REPORT ON FOOD INDUSTRY IN INDIA

Overview of Food Market in India

India is a country of striking contrasts and enormous ethnic, linguistic, and cultural diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven Union Territories (under federal government rule). The states differ vastly in resources, culture, food habits, living standards, and languages. Vast disparities in per-capita income levels exist between and within Indias states. About 75 percent of the countrys people live in its 550,000 villages; the rest in 200 towns and cities. There are 27 cities with a population above one million people. There is no single traditional cuisine of India. The many cultures that have come to India over the centuries have contributed their flavours and recipes using the basic products available locally. India is the world's 2nd largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. Some sensitive items, such as alcoholic beverages, poultry meat, raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Non-tariff barriers include unwarranted sanitary and phytosanitary restrictions and onerous labeling requirements for pre-packaged foods. Other factors adversely affecting imports include a poorly developed infrastructure (transportation and cold chain), a predominantly unorganized retail sector, and outdated food laws. However, some positive factors are: Rising disposable income levels Increasing urbanization and exposure to Western culture Growing health consciousness among the middle class Growing consumerism Changing age profile Increasing availability of cheap consumer credit

Recent Trends
Exporters are likely to find the greatest opportunities in the markets serving the middle and upper income groups of India. The typical pattern of buying groceries and emerging trends are closely associated with both tradition and new technology. A typical household purchases lessperishable food and other groceries at the beginning of each month - sometimes having them delivered. More-perishable products such as bread and eggs are purchased every one or two weeks. Milk is purchased daily. Grocery stores are the dominant food outlets but fruit and vegetables are bought from unorganized vendors. Some grocery chains are expanding into the supermarket or hypermarket category offering a wide range of products; however, purchasing of fruit and vegetables in this context has not yet been fully accepted. Even so, supermarkets and hypermarkets are putting pressure on the traditional grocery store. Visits to a supermarket encourage much impulse buying compared to visits to a traditional grocery store or phone shopping. Eating out is a very popular activity while attending other functions. It is estimated that Indians spend 5 billion (Rs. 350 billion) eating out annually. Of this organized establishments accounts for only 318 million (Rs. 20 billion). International fast food chains such as Subway, McDonald's and Pizza Hut are found in shopping malls and near cinema theatres. The "well-off in urban areas are increasingly eating out in coffee shops, malls or retail stores. Lounge bars are the latest trend in urban areas and are frequented by young professionals, successful executives and single women in their late 20's.

Imported Food Market in India

The imported food sector in India is growing strongly, albeit from a very small base, on the back of rising incomes, changing lifestyles and retail expansion. Changing lifestyles and the boom in organised retailing have resulted in growing demand for imported food and drink in India. The market for such specialty foods has only begun to take off in the last four to five years, and is growing at a rate of around 30% to 40% per annum. As import regulations have been relaxed and import duties reduced, big names, including Godrej, Reliance and Pantaloon, have moved into the market, opening specialty food stores, selling imported foods such as cheese, pasta, cookies, olive oil, chocolates, dried fruits, sauces and cereals. Other factors behind the growing popularity of imported foods are rising incomes and increased foreign travel, while demand has also been swelled by the growth of specialty restaurants. However, the import market remains relatively small, with chocolates, olive oil, pasta, canned and preserved fish, sauces and salad dressings, juices, and certain fruits and vegetables the prime categories. Demand for such products is restricted to higher-income consumers, as import duties (ranging from 25% to 50%) keep prices high.

Market structure
Food ingredient exporters can access the Indian market in three ways: (a) supply directly to local food processors; (b) supply through local agents/distributors to local food processors; or (c) start production/distribution centers in India. Some of the leading food ingredient producers like IFF, Danisco, and Doehler have a production base in India. As small players, scattered all over the country, dominate the Indian food-processing industry, appointing agents/distributors would be the best way for exporters to reach them. However, some of the large Indian and multinational companies can be supplied directly. The chart below gives an overview of the usual distribution channel for imported food ingredients (and processed foods) applicable to foreign food suppliers. FOOD SUPPLIERS

Indian Foodprocessing Company

Importer Agent

Distributor Wholesaler

Retail Outlets/Food Services

Olive Oil
Olive Oil has been available in India for more than three decades and it is currently the fastest growing product amongst various categories. The basic advantage it has is that olives cannot be grown in the Indian climatic conditions. Nor can they be imported on a large scale for pressing and refining purpose. Hence it attains a position of a 100% imported products. The Indian demand for olive oil is growing at 15-20% per annum, any manufacturer of olive oil has a good potential to do business in India. Pure olive oil (a mixture of refined and extra virgin olive oil) and extra virgin oil are known grades in the Indian market. The extra light grade of olive oil is not popular at this stage. The rate of growth of olive oil in the food sector is exponential and expected to remain so for some years to come. Though the non-food usage is growing very gradually in percentage terms, with the targeted population of this usage, it adds up to a good quantum. It is estimated that by year 2010 the demand of olive oil in India would cross 2000 tons per annum as compared to under 800 tons in the year 2000. This quantity may not sound encouraging as compared to western standards. But one should keep in mind that the main edible oils used in India are groundnut oil, coconut oil, mustard oil, sunflower oil, palm oil and safflower oil and all these oils are priced at 1/5th to 1/10th the cost of olive oil. Certain Italian olive oil manufacturers like Olio Sasso and Olitalia have taken up the channelized distribution system and since the last few years their efforts have achieved a good amount of awareness of the edible uses of olive oil within the Indian consumer. These companies have their own distribution network and dedicated sales force including catering to the Institutional business. Though there are some other Italian companies who also operate via the Dubai route, none of them have a substantial market share. Both of these brands were known in the Indian market since many years but with proper distribution the volumes attained in the last few years are encouraging. As for competition form other European brands are concerned, Figaro and Carbonell from Spain are also active. Both these brands are owned by the same group in Spain. Even they have entered the market a few years back with a systematic distribution network and dedicated sales force. Certain other well known brands like Bertolli, Fragata, Filippo Berio, Borges, Yabara and Musa from Spain and Pure Olive Oil from Turkey are also available in the Indian market.

Import Duty on Olive Oil

Virgin Olive Oil Unit Litre Basic Customs Duty 45% Additional Duty 4% Education Cess 1.35% Total Duty 52.204% Olive Oil Unit Basic Customs Duty Additional Duty Education Cess Total Duty

Litre 40% 4% 1.20% 46.848%

Bakery Products
Over the past few years bakery products have shown a marked improvement in volumes and customer base. In fact, volumes, brand loyalty and strong distribution networks are the main drivers of growth, which is mainly driven by the bread and biscuits segment: this two major bakery industries account for about 82% of the 1.3 billion, 2.4 million tonnes Indian bakery market. Nevertheless, the Indian bakery sector is still at a nascent stage and is characterised by escalating prices of major raw materials (particularly wheat flour, vegetable oil, sugar, milk) and a high level of fragmentation, where the organised sector has a market share of 45% and the balance 55% is with the unorganised sector in the baked products. However, the annual production of bakery products which includes bread, biscuits, pastries, cakes, buns and rusk was to the tune of 5000 tonnes in 2004-05 with a value of 1.2 billion. The large organised sector players who are prominent in the high and medium-price segments together account for 90% of the organised bread market. Local manufacturers with numerous local brands cater to populous segment and contribute considerably in the bread segment. Bakery products penetration is lower in rural areas at 15-20% and at 60% in urban areas. This is mainly because these products are consumed as snacks, and do not form part of the main course meal. Other bakery products like cakes and pastries are also on the growth mode, but products do not yet have a mass appeal and are basically centred on the urban areas. In these two categories also local manufacturers hold a sizeable chunk of the market. Please refer Table 1 which indicates the industry market size.
Table 1 Industry Market Size Product Bakery Items Biscuits Cakes Bread Market size (Rs m) 70,000 35,000 750 11,000 Market size ('000 tonnes) 1,100 70 1,400 Growth (%) 8% 7% 4-5% 3-4%

However, with more than 70% of the Indian population residing in rural areas, manufacturers are eager to expand their presence outside cities. Products are being marketed to rural consumers in smaller sizes with lower prices and new flavors wrapped in attractive packages, bakery products expanded a robust 7% in 2004. Continued efforts of manufacturers to advertise and promote their products to urban and rural consumers, as well as offering convenient baked foods that offer greater variety, taste and flavor are the main drivers of strong growth in India.