4.33089531 30.5014775 27.6488712 60.8294903 53.9937685

8.2183066 9 10.141877 10.258243 9 2.4377689 7

8.4899140 8 11.402451 11.514528 2.4951985 8

5.8134284 11.645679 7 11.820393 5 2.6818442

5.2699118 6 12.434444 2 12.920194 2 2.5855408 7

5.28534897 12.8954532 13.4741272 2.58509803

6.226254 12.6147856 13.2012623 2.33586091

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No of companies

742

840

866

849

804

711

Component of Inventory: Raw material turnover and finish good turnover

firms in food processing industry are not able to convert raw material in work in process and work in process into finished good efficiently or smoothly, but fluctuation is there reason for that is food processing industry is dependable on seasonal raw material that create fluctuation in inventory
Debtors turnover: It is increasing every year its show credit management is

efficiently working in all firm in food processing industry it show management able to convert debtors amount in to cash. Asset utilization ratios Processed Foods Mar-04 Sales /Avg. net fixed assets( assets turnover) times No of companies 0.5389156 7 742 Mar-05 0.6157063 1 840 Mar-06 0.5730631 4 866 Mar-07 0.5438956 2 849 Mar-08 Mar-09

0.5928396 9 0.81297533 804 711

Asset turnover: It shows management of firm of food processing industry are not

able to utilization of asset efficiently, it fluctuate because of the depreciation of Asset and change in the volume of sales

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7.3. Balance Sheet of Industry and Trend Forecasting

Structure of asset & liabilities (%) Food Products (Non-Annualized) Gross fixed assets Less: Cumulative depreciation Net fixed assets

Mar-04 58.891958 8 17.261175 8 41.591564 3 6.5023248 8 1.3279460 8 1.3657225 7 47.034845 3 0 0.5614997 8 100 25.468370 5 11.113361 1 0.8913531 1 18.356594 1 41.132417 6 32.679054 8 8.4533628 5

Mar-05 58.260093 5 18.088932 9 40.132554 2 7.5522909 1 1.3756579 7 2.1962069 3 46.931061 2 0 0.6293048 1 100 26.274886 5 10.315730 7 1.1879522 7 18.453747 6 38.603550 8 31.199055 6 7.4044952 5

Mar-06 58.018733 3 19.053344 38.946388 7 7.9472931 5 1.9708914 8 2.4436057 4 46.537191 4 0 0.4356597 5 100

Mar-07 61.357461 7 20.233143 7 41.109519 9 7.6158921 6 3.3501264 4 2.1525573 7 45.414910 6 0 0.3892272 100 28.542474 3 9.8930752 3 1.1667615 1 21.132528 2 37.505480 3 29.080188 1 8.4252921 3

Mar-08 61.459673 5 18.322438 1 43.133921 2 7.0359200 7 5.7800639 8 1.4055136 4 44.166729 3 0.0008484 4 0.3111005 2 100 29.719757 6 8.5923109 1.0519776 6 23.432735 2 37.654855 9 27.773917 8 9.8809381 3

Mar-09 58.526768 15.7283046 42.7962707

Investments Market value of quoted investments Deferred tax assets Current assets Loans & advances Deferred revenue expenditure Total assets

8.05160543 3.57087752 1.53966598 43.0989984 0.00073092 0.21337235 100

Net Worth Paid up equity capital (net of forfeited capital) Paid up preference capital (net of forfeited capital) Reserves & surplus

26.595633 11.599985 7 1.2182280 1 17.015721 7

27.7296568 5.74633211 1.05335108 23.2499453

Total borrowings Secured borrowings Unsecured borrowings

39.150972 29.603756 8 9.5472151 9

41.5147689 31.5655395 9.94922942

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Current liabilities & provisions Sundry creditors Interest accrued Share application money Other current liabilities Provisions Total liabilities

25.339658 14.469420 5 2.5836641 3 0.0046469 5 2.5506147 3.1348885 4 100 0.0044666 8 742

27.223639 3 15.919581 2.6787589 9 0.0040785 3 2.5089318 3.1783328 9 100 0.0040599 1 840

26.647509 3 14.934727 8 2.4534815 0.0068559 2.3129682 1 3.2638977 6 100 0.0035585 4 866

26.056661 7 13.899545 3 1.9857610 5 0.0079587 5 2.4814115 7 3.7603622 8 100

25.330094 4 13.605182 7 1.4120890 8 0.0101283 2.1227271 5 4.3288669 4 100

24.967728 14.5808358 1.18930272 0.03373665 1.958302 4.08875915 100

Contingent liabilities No of companies

0 849

0 804

0 711

Forecasted Balanced sheet (Forecast Method Linear Trend)

forecasted balance Structure of asset & liabilities (%) Mar-10(E) Gross fixed assets Less: Cumulative depreciation Net fixed assets Investments Market value of quoted investments Deferred tax assets Current assets Loans & advances Deferred revenue expenditure Total assets Net Worth Paid up equity capital (net of forfeited capital) 60.53027 17.53615 43.00411 8.037477 5.476638 1.671204 42.62117 8.83E-04 0.1491925 100 29.74725 6.172235 Mar-11(F) 60.84774 17.37089 43.49528 8.205073 6.213984 1.619964 41.7899 1.06E-03 0.0708587 100 30.42119 5.209025 Mar-12(F) 61.16521 17.20564 43.98644 8.37267 6.95133 1.568724 40.95863 1.06E-03 0.0074751 100 31.09513 4.245816 Mar-13(F) 61.48268 17.04038 44.47761 8.540267 7.688676 1.517483 40.12736 1.41E-03 0.0858089 100 31.76907 3.282608 119

Paid up preference capital (net of forfeited capital) Reserves & surplus Total borrowings Secured borrowings Unsecured borrowings Current liabilities & provisions Sundry creditors Interest accrued Share application money Other current liabilities Provisions Total liabilities Contingent liabilities No of companies

1.129997 24.6256 39.00236 28.68026 10.3221 25.11444 13.82609 0.9265559 0.0027704 1.927319 4.497593 100 0.001793 774

1.140014 25.86904 38.92865 28.21265 10.716 24.88212 13.61405 0.6054262 0.003241 1.814412 4.746662 100 0.0028807 812

1.150031 27.11249 38.85494 27.74503 11.10991 24.6498 13.40201 0.2842966 0.0037116 1.701506 4.995731 100 0.0039685 862

1.160049 28.35593 38.78123 27.27741 11.50382 24.41748 13.18997 0.0368331 0.0041821 1.588599 5.244801 100 0.0050563 871

CHAPTER: 7 Findings
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8. Key Findings
Currently, the Indian food processing industry is basically export oriented. Although domestic consumption of processed food is low but it is fast picking up with rising income levels & changing consumer behavior due to economic growth. Indian processed food industry provides competitive advantages over other countries due to cheap workforce, government initiatives (tax holidays) & availability of raw materials. Existence of untapped large consumer base with rising income levels. Indian food processing level as compared to countries like USA, France & Malaysia continues to remain very low. However, with the emerging positive market forces, it is all set to boom. The rapidly developing and full of potential processed food market will attract foreign companies.
Fast-food outlets appear to be taking market share from street hawkers as consumer

purchasing trends are turning more westernized.

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 Production of branded snack food is estimated to be growing at an annual rate of 20% in coming 2-3 years, albeit it has a small base of consumers. Being the world's largest market for whisky, India will remain major global spirits market in the coming 3-4 years. The processed-food market is the main focus for foreign companies as this segment is underdeveloped and presents enormous potential for growth. The growth of modern, organized retailing in contrast to the kiosks and small shops from which Indians have been purchasing food traditionally will also increase the demand for valueadded foods. Rising household incomes, increasing urbanization, changing lifestyles and the rapid growth of the private-sector and dairy-processing industry should lead to greater demand for value-added, milk-based products, such as processed cheese, table butter and ice cream. Rising incomes will make fish more affordable for a larger segment of the population. It is expected that the consumption per head will increase at a CAGR of 3.45% for the forecasted period. The growth rate of soft drink sales will decelerate during the forecasted period due to pesticide contamination issues and growing popularity of fruit juice drinks and bottled water. Coffee consumption is likely to expand at a rapid rate during the forecasted period. It is expected that it will increase at a CAGR of 10.05% for the period spanning from 2007-2011.
Industry associations & segments like semi processed cooked ready-to-eat, ice-cream;

wine and sugar have 24 per cent, 30 per cent, 22 per cent and 25 per cent growth respectively. With water resources in terms of 29,000 km of rivers, 3.15 million hectares of reservoirs, 2.35 million hectares of ponds and tanks and 0.2 million hectares of floodplain wetlands, the potential production levels are estimated at over 4.5 mmt annually

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 The country produces almost 10% of the worlds fresh produce but accounts for just

1.6% of the global trade. Experts say almost 40% of the countrys fresh produce is wasted due to the lack of a proper cold chain infrastructure.

Limitations

The respondents are selected by judgmental and snowball technique so they may not be experts of the industry

The results are totally derived by the respondents answers. There might be a difference between the actual and projected results. because we have not taken all the factor affecting industry We have to conduct depth interview in which we have to take the interviews from the experts but maybe it is possible that the responder may not be expert so he may give us wrong or incomplete information. or lack of latest data Due to time constraint we will not be able to perform primary data analysis, due to this we will not be able to get the customers opinion about processed food.

Research also depends on intervies bias & his/her ability to analyze the data & draw conclusion and the whole report is depend on secondary data .

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Conclusion
According to a study done by us, the Indian food market will grow two fold by 2010 with the rapidly growing Indian economy and improving lifestyles of Indians contributing in a big way to this growth. Quoting the study "The market size for the food consumption category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion in 2010 at a compound annual growth rate of 4.1 per cent." The Indian snacks market is worth around US$ 3 billion, with the organised segment taking half the market share, and has an annual growth rate of 15-20 per cent. The unorganised snacks market is worth US$ 1.56 billion, with a growth rate of 7-8 per cent per year. There are approximately 1,000 types of snacks and another 300 types of savories being sold in the Indian market today. There is a big market for snacks in India as urban Indian consumers eat ready-made snacks 10 times more than their rural counterparts.
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"Consumers are willing to pay a premium for both value-added private and branded products, creating immense opportunities for manufacturers and retailers. The growth of food processing sector has nearly doubled to 13.7 per cent during the last four years. A dominant segment of the food industry, food processing is estimated to be worth US$ 70 billion with a 32 per cent share. It comprises agriculture, horticulture, animal husbandries, and plantation. The opportunity for growth is huge when seen against the fact that while a mere 1.3 per cent of food is processed in India, nearly 80 per cent of food is processed in the developed world. Significantly, processed food exports have increased from US$ 6.98 billion in 2003-04 to US$ 20.51 billion in 2007-08, recording a whopping 193.83 per cent growth rate. It realise India's potential in this industry,investment target of US$ 25.07 billion by 2015 to double India's share in global food trade from 1.6 per cent to 3 per cent, increase processing of perishable food from 6 per cent to 20 per cent and value addition from 20 per cent to 35 per cent. At last India is all set to become the food supplier of the world. It has the cultivable land, all the seasons for production of all varieties of fruits and vegetables, well developed agribusiness system that works in its own way. There are some Factors such as rapid growth in the economy, the technological innovations, rise of families with dual incomes and the changing food habits of the population all point to the increasing need for healthy processed food. The supply chain sector is very weak with no process owner and this can spell disaster. The food supply chain needs the attention, the industry and the Government.

Reasons to Invest in Indian Food Processing Industry

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It is the seventh largest country, with extensive administrative structure and independent judiciary, a sound financial & infrastructural network and above all a stable and thriving democracy. 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. It is one of the biggest emerging markets, with over 900 million population and a 250 million strong middle class.

Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50% of household expenditure on food items.

Demand for processed/convenience food is constantly on the rise. India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets. Liberalized overall policy regime, with specific incentives for high priority food processing sector, provides a very conducive environment for investments and exports in the sector. Very good investment opportunities exist in many areas of food processing industries, the important ones being : fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products.

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