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Sprouting Opportunities in Food & Agriculture Sector

Food & Agriculture
a repor t by tec hnopa k | 201 2

Authors Pratichee Kapoor, Associate Vice President I I +91-98914 49806 Tanuja Adhikari, Consultant I I +91-99100 44086 Aneesh Saraiya, Consultant I I +91-99106 78100 Design & Development Bharat Kaushik, Senior Design Manager I I +91-9811661493 Arvind Sundriyal, Senior Designer I I +91-9910493934

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Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 1

The Organic Goodness: Gaining Momentum

India ranks as the 7th largest country in the world with a total of 1.5 Mn hectare land under organic production. Over the last 5 years, land under organic cultivation has increased by almost 250 per cent. In 2010, the area under organic production accounted for 0.8 per cent of total agricultural land as against 0.1 per cent in 2005, a growth of 50 55 per cent in the last 5 years. as shown in exhibit 1.
Exhibit 1

Increase in Land under Organic Production in India

0.8% 0.7% 0.6% 0.6% 0.2% 0.1% 186
% Organic Land (000'ha)

2010 2009 2008 2007 2006 2005

1500 1,180 1,018 1,030 432

Source: Ministy of Agriculture & FiBL survey 2011

Domestic marketing and export

The organic food market is expected to grow to Rs 7,000 Cr by 2015 with a CAGR of 60 per cent, from Rs 675 Cr in 2010. Presently, about 85 per cent of the organic products produced in the country are exported to European & Asian countries, and balance 15 per cent is for domestic consumption as depicted in exhibit 2&3. Recognizing the potential for incremental growth, the Indian organic industry has offered a considerable price premium of 20-25 per cent to producers of organic products.

85 per cent of the organic products produced in the country are exported to European & Asian countries

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Exhibit 2

Organic Food Consumption

Local consumption 15%

Rising domestic demand...

Organic food is no more a novel concept to be tried and tested in India. The awareness and acceptance of organic food has increased in bigger cities. The increase in organic food consumption is evident from the fact that many organic food suppliers are opening stores across the country. The Organic Food Market has a limited number of organized players in the sector at present. Wholesalers/ traders and supermarkets play a major role in the distribution of organic products. As most organic production originates from small farmers, wholesalers/ traders account for a 60 per cent share in the distribution of these products. Organized producers distribute their products through supermarkets as well as through self-owned stores/ stalls. Key Organic Brands in India Organic India 24 Letter Mantra Down to Earth Beginnings Ecofarms Navdanya Today, all major hypermarket and supermarkets including Spencers, Hyper City, Spar, Natures Basket, Namdhari Fresh, Le March and Nilgiri retail have a dedicated shelf for organic food. These modern retail stores are continuously increasing shelf space for organic food products, which is still a small part of overall business (both in terms of the retail volume and value) but with a positive bent towards greater numbers. In the last few years, organic food has captured a shelf space of about 2-5 per cent in modern food retail. On an average, there are about 100-200 SKUs of organic food available in any retail chain offering organic food products. Some of the examples of modern retail offers in organic food are given in exhibit 4. Apart from the modern retail network, the organic food is also available through exclusive/producer owned stores in bigger cities. To name a few, these are Organic

Export 85%

, Source: APEDA Exhibit 3

Country wise Export (%)

Others* 15% Japan 5% US 20% EU countries 60%

* Others include Canada, Australia and East Asia,

Source: APEDA

In the last five years, organic agriculture has developed rapidly in India and has become an attractive opportunity for most developed countries to source organic products from. There are about 230 - 250 companies involved in organic export from India, which exported close to 50,000 tons of organic products in 2010. Agricultural and Processed Food Products Export Development Authority (APEDA) targets to export organic food worth 1 billion dollars in the next five years with Indian produce receiving wide acceptance in many mature markets of the US and Europe. The pattern of organic food consumption in India is very different from that in developed countries. In India, consumers prefer organic food because of the health benefits it has to offer and largely consume products such as marmalade, basmati rice, fruits, honey, tea, spices, medicinal and herbal plants, which amounts to 98 per cent of the total organic food basket. The other products that contribute to the remaining 2 per cent are oil crops, coffee, pulses and value added food products, among others.
Exhibit 4

Examples of Modern Retails offering Organic Food Average Store Size (sq feet)
30,000-35,000 15,000 25,000 1,800-2,500 400-8,000

Modern Retailers
Spar Retail Spencers Natures Basket Fab India
Source: Technopak Analysis

% shelf space for organic foods

7-8% 2-5% 3-5% 5-8%

Avg. No of organic SKUs being offered

400 250 200 >100

Existing Stores (nos)

9 200 (including 30 large formats) 14 142

Expansion Plans
Plans to open 13 stores by 2013 Plans to open 20-25 hypermarkets by 2012 30 by 2013 -

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

India, Live Organic, Sresta Naturals, Pristine Organics, Monarka Organic, among others. Some exclusive organic food stores are listed in exhibit 5.
Exhibit 5

However, high prices for organic food are the biggest impediment to sales, and affecting the demand for the same. The organic produce is expensive, given the higher

Exclusive Organic Food Stores in India Brand Name

Organic India 24 Letter Mantra Beginnings Down to Earth Navdanya Ecofarms

Organic India Sresta Naturals Pristine Organics Monarka Organic Navdanya Ecofarms India
Source: Technopak Analysis

Farmers Association
20,000 farmers 8000+ farmers across 25,000 acres >2.5 lakh farmers 5,00,000 farmers 20,000 farmers across 60,000 acres

Store (Nos)
6 own stores+ other retail stores 350 stores (owned + others) Through 15 + modern retail stores 7 own stores 7 own stores Distribution through modern retails

Expansion Plans
20 exclusive stores by next year Another 650 by next year

Expanding in mid market retail segment

Many of these have huge expansion plans and planning to expand their operations in mid market segment.

Implication of organic farming in India...

Organic food is quickly becoming a food of choice on the Indian familys dinner table and has a positive impact across the value chain of organic food production. Given below are some of the aspects which have a direct influence on the inclusion of organic food in the Indian diet.
Nutritional Security Laboratory tests have proved that organic foods have higher nutritional level and are healthier for health Organic Farming is a tool for enhancing farm income as Organic Food fetches higher price when compared to normally grown crops Todays consumer wants to consume healthier food products. Hence, he is opting for organic food despite higher prices Reduction of water usage and external energy consumption especially in the form of chemical inputs fertilizers and pesticides, helps in contributing in Green objectives The demand of Organic Food is higher in developed countries and domestic market is also expanding. Therefore, it offers wide opportunities for exporting organic food from India or for domestic retailing

cost of production and logistics. If a household shifts completely to organic food products, the extra spend comes to around Rs 2000-2500 per month, which has restricted the demand of organic products to bigger cities, among families with higher disposable income. Exhibit 6 highlights the cost benefit analysis of organic vs conventionally grown rice.

Farmers empowerment and higher income Healthier Composition for Consumer Green Composition and Environment Friendly

Business Proposition

Given the rise in disposable income and health awareness, the scope of organic food is unlimited and can generate many great business opportunities, at every level across the value chain. The organic food sector requires large scale investments to grow their operations and facilitate marketing activities, along with equipping for a better distribution system. Efforts need to be placed to generate better market knowledge and access to rural farmers who are still hesitant to opt for organic agriculture. This would help in channelizing the distribution of organic produce directly to modern distribution channels such as hypermarkets, supermarkets or exclusive retail stores.

Exhibit 6

Cost Benefit Analysis of Organic vs Conventionally Grown Rice Cost of Cultivation (Rs/ha)
18,000 20,700

Rice Cultivation
Organic Farming Conventional Farming

% decrease in Cost of Cultivation


Net Return (Rs/ Ha) % increase in Net Return

28,800 17,750 62%

Source: Status of Organic Farming in India, 2010, by Indian Academy of Science (IAS)

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 2

Cold Chain: Spinal Cord for Perishable Food Distribution

In India, there has been a phenomenal growth in production of horticulture produce, dairy products, and meat products over the last decade. Owing to the tremendous pressure on improving supply chain and reducing losses during produce handling and movement, the need for creation of a cold chain network is crucial as far as perishable food commodities are concerned. India, at present does not have a comprehensive coldchain network, and is estimated to potentially grow to Rs 32,000 Cr by 2015, as shown in exhibit 7.
Exhibit 7 Exhibit 8

Changes in Cold Storage Capacity (Mn MT)

12.0 17.6 18.9 24.1
Potatoes Fruits and Veg Multi Purpose Meat and Fish

2000 2005 2010 2015P

1.2 0.2 1.8 0.3 2.0 0.3 2.5 0.4

Milk and Milk Products

Market Size of Cold Chain in India (Rs Cr)

Source: Technopak Analysis


Exhibit 9

Break-up of Cold Storage Units (2010)

0.1% 0.3% 0.8% 0.4% 75.4% 23.1%

2450 1120 9280 2007-08 16040 2010-11

Cold Storage



Cold Transportation Source: Technopak Analysis

Potatoes Meat and Fish Source: Technopak Analysis

Multi Purpose Fruit and Veg Milk and Milk Products Others

Shift towards multi product cold storages

Cold storage in India has been largely adopted for longterm storage of potatoes, onions and high value crops like apples, grapes and flowers. Potato cold storages used to contribute 88 per cent storage capacity till 2000, however most of the new cold storages in the last decade have been constructed as multipurpose facilities focusing on all fruits & vegetables, poultry, dairy and FMCG product categories. Exhibit 8 highlights changes in cold storage capacity. Potato cold storages however still dominate the Indian cold storage capacity with more than 75 per cent share in the overall cold storage capacity. Exhibit 9 provides the breakup of cold storge units present in India. 4

India has around 3,500 companies in the whole cold chain value system
The Indian cold chain market is highly fragmented with more than 3,500 companies in the whole value system. Cold storage solutions form about 85 per cent of the Indian cold chain market by value and the balance 15 per cent is contributed by transportation. There are various standalone, integrated companies and 3PL service providers offering cold storage and transportation solutions to various food companies. However, these are not enough to cater to the growing food demand, with a high degree of food produce getting wasted due to short shelf life of products.

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Various Service Provider offering Cold Chain Sloutione

Exhibit 10

Exhibit 12

Recent Private Sector Participation

Type of Companies Operates

Cold Storage (85 per cent) Transportation (15 per cent) Integrated Companies Stand alone Companies 3 PL Service Providers Stand alone companies 3 PL Service Providers

Company Name
Adani Agri Fresh


CS Capacity (in MT)


Apples, Citrus Fruits, Grapes, Litchi, Pomegranate Apples

Himachal Pradesh

Fresh & Healthy



Impact of cold supply chain...

A lot of food produce gets wasted due to a lack of proper cold storage and logistics from farm to retail level. The situation can drastically change with an increased investment in and development of the cold supply chain. The same is illustrated in exhibit 11.
Exhibit 11

Dev Bhumi

Himachal Pradesh


Apples , Oranges Apples, Kiwi Fruits, Citrus, Peas, Grapes Okra, Baby Corn, Tomatoes, Grapes, Apples, Pre-Cuts

Suri Agro Fresh



Impact of Cold Supply Chain on Shelf Life Shelf life wout storage
2-3 weeks 5-7 days 4-6 days 7-8 days 4-6 weeks 15-30 days 2-4 days

Field Fresh Foods

Source: Technopak Analysis



Apples Mango Grapes Litchi Potato Onion Tomato

Shelf life with Cold Store

3 months 2 weeks 3 -6 weeks 3-4 weeks 3-8 months 5-6 months 2 weeks

milk products, frozen vegetables and non-vegetarian items. The client mix of the biggest 3PL companies consist mainly of organized retailers, QSRs and Frozen foods companies. A snapshot of key companies is given in exhibit 13.
A Snapshot of Key Cold Chain Solution Provider
Exhibit 13

Source: Task-force report on Cold Chain by National Horticulture Board

Company Name

No. of cold storage


Capacity Key Customers in MT

Hindustan Unilever Ltd, Quality, Baskin Robbins, Amul, Mother Dairy, ITC, Pizza Hut and Godrej Coca-Cola, BhartiWalmart, Republic of Chicken, ITC, Danisco Godrej Agrovet, Mother Dairy, Innovative Foods, Venkys, Supreme Suguna, Vista Foods, Zydus Cadila, Sterling Agro, ITC, and AlKabeer Godrej Tyson, McCain, Yum and Vadilal

Increased participation of private sector in the recent past

In the last few years, private sector participation has increased in the cold chain sector, given the investment opportunities and growth potential that it has to offer. Adani Agrifresh, Bharti Field Fresh, Concor owned Fresh & Healthy Enterprise and Unifrutti India are some of the key integrated cold chain players who have built cold chain infrastructure support for backward integration. Similarly, many traders at Azadpur mandi have also established their own cold storages with the help of Government support. A snapshot of key food companies who have invested in the cold chain sector are mentioned in exhibit 12. Snowman, R K Foodland, Gati and Carrier are providing 3rd party logistics to modern food retailers and processors, with increased focus on cold storage of



MJ Logistics


Radhakrishna Foodland Carriers


Bulaki Deep Freeze


The fragmentation of cold chain has discouraged the growth of cold chain logistics for perishable horticulture produce. However, the development of domestic retail

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

market has demonstrated some successful utilization of captive end-to-end chains such as reefer transportation by many players like Reliance, Spencers etc.

Recent developments in the cold storage sector

The major development in the cold storage sector is the Infrastructure status given to the sector. The Ministry of Food Processing & Industries has given the financial support to 10 integrated cold chain projects and has plans to set another 10 projects by the end of 2011. An additional 15 million tons of storage facility has been created through Public Private Partnership (PPP) and Viability Gap funding (VGFS) would also be extended for PPP projects in setting up the modern storage capacity. In addition, Rs 2,000 crores corpus has been created under Rural Infrastructure Development Fund (RIDF) for creation of warehouse facilities. The government has given exemption in exercise duty of air-conditioning equipments, refrigeration panels and conveyor belts for equipments used in cold storages. Further, the foreign equity participation is permitted up to 51 per cent for cold chain projects.

for many players to come and offer services. Private initiatives are encouraged by the Government initiatives through several subsidy schemes and liberalizing restrictions on import of cold storage equipments. Exhibit 15 highlights various schemes of assistance by various Ministries and Government bodies. The continued support from the Government and further incentives have helped the sector to expand. It has turned many small players to establish their own cold storages and strengthen the supply chain of various perishables and horticultural commodities. Similarly, many solution providers and integrated logistic support providers such as Snowman, RK Foodland, Fresh Express, Chaitanya Cold Storage, Kausar (Gati), among others are working on scaling up the efficient and cost effective logistics technologies in India. Further, the industry is ready to offer better business opportunities to the cold chain technology providers to enhance their production capabilities by adding new and advanced production lines. In turn, this will result in setting up better backward linkages and enhanced quality of fresh and processed food products. High growth prospects for the food processing sector along with attractive government incentives (including 51 per cent FDI) make cold chain business in India a lucrative proposition for foreign investors as well. This offers immense opportunities for technological collaborations, joint ventures and public private partnerships for future growth and development of cold chain infrastructure in India.

Supportive government incentives



Undoubtebly, the cold chain business is growing and deserves to grow faster and offer immense opportunity
Exhibit 15

Various Schemes & Assistance by Government Pattern of Assistance

Ministry of Food Processing Industries Integrated Cold Chain infrastructure scheme of 11th Plan National Horticulture Board (NHB) Capital Investment Subsidy scheme for construction/ expansion/ modernization of cold storages Development of Commercial Horticulture through Production and PHM (like pre-cooling units, grading/ packing line, refrigerated vehicles) Ministry of Agriculture and Cooperation, GOI Development of Post Harvest Infrastructure 1) Developing fish preservation and storage infrastructure 2) Developing marketing infrastructure such as retail vending kiosks, aqua-shops, insulated/refrigerated vehicles etc.
Source: MOA, MOFPI and NHB, Government of India

50% the total cost of plant and machinery and technical civil works in General areas, 75% for NE region and difficult areas (subject to a cap of Rs 10 Cr)

Back-ended capital investment subsidy not exceeding 25% of the project cost with a max limit of Rs 50 lakh per project (@ 33% up to Rs 60 lakh for NE) Back-ended capital subsidy not exceeding 20% of the project cost with a maximum limit of Rs 25 lakh per project for production of horticultural crops and for PHM/primary processing which is Rs 30.00 lakh for NE/Hilly areas.

- 100% grant to Govt. Undertakings/Corporations/ Federations (up to Rs 1 Cr) - 75% grant (up to Rs 0.75 Cr) to NGOs/Cooperatives/Joint Sector/Group of Fisher women in NE & difficult areas; 50% (up to Rs 0.40 Cr) in general areas - 50% grant (up to Rs. 0.40 Cr) to Assisted Sector/Private Sector in NE and difficult areas, 25% (up to Rs. 0.25 Cr) in general areas

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 3

Indian Companies Making a Foray into Commercial Farming Outside the Country
Countries with large populations and food security concerns such as India and China are seeking opportunities to produce food overseas. These investments are targeted at developing countries where production costs are much lower and land and water resources more abundant. A substantial number of Indian companies have bought hundreds of thousands of hectares of land in Africa for cultivation. Till date, more than 80 Indian companies have invested about Rs 10,800 crores in buying huge plantations in African countries to grow grains for the domestic market. The countries which offer similar opportunities include Ethiopia, Malawi, Kenya, Uganda, Liberia, Ghana, Congo, Rwanda, Madagascar, Senegal and Mozambique.

Indian corporates looking overseas

Many major corporates such as TATA, KS Oils and Shapoorji Pallonji have acquired land (on lease basis) in African countries and have commenced agricultural activities including dairy. This trend is not restricted to large Indian companies only, small and medium enterprises in sectors ranging from spices to tea are also looking at entering the commercial agriculture space in Africa. Some are also interested in buying agricultural land for sugarcane and then selling it in the International markets. Exhibit 16 gives a snapshot of key companies that have invested outside India The Indian government has extended soft loans to support such overseas ventures along with a custom duty reduction on food being imported from Ethiopia.

Exhibit 16

Indian Companies that have Invested Outside India


Indian Companies
Kaituri Global, Bangalore Shapoorji Pallonji

Land (Ha)
3,50,000 50,000 50,000 25,000 5,000 20 40,000+ 1,70,914

Sugar cane, palm oil, rice, vegetables and rose Agriculture High-value cash crops, pulses & maize Soybean Pulses, oilseeds, sugarcane and maize Pilot Agriculture project Dairy Tea Plantation Tea Plantation Tea Plantation Palm Oil Plantation Contract farming


Punjab based Farmers Ruchi Soya Industries Confederation of Potato Seed Farmers (POSCON) Tata


Jaipurias of RJ Corp McLeod Russel India Jay Shree Tea

Rwanda Indonesia Mozambique

Source: Technopak Research

Jay Shree Tea KS Oils Varun Agriculture SARL

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Key reasons for looking overseas

Given the countrys present state of governance and resources, there is a possibility to build more efficient and far larger agricultural operations abroad. The low cost of land in African & Asian countries is the major reason driving this trend, which is supported by land constraints & rising inflation in India. There have been many factors favoring this trend as given below Availability of contiguous large cultivable land Constrained by the availability of cultivable land and hiccups in contract farming, Indian agriculture companies are looking at underdeveloped destinations for backward integration. Many African countries are offering large land banks on a long term lease at a lower cost. These bigger land banks are helping Indian corporates in building large scale commercial agricultural operations, offering economics of scale, at relatively lower costs. Government support - Most African Governments are inviting foreign companies to cultivate and develop commercial farming activities in their countries with added incentives of the local provision of basic facilities such as electricity and irrigation. E.g. Countries like Uganda are looking at companies which will set up food processing units and contribute towards the food security and transfer of technology in the region, with local employment generation. And it is open not just for large corporates, but even small companies from various Indian states who may wish to set up farming ventures. The Indian government is also playing the role of a facilitator in global farming initiatives. The Government is supporting Indian corporates with soft loans for setting up not only horticulture & floriculture, but also 8

Many African countries are offering large land banks on a long term lease at a lower cost

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

In Ethiopia, land is available for farming on lease for a 25 to 45 years period with the cost of land being Rs 500-700 per acre
facilities for products such as oilseeds and pulses which will have a big market in India too. Higher production and productivity Most of the land under acquisition is fertile and has a higher capacity for production when compared to the Indian standards. This will help investing companies to benefit from higher yield and a larger scale of production. Low cost of cultivation These countries offer the land on long term lease at reasonable costs. In Ethiopia, land is available for farming on lease for a 25 to 45 years period with the cost of land being Rs 500-700 per acre, while in Punjab the cost varies between Rs 25,000-30,000 per acre. Along with this, cheap and easy availability of labor is another big factor helping the Indian companies to reduce their cost of production.

These deals have long-term implications for global agriculture as well as on the balance of trade. They may impact the balance between small-scale and large scale farming and the future livelihood of small-scale farmers. The relative importance of export-led agriculture is bound to grow, and so will the role of agribusinesses in agricultural production, processing and distribution of food. On one hand, farming overseas would offer a competitive advantage to India by increasing production at a lower cost. On the other hand, this would also help the Indian Government to address the problem of food security, by encouraging fair trade practices. At a global scale, farming overseas would help the host country to generate local employment opportunities and technology transfer to the region.

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Government Move towards Ensuring Food Safety

Ensuring continued availability of safe and quality food for the population is of vital importance for any country. Unsafe food is equivalent to an enemy which weakens the economy as it leads to using up of scarce resources for fighting diseases caused due to consumption of unsafe food. In recent years, there has been a spate of food borne diseases all around the world, which necessitated the need for establishing a food safety management system by all types of players within the food chain.
Exhibit 17

Trend 4

Safe Food Drive: Thrust Areas




A move towards ensuring safe food

Food hawkers in India are generally unaware of food regulations and have no training in food handling. They also lack support services such as good-quality water supply and waste disposal systems, which hamper their ability to provide safe food. Therefore, there is a need for a move to ensure safe, healthy and sustainable food supply, and bring awareness among consumers to demand safe and quality food. Almost simultaneously, the practice of good hygiene among consumers, producers and food processors has to be promoted. India is about to witness dramatic changes in food norms, impacting the sector significantly, if initiatives being taken by Food Safety & Standards Authority (FSSAI), which was established in 2006, are a yardstick. The food safety movement would focus on three aspects - training of manpower, infrastructure development and hygienic food options. 11 Some of the key reforms taking place are 1. A new Integrated food safety law 2. Licensing and monitoring of every food manufacturer 3. Formulation of food recall procedures in case of unsafe or hazardous products 4. Mandatory compliance with GAP (good agricultural practices) for big retailers, labeling changes for packaged food items 5. Organic food certification 6. Setting water quality standards and verification of claims by food supplement companies The Food Safety & Standards Rules, 2011 have replaced

the 50 year old Prevention of Food Adulteration Act from the first week of August 2011. This new act includes graded penalties for offence against indulgence in any malpractices. Manufacturing, storing, selling misbranded or substandard food is punished with a fine and more serious offences with imprisonment. For instance, the penalty for manufacturing or selling substandard food can be up to Rs 90,000 (US$ 2000), while that for misbranded food is up to Rs 1,35,000 (US$ 3000). The act also provides for compensation in the event of consumer injury or death. Food Safety & Standards Act: Focus Areas Management of pesticide residues Traceability Food labeling Food testing facilities Penalties Safeguard consumer interest Safeguard business interest Under the new law, India is expected to have 8,000 to 9,000 food safety officers, rather than inspectors, or at least 10 officers per district, as compared to 2,100 food inspectors or three inspectors to a district. Apart from up gradation of existing laboratories, the authority wants to increase the number of state labs to 250-300 from 72 at 12

present. The new standards for licensing and monitoring of food production in India from local dairies to roadside food stalls, aim to improve safety standards and enforcement across the country. More Ministries and sections of the sector shall be joining forces to carry out a year long campaign to reach out to all the stakeholders and consumers on food safety and quality initiatives. Rather than having six to seven separate food laws for meat, milk, edible oil, fruits and vegetables, the integrated food law will lay down uniform standards and a central mechanism on safety. The Centre, states, municipalities and panchayats will implement the same. Furthermore, it is an attempt to ensure that the responsibility of food safety lies with the manufacturer, whereas the focus of safety must be on the entire supply chain - production, processing, distribution, and marketing. Lack of manpower and dearth of quality infrastructure are major hurdles for the law to be enforced in a meaningful manner.

The food safety drive led initiatives

1. 11 cities have been selected as a Safe Food Town 2. 10,000 street vendors across the nation would be identified, profiled and steps taken to upgrade the safety and quality of their food and be granted quality certification on the basis of standards which have already been identified by the Ministry

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

3. Identification of food streets in 75 cities across India. 6 food streets with ethnic cuisine would be identified, under which the majority of stakeholders would be upgraded in terms of quality and hygiene, and support will be given for creation of infrastructure such as drainage, water supply, lighting, etc. 4. 50 food safety laboratories would be identified which would be benchmarked against industry best practices and a plan of action drawn up for their upgrade 5. The Indira Gandhi National Open University (IGNOU) Centre for Corporate Education, Training & Consultancy (CCETC) and School of Agriculture (SoA) collectively with FSSAI to lead the training modules on food safety and hygiene for educating housewives and young girls. Introduction to food safety, quality of water, requirements for a kitchen, principles of safe food preparation, crosscontamination and purchase of raw materials and processed foods will be some of the topics to be covered in the appreciation programme.

Implication of new food safety law on Indian street food and consumers
The Indian government is aiming to ensure that only quality food is consumed in the country. The processes and practices that are being initiated will continue to usher in new initiatives of food safety and quality in the future with increased awareness and resultant economic & social benefits. Street food would be the first variety to have an impact if there are more stringent checks of quality and hygiene to make sure its safe to eat. The food safety move would enforce the licensing or registration of all food manufacturing, selling units and street food vendors. Hence, this would result in entailing street vendors to maintain accepted levels of hygiene and better quality food. Also it would be easier to trace and take suitable actions against the food vendors & manufacturers who are not offering a quality which is acceptable. The change is positive and would also offer great employment opportunities for trained manpower and food experts.

Exhibit 18

Some Food Safety Initiative

Safe Food Town (2008-09) Safe Food Street (2008-09)

Cities Identified
Ranchi, Nagpur, Kochi, Ludhiana, Jaipur, Agra, Guwahati, Agartala,

Type of Assistance
Financial assistance

Tirupati, Hyderabad, Amritsar, Varanasi, Udaipur, Guwahati

Training to vendors

Source: MoFPI, Government of India


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 5

Product Development gets Healthier

The healthy ingredients
The food processing companies are serving health & wellness as the new ingredient in processed food for Indian consumers. The new age consumers now prefer to have food products with lower carbohydrate content. In many countries consumers are advising manufacturers to declare the quantity and quality of transfat in their processed food. Processed products with higher fibrous content are more sought after by consumers. A big emphasis has been shifting towards natural character of food additives including flavor, color, stabilizers etc. Todays consumers prefer to have food with ingredients and additives that have a herbal character. Health & wellness products compositions Low carbohydrate Trans fat High Fibre content Enriched protein quality Natural characters color, flavor, stabilizers
Exhibit 19

Key Players and Brands with Health Quotient

Major Players Products Brands with Health Quotient

Nestle Pepsi Co. Coca-Cola Kellogg Yakult Honsha Marico Britannia Kraft Foods Nesvita, Slim, Real Fruit Yoghurts Tropicana, Quaker, Gatorade Vitamin water Special K, Kashi Yakult Saffola, Arise Vita Marie Bournvita

Source: Technopak Research

The health market is broadly divided into three categories 1. Better for health products are the food products with lower levels of unhealthy ingredients like sugar or fat e.g. low cholesterol edible oils, 0 per cent transfat snacks & biscuits, slim milk etc. 2. Functional food is defined as foods fortified with nutritional and disease-preventing qualities such as food with Iodine fortified, breakfast cereals with iron, low cholesterol, reduced fat content 3. Natural products i.e. the food products from the natural origin, without any preservatives and chemicals such as organic food, natural color and flavors, natural extracts etc. In the recent past, many food players have introduced healthier variants of their existing products or launched a completely new range of products in the market. A majority of food giants have reshaped or are in the process of inclining the processed food products with health & wellness benefits to cater to the changed fundamental demands of consumers. With more companies focusing on products with a strong health & wellness quotient, the marketing efforts on branding and communications will also increase. The same will add to the increment of 14

Health food market

The health food sector is still in a nascent stage but is poised to grow manifolds in the near future. The health food market stood at Rs 9,000 Cr in 2010, and is expected to grow at a CAGR of 20 per cent to Rs 22,500 Cr by 2015. The health food contribution in packaged food i.e.10 per cent in India is on a lower side when compared to a 25-30 per cent of global average. The market of health food is growing majorly in the urban centers where health food is witnessing more acceptance and penetration through different modern and traditional retail channels. Health and functional food is a niche market dominated by a few players. These players remain active and innovative in their products and offerings as mentioned in exhibit 19.

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

consumer awareness about healthier options of food consumption. E.g. A couple of years back Nestl communication stated that the company is shifting from an agri-food business to an R&D-driven nutrition, health and wellness company which validates the changing behavior of major food processors. On the same lines many other food processing majors like Kellogs, PepsiCo, Coca-Cola have transformed their product offering with a health & wellness instinct.

Emerging health food categories

The major product categories inclining towards offering health & wellness factors in product development are 1. Dairy products - Dairy products like dahi & yoghurt are gaining popularity. The popularity is majorly driven by innovations & new product development in the processing area. 2. Soft drinks - The soft drink category includes juices, health drinks & enhanced water which are gaining popularity as consumers seek alternatives to carbonated beverages, perceived by some as high in sugar or artificial ingredients and therefore less healthy. 3. Cereals Brown bread, coarse cereal products such as breakfast oat are higher in demand compared to higher nutritional value based products 4. Organically grown fresh fruits & vegetables and other natural products 5. Functional & energy foods Fortified food products with enhanced cognitive health such as omega-3 fatty acids, low fat and reduced sugar etc. With increased consumer acceptance and awareness of health foods, the flipside of the story illustrates that the industry has also witnessed withdrawals of some products from major players in the segment. For food processors, it is necessary to control the traditional taste of the food and couple it with additional advantages to ensure consumer acceptance.

A shift from usefulness in processing to usefulness to consumers

There is always a need for product innovation as consumers now a days would not just like safe but useful additives as well. The emphasis of usefulness has slowly shifted from useful in processing or useful for manufacturer to useful for consumers. This reflects opportunities mainly into product innovation, specialized products and product extension for various existing food processors or new entrants. Consumers have become aggressive in demanding better and safer food products and are willing to pay higher for goodness of health.

The health & wellness aspect of the Indian processed foods segment is dynamic in nature and still evolving in terms of penetration and consumer acceptance. The segment has shown a considerable growth and is poised to attract more investments in recent times. The changing consumer dynamics in terms of elevated spending pattern and health consciousness will further seed the demand of new, narrowly tailored food products in the market. An increasing awareness amongst consumers of the link between diet and health is driving a higher demand for healthier food products. For players operating in health & wellness product segment the developments of new ingredients have enabled the processing of new value added products, yet issues remain with different process ability, acceptance & shelf life. It is also important for the food processors to communicate the potential health & wellness benefits to the target consumer segment. This will further encourage consumer sentiments towards healthy and nutritious processed food items. 15

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 6

Going Green in Food Processing

Todays consumers are demanding green products and patronizing brands that have adopted green practices. In most developed countries, they are becoming more concerned about how and where products are produced, including details of the consumption of energy during production and distribution and energy efficiency of retail sales operations. As a result, trends such as organic and naturally grown foods, sustainable agriculture, energyefficient manufacturing equipment, transport and retail and eco-friendly packaging are gaining importance in the food processing and agriculture industry. More and more food and beverage companies are realizing that going green not only fulfils social responsibility but also contributes to profit in the long run. Today, the industry is looking for smarter strategies and best practices to assure sustainable production. The concept of Green revolves around three principles i.e. reduce, reuse and recycle. It is a two way process which includes both consumer and manufacturer. Its no secret that the green movement is affecting consumers purchase decisions. A good place to start is with the effective management of water, chemical use and other utilities. Companies need to consider and strategically adopt and integrate innovative options that are required to achieve sustainable development goals. 2. At production/manufacturing level This includes utilizing energy efficient technology and processes which minimize energy and wastage from the entire production process . 3. At product level - Healthier food products which comprise of naturally derived antioxidants to replace synthetic antioxidants, using organic and fair-trade ingredients in the products. 4. Packaging level Utilizing eco friendly packaging material such as use of biodegradable or compostable packaging, use of non-bleached boxes, use of recycled materials etc.

Growth drivers
There are various factors which are pushing Green efforts in the overall manufacture of food products. Some of the key growth drivers are as mentioned below: Well aware, educated and health conscious consumers Indian consumers are demanding better quality and healthier food products due to better exposure to the good practices being followed in the rest of the world and higher levels of disposable income Consumer health consciousness Increased consumer demand and appetite for environmentally friendly food products Higher disposable income Cost cutting and improving margins Natural farming helps in reducing the production cost Reduction in energy consumption and wastages Fetches better prices in the market, as the produce is considered premium and healthier Tough Competition needs product differentiation Many companies are using Green as a technique to differentiate themselves from others by offering nature friendly products and 16


Green Initiative

Manufacturer/ Processors

A large number of food & beverage manufacturers are heeding customer calls for greener goods and greener ways to produce them. The green initiatives are taken at various levels: 1. At farm level Various farming initiatives such as organic farming and natural farming are true examples of going green. There are many companies focusing on organic and natural ways of farming, without using any chemicals and pesticides.

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

services. Hence, the green practices are being used as a tool for marketing and brand recognition Responsive towards environment Green actions are taken as a part of corporate social & environmental responsibility Helps in reducing carbon footprint

Lay Tostitos; natural foods brands like Naked Juice, CalNaturale and Stonyfield Farm etc. As more and more food & beverage manufacturers overseas are embracing green ideas, practices, products and packaging, the Indian consumers awareness of sustainable products continue to evolve at an impressive rate, a trend that shows no signs of abating in the near term. In India, the companies that are able to effectively implement green practices and adopt a green mindset will be well positioned to cash in on this lucrative market and take advantage of generous tax credits and other benefits. Green products that are considered a small, niche market may soon be standard operating practice for the food and beverage industry. Naked bottles: Reduced the use of plastic consumption by 7.4 mn lbs per year California based Naked Juice Co., which makes all natural products, announced in 2009 that it is filling its 10, 15.2 and 64-oz. juice and juice smoothies into the reNEWabottle, which is made from 100 percent post-consumer recycled polyethylene terephthalate (rPET). As per the company, switching to rPET bottles will reduce Naked Juices virgin plastic consumption by 7.4 million lbs. p.a. and save more than 12,000 cubic meters of space in landfills and reduce the companys packaging-related greenhouse gas (GHG) emissions by 35 percent. In contrast to the old, opaque HDPE bottles, the rPET bottles offer a clear view of the brightly colored Naked Juice products. Using rPET packaging also aligns well with the companys brand mission of making superior products while minimizing environmental impact.

Food processing companies going Green

Recognizing the fact that green initiatives are offering healthier food from the point of manufacturing to the point of consumption, many food processors are focusing on greener ways of food processing and packaging. E.g. organically grown fruits and vegetables, snack chips and beverages made with solar-heated water and oil, biodegradable packaging (from glass jars to plastic bottles and paperboard cartons to flexible packages) Why Corporates go Green? Cost reduction Environmental conscious Marketing, brand recognition & differentiation Customer loyalty and confidence Incremental sales, increased revenue Worldwide brands attached to greener packaging projects include the iconic, Heinz Classico and Frito-


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 7

The Changing Economics of Weather Insurance in India

The Indian agriculture industry is diversified across different soil strata & witnesses a range of weather conditions across geographies. Due to unpredictable climatic conditions, weather is one of the most critical aspects in agricultural production and business. Different schemes for reducing agriculture risks and ensuring returns to the farmers include crop insurance, weather insurance and agriculture insurance among others. The first crop insurance scheme i.e. Comprehensive Crop Insurance Scheme (CCIS) was started in 1985. Over the years the schemes went through different improvisations and up-grades like incubation of National Agriculture Insurance Scheme (NAIS) in 1999. The improvisations & extensions have largely increased the spread of the schemes in the Indian agriculture panorama. Agriculture Insurance Schemes Parametric weather related risks like rainfall, frost, heat (temperature), humidity etc. are covered. However, these parametric weather parameters appear to account for a majority of crop losses Objectivity and transparency is relatively high Technical challenges in designing weather indices and also correlating weather indices with yield losses. Needs up to 25 years historical weather data Quality losses to some extent gets reflected through weather index Basic risk with regard to weather could be high for rainfall and moderate for others like frost, heat, humidity etc. No loss assessment costs Faster claims settlement Governments financial liabilities could be budgeted up-front and close ended, as it supports the premium subsidy

Yield Based National Agricultural Insurance Scheme (NAIS) 1999

Weather based Crop Insurance Scheme (WBCIS) 2003

Payable premium Wheat: 1.5% or actuarial rate Cereals, pulses & millets: 2% or actuarial rate Horticulture crops: 2% to 6%

The concept of weather insurance

Weather Based Crop Insurance Scheme(WBCIS) is a unique weather based insurance product designed to provide insurance protection against losses in crop yield resulting from adverse weather related incidents. It provides payout against adverse rainfall incidence (both deficit and excess) during kharif and adverse incidence in weather parameters like frost, heat, relative humidity, un-seasonal rains during rabi season. In India, it is often understood that weather insurance is the same as crop insurance and weather insurance is only based on the rain fall index. Rainfall index is one of the parameters required for measuring the overall weather impact on agriculture and weather insurance includes other parameters such as temperature, windfall and hail. Key characteristics of WBCIS are as follows

In 2003, the pilot of WBCIS had been started in states such as Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttar Pradesh etc. The amount of insurance protection is broadly the cost of inputs expected to be incurred by the insured in raising the crop. This scheme is an attempt towards risk protection for uncontrollable weather risks like rainfall. In weather Insurance, settlement process is based on rainfall data and other weather aspects from an independent source like Indian Meteorological Department (IMD), within 30 days post expiry of the cover period


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Public and private sector initiatives

The current insurance initiatives are not only restricted to central & state government schemes but also cover many of the private player interventions. Both in developed as well as in developing nations, weather insurance schemes are highly dependent on the government support. The various forms of government support percolate in terms of subsidy on premium, reimbursement of administrative expenses of insurance companies, reinsurance support for risky crop lines, technical guidance and financial dependence. Weather risk market for agriculture has seen tremendous growth in the last couple of years with the spread of WBCIS, implemented by the public and private insurers. Some of the key interventions by private and public sectors are given below Agriculture Insurance Company of India Limited (AICIL): The National Agriculture Insurance Yojana (NAIY) had approved Rs 1.37 billion to the state of Orissa to settle agricultural insurance claims for Kharif season for year 2010. The approved amount covered 14 districts and above 2lakh farmers sentiments. From the business economics the same season collected Rs 470 million from more than 11lakh farmers. Approx 35 per cent of the total approved amount was to be contributed by the state government. In 2003-04, ICICI Lombard realized the potential of & pioneered in the private company held weather-based crop insurance. At present the business is operational in 64 districts and 14 states with 26 different crop varieties. Last year stats illustrate insurance of 3lakhs farmers and coverage of 18 lakh plus acres.

HDFC Ergo has also realized the vast potential and has launched schemes like WBCIS in the state of west Bengal covering more than 7 districts of the state. IFFCO-Tokio General Insurance (ITGI) is offering rainfall insurance under the name Baarish Bima, started in 2004-05.

Despite various schemes launched from time to time in the country, insurance has served a very limited purpose. The coverage in terms of area, number of farmers and value of agricultural output is very small, payment of indemnity based on area approach misses the affected farmers outside the compensated area, and most of the schemes are not viable. The weather based insurance sector still stands as an untapped segment in the agricultural arena, with a huge potential yet to be unleashed. The sector is among the priority sectors with low penetration, the scenario is more supply driven and the education level & affordability of farmers restricts the access. The current coverage is less than 1percent of the total cropping fraternity. Companies currently operating in crop based & weather based insurance are very few. The sector offers ample opportunities for new players to foray into insurance services. The penetration & acceptance of weather/ crop insurance has a long way to go. However, its utilization as a risk management tool will slowly become an intense practice in the Indian agriculture scene.


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Trend 8

The Metamorphosis Phase in Food Packaging Industry

Packaging as a purchase influencer and communicator
Food packaging has played a vital role in influencing consumer purchase. Food packaging has enabled todays consumer to look out for options and compare value offerings before making a purchase. From the manufacturers point of view it helps in enticing the customer towards the packaged food, along with product education. In a nutshell, packaging grabs the customers attention, highlights the product advantages and delivers brand authenticity. It also serves as a platform for product detailing in terms of nutritional content, traceability and certification apart from other qualitative and quantitative details. The new and better ways of packaging enhance customer satisfaction and make them understand values attached to the products. According to one of the industry leaders food packaging is a great place to start the communication with the customer because it serves as the first and the last thing consumers interact with when they purchase any food or FMCG product. Efficient packaging also aids in reducing waste, fetching better returns to farmers and also improves the end product delivery to the consumer.

Shift towards innovative and unique packaging

The Indian food and FMCG packaging market has witnessed a growth of 15-20 per cent annually. More than 80 percent of the total packaging in India constitutes rigid packaging. The remaining 20 percent comprises flexible packaging. There are about 600-700 packaging machinery manufacturers, 95 percent of which are in the small and medium sector located all over India. The rapidly changing technology in the food packaging arena has uplifted the quality and shelf life expectations of food products. To tap the current consumer landscape, manufacturers have to adopt impact creating, innovative and unique packaging solutions. With stagnant productivity and increasing food wastage, 20

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

food packaging is becoming one of the vital courses of action. Many companies in the food processing and FMCG space are now bullish on packaging quality and innovations. The adoption of better packaging material has gained momentum in the last decade. Improved packaging not only has a huge impact on the product cost, but at the same time it ensures that manufacturers are assured of the product quality and its perishability. For example, on a comparative price analysis, a liquid milk processor pays additional Rs. 4.5-5 per liter pack for adopting improved packaging solutions, in place of a traditional poly pack. It is important for manufacturers to spread awareness of food articles with advanced packaging aspects. The food processing giants should associate the packaging benefits with product benefits in their marketing and brand communications, for increased acceptability and awareness.

Recent trends
The value offerings from manufacturers of food and FMCG products are also reforming with time. The contribution of packing in increasing the shelf life of a product and attracting the customer is uncountable. Recent innovations trend towards different factors like user convenience, food safety, freshness, longevity and transparency of package content. With all these factors served as the end product, todays consumer is willing to pay a premium for convenience. The food & FMCG packaging companies are witnessing a metamorphosis amongst various product packaging lines and consumer interfaces. Some of the recent industry trends include Multi dimensional shifts towards aseptic packaging and retort pouches These packets are not new to the industry, but the trend follows in the attractiveness of the packets coupled with more sophisticated graphics. The value addition helps in fulfilling the customer attractiveness coupled with shelf life extension of food product content. Innovative packaging material can overcome food poisoning issues specifically for chicken, red meat and fish products. The packaging material works on the mechanism of innovative sensor packaging film which changes its color from yellow to blue to indicate the spoilage of packaged content. The innovation of self communication of fresh food turning stale can revamp the food labeling scenario as well. 21

Post color changing mechanism, the trend of killer paper is serving a recent movement in the industry. Killer paper is a material that helps preserve foods by fighting the bacteria that cause spoilage. The paper contains a coating of silver nano particles, acting as powerful anti-bacterial agents. The commercial usage of killer paper for food product packing is not feasible yet. Firms dealing with this technologies are working towards costing and may be minimizing the nano shape of silver particles will be the answer to it all. Introduction of flavor and odour absorbing films and sachets to reduce the transfer of aroma or flavor between components of packaged food & FMCG products. The same helps in keeping food items fresh and natural for a long time. Use of digital technology has also been introduced to contribute to the freshness of food items. Ripeness indicators have been designed recently to monitor and communicate information about food quality.

Improved packaging not only has a huge impact on the product cost, but at the same time it ensures that manufacturers are assured of the product quality and its perishability.

Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

Key challenges
The growth of the food packaging sector is hampered by many challenges, high taxes and elevated import duty. High taxes on packaging materials of food & FMCG products is not only hampering the growth of the sector domestically but also making the products uncompetitive in global markets. Indian packaged food & FMCG products face stiff competition from low taxation countries such as China and Thailand in the global market. Lack of indigenous suppliers of quality packaging material also restricts the growth of the sector. Further, an absence of latest technology is another major challenge. India lacks research and development of packaging technology and indigenous suppliers of latest packaging technologies. The Indian market is majorly dependent on import for the supply of latest packaging technology and packing material. Thus, it results in higher cost, which restricts the infusion of many latest technologies in the domestic market. Some of the latest technologies available in the developed countries such as active packaging and smart packaging have to be imported and introduced to India now. The domestic market needs to acquire and customize these technologies locally so that the costs can be brought down and affordability can be achieved from domestic food processor and FMCG products manufacturers.

Food packaging plays a pre vital role in protecting food quality and freshness, and offers convenience and safety. It also provides and enhances the merchandising value for the product when displayed on the retail shelf. Food packaging therefore, is being seen holistically as a system providing improved product life and enhancing the brand appeal. An attractive looking packaging can generate curiosity in the minds of the consumers motivating them to try the product. It will be correct to say that packaging enacts the role of a silent salesman. India has experienced a phase of advanced packaging solutions, yet the phase has to be more widely established. Currently, packaging industry is at a midpoint evolutionary stage of packaging development when compared to more mature economies in the US and Europe. The level of sophistication in food packaging varies across sectors and products, and has largely been driven by innovation from Western manufacturers to develop different opportunities to differentiate their food & FMCG products from the competitors. With all advents and innovations in the sector the underlying need restricts to convenience of usage, freshness, improved shelf life and packaging as a tool to position and promote the products, without resulting increase in product prices.


Sprouting Opportunities in Food & Agriculture Sector, Outlook 2012

About Technopak
Indias leading management consulting firm with more than 20 years of experience in working with organizations across consumer goods and services. Founded on the principle of concept to commissioning, we partner our clients to identify their maximum-value opportunities, provide solutions to their key challenges and help them create a robust and high growth business models. We have the ability to be the strategic advisors with customized solution during the ideation phase, implementation guide through start-up and a trusted advisor overall. Drawing from the extensive experience of 150+ professionals, Technopak focuses on six major divisions, which are Fashion & Textile, Retail & Consumer Goods, Healthcare, Education, Food & Agriculture and Leisure & Tourism.

Our key services are:

Business Strategy. Assistance in developing value creating strategies based on consumer insights, competition mapping, international benchmarking and client capabilities. Start-Up Assistance.: Leveraging operations and industry expertise to commission the concept on turnkey basis. Performance Enhancement. Operations, industry & management of change expertise to enhance the performance and value of client operations and businesses. Capital Advisory. Supporting business strategy and execution with comprehensive capital advisory in our industries of focus. Consumer Insights. Holistic consumer & shopper understanding applied to offer implementable business solutions.


For further dialogue, please contact: President, Technopak T: +91 98185 98626

Saloni Nangia

Associate Vice President, Food Services & Agriculture T: +91 98914 49806

Pratichee Kapoor

Technopak Advisors Pvt. Ltd.

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