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An Introduction to the Sector

The food and beverage industry is composed of companies


involved in processing raw food materials and manufacturing,
packaging, or distributing food or drink

In the food industry, the dairy is the largest, followed by baked,


cereal items, and chilled foods

The beverage segment is composed of alcoholic and


nonalcoholic beverages

For alcoholic beverages, beer, cider, and other flavored alcoholic


beverages make up the bulk of the market, followed by wine and
spirits

In the nonalcoholic segment, soft drinks far outsell coffee, tea,


juice and water
An Introduction to the Sector

The food and beverages industry is considered a mature


industry; it is very competitive and relies strongly on
advertising to promote brand names

The food and beverage industry used to be considered the


production of food, which we now distinguish agriculture as a
separate industry.

Now, the industry is much more focused on technology and


mechanical manipulation of raw foods to create more value-
value-
added food products.

Reliance on transport has increased as the industry has


developed to be more global in nature, with most food
products being offered by a handful of globe-
globe-spanning
corporations.
A comprehensive view

The Indian food market is estimated at over US$ 182 billion,

It accounts for about two thirds of the total Indian retail


market.

according to consultancy firm McKinsey & Co, the retail food


sector in India is likely to grow from around US$ 70 billion in
2008 to US$ 150 billion by 2025

It would account for a large chunk of the world food industry,


which would grow to US$ 400 billion from US$ 175 billion by
2025
An overview

The Indian food market is estimated at over US$ 182 billion

Accounts for about two thirds of the total Indian retail market

The retail food sector in India is likely to grow from around US$
70 billion in 2008 to US$ 150 billion by 2025

The world food industry is set to grow from US$ 175 billion to
US$ 400 billion by 2025

Exports of agricultural products from India are expected to grow


more than double to top US$ 20.6 billion in the next five years

Agricultural and Processed Food Products Export Development


Authority (APEDA) sees farm product exports in the global trade
to grow from present 2% to over 5%
Úrowth Prospect

India¶s processed food output is likely to grow by 44.2% to touch


US$ 90.1 billion

While packaged food sales will increase by 67.5% to reach US$


21.7 billion

Per capita packaged food spending is expected to grow by


56.5% to US$ 18.06 by 2012

Investment opportunities in the Indian food industry are set to


shoot up by a huge 42.5% to US$ 181 billion in 2015 and to US$
318 billion by 2020
Sectors

Spices

Despite a global slowdown, India exported 470,520 tonnes of spices
valued at US$ 11.68 billion

Compared with 2007-
2007-08, exports of spices had shown an increase of
19% in rupee value and 6% in dollar terms

Snacks & Confectionary



The current market is estimated to worth US$ 3 billion

The branded snack market estimated to be around US$ 1.34 billion,
growing at 15-
15-20% a year

The growth rate of the US$ 1.56 billion unorganised sector is 7-
7-8%

Health Food

Recognising the growth potential of the branded health food sector in
India, various FMCÚ majors are foraying into this sector
Sectors

Food Processing

The Indian packaged foods industry is estimated at US$ 13.05bn
growing at 14-
14-15% over the past two
two--three years

India¶s share in exports of processed food in global trade is only
1.5%; and the size of the global processed-
processed-food market stands at
around US$ 3.2 trillion

Under the Vision-
Vision-2015 action plan Ú I plans to triple the size of the
food processing industry from around US$ 70 billion to about US$
210 billion

Ú I also aims to increase the share in global food trade from 1.5% to
3%, requiring an investment of US$ 20.6 billion

Ernst and Young predicts the food processing industry in India to
grow at 30-
30-40% as against the present 15% in the next 10 years

Ú I is looking for an investment of US$ 21.50 billion in the food
processing industry over the next 5 years, a major chunk of which it
plans to attract from the private sector and financial institutions
Sectors

Dairy

The current size of the Indian dairy sector is US$ 62.67 billion and has
been growing at 5% a year

The domestic dairy sector is slated to cross US$ 108 billion in
revenues by 2011

India continues to be the largest producer of milk in the world. It
produced 110 million tonne of milk in 2008-
2008-09

Beverages

The market for carbonated drinks in India is worth US$ 1.5 billion

The juice and juice-
juice-based drinks market accounts for US$ 0.25 billion

The fruit drinks market is growing fastest at 25% followed by other
sports and energy drinks

The market for wine has also been growing at 25% per year
Investments in pipeline

Total amount of investments in the food processing sector in the


pipeline for the next 3 years is about US$ 23 billion ± µIndia Food
Report 2008¶

Pepsico would pump in an estimated US$ 152.30 million to set up


four new food and beverages projects by 2012

Úlobal Franchise Architects (ÚFA) aims to open 250 stores


around the world by March 2010, of which 100 will be in India

Ú I has received around 40 expressions of interest (EoI


(EoI)) for the
setting up of 10 MFPs with an investment of US$ 514.37 million
Úovernment Initiative

Food processing industries have been put in the list of priority


sectors for bank lending

The government plans to open 30 mega food parks by the


end of the 11th five year plan (2007-2012)

Fruit and vegetable processing units have been completely


exempted from paying excise duty

Automatic approval for foreign equity up to 100 per cent is


permitted for most of the processed food items
Úovernment Initiative

Items like fruits and vegetables products, condensed milk, ice


cream, meat production have been completely exempted from
Central Excise Duty

Excise duty on ready to eat packaged foods and instant food


mixes has been brought down to 8% from 16%

Excise duty on aerated drinks has been reduced to 16% from


24%

The Ministry of Food Processing Industry would assist in the


setting up of more food processing units so that the industry could
create 10 million jobs by 2015
Target Segment Profile

India's Food and Beverage industry is valued at Rs.


3584 billion.

India produces above 600 million tonnes of food


products every year and is one of the major producers of
food in the world.

The food and beverage industry registered a growth rate


of 8.5% in 2005-
2005-06.

According to Mckinsey's report, the total beverage


consumption will grow at 9% over the next 20 years.

f which, alcoholic beverage and non-


non-alcoholic
beverage will see a spurt of 9.6% and 8.8% respectively.
m 
  

6oor infrastructure

Lack of adequate facilities for storage, transportation, and cold


chain facilities

No common food law (13 laws are enforced by 9 ministries)

Food standards are confusing and contradictory



High cost of raw material and packing material and high
railway freight put pressures on margins

Different rules and regulations and licensing are defined for


different commodities
a
2bsence of a strong and dependable cold chain system
which is very vital
There is a need for a review of the 2gricultural 6roduce
and Marketing 2ct to ensure freedom to farmers
Some commodities in one segment are used as inputs in
another segment of the food processing industry
Excise Duty on all Value 2dded food products like
Nutritional and health foods
Ice ±creams and Non-
Non-alcoholic beverages dispensed by
vending machines are exempt from excise duty
Market Leaders

Diversification, whether into many different types of food or


beverage or into different preparations, has been the key to
ensure future growth

Nestle is the largest food and beverage company in the world


followed by Unilever and Kraft Foods

The nonalcoholic beverage segment is led by Coca-Cola and is


followed by PepsiCo and Cadbury Schweppes

The key players currently operating in the Indian food and


beverages industry includes Dabur India Limited, Úodrej
Industries Limited, Hindustan Lever Limited, Britannia Industries
Limited, ITC Limited, Nestle` SA, PepsiCo, Inc., Cadbury
Schweppes PLC, Future Úroup, RPÚ Enterprise and Úodrej
Agrovet Limited
Trends:

Recently, companies have spent a lot of money researching


consumers eating habits and preferences.

food processing industry is devoting themselves devoting


more attention to products designed for restaurants, vending
machines, and other foodservice providers.

2lthough this is bad news for grocery retailers, food makers


realize food eaten away from home is still food they can
provide, many times at higher margins.

2nother trend in the industry has been the development of


health foods, such as those containing less trans-
trans-fat or fewer
calories, or those containing only organic ingredients.
Trends

Recently, companies have spent a lot of money researching


consumers eating habits and preferences

Food processing industry is devoting more attention to products


designed for restaurants, vending machines, and other
foodservice providers.

Another trend in the industry has been the development of health


foods, such as those containing less trans-fat or fewer calories, or
those containing only organic ingredients

Bottled water has become well established in the market,


enhanced waters containing vitamins or supplements are gaining
popularity
Basic Issues & Constraints

Despite bumper crops, distribution of food grains continues to be


faulty ± almost 30% of the food produced in the country is wasted

Lack of adequate facilities for storage, transportation, and cold


chain facilities

No common food law (13 laws are enforced by 9 ministries)

Food standards are confusing and contradictory

High cost of raw material and packing material and high freight
charges put pressures on margins

Different rules and regulations and licensing are defined for


different commodities
Vulnerability

The food and beverage industry is particularly vulnerable to


climate change and water scarcity

World Resources Institute (WRI) findings show that findings


suggest that the edible oils, starches, and sugar sub-sectors will
be most vulnerable to increasing agricultural prices, while
aquaculture, poultry, and dairy will be vulnerable to disease and
contamination

Climate change and water scarcity has it impacts on the F&B


sector- increases agricultural input prices, processing costs, price
volatility and also decrease output

Climate change and water scarcity can increase processing costs


through operational disruptions and treatment costs and can
create food safety and stakeholder challenges
a

mottled water has become well established in the market as


many beverage companies, and enhanced waters containing
vitamins or supplements are gaining popularity. Energy drinks,
such as Red mull, have also burst forth onto the scene;

Rising costs have become an issue in the food and beverage


industry, as the rising costs of petroleum cause a twofold
increase in cost for companies in the food industry: costs have
increased at the agriculture end, which increases raw materials
costs for food processors who also deal with increased
production and transportation costs at their end.
continue

Since the industry is so competitive, it is difficult for these


companies to raise their prices accordingly and profit margins
have suffered as a result.

Quality control and assurance are vital to this industry. Food


safety programs have been adopted recently as issues of
chemical and bacterial contamination and new food-food-borne
pathogens remain a public health concern.
Úrowth Prospects

—ith increase in disposable income of consumers, growing


awareness among consumers about health products, rapid
urbanization, and increasing popularity of convenience foods,
food and beverage sector is expected to grow at a high rate.

This sector holds a huge potential to grow because of the


increase in advertisement spending, awareness campaign about
products in urban as well as rural areas, and large scale
transformation.

India's Food and meverage industry is valued at Rs. 3584


billion.

India produces above 600 million tonnes of food products


every year and is one of the major 6roducers of food in the
world.

The food and beverage industry registered a growth rate of
8.5% in 2005-
2005-06. 2ccording to Mckinsey's report, the total
beverage consumption will grow at 9% over the next 20 years.

Of which, alcoholic beverage and non-


non-alcoholic beverage will
see a spurt of 9.6% and 8.8% respectively
Future utlook

RNCOS "Indian Food and meverages Forecast (2007- (2007-2011)´


report gives an in-
in-depth analysis of the present and future
prospects of the Indian food and beverages industry.

It looks into the industry in detail with foci on organized food


retailing, consumer food purchasing behavior, food processing
industry and packed/convenience food industry.

This report helps clients to analyze the factors and examine the
opportunities critical to the success of food and beverages
industry in India.
[ [ [ [
Ë The Food and meverage Industry is projected to have overall
growth between 8% -8.5 %
Ë The sectors which are projected to achieve excellent growth of
20% and above are ±Semi 6rocessed/Cooked Ready to eat
(22%), Ice-
Ice-Cream(20%), Edible/Vegetable oil
(20%),—ine(22%) .
Ë Development of rural infrastructure, rural extension services,
agro--based and food processing industries have been given
agro
high priority.
Ë The process of setting up of Food 6arks in various key
locations of the country with the involvement of the various
state governments and other allied institutions is on.

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