International Summit on Food Processing and Agribusiness

Emerging opportunities and strategic thrust areas for the industry

FOOD PROCESSING & AGRIBUSINESS - TRANSFORMING INDIA

PLENARY SESSION: -THE INDIAN SHARE OF THE GLOBAL FOOD MARKET

Pankaj Kapoor
Managing Director Harrisons Malayalam Limited 28.07.2009
Going For Growth

Ground Reality Key Drivers to be an agri super power Challenges Opportunities Strategy Suggestions
Going For Growth

Ground reality a study in contrast

The largest grower of fruits 15% of world output
Low share of global Exports at 0.5%

The second largest grower of vegetables 11 % of world output

Low share of global exports at 1.7% Cold storage facility available for only 10% of produce

Lowest cost producer of fruits & vegetables

Low farmer income farmer suicide

Second highest producer of milk

Organized dairy accounts for only 13% of milk produced Only 70,000 Ton cold storage capacity for 90 million Tones produced Poor yield per cow

Second largest cattle population

5500 registered & 25770 unregistered slaughter house with no chilling, freezing & cold storage facility as hot meat market prevails
Source: Task force Report on Development of cold chain in India GOI/CII
Going For Growth

Ground reality (cont.)

Fifth largest producer of eggs
Poultry meat sold as hot in retail market

Sixth largest producer of fish

20 30% damage and no cold storage facility in WB, AP, Goa

Low processing
2.20 % in fruits 35 % in milk 6 % in poultry

Value addition 20% Indias current share in world trade of processed foods 1.60 % Poor lab to land transfer of technology and adoption of new varieties. example of pineapple
Going For Growth

Source: Task force Report on Development of cold chain in India GOI/CII APEDA data

Ground reality (cont.)

Market surplus of fruits & vegetables 88% Farmer sells immediately due to perishability & absence of proper infrastructure to keep it for longer period Post Harvest wastage of fruits & vegetables 25 to 35% valued at over Rs 45,000 crore Losses as above in India is more than consumption of same in UK Market surplus of food grains 60% Farmer keeps some for own consumption, seed purpose and to give to labour as wages Loss in above equal to annual food grain production in Australia Cost of wastage 6 times amount spent on food subsidy Farm gate price 25% of domestic consumer retail price against 50% in developed countries Story of Fyffee PLc - in Banana Handling and Processing on the ships before final destination of selling.
Source: Task force Report on Development of cold chain in India GOI/CII
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Key Drivers To be a Global Agri Super Power

2

Political environment

Optimal Agro climatic conditions

Strong credible coordinating & Promotion agency

Strong Demand
Strong Consumer base Strong Corporate leadership

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Role of Key Drivers

Agro climatic conditions Favorable Growing conditions Sizeable irrigated acreages. High land productivity, land being a very scarce resource

Political Environment

Attracts Investment Provides Stability Encourages Infrastructural development

Strong credible co-ordinating & promotion agency

R & D initiatives including development of high yielding varieties Financial & Technical Assistance Extension activities Grower awareness

Strong Corporate Leadership

Risk taking abilities Managerial skill development Risk mitigation

Consuming and processing Industry

Going For Growth

Internal consumption to avoid surplus stock accumulation Encourages Economies of scale Globally Competitive to serve wider base of consumers.

Is India Ready to be a Global Power ?

Low level of value addition, high post harvest loss

Going For Growth

Challenges And Strategy For Future . Food processing

Challenges
Utilisation of scarce resources MORE CROP PER DROP, power etc Varying taste preference within the country Increasing International Competition Non tariff barriers Integrated Food law to remove multiplicity of food laws & regulatory agencies

Opportunities
Indian domestic market Diversifying into new markets and product segments Post harvest loss management itself to provide funds for investment

Strategy
Enhancing the sales of Value added products Creating Economies of Scale

Lab to Land & Farm to Fork linkages

Introducing innovative products
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Challenges
Low level of value addition
Bottle necks in cold storage including during transit Seasonality capacity utilization issues e.g. Himachal apples 2006-07 prod was half of 2005-06 Non Efficient storage/warehousing, processing & marketing techniques Non adoption of efficient technology

Infrastructure and others

Shortage of power High electricity tariff Low area under Irrigation High capital cost -Inadequate institutional finance at low rates High insurance premium in risk coverage Farm connectivity by road yet to take off

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Challenges (cont.)
Quality and consistency at grass root levels
Inputs delivery not in time Innumerable varieties Poor procurement and logistics Lack of cheap and timely credit

Weak and ineffective supply chain

Non professional management Low revenue rentals Non Efficient and competitive retailing High wastage

Absence of a Successful Business Model.

Going For Growth

Agri supply chain a comparison with Developed countries

Consumer

India
Farmer

Consolidator

Commission agent

Trader

Wholesaler

Retailer

High wastage and low margins Consumer Retailer Developed countries Wholesaler Farmer High investments Low wastage better margins

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Challenges - Hurdles towards Value addition

Wide disparity between peak & lean period arrivals usually ranging from 100 150% Long revenue cycle as products to be purchased in bulk during peak season Control of markets by few traders and agents who command large storage capacity Discouragement of farmer lower returns act as disincentive
Crashing of prices during peak season

Larger intermediaries exerts negative pressure on farmer margin, and deteriorates quality due to multiple handling

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Bottle-necks in Cold storage & Processing industry

Higher Tax duties including on packaging material Lower capacity utilisation
Role of cold storage etc current utilisation 48% of capacity 5100 units with 216 lakh MT capacity

Non adoptive of cost effective technology High working capital requirement High cost of finance Infrastructural constraints Dependence on intermediaries inadequate farmer processor linkages
Source: Task force Report on Development of cold chain in India GOI/CII

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India .. A land of opportunities

52% cultivable land as against 11% world wide Unsurpassed Natural Advantages All the 15 major climates of the world 46 out of the 60 soil types 17% animal, 12% plant and 10% fish genetic resource of the world Food processing sector ranks fifth in terms of contribution to GDP Indian urban food market estimated at 350,000 crore Estimated investment in Food processing sector during 11th plan 1 lakh crore

Going For Growth

Source: FICCI/KPMG study and Task force Report on Development of cold chain in India GOI/CII

Road to Evergreen revolution .

Horticulture crops Fruits vegetables and flowers cover 7% of cropped area of the country India ranks First in production of mango (65% of world) Bananas (11% of world) and papayas India ranks Second in production of Lime and lemon Exports quantity increased 4 times & value 10 times in last 15 years Move to invest in 10 mega food parks in the country Indian food processing industry averaging a growth of 10%

Going For Growth

Source: Task force Report on Development of cold chain in India GOI/CII Mc Kinsey reports

Can India be a sourcing hub for food products ?

Good governance
Strong , Stable and reform oriented government WTO signatory Strong economy comparatively resilient to the current economic crisis Focus on improving the Road connectivity Vision to solve the power situation Nuclear energy Improving relationship with neighboring countries and a more important role in the WORLD ORDER
Has a Strong agriculture base Increased out lay for rural spend Rural economy to be give the next big push to GDP Annual rural income to increase from 2.8% to 3.6% over next 2 years
Source: FICCI KPMG study

Focus on agri & rural sector

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Indian growth story .

Strong Corporate leadership Indian is already .
IT Hub of the world Auto and auto ancillary hub to the world Telecom hub Acquiring global companies India managers at the Helm of many Fortune 500 companies

India is preparing to take off .

Going For Growth

Impetus by Govt
Included in the list of Priority sector lending by banks since 1999 Most of processed food Exempted from purview of licensing under the industries (Development & regulation) Act, 1951, except items reserved for small scale sector & alcoholic beverages Excise duty for processed fruits & vegetables, food mixes etc. NIL Excise duty on reefer vans reduced from 16 to 8% Reduction in customs duty on food processing machinery Tax breaks Move towards GST
Going For Growth

Towards being the 5th largest consumer market by 2025

Large young earning population
50% of population under 25 years of age Ready to experiment and try out new products

Increase in number of upper middle class & middle class by 159 % & 63 % respectively
Urban population projected at 40% by 2020 Middle class of 200 250 million spread across the country to increase to 580 million by 2025

Dual income households

Higher disposable incomes Ready to try out value added products

Going For Growth

Source: Mc Kinsey Report May 2007: The Rise of Indias consumer market

Suggestions .
Reduction of wastage /spoilage to be tackled on a war footing
Accelerated establishment of cold chain networks Irradiation facilities and pest free warehouses Encourage SSI units and corporate to set up food processing units

Improvement of productivity both land and manpower

Example the case of Rubber where India has the highest land productivity in the world Change in cultivation practices such as irrigation for paddy rather than method of flooding the fields

Price stability
Make farming remunerative to attract talent and retain farmer interest

Going For Growth

Suggestions Role for corporate

Incentives to Corporate to enter core farming land ceiling restrictions Increase Mechanization to tackle low availability of labour and to remain a low cost producer Liberalized credit norms for agricultural production , marketing and infrastructure development Changes in market regulatory framework to allow corporate to establish market yards
At present 7521 regulated markets which lack critical infrastructure

Review of legal instruments to facilitate entry in marketing activities Tax holidays and incentives Excise exemptions for CAPEX items.

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The Requirement: Striking a Balance

Size

Partnerships

Solutions

Speed Flexibility

Cost

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Conclusion
Food sector the highest multiplier effect of any industry 2.4 Tripling the size of the industry would generate
Direct employment 28 lakh and Indirect employment 74 lakh

Thrust in agriculture to be provide the next push to GDP and prosperity Enhanced export earnings to compensate for any slow down in IT related exports

India - Sone ke chidiya

Going For Growth

A few words about us

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Harrisons Malayalam Ltd over the years

o HMLs predecessors Malayalam Plantations Limited and Harrisons & Crosfield Limited sterling companies incorporated in England history of 150 years. o In 1979, these companies incorporated as Indian Companies under the names Malayalam Plantations (India) Limited and Harrisons & Crosfield (India) Limited. o In 1984, the two companies merged to form Harrisons Malayalam Limited. o HML became part of the RPG Group in the year 1989. o RPG Group - one of India's largest industrial conglomerates, with over 20 companies in its fold, spread over 6 business sectors with an annual turnover over USD 3.25 Billion o Winner of the maximum number of awards at the The Golden Leaf India awards (TGLIA) for quality teas
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Vital Statistics .

Largest plantation company based in South India. Single Largest Private Sector Employer in Kerala. HML has 25000 hectares of land under its fold 6000 hectares - in Tea, 8000 hectares - in Rubber Single largest producer of Natural Rubber in the Country Second largest producer of Tea in South India.

Largest Corporate grower of Pineapple

Presence in other horticulture crops banana, passion fruit, cocoa, coconut, arecanut and spices Largest exporter of Teas in South India Some Important customers -Twinings UK, Saralee Netherlands, Elink Schurmann Rotterdam, May Co Russia, Baeshan Saudi Arabia , A F Jones Sri Lanka
Going For Growth

Caring for People and environment The HML way .

o An equal Opportunity employer with 7700 men and 8800 women workforce o Winner of FICCI awards thrice for corporate initiatives in family welfare as a result of its Comprehensive Labour Welfare Scheme aimed at improving the quality of life of the employees and their dependents. o Pioneer in corporate social responsibility in Kerala with initiatives such as Rakshita a centre for development of children and adults with multiple disabilities o Providing free medical aid for underprivileged in Rural Kerala. o The only company in this sector to bag the Kerala State Pollution control award for its factory on more than one occasion emphasizing the responsibility and initiative taken by the company in preserving the natural resources for future generation.
Going For Growth

HML financials
2007-08 2008-09 % increase YOY

Sales ( Rs lacs) EBITDA (Rs Lacs) PBT (Rs Lacs)

20864 2056 699

29244 2280 801

40 11 15

40% Growth Year on Year basis

Going For Growth

ASPIRATION STATEMENT

To be a World class agribased profitable business company. To make HML an exciting place to work.

Going For Growth

Agri- based means that at least 75 % of our Top line to come from Agri based operations/Products. Profitable means ROCE to be above cost of capital always and positive networth.

Open for discussions

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Thank You

Going For Growth