Prepared by the office of the Minister Counsellor for Food and Agriculture, Embassy of Denmark in New Delhi, India

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1 SECTOR ANALYSIS India: Food, Agriculture and Agro Business Date January 2014 Our ref. AKA Prepared by the office of the Minister Counsellor for Food and Agriculture, Embassy of Denmark in New Delhi, India Keywords: agriculture, agri-infrastructure, cold chain, commercialisation, dairy, fishing, food processing, fruit, grains, growth potential, local production, milk, packaging, poultry, vegetables. (Dansk) landbrug, fødevarer, fiskeri, infrastruktur, kølekæde, mejeri, frugt, grøntsager, afgrøder, dyrehold, cricket, forarbejdning, detailhandel, vækstpotentiale, opbevaring, mælk, fjerkræ, kød, gartneri. Abstract: India is one of the world s biggest producers within agriculture, fisheries and food. However, food processing and retail is still at a relatively nascent stage. Insufficient infrastructure and a rigid distribution and marketing system have so far impeded the agri-food sector from achieving its full potential. However, economic and demographic development, increased urbanisation and the strong emphasys given by the Indian Government to develop the sector in order to sustain India s continued overall economic growth imply a vast growth potential including in particular Danish areas of strength. Overall India offers considerable market opportunities and should be Minister Counsellor for Agriculture, Embassy of Denmark, India Page 1 of 7 New Delhi viewed in a long perspective.

2 Table of contents Introduction... 3 Industry... 3 Key drivers... 4 Opportunities for Danish companies... 5 Challenges for Danish companies... 6 Conclusion and recommendations... 6 Contact... 7

3 Introduction India is one of the world s biggest producers within agriculture, fisheries and food. However, food processing and retail is still at a relatively nascent stage. The lack of agro-infrastructure has so far hindered the growth of value-based agro-business, but there is a vast growth potential due to increased urbanisation, the volume of the population and the fact that the sector is a key government priority in order to sustain India s continued overall economic growth. Overall India offers considerable market opportunities and should be viewed in a long perspective. Industry India is the third largest producer of agricultural commodities in the world (e.g. milk: no. 1 in the world; livestock: no. 1 in the world; tea: no. 1 in the world; rice: no. 1 in the world and sugarcane: no. 1 in the world) and the food processing industry is one of the largest industries in India. Agriculture contributes around 15 % to India s Gross Domestic Produce (GDP), whereas food processing contributes around 7% to GDP and 13% of the country s export. The industry size has been estimated at USD 70 billion. More than ½ of India s population are occupied with agriculture the average farm size being just under 1 ha. The food processing industry employs around 1.6 million workers directly. While agricultural production is significant, the food processing industry is still at a nascent stage in terms of development. Of the country s total agriculture and food produce, only around 4% is processed. The highest share of the processed food is in the dairy sector, where 37% of the total produce is processed, of this only 15% is processed by the organised sector. Level of processing in food processing sector 1 Food Item Level of Processing in Organized sector (%) Fruits & Vegetables Level of Processing in Unorganised sector (%) Dairy Products Meat Poultry 6-6 Marine Fisheries Shrimps Total processing (%) 1 Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. Generally one operates with the following segments: 1) Dairy, 2) Fruits & Vegetables, 3) Grains & Cereals, 4) Fisheries, 5) Meat & Poultry and 6) Consumer Foods.

4 The primary 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 flourmills, 568 fish processing units, 5,293 fruit and vegetable processing units, 171 meatprocessing units and numerous dairy processing units at state and district levels. At the same time the agri-infrastructure in India is inadequate and highly insufficient when compared to its large food and agriculture production. This implies a considerable waste throughout the supply chain from the fields, storage and transportation networks to the retail stores. The lack of appropriate agriinfrastructure and a rigid market structure has hampered the potential growth of value-based agri-business. Key drivers The agriculture and food sector is of vital importance to India s continued growth. The importance of the sector is enhanced by the fact that around 70% of the population depends upon agricultural activity for livelihood. Given the size and overall importance agriculture in the Indian economy, increased growth in the sector is a key priority for the Government of India. A main route to achieve this is through further development of the food-processing sector. The government has therefore been focusing on commercialisation and value addition in agricultural produce, minimising pre- and post-harvest wastage, generating employment and export growth in this sector, through a number of regulatory and fiscal incentives, including i.e. zero duty import of capital goods and raw materials for export oriented units and allowing full repatriation of profits and capital. Given the right market incentive measures are introduced, over the next couple of years, the agriculture sector is estimated to grow at 3-4% per annum. Value addition of food products is projected to increase from the current 5-8% to 35% by the end of Fruit & vegetable processing, which is currently around 2% of the total production is projected to increase to 25% by A number of different factors support the growth potential of the Indian foodprocessing sector: A growing middle-class of more than million people, depending on definition of same Growing urbanisation more than 50 cities with more than a million inhabitants and several mega-cities such as Mumbai and Delhi with nearly 20 million inhabitants

5 Changing lifestyles and family patterns leading to different consumption patterns Westernisation of the Indian retail market where both domestic and expectedly in years to come multinational operators plan to invest in the food processing industry in order to secure a reliable supply chain India s vast natural resource base and relatively cheap labour offer a great export potential for the Indian food processing industry Opportunities for Danish companies Agriculture, fishery and food processing sector offer a number of interesting business opportunities in areas where Danish operators are traditionally strong. However, it is important to underline that the sector should be viewed in a longer perspective and that due consideration should be given to adapt to the Indian context with respect to price and technology level. Thus besides exporting, other entry strategies such as setting up local production or finding local joint venture partners should also be considered. Within the primary sector, India offers opportunities for Danish companies within the areas of machinery, equipment and know-how, especially within livestock and dairy production, which are focus areas with short-term growth potential. Similarly, India offers interesting opportunities within aquaculture another focus area with considerable growth potential, where Danish companies possess long experience and offer solutions that would be of interest to high-end Indian producers. Horticulture is another area, where India offers opportunities for Danish operators. Within processing, development within the dairy industry offers particular opportunities to Danish companies. Also, solutions within fruit juice and pulp production should be of interest. Increasingly, fish and meat processing technology will offer business opportunities. At present, this sub-sector is still at a nascent stage compared with Danish technology, however, the high-end of the market offers opportunities. Storage and cold-chain will remain a high priority area of development for years to come. As regards food products, attention should be paid to the specific Indian taste and consumer habits. In the major cities, the market for confectionary is growing rapidly, a trend that is expected to continue in the coming years. Biscuits, snacks, fruit juices and soft drinks are other product groups of potential. There is a niche market for Danish dairy products such as quality butter and cheese and a considerable potential in the longer term for processed meat such as sausages and bacon.

6 Challenges for Danish companies Tariff barriers, technical barriers to trade, most notably with regard to various food products, are widespread in the sector, which is traditionally highly protected due to the vast amount of people in the rural areas who depend upon agricultural production for their livelihood. The lack of infrastructure, storage and cold chain facilities are challenges, in particular with regard to perishable products. The fragmented and predominantly old-fashioned distribution and retail-sector based on small operators is also a challenge with regard to price and volume. Bureaucracy and in-transparent market conditions can be a challenge for small and mediumsized companies. Conclusion and recommendations Within all parts of the sector, India offers interesting opportunities for Danish operators. In several areas, where Danish companies have positions of strength, a considerable market potential is foreseen over the coming years. It is important to approach India as a medium- to long term market and prepare a market strategy specific to India. Particular attention should be given to identifying the appropriate business partner(s) in India and invest the resources to on-the-spot nursing of the market, especially in the initial phase.

7 Contact Trade Council in India Embassy of Denmark 11, Golf Links New Delhi , INDIA Anders Kjær Adamsen, Minister Counsellor Food and Agriculture The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalization process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our customers are secured the best possible quality under the varying working and market conditions at any given point of time.

CHAPTER- I INTRODUCTION AND RESEARCH METHODOLOGY

CHAPTER- I INTRODUCTION AND RESEARCH METHODOLOGY 1.1 INTRODUCTION: Food processing industry comprises a large spectrum of industrial units producing foods and vegetables based products, marine products,