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Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 2
Advantage India 2009 Domestic food spending: USD181 billion Strong demand growth Demand growth for processed food has been rising with growing disposable income, urbanisation, a young population and nuclear families Household consumption is set to double by 2020 Increasing investments Government expects USD21.9 billion of investments in food processing infrastructure by 2015 Investments, including FDI, will rise with strengthening demand and supply fundamentals Advantage India Food processing hub India benefits from a large agriculture sector, abundant livestock, and cost competitiveness Investment opportunities will arise in agriculture, food infrastructure, and contract farming Policy support Sops to private sector participation; 100 per cent FDI under automatic route Agri Export Zones have been set up; under the government s Vision 2015 plan, mega food parks to be established Approval of National Mission on Food Processing 2020E Domestic food spending: USD318 billion Notes: 2020E - Estimate for 2020; estimates are from Flavours of Incredible India (Ernst & Young, 2009) FDI - Foreign Direct Investment ADVANTAGE INDIA 3
Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 4
The food processing sector comprises six major segments Fruits and vegetables India is the world s second largest producer of fruits and vegetables Milk and milk products India is the largest producer of milk in the world Food processing Meat and poultry Marine products India was the largest producer of buffalo meat (1.4 MT) and the second largest producer of goat meat (0.5 MT) in FY10 India is the third largest producer of fish in the world Grain processing India is estimated to have produced about 250 million tonnes of food grains in FY12 Consumer food Among the fastest growing segments in India; it includes - Source: Indiabusiness.nic.in, Ministry of Agriculture, Meat & Poultry Processing Board, FAOSTAT Note: FY - Indian financial year (April - March) MT - Million Tonnes Packaged food Aerated soft drinks Packaged drinking water Alcoholic beverages MARKET OVERVIEW AND TRENDS 5
Total output of food products and beverages totalled USD93.1 billion in FY10 The food processing industry has emerged as a key component of Indian manufacturing; while the sector s total output stood at USD93.1 billion in FY10, it accounted for nearly 7.5 per cent of aggregate gross value added of major industries during that year The size of the sector has been growing fast; output expanded at a CAGR of 16.9 per cent over FY05-10 100 80 60 40 Processed food output 30% 25% 20% 15% 10% Source: Ministry of Food Processing Industries ( MOFPI), Annual Survey of Industries 2009-10, Aranca Research Notes: CAGR - Compound Annual Growth Rate, 20 0 FY05 FY06 FY07 FY08 FY09 FY10 5% 0% Processed food output (USD billion) Growth - right axis Source: Annual Survey of Industries (ASI) 2009-10, Aranca Research MARKET OVERVIEW AND TRENDS 6
Strong growth in the sector also evident from trends in IIP Although figures for output of food products and beverages from ASI are not available post FY10, data from the Index of Industrial Production (IIP) suggest strengthening growth momentum in food products and beverages in FY11-12 20 15 Annual growth of food products and beverages from IIP (%) Growth for food products and beverages shot up to 14.8 per cent in FY12 from 8.9 per cent in FY11; the sector was the second-fastest growing sub-segment within manufacturing in FY12 and its growth far outpaced that of the overall manufacturing sector in the fiscal year 10 5 0-5 -10 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: Ministry of Statistics and Programme Implementation (MOSPI), Aranca Research Notes: ASI - Annual Survey of Industries IIP - Index of Industrial Production Annual growth of Food products & beverages as per IIP Annual growth of overall manufacturing sector as per IIP MARKET OVERVIEW AND TRENDS 7
Exports of processed food and related products has also been rising steadily Exports of processed food and related products* stood at USD19.7 billion in FY11, thereby recording an average annual growth of 14.7 per cent since FY09 Exports of processed food and related items (USD billion) Exports of APEDA products have grown to USD17.9 billion in FY12 as compared to USD11.5 bllion in FY11 Main export destinations for food products have been the Middle East and South East Asia 8.3 7.4 11.5 * includes APEDA products (processed fruits and vegetables, animal products, cereals, and other processed food items) and Non - APEDA products (oil meals, marine products, spices, sugar and molasses, tea, coffee, etc.) 6.7 6.2 8.2 FY09 FY10 FY11 Export of APEDA products Export of Non APEDA products Source: Agriculture & Processed food products Export Development Authority (APEDA,) Aranca Research; MARKET OVERVIEW AND TRENDS 8
Shares in exports of processed food and related products In FY11, APEDA products had 41.6 per cent share in total exports; non-apeda products made up the rest Within APEDA products, cereals had the highest share (36 per cent) while for non-apeda products marine products dominated with a share of about 21 per cent Shares in APEDA exports (FY12) Shares in non-apeda exports (FY11) 35% 6% 1% 36% Cereals Animal products Processed Fruits & Vegetables 11% 14% 21% Marine Products Sugar & Mollasses Oil Meals 5% 17% Other processed foods Fresh Fruits & Vegetables Floriculture & Seeds 14% 20% 20% Spices Tea & Coffee Others Source: APEDA, Aranca Research Source: APEDA, Aranca Research MARKET OVERVIEW AND TRENDS 9
Large presence of the unorganised sector (1/2) The unorganised sector accounts for 42 per cent of India s food processing industry Unorganised sector has the largest share in the sector * The sizeable presence of small scale industries points to the sector s role in employment generation 33% Unorganised sector 25% Organised sector Small scale industries 42% Source: Ministry of Food Processing Industries, Aranca Research * The figures have been taken from MOFPI s annual report for FY10 where FY indicates Indian financial year (April - March) MARKET OVERVIEW AND TRENDS 10
Large presence of the unorganised sector (2/2) Rice mills account for the largest share of processing units in the organised sector Shares in production by value and volume (FY11) The government s focus on infrastructure is likely to see a sharp rise in the number of cold storage units in the years ahead 30% 50% 70% 50% By Volume By Value Unorganised sector Organised sector Source: Ministry of Food Processing Industries, Aranca Research MARKET OVERVIEW AND TRENDS 11
Food processing is a key contributor to employment generation in India In FY09, the sector employed 48 million people Policymakers have identified the food processing sector as a key one in encouraging labour movement from agriculture to manufacturing Notes: FY - Indian financial year (April - March) Healthy contribution to employment generation (FY09) Food processing industry Direct employment (13 million) Indirect employment (35 million) Source: Ministry of Food Processing Industries, Aranca Research MARKET OVERVIEW AND TRENDS 12
Notable trends in the Indian food processing sector Changing consumer tastes Wide array of products, coupled with increasing global connectivity has led to a change in the tastes and preference of domestic consumers This trend has been bolstered by rising incomes, increasing urbanisation, a young population, and the emergence of nuclear families Entry of international companies Liberalisation and growth of organised retail have made the Indian market more attractive for global players With a large agriculture sector, abundant livestock, and cost competitiveness India is fast emerging as a sourcing hub of processed food Rising business and product innovation Companies have been moving up the value chain; for example, cooperatives are transitioning from being pure producers of milk to offering a wide range of dairy products Firms, both domestic and global, have been focussing on product innovation to cater to domestic tastes, while also introducing international flavours MARKET OVERVIEW AND TRENDS 13
Cooperatives dominate dairy sector; private players lead others Fruits, vegetables, processed grain Milk and milk products Cooperative societies: Gujarat (GCMMF), Andhra Pradesh (APDDCF), Karnataka (KMF), Maharashtra (Mahasangh), Punjab (MILKFED), Tamil Nadu (TCMPF), Delhi (NDDB) Meat, poultry and marine products Alcoholic beverages Consumer food Aerated soft drinks and packaged drinking water Packaged food MARKET OVERVIEW AND TRENDS 14
Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 15
Strong fundamentals and policy support aiding growth Strong Growing domestic demand Rising export opportunities Strong government support Supply-side advantages Policy support Rising disposable incomes India s greater integration with the global economy Favourable climate for agriculture; wide variety of crops Vision 2015 plan targets trebling of food processing sector Growing middle class, urbanisation, a young population Proximity to key export destinations Large livestock base aids dairy and meat processing sector Mega food parks, Agri Export Zones to attract FDI and aid infrastructure Changing lifestyles and food habits Expected spike in global demand as emerging markets grow at a fast pace Inland water bodies, long coastline help marine products Approval of National Mission on Food Processing GROWTH DRIVERS 16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012F F 2014F 2015F 2016F 2017F Food Processing Income growth is a key driver of growing domestic demand for processed food Rising disposable incomes Strong growth in per-capita income has resulted in greater demand for food items Per capita income is expected to expand at a CAGR of 8.5 per cent over 2010-2017 to USD2,428 There has also been a shift in demand - From carbohydrates to meat products (in line with the various phases of economic growth) To convenience foods, organic and diet foods 3,000 2,500 2,000 1,500 1,000 500 0 Rising per-capita income in India 30% 25% 20% 15% 10% 5% 0% -5% Per capita income, USD, LHS Annual growth rate, RHS Source:, Aranca Research Note: E - estimate, F - forecast GROWTH DRIVERS 17
A growing middle class and urbanisation has also aided growth in the sector Growing middle class, urbanisation Changing wealth dynamics of India s population Strong economic growth since the 1990s has led to - Rapid urbanisation and a growing middle class Nuclear families and dual income households Coupled with a young population and increasing media penetration, this has led to a surge in demand for packaged food, alcoholic and non-alcoholic beverages, snacks, savouries, etc 70 60 50 40 30 20 10 million households Aspirers: annual income INR90,000-200,000 Deprived annual income <INR90,000 Seekers: annual income INR200,000-500,000 Strivers: annual income INR500,000-1,000,000 Globals: annual income >INR1,000,000 0 2005 2010 2015 2020 2025 Strivers Seekers Deprived Aspirers Globals Source: McKinsey Quarterly, Aranca Research GROWTH DRIVERS 18
Exporters gaining from rising global demand and location advantages (1/2) Rising demand from rest of the word Share of exports in total output of processed food stood at 21.2 per cent in FY11 This has primarily resulted from - Greater exports to advanced economies More demand from emerging/ developing economies as they experience strong growth 16 12 8 4 0-4 Growth in key regions of the global economy % 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Emerging & developing economies Central & Eastern Europe Developing Asia Latin America & the Caribbean Middle East & North Africa Source: IMF WEO (April 2012), Aranca Research GROWTH DRIVERS 19
Pakistan Kuwait Indonesia Vietnam Iran Bangladesh Malaysia United States Saudi Arabia UAE Food Processing Exporters gaining from rising global demand and location advantages (2/2) Supply-side advantages Growth in food product exports has been aided by - Significant improvements in product and packaging quality Greater private sector participation India has a location advantage - it is geographically close to key export destinations (Middle East, South East Asia) United Arab Emirates was the top export destination of processed food and agriculture related products, followed by Saudi Arabia and the United States 298 Top ten destination countries of India s exports of processed food and agriculture related products (in USD million) 338 401 464 502 591 650 672 967 1,079 Source: Ministry of Food Processing Industries, Aranca Research GROWTH DRIVERS 20
India has a distinct competitive advantage over peers India s comparative advantage lies in its favourable climate, large agriculture sector and livestock base, long coastline, and inland water resources India also has an edge in cost of production compared to its competitors in Asia and the developed world Milk (Cow & Buffalo) Production (million tonnes) Global rank (2011) 107.2 1 Pulses (nes) 7 1 Fruits (fresh, nes) 7.6 1 Units Global rank Bananas 29.6 1 Arable land (million hectares) 157.9 2* Area under Irrigation (million hectares) 63.1 1* Coast line ('000 kilometers) 7 18 # Cattle (million) 210.2 1** Source: World bank, FAOSTAT, CIA World Fact book, Aranca Research Notes: * - for the year 2009; # - for the year 2011, ** - for the year 2010 Tea 0.96 2 Rice (Paddy) 155.7 2 Sugarcane 342.3 2 Vegetables (fresh, nes) 27.5 2 Wheat 86.8 2 Potatoes 42.3 2 GROWTH DRIVERS 21
Strong policy support gives food processing sector a boost (1/2) Encouragement to private sector 100 per cent export-oriented units are allowed to sell up to 50 per cent of their produce in the domestic market Export earnings are exempted from corporate taxes Tax incentives and other sops Import duty scrapped on capital goods and raw materials for 100 per cent export - oriented units 100 per cent tax exemption for 5 years followed by 25 per cent tax exemption for the next 5 years for new agro-processing industries Full excise duty exemption for goods that are used in installation of cold storage facilities Relaxed FDI norms 100 per cent FDI under automatic route (except for alcohol, beer, and sectors reserved for small scale industries) Repatriation of capital and profits permitted Notes: FDI - Foreign Direct Investment GROWTH DRIVERS 22
Strong policy support gives food processing sector a boost (2/2) Focus on infrastructure Assigned priority sector for bank credit 60 Agri Export Zones (AEZ) have been set up across the country According to Vision 2015, formulated by MoFPI, the government plans to establish 30 mega food parks in public-private partnership mode across the country; out of these 10 have already been approved in the first phase Government has also announced setting up of 15 Mega Food Parks in its FY12 Budget, as part of the third phase of Mega Food Park Scheme Incentives for development of storage facilities Investment-linked tax incentive of 100 per cent deduction of capital expenditure for setting up and operating cold chain facilities (for specified products), and for setting up and operating warehousing facilities (for storage of agricultural produce) Notes: MoFPI - Ministry of food processing industry GROWTH DRIVERS 23
Agri Export Zones in India Jammu & Kashmir: Apples, walnuts Himachal Pradesh: Apples Punjab: Basmati rice, vegetables Uttaranchal: Basmati rice, aromatic and medicinal plants Uttar Pradesh: Basmati rice, potatoes, mangoes, vegetables Assam: Ginger Rajasthan: Coriander, cumin Gujarat: Mangoes, vegetables, sesame seeds West Bengal: Pineapple, litchi, Darjeeling tea, vegetables 4 5 4 5 4 4 6 8 20 Maharashtra West Bengal Andhra Pradesh Madhya Pradesh Karnataka Uttaranchal Uttar Pradesh Tamil Nadu Other States Madhya Pradesh: Onions, garlic, seed spices, lentils Maharashtra: Grapes, grape wine, mangoes, flowers, onion Andhra Pradesh: vegetables, mango pulp, grapes, gherkins Karnataka: Gherkins, rose, onions, flowers, vanilla Tamil Nadu: Flowers, mangoes, cashew nuts Source: APEDA, Aranca Research GROWTH DRIVERS 24
Agri services Food processing Fermentation Vegetable oil Agri machinery Tea and Coffee Sugar Food Processing Foreign investments flowing in; rise in plan expenditure (1/2) FDI inflows into agriculture and food processing between April 2000 and August 2012 stood at USD4.7 billion 1,600 Cumulative FDI inflows (Apr 2000 - Aug 2012) into the food and agriculture sector 40% Demand growth, supply advantages, and policy support have been instrumental in attracting FDI 1,400 1,200 1,000 30% Notes: FDI - Foreign Direct Investment, 800 600 20% 400 10% 200 0 0% Cumulative FDI inflow (USD million) Share of total FDI inflow (%) - right axis Source: Department of Industrial Policy & Promotion, Aranca Research GROWTH DRIVERS 25
Foreign investments flowing in; rise in plan expenditure (2/2) The government s main focus is on supply-chain related infrastructure like cold storage, abattoirs and food parks Notes: GOI - Government of India 12th Five Year Plan (2012-17) outlay shares: food processing 11.5% 1.3% Infrastructure 5.5% development 36.3% National Mission on Food Processing Strengthening of institutions 45.4% Plan allocation to the food processing sector: USD2.9 billion Food Safety, R&D and Promotional Activities Innovation Fund Scheme Source: Ministry of Food Processing Industries (2009-10 Annual Report), Aranca Research GROWTH DRIVERS 26
PE deals Jan 2010 - Nov 2012 Food Processing Rising Private Equity (PE) funding; M&A activity stable (1/2) PE investments in the food and agriculture totaled USD650 million during 2008-11 Company Investor Type of business Deal value (USD million) Nuziveedu Seeds Blackstone Group Floriculture 80.0 Prakash Snacks Pvt Ltd Sequoia Capital Snacks 30.0 Amalgamated Beans Coffee Trading Co Darby Asia Investors Non-citrous fruit farming 25.0 Bush Foods Overseas Pvt Ltd Standard Chartered Pvt Eq Ltd Rice milling 25.0 Tirumala Milk Products Carlyle Group Milk production 22.0 The CREMICA Group Motilal Oswal Private Equity Advisors General food products 15.0 Nashik Vinters Verlinvest SA Wine and liquor 15.0 Parag Milk & Milk Products Motilal Oswal Private Equity Advisors Dairy products 14.1 Godrej Tea IL&FS Investment Managers Coffee Coffee and tea 13.5 Bakers Circle India Pvt. Ltd GEM India Advisors Ltd Frozen doughs and desserts 2.82 GROWTH DRIVERS 27
M&A deals Jan 2010 - Nov 2012 Food Processing Rising Private Equity (PE) funding; M&A activity stable (2/2) M&A activity was steady in 2011 Target company Acquirer company Type of business Deal value (USD million) United Spirits Ltd Relay BV Liquor 2,045 GMR Industries Ltd EID Parry Sugar 114.8 Jay Mahesh Sugar Industries NSL Sugars Ltd Sugar 51.99 Eastern Condiments McCormick & Co Seasonings, sauces 35.0 Krishidhan Seeds Summit Partners Agricultural seeds 30.0 Bajaj Hindustan Sugar & Ind Bajaj Hindusthan Sugar, ethanol 14.1 Associated Distilleries Globus Spirits Liquor 14.0 Candico India Keventer Agro Candy items 11.2 Source: Thompson One Banker, Aranca Research Notes: M&A - Mergers and Acquisitions GROWTH DRIVERS 28
Sector has been attracting foreign JV partners for a long time Players like McCormick had identified India as a strategic market way back in the 1990s Global players like Hershey are now keen on entering the increasingly attractive Indian market Established players like Nestle and Coke are extending their global JVs to India Foreign Players Indian Partner Type of business Stake ratio Year Dan Cake Phadnis Group Cake and biscuits 66:34 2011 McCormick Kohinoor Foods Ltd Basmati and food products 85:15 2011 McCormick Eastern Condiments Seasonings 26:74 2010 Nestle, Coca Cola -- Beverage 50:50 2010 Hershey Godrej Chocolates 51:49 2007 McCormick AVT Spices 50:50 1994 Source: Thompson ONE Banker, Aranca Research Note: JV - Joint Venture GROWTH DRIVERS 29
Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 30
Operation Flood: India gains self sufficiency in milk production (1/2) Operation Flood was initiated in 1970 by the National Dairy Development Board to achieve national self sufficiency in milk production by creating nationwide milk grids; under Operation Flood - India s milk production rose to 127.3 million metric tonnes (mmt) in FY12 from 21.2 mmt in FY1969 India retained its position as the world s largest milk producer in 2011-12 with an annual production of 127.3 million metric tonnes Dairy cooperatives offer employment opportunities to about 12 million farm families Source: National Dairy Development Board, GCMMF (www.amul.com), Aranca Research SUCCESS STORIES: OPERATION FLOOD, AMUL 31
Operation Flood: India gains self sufficiency in milk production (2/2) PHASE I (Jul-1970 to Mar-1981) PHASE II (Oct-1979 to Mar-1985) PHASE III (Jul-1985 to Mar-1996) Dairy cooperative societies ( 000) 13.3 34.5 72.5 Members (million) 1.8 3.6 9.3 Milk procurement (million kg/ day) 2.6 5.8 11.0 Liquid milk marketing (million litres/ day) 2.9 5.0 10.0 Milk drying capacity (million tonnes/ day) 261 507.5 842 Source: GCMMF (www.amul.com), Aranca Research SUCCESS STORIES: OPERATION FLOOD, AMUL 32
The Amul saga: a cooperative movement leads the way (1/2) Gujarat Cooperative Milk Marketing Federation (GCMMF) is the largest food products marketing organisation in India Set up in 1967, it is India s largest exporter of dairy products and has been accorded trading house status 3.0 2.5 2.0 1.5 1.0 0.5 GCMMF (Amul) sales (USD billion) 2.0 1.7 1.4 1.1 0.9 0.8 0.5 0.6 0.6 0.6 2.4 0.0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: GCMMF (www.amul.com), Aranca Research Notes: CAGR - Compound Annual Growth Rate FY - Indian financial year (April - March) SUCCESS STORIES: OPERATION FLOOD, AMUL 33
The Amul saga: a cooperative movement leads the way (2/2) Main brand: Amul Products: milk (including flavoured), butter, margarine, cheese, curd, desserts, infant food Facts and Features Producer members (million) 3.18 Village societies 16,117 Milk handling capacity (million litres/day) 13.67 Total milk collection (FY12, billion litres) 3.88 Daily milk collection (FY12, million litres) 10.6 Milk drying capacity (million tonnes/day) 647 Notable Awards Excellent performance in dairy product exports for 11 consecutive years CIO International IT Excellence Award (2003) for positive business performance through resourceful IT management and best practices International Dairy Federation Marketing Award (2007) for Amul s pro-biotic ice cream launch Authority APEDA IDG s CIO Magazine (USA) International Dairy Federation Source: GCMMF (www.amul.com), Aranca Research SUCCESS STORIES: OPERATION FLOOD, AMUL 34
Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 35
Opportunities Untapped market with strong growth potential Potential global outsourcing hub Supply chain infrastructure and contract farming Fragmented market leads to lower processing levels and value addition The government plans to raise value addition to 35 per cent by 2015 (from 20 per cent in 2005) PPP modules ideal for the private sector Strong demand growth - household consumption set to double by 2020 Global supermarket majors are looking at India as a major outsourcing hub India enjoys favourable supply-side fundamentals (abundant raw materials supply, cost advantages) The government has helped by investing in AEZs, mega food parks, easier credit Both firms and the government are eager to boost efficiency and access to markets Investment potential of USD22 billion in food processing infrastructure; 100 per cent FDI in this area Firms increasingly taking recourse to contract farming in order to secure supply Notes: PPP - Public Private Partnership, AEZ - Agri Export Zones FDI - Foreign Direct Investment OPPORTUNITIES 36
Contents Advantage India Market overview and trends Growth drivers Success stories: Operation Flood, Amul Opportunities Useful information 37
Industry Associations Agricultural and Processed Food Products Export Development Authority (APEDA) NCUI Building 3, Siri Institutional Area, August Kranti Marg, New Delhi - 110 016 Phone: 91-11-26513204, 26514572, 26534186 Fax: 91-1126526187 E-mail: headq@apeda.com Marine Products Export Development Authority (MPEDA) MPEDA House, Panampilly Avenue PB No 4272, Cochin - 682 036 Phone: 91-484 2311979/2311803 Fax: 91-484-2313361 e-mail: mpeda@vsnl.com, mpeda@mpeda.nic.in USEFUL INFORMATION 38
Glossary AEZ: Agri Exports Zones MFP: Mega Food Parks CAGR: Compound Annual Growth Rate FDI: Foreign Direct Investment MT: Million Tonnes IIP: Index of Industrial Production FY: Indian Financial Year (April to March) So FY12 implies April 2011 to March 2012 GOI: Government of India INR: Indian Rupee PPP: It could denote two things (mentioned in the presentation accordingly) - Purchasing Power Parity (used in calculating per-capita GDP) Public Private Partnership (a type of joint venture between the public and private sectors) PE: Private Equity APEDA: Agriculture & Processed food products Export Development Authority GCMMF: Gujarat Cooperative Milk Marketing Federation USD: US Dollar Conversion rate used: USD1= INR48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 39
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