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Ministry of Commerce and Industry

Government of India

Ministry of Food Processing Industries

Fuelling New Cycles of


Success in Food Sector
through Infrastructure
Development

Knowledge Partner

Message
Food processing industry in India is increasingly seen as a potential source
for driving the rural economy as it brings about synergy between the
consumer, industry and agriculture. A well developed food processing
industry is expected to increase farm gate prices, reduce wastages, ensure
value addition, promote crop diversification, generate employment
opportunities as well as export earnings. This sector is also capable of
addressing critical issues of food security and providing wholesome,
nutritious food to our people.
However we still have some way to go before we are able to grab these
opportunities. Even today we are grappling with issues of quality and
quantity of raw produce, supply chain and wastage related problems, low
levels of value addition and a very small portion of the global trade. This
requires all of us, at the Center and at the State level to work as one single
cohesive unit.
With a leadership position in the production of several key agricultural
commodities including cereals, fruits & vegetables and dairy products,
India's supply strength in agriculture is immense with the potential to
emerge as the leading agro economy of the world.
I am confident that this joint effort by FICCI & KPMG will be instrumental in
further strengthening the global ties between India and global food
business, by highlighting the business potential in the agri-food business
sector.

Dr. Amit Mitra


Secretary General-FICCI

Message
Buoyed by a favorable policy environment and the demand-push impact of a young
consuming class with growing disposable incomes, India undoubtedly offers a huge
investment opportunity in the food and agribusiness sector, and is set to become a world
leader in food business.

The Indian Food Sector is estimated to be INR 10,360 billion in 2009-10 and is expected
grow at a compounded annual growth rate of 8.1% for the next 5 years, throwing up hug
opportunities for investment across the entire value
. With
chain
a population of more than
one billion individuals and food constituting a major part of the consumer's budget, this
sector has a prominence next to no other businesses in the country.
the Moreover
importance of this sector to India's economy becomes all the more relevant, considering
the fact that this sector continued to perform well, despite fall in GDP number and poo
performance by many other industries, during recession in 2008-09.
The government on its part has initiated extensive reforms to remove legislative barriers
and introduce facilitatory measures to catalyse private sector activity in food and
agribusiness sector. To promote private sector activity and invite foreign investments in
the sector the Government allows 100% FDI in the food processing & cold chain
infrastructure.

This joint effort by FICCI & KPMG will be helpful in further strengthening the business ties
by highlighting the opportunities for private investments and Public-Private-Partnerships
in the agri-food business sector.

Shrijeet Mishra
Chairman, FICCI Food Processing Committee

to
uge

or

s,

This study analyses the inadequacy of infrastructure investments across


India's food value chain.
The

study

expected

starts
growth

with
and

the

market

projected

landscape

size

of

of

various

food

sector

segments

in

In

within

th

sector over the next 5 years. The study also looks at the growth d
key trends and challenges in the sector.

The study then focuses on the inadequacy of infrastructure across t

food value chain in detail and assesses the impact of the same on th
sector. The

document

concludes

with

discussion

of

opportunities

existing for private and public participants in filling these identified ga


and

few

recommendations

to

the

infrastructure investments in the sector.

Government

to

improve

th

iii

Executive Summary
The Indian Food Sector is estimated to be INR 10,360 billion in
2009-10 and is expected to grow at a compounded annual
growth rate of 8.1% for the next 5 years1. The expected
growth is marginally higher than what has been recorded
during 2003 to 2007, in which the industry recorded a
compounded annual growth rate of 6.8% from INR 7700 billion

Indian Food Sector

to INR 8800 billion.


2000
INR '000 Crores

1529.6
1500
880.0

927.3

2006-07

2007-08

1000

979.1

1036.2

1210.9

500
0
2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

Source: Ministry of Food Processing of India, KPMG Analysis

The food sector can be classified into 7 major segments, with


the compositions and expected growth rate as below:

Expected annual growth over the next 5 years

Staples and Other Food


40.8%

Staples and Other Food

7.9%
6.0%

Fruits and Vegetables

Beer and Wine


1.3%
Packaged Food
3.0%
Meat and Poultry
3.1%

Fruits and Vegetables


23.7%

8.0%

Dairy
Fish and Marine

Dairy
24.0%

3.8%

Meat and Poultry

9.4%
24.4%

Packaged Food

Fish and Marine


4.2%

0%

12.1%

Beer and Wine


5%

10%

15%

20%

Key Statistics Ministry of Food Processing of India, KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

25%

30%

iv

The food sector is expected to retain its growth momentum, aided by a few factors that can be
summarized as:

Rising disposable
income
Growth and
development of
infrastructure

Consumption pattern
shifting to convenience
products and services

Increased FDI in the


food industry

Drivers for Food


Industry

Favorable policy
initiatives

Increasing consumption
in rural households

Growth of organized
retail
Export Opportunity

However, the inadequacies in infrastructure present across the entire value chain can hamper
growth. These inadequacies are a result of the insufficient investments made by both private
and public sector participants.

Inferior farm inputs


Inadequate irrigation
Inadequate Mechanization
Lack of Grading and sorting

Farming

Inadequate levels
Lack of consolidation
Constrained capacity

Primary
processing

Secondary
processing

Low organized retail


Low value addition

Food Services/
Retail

Supply Chain and Logistics


Marketing Infrastructure
Soft Infrastructure (R&D, HRD, etc.)
Poor packaging
Insufficient transportation
Inadequate storage
infrastructure
Lack of cold storages

Low levels of R&D


Lack of focus on
Human Resource
Development

Information access
Poor media reach
Inadequate storage
infrastructure
Lack of cold storages

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

The impact of this poor infrastructure has been the low levels of productivity in the sector, high
levels of wastages and high cost structures across the value chain. For instance, an
approximate break-up of wastages in the food sector is as depicted below:

Farmers production

60% Retained by Farmer

40% Marketable produce

Storage in open conditions


~ 30% wastage

Poor storage conditions


10% wastage

Supply Chain
12-15% wastage

18%
18% of
of total
total

6%
6% of
of total
total

6%
6% of
of total
total

30%
30% of
of the
the total
total produce
produce wasted
wasted

These inadequacies,
Some key
forfor
private
andand
foreign
players
Some
keyopportunities
opportunities
private
foreign
players

however, present exciting

Production infrastructure
Contract farming

Supply chain technology


Food safety systems

opportunities private

Post-harvest processing
infrastructure
Food Supply Chain

Food Processing
Mega Food Parks

Foreign) to participate in

Food Wholesale, Retail


and Services

development in many

Integrated Cold Chain

players (both Indian and

holistic infrastructure

ways.

The industry expects support from the Government through policy


measures as well as through direct involvement. Some of the major
expectations are:

Enhanced focus on PPP initiatives in the food sector

Technology upgrade through policy push

Support for Backward Integration

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
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vi

Modernizing Irrigation Systems & Techniques

Filling information gaps

Capacity Building Measures such as Safety and Quality Standards

Providing facilities for Education, Research & Training

The opportunities for participation from the public and private sector across the value chain of
the food sector has been summarized below:
Agricultural Sector

Food Processing and Distribution

Agricultural inputs

Storage and marketing Infrastructure


Research and Development

Support Infrastructure- transport, electricity, education, healthcare

Public Participation

Opportunities exist across the value chain


(PPP is an emerging option)

Farming

Processing

Retail

Agricultural inputs,
irrigation and farm
machinery, grading
and sorting
infrastructure

Increase in
processing, packaging
and storage
infrastructure

Investment in
organized retail
development

Private Players

Supply chain and Warehousing

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

vii

Contents
Food Sector in India

Growth drivers, trends, challenges

Infrastructure Investments in the Food Sector

13

Inadequacy of infrastructure across the food value chain

14

The Impact of poor infrastructure

26

Opportunities

29

Expectations from the Government

37

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Food Sector in India


The Indian Food Sector is estimated to be INR 10,360 billion in 2009-10
and is expected to grow at a compounded annual growth rate of 8.1%
for the next 5 years2.
The expected growth

Indian Food Sector

is
2000

higher

than what has been


1529.6

INR '000 Crores

marginally

1500

recorded during 2003

1210.9
880.0

1000

979.1

927.3

to 2007, in which the

1036.2

industry

recorded

compounded

500

annual

growth rate of 6.8%


0

from INR 7700 billion


2006-07

2007-08

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

to INR 8800 billion.

Source: Ministry of Food Processing of India, KPMG Analysis

The Indian food industry can be broadly segmented into the following:

Staples and Other Food


40.8%

Beer and Wine


1.3%
Packaged Food
3.0%
Meat and Poultry
3.1%
Fish and Marine
4.2%

Fruits and Vegetables


23.7%

Segment

Examples

Staple Food

Rice, wheat, bread, flour, sugar, salt

Fruits and Vegetables

Raw fruits and vegetables, pulps,


juices, jams, spreads

Dairy

Milk and milk products including


butter, cheese, milk powder

Meat and Poultry

Cattle, sheep, pigs and poultry

Fisheries

Marine fisheries, processed and


canned fisheries products

Ready to eat food

Noodles, jam, soups, pre-cooked


food items

Beverages

Alcoholic and Non Alcoholic drinks

Dairy
24.0%

Key Statistics Ministry of Food Processing of India, KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Fruits and Vegetables


India is the worlds
second

Growth projections: Fruits and Vegetables segment

largest

producer
INR '000 Crores

400

329.0

300
206.0

218.3

231.4

245.3

260.0

vegetable and third


largest producer of

200

fruits.

100

fruit

0
2006-07

2007-08

of

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

Area

under

cultivation

is

around 4.8 million


hectares and that of

vegetables is 7.59 million hectares . The market size of the fruits and
vegetables segment is estimated to be INR 2450 billion in 2009-10 and
forms almost a quarter of the Indian food sector. Fruits and vegetables
market is expected to grow at a compounded annual growth rate of
around 6% over the next 5 years from the base of 2009-104. The major
components of the Indian fruits and vegetable processing industry are
pulps particularly of tomatoes & mangoes, ready to serve juices,
canned fruits, jam, pickles, squashes, etc. The fruits and vegetable
processing industry in India is highly decentralized with a large number
of units are in the cottage/home scale and small scale sector. Exports
of fruits and vegetables happen in both fresh and processed forms. In
2008-09, India's export of fresh fruit and vegetable was estimated at
INR 35 billion and in the case of processed fruits and vegetables, it
stood at INR 30.6 billion5.

3
4
5

Ministry of Food Processing of India


Ministry of Food Processing of India and KPMG Analysis
http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/food-process.htm

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Dairy
Dairy is one of the
key contributors to

Growth projections: Dairy Segment

the
366.0

INR '000 Crores

400
300
198.0

213.8

230.8

249.2

269.0

Indian

Food

Industry, next only


to

staple

food

200

products.

100

2490 billion in 2009-

0
2006-07

2007-08

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

10,

it

At

INR

formed

another quarter6 of
the food sector. India is the leading producer of milk in the world, with
112 million tones of milk produced during 2009-107. India has a large
livestock base constituting 278 million livestock including 180.5 million
cattle, 82.8 million buffaloes, 4 million sheep and 9.2 million goats. The
livestock population is projected to increase to 322 million by the year
20158. Dairy market is expected to grow at a compounded annual
growth rate of aroun d 8% over the next 5 years from the base of
2009-109. Milk processing in India is around 35% (in volume terms), of
which the organized dairy industry account for 13%10 of the milk
produced. Significant portion of the produced milk is consumed unprocessed through unorganized channels. Packed milk sub-segment is
largely dominated by various co-operatives in the states of Gujarat,
Tamil Nadu, Karnataka, Punjab, Rajasthan, Kerala etc. Processed milk
products such as Ghee, Cheese, Cottage Cheese, Butter, Ice creams
and other traditional milk based products are increasingly getting
organized

with

players

investing

heavily

in

technology

and

infrastructure to meet the surging demand, both in domestic and


export markets.
6

KPMG Analysis
http://economictimes.indiatimes.com/markets/commodities/Indias-milk-production-rose-to-112-mn-tonnes-lastfiscal/articleshow/6223863.cms
8
Ministry of Food Processing of India Estimates
9
Ministry of Food Processing of India and KPMG Analysis
10
Ministry of Food Processing of India
7

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Meat and Poultry


While Indian ranks high in the cattle population, the associated
processing industry is yet to scale up. India houses 56% of buffalo
population and one-sixth of goat population in the world. India ranks
fifth in egg production with over 1.6 million tonnes, while it is ninth in
the poultry population11. Though, India tops in meat, milk and eggs
production, quality considerations are significantly hampering the
export potential. The market size of the meat and poultry segment is
estimated to be INR 320
Growth projections: Meat and Poultry

billion in 2009-10, just

INR '000 Crores

60

50.0

50
40
30

24.0

26.4

29.0

31.8

35.0

20

about 3% to the total


food sector. Meat and
poultry segment market
is expected to grow at a

10
0

compounded
2006-07

2007-08

annual

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

growth rate of around


10% over the next 5 years12. There is opportunity for poultry meat
processing, both for domestic consumption as well as for export
markets. Currently, India's poultry product exports are mainly confined
to eggs and egg powder, which have cost competitiveness and
logistical advantages. Meat exports are insignificant due to high costs,
inadequate meat processing facilities and infrastructure bottlenecks.

11
12

Ministry of Food Processing of India


KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Fish and marine products


India is the third largest fish producing country in the world and ranks
second in inland fish production. The 8,000 km coastline from both
inland and marine resources, 3 million hectares of reservoirs, 1.4
million hectares of brackish water, 50,600 sq km of continental shelf
area and 2.2 mn sq
km13

Growth projections: Fish and Marine

of

exclusive

economic
INR '000 Crores

60
50
40

52.0
38.0

39.6

41.4

43.1

45.0

augment

zone
Indias
enormous

30
20

opportunities

10

for

fisheries. The market

0
2006-07

2007-08

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

size of the fish and


marine

products

segment is estimated to be INR 430 billion in 2009-10 and contributes


around 4% to the Indian food industry. Fish and marine products
market is expected to grow at a compounded annual growth rate of
around 4% over the next 5 years from the base of 2009-1014. Major
marine products exported from India includes frozen shrimps,
Individually Quick Frozen (IQF) shrimps, canned shrimps/prawns, dried
shrimps/ prawns, lobsters, cuttle fish, squid tubes, fresh fishes, canned
fish, dried fish, crab, clam, mussel, aquarium fishes, dried shark fins,
dried cuttle fish bones, dried fish maws, etc.

13
14

Ministry of Food Processing of India


KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Packaged Foods
With

changing

lifestyles

Growth projections: Packaged Food Segment

and

increasingly
INR '000 Crores

busy

91.0

100

schedule

80
60

43.0

40
11.0

15.5

2006-07

2007-08

20

21.7

30.6

individuals,

of
packaged

foods are increasingly


gaining

acceptance

amongst

the

0
2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

population.

urban

This

is

expected to be the fastest growing segment in the food sector, and


could triple in size in the next 5 years15. Packaged foods consist of
ready-to-eat and ready-to-cook products, chips, salted snacks, pasta
products, cocoa based products, bakery products, biscuits, soft drinks,
etc. Positive aspects associated with packaged foods are the fact that
they are easy to prepare, have longer shelf life and are affordable.
Packaged foods tend to be under criticism for their high calorific conte
nt, reduced nutritional value and usage of preservatives. The market
size of the packaged foods segment is estimated to be INR 310 billion
in 2009-10 and contributes around 2.9% to the Indian food industry.
Given the growth rate of about 25% per year, this share can be
expected to reach 7% by 201516.

Beverages
Aerated drinks constitute the third largest packaged foods regularly
consumed after packed tea and packed biscuits. India is the third
largest market for alcoholic beverages in the world. The market size of
alcoholic beverages is estimated to be INR 140 billion in 2009-10 and
contributes around 1.3% to the Indian food industry. Beverages market
15
16

KPMG Analysis
KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Growth projections: Beer and Wine

is expected to grow at
a compounded annual

INR '000 Crores

30

24.0

25

growth rate of around

20
15

10.0

11.1

12.2

13.6

15.0

10

years from the base of

2009-1017.

0
2006-07

17

12% over the next 5

2007-08

2008-09 (E) 2009-10 (E) 2010-11 (P) 2014-15 (P)

KPMG Analysis

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Growth drivers, trends, challenges


The food sector in India is expected to maintain the growth momentum
aided by a set of unique demographic factors and policy initiatives as
summarized below:
Rising disposable
income
Growth and
development of
infrastructure

Increased FDI in the


food industry

Consumption pattern
shifting to convenience
products and services

Drivers for Food


Industry

Favorable policy
initiatives

Increasing consumption
in rural households

Growth of organized
retail
Export Opportunity

Rising disposable income


Aggregate annual disposable income is growing at CAGR of 7% and is
bound to reach INR 90 trillion by 2025. With food being the largest part
of consumer wallet, the increased income is expected to drive growth
in the sector.
Consumption pattern shifting to convenience products and services
Increasing nuclear families, students and single employees staying
alone on work/education and increasing women employees are leading
to rise in consumption of processed read-to-eat canned and frozen
foods. The number of upper and middle class Indians consuming
packaged food is expected to rise to 200 million by 2012, up from 30

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

million in 200818. This growth is expected to drive the growth across


the entire food value chain.
Increasing consumption in rural households
Per-household consumption of rural India will reach current levels in
urban India by 201719. This is likely to open up the vast and unexplored
strata to Indian Companies. The growing purchasing power of the rural
households will increase the demand for goods and services across all
sectors including the food sector.
Growth in organized retail
The organized retail in food and beverages has been increasing
significantly over the last few years and the momentum is expected to
continue. The share of organized retail is expected to go up to 12.5%
from the current 9% of the overall retail market in India by the end of
2011, reaching a size of USD 90 billion20. This growth in organized retail
will be reflected in the food sector as well, driving up the overall
demand.
Export opportunity
The food sector in India has been witnessing increased marketable
surplus, and the exports grew at 6% between 2005 and 2009. Exports
are expected to grow at 11% per annum until 2009 driving the growth
in the sector21.
Favourable policy initiatives
The Government of India has initiated several policy driven efforts to
increase the efficiency of and improve the private sector participation in
18

Technopak Consumer Outlook, Jan 09 Volume 1


Indiastat, Euromonitor, KPMG Analysis
Indian Retail Industry, Cygnus Research, October 2010
21
India Food & Drink Report, Business Monitor International, November 2009
19
20

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

10

the Food Sector. These include several initiatives to improve the level
of food processing, increased FDI levels across the food sector, export
promotion policies, mega food parks, etc. which are all driving the
growth in the sector.
Increased FDI in the food sector
Measures such as Single window clearing system for Agri/food
projects, Development of agri-processing zones near coastal areas,
State investment in development of logistics systems, etc. have
resulted in increased FDI into the Food Sector. FDI inflows into the
sector were USD 2.4 billion between 2007 and 2010, compared to
USD 1.3 billion in the previous 7 years22.
Growth and development of infrastructure
The government of India has taken a few key measures to encourage
investments in food infrastructure. The planned outlay during the 11th
plan (2007-12) in food related infrastructure is to the tune of INR 643
billion23. Apart from this, measures are being taken to encourage Public
Private Partnerships (PPP) in the sector and to assist state
governments to develop the required market infrastructure. The
Government has announced a 15-25% capital subsidy to facilitate the
construction of rural godowns.

22
23

Fact Sheet on Foreign Direct Investment (FDI), Department of Industrial Policy and Promotion
Planning commission

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

11

Trends
Some of the emerging trends in the sector are summarised below:

Entry of foreign players


With market liberalization policies
undertaken by the government, India has
become an attractive market with a huge
customer base

Improving export focus


With more foreign companies looking at
India as a potential sourcing location and
the Indian companies themselves looking
to expand globally, the export focus in the
sector is improving

Some key players that have recently


entered India Dixy Chicken Pvt. Ltd, Caffe
Pascucci, News Caf, Taco Bell, OMA, etc.

Increased tie-ups with


foreign players
There is a growing trend amongst players
to tie up with global retailers to share their
knowledge, experience and expertise

Expansion into smaller


cities and towns
Increasing levels of value
addition

Key Trends

Companies are looking to improve the level


of value addition through food processing,
packaged food, private labels, food
services, etc.

With increasing focus on value retailing, tier


II and lower towns and cities become
potential markets for modern retailers
Retailers have started focusing on tier II
and lower cities and towns to make an
early mover advantage

Inorganic routes for


market entry
Encouraged by the opportunities presented
but lacking experience, many firms are
looking at inorganic route for entering the
food retail market

Challenges
One key challenges for the food sector has been the increasing volatility of prices. The global
demand-supply scenario has been in an unstable equilibrium and there have been many supply
shocks in the food sector in the last few years. This coupled with the fast growing economies
in worlds two most populous countries (India and China) has resulted in large scale volatility in
prices for many food products. Managing this volatility will be a key challenge for the players.
Erratic climate is another challenge that the food sector in India has come to face of late.Many
of the last few monsoon seasons had been erratic and floods and draughts have become

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

12

common. Untimely rain has lead to crop destruction in many instances, adding to the food price
volatility.
The tightly regulated nature of the sector is another challenge faced by the companies in the
sector. Hurdles of taxes and licenses still remain large in the sector.
However, the biggest challenge has remained the lack of adequate infrastrcure in most parts of
the food value chain. This report will look in detail the inadequacy of infrastructure across the
food sector and explore the opportunities that the private sector has in bridging this gap, which
is, no doubt, crippling the sector and hamepering the potential growth prospects.

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

13

Infrastructure Investments in the Food


Sector
The lack of adequate infrastructural facilities can be identified

Chart 1: India Consumption


Expenditure: Share of Categories
(2008-09)

as the dominant constraint hampering the growth of food


sector in India. A pan India survey administered by FICCI
across the entire value chain of the food processing sector in

Food
and
Beverag
es,
34.8%

India identified this as the biggest challenge24 (with a weighted


score of 44.25%) in achieving the full potential of the sector.
Food, beverages and tobacco constitutes the largest part of

Others,
65.2%

the private consumption expenditure in India. As per the latest


available statistics (chart 1), the share of wallet on food
spending is 34.8% of the total consumption expenditure.
Despite the declining share of agricultural sector in the GDP

over the years, it remains to play a crucial role since it employs about 52% of the Indian
workforce.
The share of public and private spending on food and agricultural infrastructure has remained
low in relation to this critical role that it plays in the economy. The share of agricultural and
allied sector has remained 6-7% of the public investments and 7-10% of the private
investments as depicted in Table 1.
Table 1: Public and Private Investment in Agriculture & Allied Sectors
(at constant prices)
Investment in agriculture & allied sectors
(INR crores)
Year

Share in total investment (per


cent)

Total

Public

Private

Total

Public

Private

2004-05

78,843

16,183

62,665

7.5%

6.7%

8.1%

2005-06

93,121

19,909

73,211

7.7%

7.1%

8.2%

2006-07

94,400

22,978

71,422

6.7%

7.1%

6.9%

2007-08

110,006

23,039

86,967

6.8%

6.1%

7.3%

2008-09

138,597

24,452

114,145

8.7%

5.9%

10.2%

Source: Central Statistical Organisation

24

Bottlenecks in Indian Food Processing Industry FICCI Survey 2010

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The share of Foreign Direct Investment (FDI) in Food as a percentage


of total FDI inflows has also remained considerably low. During the last
decade, only 3.3% of the total FDI inflow into India was directed at the
food sector.

Agricultural Services
1.3%

All other sectors


combined
96.7%

Food Sector
3.3%

Food Processing Industries


0.9%

Fermentation Industries
0.7%
Other Food related
0.4%

This consistent short-fall in investments in the sector has resulted in


some challenges within the food infrastructure space, affecting the
productivity and quality of the food products and a high degree of
wastage in the sector.

Inadequacy of infrastructure across the food value


chain
Issues concerning infrastructure in the food sector are one of the most
prominent challenges that need to be addressed with immediate
affect. Multiple factors that include a lack of proper irrigation and water
management, environmental concerns related to poor soil
management, inadequate and poor fertilizer & pesticide requirements
etc. in the agricultural sector, coupled with scanty post-harvest
infrastructure including shortage of proper warehouses and storage
facilities, poor grading, sorting and packaging of yield are hurting the

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agricultural base of our economy. While the food processing sector is


growing, the proportion of food getting processed is considerably
lower compared to advanced economies. Problems exist even in
marketing of products, primarily as farmers are handicapped by the lack
of information on prices and forecasts. Government policies and
regulation have also created a lot of unneeded complexity in the
system which has discouraged investment in this sector. The lack of
agri-support infrastructure has also had a role in accentuating the
productivity and wastage levels. Absence of proper research and
development institutes, transport infrastructure and educational
facilities has also stifled this sector.
The evidence for poor performance resulting from inadequate
infrastructure can be seen across the food value chain shown below:

Farming

Primary
processing

Secondary
processing

Food Services/
Retail

Supply Chain and Logistics


Marketing Infrastructure
Soft Infrastructure (R&D, HRD, etc.)

Farming
Inferior Farm Inputs
Adoption of better inputs can improve output significantly. New
technologies are needed to push the yield frontiers, utilize inputs more
efficiently and diversify to more sustainable and higher value cropping
patterns. The right crop selection techniques can considerably
influence the chances of obtaining the desired output and innovative
solutions to input distribution and usage extension can enable the
creation of a sustainable farming system.

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Inadequate Irrigation Facilities


Despite having the highest amount of land under irrigation in the world,
Indias agriculture output remains volatile and a hostage to the
monsoons. The growth in irrigation coverage has slowed markedly
after the Green Revolution and 60 percent of the gross sown area still
remains primarily rain-fed. A survey by the Ministry of Agriculture also
found that half of the total farmer holdings in India are not irrigated,
with another 20 percent being only partly irrigated. The quality of
irrigation facilities and regular availability of water are also major
concerns.
Also, water availability for irrigation is increasingly constrained.
Irrigation accounts for 85 percent of water withdrawals in developing
countries, and the rapid growth of the sector has been based on the
availability of huge quantities of low-cost water. For years, groundwater
provided a profitable new resource, but in many basins groundwater is
now being mined rapidly. Governments have led the expansion of
large-scale irrigation, but performance has been suboptimal.
Inadequate Mechanization
Agricultural machines increase productivity of land and labour by
meeting timeliness of farm operations and increase work output per
unit time. Besides its contribution to the multiple cropping and
diversification, mechanization also enables efficient utilization of inputs
such as seeds, fertilizers and water. To keep pace with improved
production and productivity, different machines have been developed
for effective cultivation and intercultural operations. Machines such as
mango harvesters, kinnow clippers, potato diggers, coconut peelers,
etc., are being adopted by the growers. Machines have also been
developed/ installed for different specialized uses such as cool
sterilization (irradiation) for sprouting in potato and onion, dehydration

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of different produce, vapour heat treatment in major mango growing


belts, packaging of coconut water, banana fig, and chip-making
machine, etc.
The availability and use of improved equipment have enabled states
like Pun jab and Haryana to achieve high levels of land productivity.
However, the progress of mechanization in most other states has been
slow and its benefits of timely and precise operations are not reaching
the majority of farmers in full measure. The constraints in promotion of
mechanization include requirement of equipment for each agro-climatic
zone, the small and fragmented land holding, low investment capacity
of the farmers, inadequate irrigation facilities, know-how status of the
farmers, repairs & maintenance facilities etc.
Lack of Grading and sorting facilities
The existing grading infrastructure in India is far from adequate. Only
around 7 percent of the total quantity sold by farmers in India is graded
before sale.25 Farmers in India have little to no information of grading
infrastructure at primary level and they generally sell their agricultural
produce without grading.
Also, the sales practice usually prevalent at farm level in India includes
the sale of heaps of all qualities of produce in one common lot. Thus,
the farmer producing better quality is deprived of a higher price,
thereby resulting in no incentive to use superior quality inputs for
producing enhanced varieties.

Primary and secondary processing


Indias agricultural production base is strong but at the same time
wastage of agricultural produce is massive. It is estimated that one-

25

Planning Commission

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third of all food produce is wasted. Limited processing of produce


combined with inadequate storage facilities contribute significantly to
this loss.
India accounts for less than 1.5% of the global food trade, despite
being the worlds leading producer of milk, live stock and cereals, and
ranked second in terms of fruit and vegetables. The following table
shows the level of processing across segments and the relative global
levels for the segment.
Level of Processing across segments (Source: MOFPI Annual Report 2009-10)
Segment
Level of Processing Comments
USA (65 %), Philippines (78%)
Fruits and
2.2%
and China (23%);
Vegetables
Fisheries
26%
Poultry
6%
60-70% in developed countries
Buffalo Meat 20%
Milk
35%
60-75% in developed countries
The share of fruits and vegetables processed is much less when
compared to other segments such as milk (35%) and Fisheries (26%).
Additional investments will be required from the government and
private players to invest in infrastructure in identified food segments to
ensure that India not only has a sustainable food production for its
growing population but also increases its exports.
Food processing is a major industry with a highly fragmented structure
that includes hundreds of thousands of rice-mills and hullers, flour
mills, pulse mills and oil-seed mills,
several thousands of bakeries, traditional food units and fruits,
vegetable and spice processing units in the unorganised sector. In
comparison, the organised sector is relatively small, with
around 516 flour mills, 568 fish processing units, 5,293 fruit and
vegetable processing units, 171 meat processing units and numerous
dairy processing units at state and district levels.

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The high level of fragmentation leads to difficulty in raising the required


capital and results in insufficient investments in infrastructure and
capacity. As a result, the overall levels of processing tend to remain
low and therefore, the industry has not been able to utilize the available
opportunities for increased value addition.

Retail
Despite the fast growth over the last few years, the organized retail
penetration in the food sector has remained low in India. Organized
sales account for just about 1% of the total food and grocery spend.
Organized retailing can consolidate the supply chain across the value
chain and bring in efficiencies by consolidating the supply chain and
rationalizing the intermediaries. This will help in reducing wastages and
reducing the consumer prices, at the same time increasing the farmer
realizations. India also compares poorly in terms of the penetration of
organized food retail in comparison with other countries.
One key value addition of organized retail in the developed countries is
the presence of private label players. Typically the product category
picked at the earliest stage of private label development would be one
for which several generic or commodity suppliers are available. Slowly,
the private labels should evolve in terms of customer knowledge and
insight, product design and quality, pricing, promotion and supply chain.
This evolution is a key value addition of the organized retail which adds
innovation to the products, brings more choices to the customer and in
general drives down the prices. However, this aspect is completely
lacking in the organized food retail in India, even after accounting for
the low levels of penetration in the market.

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Supply Chain and Logistics


The food supply chain in India is fragmented with the existence of
multiple intermediaries. While this itself is driving down the
efficiencies, the supply chain is plagued by the absence of reliable and
efficient infrastructure across its components. Some of the
deficiencies in the supply chain have been highlighted:
Poor packaging
Packing and handling of perishables is still in primitive stages in India.
More often farmers pack their goods in jute sacks (gunny bags) or
tightly packed boxes, which are stacked one above the other, thereby
leading to significant damage to the produce. While the losses due to
poor packaging are more pronounced for horticultural products, it is
quite substantial for food grains like staples, pulses and oil seeds as
well. Majority of fruits and vegetables are still outside the purview of
proper packaging. Efficient packaging can make a significant difference
in the massive quantity of food grains India loses in the supply chain
every year.
Insufficient Transportation Infrastructure
In India, rural road connectivity has often been ignored. Only a small
number of villages are joined by railways and pucca roads. Rural roads
play a crucial part of bringing the produce from the field to the transport
point and then to the mandis. Small and marginal farmers often use
slow moving transport vehicles like tractors and bullock carts to carry
their produce to the market. Such means of transport do not facilitate
transport of goods to far-off market places; forcing the farmer to dump
his produce in nearby markets even if the price obtained there is
considerably low. Many small farmers have turned reluctant to market
their produce to distant markets considering the high cost and poor
quality of transport infrastructure, especially for perishable products.

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Poor transport infrastructure not only affects the quality of produce but
also leads to extensive wastage. Development of rural roads can
contribute up to 36-68 percent reduction in transport expenses.26
Inadequate Storage Infrastructure
One of the major challenges that remain in the Indian agriculture supply
Nearly 20 million tonnes of
wheat, rice and lentils; the

chain is extensive wastage. Wastage occurs at different levels of the

equivalent of Canadas

supply chain due to improper handling, poor packaging, improper

annual wheat crop, is either

storage and uncontrolled temperature. Nearly 30 percent of the

eaten by rats and birds or

agriculture produce is stored under open condition, leading to wastage

gets spoilt

and distress sales.27 In most of the rural areas, food grains are typically
stored in rooms, bamboo structures, wooden or mud bins and
underground structures that are prone to damage by rats and insects.
The total covered storage capacity available with the Food Corporation
of India (FCI) and the Central and State Warehousing Corporation is 50
million tonnes28 compared to food grain production of nearly 600
million tonnes which very well indicates lack of adequate storage. Out
of this capacity, 13 million tonnes in covered and plinth (CAP) and
plinth-only form which are just open dummy depots, difficult to be
considered as proper storage facility. While the farmer is forced to sell
his produce at a lower price immediately post harvest as a result of this
problem, this issue can be addressed through investment in silos for
storage.
Vertical silos are less capital intensive, clean, safe and economical in
the long term as compared to conventional horizontal warehouses
which require vast amount of land area, allows for malpractice and
prone to high infestation. However, not enough investments have been
made in this area. The total storage capacity of silos modern silo

26
27
28

Planning Commission
Planning Commission Report, January 2007
Economic Times, 26 August 2010

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system is just around 0.6 million tonnes29. The country needs to invest
more in creation of silo storage and create facilities for bulk handling of
food grain along with post-harvest operations that are consistent for
bulk handling. Use of latest grain processing technology for generating
higher yields and journey towards integrated grain processing units will
help India achieve long term food security.
Lack of Cold Storages
In case of horticulture products, the storage situation is worse. Even
though, Indias strength in the horticulture sector has led to a large
production base of fruits and vegetables, the large scale wastage due
to the lack of cold-storage infrastructure has prevented the farmers and
processors from reaping the benefits. The extent of losses of fruits and
vegetables in India is estimated at about INR 100 billion to 120 billion
per annum.30 The current cold storage infrastructure in India comprises
of around 4762 cold storage units with a capacity of 19.6 million
tonnes.31 However, most of the available capacity does not have
facilities to store a wide range of products across varied temperatures.
Again, a sizable chunk i.e. 50 percent is used only for potatoes and a
large percentage of it is either underutilized or non-utilized for most of
the year.

Marketing Infrastructure
In addition to direct physical infrastructure required to support the
agricultural sector, there is a strong need to supplement it with
marketing information/intelligence while addressing various challenges
in the supply chain.
Even though there has been considerable progress to provide farmers
with market information relating to prices, farm inputs and weather
forecast, such information in remote rural villages is not easily
29
30
31

Economic Times, 26 August 2010


ICRIER Working Paper 197
Planning Commission

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accessible. Small and marginal farmers in India generally have limited


access to pricing information and knowledge regarding improved and
mechanized farm techniques, which could improve their productivity.
Farmers also lack ready access to quality inputs and critical information
such as weather forecasts that could help them improve the quality of
their produce.

Information access is often a tedious and time consuming process for


farmers due to less developed media & communication infrastructure
in rural regions. Although the Government uses the radio and television
to broadcast market prices, the low penetration of radio and television
media at 19 percent and 41 percent respectively in rural areas beats
the purpose.32 Penetration of print media is equally low; 28 percent in
rural regions, due to low rate of literacy rate in remote rural villages.
However, on the other hand, the price quotations are also sometimes
not reliable owing to the time-lag.

32

R K Swamy BBDO guide to Market Planning, Volume II, 2007

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Poor media reach and lack of communication infrastructure create


impediments for farmers to access the best inputs. The agri-input
suppliers are also suffering as the means to tap the rural audience is
limited. Lack of technology and high illiteracy levels add to the
roadblocks in the marketing of agri-inputs. According to a study by
FICCI, 55 percent of the villages do not have a seed store and over 80
percent do not have repair facilities for agricultural implements. Poor
roads and transportation facilities make it difficult for farmers to travel
and procure the right inputs required for sustainable agricultural
practices. In addition, farmers also need to be taught how to use the
inputs so as to reap optimum benefits from the same.

Soft Infrastructure
Research and Development
Research and Development (R&D) is another link in the agricultural
ecosystem, which has seen mixed development. While the green
revolution ushered in remarkable changes in Indias agriculture, nothing
on that scale has been achieved since, except perhaps in the area of
dairy farming thanks in large part due to co-operatives such as AMUL.
Several experts have argued for the need for a second green revolution
especially in the area horticultural products, but Indian agriculture is yet
to witness developments on that front.
In order to improve farm productivities, continuous introduction and
implementation of innovative technologies calls for existence of a
strong R&D network. While substantial investment is made in this
regard, the efforts have not been rewarding. This is purely because of
lack of a clearly stated strategy that assigns definite responsibilities,
prioritizes the research agenda rationally, and recognizes that the
research mode is not always best suited for product development and

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delivery. Some of the common problems ailing the agri-R&D in India


are:

Commodity-centric R&D: Lack of a holistic approach involving a


matrix of farm enterprises

Compartmentalization of R&D agencies: Lack of effective bilateral


flow of information amongst research, extension, and
implementation departments

Poor validation and feedback mechanisms: Lack of large-scale onfarm validation of techniques and feedback thereon, leading to
practically no scope for enhancement

Human Resource Development


The sustained development of any industry depends upon availability of
skilled human resource and the agriculture industry is in dire need of
highly skilled and trained manpower across different levels to handle
various operations. Human resource development needs to cover the
entire range from basic infrastructure, education, vocational and
technical guidance to professional qualifications.
Achieving competitiveness in the agro-industrial sector necessitates
the development of a broad range of skills at all levels. Networking and
the development of partnerships between academia, research
institutions, policy-makers and industry are key enablers to transfer
technologies and knowledge. Hands-on approaches to training must be
strengthened across a broad spectrum, beginning with the farmer,
through management, research and development. Public policy should
prioritize human resource development at all levels, starting from the
development of basic literacy skills. Public policies must also seek to
promote linkages between academia, research institutions, policymakers and agro-industrial stakeholders.

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The Impact of poor infrastructure


Low productivity levels
The improvements in seed production are mediocre by world
standards; Indias paddy and wheat yields are still a third of best inclass world standards. Much of the same trends are true for other
crops33

Paddy Yields Paddy yields are a third of best-in-class


Paddy (kg/ha)
10000

Wheat yields also similarly low


Wheat yields (kg/ha)
10000

8000

8000

6000

6000

4000

4000

2000

2000

0
Egypt

US

China

World

India

Egypt

China

India

World

US

Source: RBI, FAO, CLSA Asia-Pacific Markets

Food wastage

33
34

According to the Ministry of Food Processing Industries, the annual


physical and value loss to farmers due to lack of post harvest
infrastructure is estimated to be around INR 500 billion

The extent of losses of fruits and vegetables in India is estimated


at about INR 100 billion to 120 billion per annum.34

Overall, 1/3rd of all food produced is estimated to be wasted due to


issues on poor storage and supply chain deficiencies

Planning Commission
ICRIER Working Paper 197

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Farmers production

60% Retained by Farmer

40% Marketable produce

Storage in open conditions


~ 30% wastage

Poor storage conditions


10% wastage

Supply Chain
12-15% wastage

18%
18% of
of total
total

6%
6% of
of total
total

6%
6% of
of total
total

30%
30% of
of the
the total
total produce
produce wasted
wasted

Approximate Break-up of Wastage in Indias Supply Chain

High cost structures


The agricultural market in India today is dominated by 7,500
Government authorized marketplaces or mandis, which are governed
by state specific APMC Acts. Mandis are secondary wholesale markets
located in major trading centres that gather large part of farm produce
from various rural primary markets. However, small farmers have
limited access to these wholesale markets and they largely rely upon
middle-man or commission agents in local rural markets to market their
produce given the price risk and time risk of perishable products.
This prevailing environment leads to a supply chain that has several
intermediaries from the farm to the consumer. The unreasonably long
supply chain results in steep escalation in the total cost owing to
procurement, transit and other taxes and service charges levied at
various layers.

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Opportunities
We believe that the commercial viability and sustainability of the Food
and Agriculture sector critically depends on the infrastructure provided
at each stage of the food and agri value chain.
The integrated development of infrastructure across the entire food
value chain offers very attractive opportunities for companies, Indian
and foreign, at every level. Realizing some of these opportunities will
need the support of the Government through policy interventions or
Public-Private Partnership (PPP) initiatives.
Agricultural Sector

Food Processing and Distribution

Agricultural inputs

Storage and marketing Infrastructure


Research and Development

Support Infrastructure- transport, electricity, education, healthcare

Public Participation

Opportunities exist across the value chain


(PPP is an emerging option)

Farming

Processing

Retail

Agricultural inputs,
irrigation and farm
machinery, grading
and sorting
infrastructure

Increase in
processing, packaging
and storage
infrastructure

Investment in
organized retail
development

Private Players

Supply chain and Warehousing


Source: KPMG Analysis

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Holistic infrastructure development


Creating and augmenting high quality infrastructure can improving the
quality of the food product available to end consumers. This can also
improve the income and standard of life of the populace directly or
indirectly depending on agriculture for their livelihood. Infrastructure
bottlenecks across the value chain from grading, cold chains, logistics
and transportation, power, roads etc is restricting the growth of Food
sector. For instance, if the food processing sector has to grow at the
rate suggested in the Ministry of Food Processing Industries vision
and reach a global trade of 3% by 2015, it is imperative that the
infrastructure development keeps pace or even outpace the sector
growth. With a lot of emphasis on value addition in food processing,
investments in infrastructure are a must and should have favourable
policy framework and fiscal incentives
Dr. M.S. Swaminathan, called the Father of Green Revolution in India,
has raised severe concerns about poor agricultural infrastructure. About
30 percent of the villages do not have a surfaced road within a 5
kilometer radius, 55 percent do not have a seed store, over 80 percent
do not have repair facilities for agricultural implements, 75 percent do
not possess warehousing facilities and 60 percent do not have a
market centre. These constraints are inducing low productivity and
plaguing the sector35.
Government has announced various policy measures and tax
incentives for cold chain and warehousing, Food Parks and Agri Export
Zones to augment the storage and processing capacity. Some of the
opportunities now open for private sector participation has been listed
below:

35

Report on Indian Agri Business, CLSA, 29 May 2006

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Production infrastructure
The Indian agriculture is in the process of modernization, and is seeking
massive investments in production and distribution of agricultural
inputs such as seeds, plant nutrients, plant protection chemicals, seed
multiplication facilities, cattle feed and feed supplements, controlled
production facilities, farm mechanization etc., that have so far remained
in very early stages of development in India. This offers huge
opportunities for players with sufficient technological and marketing
capabilities. Foreign players in a particularly advantageous position here
and can offer latest farming methods, protected cultivation techniques,
cropping patterns & technologies, advanced milking and feeding
systems, milk processing equipment, genetic engineering,
nanotechnology, farm-to-market systems, etc. India imports most
machineries used in the food sector and offers an opportunity for
indigenous development of such machinery through partnerships.

Contract farming
Eighty percent of Indias 115 million farms are situated on plots of less
than 2 hectare. A little over 1 percent of all farms are larger than 10
hectares and these constitute 15 percent of the cultivated land. With
organised retail penetration increasing and governments proposed
mega food parks obviating the need for an intermediary, contract
farming is an opportunity for the processors to enable better handling,
better price realisation and minimise wastage. In order to bridge the
gap between farmer and processor, some of the private players such
as McCain, PepsiCo, Reliance Life Sciences and McDonalds have
modified their sourcing channels to include contract farming. Typically,
the farmer agrees to provide certain quantities of a specific agricultural
product which should meet the quality standards of the purchaser and
be supplied at the time determined by the purchaser. In turn, the buyer
commits to purchase the product and, in some cases, to support

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production through, for example, the supply of farm inputs, land


preparation and the provision of technical advice. Some of the clear
benefits of contract farming which creates a beneficial situation for
both farmers and processors are:

Integration of the supply chain to ensure timely availability of


quality and quantity of raw material for processors

Significant reduction of the procurement cost for food processors


by removing the middlemen

Food processors can source raw material as per their requirements


at low costs

Private sector participation increases the scope of technology


transfers, capital inflow and also leads to assured markets for crop
production

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Source: Company Website, From field to fries, Business Today, April 2009

Post-harvest processing infrastructure


Farm level post harvest facilities such as cool chambers, grading and
sorting facilties, pack houses for backend support, field depots as part
of modern silo systems etc. can significantly reduce wastage and help
farmers achieve better realizations. These can also help in retaining the
quality for longer period and minize damage. The level of investment in

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34

this area in India has been absolutely insignifcant, and offers huge
potential going forw ard.

Food Supply Chain


For the sector to realize its potential growth, it will be critical to have an
efficient supply chain in place. This will help in higher realizations for
the produce at the farmers e nd and lower price levels and price
volatility for the consumers. This presents an attractive opportunity for
the foreign players to invest in storage infrastructure such as silos,
third party food logistics infrastructure, etc. to fill the existing gaps,
thereby providing an efficient supply chain connecting the different
parts of the value chain and removing the intermediaries.

Integrated Cold Chain


India wastes more fruits and vegetables than it consumes. About 30%
of the fruits and vegetables grown in India (40 million tons amounting
to US$ 13 billion) get wasted annually due to gaps in the cold chain
such as poor infrastructure, insufficient cold storage capacity,
unavailability of cold storages in close proximity to farms, poor
transportation infrastructure, etc. This results in instability in prices,
farmers not getting remunerative prices and rural impoverishment.
Government plans to encourage setting up of Integrated Cold Chain
facilities to improve storage and reduce waste by not missing any link
in the value chain from the farmer to the consumer/retailer. 100% FDI
is now allowed in the cold chain industry and it is expected to grow at
20-25% per annum for the next few years.

Supply chain technology


Sophisticated applications like demand forecasting, data integration,
financial flow management, supply-demand matching, information
sharing and good movement synchronization are needed in the food

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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

35

sector. This presents another attractive opportunity for the private


sector to bring in efficiencies to the food supply chain by technology
enablement in the sector.

Food safety systems


With the increasing requirement of adherence to world safety norms,
reliable and consistent food safety systems will be absolutely critical to
gain a greater share of the world trade in the food sector. Private
sector players can look to invest in this area by establishing well
equipped institutions to provide practi cal training and also in offering
independent food safety management systems to the food processing
industry.

Food Processing
The low share of processed food and global trade is an opportunity
waiting to be tapped. Increasing urbanisation and rise in disposable
incomes will further push demand for processed food. This is an
opportune time for companies to invest in quality facilities and develop
products with features that appeal to the growing Indian consumer
base and the export markets.

Mega Food Parks


Many State governments have taken the policy directive from the
centre and have planned Mega Food parks with associated fiscal
incentives. The proposed food parks aim to bring together all players in
the value chain together so as to minimise waste and improve value
addition in the industry. This move will also help farmers realise better
prices by removing intermediaries. The processors also will be
benefited by a better inventory management and production planning.
The proposed mega-food parks will be between 10 and 100 hectares in
size and 30 locations across India had already been identified. The

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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

36

parks would be set up through private consultants with the


government providing grants of up to Rs 500 million each.
Each mega food park will have a minimum catchment area of five
districts. With a chain developing from the farm gate to the retail
shelves with collection and distribution centres and central processing
centres in between, where functions like sorting, grading and
packaging along with irradiation, food incubation-cum-development will
take place, the food processing ministry hopes this initiative to be a
commercial success.

Food Wholesale, Retail and Services


Food & groceries form the major category in retail pie but retail pene
tration for this is only 1%. The organized retail is growing at 20% per
annum. This momentum is expected to continue with the aid of
favourable demographic factors such as growing middle class,
increasing income levsls, changing consumption patterns, consumer
preferences, etc. By 2020, India is expected to be the fourth largest
food retail market in the world. Food services segment comprising of
food chains and restaurants is another fast growing area in the food
sector. The market is expected to grow at a rate of 7% in future to
reach Rs. 4,169 Bn in 2013.

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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

37

Expectations from the Government


For growth to be inclusive, the agricultural strategy must focus on the
85 percent of farmers who are small and marginal. It is now well
recognized that the poor are best empowered if they function as a
group rather than as individuals and that this is also the best way to
secure economies of scale A group approach could also improve the
bargaining power of small cultivators. The approach could range from
low levels of collective functioning such as joint investments in lumpy
inputs such as tube wells or co-operatives for input purchase and
marketing, to high levels of collective functioning such as land pooling
or even joint purchase or leasing of land and joint farming.
Public Private Partnerships (PPPs)
The quality of food infrastructure available from the farm gate to the
food plate is the key determinant for both the quality and price of the
delivered product to the end consumer. PPPs could be a useful tool to
accelerate development in vari ous areas of food sector. Currently
there are PPPs in the areas of contract farming, drip irrigation projects
and terminal markets among others. However the scope of these
projects is still limited and they serve as examples or models rather
than be the norm. Industry bodies such as ASSOCHAM, CII, FICCI and
IBEF (itself a PPP) could help facilitate interactions with both domestic
and international companies and agencies to ensure widespread use of
best practices and expand the scale of private participation to result in
performance improvement of the food sector.
Government needs to have a supporting framework for PPP that clearly
defines the role of private players across the value chain, Risk sharing
mechanisms, Concession framework and the partnership model. A

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member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

38

successful PPP initiative, like QCI, will help improve infrastructure and
hence low level of wastage in the food value chain.
Technology upgrade through policy push
Government needs to support the industry in granting fiscal incentives
for capital investment towards technology upgrade. The companies
that are constrained by finances into upgrading to latest technology in
food processing will need to have an incentive and tax breaks are
helpful in initiating the technological change. This will lead to enhanced
quality and a better value addition.
Support for Backward Integration
Companies that invest substantial amounts in integrating the value
chain should receive government support. The companies help in
farmers realising a better price for their produce by minimising the
intermediaries in the value chain. The government should create a
conducive policy environment for investment in backend of the supply
chain.
Modernizing Irrigation Systems & Techniques
Greater emphasis is required on investments in physical rehabilitation
of existing water reserves and on modernization of irrigation systems essential for improving the efficiency of water use.
Filling information gaps
Agricultural extension is critical for narrowing the more general
knowledge gaps that exists in our agriculture. States must begin by
filling up field-level vacancies in extension and provide much better
training, including at State Agricultural Universities and KVKs. Alternate
delivery channels spanning Rural Knowledge Centres, Information and
Communication Technology based extension, farmer-to-farmer

2010 KPMG Advisory Services Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

India would do well to learn from international examples such as


National Service for Rural Apprenticeship (SENAR), Brazil. Partnerships
such asIBSA could be leveraged on setting up a similar scheme. That
would have the useful by-product of improving inclusion while
furthering the cause of Indian agriculture. In addition to government

setting up more facilities for R&D in the country, private sector should
be incentivised for investments in R&D. The government can provide
tax exemptions for investment in R&D for the companies that set up
research laboratories and can ask the companies to help projects of
Small Scale Industries or make the companies spend money in
imparting training to a certain number of people. This will promote
innovation in the Food Processing sector and bridge skill gaps.

uld

40

About FICCI
Established in 1927, FICCI is the largest and oldest apex business
organisation in India. Its history is closely interwoven with India's struggle
for independence and its subsequent emergence as one of the most rapidly
growing economies globally. FICCI plays a leading role in policy debates that
are at the forefront of social, economic and political change. Through its 400
professionals, FICCI is active in 52 sectors of the economy. FICCI's stand on
policy issues is sought out by think tanks, governments and academia. Its
publications are widely read for their in-depth research and policy
prescriptions. FICCI has joint business councils with about 100 countries
around the world.
A non-government, not-for-profit organisation, FICCI is the voice of India's
business and industry. FICCI has direct membership from the private as well
as public sectors, including SMEs and MNCs, and an indirect membership
of over 83,000 companies from regional chambers of commerce.
FICCI works closely with the government on policy issues, enhancing
efficiency, competitiveness and expanding business opportunities for
industry through a range of specialised services and global linkages. It also
provides a platform for sector specific consensus building and networking.
Partnerships with

countries across the world carry forward our initiatives in

inclusive development, which encompass health, education, livelihood,


governance, skill development, etc.

FICCI serves as the first port of call for

Indian industry and the international business community.

It has branch offices in major Indian cities and key regions in the world such
as US, UK, Italy, France, Malaysia, China, Singapore, Thailand and
Kazakhstan.
Federation of Indian Chambers of Commerce and Industry (FICCI)
Federation House, Tansen Marg, New Delhi-India
Ph: +91-11-23738162(D) 23738760-70 (Ext.222)

Fax: +91-11-23320714

E : sudhir.cifti@ficci.com, anaam.sharma@ficci.com

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NOTES