The Indian Adventure Featured

The Indian Adventure McKay Savage, Ontario, Canada

A string of favourable factors is propelling the Indian food and beverage industry forward. With strong governmental support, the future looks bright as long as some key challenges relating to regulations, food inflation and infrastructure are resolved. By Gayathry Ravishankar, senior consulting analyst, Frost & Sullivan

The packaged food and beverage (F&B) market in India is approximately estimated to be US$15 billion in 2011 and is expected to grow at a compound annual growth rate (CAGR) of 18 percent, becoming a US$30 billion market by 2015. The industry is primarily driven by urban consumers across India.

With a population base of 1.2 billion, increasing disposable incomes, large agricultural sector, abundant livestock, and cost competitiveness, the demand for F&B products in India is bound to increase.

The business opportunity provided by this demand has resulted in sharp surge in investments in this segment. In 2011, the F&B businesses received US$256 million of investments overall.

 

Market Segmentation

Breakfast cereals and juices are among the fastest-growing categories, recording CAGR of more than 25 percent in the last 2 years. This can be attributed to the nation’s economic growth, coupled with growing awareness and strong desire among consumers to maintain a healthy lifestyle.

 

Growth Drivers

The population of India, approximately 1.2 billion, effects in huge demand for foods and beverages. There are also some other factors that have fuelled consumption to grow at an unprecedented rate.

The organised retail sector has provided good opportunity for growth of the processed food segment. The retail sector (organised and unorganised) in India was valued at US$450 billion in 2011 and is expected to reach around US$850 billion by 2020.

Share of the organised sector has increased from two to three percent in 2001, to eight percent in 2010, and is likely to increase further to 20-25 percent by 2020.

Major companies in the F&B sector, such as Hindustan Unilever Limited (HUL), Nestle, Britannia, Marico, Mondelez (Cadbury) and Haldiram’s, have established good distribution networks that augment overall market growth.

The government of India, at present, is focusing on the food processing industry in an effort to add value to the country’s huge agricultural production.

The government has announced numerous plans for easy loans to help in setting up of small-scale food processing industries, which are expected to have a positive effect on growth of the food market over the next four to five years.

OVER THE LAST 18 YEARS, PER CAPITA RURAL DISPOSABLE INCOMES HAVE STEADILY INCREASED AT A CAGR OF 3.2 PERCENT TO TOUCH US$650 PER YEAR.

According to the Union Budget 2012-13, the following initiatives are to be implemented by the government under the National Mission on Food Processing:

• A new centrally sponsored scheme to be started in 2012-13 in co-operation with state governments

• Creation of additional food grain storage capacity in the country

• Subsidies for effective administration of the proposed food security legislation

• Promotion of private sector activity and plans to invite foreign investments (the government allows 100 percent foreign direct investment (FDI) in food processing and cold chain infrastructure)

There have also been numerous innovations in the F&B sector, such as launch of new product lines and integration of new technology. For instance, packaging innovation and affordable small packs have increased reach to consumer both in terms of distance and consumer base.

Over the last 18 years, per capita rural disposable incomes have steadily increased at CAGR of 3.2 percent to touch US$650 per year. And, over the next few years, this pace of growth is likely to accelerate further. One of the biggest beneficiaries of this steady rise in rural incomes would be the consumer sector, food sector in particular.

Government support for rural employment from schemes, such as the National Rural Employment Guarantee Act (NREG), has significantly improved income levels in rural areas, enabling them to have higher disposable incomes.

Farmers also have better access to information on produce prices, enabling them to eliminate various middlemen, thus resulting in higher income.

 

Market Restraints

There are some key market restraints for the food ingredients market in India.

 

Centralised Supply Chain System:

Lack of a centralised regulatory system at the farm-gate level and dominance of several intermediaries are the chief problems in raw material sourcing for companies in this industry, which is further augmented by scattered source ends.

Due to various sourcing points between the farmer and ingredients’ manufacturer, it becomes difficult for farmers to achieve/increase their margins. In the present situation, this is a strong factor hindering market growth.

 

Cold Chain Logistics:

Cold chain infrastructure for temperature-sensitive goods is presently in an abysmal state. On an average, about 30 percent of horticultural produce gets wasted annually in India due to lack of proper cold chain infrastructure.

Even though India is the second-largest producer of vegetables worldwide, its share in global export of vegetables is only around 1.3 percent due to lack of cold chain storage and transportation facilities.

However, the cold chain market in India is anticipated to grow at a CAGR of 28.7 percent between 2012 and 2017, with projected value of US$11.6 billion by 2017.

 

Food Inflation:

Sustained high food inflation is among the key challenges that lie ahead for companies in the Indian consumer sector.

Over the past few years, food inflation in India has gone up steadily. It can be attributed to surging global food prices. However, other factors like inadequate monsoon in 2009, supply chain issues, loss due to pilferage etc. have further driven it upwards.

In fact, food inflation trends in India suggest that it is now becoming structural in nature.

The rising growth curve with respect to consumption patterns, constantly proliferating consumer base with increasing per capita income, along with multiple fiscal incentives planned by the government, are bound to ensure a bright future for the Indian F&B sector. This sector has immense scope for value addition and is capable of maintaining growth momentum in coming years.

Food suppliers and retail companies plan to scale up business and stay competitive by tapping the large potential of the domestic market. Out of the total investments worth US$750 million in 2012, about US$165 million has gone into purely front-end retail, such as fast-moving consumer goods (FMCG) and F&B firms.

The long-awaited 51 percent FDI stake has also opened the market for fresh investments, enabling progress in storage technologies as well as retail structures.

Foreseeing future growth, several major international players are making a foray into the Indian market in alliance with domestic players. This trend will emerge more strongly by 2015, providing local players lucrative opportunities to widen their product portfolios.

Rate this item
(0 votes)
  • Last modified on Friday, 15 April 2016 12:44
  • font size

APFI About Us

Asia Pacific Food Industry (APFI) is Asia’s leading trade magazine for the food and beverage industry. Established in 1985, APFI is the first BPA-audited magazine and the publication of choice for professionals throughout the industry with its editorial coverage on the latest research, innovative technologies, health and nutrition trends, and market reports.

Asia Pacific Food Industry is published by Eastern Trade Media Pte Ltd. The company owns numerous trade and consumer titles, including Asia Pacific Metalworking Equipment News and Industrial Automation Asia.

Ebook

View Now