Address By Shri J. Vasudevan, Secretary, Government of India, Ministry of Food Processing Industries

I am happy to be here today at Fourth India EU Business Summit reflecting on business strategy, trade technology and other important areas of mutual interest. I wish to compliment FICCI for organising this summit as it gives us all an opportunity to discuss issues relating to investment in the Indian Food Processing Industry. It is indeed gratifying that this is the fourth such summit organized by FICCI jointly with CII.

The principal sectors of India's processed food industry are grain processing, consumer food, fruits & vegetables, milk & milk products, meat & poultry, fisheries, beverages and other miscellaneous products like confectionery, chocolates and cocoa products.

In all there are nearly 9000 organised units in the country, more than 5000 of which are in the fruits and vegetable processing sector. Small players (processing less than 0.5 tons per day) dominate the industry and account for 75% of its output and 50% of its value. However, mass based foods like milk, cereals and pulses in packaged form and poultry have seen investment by large, including international, players.

Since 1991 till March, 2003, 773 proposals involving investment of about Rs.11,000 crores (US $ 2.4 Billion) have been approved by FIPB of which about 30% pertain to EU countries. Out of 773 approvals about 20% have been actually implemented and investment worth Rs. 3,000 crores( US $ 0.66 Billion) have actually flowed in the country. Netherland, Germany, Italy and France are the major investors in India from EU block and some of the successful ventures from EU countries are Debon, Perfetti, Cadbury, Godrej-Pilsbury, Nutricia International, Manjini Comaco, etc.

Food processing has an enormous potential for development. This sector has for a long time been dominated by primary processors like grain milling units. With expansion and diversification, new investment opportunities will be available in areas like canning, dairy and food processing. Specialty processing, packaging, frozen food/refrigeration and processing & fruits and vegetables, fisheries, alcoholic beverages, soft drinks and grains are important sub sectors of the food processing industry. Health food and health food supplements will also be a rapidly rising segment in view of the large middle class population with increasing disposable income.

A study conducted by McKinsey has estimated that the market for value added foods will grow from Rs. 77,000 crores (US $ 17.1 Billion) to Rs. 2,25,000 crores( US $ 50 Billion) in 2005. Popular foods like atta (wheat flour) and biscuits will form almost 80% of the market. The breakup of the potential demand in respect of various food products is indicated below: -

 

Rs. in crores/Us $(Billion)
1.	Oil & Vanaspati	51000/ 11.3
2.	Liquid milk	40000/ 8.8
3.	Bakery	12000/ 2.66
4.	Cereals	10000/ 2.2
5.	Indian Sweets	8000/ 1.77
6.	Tea & Coffee	7200/ 1.6
7.	Confectionery	6000/ 1.33
8.	Spices	1200/ 0.26
9.	Sugar	25000/ 5.5
10.	Others	64600/ 14.3
11.	Total	25000/ 50.0

Opportunities for building highly profitable business will be available in dairy, wheat and poultry sectors. Typical products would include packaged atta (wheat flour) which is expected to grow Rs.15,000 crores (US $ 3.3 Billion) industry by 2005 and packaged milk which will be Rs.36,000 crores( US $ 8.0 Billion) industry by 2005. By 2005 poultry, meaning the
undressed, unprocessed poultry available in local markets will be the Rs. 27,000 crores (US $ 6.0 Billion) industry. Processed poultry and meat business is expected to record a turnover of Rs. 9000 crores ( US $ 2.0 Billion) by 2005.

Presently, the food industry is heavily dependent on two products, namely, sugar and vegetable oil. Adequate capacity has already been established and profits will be dependent on introducing greater efficiency. The higher value added segment where there is scope for investment includes processed fruits and vegetables including jams, ketchup and frozen vegetables. The demand in these categories is expected to grow rapidly. Some of the attractive product categories will be fruit drinks, frozen vegetables and value added ready-to-eat food items. 

In order to promote investment in the food processing sector, several policy initiatives have been taken during recent years. These include :

• Food processing industry has been declared a priority area. So it qualifies for a number of fiscal relief and incentives to encourage commercialisation and value addition to agricultural products.
• Full repatriation of profits and capital is allowed.
• Almost the entire sector is delicensed freeing it from bureaucratic hassles.
• Automatic approvals for foreign investment upto 100 per cent, except in few cases, and also technology transfer .
• Zero duty import of capital goods and raw material for 100 per cent export-oriented units.
• Agro based 100 per cent export oriented units are allowed sales upto 50 per cent in domestic tariff area.
• All processed fruits and vegetable products are exempted from central excise duty.
• Government grants given for setting up common facilities in Agro Food Park.
• Full duty exemption on all imports for units in export processing zones.

India offers a huge opportunity for FDI in the F&A sector due to the positive impact of demographic trends and expected regulatory changes.

(I) Rising income levels and large target consumer base.

India is home to nearly 23% of the global population and is one of the most attractive consumer markets in the world today. Almost 30% of the population is urban which is easily accessible to marketers as the top 10% towns have 60% of urban population.

(2) Changing age profile of the Indian population

As a consequence of the high birth rates prevalent until the 1990s, a large proportion of the Indian population will be in the age group of 20-59 years. This age group is the most appropriate target for marketers. This population trend will give a further boost to the growth of consumption in India.

(3) Changing lifestyles

Urban consumers become more exposed to Western lifestyles, through overseas travel. For example, more than 5 million Indians travelled abroad last year and this number is expected to increase by 15% to 20% per annum.

Several other trends support new trends in consumption.

• TV /Media- 76% of Urban and 33% of Rural population reached by TV.
• There is greater income at one's disposal than before.
• There is an increasing tendency to be seen as 'being contemporary' and keeping up with peers.
• Increasing move to nuclear families ( over 50% in Urban India ).
• More working women and double income families are further leading to higher household income and more demand for new products.
• All these factors are translating into a greater demand for new products that offer greater convenience and lifestyle positioning.

The Ministry is acting as a catalyst in developing food processing infrastructure in the country and through its plan schemes for setting up of food processing units, food parks, cold chain facilities, value added centre etc. It is channelising the private investment in this sector.

In a global environment stressing on quality and safety, it is necessary to keep pace with the international developments and work towards achieving these. There has been a recent shift in trend from end-point inspection to a quality management and assurance systems approach. The Ministry on its part provides guidance and financial assistance for introduction of GMP, GHP, HACCP, ISO certification and bar coding in the manufacturing processes to assure quality and address the issues of traceability.

I am aware of a number of quality issues which have served as non tariff barriers especially for Indian export to EU countries and I am sure that as a result of discussions, the problems will be resolved. There is need for better cooperation between India and EU on collection and dissemination of trade information and regulation and to build the capacity of selected Indian laboratories for testing of food products.

Despite the advantages, India's share in global trade of food products is less than 2 per cent. Large capital investments are required to increase the economies of scale and to move from to value added products for better unit value realization.

The technology of food processing that is relevant to India, will be that which can add value at a reasonable cost, as the premium over fresh foods cannot be very high if a large demand has to be generated. What is more important is the widespread use of technology for packaging, food preparation and techniques that enable extension of the shelf life of the products.

One area which needs substantial investment is that of infrastructure of post-harvest management and cold chain. I especially draw your attention to the enormous possibilities in this area for investors. The growth of cold chain will go a long way in the growth of the food processing sector.

Another very crucial area is that of food packaging. Apart from making the packaging attractive from the point of view of consumer satisfaction, packaging is a technological necessity to improve the shelf life of the processed foods. This is very important also from the point of view of ensuring food quality and food safety. This is another area which has tremendous potential for exploitation particularly through use of biodegradable eco-friendly material.

The development of processed agro products will depend on both exogenous and endogenous factors. Exogenous factors include a global market environment affecting the access of processed food in the markets of the developed countries. It is hoped that as a result of the WTO agreement on agriculture, there will be a reduction in production and trade distortions leading to the establishment of a fair multi-lateral trading system. Endogenous factors include the Government policy framework relating to production, prices, technology, standards and quality, infrastructure and marketing. Improvements in these areas will lead to a fall in the price of packaged food and that will lead to a substantial domestic demand by making processed food affordable to large sections of the population.

I am sure that the summit will help to identify new areas of cooperation and India with its inherent strength in low cost raw material, skilled manpower and a vast market will provide an opportunity for trade and investment in a wider range of food products.