India

Food Processing Industry

Compiled by:

Swiss Business Hub India

Mumbai, December 2008

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1.

Overview and Trends

1.1 Food Industry According to a study by McKinsey & Company, the Indian food market is poised to grow from US$ 155 billion in 2005 to US$ 310 billion by 2015 and US$ 344 billion in 2025 - at an approximate compounded annual growth rate of 4.1%.. The development of the food industry in India stems from the consistently increasing agricultural output. With the second largest global arable land area, India is one of the key food producing countries in the world, second only to China. Currently, India ranks second in fruit production and third in vegetable production in the world. In 2007-08, food grain production in India had registered a 4.6% growth with 227.32 million tonnes as against 217.28 million tonnes in 2006-07, according to estimates by the Ministry of Agriculture. The output of coarse cereals in 2007-08 was 39.67 million tonnes, 17% higher than the 33.92 million tonnes in the previous fiscal. The total output of oilseeds is estimated to have risen to a record 28.2 million tonnes, about 16% higher than the 24.29 million tonnes in 2006-07. The production of pulses has risen to 15.19 million tonnes, registering a year-on-year growth of 7% and touching a new high. According to estimates by the agri-trade promotion body, the Agricultural and Processed Food Products Export Development Authority (APEDA), India's exports of agricultural and processed food products in 2007-08 has grown by 38%, which, in absolute value terms, is US$ 6.59 billion, against US$ 4.79 billion in 2006-07. 1.2 Food Processing Indias food processing industry is one of the largest industries in the country - it is ranked fifth in terms of production, consumption, export and expected growth. India is one of the worlds major food producers but accounts for only 1.7% (valued at US$ 7.5 billion) of world trade in this sector this share is slated to increase to 3% (US$ 20 billion) by 2015. The Indian food processing industry is estimated at US$ 70 billion. According to the Ministry of Food Processing, this industry contributed 9% to Indias GDP and had a share of 6% in the total industrial production. The industry employs 1.6 million workers directly. Sustained by high agricultural output, international demand and a strong domestic market, the Indian food industry offers ample scope for large investments in processing technologies, skills and equipment, packaging, refrigeration of frozen food and thermo processing. Currently, only 6% of the country's fruit and vegetable produce is processed and India's share of the global market stands close to a dismal 0.03%. While the size of the global processed-food market is estimated at US$ 3.2 trillion and nearly 80% of agricultural products in the developed countries get processed and packaged (as suggested by 'India Food Report 2008', released at the Food Forum India, in Mumbai), there is huge scope for export-led growth in this particular sector. Recognising this, in the next few years India aims at raising the share of processed food to 20% in comparison to total agri-produce, on the one hand, and enhancing export of these items to 3% on the other.
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The domestic food market, according to the 'India Food Report 2008' is estimated at over US$ 182 billion accounting for about 2/3rd of the total Indian retail market. Indias Competitive Advantages in Food Processing India Global Rank Share in Global Production Arable Land (million hectares) 161 2 Irrigated Land (million hectares) 55 1 Coast Line (km) 8'041 19 Major Food Crops (MT) 35 3 4% Fruits (metric tonnes) 47 1 10% Vegetables (metric tonnes) 82 2 10% Rice/Paddy (metric tonnes) 132 2 22% Wheat (metric tonnes) 65 2 12% Milk (metric tonnes) 88 1 16% Sugarcane (metric tonnes) 289 2 21% Pulses (metric tonnes) 12 1 21% Tea (metric tonnes) 0.88 1 28% Edible Oilseed (metric tonnes) 25 3 7% Cattle (million) 226 1 20%
Source: Cygnus report, India Food Processing Sector, 2005

The steady economic growth is leading to a positive change in the lifestyle of the consumers and they are willing to pay a premium for both value-added private and branded products. Interestingly, the fact is that while the country's GDP growth rate has increased from 3.5% in 2002-03 to 9% in 2006-07, the food processing sector has grown from 7% to 13.1% during the same period. However, market experts are of the opinion that in future, the food products is going to increasingly contribute towards India's GDP growth.

2.

The Indian Food Processing Industry

2.1 Structure and Composition 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. However, the Ministry of Food Processing, Government of India has defined the following segments within the Food Processing industry: Dairy, fruits and vegetable processing Grain processing Meat and poultry processing Fisheries 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% is processed. The highest share of processed food is in the grain processing and the dairy sector.

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Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60% of processed foods. It has a highly fragmented structure that includes 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, 5293 fruit and vegetable processing units, 171 meat processing units and numerous dairy processing units at state and district levels. Segment Dairy Sector 15% Fruit and Vegetables 20% Meat and Poultry Processing 10% Fisheries Packaged foods 8% Beverages Staple foods 85%

Growth rate of the market Key segments

20%

27%

Value added milk products like butter, cheese and ghee

Raw fruit and vegetables, fruit pulps, canned fruits and pickles 2%

Cattle, buffalo and poultry

Marine fisheries, frozen products and minced fish products 12% -

Noodles/ vermicelli

Fruit-based drinks and carbonated drinks

Sugar, wheat flour and salt

Extent of processing Share of organised sector

37%

1%

15%

48%

5%

80%

77%

50%

Source: http://www.investmentcommission.in/food_&_agro_products.htm and KPMG Analyses

2.2 Sector-wise Analysis 2.2.1 Dairy and Probiotics Thanks to Operation Flood, India today stands first in the world in terms of milk production .The output is expected to be about 108 million tonnes (estimate for 2007), growing at a compounded annual growth rate of 4%. Consumption of milk has registered a growth of nearly 8.4% (in urban areas) and is currently valued at US$ 16 billion. Within India, the dairy sector also ranks second in terms of processed foods with 37% of the produce being processed. The organised sector processes an estimated 15% of the total milk output in India. There are 676 dairy plants registered with Government of India, which come under the organised sector. According to estimates of Dairy India 2007, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5% a year. Both production and consumption of milk and its derivatives are traditionally high in the country. The dairy exports in 2007-08 rose to US$ 210.50 million against US$ 113.57 million in the corresponding period, in the last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011.

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Milk and milk products contribute to a significant 17% of the countrys total expenditure on food. Traditional dairy products account for about 50% of the total milk produced. The market for dairy products is expected to grow at 15-20% over the next three years. Ghee (or clarified butter) is the most widely marketed and branded product with a nation-wide penetration of 24.1%. It is estimated to be growing at a rate of 8% per annum The dairy whitener market comprises of sweetened milk powders, condensed milk and creamers. Its market size is estimated at US$ 450 million for 2005-06 The cheese market is estimated at US$ 2.49 million for 2005-06 (54000 tonnes in volume terms), growing at a rate of nearly 10% per annum. The organised cheese market is dominated by proessed cheese which accounts for 74% market share The ice-cream market in India is estimated at US$ 226 million in 2005-06, with the organised market at US$ 158.2 billion. This is currently growing at 20%. Probiotic dairy products - containing live organisms building immunity and helping in digestion - are an emerging category in the Indian food market. Along with domestic dairy majors like, Amul and Mother Dairy, global players like Nestle have made significant investments to capitalise the potential of this particula niche segment. The latest entrant is Yakult Danone with its investment worth US$ 28.3 million and an additional US$ 20.8 million on the cards for the next 2-3 years. According to the latest report on 'Indian Functional Foods and Beverage Markets' by Frost & Sullivan, the market of neutraceuticals and probiotics earned revenues of over US$ 185 million in 2007 and is projected to touch an estimated US$ 1.16 billion in 2012. Although the segment is currently in its nascent stage, it is poised for an upswing riding piggy-back on a healthy domestic economy and awareness of health products, thus giving a boost to this segment. 2.2.2 Fruits and Vegetables 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% of the worlds food and vegetable production. The share of organised sector in fruit processing is estimated to be nearly 48%. Fruit production in India registered a growth of 3.9% during the period 2000-05 whereas the fruit processing sector grew several times faster at 20% 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 at 7.59 million hectares. However, less than 2% of the total vegetables produced in the country are commercially processed, as compared to nearly 70% in Brazil and 65% in USA. Indias installed capacity for fruits and vegetable processing nearly doubled during the 1990s, from 1.1 million tonnes in 1993 to 2.33 million tonnes in 2004. About 20% of processed fruits and vegetables are exported. Major products exported include fruit pulps, pickles and chutneys, canned foods, concentrated pulps and juices and vegetables. Fruit exports have registered a growth of 16% in volume and 25% in value terms in 2005-06. Mango and mango based products alone constitute 50% of these exports. 2.2.3 Grain Processing

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India produced nearly 209.32 million tonnes of grains in 2005-06. 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%, grain processing is the biggest component of food sector. Primary processing constitutes 96% with the remaining accounted for by the secondary and tertiary sectors. Total rice milling capacity in the country is 186 million tonnes. There are about 516 large flour mills in the country, as well as about 10000 pulse mills. Soya food segment is also growing due to increased health consciousness and abundant production of quality soya bean (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 2.2.4 Meat and Poultry Processing India has the largest number of livestock population in the world accounting for 50% of buffaloes and 16% of the goat population. Meat production grew at a CAGR 1 of 34% during the period 1999-2004 and stood at US$ 12.44 million in 2005-06. Meat exports stood at US$ 0.104 million in 2005-06. Most of the animals in India are not bred for meat. Animals generally used for production of meat are cattle, buffaloes, sheep, pigs and poultry. Only 11% of the buffalo population, 6% of the cattle, 33% of the sheep and 38% of the goat population is culled for meat. 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 2005. The country's poultry market is expected to grow at 12% -15% per annum. At the same time, fuelled by a booming retail sector, the market for processed meat is also growing at an estimated 15% - 20% per annum. Favourable conditions such as rising incomes and a young and urban population have fuelled increasing domestic demand. The rapidly growing sector offered investment opportunities for foreign players in activities such as breeding, animal health, feed, equipment, processing and retail distribution. 2.2.5 Fisheries India with its considerably long coastal lines enjoys a natural advantage in the marine food sector. India is the third largest fish producer in the world and second in in-land fish production. The fisheries sector in India has been classified into marine, inland and aquaculture. The fisheries sector contributes 1.1% to the countrys GDP. This segment also provides employment to 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector. According to the estimates by Marine Products Export Development Authority (MPEDA), Indian seafood exports rose to US$ 1.55 billion during 2007-08. Frozen shrimp accounted for 52% of total marine exports at US$ 980 million followed by frozen fish at US$ 326 million. Indias fish production stood at a level of 6.7 million metric tons in 2007. Of this, about 60% (3.9 million tons) came from marine resources. Currently fish processing is mostly targeted for export markets. There are over

CAGR = compounded annual growth rate

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369 freezing units with a daily processing capacity of 10266 tonnes and 499 frozen storage units with a capacity of 134767 tonnes. Processed fish product exports include conventional block frozen products, individual quick frozen products and minced fish products like fish sausage, cakes, cutlets, pastes etc. 2.2.6 Packaged Foods The packaged foods segment in India registered a growth of 8% in 2005-06. Noodles/vermicelli is the fastest growing category in this segment with a CAGR at 15%. 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$ 475000 and estimated to grow at 18% to 20% per annum. Products like tomato ketchup and jams currently have low penetration levels, but are growing rapidly. Ketchups, for example, have a penetration of just 3% in India; however, this category is estimated to be growing at 20% per annum. 2.2.6 Beverages The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks, non-carbonated drinks and hot beverages. According to industry experts, the market for carbonated drinks in India is worth US$ 1.8 billion while the juice and juice-based drinks market accounts for US$ 300.67 million, of the approximately US$ 2.38 billion packaged beverages category. Growing at a rate of 25% per cent, the fruit-drinks category is one of the fastest growing in the beverages market. The US$ 1.80 billion carbonated drinks category is expected to face the heat of the rising competition from categories falling under the health umbrella, i.e. juice and juice-based drinks, energy and sports drinks, malted beverages, probiotic drinks and bottled water. They are considered a socially acceptable alternative to alcoholic beverages. At US$ 300.67 million, the juice and juice drink category is among the fastest growing segments While fruit drinks as a category is growing at 18% - 20%, carbonated soft drinks are growing at 6% - 8% driven by the positive changes in Indias consumer profile. Hot beverages include health drinks such as white beverages (Horlicks, Bournvita, etc) and brown beverages such as tea/coffee as well as branded drinks (Boost). The total size of this market is estimated at US$ 333 million by value and 85000 tonnes by volume. White beverages account for 65% of the market and brown beverages constitute the remaining 35%. India is the largest producer of tea in the world accounting for 28% of the total global production, at 857 million kgs. Tea production in India has been growing at 1.2% 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% of the total production in the world. Nearly 75% of Indias production is exported and coffee exports stood at US$ 5.2 million in 2005-06. Additionally, the market for alcoholic beverages has also been growing consistently. 'The Future of Wine', a report on the state of the wine industry over 50

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years, prepared by Berry Bros. & Rudd, one of the oldest, independent wine merchants in Britain, suggests that the market for wine in India was growing at over 25 per cent per year. Approaching the milestone of one million cases a year, the Indian wine market has also recorded an impressive growth rate. An impressive 59.84% growth of wine production in Maharashtra bears testimony to the fact. Global wine majors have already set up shop in India to tap the vast potential.However, domestic companies control 80% of the market and are way ahead of the MNCs, producing nearly 800000 cases of wine in a year. And, while Bangalore, Chandigarh, Mumbai are reporting high growth in consumption, Nashik, the capital of Indian wines, registered a 100% rise. Out of the total consumption of grape wine in India, around 80% wine consumption is from the major cities. Although alcohol consumption level in India is lower than the leading countries of the world, such as, Italy, France, USA, the future growth potential is immense. 2.2.7 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%. About 55% 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. 2.2.8 Snacks and Confectionery The Indian market holds enormous growth potential for snack food, which is estimated to be a market worth US$ 3 billion. The market is clearly and equally divided into the organised and unorganised sector. The organised sector of the snack food market is growing at 15% - 20% a year while the growth rate of the US$ 1.56 billion unorganised sector is 7% - 8%. Consumption level of commercial savoury snacks is 10 times higher than that in the rural markets. Around 1000 snack items and 300 types of savouries are sold in India. The segment is largely dominated by potato chips and potato-based products with over 85% share of the salty snack market. 2.2.8 Organic Food An Emerging Trend While organic food and health food are emerging as a global trend in the food and food processing sector, India remains a traditional grower and consumer of organic food. The global retail market for organic food has grown to US$ 100 billion from US$ 35 billion over the last three years. The exports of organic food from India have grown to US$ 65 million over the past one year from US$ 21.6 million two years ago. Some players, like Navdanya, organically cultivates crops like jowar, bajra, millet, in its 21 acre farm in Dehradun and sells it from its retail outlets in Delhi and Mumbai. The number of such growers has been rising in the Dehradun valley and Bundelkhand. APEDA in association with the Ministry of Agriculture has taken an initiative to convert 20000 farmers and a total area of 75000 hectares to organic farming over the next three years.

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Following suit, the Darjeeling Tea Association (DTA) has mounted efforts to increase the production of organic tea. According to the industry experts, about 37% of the total crop grown on the slopes of the eastern Himalayas, at present, is organic tea, as per certifications given by European and Japanese agencies. DTA is aiming to organically produce the majority of the champagne of teas by 2010.

3.

Attractiveness of Certain Segments in Food Processing

India presents several potential growth areas in the food processing sector. Based on potential growth opportunities and the enabling environment in terms of policy support, three key segments have been identified that indicate high attractiveness. 3.1 Mass Market Basic Foods

3.1.1 Fruits and Vegetables Segment Several factors make the fruits and vegetables sector in India attractive from a market size and growth perspective. As mentioned, India is a significant producer of fruits in the world, contributing to 10% of global production. The fruits and vegetables sector is growing rapidly at a healthy rate of 20% per annum. It is, however, nascent with penetration level of about 10%. These factors indicate the high growth potential in the sector. This is also highly unorganised at present, with the unorganised sector at 48% share, indicating the scope for organised players to make an impact. Several policy measures have been undertaken by the Government to create the right stimulus for growth in this sector. Some of the key initiatives include: Foreign equity participation up to 51% allowed. Initiatives like post-harvest management, logistics given priority in attracting FDI Complete exemption from excise duty Income tax rebate of nearly 100% of profits for new industries in fruits and vegetables sector Many fruits and vegetables processing industries eligible for automatic approval of technology upgradation 3.1.2 Meat, Poultry and Fisheries Segment The meat, poultry and fisheries segment is another high potential area that has the advantage of several favorable factor conditions. In terms of raw material, India has the best supply of livestock in the world, accounting for 50% of buffaloes and 16% of the goat population. India also ranks third in the world in production of fisheries. As mentioned earlier, the bulk of the livestock is not bred for slaughter. There is a large potential for setting up modern slaughter facilities and development of cold chains in meat and poultry processing sector. In the fisheries segment also, Indias long coastline and network of inland waterways and lakes, offers plentiful availability of different types of fishes. Fishery resources in India are seriously underutilised. The Government has also taken up several initiatives to encourage investment and growth in this segment. These include: Foreign Equity participation allowed in the fisheries sector subject to approval. Foreign investment proposals on nearly US$ 210 million have been approved in this sector Financial assistance given for setting up of processing infrastructure like IQF plants, refrigerating transport equipment, freezing plants Excise duty on meat poultry and fisheries reduced from 16% to 8%.

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High

Opportunities for growth

Mass market basic foods (fruit and vegetables, meat, poultry and fisheries)

Niche market products (snack foods and packaged foods)

Mass market value added products (Dairy products)

Low Low Policy attractiveness and Government Initiatives 3.2 Mass Market Value-Added Products- Dairy, Bakery

High

India is the worlds largest milk producer and dairy is the one of the most promising segments of food processing. Demand for dairy products is expected to grow at a healthy rate of 15% to 20% over the next five years. The segment offers a high potential for value addition the level of processing value addition, at 37%, is amongst the highest in the food processing industry. At the same time the share of organised players is still small, at 15%, indicating the potential for growth for organised players. Bakery products is a related segment that has also been growing strongly, at about 7.5%. The segment is still highly fragmented, though organised players have nearly 55% share of output. Both these segments, while indicating attractive growth potential, have also been focus areas for policy support by the Government. Foreign equity participation permitted to the extent of 51% in dairy processing sector De-reservation of many segments like ice-cream and ghee from small-scale industries Excise duty of 16% on dairy processing machinery fully waived for promotion of dairy processing Subsequent to decanalisation, exports of some milk based products are freely allowed provided these units comply with the compulsory inspection requirements of concerned agencies like the National Dairy Development Board, Export Inspection Council, etc. 3.3 Niche Market Foods - Snack Foods, Ready-to-Make Foods, Packaged Foods This business is characterised by high volumes and low margins. Penetration levels are yet quite low in this segment, with product acceptance largely restricted to the urban population. Product innovation and branding play a key role in success of these products. As such, this segment could be an attractive option for multinational companies with established brands and strengths in innovation, to enter and get established in India.

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The Government has been supporting this segment through policy initiatives such as: Automatic approval of foreign equity participation up to 51% Income tax rebate of 100% of profit for five years and 25% of profits for the next years for packaging of foods

4.

Government Initiatives

The Government of India has declared food processing a priority by introducing a number of progressive measures to set up and modernize food processing units, create infrastructure, support research and development and human resource development. The National Policy aims to increase the level of food processing from 2% to 10% in 2010 and to 25% in 2025 The level of institutional credit to be provided by banks and financial institutions has been increased from US$ 17.41 billion during 2003-04 to about US$ 23.76 billion in 2005-06 Full repatriation of profits and capital is allowed Automatic approvals for foreign investment up to 100%, except in few cases, and also technology transfer The government has decided to give a boost to research and development in this sector with its decision to set up the National Institute for Food Technology and Management in collaboration with Cornell University of the US. Zero import duty on capital goods and raw material for 100 per cent export-oriented units. Custom duty on packaging machines reduced. Central excise duty on meat, poultry and fish reduced to 8% Income tax rebate allowed (100% of profits for 5 years and 25% of profits for the next 5 years) for new industries in fruits and vegetables besides institutional and credit support. The government would also set up abattoirs and dairies and will give a grant of US$ 3.1 million per abattoir and US$ 2.08 million per dairy. On the Government side, there is also a renewed enthusiasm to popularise organic food cultivation since exports of organic food have grown to US$ 75.16 million over the past one year from US$ 25.05 million just two years ago. In a bid to boost the food sector, the Government is also developing 30 mega food parks which would cover the entire food processing cycle 'from the farm gate to the retail outlet'. While the Government would provide a grant of US$ 12.53 million for each one, private investment to the tune of US$ 75.21 million would be encouraged in these parks. The first five such parks would be set up in Punjab, Maharashtra, Andhra Pradesh, Jharkhand and the North-East region in the first phases.

5.

Swiss Presence in India in the Food and Food Processing Sector

Nestls relationship with India dates back to 1912, when it began trading as The Nestl Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. Today, with seven factories (the first one was set up in Moga, Punjab, in 1961) and a large number of co-packers, Nestl India is the largest Swiss company in the food sector providing consumers in India with products of global standards. Nestl India manufactures products of truly international quality under internationally famous brand names such as Nescaf, Maggi, Milkybar, Milo, Kit Kat, Bar-One, Milkmaid and Nestea and in recent years the Company has also introduced products of daily consumption and use such as Nestl Milk, Nestl Slim Milk, Nestl Fresh 'N' Natural Dahi And Nestl Jeera Raita. Bhler AG, Uzwil, has been active in India since the early 1990s and today has its own manufacturing set up, Bhler India Pvt. Ltd., at Attibele near Bangalore. Bhler India underwent a factory expansion plan in 2007 based on the success it is enjoying in the niche sector of grain processing (especially rice).

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Located in Geneva, Kimaco SA specialises in manufacturing cheese processing machines for the milk industry and is present in India through a local agent. Other Swiss companies present ini Indian are EMS Chemie (through EMS Chemie Asia) and Givaudan through their own Indian subsidiary, actively doing business in the flavours and food extracts business. August 2008 saw the opening of the first chocolate academy in India by Swiss confectioner Barry Callebaut, extending the company's Asian presence to five markets. It is expected that the academy would be complemented by a local manufacturing facility before long, as Callebaut aims to take advantage of the tendency to buy more premium products in increasingly rich urban areas.

6.

Conclusions

As already mentioned at the beginning of this report, India is one of the worlds major food producers but accounts for about 1.7% of international food trade. This indicates vast scope for both foreign investors and exporters. The Indian food industry is widely recognised as a "Sunrise Industry" in India having huge potential for uplifting agricultural economy, creation of large scale processed food manufacturing and food chain facilities, resultant generation of employment and export earnings. India has enormous growth potentials from its current status of being the worlds second largest food producer to be a world's number one producer. The Indian food processing industry has the highest number of plants approved by the US Food and Drug Administration (FDA) outside the USA. India requires an investment of US$ 28 billion to bring the level of processing to 10% - 12% by 2012. It is expected that in future bulk investments and modern food processing technologies are going to turn the fortune for Indian food processing industry. Some of the most promising sub-sectors in the Indian food industry, as identified by the Ministry of Food Processing, include: Soft-drink bottling Confectionery manufacture Fishing and aquaculture Grain-milling and grain-based products Meat and poultry processing Alcoholic beverages Milk processing Tomato paste Fast-food Ready-to-eat breakfast cereals Food additives, flavors etc. Mega food parks Agri-infrastructure and supply chain integration Logistics and cold chain infrastructure Fruit and vegetable products Animal products, meat and dairy Wine and beer Packaging machinery According to the estimates of the Ministry of Food Processing Industry, currently, the food processing sector contributes nine per cent of the GDP and there is immense scope for further growth. In a bid to give a boost to the sector, the government is considering a proposal to allow foreign direct investment (FDI) in the food retail sector. While 100% FDI is already allowed in

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food processing and 51% FDI in single-brand food retailing, the next step will be allowing FDI in select food items, fresh and processed fruit and vegetables, which may include retailing of farm and dairy produce, marine and poultry products. The initiative would underline inclusive growth in the food sector through marketingdriven farming, disciplined procuring from the farms, state of the art processing, and organised retailing. Some of the main key drivers of the Indian food industry are: Food, beverages and tobacco industry dominates the Indian retail industry and is anticipated to grow at a CAGR of nearly 8% during 2008-2012. Soft drinks market is anticipated to grow at a CAGR of nearly 12% from 2008 to 2012, and major demand will be seen in health & energy drinks, bottled water and fruit juices. Snack food market is estimated to grow at an annual rate of 18% to 20% in coming few years, albeit from a small base of consumers. With growing health awareness and concern, the functional food & drinks market is set to grow rapidly in India. Changing lifestyle, coupled with growing middle class population and changing eating habits, is anticipated to fuel 7%-10% growth in the Indian food service sector annually. Low per capita consumption of alcoholic drinks makes the country highly lucrative to expand, with wine consumption projected to grow at a CAGR of nearly 23% in volume terms. In combination with the potential boom in the organised retailing sector, there is bound to be an increase in private labels, also in the food sector, which will provide a further thrust to the Indian food and food processing industries. Swiss companies, active in the food and food processing, are well advised to seriously study the vast potential on offer and plan a systematic entry in the Indian market. As a first step, they are advised to promote to test the market their products through importers/distributors/agents. In this connection, they can utilise the services of Osec and the Swiss Business Hub India who have experience in conducting qualified business partner searches working through their excellent network of specialised external consultants. Additionally, Swiss companies also have the possibility to gain first hand experience of the Indian food and food processing sector by participating at the official Swiss Pavilion at the bi-annualy held Foodtec exhibitin in India. Osec collaborates closely with Klnmesse in organising the Swiss pavilion.

7.

Important Contacts (in alphabetical order) Apex Contact Agency Address 206, Aurobindo Place, Hauz Khas, New Delhi - 110016 Website: http://www.aifpa.net/index.php

All India Food Processors' Association

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Agricultural and Processed Food Products Export Development Authority (APEDA)

NCUI Building 3 Siri Institutional Area August Kranti Marg New Delhi 110 016 Website: http://www.apeda.com/apedawebsite/index.asp 4, Siri Institutional Area Hauz Khas New Delhi 110 016 Website: http://www.ncdc.in/ PB 1709, Chittoor Road Ernakulam Cochin - 682 016 Website: www.cashewindia.org CFTRI Mysore 570 020 Website: http://www.cftri.com/index.html CIFT Junction Willingdon Island Matsyapuri P.O. Cochin 682 029 Website: http://www.cift.res.in/ 1, Dr. Ambedkar Veedhi, Bangalore 560 001 Website: http://www.indiacoffee.org/default.htm MPEDA House, Panampilly Avenue PB No. 4272 Cochin 682 036 Website: http://www.mpeda.com/ Panchsheel Bhavan August Kranti Marg New Delhi 110 049 Website: http://mofpi.nic.in/index.htm Krishi Bhavan Dr. Rajendra Prased Road New Delhi 110 001 Website: http://agricoop.ni.in PB No. 40 Anand 388 001 Website: http://www.nddb.org/index.html Karna l-132 001 Website: http://www.ndri.res.in

National Cooperative Development Corporation

Cashew Export Promotion Council of India

Central Food Technological Research Institute

Central Institute of Fisheries Technology

Coffee Board

Marine Product Export Development Authority (MPEDA)

Ministry of Food Processing Industries

Ministry of Agriculture

National Dairy Development Board (NDDB)

National Dairy Research Institute

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National Research Development Corporation

20-22, Zamroodpur Community Center, Kailash Colony Extension, New Delhi 110 048 Website: http://www.nrdcindia.com/ Sugandha Bhavan Cochin 682 025 Website: http://www.indianspices.com 14, B.T.M. Sarani Kolkata 700 001 Website: http://teaboard.gov.in/

Spices Board of India

Tea Board of India

Date: Author: Authors address:

5th of December 2008 Ashwin Merchant Swiss Business Hub India c/o Consulate General of Switzerland 102 Maker hambers IV 222 Nariman Point Mumbai 400 021 sbhindia@mum.rep.admin.ch

Download: www.osec.ch

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