FoodProcessing 03july2010

CONTENT Particulars
Executive Summary Chapter I Introduction 1.1 1.2 1.3 1.4 1.5 1.6 Chapter II Background Profile of Indian Food Processing Sector Concern of Indian Food Processing Sector Objective of the Study Methodology Limitations & Constraints
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i - vi 1 1 1-2 2 2 2-4 4 5 5-7 7-8 8 8-9 9-10 10-11 11-12 12-13 13-14
Competitiveness of Processed Food Sector 2.1 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 2.2.7 2.2.8 Introduction Meat and Edible Meat Offal Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s Meat, Fish and Seafood Preparations nes Dairy Products, Eggs, Honey, and Animal Products n.e.s Animal Vegetable Fats and Oils, Cleavage Products Cereal, Flour, Starch, Milk Preparations and Products Vegetable, Fruit, Nut, etc Food Preparations Miscellaneous Edible Preparations
Chapter III
Productivity Growth In Food Processing Sector 3.1 3.2 3.3 3.4 Introduction The Organized Factory Sector Labour Productivity Growth: A State level analysis Partial and Total Factor Productivity Growth: All India
15 15 15-16 17-18 18-20
Chapter IV
Performance of Food Processing Sector: A Study of Domestic & Export Markets 4.1 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 4.1.7 4.1.8 4.2 4.2.1 4.2.2 4.2.3 4.3 Introduction Meat and Edible Meat Offal Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s Dairy Products, Eggs, Honey, and Animal Products n.e.s Animal Vegetable Fats and Oils, Cleavage Products Meat, Fish and Seafood Preparations nes Cereal, Flour, Starch, Milk Preparations and Products Vegetable, Fruit, Nut, etc Food Preparations Miscellaneous Edible Preparations Competitiveness Factor Analysis for the Food Products sector Domestic Market Analysis Main players and their Market trends Competitive Strategy for Food Processing Industry/Firms Competitiveness Enablers & Role of Government
21 21 21 21 21 22 22 22 22-24 24 25 25-26 27-28 28-29 30-36
II
4.4 4.5 4.6 4.7 4.8 4.9
Related and Supporting Industries Identification of Competitive Advantages & Disadvantages Value Chain Analysis of Food Processing Industry Value Activities of a Food Processing Firm Value Chain of Food Processing Sector: Competitive Advantages in a Value Chain:
37-38 38-39 39 40-41 41-43 44-45
Chapter V
Field Survey Findings 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 Introduction General Profile of Respondents Productivity and Competitiveness Employment Trend Market Trend Analysis of Export and Import Factors affecting Export Analysis of Cost of Production Factors Affecting Productivity and Competitiveness Measures taken by Food Processors to enhance Productivity & Competitiveness Expectation of Indian Food Processors from Government Prospects of Indian Food Processing Industry
46 46-47 47-48 48-49 49-50 50 50-51 51-52 52-53 53-55 55-56 56-58 58-59
III
Chapter VI
Recommendations References
60-64 65 66 67-76 77-78 79-81
ANNEXURE
Annexure- 1 Annexure- 2 Annexure- 3 Annexure- 4
IV
LIST OF TABLES
Table No. 1.1 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 3.2 3.3 3.4 3.5 3.6 4.1 Particulars Food Processing in organized and unorganized sector Decomposition of change in Indias share in World Processed Food Market Classification of products under Processed Food Category Indias Position in Global Meat and Edible Meat Offal Market (2006) Indias Position in Global Fish, Crustaceans, Molluscs, Aquatic Invertebrates, Market(2006) Indias Position in Global Meat, Fish and Seafood Preparations nes Market Indias Position in Global Dairy Products, Eggs, Honey, and Animal Products n.e.s Market Indias Position in Global Animal Vegetable Fats and Oils, Cleavage Products Market Indias Position in Global Cereal, Flour, Starch, Milk Preparations and Products Market Indias Position in Global Vegetable, Fruit, Nut, etc Food Preparations Market Indias Position in Global Miscellaneous Edible Preparations Market Registered Manufacturing of Food Products (20-21) All India Growth Rate analysis of key characteristics in the Food Processing Sector (%) Growth of Labour Productivity in organized food processing sector Partial Productivity Estimates for Labour and Capital inputs Growth of Labour, Capital and Total Factor Productivity Growth Index of Labour and Capital Productivity Growth Index Indias Leading Trade Partners and Competitors in Global Processed Food Market
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Page No 2 5 6 7 8 9 10 11 12 13 14 16 16 17 18 19 20 23
4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13
Market Size of Processed Food Products (Value in Rs Crore) Market Share (%) of top three producer of Vegetable, Fruit, Grain, Dairy, Poultry & Marine Products FDI inflows in Indian Food Processing sector Share in the world export of Food machinery (%) in 2003 Share in the world import of Food machinery (%) in 2003 State wise distribution of respondents from Food Processing Firms Profile of Food Processing Firms/Units Surveyed Productivity & Competitiveness of the Food Processing Responses (%) Extent of Increase in Productivity Employment Trends in the Food Processing Units Market Trend of Processed Food (Last Five Years) Extent of Trade of Raw material and Finished Products Factors Hindering Export of Processed Food Components Share in the Total Cost of Production during Last Five Years Analysis of Cost Components in Food Processing Units(Current) Survey Results on Factors Affecting Productivity & Competitiveness of Food Processors Measures Taken by Firms/Units to Enhance Productivity and Competitiveness Expectation of Indian Food Processors from Government (Policy makers)
26 27 31 37 38 46 47 48 49 49 50 51 51 52 53 54 56 57
VI
Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector
EXECUTIVE SUMMARY
Food processing sector covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The food-processing sector employs about 13 million persons directly and about 35 million persons indirectly. Indias agricultural production base is quite strong but at the same time wastage of agricultural produce is massive. Processing is very low at around 2.20% in fruits and vegetables, 35% in milk, 21% in meat and 6% in poultry. Value addition is only to the tune of 20% Food processing sector contribute about 14% of manufacturing Gross Domestic Product. Based on Ministry of Food Processing Industry classification, includes Dairy, fruits & vegetable processing, Grain processing, Meat & poultry processing, Fisheries and Consumer foods including packaged foods, beverages and packaged drinking water. Indias share in world trade in respect of processed foods is only 1.6 percent India was ranked 27th in 2006 in terms of trade performance of Processed Food Products. Meat and Edible Meat Offal In the meat and edible meat offal market, Brazil is the leading exporter with 10.83% of share in world export in 2006. Indias rank in this market has gone up from 23rd in 2002 to 20th in 2006. Indias export earnings in the meat and edible meat offal market has grown at the rate of 27% per annum and its leading trade partners are Malaysia, Angola, Saudi Arabia, Philippines and Kuwait. Fish, Crustaceans, Molluscs, Aquatic Invertebrates Though Indias export in this market has experienced a growth of 12% per annum, its trade competitiveness rank has gone down to 13th in 2006 from 10th in 2002. India mainly exports Crustaceans and fish frozen (whole) in the international market and its leading trade partners are USA, Japan, Spain, China and UK. Meat, Fish and Seafood Preparations Indias performance is excellent in this market and its export earning has grown at the rate of 73% during 2002-2006. As a result India is ranked 23rd in 2006 against 56th in 2002. India faces tough competition from Brazil and other Asian countries like Thailand, Indonesia and Vietnam in this market. Indias major trading partners are Japan, China, UAE, Italy and USA. Dairy Products, Eggs, Honey, and Animal Products Indias export earnings have grown by 25% per annum and its trade competitive rank has gone up from 40th in 2002 to 35th in 2006 in the world market of Dairy Products, Eggs, Honey, and Animal Products n.e.s. In comparison with 2002, Indias competitiveness in 2006 has improved over countries like Thailand, Indonesia, Mexico and Norway. Indias leading trade partners in this market are UAE, Egypt, Germany, Bangladesh and Oman.
National Productivity Council, New Delhi
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Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector India has experienced a growth of about 21% in the world export market Animal Vegetable Fats and Oils, Cleavage Products. The countrys leading trade partners are China, Netherlands, USA, France and Japan in this Market and the export earning from Chinese market has grown at a hopping rate of 142%. Though India has outperformed countries like Singapore, Australia in 2006 as compared to 2002, the export performances of Tunisia China and Russian Federation improved significantly. As a result Indias trade competitiveness rank has dropped to 22nd in 2006 from 21st in 2002. Cereal, Flour, Starch, Milk Preparations and Products Germany, Italy, France, Belgium and USA are the global leaders in the export of Cereal, Flour, Starch, Milk Preparations and Products. Indias competitiveness rank has gone up from 36th in 2002 to 34th in 2006 and the export earnings from this market has grown by 22% p.a .Indias major trading partners are USA, UK, UAE, Nepal and Sri Lanka . Vegetable, Fruit, Nut, etc Food Preparations In the Vegetable, Fruit, Nut, etc., Food Preparations market, China has become the most export competitive nation in 2006. It is encouraging to note that Indias export earning have grown by 33% and trade competitiveness rank has gone up from 39th in 2002 to 28th in 2006. In the vegetable, fruit, nut etc market Indias leading trade partners are USA, Russian Federation, UK, Netherlands and Canada. Miscellaneous Edible Preparations Indias export in miscellaneous edible preparations is growing at the rate of 13% and the trade competitiveness of the country has improved to 31st in 2006 from 33rd in 2002. The products like extracts essence & concentrates of coffee and tea, yeast, sauces mixed condiments & mixed seasonings, soups, broths & preparations thereof, Ice crme and food preparations, are all included under this category. Productivity Growth in Food Processing Sector Labour productivity in food processing sector at the all India level has been declining continuously over the years. It has been reported negative at All India level during the last sub-period (2000-01 to 2004-05) mainly due to the declining growth in the labour productivity in most of the Indian states. However, Andhra Pradesh displayed a healthy trend in the growth of labour productivity at 10.63%, while by Rajasthan at 15.02% particularly during the last sub-period. From 2000-01 to 2004-05, the states that had positive growth of labour productivity are Gujarat, Andhra Pradesh, Karnataka, West Bengal and Rajasthan whereas all other states experienced a negative growth in labour productivity for the food processing sector. The state of Orissa and Rajasthan had a drop in the growth of labour productivity during the period 1990-91-2000-01 as compared to 1981-82 to 1989-90 periods. Andhra Pradesh has shown tremendous increase in labor productivity growth during period 2000-01 to 2004-05 whereas Haryana has shown conisidered decrease during this period.
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Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector The analysis reveals that the labour productivity of the food processing sector has sharply declined over the years and during 2000-01 to 2004-2005 it is negative as the numbers of poor performing states exceed the number of better performers. The declining trend and interstate disparity in the growth rate of labour productivity in the food processing sector in recent years is a matter of concern for the overall competitiveness of the sector. Demand Patterns The domestic consumption of processed products in India is low. This may be due to the natural preference of Indian for fresh fruits and vegetables and home made food. Further, the interplay of various factors like higher incidence of tax and duties including that on packaging material, lower capacity utilization, non adoption of cost effective technology, high cost of finance, infrastructural constraints, weak linkage between farmers and processing industries, dependence upon intermediaries etc hinder the growth in domestic consumption. The smallness of units and their inability for market promotion is also another main reason for inadequate expansion of the domestic market. The rate of growth is lower for all food products during (2002-03 to 2007-08) as compared to that of the previous period (1991-92 to 2001-02). The sharp decline in the rate of growth for dairy products like milk powder and condensed milk, butter, ghee and other fats may be attributed to the rise in health consciousness among people and preference for low cholesterol diet. Similarly, the reduction in growth of market for milk powder and condensed milk may be due to the shift in demand in favor of pasteurized milk that is easily available in the urban Indian market. The repetitive occurrence of bird flu has resulted in the negative growth in the demand for poultry products. Findings from Field Survey Majority of the respondents (59.5%) belonged to Small Scale Sector followed by registered manufacturing (23%). Among the respondents 57.1% have various quality accreditation like Agmark, HACCP, ISO 9000 etc. Though 46.2% of the respondents are involved in R & D, only 37.9% have introduced products innovation and the percentage of respondents with patent is still less (26.2%). Further the use of ICT in the production process is also minimal. It is encouraging to note from the analysis that 85.1% of the units reported an increase in cost competitiveness while price competitiveness of processed food has improved in case of 97.1% of respondents. Total productivity has increased in case of 67.7% of processing units and around 85% of the respondents reported more than 10% increase in labour productivity during last five years. The analysis of survey results indicate that 95.7% of respondents have reported growth in salary whereas employment has grown in 56.9% of food processing units. Analysis of market trends clearly indicates that there is a growing demand for processed food in both domestic and export market. Further, it is encouraging to note that export market growth is reported by 77.8% of respondents. Non-trade barriers have been cited by 28% of the respondents as a major factor hindering export of processed food products. In addition to this, the respondents cited some other
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Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector export hindering factors like Heavy freight, glass bottle breakage, long time in shipment, lack in identifying market. Analysis of survey responses show that raw material is generally available in the country and almost 40% of the units get it within the state or region of production. However, in the last five years, the share of raw material expense in total cost of production has increased in case of 92.34% of the processing units. Though the quality of human resource is generally increasing yet the respondents are of the view that it is not suited for the food industry. As a result there is acute shortage of manpower. Attrition rate is also very high due to low salary structure as compared to services and other manufacturing units. 71% of the respondents are not satisfied with the quality of infrastructure. 6.2 Recommendations Training & Skill Development: Food Processing Sector in India faces acute shortage of skilled and quality manpower. The sector requires trained manpower (viz. entrepreneurs, managers, technologists, skilled workers) for continuous technology upgradation & diversification, marketing of food products and management of quality control systems. Workers/ supervisors are generally unaware of various food safety and quality requirements and lack competency or knowledge on Food processing/ packaging techniques. There is an urgent need to have an apex organization responsible for skill development and training in this sector. Specialized Training Centers/cells catering to the needs of the food processing industry may be created in the existing Technical as well as Management Institutes under both State and Central Government. Private Engineering /Management Institutes may also be encouraged to conduct courses on food processing & packaging techniques as well as marketing of food products. Infrastructure Development:There is need to improve physical infrastructure like access to road (rural connectivity), power supply etc as poor and irregular power supply is seriously hampering the productivity and competitiveness of this sector. Lack of special infrastructure for the food-processing sector like warehouses and cold storages as well as specialized transport facility/vehicles result in spoilage of perishable raw materials. Priority should be given for construction of rural roads connecting villages to markets for strengthening the linkage between raw material supplier and Processing Units. The Logistic/transport system may be developed on PublicPrivate Partnership. Processing units need be given special assistance for building captive power plants and for use of non-conventional energy sources. To encourage investment in cold chain infrastructure, government may consider providing tax holiday for 5 years for construction of modern automated warehouses and cold chains. Similar incentives may be considered for construction of food parks, Warehouses, Integrated cold chains, Modernized Abattoir etc, under public-private partnership. Government may consider development of logistics SEZs/logistics hubs/logistics parks with concessions in tax and land rates.
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Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector Review of Labour Laws: Small scale and unorganized food processing units generally employ semiskilled and unskilled rural workers on contract basis. Their salary structure is not competitive with other manufacturing sectors and subsequently there is high attrition rate especially during peak demand time. To create better and favorable work environment in these units, there is need to review and simplify age old labour laws keeping in focus the needs of the food processing sector. Research & Development & Technology Up gradation: R&D especially in key areas like product development, packaging, and food technology needs to be strengthened. Government should focus on sponsored research and provide special research grants to leading Agricultural Research Institutes/Universities and Technical Institutes like IITs. Doctoral/Post doctoral research in the food processing areas should be industry oriented and the linkages between Government Agencies, Universities, as well as Industry and other stakeholders like Cooperatives, NGOs and farmer organizations/ associations needs to be strengthened. These laboratories should be provided with necessary infrastructure, upgraded machineries and trained staffs. The small-scale and unorganized sectors account for 75% of the total food processing industry. These firms like any other SMEs are facing the common problems of low productivity, lack of access to technology, credit and market. This is hampering the productivity and competitiveness of the sector. Government needs to promote Technology Up gradation in these unorganized units through local level associations. Incentives in terms of financial assistance for procurement of Machinery, Credit at special rates, technical advice on productivity improvement and selection of equipment & machinery may be provided to units to enhance the productivity and competitiveness of food processing industry. Special Financing Schemes need to be formulated for encouraging the budding entrepreneurs/new entrants in the food processing sector. Priority should be given to develop Indigenous Technology to reduce the dependence on imported machinery. Central Excise Tax may be reduced from 16% on locally manufactured Food processing equipment, plant and machinery etc. Implementation of Quality Standards/ Certification: Maintaining quality/standard of food products for the international market is a challenge as raw materials are seasonal (e.g., fruits and vegetables) and heterogeneous (for example, size, age & weight of livestock, marine products etc) in nature. Further, use of chemicals/drugs (e.g., pesticides in agriculture and growth hormone in livestock breeding) is a matter of concern for the food processing units targeting international markets. Awareness on quality standards needs to be created through seminars, newsletters and training programmes. Food Processing units should be encouraged to implement Standards such as ISO, HACCP etc. Training in GMP, GHP, HACCP may be imparted to industry
Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector personnel. Special Cells at regional/state level needs to be created that would work as facilitating centers for implementation of standards and getting certification Cost & Availability of Raw Material: Regular availability of cheap raw material is important for ensuring competitiveness of the food processing industriey. In Indian environment, Nature (e.g., monsoon, flood, or drought) plays a critical role in determining supply of raw material to the industry. The cost of raw material is also high due to higher transportation costs and wastage of raw materials during transportation. There is multiplicity of taxes at different stages of procurement, transportation and processing which further adds to the cost of raw materials and products. Government should promote reliable and strong supply chain network between raw material suppliers and processing units on PPP basis. Cheap capital may be made available to service providers for investments in infrastructure, enabling them to extend longer credit periods to their clients and supplementing their working capital. There is an immediate need to introduce uniform tax rates in all states avoiding multiplicity of taxes at different stages. Systems and procedures may be simplified. The need for documentation/paperwork at multiple checks posts and in different states, customs formalities, needs to be reduced as far as possible. Promotion of Food Processing Units in North East India: North East states are quite backward in terms of processing of food items. These states are having abundant supply of fruits and vegetables. There is a need to develop local products such as Pickles etc., which has local acceptability. Traditional Food Cooperatives and Self Help Group can be motivated to take up the promotion of traditional foods. Research institutions like ICAR, CSIR etc. that are located at North Eastern states should be entrusted with the responsibility of developing small model processing units. This will not only ensure skill development in the area but will also use the local produce and help improving the standard of living of the people. Export Marketing of Products: Indian food processing industry is at a nascent stage. There is a limited market intelligence available with respect to raw material as well as potential market for processed food products. Major players do carry out market studies either inhouse or by engaging market analysts before launching a new product or entering a new market, but the information is not available to small players. Inefficient and unreliable marketing/distribution networks are failing to promote Indian brands in the international markets. Even in the case of Indian food processors that are using world-class production processes and maintain high quality, it is often viewed as an unpredictable and unreliable source of food and agro products. Immediate steps are needed towards Brand building of Indian food products. Supply chain and distribution channels should be strengthened and Indian food standards be reviewed and aligned with the international standards like Codex to the extent possible. Government and the Export promotion councils should embark on promotional campaign to promote high value added Made in India food products in developed markets.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector
CHAPTER I INTRODUCTION
1.1 Background Globalization resulted in the opening up of the economy and emergence of various employment generating sectors like BPO and other ITES services that deviate from the normal working hours of 9am-5pm. In this changed economy the employment of women has also increased in various service sectors, thereby reducing their hours for household work like cooking. All these have resulted changing the consumption pattern of the household and people are experiencing a transition from homemade food to ready to eat food. Further, with the growth of the economy a shift is also seen in the food basket of cereals to a more varied and nutritious diet of fruit & vegetables, milk, fish, meat & poultry products. Thus, in this emerging economy with a large middle class of about 250 million Indian food processing Industry has a huge potential for growth and boost countrys competitiveness. Gross Domestic Product (GDP) of the country during 2003-04 to 2007-08 has been growning at an impressive rate of around 8 to 9% and the 11th Five Year Plan aims at putting the economy on a sustainable growth rate of approximately 10% by the end of plan period (20072012). But from the 2nd quarter of 2007-08, deceleration of growth is being realized across all sectors. Now, sustaining the high level of GDP growth against the prevailing worldwide recession and continuous rise in inflation level of the country has become a challenge for the policy makers. To maintain the GDP growth and make it inclusive, it is critical to achieve the targeted 4% growth in the agricultural sector, which is the source of livelihood for more than half of the population. Further, there is a high correlation between prosperity in agrarian economy and enhanced demand for manufactured goods and services. There is a two-way relationship between growth of agriculture and food-processing industry. Productivity and competitiveness of the Food Processing Sector need to be enhanced to put the economy on to the right track for achieving an inclusive and sustainable growth of around 10% as envisaged in the 11th Five Year Plan. 1.2 Profile of Indian Food Processing Sector Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products. The food-processing sector employs about 13 million people directly and about 35 million people indirectly. In 2004-05, food processing sector contributed about 14% of manufacturing GDP with a value of Rs 2,80,000 crores. Of this, the unorganized sector accounted for more than 70% of production in terms of volume and 50 % in terms of value. The Ministry of Food Processing, Government of India indicates the following segments within the Food Processing industry: Dairy, fruits & vegetable processing Grain processing Meat & poultry processing
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Fisheries and Consumer foods including packaged foods, beverages and packaged drinking water. In India, the level of processing is the highest in the Dairy sector (35 %) i.e. 13% in the organized and 22% in the unorganized sector, followed by meat processing sector (21%), Marine Fisheries (10.7%) and Poultry (6%) (Table 1.1). Table 1.1: Food Processing in organized and unorganized sector Processing in Organized Sector 01.20% 13.00% 21.00% 06.00% 01.70% 00.40% Processing in Unorganized Sector 00.50% 22.00% --09.00% 01.00% Total Processing 01.70% 35.00% 21.00% 06.00% 10.70% 01.40%
Item Fruits& Vegetables Dairy Products Meat Poultry Marine Fisheries Shrimps
Source: Report of the Task Force on Development of Cold Chain in India, Department of Agriculture & Cooperation
1.3 Concern of Indian Food Processing Sector In spite of having comparative advantage in terms of raw material/agro production, and growing demand for processed food, the level of food processing is not significant as compared to other countries. For example, only about 2.20 percent of the fruits and vegetables in India are processed, which is much lower when compared to countries like USA (65%), Philippines (78%) and China (23%). More importantly the lack of processing and storage of fruits and vegetables results in huge wastages estimated at about 35%, the value of which is approximately Rs.33, 000 Crore annually. 1.4 Objective of the Study Major objective, of the study is to assesses productivity and competitiveness of Indian Food Processing sector. The study also attempts to throw light on the issues that need to be tackled to make Indian Food Processing Industry globally competitive. This is one of the sector where there is considerable employment potential, value addition and export earning. 1.5 Methodology The study has been undertaken mainly in to two phases. First phase includes the review of literature and data. Second phase includes detailed field survey of the food processing manufacturing sector and other stake holders categories.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Assessing Trade Competitiveness First, the trade competitiveness of the Indian Food Processing Sector in the global market has been assessed using the interactive market analysis tool developed by International Trade Center (ITC) Geneva, Switzerland. The position of India in the Global Trade Competitiveness Map is measured through the Trade Performance Index (TPI) with the aim of assessing and monitoring the multi-faceted dimensions of export performance and competitiveness (Food Product X Countries). TPI consists of 22 quantitative indicators of Trade Performance (Annexure 1) that are presented in absolute terms and then combined to form a ranking among countries. The results of the analysis help us to understand Indias competitive position in the world market for various processed food products like Vegetables & fruits, dairy, meat and fishery. Productivity Estimation Gross value added (net value added + depreciation) has been taken into consideration for the estimation of productivity ratios. Over the years the price are rising along with the output. Hence, in order to eliminate the price effect from the increasing value added over the year, the gross value added figures have been deflated by using the whole price index (WPI). In the WPI, the price index for food products (broad category) has been taken into account for deflating the data on gross value added since it covers all the different categories of the products in the food-processing sector. After deflating the gross value added, the average labour productivity or the value added per worker has been calculated as a ratio of GVA at constant Prices to Total Persons Engaged The productivity of the Food Processing Sector is computed for two and half decades (19812006) using the available state level and All India data collected from Annual Survey of Industry (ASI), Central Statistical Organization, Govt. of India. The data from 1981-82 to 1998-99 for the food-processing sector pertains to 2 digit NIC code 20-21. For the later years, the equivalent of 2-digit NIC Code 20-21 is calculated by adding the 3- digit NIC codes for production, processing and preservation of meat, fish, fruit, vegetables, oils and fats (NIC code 151), manufacture of dairy product [production of raw milk is classified in class 0121] (NIC code-152), manufacture of grain mill products, starches and starch products, and prepared animal feeds (NIC code-153) and manufacture of other food products (NIC code154). We have also estimated capital productivity and total factor productivity growth for the food processing sector. Detailed methodology adopted for the estimation of the productivity are given in Annexure 4. Identification of Major Trade Partners & Competing Countries Indias exports share in the world market for various processed food products is disintegrated among countries with whom India is trading. The top five trading partners are having major share in Indias export. Then Indias competitors in each market for each product are identified. The interactive market analysis tool developed by ITC, Geneva is used for this purpose as it uses the UNCTAD/WTO trade database for 184 countries.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Field Survey A field level survey was also undertaken across 12 Indian states. The states were chosen keeping in mind the concentration of the Food Processing industry in that particular state and regional distribution across India. The stakeholders like senior management of various Food Processing company as well as association members were interviewed through structured questionnaire (Annexure 2) to know the market realities and factors hindering the productivity and competitiveness of the sector. A list of the manufacturing units included in the survey are given in Annexure 3. 1.6 Limitations & Constraints Keeping in view of initially set scope of work that was mainly to focus the study on secondary data sources, which has its own inherent limitations as a result of reliability in working out the projections, in order to substantiate the secondary data field evidences have been also included through a primary survey later on. Due to the limited budgetary provisons, the field survey was undertaken with limited scope and coverage. However, efforts have been made to minimize such constraints by analyzing various data sources in order to arrive at broad recommendations for the development of the sector. The recommendations have been formulated considering its implementability.
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CHAPTER II COMPETITIVENESS OF PROCESSED FOOD SECTOR

2.1 Introduction The competitiveness of Indian processed food sector at the aggregate level may be assessed from Indias share in the world processed food market over the years. A positive change indicates that Indias share in world market has increased and thereby implying the fact that competitiveness has enhanced during the study period. India has been ranked at 27th in 2006 in terms of trade performance of Processed Food Products (table 2.1). It is encouraging to note that the effect of product specialization on Indias share in the world market is positive and higher during 2002-06 than that of 19982002. This might have resulted in reducing the negative impact of adaptation effect during the period 2002-2006. It clearly indicates that Indian Food Processors are trying to adjust their exports to changes in world demand. Both the competitiveness effect as well as effect of geographical specialization remains positive in 2002-06 though have lower value as compared to that of the previous period (1998-2002). The combined impact has resulted in higher relative change in the share of Indias export to the world processed food market in 0.1052% during the period 2002-2006 against 0.0909% during the previous period (1998-2002). Table 2.1: Decomposition of change in Indias share in World Processed Food Market Indicator's description Number of exporting countries for the ranking in the Processed Food sector Average Index: (Current) Change Index Share in world market (%) Relative change of world market share p.a (%) Competitiveness effect, p.a. (%) Initial geographic specialisation, p.a. (%) Initial product specialisation, p.a. (%) Adaptation effect, p.a. (%) Source: International Trade Center, Geneva 2006 159 27 Change between 2002 2006 Value Rank 0.89% 25 0.1052% 0.0428% 39 0.0161% 42 0.0472% 14 -0.0009% 71 2002 152 57 Change between 1998-2002 Value Rank 0.59% 30 0.0909% 0.1452% 19 0.0194% 44 0.0312% 38 -0.1049% 127
There are eight different products categories classified under Food processing Sector. Details regarding product code and description are given in table 2.2.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 2.2 Classification of products under Processed Food Category Processed Food Sl. No. Product Name / Code Description (6-digit level of HS) 1 Meat and Edible Meat Meat of bovine animals, fresh and chilled (0201), meat Offal (HS Code:02) of bovine animals, frozen (0202), meat of swine, fresh , chilled or frozen (0203), meat of sheep or goat, fresh , chilled or frozen (0204), edible offal of red meat (0206), meat & edible offal of poultry meat (0207), meat & edible offal nes (0208), pig and poultry fat (0209), meat & edible meat offal (0210) 2 Fish, Crustaceans, Live fish (0301), Fish , fresh , whole (0302), Fish , Molluscs, Aquatic frozen , whole (0303), Fish fillets and pieces, fresh, Invertebrates, n.e.s (HS chilled and frozen (0304), Fish cured or smoked and fish Code:03) meal fit for human consumption (0305), Crustaceans(0306), Molluscs (0307) 3 Dairy Products, Eggs, Milk and Cream, not concentrated or sweetened (0401), Honey, and Animal products like Milk and Cream, concentrated or Products n.e.s (HS sweetened (0402), Butter Milk and Yogurt ( 0403), Code:04) Whey and natural Milk products nes (0404), Butter and other fats and oils derived from milk (0405), Cheese and Curd (0406), Birds eggs in shell(0407), Birds eggs dried (0408), natural honey(0409) and edible products of animal origin, nes 4 Animal Vegetable Fats Oils extracted from vegetables like soyabean, and Oils, Cleavage safflower/sunflower/cotton seed, palm, coconut, Products (HS Code: 15) Mustard, ground nut, olive etc as well as fats and oils extracted from Bovine/sheep/goat, Fish/marine animals etc. 5. Meat, Fish and Seafood Sausages and similar products of meat, offal and blood Preparations nes (HS (1601), Prepared/preserved meat, offal and blood Code: 16) nes(1602), Extracts & juices of meat, fish , Crustaceans & Mollucus(1603), prepared/preserved fish & caviar (1604), Crustaceans & Mollucus, prepared/preserved (1605). 6 Cereal, Flour, Starch, Malt extracts food preparation of flour, meal, starch or Milk Preparations and malt extract (1901), pasta and couscous (1902), Tapioca Products (HS Code: 19) and substitutes therefore prepared from starch (1903), Breakfast Cereals & Cereals (1904) and Bread, biscuits, wafers, cakes and pastries (1905).
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 7 Vegetable, Fruit, Nut, Cucumbers, gherkins and onions preserved by vinegar etc Food Preparations (2001), Tomatoes prepared or preserved (2002), (HS Code: 20) Mushrooms & truffles, prepared or preserved (2003), prepared or preserved vegetables nes incl. frozen (2004), prepared or preserved vegetables nes excl. frozen (2005), sugar preserved fruits and nuts (2006), Jams, fruit jellies & marmalades (2007), preserved fruits nes (2008), fruits & vegetable juices unfermented (2009). Miscellaneous Edible Extracts essence & concentrates of coffee and tea Preparations (HS Code: (2101), yeast (2102), sauces mixed condiments & mixed 21) seasonings (2103), soups, broths &preparations thereof (2104), Ice crme (2105) and food preparations, nes (2106) are included under the category Miscellaneous Edible Preparations (HS Code: 21).
2.2.1 Meat and Edible Meat Offal India has an abundant supply of meat and meat processing industry in its nascent stage. Indian meet production has been growing at a compound annual growth rate of 5% percent during the last one decade (Report of the Task Force on Development of Cold Chain in India. In the meat and edible meat offal market HS Code :02, Brazil is the leading exporter with 10.83% of share in world export in 2006. When compared with 2002, it is seen that Brazil has outperformed market leaders like USA, Netherlands, Germany, Australia and Denmark. (Table No. 2.3) Table 2.3 Indias Position in Global Meat and Edible Meat Offal Market (2006)
Country Trade Competitive ness Rank (2006) 1 (7) 2 (1) 3 (2) 4 (6) 5 (3) 6 (4) 7 (8) 8 (5) 9 (9) 10 (10) 20 (23) Exports as a Share of World Export (%) 10.8289 9.7254 8.9418 8.3373 7.7731 6.7408 5.2395 5.1268 4.7086 4.4603 1.0730 Imports as a Share in World Import (%) 0.1281 7.0260 3.5840 7.9227 0.3951 1.4631 6.3559 1.7831 2.0708 1.1340 0.0005 Exports as a Share of Total Export (%) 5.327 0.636 1.637 0.504 4.273 5.071 0.742 0.896 0.864 13.493 0.577 Imports as a Share of Total Imports (%) 0.093 0.243 0.717 0.570 0.197 1.148 0.795 0.338 0.388 0.336 0.000 Growth of Exports in Value (%) p.a 28 3 13 19 13 10 8 6 11 11 27
Brazil USA Netherlands Germany Australia Denmark France Canada Belgium New Zealand India
Note: Competitiveness Rank for 2002 is given in brackets Source: International Trade Centre, Geneva
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Indias rank in this market has gone up from 23rd in 2002 to 20th in 2006, consequent to the increase in its world export share from 0.68% in 2002 to 1.07% in 2006. It is also encouraging to note that the Indias export earnings in the meat and edible meat offal market have grown at the rate of 27% per annum. 2.2.2 Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s Norway, China, USA and Canada are the dominant exporters in the global market of the Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s (HS Code:03) Though Indias export in this market has experienced a growth of 12% per annum, its trade competitiveness rank has gone down to 13th in 2006 from 10th in 2002 (table 2.4). This mainly due to better performance of countries like Chile and Netherlands who has experienced an export growth of 18% and 15% per annum respectively. Table 2.4: Indias Position in Global Fish, Crustaceans, Molluscs, Aquatic Invertebrates, Market(2006) Trade Competiti ve-ness Rank (2006) Exports as a Share of World Export (%) 8.3806 7.5632 6.1215 5.0143 4.2734 3.9792 3.5614 3.4790 3.4691 3.1250 Imports as a Share in World Import (%) Exports as a Share of Total Export (%) 4.323 0.490 0.370 0.811 4.797 6.029 1.044 1.671 2.415 0.530 Imports as a Share of Total Imports (%) 0.561 0.399 0.566 0.383 0.051 0.400 1.772 1.153 1.687 0.432 0.013 Growth of Exports in Value (%) p.a 13 13 8 4 18 17 10 8 8 15 12
Country
Norway 1 (1) 0.5159 China 2 (2) 4.5222 USA 3 (3) 15.5545 Canada 4 (4) 1.9194 Chile 5 (11) 0.0252 Vietnam 6 (5) 0.2394 Spain 7 (8) 8.3791 Thailand 8 (6) 2.1257 Denmark 9 (7) 2.0436 Netherlan 10 (12) 2.0509 ds India 13 (10) 2.4888 0.0345 1.238 Note: Competitiveness Rank for 2002 is given in brackets Source: International Trade Centre, Geneva 2.2.3 Meat, Fish and Seafood Preparations nes
At present processing level of buffalo meat is estimated at 21 percent, poultry 6 percent and marine products 8 percent. Production of meat and meat products is gradually increasing from the year 1995 onwards (source: report of the task force on Development of cold chain in India, Deptt of Agriculture & Cooperation).
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Indias performance in excellent in this market and its export earning has grown at the rate of 73% during 2002-2006 (table 2.5). This has resulted in significant improvement in the trade competitiveness of India and the country rank 23rd in 2006 against 56th in 2002. In this market the countries namely, China, Thailand and Germany remain the most competitive countries during 2002-06. During this period, Brazils export had also grown at the rate of 32% (Table 6). As a result Brazil competitiveness has increased considerably and it has come within the top 10 exporting countries in the world market of Meat, Fish and Seafood Preparations nes (HS Code: 16). Table 2.5: Indias Position in Global Meat, Fish and Seafood Preparations nes Market Exports Imports Exports as a as a as a Share of Share in Share of Country World Total World Export Import Export (%) (%) (%) China 1 (2) 18.7833 0.1613 0.567 Thailand 2 (1) 13.6505 0.1116 3.056 Germany 3 (3) 7.1330 7.4309 0.186 Denmark 4 (5) 4.2573 2.1809 1.381 Brazil 5 (13) 4.1178 0.0679 0.874 USA 6 (4) 3.9734 14.1374 0.112 Netherlands 7 (6) 3.1955 3.1319 0.252 Spain 8 (9) 3.1389 3.0236 0.429 France 9 (7) 3.0293 5.4217 0.185 Belgium 10 (8) 3.0154 3.1969 0.239 India 23 (56) 0.6786 0.0049 0.157 Note: Competitiveness Rank for 2002 is given in brackets Source: International Trade Centre, Geneva Trade Competitiveness Rank (2006) 2.2.4 Dairy Products, Eggs, Honey, and Animal Products n.e.s India, with its status as the largest milk producer in the world, is on the verge of assuming an important position in the global dairy industry. Many international dairy companies are viewing India with an eye to tapping its vast growing market for dairy products. The overall growth rate of the dairy industry in India is 4%, which is almost 3 times the average growth rate of the dairy industry in the world. Milk processing level is 35 percent with the organized dairy industry processing about 13 percent of the milk produced in India. Rest of the milk is either consumed at farm level, or is sold as fresh, non-pasteurized milk through unorganized channel. The share of organized industry is expected to rise rapidly especially in the urban
Imports as a Share of Total Imports (%) 0.006 0.024 0.220 0.706 0.020 0.201 0.258 0.251 0.280 0.247 0.001
Growth of Exports in Value (%) p.a 24 13 20 8 32 6 7 13 9 10 73
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector regions (source: report of the task force on Development of cold chain in India, Deptt of Agriculture & Cooperation). The most competitive countries in the Dairy Products, Eggs, Honey, and Animal Products n.e.s (HS Code:04) market are Germany, France, Netherlands and New Zealand and all these countries have been experiencing more than 10% p.a growth in export earnings. Indias export earning have grown by 25% p.a and its trade competitive rank has gone up from 40th in 2002 to 35th in 2006 (table 2.5). In comparison with 2002, Indias competitiveness in 2006 has improved over countries like Thailand, Indonesia, Mexico and Norway. Table 2.6: Indias Position in Global Dairy Products, Eggs, Honey, and Animal Products n.e.s Market Trade Competitiveness Rank (2006) Exports as a Share of World Export (%) 14.7756 11.3922 11.3058 8.5731 5.2202 4.209 3.844 3.6243 3.227 3.1555 0.3769 Imports Exports as a as a Share in Share World of Total Import Export (%) (%) 12.4362 0.622 5.6891 1.124 5.845 1.443 0.107 18.08 5.8838 1.1893 0.6621 7.5535 3.6793 0.9977 0.0542 0.668 2.207 1.473 0.417 0.147 1.37 0.141 Imports as a Share of Total Imports (%) 0.633 0.504 0.828 0.19 0.781 0.661 0.234 0.811 0.09 0.613 0.014 Growth of Exports in Value (%) p.a 15 10 10 14 8 9 4 13 22 14 25
Country
Germany France Netherlands New Zealand Belgium Denmark Australia Italy USA Ireland India
1 (1) 2 (2) 3 (3) 4 (4) 5 (5) 6 (7) 7 (6) 8 (8) 9 (11) 10 (9) 35 (40)
2.2.5 Animal Vegetable Fats and Oils, Cleavage Products Malaysia, Indonesia and Argentina are the dominating leaders in the export market of Animal Vegetable Fats and Oils, Cleavage Products (HS Code: 15). India has experienced a growth of about 21% in the export earnings from this market (table 2.7). Though India has outperformed countries like Singapore, Australia in 2006 as compared to 2002, the export performances of Tunisia, China and Russian Federation improved significantly. As a result Indias trade competitiveness rank has dropped to 22nd in 2006 from 21st in 2002.
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Table 2.7: Indias Position in Global Animal Vegetable Fats and Oils, Cleavage Products Market Exports as a Share of World Export (%) 15.7152 13.6824 8.7258 6.0781 5.8873 4.7655 4.5985 3.6952 3.1469 2.8443 0.7273 Imports as a Share in World Import (%) 1.6160 0.1799 0.0778 5.0004 2.4685 6.4931 6.7456 7.5820 0.6633 2.8016 5.0463 Exports as a Share of Total Export (%) 4.339 6.022 8.339 0.728 1.220 0.204 0.497 0.146 1.013 0.342 0.256
Country
Trade Competitiv e-ness Rank (2006) 1 (1) 2 (2) 3 (3) 4 (6) 5 (5) 6 (4) 7 (8) 8 (7) 9 (9) 10 (10) 22 (21)
Imports as a Share of Total Imports (%) 0.553 0.132 0.102 0.677 0.336 0.152 0.692 0.369 0.326 0.355 1.221
Growth of Exports in Value (%) p.a 12 23 17 17 13 2 19 5 12 11 21
Malaysia Indonesia Argentina Netherlands Spain USA Italy Germany Brazil Belgium India
Note: Competitiveness Rank for 2002 is given in brackets Source: International Trade Centre, Geneva 2.2.6 Cereal, Flour, Starch, Milk Preparations and Products Germany, Italy, France, Belgium and USA are the global leaders in the export of Cereal, Flour, Starch, Milk Preparations and Products (HS Code: 19). Table 2.8 shows that Indias competitiveness rank has gone up from 36th in 2002 to 34th in 2006 and the export earnings from this market has grown by 22% p.a.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 2.8: Indias Position in Global Cereal, Flour, Starch, Milk Preparations and Products Market Trade Competitiveness Rank (2006) Exports as a Share of World Export (%) 12.1088 10.0039 8.3398 6.9068 6.3077 5.6981 5.3452 5.3204 3.7467 2.6932 0.4055 Imports as a Share in World Import (%) 7.7023 3.5451 7.2911 3.8640 11.0331 4.7893 7.6882 3.0479 2.1440 3.3341 0.0826 Exports as a Share of Total Export (%) 0.353 0.796 0.569 0.611 0.199 0.480 0.393 0.470 1.125 0.411 0.105 Imports as a Share of Total Imports (%) Growth of Exports in Value (%) p.a
Country
Germany Italy France Belgium USA Canada UK Netherlands Ireland Denmark India
1 (1) 2 (2) 3 (3) 4 (4) 5 (5) 6 (7) 7 (6) 8 (8) 9 (9) 10 (10) 34 (36)
0.268 0.260 0.442 0.351 0.185 0.440 0.407 0.295 0.900 0.325 0.014
16 11 15 10 9 12 9 12 13 16 22
2.2.7 Vegetable, Fruit, Nut, etc Food Preparations Vegetables accounted for a sizeable 59% of total horticulture production during 2005-06. Fruits contributed about 32% of the total production. Others including plantation crops (tea, coffee, coconut, etc.), spices and flowers, nuts, mushrooms and honey accounted for the remaining 9% of the total horticulture production(Report of the task force on Development of cold chain in India). In the Vegetable, Fruit, Nut, etc., Food Preparations (HS Code: 20) market, China has become the most export competitive nation in 2006. It is encouraging to note that Indias export earning have grown by 33% and trade competitiveness rank has gone up from 39th in 2002 to 28th in 2006 (table 2.9).
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 2.9: Indias Position in Global Vegetable, Fruit, Nut, etc Food Preparations Market Trade Competiti ve-ness Rank (2006) 1 (4) 2 (2) 3 (1) 4 (5) 5 (3) 6 (7) 7 (6) 8 (8) 9 (9) 10 (10) 28 (39) Exports as a Share of World Export (%) Imports as a Share in World Import (%) 0.5600 4.2904 13.2817 3.7724 2.9685 12.1473 2.4437 0.5208 7.9480 0.3218 0.0876 Exports as a Share of Total Export (%) 0.390 0.800 0.261 0.684 0.586 0.203 0.993 1.191 0.321 1.010 0.154 Imports as a Share of Total Imports (%) 0.025 0.458 0.245 0.377 0.240 0.466 0.262 0.202 0.531 0.089 0.017 Growth of Exports in Value (%) p.a 21 11 6 15 7 14 11 10 12 15 33
Country
China Netherlands USA Belgium Italy Germany Spain Brazil France Thailand India
10.5717 8.2796 7.5781 7.0592 6.7354 6.3786 5.9431 4.5883 4.3014 3.6889 0.5418
The installed licensed capacity of fruits and vegetables processing industry has increased from 11.08 lakh tons in January, 1993 to 21.18 lakh tons in January, 2006. Over the last few years, there has been a positive growth in ready to serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, tomato products, pickles, convenience veg-spice pastes, processed mushrooms and curried vegetables. The domestic consumption of value added fruits and vegetable products is also low as compared to the primary processed food in general and fresh fruits and vegetables in particular, which is attributed to higher incidence of tax and duties including that on packaging material, lower capacity utilization, non adoption of cost effective technology, high cost of finance, infrastructural constraints, inadequate farmer-processors linkage leading to dependence upon intermediaries. 2.2.8 Miscellaneous Edible Preparations Indias export in miscellaneous edible preparations (HS code 21) is growing at the rate of 13% and the trade competitiveness of the country has improved to 31st in 2006 from 33rd in 2002 (table 2.10). The products like extracts essence & concentrates of coffee and tea (2101), yeast (2102), sauces mixed condiments & mixed seasonings (2103), soups, broths & preparations thereof (2104), Ice crme (2105) and food preparations, nes (2106) are all included under this HS Code: 21.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 2.10: Indias Position in Global Miscellaneous Edible Preparations Market Trade Exports as Imports as Exports as Competitive- a Share of a Share of a Share of ness Rank World World Total (2006) Export Import Export (%) (%) (%) 1 (1) 2 (2) 3 (4) 4 (3) 5 (5) 6 (8) 7 (7) 8 (9) 9 (6) 10 (10) 31 (33) 13.0506 10.6788 7.4527 6.3843 4.3311 3.9025 3.8892 3.8350 3.4675 3.4584 0.5936 8.2077 7.3964 3.0236 4.6968 5.9409 2.5474 2.1326 3.8901 0.9046 1.3956 0.0741 0.415 0.314 0.665 0.440 0.322 0.349 0.313 0.326 1.052 1.267 0.155 Imports Growth as a of Share of Exports Total in Value Import (%) p.a (%) 0.148 11 0.277 17 0.315 16 0.306 11 0.339 13 0.249 15 0.169 14 0.384 17 0.409 10 0.571 16 0.014 13
Country
USA Germany Netherlands France UK Belgium Italy Canada Ireland Denmark India
Indias overall trade performance has improved in 2006 over that of 2002, mainly due to product specialization. Maximum growth (73%) in export earnings is seen in the meat, fish and seafood preparation (HS code 16). Further, in 2006 Indias trade competitiveness index has improved for most of the processed food products except Fish, Crustaceans , Molluscs (HS code 03) and Animal, vegetable fats & oils (HS code 15).
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CHAPTER III PRODUCTIVITY GROWTH IN FOOD PROCESSING SECTOR

3.1 Introduction Since, Productivity plays a key role in determining competitiveness of the sector estimation of productivity is vital in understanding the relative performa nce of the sector. Food processing sector is crucial to the economy as it provides employment to about 48 million people (i.e., direct about 13 million people and about 35 million people indirectly). In this chapter an attempt is made to estimate productivity levels for major factor inputs such as labour, capital and total factor productivity growth. 3.2 The Organized Factory Sector The food-processing sector comprises of organized as well as unorganized industries. Due to lack of reliable data on the operation of unorganized industries, an analysis of the organized factory sector has been undertaken to get an idea on the productivity scenario of the Indian food-processing sector*. Further, the structural constituents of the food processing sector may be understood from the analysis of organized factory sector that mainly consists of large-scale enterprises. Table 3.1 shows some of the characteristics of Indian food processing sector since 1981-82. Though the number of factories in the food-processing sector have increased over the years, the number of workers as well as total persons engaged declinned during the last twenty five years (Table 3.1). However, Gross value added at constant prices increased substantially during this period.
*(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The sections 2m (i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; or (b) whereon twenty or more workers are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on).
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 3.1: Registered Manufacturing of Food Products (20-21) All India
(Value in Rs. Lakhs, Others in Numbers) Characteristics Number Of Factories Number Of Workers Total Persons Engaged 1981-82 18372 1025496 1325832 1991-92 19721 864225 1124366 2000-01 22906 959525 1249563 2001-02 22436 947637 1224581 2003-04 22762 936106 1205599 2004-05 24143 982964 1247476 2005-06 24500 1017342 1292554
Value Of Output at Constant 2390720 5190625 9408219 9685290 9970420 10835945 Prices (199394=100) GVA At Constant Prices 268775 620544 1132750 1180326 967024 1113567 (1993-94=100) Fixed Capital at constant prices 330667 770662 2143200 2178949 2275005 2411827 (1993-94=100) Source: Computed from ASI, summary results for the Factory Sector, Various Issues
11924174
1335333
2555789
Growth rate analysis of the food-processing sector shows that the sector has beengrowing constantly since 1981-82. The number of workers and the total persons engaged in foodprocessing sector reported a decaling growth during 1980-81 to 1991-92 however the recent decades reported positive growth (Table 3.2). It may be noted that all the factors considered during 1981-82 to 2005-06 reported positive annual growth rates since 1991-92 as compared to eighties. The highest growth rate was reported by Fixed Capital at constant prices during 2000-01 to 2005-06 period value of output reported the highest annual growth rate. Table 3.2: Growth Rate analysis of key characteristics in the Food Processing Sector (%) Period I: Characteristics 1981-82 to 1989-90 Number Of Factories 0.65 Number Of Workers -2.12 Total Persons Engaged -2.18 Value of output at Constant Prices (1993-94=100) 9.37 GVA at Constant Prices (1993-94=100) 12.42 Fixed Capital 1993-94=100 9.72 Period II: Period III: 1990-91 to 2000-01 to 2000-01 2005-06 1.35 1.42 1.18 0.71 0.68 0.72 4.85 7.22 3.35 4.52 3.58 9.21
Source: Computed from ASI, summary results for the Factory Sector, Various Issues.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 3.3 Labour Productivity Growth: A State level analysis Labour productivity growth in the Indian food-processing sector has been estimated as a ratio of GVA to the number of workers. labour productivity growth has been estimated for the food processing sector since 1981-82 to 2004-05 at the state level (Table 3.3). The labour productivity of growth in food processing sector at the all India level has been found declining over the years. It is negative during the last sub-period (2000-01 to 2004-05) mainly due to the declining growth in the labour productivity that is evident in most of the Indian states. But Rajasthan displayed a healthy trend in the growth of labour productivity and was highest (15.02%), followed by AP (10.63%) during the last sub-period (table 3.3). The decline in labour productivity growth across most of the states and at all India during the last period under consideration may be due to the proportionately higher growth in the number of workers as compared to the growth in GVA. Table 3.3: Growth of Labour Productivity in organized food processing sector States Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All INDIA Compound Annual Growth Rate of Labour Productivity Period III: Period I: Period II: 1981-82 to 89-90 1990-91 to 2000-01 2000-01 to 2004-05 10.63 11.02 3.80 -3.50 6.22 2.10 -10.0 12.65 11.00 1.16 11.05 6.67 -3.11 7.57 10.09 37.13 11.15 10.57 15.71 8.14 3.48 2.17 8.77 11.31 11.34 9.00 10.51 11.42 9.46 6.21 14.96 6.80 -0.07 4.75 1.48 3.11 9.36 -0.40 6.03 -9.11 3.0 -4.72 -1.47 -2.46 -8.73 -4.52 15.02 -3.28 -0.18 8.91 -0.33
Source: Computed from Summary result for Factory Sector, ASI Various issues
In the recent years i.e., between 2000-01 to 2004-05, only five states reported positive growth of labour productivity growth. These states are Andhra Pradesh ,Gujarat, Karnataka, West Bengal and Rajasthan whereas all other states reported negative growth in labour productivity growth. It is important to note that among the states that reported positive growth also there
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector are considerable variations in productivity performance. The state of Orissa reported the highest decline in labour productivity growth during 2000-01 to 2004-05 period. The analyses of labour productivity growth across major states reveal that the labour productivity in the food processing sector has sharply declined over the years and during 2000-01 to 2004-2005 it has reported negative growth rates. This is a clear indication of the fact that only a few states Rajasthan and Gujarat with better resources either in terms of raw material or workforce suitable for the sector could grow at high rate where as states like Bihar and Uttar Pradesh lagged behind. The declining trend and interstate disparity in the growth rate of labour productivity in the food processing sector in recent years is a matter of concern for the overall competitiveness of the sector. In the following sections we alalyse the productivity performance of labour, capital ant total factor productivity at all India level. 3.4 Partial and Total Factor Productivity Growth: All India It may be noted from table 3.4 capital productivity has grown from Rs. 0.54 in 1995-96 to 0.83 by 2005-06 at the all India level. Similarly, labour productivity levels has grown from Rs.68774 in 1995-96 to Rs.103310 during 2005-06. It may be noticed from the table that the last year under study i.e. 2005-06, a sudden increase in both labour and capital productivity levels have ounred. Table 3.4: Partial Productivity Estimates for Labour and Capital inputs Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Capital productivity (per Rupee Investment) 0.54 0.52 0.50 0.53 0.48 0.56 0.61 0.58 0.60 0.68 0.83 Labour Productivity (per person) 68774 67626 73182 85144 85689 90652 96386 93506 80211 89266 103310
Source: Estimated from ASI, CSO (various years)
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 3.5 provides productivity growth estimated for labour, capital and total factor productivity during 1995-96 to 2005-06 period. In the case of Capital Productivity it may be noted that though there are wide year to year fluctuations, the average annual productivity growth reported positive growth at 1.07 percent per annum during 1996-97 to 2000-01 period. Similarly average capital productivity growth for the period 2001-02 to 2005-06 also reported much higher growth at 8.71 percent per annum. As far as labour productivity growth is concerned, it may be noted that a higher productivity growth was reported during 1995-96 to 2000-01 period at 5.86 percent per annum. During the second phase (2001-02 to 2005-06) the growth rate slight declined to 3.23 percent per annum. In the case of total factor productivity growth, it may be noted that total factor productivity growth increased at the rate of 1.78 percent per annum. However, during the second period under study (2001-02 to 2005-06) total factor productivity growths decreased at 1.49 percent per annum. This indicates that technical progress and its contribution on productivity in the food processing sector is negative. This indicates the need for technological progress in the sector. Table 3.5: Growth of Labour, Capital and Total Factor Productivity Growth
Labor Productivity Growth Rate (%) Capital Productivity Growth Rate (%) Total Factor Productivity Growth Rate (%)
Year
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Average for the Period 1996-97 to 2000-01 Average for the Period 2001-02 to 2005-06
--3.05 -4.49 5.54 -9.82 17.15 10.38 -6.32 3.87 13.27 22.37 1.07
--1.67 8.22 16.35 0.64 5.79 6.33 -2.99 -14.22 11.29 15.73 5.86
--2.28 12.49 -2.09 7.14 -6.35 -3.41 1.79 -9.09 2.73 0.56 1.78
8.71
3.23
-1.49
Source: Estimated from ASI Summary Result of Factory Sector
In order to get a clearer picture of productivity growth trends for both labour, capital and total factor productivity growth, the growth rates have been represented in as an index form in table 3.6. It may be noted that Capital productivity Growth index has increased to 148.90 by 2005-06 while labour productivity growth index has grown to 145.46 during the last ten years.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector As far as total factor productivity growth is concerned, it has almost stagnated. This shows that the contribution of technology in productivity growth in food processing sector is quite low. Table 3.6: IndexofLabour,CapitalandTotalFactorProductivityGrowthIndices: Capital Productivity GrowthIndex 100.00 96.95 92.46 98.00 88.18 105.33 115.71 109.39 113.26 126.53 148.90 Labour Productivity GrowthIndex 100.00 98.33 106.55 122.90 123.54 129.33 135.66 132.67 118.45 129.74 145.47 Totalfactor Productivity GrowthIndex 100.00 97.72 110.21 108.12 115.26 108.91 105.5 107.29 98.20 100.93 101.49
Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Source: Estimated from ASI Summary Result of Factory Sector
Labour,CapitalandTotalFactorProductivityGrowthIndices
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CHAPTER IV PERFORMANCE OF FOOD PROCESSING SECTOR: A STUDY OF DOMESTIC & EXPORT MARKETS
4.1 Introduction Indias trade competitiveness in the overall processed food market is not significant. But the trade performance of few segments of food products in select export markets are worth noting. In the present chapter an attempt has been made to identify the profitable as well as losing export market for various food products. Further, the competing countries in each of the export market for a particular food product have been identified using the interactive market analysis tool developed by International Trade Center, Geneva. 4.1.1 Meat and Edible Meat Offal Indias export earnings in the meat and edible meat offal market (Code: HS 02) has grown at the rate of 27% per annum and its leading trade partners are Malaysia, Angola, Saudi Arabia, Philippines and Kuwait. For Indian meat producers Saudi Arabia is the most lucrative export destination. The growth in export earnings has been highest from Saudi Arabia (190%) followed by Kuwait (75%) and Angola (47%). In this market Indias major competitors are Brazil, USA, Australia, Netherlands. 4.1.2 Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s India mainly exports Crustaceans and fish frozen (whole) (HS Code:03) in the international market and its leading trade partners are USA, Japan, Spain, China and UK. In recent times, the export of Fish fillets and pieces, fresh, chilled and frozen (0304) and Fish cured or smoked (0305) is experiencing a growth of more than 30% per annum. In this market India gets tough competition from other Asian countries like China, Thailand and Vietnam. 4.1.3 Dairy Products, Eggs, Honey, and Animal Products n.e.s Indias export earning have grown by 25% p.a and its trade competitive rank has gone up from 40th in 2002 to 35th in 2006 in the world market of Dairy Products, Eggs, Honey, and Animal Products n.e.s (HS Code:04). The growth in Indias export earnings has been highest for Butter Milk and Yogurt (470%) followed by Milk and Cream, not concentrated or sweetened (117%) and Whey and natural Milk products nes (71%). Indias leading trade partners in this market are UAE, Egypt, Germany, Bangladesh and Oman (table 4.1). The export earnings from the Egyptian market is experiencing a growth of 124% but the country is facing competition from New Zealand, USA, Netherlands, Australia, France.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.1.4 Animal Vegetable Fats and Oils, Cleavage Products India has experienced a growth of about 21% in the world export market Animal Vegetable Fats and Oils, Cleavage Products (HS Code: 15). The countrys leading trade partners are China, Netherlands, USA, France and Japan in this Market and the export earning from Chinese market has grown at a hopping rate of 142%. However, in this market India is facing competition from Malaysia, Indonesia, Argentina, Brazil, Australia and Spain. 4.1.5 Meat, Fish and Seafood Preparations nes The export earning has grown at the rate of 73% p.a for Indian Meat, Fish and Seafood Preparations nes (HS Code: 16). This has resulted in significant improvement in the trade competitiveness of India and the country rank 23rd in 2006 against 56th in 2002. The highest growth in the export earnings was from prepared/preserved fish & cavier (107%) followed by Crustaceans & Mollucus, prepared/preserved (73%). India faces tough competition from Brazil and other Asian countries like Thailand, Indonesia and Vietnam in this market. Indias major trading partners are Japan, China, UAE, Italy and USA (table 4.1). In this market, Indias export earnings from Italy has grown by 152% while that of China and UAE have grown by 121% and 100% respectively. 4.1.6 Cereal, Flour, Starch, Milk Preparations and Products The export earnings from the Cereal, Flour, Starch, Milk Preparations & Products market (HS Code: 19) has grown by 22% p.a . The highest growth in Indias export earnings of is from Bread, biscuits, wafers, cakes and pastries (43%) followed by Tapioca and substitutes (30%) and pasta and couscous (25%). Indias major trading partners are USA, UK, UAE, Nepal and Sri Lanka. In recent times, the export earning from Sri Lanka has grown by 35% followed by UAE (28%) while in all other countries it remained around 20%. Indias competitors in the global Cereal, Flour, Starch, Milk Preparations and Products are Singapore, Netherlands, UK, Thailand, Australia and Netherlands (table 4.1). 4.1.7 Vegetable, Fruit, Nut, etc Food Preparations In the vegetable, fruit, nut etc. (HS Code: 20) market Indias leading trade partners are USA, Russian Federation, UK, Netherlands and Canada. The export earnings from the Russian and Canadian market have grown by 83% and 52% respectively (table 4.1). In this market, India is competing with countries like China, Hungary, Poland, Netherlands, Brazil, Thailand and Spain. In recent times, the export of prepared or preserved vegetables nes excl. frozen, has grown by 100% where as only 2% export growth is seen in case of fruits & vegetable juices unfermented and sugar preserved fruits and nuts.
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Table 4.1: Indias Leading Trade Partners and Competitors in Global Processed Food Market Top 5 Trading Country (2006) World Malaysia Angola Saudi Arabia Philippines Kuwait Fish, Crustaceans, Molluscs, Aquatic Invertebrates, n.e.s (HS Code:03) World USA Japan Spain China UK Dairy Products, Eggs, Honey, and Animal Products n.e.s (HS Code:04) World UAE Egypt Germany Bangladesh Oman Animal Vegetable Fats and Oils, Cleavage Products (HS Code: 15) World China Netherlands USA France Japan Fragmentati on of Indias Share in World Export (%) 1.0730 0.1469 0.1000 0.0898 0.0895 0.0888 2.4888 0.4412 0.3948 0.1896 0.1358 0.1334 0.3769 0.0400 0.0262 0.0244 0.0224 0.0210 0.7273 0.1265 0.1008 0.0890 0.0830 0.0539 Growth of Exports in Value (%) p.a
Product
Indias Competitors in the Export Market
Meat and Edible Meat Offal (HS Code:02)
27 7 Australia, New Zealand, Netherlands, Uruguay, Denmark 47 Brazil, USA, Paraguay, Netherlands, Argentina 190 Brazil, France, Australia, New Zealand, UAE 12 Brazil, USA, Canada, Australia, Germany 75 Brazil, Saudi Arabia, China, Australia, USA 12 Canada, China, Chile, Thailand, Indonesia China, USA, Russian Federation, Chile, Vietnam 11 Argentina, Morocco, France, UK, China Russian Federation, USA, Japan, Canada, Norway 6 Iceland, Denmark, Norway, China Table contd 25 10 Saudi Arabia, Netherlands, New Zealand, Australia, Denmark 124 New Zealand, USA, Netherlands, Australia, France 8 Netherlands, France, Denmark, Austria, Iceland 5 Australia, Denmark, New Zealand, Singapore 15 UAE, Sweden, Australia, New Zealand, Saudi Arabia 21 142 Malaysia, Indonesia, Argentina, Brazil, Australia 12 Malaysia, Germany, Indonesia, France, Argentina 27 Italy, Canada, Malaysia, Philippines, Spain 10 Spain, Netherlands, Italy, Germany, UK 8 Malaysia, Italy, USA, Spain, China
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Meat, Fish and Seafood Preparations nes (HS Code: 16)
73 52 China, Thailand, USA, Vietnam, Indonesia China 0.0977 121 Peru, USA, New Zealand, Vietnam UAE 0.0417 100 Thailand, Brazil, China, Netherlands, Saudi Arabia Italy 0.0409 152 Spain, Germany, Colombia, Ecuador, Denmark USA 0.0314 11 Thailand, China, Canada, Brazil, Indonesia Cereal, Flour, World 0.4055 22 Starch, Milk USA 0.0779 25 Canada, Mexico, Italy, China, Germany Preparations UK 0.0663 19 Germany, Ireland, France, Italy, and Products Netherlands, USA (HS Code: 19) UAE 0.0287 28 UK, Saudi Arabia, Italy, Netherlands, USA Nepal 0.0226 21 USA, Italy, China, UK, Rep. Of Korea Sri Lanka 0.0218 35 Singapore, Netherlands, UK, Thailand, Australia Vegetable, World 0.5418 33 Fruit, Nut, etc USA 0.1335 30 Canada, China, Mexico, Thailand, Spain Food Russian 0.0705 83 China, Hungary, Poland, Netherlands, Preparations Federation Ukraine (HS Code: 20) UK 0.0437 28 Netherlands, Italy, Germany, Spain, France Netherlands 0.0333 23 Germany, Brazil, China, Italy, UK, USA Canada 0.0289 52 USA, Brazil, China, Thailand, Spain Miscellaneous World 0.5936 13 Edible Russian 0.1346 2 Germany, USA, France, Denmark, Preparations Federation Netherlands (HS Code: 21) USA 0.0774 Canada, Mexico, New Zealand, Thailand, Japan Ukraine 0.0426 32 Germany, Russian Federation, France, Brazil, Poland Finland 0.0384 74 Sweden, Germany, Netherlands, Denmark, UK UAE 0.0262 France, Ireland, USA, UK, Germany Source: Extracted from Data given by UNCTAD/WTO/International Trade Centre, Geneva
World Japan
0.6786 0.1130
4.1.8 Miscellaneous Edible Preparations The Indian export market for Miscellaneous Edible Preparations (HS Code: 21) is growing at the rate of 13% and the trade competitiveness of the country has improved to 31st in 2006 from 33rd in 2002. In this market Indias leading trade partners are Russian Federation, USA, Ukraine, Finland, UAE and the highest growth in export earning is from Finland. In this market, India is facing competition from Sweden, Germany, Netherlands, Denmark and UK.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.2 Competitiveness Factor Analysis for the Food Products sector In this section the factor analysis is done through the contribution of various factor endowment like human resource, physical infrastructure, and capital resource towards competitiveness of Indian Food Processing Sector. The demand in the domestic market for the Food Processing Sector is analysed. The firms strategy, structure and rivalry are analysed to know the domestic market trends of major players and competitive strategy for firms operating within the food-processing sector. The backward and forward linkages in the supply chain are analysed to assess the role of related and supporting industries. The government policy is discussed in all the relevant areas to understand its influence on the Indian foodprocessing sector. For the analysis, each segment of the food-processing sector is further segregated. For example, Fruits & Vegetables Processing comprises of fruit juices/pulp/concentrates, Sauces/Ketchups/Jams and vegetable oils etc. The Dairy Products includes Milk Powder and Condensed Milk, Infant Milk Products, Ice creams and Butter, Ghee and Other fats from Milk. In addition to these the Poultry and Marine Fisheries form an integral part of the food processing sector. 4.2.1 Domestic Market Analysis The Indian food-processing sector is still in a nascent stage and its potential for development clearly depends on the dynamic operation of market forces of demand and supply. The market size of a product is estimated as sales (both domestic and export) plus the value of imports where as domestic demand is the consumption value of a particular processed food product in the country (ie., market size - exports). Market Size and Domestic Demand There has been a positive growth in the market size of processed food products like dairy products, poultry and marine products. This trend is also noticed in various processed fruits and vegetable products like fruit juices and pulps, dehydrated and frozen fruits and vegetable products, tomato products, pickles, Vanaspati and vegetable oils, Soya products, processed mushrooms and curried vegetables. However, the market size of the grain-processing sector lost market for products like bread and breakfast cereal is experiencing a negative trend in recent years. Table 4.2 indicates that the rate of growth is lower for all food products during (2002-03 to 2007-08) as compared to that of the previous period (1991-92 to 2001-02). The sharp decline in the rate of growth for dairy products like milk powder and condensed milk butter, ghee and other fats may be attributed to the rise in health consciousness among people and preference for low cholesterol diet. Similarly, the reduction in growth of market for milk powder and condensed milk may be due to the shift in demand in favour of pasteurized milk that is easily available in the urban Indian market. The repetitive occurrence of bird flu has resulted in the negative growth in the demand for poultry products.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector The domestic consumption of processed products in India is low. This may be due to the natural preference of Indian for fresh fruits and vegetables and home made food. Further , the interplay of various factors like higher incidence of tax and duties including that on packaging material, lower capacity utilization, non adoption of cost effective technology, high cost of finance, infrastructural constraints, weak linkage between farmers and processing industries, dependence upon intermediaries etc hinder the growth in domestic consumption. The smallness of units and their inability for market promotion is also another main reason for inadequate expansion of the domestic market. Table 4.2: Market Size of Processed Food Products (Value in Rs Crore)
CAGR in Market Size CAGR in Domestic Consumption 1991-92 2002-03 to to 2001-02 2007-08 52.46 5.39 7.90 15.41 24.15 17.24 14.17 10.39 19.58 21.89 36.80 10.33 13.79 15.99 38.85 33.66 24.85 37.52 -0.83 7.35 5.01 _ 2.75 9.57 4.00 27.47 13.93 35.45 -3.83 10.44 5.42 5.67 26.96 8.48
Sector
Industry
1991-92 to 2001-02 50.83 14.06 7.90 15.41 24.15 17.32 14.41 10.77 21.02 22.35 37.00 14.53 13.81 16.76 38.90 41.82 23.96
2002-03 to 2007-08 35.01 11.46 7.35 5.01 19.28 2.11 9.74 4.42 23.92 14.23
1. Fruits and Vegetable Processing
Fruit juices /pulp / concentrates Sauces/Ketchups/Jams Vanaspati Vegetable oils Soya Products
2.Grain processing Flour Milling Products & Consumer Biscuits Foods (incl. packaged foods) Bread Breakfast Cereals Confectionery Wafers, Potato Chips etc 3. Dairy Sector Milk Powder and Condensed Milk Infant Milk Product Butter, Ghee and Other fats from Milk Ice Creams 4. Poultry 5.Marine Products
35.24
5.98 10.46 7.79 5.71 25.16 6.72
Source: Calculated based on data by CMIE (July 1998 & April 2009)
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.2.2 Main players and their Market trends Competition is fierce among the major food producers in all categories of processed food products. Three main players under each category have been identified and the growth in their market share and sales is calculated using data collected from various issues of CMIE report on market size and market share. Table 4.3 show that some of the market leaders like Candico (India) (Bread) are also experiencing lower market share during the period 2007-08 as compared to that of 2002-03. As a result their sales have also declined during the period 200203 to 2007-08.
Table 4.3 : Market Share (%) of top three producer of Vegetable, Fruit , Grain, Dairy, Poultry & Marine Products Market Market CAGR in share share Sales (2007-08) (2002-03) (2002-03 to 200708) 38.84 2.99 125.47 6.26 0.77 74.71 4.44 3.56 9.07 11.75 6.92 18.36 6.89 4.37 6.72 1.71 10.12 37.51 23.80 24.60 47.63 19.24 0.95 68.69 4.36 3.08 8.99 7.36 2.16 8.28 3.81 1.23 1.43 0.87 3.63 32.05 18.48 16.87 19.30 12.10 1.30 6.73 1.16 33.05 24.21 13.35 11.85 14.74 7.52 17.88 35.49 23.13 18.20 35.25 39.16 16.77 25.35 13.25 15.44 18.35 25.10 14.57 -1.89
Sector
Industry
Company Name
. Fruits and Vegetable Processing
Fruit juices /pulp / concentrates
Parle Agro Pvt. Keventer Agro Foods & Inns
Sauces/Ketchups/Jams Hindustan Unilever Oudh Sugar Mills Capital Foods Vanaspati J V L Agro Industries Ruchi Soya Industries Amrit Banaspati Co. Vegetable oils Ruchi Soya Industries Adani Wilmar Gokul Refoils & Solvent 2.Grain processing & Consumer Foods (incl. packaged foods) Flour Milling Products Shakti Bhog Foods Bambino Agro Industries Gujarat Ambuja Exports Biscuits Britannia Industries Parle Products Pvt. Parle Biscuits Pvt. Bread Britannia Industries Harvest Gold Ind. Pvt. Candico (I) National Productivity Council, New Delhi
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Sector
Industry
Company Name Bagrrys India Mohan Meakin Cadbury India Lotte India Corp. Nestle India Nestle India Milk food
Breakfast Cereals 2.Grain processing & Consumer Foods (incl. packaged Confectionery foods)
Market CAGR in Market share Sales (2002share (2002-03) 03 to 2007(2007-08) 08) 51.84 21.77 47.37 36.93 28.05 4.70 16.75 74.48 9.31 2.63 17.15 13.44 9.50 29.26 18.90 9.86 10.16 7.28 72.52 0.40 2.38 0.48 0.51 67.98 28.94 5.37 18.49 61.32 7.39 _ 15.33 6.06 2.74 25.81 17.35 8.63 15.54 7.13 22.58 0.59 3.13 9.65 13.51 11.20 11.98 14.84 15.69 _ 10.24 26.40 38.24 8.40 7.55 8.57 14.96 25.69 58.05 -1.14 1.09 5.47
3. Dairy Sector Infant Milk Foods
Continental Milkose (India) Butter, Ghee & Other Milkfood fats from Milk VRS Foods Anik Industries Ice Creams Hindustan Unilever Vadilal Industries Dinshaws Dairy foods Venkys (India) Godrej Agrovet Suguna Poultry Farm 5. Marine Products Devi Sea Foods Hindustan Unilever
4. Poultry
Falcon Marine Exports Source: Calculated based on data from CMIE (April 2009)
4.2.3 Competitive Strategy for Food Processing Industry/Firms Competitive advantage or differentiator is the key to any business. However, in the prevailing competitive environment there is no permanent differentiator or competitive advantage for the food-processing sector except giving quality products at the cheapest rate. A successful differentiator would attract other competitors and thus invokes a competitive reaction. For example, if a new product such as fruit juice or ready to eat curry (heat and eat) is successful in attracting customers, it will inevitably be replicated (possibly at a lower price) at the earliest by the competitors. Thus differentiation and competitive advantage is a continuous exercise. A systematic search for differentiator is necessary to formulate
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector competitive strategies. The strategies need to be dynamic and should change with changing business scenario. Market Research: In this era of globalization, Industry/firms need to expand the horizon of their operation to remain competitive. However, a number of times it is noticed that Indian firms are not having requisite in house knowledge/resource to explore the international markets. In such cases the firms need to take the help of market intelligence services provided by various national and international agencies and search new market for their products. Innovation & Product Differentiation: One of the biggest challenges for the producer is to have continuous product differentiation. New products need to be developed either to attract a new segment of customers or spark off a new level of demand from the existing customers. The producer who introduces new and innovative product not only enjoys a major market share but also reinforces its brand in the market. Thus the right mix of unique and innovative products that are acceptable to the consumers is critical to sustain and augment profits in the long run. Technology Up gradation: The sovereignty of consumers is quite evident through their revealed preference in favor of economically rational decisions. The shift in demand from home cooked food to packaged food is mainly driven by the change in society and lifestyle. Advancement in technology would greatly facilitate the firms to cater to the needs of the new market. Productivity Enhancement: The productivity of firms can be enhanced through optimum capacity utilization of processing units as per economies of scale. This would result in reducing the cost of production, as well as product price. This would not only enable Indian firms to be competitive in international market but also help in achieving a competitive edge over imported products in domestic market. Distribution as Competitive Advantage : Distribution can be an excellent source of competitive advantage for a producer and since the distribution channel advantage is difficult to copy by the competitors it provides both substantial and sustainable competitive advantage Competitive Pricing of Food Products: As consumers are very price-sensitive and cost reductions are imperative to raise demand and consumption of food products. Measures like efficient utilization of plant and machinery, reduction in waste etc need to be taken by the firms for reducing prices of food products. However, quality should not be comprised as a cost reduction strategy as consumption of low quality food products may lead to irreparable damage to human beings. Branding with Customer Care: Customer care as a differentiator is particularly valuable to the new players. Strong brand positioning with high quality of their products enhances the strength of brands. A player with weaker brand has to sell better products at lower cost in order to compensate for his weaker brand image.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.3 Competitiveness Enablers & Role of Government The factor condition is analyzed through the contribution of various factor endowments like natural resource, human resource, physical infrastructure, and technology and capital resource towards competitiveness of Indian food processing sector. Natural Resource: India is the worlds second largest producer of food and with sustained efforts it has the potential to be number one. India with arable land of 184 million hectares, produces annually 90 million tonnes of milk (highest in the world), 150 million tonnes of fruits & vegetables (second largest), 485 million livestock (largest), 204 million tonnes food grain (third largest), 489 million Poultry and 45,200 million eggs. The production of meat & meat products is gradually increasing from the year 1995 onwards. India with its long coast line of over 8000 kms., 50600 sq, kms. of continental shelf area and 2.2 million sq. km. of Exclusive Economic Zone, is endowed with rich fishery resources. Fish production (both marine and inland) has increased from 5.65 million tones in 2000-01 to 6.3 million tonnes in 2004-05 ie., 3rd in the world. In terms of shrimp production, India occupies the 5th position in the world and in aquaculture; it is the largest producer after China. India, with its status as the largest milk producer in the world, is on the verge of assuming an important position in the global dairy industry. Total milk production in the country is over 90 million tonnes. Per capita milk consumption is 75 Kgs. (NDDB). The overall growth rate of the dairy industry in India is 4%, which is almost 3 times the average growth rate of the dairy industry in the world. Thus, Indian Food Processing Industry has a very strong base for raw material supply. The Food processing sectors competitiveness depends on the efficient utilization of raw material resources and reduction of wastages. To enhance competitiveness of the food-processing sector, Indian firms need to take advantage of natural resources available in the country. Indias agricultural production base is quite strong but at the same time wastage of agricultural produce is massive (Annual report 2007-08, MFPI, GoI). Moreover, the processing level is very low i.e. around 2.0% in fruits & vegetables, 35% in milk, 21% in meat and 6% in poultry products and 8% in marine products etc. and the value addition is only to the extent of 20%. As a result Indias share in world trade in respect of processed food is only about 1.6%. Thus, there is a vast scope of growth in food processing sector and with effective utilization of resources India has the potential to serve the worlds food basket. However, the Import Refusal Reports of the U.S. Food and Drug Administration given in the website (http://www.fda.gov/ora/oasis/ora_ref_cntry.html) shows the reasons for detention of processed food from India. Some of the reasons cited are Turmeric Powder/ Fenugreek Leaves containing salmonella, Mango Pickle Sour is Filthy, Relish in Jar (Bitter gourd/Brinjal/Onion/Amla etc ) containing Pesticides. APEDA is regulating export of fresh grapes from India through monitoring of pesticide residues. Similar steps may be replicated for other food products (esp. Fruits and Vegetables). There also exists some other reason like Labelling, use of unsafe colours etc for rejection of Indian Consignments containing Processed Food .Thus, the paradox of Indian food processing sector is that in spite of a strong raw material base, there exists always an uncertainty regarding availability of quality raw
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector material meeting international standards for processing. Even when available, the cost of raw material is very high due to high freight and storage cost. Finance/Capital: The food processing industry due to its unorganized nature faces a number of constraints in getting credit from financial institutions. Access to Credit for farmers as well as small and medium food processors is a key issue. Over 75% rely on informal credit at very high interest rates leading that increase the cost of production affecting competitiveness. Indian food processing sector is also unable to attract investment by large corporate houses due to unreliable sources of supply of raw material. Further, the Lack of a common policy on Contract farming and the APMC Act that restricts sourcing materials from farmers are deterring big corporate houses from investing in the food-processing sector. However, it is encouraging to note that the food-processing sector is one of the sectors attracting a considerable share in FDI. The inflow of FDI was low in the year 2004-05 as compared to the previous year but the total inflow of FDI in FPI sector has increased in the subsequent year i.e., from Rs 174 crore in 2004-05 to Rs.183 crore in 2005-06 which is 3.12 per cent of total FDI inflows, it has again increased considerably in subsequent years i.e. Rs 441 crore in 2006-07 (table 4.4). Further, the development of Food Parks would surely help in attracting higher FDI for the sector. The competitive advantages of Indian Food Processing Sector needs to highlighted in International Trade Fairs and Multinational Food Processing Companies may be encouraged to set up their subsidiary units in India. Table 4.4: FDI inflows in Indian Food Processing sector FDI inflow received in FPI sector (Rs in crore) 2002-03 176.53 2003-04 510.85 2004-05 174.08 2005-06 182.94 441.00 2006-07 61.63 2007-08(upto November 2007) 4852 Cumulative inflows (from Aug 1991-Sept 2007 Source: Economic Survey 2006-07, Annual Report(2007-08) MOFPI Year Human Resources: Indias vast population is an advantage for any sector of the economy. More so for the food processing sector whose inputs/raw material comes from the agricultural sector that provides maximum employment in India. In addition to this, the food-processing sector requires trained manpower (viz. entrepreneurs, managers, technologists, skilled workers) for continuous technology up gradation & diversification, marketing of food products and management of quality control systems. But in reality there is an acute shortage of skilled manpower for the processing sector due to lack of sufficient training institutions/centers. Role of Government in Human Resource Development: The Ministry of Food Processing (MFPI), Govt. of India, has duly recognized the fact that without availability of skilled
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector technical manpower, the competitiveness of the food processing sector would be in a stake. Some schemes have been already implemented under 10th Five year plan to create suitable manpower to manage, innovate and build Indian food processing sector (Box 1). Box 1: Scheme for Human Resource Development
Scheme/ Component Setting up of Food Processing and Training Centre (FPTC) Objective The objective of the Scheme is to promote development of entrepreneurship and transfer of technology for processing of food products by utilizing locally grown raw materials and providing hands on experience at production-cum- training center. Salient Features Central and State Government organizations, educational and training institutions, NGOs, cooperatives are eligible for assistance. The following Grant-in aid is provided For Single Product Line centre (for any one group of processing activities)- Rs. 2 lakhs for fixed capital costs and Rs. 1 lakh as revolving seed capital For Multi Product Line centre- Rs. 7.50 lakhs for fixed capital costs and Rs. 2 lakhs as revolving seed capital For training the trainers at recognized institute such as CFTRI- Upto Rs. 0.50 lakh, one time assistance, subject to actuals on TA/DA etc. A grant up to Rs.50 lakhs is given to colleges, universities, technical institutions,etc., to create infrastructural facilities like libraries, laboratories, pilot plants etc., for running degree/diploma courses like B.E/ B.Tech, M. Tech, and training programmes for food processing.
Creation of Infrastructure Facilities for running Degree/ Diplomas Courses and Training Programmes for Food Processing Industries Training Programmes sponsored by Ministry of Food Processing Industries Entrepreneurship Development programme
To assist creation of infrastructure facilities in HRD institutions. Provides assistance for library, laboratory, pilot plants etc. for running Degree/ Diploma Courses and Training Programmes for Food Processing.
Grants are provided to institutions organizing trainings in the area of food processing. Quantum of assistance depends on number of trainees and duration of training.
This scheme provides financial assistance for organising EDPs in food processing industries to enable trainees to establish commercially viable enterprises in food & agri-processing. It also aims to provide basic knowledge of project formulation and management including technology and marketing, motivate the trainees and educate them on the opportunities & financial assistance available and other support services from the developmental organisations.
Maximum assistance of Rs. 1 lakh available per EDP. The programme should run for atleast 4 weeks with a follow-up phase of 12 months and number of trainees should not be less than 20.
Source: Report of the Working Group on Food Processing Sector, Eleventh Five Year Plan
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Physical Infrastructure : Food processing industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, lack of processable varieties of farm produce, seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference for fresh food. There is also a lack of suitable infrastructure in the shape of cold chain, packaging centres, value added centre, modernized abattoirs etc. Improvement in general infrastructure is also an aid for energizing of sector. The cold storage capacity today caters to less than 10% of the produce, this too of rudimentary nature, with over 80% designed only to handle potatoes. This not only leads to wastage of perishable produce but also adversely affects the supply of raw material to foodprocessing industries. The wastage adds up to the cost of raw material ultimately affecting the competitiveness of Indian food processing industries. Inadequate and fragmented supply chain prevents linkages of farmers to the market, depriving them of the opportunities offered by the emerging retail boom. There is an urgent need for technology induction facilitating use of Controlled Atmosphere /Modified Atmosphere Chambers, IQF facilities etc to be linked to the farm or collection hubs through reefer vans and ensuring an end to end cold chain. Role of Government in Infrastructure Development : Government attaches highest priority to development and expansion of physical infrastructure for facilitating prompt growth of industries. In order to address the problem during the Tenth Five Year Plan several schemes for infrastructure development have been implemented by MOFPI and Rs 7434.36 Lakhs have been spent during the period 2002-07. A review of the schemes is given in Box 2.
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Box 2: Scheme for Infrastructure Development

Scheme/ Component Food Park Objective The idea behind setting up of food parks is to provide common facilities like cold storage, food testing and analysis lab, affluent treatment plant, common processing facilities, packaging centre, power supply, water supply to the small and medium entrepreneurs who find it difficult to invest in capital-intensive activities. The Scheme aims to provide facilities for packaging, which may help in enhancement of shelf life of food products and make them internationally acceptable. The scheme is intended to improve viability of cold storages and enhance cold storage capacity. Assistance for non horticulture produce, special cold storage with Controlled and Modified Atmosphere facility The Scheme is intended to enhance value addition leading to enhanced shelf life, higher total realization and value addition at each level of handling and also to facilitate traceability, documentation etc. The scheme aims at enhancing shelf life of the food product through irradiation techniques by preventing infestation like in flour, sprouting and change in chemical composition of the product (as in potato). The Scheme aims at scientific and hygienic slaughter, causing least pain to the cattle and ensuring better byproduct utilization. Salient Features Grant in aid of 25% of the project cost upto a maximum of Rs.4 Crore (In NE region quantum of assistance increases to 33.3% of the project cost). Physical Target 25 Physical Achievement 18
Packaging Centre
Integrated Cold Chain Facilities
25% of the total cost of plant upto a maximum of Rs. 2 Crore (In NE region assistance increases to 33.3.%) 25% of the total cost of plant upto a maximum of Rs.75 lacs (in NE region assistance increases to 33.3%). 25% of the total cost of plant upto a maximum of Rs.75 lacs (in NE region assistance increases to 33.3.%). 25% of the total cost of plant upto a maximum of Rs. 5 Crore (in NE region assistance is 33.3.%) 25% of the total cost of plant upto a maximum of Rs. 4 Crore (in NE region assistance is 33.3%)
05
01
24
18
Value Added Centre
10
05
Irradiation Facilities
05
04
Modernised Abattoir
05
01
Total
Source: Report of the Working Group on Food Processing Sector, Eleventh Five Year Plan
74
47
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Technology Development : In order to survive in this age of intense competition Indian food processing sector has to continuously upgrade its existing technology to adapt world-class technology. M/o Food Processing Industries extends financial assistance for setting up/ technology upgradation/ modernization of fish processing units and to organized Dairy Sectors for Milk Products processing. There are over 372 freezing unit with a daily processing capacity of 10320 tons and 504 frozen storage with a capacity of 138229.10 tons. In addition to this, there are 473 pre processing centers and 236 other storages. R & D in Food Processing Sector: Main Objectives in promotion of R&D work in Food Processing are to update processing, packing and storage technologies for all major processed food products so that they meet National/International Standards, standardization of various factors, development of processing technology and fortification of cereals/cereal products for enhancing the nutritional level of our population. Food Safety & Quality Standards : Quality is a key to success for any enterprise. Indian food processing industry needs to build up quality and ensure safety to adhere to acceptable national/global standards. R & D facilities and food quality lab network services need to be improved and upgraded as per requirement of GMP, ISO, HACCP and CODEX standards. Some of the government schemes that are under implementation to upgrade food quality/safety requirements are given below: Food Product Order (FPO) 1955 : FPO-1955, promulgated under section 3 of the Essential Commodities Act, 1955, provides for regulating sanitary and hygienic conditions in manufacture of fruit & vegetable products. Licensing under this Order lays down certain minimum requirements for (i) Sanitary and hygienic conditions of premises, surrounding and personnel; (ii) Water to be used for processing; (iii) Machinery and equipment; (iv) Products specifications. In addition maximum limits of preservatives, additives and contaminants have also been specified for various products. Meat Food Products order (MFPO) 1973: Processing of meat products is licensed under Meat Food Products Order, (MFPO), 1973. The MFPO, 1973, was promulgated under section 3 of the Essential Commodities Act, 1955 with an objective to regulate production and sale of meat food products through licensing of manufacturers, enforce sanitary and hygienic conditions prescribed for production of wholesome meat food product, exercise strict quality control at all stages of production of meat food products etc. Recently Govt. of India has introduced compulsory Quality Control on fish products & frozen meat/meat products by amending the Order vide S.O. 1545(E) dated 27.10.05 and has also formulated the guidelines for issue of license, renewal/cancellation of license, Inspection & Sampling procedure, Detention & Seizures etc. under the MFPO, 1973 and the same have been circulated to all the States. CODEX: Codex prescribes International Standards for safety and quality of food as well as codes of good manufacturing practice, guidelines to protect health of the consumers. These standards, guidelines and recommendations are recognized worldwide for international trade and negotiations and also for settlings of disputes by WTO. In India the Codex contact point is the Directorate General of Health services in the Ministry of Health & Family welfare.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Role of Government in Technology upgradation/R&D/Quality : During the Tenth Five Year Plan several schemes have been implemented by MOFPI to address the problem of technology upgradation, R&D as well as quality control in food processing Industry and Rs 39.11 crores have been spent during the period 2002-07. A review of the schemes is given in Box 3. Box 3: Scheme for Quality Assurance, Codex Standards and Research and Development
Scheme/ Component Setting Up/ Upgradation of Quality Control/ Food Testing Laboratory Codex Cell Salient Features Central/State Govt. organizations, IITs and Universities eligible for grant-in-aid limited to the entire cost of the capital equipments required for setting up/ modernization of laboratories. All other implementing agencies eligible for grant in aid limited to 33% of the cost of capital equipment required for setting up/up-gradation of such laboratories for general areas and 50% for difficult areas. To strengthen/setting up Codex cell in the Ministry as well as at the point of various stakeholders such as Central/ State Government Organizations, National Research Institutions and leading Agricultural Universities, IITs and Universities who can serve as centres of excellence around problem areas of Codex Standards are provided Grant-in-aid of 100% upto Rs. 10.00 lakhs in general areas and Rs. 15.00 lakhs in difficult areas. All other Implementing Agencies are eligible for grant-in-aid of 33% subject to a maximum of Rs. 10 lakhs for General Areas and 50% subject to a maximum of Rs. 15 lakhs for Difficult Areas. For implementation of Hazard Analysis and Critical Control Points (HACCP), ISO 9000, ISO14000, Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP) Central/State Government Organizations/ IITs and Universities are provided financial assistance to the extent of 50% of the total cost of the project in general areas and 75% in difficult areas. The ceilings are Rs.10.00 lakhs and Rs.15.00 lakhs respectively. Financial Assistance is in the form of grant-in-aid. To popularize the concept of bar coding system following National/ International standards and to encourage food processors to affix bar codes on their processed food packages, Central and State Government Organizations, IITs and Universities are eligible for grant-in-aid of 50% of the registration fees to be paid to EAN-India and 50% of the cost of capital equipment subject to a maximum of Rs. 3 lakhs. All other implementing agencies are eligible for grantin-aid of 50% of the registration fees to be paid to EAN-India and 33% of the cost of capital equipment subject to a maximum of Rs. 3 lakhs for General Areas and 50% subject to a maximum of Rs. 3 lakhs in Difficult Areas . Assistance in the form of grant-in-aid is provided to Central/ State Government Organizations/ IITs and Universities to the extent of 100% of the capital cost. For all other implementing agencies, the grant-in-aid is available up to 33% of the capital cost for general areas and 50% of the capital cost for difficult areas. Physica l Target 42 Physical Achievement 29
Total Quality Management
47
24
Bar Coding
53
Research and Development in Processed Food Sector Total
48
32
190
81
Source: Report of the Working Group on Food Processing Sector, Eleventh Five Year Plan National Productivity Council, New Delhi
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.4 Related and Supporting Industries The success of food processing sector depends on the availability of technology as well as strong backward and forward linkages. The food machinery forms an integral part of the foodprocessing sector. The market for food machinery is analysed from the online data collected from UNCTAD database. Table 4.5 and Table 4.6 show the export and import of food machinery in the world market. Table 4.5: Share in the world export of Food machinery (%) in 2003 Product Code (SITC) Countries with major share in world export (%) Food machinery, non- Iceland 0.717 domestic (727) Denmark 0.689 Barbados 0.589 Lebanon 0.442 Switzerland 0.435 Kenya 0.383 Italy 0.374 Source: Calculated from UNCTAD database India's Share (%)
0.052
The countries that have major share in the export of Food Machinery (SITC-727) are Ireland, Denmark, Barbados, Lebanon, Switzerland, Kenya and Italy. India has only 0.052 % share in the world export of food machinery (Table 3.3). The competitors of India in this market are countries like Swaziland, Nicaragua, Colombia, Jordan, Malaysia, Uganda, Hungary, Croatia, Rwanda, Cuba, Finland, Brazil and Taiwan (China). The major importers of Food machinery, non-domestic (SITC-727) are Sudan (1.37%), Greenland (1.42%), Swaziland (0.90 %) and Algeria (0.82%). Indias share in the world import of Food machinery, non-domestic (SITC-727) was 0.039% in 2003 (Table 3.4). In the import market of Food machinery, non-domestic (SITC-727) India competes with countries like Republic of Korea, Germany, Bhutan and Maldives.
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Table 4.6: Share in the world import of Food machinery (%) in 2003 Product Code Countries with major share (SITC) in world export (%) Food machinery, non- Sudan 1.369 domestic (727) Greenland 1.242 Swaziland 0.900 Algeria 0.816 Zambia 0.797 Mongolia 0.773 Source: Calculated from UNCTAD database India's Share (%)
0.039
Back ward Linkage/Contract Farming : The Ministry of Food Processing Industries is operating a scheme for strengthening of backward linkages through promotion of contract farming. Its objectives are to (i) ensure regular supply of raw material for the processor (ii) avoid incidences of distress sale and ensure remunerative prices to the farmers (iii) promote cultivation of processable variety of farm produce (iv) prevent wastage of surplus farm produce and increase its shelf life through processing and (v) commercialize agriculture through contract farming. Over the years, the scheme has been gradually liberalized and made more attractive. Financial assistance is given to the processor to the extent of 10% of the total purchase made by him from the contracted farmers in a given year subject to a maximum of Rs. 10.00 lakhs per year. So far 26 units and 39318 farmers have participated under contract farming. 4.5. Identification of Competitive Advantages & Disadvantages The existing socio-cultural habit and natural preference for homemade food is resulting in increasing the domestic demand for processed food at a very slow pace. However, with the opening of the economy, it has been realized that there is a global market for processed food. This is encouraging Indian firms to enter into the food-processing sector. However, the industry is still in a nascent stage and the competitiveness of the Indian food processing industry can be enhanced to a large extent through proper policy formulation that would tackle the disadvantages that the industry is presently facing. The competitive Advantage and Disadvantages of the Indian food processing industry that have been identified through factor analysis are listed in Box 4.
Box 4: Competitive Advantages & Disadvantages of the Indian Food Processing Sector
Competitive Advantages Strong Raw Material Base Changing age profile, Increase in income, Social changes (Increasing number of working women), Life style factors,
Competitive Disadvantages Inadequate Infrastructure Raw material supply and quality inconsistencies Cost of Raw material for Processing is high Wide fluctuations in prices of Indian food products Lack of trained manpower for various stages of processing, storage, and marketing Page No. 38
Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Increase in the number of organized retail outlets Lack of access to Credit High wastage Low productivity
Lack scale due to fragmented and small size of industry
Lack of access to modern technology and Poor packaging due to high costs and low innovation in packaging Certification & Phytosanitary requirements Lack of market intelligence and statistical data Low R&D Weak Linkage between industry & Research
Institution
The analysis has helped us to identify the inherent strengths and weakness of the Indian economy under which the Indian food-processing sector is operating. Though the strengths turn to be competitive advantage for the sector, the weaknesses/disadvantages need to be corrected through policy decision to make the sector competitive in the international market. 4.6 Value Chain Analysis of Food Processing Industry The value chain analyzes in a systematic way the sources of competitive advantage by disaggregating a firms strategic activities that are performed to design, produce, market, deliver, and support its products. All these activities can be represented using a value chain, shown in Fig 4. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors (Porter 1990). Thus, differences among competitor value chains are key sources of competitive advantage. Support Activities Firm Infrastructure Human Resource Management Technology Development Procurement
Margin
Primary Activities
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
Service
Fig 4: The Generic Value Chain
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.7 Value Activities of a Food Processing Firm For defining a value chain of the food processing Industry, its essential to identify value activities that are technologically and strategically distinct. Every value activity employs purchased inputs, human resources (labour and Management), and technology to perform its function. Thus, the value activities of a food processing Industry can be broadly divided into two types-Primary Activities and Support Activities. The primary activities in food processing industry could be further segregated into a number of distinct activities Inbound Logistics, which includes the activities associated with receiving, storing, and disseminating inputs to the food product, such as material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers. Operations, indicates the activities associated with transforming raw materials like (fruits, vegetables, milk, poultry or meat etc into the final processed food product, such as sorting/grading, testing, processing, packaging, assembly, equipment maintenance, printing, and facility operations. Outbound Logistics are activities associated with collecting, storing, and physically distributing the food product to buyers, such as finished goods warehousing, material handling, delivery vehicle operation, order processing, and scheduling. Marketing and Sales activities are associated with providing a means by which buyers can purchase the processed food product and inducing them to do so, such as advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing. Service activities provide assistance to enhance or maintain the value of the processed food product, such as installation, repair, training, parts supply, and product adjustment. In a food processing firm, all these categories of primary activities have a role to play in ensuring competitive advantage of the Industry. Support Activities: In addition to the primary activities there are certain Support value activities in food processing industry. Procurement refers to the function of purchasing inputs like raw material, consumable items, assets like machinery, laboratory equipment, office equipment etc used in the firm's value chain. Like all value activities, procurement employs a technology such as procedures for dealing with vendors, information systems etc and is spread through out a firm. For instance, raw material is purchased by purchasing department while plant managers procure machinery and equipment. Similarly, the strategic consultancy services hired by management come under this category.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Food processing firms need to have improved purchasing practices as procurement procedures may ultimately affect the cost and quality of purchased raw material (e.g., fruits, vegetables etc. For example, in chocolate manufacturing procurement of cocoa beans is the most important determinant of cost position. Technology Development. Every value activity embodies technology, be it know-how, procedures, or technology embodied in process equipment. Adaptation of latest technology in material handling, storage etc would serve as a competitive advantage for a food processing firm. Human Resource Management (HRM) involves activities like recruitment, training, and compensation of all types of personnel. In a value chain human resource management holds the key to competitive advantage as it supports both individual primary and support activities (e.g. hiring of engineers) and the entire value chain (e.g. labor negotiations). Human resource management affects competitive advantage in food processing firms, through its role in determining the skills and motivation of employees and the cost of hiring and training. 4.8 Value Chain of Food Processing Sector: To diagnose competitive advantage, it is necessary to define a firm's value chain for competing in a particular industry. Attempts have been made to disaggregate value activities depending on the economics of the activities and potential impact of differentiation, or proportion of cost. The value chain of various segment of the food Processing Sector is shown in Fig 4.1 to Fig 4.4 . In the value chain, activities are either combined or successively disaggregated to ensure competitive advantage of the Industry.
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Fig 4.1: Fruits & Vegetables Processing Value Chain
Fig 4.2: Fishery Value Chain
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Fig 4.3: Dairy Value Chain
Fig 4.4: Poultry/Meat Processing Value chain
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.9 Competitive Advantages in a Value Chain: Value chain is a system of interdependent value activities and linkages within the value chain are crucial in ensuring competitive advantage of a firm. For instance, the procurement process involving quality and cost of raw material, delivery time etc plays a crucial role in affecting the manufacturing cost as well as quality of final processed food products. Information systems are often vital to gaining competitive advantages from linkages. Thus, effective management of linkages is a more complex organizational task than managing value activities themselves. The Suppliers Value Chain: Linkages exist not only within a firm's value chain but between a firm's chain and the value chains of suppliers and channels. The linkages between suppliers' value chains and a firm's value chain provide opportunities for the firm to enhance its competitive advantage. It is often possible to benefit both the firm and suppliers by influencing the configuration of suppliers' value chains to jointly optimize the performance of activities, or by improving coordination between a firm's and suppliers' chains. Supplier linkages mean that the relationship with suppliers is not a zero sum game in which one gains only at the expense of the other, but a relationship in which both can gain. By agreeing to deliver bulk chocolate to a confectionery producer in tank cars instead of solid bars, for example, an industrial chocolate firm saves the cost of molding and packaging while the confectionery manufacturer lowers the cost of inbound handling and melting. The division of the benefits of coordinating or optimizing linkages between a firm and its suppliers is a function of suppliers' bargaining power and is reflected in suppliers' margins. Supplier bargaining power is partly structural and partly a function of a firm's purchasing practices. Thus both coordination with suppliers and hard bargaining to capture the spoils are important to competitive advantage. One without the other results in missed opportunities (Porter, 1998). The Buyer's Value Chain: A firm's differentiation stems from how its value chain relates to its buyer's chain. This is a function of the way a firm's physical product is used in the particular buyer activity in which it is consumed (e.g. a machine used in the assembly process) as well as all the other points of contact between a firm's value chain and the buyer's chain. According to Porter (1998) many of a firm's activities interact with some buyer activities and each contact point is a potential source of differentiation. "Quality" is too narrow a view of what makes a firm unique, because it focuses attention on the product rather than the broader array of value activities that impact the buyer. Differentiation, then, derives fundamentally from creating value for the buyer through a firm's impact on the buyer's value chain. Value is created when a firm creates competitive advantage for its buyer - lowers its buyer's cost or raises its buyer's performance. The value created for the buyer must be perceived by the buyer if it is to be rewarded with a premium price, however, which means that firms must communicate their value to buyers through such means as advertising and the sales force. How this value is divided between the firm (a premium price) and the buyer (higher profits or more satisfaction for the money) is reflected in a firm's margin, and is a function of industry structure.
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To conclude, a food processing firm which judiciously identifies its value activities and take benefit of both supplier and buyer value chains would surely have competitive advantage over its rival firms.
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CHAPTER V FIELD SURVEY FINDINGS

5.1 Introduction National Productivity Council conducted a field survey in different regions of the country during March-April 2008, to understand the factors that are affecting the productivity and competitiveness of Indian Food Processing Sector. The food processing units have been selected from all major the sub sectors (viz., Vegetable & Fruit processing, Grain Processing, Meat/Poultry and Fisheries) based on their concentration in a particular region. The survey was carried out across 12 Indian states namely, Andhra Pradesh, Delhi & NCR, Gujarat, Himachal Pradesh, Maharashtra, Karnataka, Kerala, Rajasthan, Punjab, Tamil Nadu, Uttar Pradesh, and West Bengal. These food-processing units were personally interviewed based on structured questionnaires (Annexure 3). A detailed analysis of the responses received from 77 food-processing units located across various regions of the country (Table 5.1) has been undertaken in this section. The responses against each question have been analyzed with a view to identify the factors hindering the productivity and competitiveness of Indian food Processing Sector and their responses are summarized in the following tables.
Table 5.1: State wise distribution of respondents from Food Processing Firms
State Andhra Pradesh Delhi & NCR Gujarat Himachal Pradesh Maharashtra Karnataka Kerala Rajasthan Punjab Uttar Pradesh Tamil Nadu West Bengal Total
Source: NPC Field survey March- April 2008
Respondent Number % 2 2.6 11 14.3 2 2.6 14 18.2 5 6.5 2 2.6 4 5.2 12 15.6 11 14.3 5 6.5 6 7.8 3 3.9 77 100.0
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5.2 General Profile of Respondents The total number of respondents in the survey was 77 and these units exhibited wide variations under different categorisation. A majority of the respondents (59.5%) belonged to Small Scale Sector followed by registered manufacturing (23%) (table 5.2). It is encouraging to note that 84.5% of the respondents are indigenous manufacturers of processed food without any foreign direct investment.
Table 5.2: Profile of Food Processing Firms/Units Surveyed Total Number of Respondent (77) Criteria Sub Criteria Nature Small Scale Sector Informal Sector Informal Small Scale Sector Registered Manufacturing Other Primary Business Manufacturing Trading Company Manufacturing & Trading MNC Other Category Small Medium Large Other Quality Accreditation Yes Engaged in Export Yes National Productivity Council, New Delhi Respondent (%) 59.5 2.7 1.4 23.0 13.5 84.7 4.2 8.4 1.4 1.4 60.3 23.3 15.1 1 57.1 39.7
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Engaged in Import Extent of ICT in firms operation/production Yes Not applicable 0-5% Above 50% Others Not Applicable 0-5% 10-25% 25-50% No Foreign Ownership Ownership of Foreign Partner < 50% No acquisition 31.7 58.6 13.6 17.2 10.2 84.5 5.2 1.7 8.6 88.5 11.5 81.6
Extent of FDI in your Firm
Extent of Foreign Ownership in your Firm Acquisition of your firm in other country Performance in last five years Conducted/Commissioned R & D Yes Introduce Product Innovation Yes Product Patented Yes Source: NPC Field survey March- April 2008
46.2 37.9 26.2
(Table 5.2) shows that the percentage of respondents involved in trade is moderate (i.e., export 39.7% and import 31.7%). Among the respondents 57.1% have various quality accreditation like Agmark, HACCP, ISO 9000 etc. Though 46.2% of the respondents are involved in R & D, only 37.9% have introduced products innovation and the percentage of respondents with patent is still less (26.2%). Further the use of ICT in the production process is also minimal. For instance, 58.6% of the units do not use ICT in firms operation/production. 5.3 Productivity and Competitiveness The response of the food processors on productivity and competitiveness is excellent. It is encouraging to note from the analysis (table 5.3) that 85.1% of the units reported an increase in cost competitiveness while price competitiveness of processed food has improved in case of 97.1% of respondents. This has resulted in increasing the overall competitiveness of food products for 95.5 % of the respondents. Table 5.3: Productivity & Competitiveness of the Food Processing Responses (%) Response
Total Factor Labour Competitivenes Productivity Productivity s Cost Competitiveness Price Competitiveness
67.7 64.5 Increase 6.5 8.1 Decrease 25.8 27.4 No Change Source: NPC Field survey March- April 2008
95.5 1.5 3.0
85.1 11.9 3.0
97.1 1.5 --
Total productivity has increased in case of 67.7% of processing units and around 85% of the respondents reported that labour productivity of their units increased upto 10% during last five years. Of course, exceptionally good performance is noticed in case of 2% of the
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector respondent who reported to have more than 25% increase in total factor productivity of their units.
Table 5.4 Extent of Increase in Productivity 1-5% Respondent (No.) Total Factor Productivity Labour Productivity 5-10% 10-25% 25% & Above
45 42
44.4 45.2
1-10%
42.2 45.2
10-25%
11.1 9.6
25-50%
2.2 0
50 % & Above
Extent of Increase in competitiveness Respondent (No.) Cost Competitiveness Price Competitiveness
60 62
60.0 69.4
31.7 21.0
6.7 8.1
1.7 1.6
Further, labour productivity has also increased for majority (64.5%) of food processoing. It is encouraging to note that around 10% of the respondent units have experienced 10-25% increase in labour productivity during last five years. 5.4 Employment Trend The analysis of survey results in table 5.5 indicates that 95.7% of respondents have reported growth in salary where as employment has grown in 56.9% of food processing units. The food-processing sector is witnessing an increase in casualisation of labour and the fact has been acknowledged by almost 40% of units. Table 5.5: Employment Trends in the Food Processing Units
Respondent (%) Response Increase Decrease No Change Dont Know Growth in Employment Casualisation of Labour Growth in Salary in last five years in last five years (2000-2008)
56.9 12.5 29.2 1.4
39.7 15.9 33.3 11.1
95.7 1.4 2.9 0
Extent of Increase Respondent (No.) Employment Salary 1-5% 5-10% 10-25% 25% & Above
31 66
40.9 27.3
31.8 33.3
11.4 27.3
15.9 12.1
The analysis of survey data shows that employment increase was to the extent of 1-5% for 40.9% of firms, another 31.8% of firms had 5-10% increase in employment during the last five years. The variation in the extent to which salary has increased differed among the
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector respondents. Only 12.1% of the respondents reported to have more than 25% hike in salary in last five years. 5.5 Market Trend During the last 7-8 years profitability has increased in case of 82.8% of respondents (table 5.6) and percentage of firms reporting decline in profitability has come down from 11.8% during 1991-2000 to 7.8% after 2000. Analysis of market clearly indicates that there is a growing demand for processed food in both domestic as well as export market. Most of units (91.3%) witnessed a growth in the domestic demand and it has grown in the range of 5-10% for 31.3% of firms. Table 5.6: Market Trend of Processed Food (Last Five Years) Respondent (%) Response
Increase Decrease No Change Growth in Growth in Export Domestic Demand Profitability (PAT) (1991-2000) Profitability (PAT) (After 2000)
77.8 3.7 18.5
91.3 5.8 2.9

1-5% 5-10%
82.4 11.8 5.9
82.8 7.8 9.4
Extent of Increase in Demand Respondent (no.) Export Market 21 Domestic Market
10-25% 25% & Above
19.0 25.0
66.7 31.3
9.5 23.4
4.8 20.3
64
Further, it is encouraging to note that export market growth is reported by 77.8% of respondents. Further, export increased by 5-10% in case of majority of the firms (66.7 %) who reported an increase in export of their processed food products 5.6 Analysis of Export and Import The competitiveness of Indian processed food products can be assessed from trade information on of raw material and finished goods. Table 5.7 shows that export is more than 75% of total sales in case of 46.2% of the respondents. Some of the units reporting high export of processed goods are actually EOUs where as in other firms export is less than 25% of Total sales. Table 5.7 shows that the extent of import of raw material is only 1-10% in majority of firms (57%) who reported raw material import for production of processed goods. However, import of finished good is reported by only 8 firms that to the extent of just (110%) and these imported processed food constitute only 1-10% of total sales for most of them.
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Table 5.7: Extent of Trade of Raw material and Finished Products Respondent (%) Respondent (No.) 1-10% Export to Total Sales Import of Raw Material Import of Finished Products Range 10-25% 25-50%
50-75% 75% &

Above
26 14 8 8
23.1 57.1 100 62.5
30.8 28.6
0 14.3
0 0
46.2 0
Import to Total Sales 5.7 Factors affecting Export
25
12.5
Non-trade barriers have been cited by 28% of the respondents as a major factor hindering export of processed food products (table 5.8). Further, 15-20% of the respondents felt that export taxes, certification and inspection fee are deterring food processors from exporting. In addition to this, the respondents cited some other export hindering factors like Heavy freight, glass bottle breakage, long time in shipment, lack in identifying market. Table 5.8: Factors Hindering Export of Processed Food
Factor
Respondent (%) 22 3 17 14 11 3 28 3
Export Taxes Export Quantitative Restrictions Certification Inspection Fee State Trading Administration Dual Pricing Scheme Non Trade Barriers Any Other*
*Reason cited: Heavy freight, glass bottle breakage, long time in shipment, lack in identifying market
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Factors Hindering Export of Processed Food
5.8 Analysis of Cost of Production Analysis of survey responses show that raw material is generally available in the country and almost 40% of the units get it within the state or region of operation. Imported raw material is used only by about 3% of the units. However, in the last five years, the share of raw material expense in total cost of production has increased in case of 92.34% of the processing units (table 5.9). As a result the contribution of raw material expense in the total cost of production has also become significant in the units. The analysis reveals that majority of the respondents (73.5%), the raw material expense is more than 25% of total cost of production (table 5.9). Table 5.9: Components Share in the Total Cost of Production during Last Five Years Respondent (%)
Response Increase Decrease No Change Wages & Salaries Raw Material Interest Taxes
83.9 4.8 11.3
92.34 1.5 6.2
59.7 8.1 32.3
81.0 11.1 7.9
Most of the food-processing units (83.9%) experienced an increase in the share of wages & salaries in the total cost of production. However, wages & salaries contribute only 1-10% in total cost of production in almost 60% of processing units (table 5.10). Similarly, fuel & energy have only 1-10% share in total production cost for around 62% of the respondents.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 5.10: Analysis of Cost Components in Food Processing Units(Current)
Respondent (%)
Contribution to Total Production Cost Wages & Salaries Raw Material Fuel & Energy Interest Taxes
1-10% 58.2 13.2 61.8 74.6 48.4
10-25% 35.8 13.2 30.9 23.8 45.2
25-50% 6.0 33.8 7.4 1.6 6.5
50-75% 0 39.7 0 0 0
5.9 Factors Affecting Productivity and Competitiveness The factors hindering productivity and competitiveness of Indian food processing sector is arrived at after a detailed analysis of responses from surveyed questionnaire and discussion held with food producers. The hindrances may be related to different factors of production like labour, machinery, raw material etc or originate from the countrys economic/business environment under which the food processing units are operating. These hindrances/competitive disadvantage of the food processing sector are listed in table 5.11. Respondents are happy with present educational system but feel that though the quality of human resource is generally increasing yet they are not suited for the food industry. As a result there is acute shortage of manpower. Attrition rate is also very high due to low salary structure as compared to services and other manufacturing units. It is to be noted that 71% of the respondents are not satisfied with the quality of infrastructure. Inadequate physical infrastructure like rural road connectivity, port, transport system etc and special infrastructure like food parks, cold chains etc are resulting into high transportation cost and wastages of raw material. More than 60% of the respondents are happy with governments interface with business or private sector and feel that government is more investor friendly. However, almost 56% of the units reported that the system is not transparent. Further, efficiency of the government departments needs to be improved. The time required for processing files also needs to be faster and introduction of single window clearance system would help to enhance productivity and competitiveness of the sector.
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Table 5.11: Survey Results on Factors Affecting Productivity & Competitiveness of Food Processors
Factor Labour Related Problem Shortage of Skilled Manpower
Remark
Non Availability of Trained Manpower Dearth of technical manpower due to retirements Untrained staff in the line Non filling of staff Lack of competence Lack of Expert training (food techniques) Not Lucrative for Young Work Force Delay in-built in recruitment procedures Cheap White Color Jobs Preferred Salary not Competitive with other manufacturing Sectors Social Security Incentive Schemes Lack of facilities like rest room, toilets, catering etc Excess labour (when there is delay in procurement of Raw material) Lethargy /Chalta hai attitude Adaptability to New Machinery / Technology Introduction of ICT Inefficient, High Maintenance Cost High cost Agriculture is dependent on Nature (Monsoon) Raw materials procurement (Seasonal & affected by natural calamities) Use of Pesticides during Cultivation Weak Supply Chain Network Quality not Assured (Not Fresh and Homogeneous) Adulteration (Milk) Healthy Livestock Upward Trend Very high (electricity & water), Wages & Salaries High (Special Vehicles Required) Continued-------------------------
Ageing of workers in the factory Contractualisation of labour and job High rate of Attrition (workers /employees) Lack of HR Policy Work Environment Non-availability of work (sufficient) to labour Attitude of Labour Automation Computerization Outdated Technology Imported machines Non availability of raw material
Machinery
Input/ Raw Material
Cost of Raw Material Cost of input Cost of Transportation
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Factor Problem Infrastructure Power Physical infrastructure Insufficient Processing Facilities Space & layout problem Transport System Distribution Network Inefficient Logistic Management System Taxes Attitude towards entrepreneurs/businesses houses Late in decision making Lack of information about Govt. policies on the web-sites. Finance Chance Others Rupee-dollar conversion ratio Inflation Quality Standards R & D, Innovation Unorganized Sector Competition Best practices Insufficient Market Knowledge
Remark
Irregular Supply/interruptions Road, Airports, Ports, Power Warehouse, Cold storage High Realty Price Lack of Waste Management System Long time in shipment Not well developed Breakage of Glass Bottles during Material Handling High Inter state difference in sales tax Slow in processing of files & clearing licenses Announcing support policies/prices Lack of Information Dissemination Policy decision not reaching Food Processors Immediately/ Difficulties in capital mobilization for expansion Low Export Earnings Is raising the cost of Raw material Lack of awareness about Implementation process/procedures Not Sufficient Capturing Domestic Market Mainly from MNCs No one would like to share Lack in identifying market
Governance/ Policy Related
5.10 Measures taken by Food Processors to enhance Productivity & Competitiveness In spite of all the existing hindrances, majority of the food processing units have reported an increase in both total factor productivity and labour productivity. This is mainly due to various initiatives (Table 5.12) taken by food processing units at firm level to enhance the competitiveness of their products.
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Table 5.12: Measures Taken by Firms/Units to Enhance Productivity and Competitiveness Criteria Productivity Yes Steps Taken Competitiveness Man power training/Multi skill Automation Technology Up gradation/ Replacement of Old Machines Preventive Maintenance Reducing Waste Reduce insufficient router Smoothen supply chain Enhancement Measure Initiated Respondent (%): 56
Steps Taken Increased suppliers of raw materials Better quality of product Own Transport Arrangement Efficient utilization of inward/outward transportation Price control/Uniformity in Price (e.g., Milk) Increasing product range, Introduced new flavors Information on Content/Ingredients Better service to consumer Exchange channels of marketing Focus on sales and marketing, Advertisement, promotional scheme
5.11 Expectation of Indian Food Processors from Government Though these firm level initiatives have gone a long way in improving the productivity of the processing units, yet not sufficient to make the Indian processed food products competitive in the international market. Thus, the processing units expect certain policy intervention or support from the government (table 5.13) to make Indian processed food globally competitive.
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Table 5.13: Expectation of Indian Food Processors from Government (Policy makers) Required Policy Intervention Training Centers for development of skilled Manpower Modification in labour laws, making it more flexible Food Parks or SEZ/ Industrial cluster for food processing sector Physical Infrastructure: Road, Airport & Cold Storage etc. Policy on power generation like subsidy on captive power plants & ensure uninterrupted power Supply ESI clinics or primary health centres in industrial area Efficiency /Transparency of Govt. Departments, Simplification of Procedures Single window clearance for setting up of new plant/factory General Dissemination of policy decisions and laws Simplification of Food laws & transparency in Government Quality testing facilities needs to be improved and the time required to issue Quality certificates has to be reduced Transport subsidy Availability of Finance at lower rate Uniformity of Tax across States Commodity Trading should not be encouraged Control Input prices (raw material & fuel) Special funding for R & D (manpower and setting up of laboratory) Transport subsidy Market feasibility studies on import of raw material and export of Sector Vegetable various food products Specific & Fruits SSI should be given financial support and tax rebates Remove Octroi and APMC for agricultural raw materials Required Policy Intervention Announce open sale of food grains esp. wheat by FCI during lean Sector Grain Specific Processing seasons & Remove food grain from Essential Commodities Act. Consumer For Biscuits, Cakes & Rusks (Relief from high VAT & Excise Duty Foods (VAT 12.5% and 8% Excise), VAT should be 4% instead of 12.5% No octroi should be levied Raw Material price should be controlled Procedures regarding refund on VAT should be simplified
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Dairy
Sector Specific
Meat/ Poultry
Loan facility for up gradation of Technology Relaxation of Import Duty on Milk cooling Machines (BMC) Transparency in govt. depts. and improvement in testing facility Subsidy on Animal health care medicines /items Availability of funds in times CODEX Alimentarius Meeting WTO Requirements are essential Subsidy to exporter for inland transportation (Australia & New Zealand provide subsidy to meat exporter) Insurance cover for transportation by sea Measure to check rupee devaluation Compensate EOU against inflation & Rupee rise
The combined effect of Food processors endeavor and government support would surely boost the productivity and competitiveness of the Indian food-processing sector. 5.12 Prospects of Indian Food Processing Industry The Food-processing sector is not able to reap the benefits of Indias inherent strength of high raw material production and large domestic market base due to the existence of a number of challenges that were noted during the field survey after thorough discussion with various food processors and key members of industry associations. The major challenges that require immediate attention of the policy makers are listed in this section. The major challenge for the industry is shortage of skilled/quality manpower. The number of institute imparting specialized training that is suitable for the sector is also not adequate. The problem is getting aggravated as many a time the curriculum of these institutes fail to cater to the real need of the industry due to weak instituteindustry linkage. Lack of physical infrastructure both like access to road (rural connectivity), poor and irregular power supply is hampering the productivity of the sector. Lack of Special infrastructure for the food-processing sector like warehouses and cold storages as well as transport facility/vehicles result in spoiling the raw materials at the place of production itself. Lack of quality testing laboratories. Also, the cost odf accessing the existing laboratories is quite high for the small players. The small-scale and unorganized sectors account for 75% of the total food processing industry. These firms like any other SMEs are facing the common problems of low productivity, lack of access to technology, credit and market. The unorganized nature of the sector is further hampering the productivity and competitiveness of the food processing sector. Arriving at a competitive price for quality food products is a real challenge for the food processing industry due to high transportation cost and wastage of raw materials. Nature (e.g., monsoon, flood, or drought) plays a critical role in determining supply of raw material to the industry. Further, the existence of weak supply chain network
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector between raw material supplier and processing units adds to owes of the processors in adhering to the time schedule while supplying food products to international markets. Maintaining quality/standard of food products for the international market is a challenge as raw materials are seasonal (e.g., fruits and vegetables) and heterogeneous (for example, size, age & weight of livestock, marine products etc) in nature. Further, use of chemicals/drugs (e.g., pesticides in agriculture and growth hormone in livestock breeding) is a matter of concern for the food processing units targeting international markets. Inefficient and unreliable marketing/distributional networks are failing to promote Indian brands in the international markets. Thus, even in cases of Indian food processors that are using world-class production measures and maintaining quality of food products specific to export market, it is often viewed as an unpredictable and unreliable source of food and agro products. Dissemination of knowledge is very poor across various operational structure of the food-processing sector. Information of government website are also not updated at regular intervals and important policy decision are also not properly circulated through mass media. Moreover food processing norms of various countries are not adequately transparent and they keep on adding new norms and new certification requirements every year. Market research studies on availability of raw material as well as potential market for processed food products are not available in public domain for new entrants/small players. Of course, major players carry out market study either in-house or by engaging market analysts before launching a new product or entering a new market. Industries fail to apply R&D results for the development of the food industry as they mostly remain confined within the walls of the research laboratory due to lack of University-Industry linkage. Investment by big Private/Corporate houses is negligible in the food-processing sector mainly due to lack of policy on contract farming. Further, the APMC Acts is also deterring the private sector investment. Lack of uniformity in taxes among various Indian States is hampering the competitiveness of processed food products in both domestic and international market. Food machinery is generally imported at very high cost. The locally manufactured food processing equipment, plant and machinery are also not cheap due to high Central Excise Tax. Indian farmers as well as entrepreneurs are facing stiff competition in the world market under the WTO agreements that are relaxing quantitative restrictions and nontariff/sanitary barriers on importing countries. The food processing sector is also confronted by challenges of trade related Intellectual Property Rights, comprising of patent laws, copyrights, trade links, etc. In addition to this advances in biotechnology have enabled production of Genetically Modified (GM) foods. The prevailing economic scenario in the country like high inflation and rupee devaluation coupled with global economic slow down is threatening the growth and competitiveness of the food-processing sector in both domestic and international market.

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CHAPTER VI RECOMMENDATIONS
The analysis of Indian Food Processing Sector has revealed major factors that are hindering productivity and competitiveness of the sector. In addition to the initiatives taken by individual food processing units to improve their productivity and competitiveness of processed food, certain policy interventions are required to make Indian processed food globally competitive. Therefore, to tackle these hindrances, and enhance the productivity and competitiveness of the food-processing sector the following recommendations are proposed. Training & Skill Development Food Processing Sector in India faces acute shortage of skilled and quality manpower. The sector requires trained manpower (viz. entrepreneurs, managers, technologists, skilled workers) for continuous technology upgradation & diversification, marketing of food products and management of quality control systems. Workers/ supervisors are generally unaware of various food safety and quality requirements and lack competency or knowledge on Food processing/ packaging techniques. Though the Ministry of Food Processing is implementations a few assistance schemes for skill upgradation and training of workers, a lot more need to be done in this respect. There is an urgent need to have an apex organization responsible for skill development and training in this sector. Specialized Training Centers/cells catering to the needs of the food processing industry may be created in the existing Technical as well as Management Institutes under both State and Central Government. Private Engineering /Management Institutes may also be encouraged to conduct courses on food processing & packaging techniques as well as marketing of food products. Inplant training need to be made compulsory as a part of course curriculum. Infrastructure Development There is a need to improve physical infrastructure like access to road (rural connectivity), power supply etc.; as poor and irregular power supply is seriously hampering the productivity and competitiveness of this sector. Lack of special infrastructure for the food-processing sector like warehouses and cold storages as well as specialized transport facility/vehicles result in spoilage of perishable raw materials. Priority should be given for construction of rural roads connecting villages to markets for strengthening the linkage between raw material supplier and Processing Units. The Logistic/transport system may be developed on Public Private Partnership. Processing units need to be given special assistance for building captive power plants and for use of non-conventional energy sources. To encourage investment in cold chain infrastructure, government may consider providing tax holiday for 5 years for construction of modern automated warehouses and cold chains. Similar incentives may be considered for construction of food parks, Warehouses, Integrated cold chains, Modernized Abattoir etc, under public-private partnership. Government may consider development of logistics SEZs/logistics hubs/logistics parks with concessions in tax and land rates. Ministry of Power, Power Grid Corporation of India, NTPC, NHPC, State Electricity
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Boards, etc. can ensure uninterrupted power supply which is a necessary prerequisite for the mechanical operation of any manufacturing firm. Ministry of Surface Transport, Ministry of Rural Development and State governments can construct Rural Roads connecting villages to markets for strengthening the linkages between raw material supplier and the processing units. Since Development of Cold Chain is an important factor for the growth of the sector and efficient supply chain management, special attention needs to be given towards construction of food parks, warehouses, Cold Storage, Integrated Cold chains, Modernized Abattoir etc. The initiative may be undertaken by Ministry of Food processing Industry along with Ministry of Commerce & Industry. Review of Labour Laws Small scale and unorganized food processing units generally employ semiskilled and unskilled rural workers on contract basis. Their salary structure is not competitive with other manufacturing sectors and subsequently there is high attrition rate especially during peak season. To create better and favorable work environment in these units, there is need to review and simplify age old labour laws keeping in focus the needs of the food processing sector. Ministry of Labour and Ministry of Food Processing Industries can work out special labour laws keeping in mind the special requirement of Food Processing Industry considering the perishable nature of the raw material and Phyto Sanitary aspects of the products Research & Development & Technology Up gradation R&D especially in key areas like product development, packaging, and food technology needs to be strengthened. Government should focus on sponsored research and provide special research grants to leading Agricultural Research Institutes/Universities and Technical Institutes like IITs. Doctoral/Post doctoral research in the food processing areas should be industry oriented and the linkages between Government Agencies, Universities, as well as Industry and other stakeholders like Cooperatives, NGOs and farmer organizations/ associations needs to be strengthened. This will help not only in disseminating knowledge on existing policy and technology but will also help in integrating strategic changes to tackle problems while evolving new policy. Number of quality testing laboratories should be increased and they should be distributed evenly throughout the nation so that there access becomes easier for the producers residing even in rural areas. These laboratories should be provided with necessary infrastructure, upgraded machineries and trained staffs. The small-scale and unorganized sectors account for 75% of the total food processing industry. These firms like any other SMEs are facing the common problems of low productivity, lack of access to technology, credit and market. This is hampering the productivity and competitiveness of the sector. Government needs to promote Technology Up gradation in these unorganized units through local level associations. Incentives in terms of financial assistance for procurement of Machinery, Credit at special rates, technical advice on
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector productivity improvement and selection of equipment & machinery may be provided to units to enhance the productivity and competitiveness of food processing industry. Financing Schemes for Technology up gradation need to be further strengthened. Depending on the performance and repaying capacity of existing food processors, special loans may be granted for technology up gradation, infrastructure building or expansion of business. Special Financing Schemes need to be formulated for encouraging the budding entrepreneurs/new entrants in the food processing sector. Priority should be given to develop Indigenous Technology to reduce the dependence on imported machinery. Central Excise Tax may be reduced from 16% on locally manufactured Food processing equipment, plant and machinery etc. Implementation of Quality Standards/ Certification Maintaining quality/standard of food products for the international market is a challenge as raw materials are seasonal (e.g., fruits and vegetables) and heterogeneous (for example, size, age & weight of livestock, marine products etc) in nature. Further, use of chemicals/drugs (e.g., pesticides in agriculture and growth hormone in livestock breeding) is a matter of concern for the food processing units targeting international markets. Awareness on quality standards needs to be created through seminars, newsletters and training programmes. Food Processing units should be encouraged to implement Standards such as ISO, HACCP etc. Training in GMP, GHP, HACCP may be imparted to industry personnel. Special Cells at regional/state level needs to be created that would work as facilitating centers for implementation of standards and getting certification The government should ensure the availability of relevant processing and packing requirements of the various countries where our food products are being exported. Quality Council of India and National Productivity Council can help the manufacturing units to acquire the quality accreditations . Cost & Availability of Raw Material Availability of quality raw material at cheaper rates are important for ensuring competitiveness of the food processing sector. In Indian conditions monsoon plays a critical role in determining supply of raw material to the industry. The cost of raw material is also high due to higher transportation costs and wastage of raw materials during transportation. There is multiplicity of taxes at different stages of procurement, transportation and processing which further adds to the cost of raw materials and products. Government should promote reliable and strong supply chain network between raw material suppliers and processing units on PPP basis. Government may also facilitate formation of transport cooperatives to get rid of industry fragmentation and to ensure benefits of economies of scale. Cheap capital may be made available to service providers for investments in
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector infrastructure, enabling them to extend longer credit periods to their clients and supplementing their working capital. There is an immediate need to introduce uniform tax rates in all states avoiding multiplicity of taxes at different stages. Systems and procedures may be simplified. The need for documentation/paperwork at multiple checks posts and in different states, customs formalities, needs to be reduced as far as possible. The provisions of the APMC Act may be reviewed to facilitate direct contacts between the farmers and the processors. Though states have approved amendments to APMC Act, the rules are yet to be notified. Rules and regulations are to yet to be formulated for implementation across the states.
Promotion of Food Processing Units in North East India North Eastern states are quite backward in terms of processing of food items. There is a need to motivate the entrepreneurs to establish food processing units in the state. These states are having abundant supply of fruits and vegetables. There is a need to develop local products such as Pickles etc., which has local acceptability. Traditional Food Cooperatives and Self Help Groups can be motivated to take up the promotion of traditional foods. Research institutions like ICAR, CSIR etc., that are located at North Eastern states may be entrusted with the responsibility of developing small model processing units. This will not only ensure skill development in the area but also the use of local produce and help improving the standard of living of the people. Marketing of Products in Export market There is limited market intelligence available with respect to raw material as well as potential market for processed food products. Major players do carry out market studies either in-house or by engaging market analysts before launching a new product or entering a new market, but the information is not available to small players. A continuous market research or watch mechanism needs to be developed to enhance the product competitiveness of these processers. Incentives needs to given to the existing unorganized processing units to get them under a common umbrella (formalize) so that industry wise research studies could undertaken up. A separate study may be commissioned to develop a baseline report on the extent and nature of the unorganized food processing sector. Inefficient and unreliable marketing/distribution networks are failing to promote Indian brands in the international markets. Even in case of Indian food processors that are using world-class production processes and maintain high quality, it is often viewed as an unpredictable and unreliable source of food and agro products. Immediate steps are needed towards Brand building of Indian food products. Supply chain and distribution channels should be strengthened and Indian food standards be reviewed and aligned with the international standards like Codex to the extent possible. Government and the Export
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector promotion councils should embark on promotional campaign to promote high value added Made in India food products in developed markets. Ministry of Commerce & industry along with Industry associations can promote brand Building strategies in Line with Incredible India, Made in India etc.
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REFERENCES
Annual Report (2007-08), Ministry of Food Processing Industry, Government of India Annual Survey of Industries, Central Statistical Organisation, Government of India Awasthi Dinesh, Raman Jaggi and V Padmanand (2006) A Manual for Entrepreneurs: Food Processing Industry Tata McGraw-Hill Publishing Company Limited, New Delhi CMIE (1998), Industry Market Size & Share, July CMIE (2009), Industry Market Size & Share, April Economic Survey (2006-07, 2007-08 and 2008-09), Government of India Food Processing, India, Davos 25-29, India Brand Equity Foundation, www.ibef.org Porter, Michael (1990), Competitive Advantages of Nations Report of the Task Force on performance of cold chain in India,Department of Agriculture and Co-operation, Government of India, 2008. Report of the Working Group on Food Processing Sector, Eleventh Five Year Plan , Ministry of Food Processing Industries, Government of India, November, 2006 Strategy and Action Plan for Food Processing Industries in India (Volume II) Sponsored by Ministry of Food Processing Industries, Government of India, April 2005 Vision, Strategy and Action Plan for Food Processing Industries in India (Volume I) Prepared by Rabo India Finance Pvt. Ltd for Ministry of Food Processing Industries Government of India April 2005 www.unctad.org/statistics/handbook http://www.intracen.org/
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Annexure- 1
Trade Performance Index (Processed food): India (2006)
Indicator's description Number of exporting countries for the N ranking in the sector General G1 Value of exports (in thousand US$) profile G2 Export growth in value, p.a. (%) G3 Share in national exports (%) G4 Share in national imports (%) G5 Relative trade balance (%) G6 Relative unit value (world average = 1) P1 Net exports (in thousand US$) P2 Per capita exports US$/inhabitant) Position in P3 Share in world market (%) 2006 for Product diversification (No of current P4a equivalent products) index P4b Product concentration (Spread) Market diversification (No of P5a equivalent markets) P5b Market concentration (Spread) Relative change of world market share C1 p.a (%) C1a Competitiveness effect, p.a. (%) Initial geographic specialisation, p.a. Change 2002 C1b (%) - 2006 for Initial product specialisation, p.a. (%) change index C1c C1d Adaptation effect, p.a. (%) Matching with dynamics of world C2 demand Absolute change of world market share Other A (% points p.a) indicators P Average Index: Current Index C Average Index: Change Index For further information visit website http://www.intracen.org/ Value 159 3,627,165 25% 2% 1% 13% 1.5 807,238 3.3 0.89% 10 26 Rank
20 131 25 65 40
20
4 4
0.1052% 0.0428% 0.0161% 0.0472% -0.0009% 39 42 14 71 97 0.0614% 10 27 60
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Annexure-2
Survey Questionnaire: Company/Manufacturing Unit National Productivity Council is carrying out a Nation wide survey across four Manufacturing Sectors (Food Processing, Textile & Clothing, Leather & Leather Products and Electronics & IT hardware) on behalf of National Manufacturing Competitiveness Council (NMCC), DIPP, Ministry of Commerce and Industry, GoI. The objective of this stakeholder survey is to identify and understand major constraints that are hindering the growth of manufacturing sector in the path of productivity growth and export competitiveness and to suggest Sector Specific recommendations to NMCC with a view to enhance sectoral/manufacturing productivity and export competitiveness. (Please fill as per instructions given with each question. Write codes/ values in the box provided at the right hand side) 1.0 2.0 Sector (1= Food Processing, 2 = Textile & Clothing, 3 = Leather & Leather Products, 4 = Electronics & IT Hardware) State (1 = AP, 2 = Delhi & NCR, 3= Gujarat, 4 = Himachal Pradesh, 5=Maharashtra, 6=Karnataka, 7 = Kerala, 8 = North East, 9 = Rajasthan, 10 = Punjab, 11 = Tamil Nadu, 12 = UP, 13= West Bengal) Location (1= Industry Centre, 2 = Cluster, 3 = EPZ, 4 = SEZ, 5=Others Factory/Unit/Organisation specific information Company Name & Address:
3.0
4.0
website if any:---------------------------------------------------------------Contact Persons Name--------------------------------------------------------------Telephone if any: e-mail address if any: Year of Establishment What is the Primary Business of your company ? (1=Manufacturing, 2=Trading Company, 3= Multinational company, 4=Others, _______________________________________________ What is the nature of your company? (1= Small Scale Sector, 2=Informal Sector, 3= Registered Manufacturing, 4= Others) What is the category of your company? The primary Business (1= Small, 2=Medium, 3=Large, 4=Other,) Does Your organization has Quality Accreditation like ISO 9000, HACCP etc? (1= yes, 2=No) If yes, please specify the name of the accreditation: Page No. 67
4.1 4.2
4.3
4.4 4.5 4.5.1
Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 4.5.2 If yes, please specify whether the accreditation has helped in boosting business growth? (1= yes, 2=No)
4.6
Annual turnover of your organization/Company/Enterprise (Rs lakhs) 2003-04 2004-05 2005-06 2006-07 2007-08 4.7 Average profitability (Profit After Tax) of your enterprise during 1991 to 2000 (considering 1991 as base year) (1= Increased, 2= Decreased, 3=No Change) 4.8 Average profitability (Profit After Tax) of your enterprise after 2000 (keeping 2000 as base year) (1 = Increased, 2= Decreased, 3=No Change) 4.8.1 What was the extent of increase in profitability after 2000 (keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above) 4.8.2 What was the extent of decrease in profitability after 2000 (keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above) 4.9 Share of Foreign Direct Investment in your Enterprise (1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not Applicable) 4.10 What is the extent of foreign ownership of your company? 1=No foreign ownership, 2=Foreign partner(s) have less than or equal to 50% ownership, 3=Foreign partner(s) have more than 50% ownership, 4=Other) 4.11 Did your organization acquire any firm in other countries? (1=No acquisition, 2= Full ownership, 3=less than or equal to 50% ownership, 4=more than 50% ownership,) 4.12 Extent of Usage of ICT in firms operation/production. (1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not Applicable) 4.13 Did your Organisation conduct/commission any Research & Development (R &D) during the last five years? (1= yes, 2=No,) 4.14 Did your Organisation get any product patented during the last five years? (1= yes, 2=No,) 4.14.1 If yes, please mention the number & name of the product 4.15 Did your Organisation introduced any product innovations during the last five years? (1= yes, 2=No,) 4.15.1 If yes, please mention the number & name the innovation
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 5.0 5.0 Employment Related Information Total Number of Employees in your organization (Nos) 2003-04 2004-05 2005-06 2006-07 2007-08 Employment growth in the organization during the last five years. (1= Increased, 2= Decreased, 3=No Change,) If Increased, please specify the range of increase in employment during the last five years? (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above) If decreased, please specify the range of decrease in employment in your organisation in the last five years? (0=15%, 2=5-10%, 3=10-25%, 4=25% & above) (specify) The casualisation of labour during the last five years has (1=Increased, 2=decreased, 3=No change, 4=Dont know) Growth in wages/salary in the organization after 2000 (with 2000 as base) (1= Increased, 2= Decreased, 3=No Change,) If Increased, please specify the range of increase in wages/salary in your organisation in the last five years? (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above) If decreased, please specify the range of decrease in wages/salary in your organisation in the last five years? (1=15%, 2=5-10%, 3=10-25%, 4=25% & above) Trade Related Information Is your organization engaged in Exports (1=Yes, 2= No) If yes, what is the percentage of Export to Total Sales (1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%) Growth in export during the last five years. (1= Increased, 2= Decreased, 3=No Change,) If Increased, please specify the range of increase in export during the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) If decreased, please specify the range of decrease in export in during in the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) Is your organization engaged in Imports (1=Yes, 2= No) If yes, what is the percentage of Import to Total Sales (1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%) If yes, the level of import of raw material for your companys production requirement. (1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above) Page No. 69
5.1 5.1.1
5.1.2
5.2 5.3 5.4
5.5
6.0
6.1 6.2 6.2.1
6.2.2
6.3 6.3.1 6.4
Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 6.5 The level of import of finished products by your company? (1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above) Please specify the major country from where you are importing finished products. ___________________________________________ Please mention your export destinations Product Description Countries you were trading in the past
6.5.1
6.6 6.6.1
6.6.2
Product Description
Countries you are Currently Please mention the trading with (Country Name) name of competing Countries Also specify the Competitive Advantage of that Country: (1=Cost of Product, 2= Latest Technology, 3=Quality of product, 4=Other)
6.6.3
Product Description
Countries you are planning to trade in near future
6.7
6.8
The factor (s) hindering the quantity of imports (1= Import pricing Scheme,2= Import licenses, 3=Import quotas, 4=Import prohibition, 5=Quantitative safeguard measures, 6=Export restraint arrangement,7=Non trade Barriers, 8=Any other) The factor (s) affecting the export of your products (1=Export taxes, 2= Export quantitative restriction, 3=Certification, 4=Inspection fee, 5=State trading administration, 6=Dual pricing schemes, 6=Non trade barriers,7=Any other)
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7.0
7.1 7.2 7.2.1
7.2.2
7.7
8.0
8.1
8.2
8.3 8.3.1 8.3.2 8.3.3 8.3.4 8.3.5 8.3.6 8.3.7 8.3.8 8.4 8.4.1
Domestic Market Related Information What is the market share of your product? Please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) What is the percentage of Domestic Sales to Total Sales (1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%) Growth in the domestic demand of your products after 2000 during last five years. (1= Increased, 2= Decreased, 3=No Change) If Increased, please specify the range of increase in the domestic demand of your products in the last five years? (1=1-5%, 2=510%, 3=10-25%, 4=25% & above) If decreased, please specify the range of decrease in the domestic demand of your products in the last five years? (1=1-5%, 2=510%, 3=10-25%, 4=25% & above) Extent of competition in the domestic market from local companies? Please specify the range [1=Intense (>20 players), 2=Medium (10to 20 Players), 3=Low (0-10 Players), 4=No Competition] Cost Related Information The Cost competitiveness of your company during the last five years. (1= Increased, 2= Decreased, 3=No Change, 4=Other) If Increased, please specify the range of increase in cost competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above) If decreased, please specify the range of decrease in cost competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above) Please indicate the Current percentage (%) contribution of the following components to total cost of production Wages & Salaries (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above) Other labor related cost (1=1-10%, 2=10-25%, 3=25-50%, 4=Above 50%) Raw Materials (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above) Fuel and Energy (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above) Interest Charges (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above) Security (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) Taxes (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) Others(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) Please indicate the Change in contribution of the following components to total cost of production The share of wages and salaries in the cost of production over the last five years (1= Increased, 2= Decreased, 3=No Change) Page No. 71
8.4.2 8.4.3 8.4.4 8.4.5 8.4.6 8.4.7 8.5.1
8.6.1
8.7.1
8.8.1
9.1.1
9.1.2
9.2.1 9.3.1
The share of Other labor related cost in the cost of production over the last five years,( 1= Increased, 2= Decreased, 3=No Change) The share of Raw Materials in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change The share of Interest Charges in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change) The share of Security in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change) The share of taxes in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change The share of other elements in the cost of production over the last five years, 1= Increased, 2= Decreased, 3=No Change) Is there any increase in cost of production of your product in recent years due to increase in exports of raw materials. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Is there any increase in cost of production of your product in recent years due to decrease in imports of raw materials. . (1= Yes, 2=No). (1= Yes, 2=No)If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Is there any decrease in cost of production of your product in recent years due to increase in exports of raw materials? If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Is there any decrease in cost of production of your product in recent years due to increase in imports of raw materials. . (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Price Related Information The Price competitiveness of your products during the last five years. (1= Increased, 2= Decreased, 3=No Change) If Increased, please specify the range of increase in Price competitiveness of your products in the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) If decreased, please specify the range of decrease in Price competitiveness of your products in the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above) Is there any increase in Price of your product during the last five years due to increase in imports of raw materials? (1= Yes, 2=No) If
yes, please specify (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
Is there any increase in Price of your product in last five years due to increase in exports of raw materials. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
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9.4.1
9.5.1
10.0 10.1
10.1.1
10.1.2
10.2
10.2.1
10.2.2
10.3
Is there any decrease in Price of your product in last five years due to increase in imports of finished goods. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Is there any decrease in Price of your product in last five years due to decrease in exports of finished goods. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Factors Affecting Productivity The Labour Productivity (out put produced relative to number of workers/employees used) of your firm during the last five-year (1= Increased, 2= Decreased, 3=No Change) If Increased, please specify the range of increase in Labour Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) If decreased, please specify the range of decrease in Labour Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) The Total Factor Productivity (i.e., output produced relative to all inputs used) of your enterprise during the last five-years (1= Increased, 2= Decreased, 3=No Change) If Increased, please specify the range of increase in Total factor Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) If decreased, please specify the range of decrease in Tota factor Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) Identify the main factors that have affected labour productivity in your Enterprise in the last five Years (Please mention five)
10.4
Identify the main factors that have affected Total Factor productivity in your Enterprise in the last five Years (Please mention five)
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10.5
Have you introduced any measures that have enhanced the labour productivity of your enterprise in the last five years? (1= yes, 2= No) 10.5.1 If yes, (Please Specify)
If No, Please indicate the reasons
10.6
Have you introduced any measures that have enhanced the Total Factor Productivity of your enterprise in the last five years? (1= yes, 2= No) 10.6.1 If yes, (Please Specify)
10.6.2 If No, Please indicate the reasons
11.0
Factors responsible for Competitiveness The competitiveness of your company during the last five years. (1= Increased, 2= Decreased, 3=No Change) 11.1 Availability of Raw materials for production? 1=Imported, 2=Within country, 3=Within Region/State, 4= Other (Please specify) 11.2 Availability of Quality Human Resource in the last five years (1= Increased, 2= Decreased, 3= No change) 11.3 Does the present Educational system in the country is catering to the industrys requirement? (1= yes, 2= No) 11.4 Labour relations in the state are productive? (1= yes, 2= No) 11.5 Are you satisfied with the quality of infrastructure (both Social and physical) available in your state? (1= yes, 2= No) 11.5.1 If No, Please specify the physical infrastructure that requires attention towards development and maintenance? (1= Road, 2= Rail, 3=Airport, 4= Port, 5= Power, 6= ICT, 7= Cold storages & warehouses, 8=Other) (Please Specify)
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11.5.2 If No, Please specify the social infrastructure that requires an attention towards development and maintenance? (1=School, 2= Higher Education, 3=Technical Institution, 4= General Hospital, 5= Specialized Medical Centres, 5=Other) (Please Specify) 11.6 Are you satisfied with the Governments interface with business/private sector ? (1= yes, 2= No) 11.7 Is your State government is friendly towards investors? (1= yes, 2= No) 11.8 Are you satisfied with the extent of computerization of government records? (1= yes, 2= No) 11.9 Corruption level in the government during last five years. (1= Increased, 2= Decreased, 3=No Change) 11.10 Are you satisfied with the Transparency in your government? (1= yes, 2= No) 12.0 Identify the main factors that have affected the competitiveness of your industry in the last five Years (Please mention five) 1 2 3 4 5 13.0 What measures have you taken over the past five years to boost Competitiveness in the domestic and export markets?
14.0 What are your views regarding the enhancement of Productivity and Competitiveness in India? (Please mention)
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15. Policy Interventions that are urgently required from the Government for enhancing productivity and competitiveness of your sector (Please mention five) 1 2 3 4 5
16.0. Any other comments: (Please specify)
Thank you
Name of the Official/Investigator:-----------------------------------------------Signature : -----------------------------------------------
Place of Survey
: ---------------------------Date: -----------------
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector Annexure 3 List of Units Contacted for the Study: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. Aneja Foods Products, GT Road, Chherata Amritsar, Punjab Madurai District Co. Op. Milk Producers' Union Ltd., Sathanangalam (Post), Madurai - 625 M/S Hind Agro Industries Ltd., A-1, Okhla Industrial Area, Phase- I New Delhi 110020 M/S Kitty Industry (P) Ltd., Village 2, PO Heeran, Chandigarh Road, Ludhiana 141112 Pepsi Holdings India Pvt. Ltd., Allahabad Mrs. Bectors Food Specialities Ltd., B-XXXIII- 324, G7 Road (West), Ludhiana M/s Annakut Biscuit Co. Pvt. Ltd., 54-A Cooperative Industrial Estate, Vivekanand Nagar, Kanpur-208 022 Dugdh Utpadak Sahkari Sangh Ltd., Allahabad (PARAG), Tiwari Talab, Allahabad Sunrise Exports International, 121 - K, Shivshakti Apartment K Block, Kidwai Nagar, Kanpur Student Training Dairy, Allahabad Agricultural Institute, Deemed University, Allahabad The Ludhiana District Cooperative Milk Producers Union Ltd., Feroz PVA Road, Ludhiana 141 004 (Punjab) M/S Bonn Nutrients (P) Ltd., 217/K-1, Hiran Chandigarh Road, Ludhiana 141123 The Punjab State Coop. Supply & Marketing Federation Ltd., Ludhiana Swati Biscuit Mfg. Co., 54 Govt. Industrial Estate Panki, Kanpur 208022 Iyengar's Home Products, 61/A, Andra Halli Main Road, Peenya II Stage, Bangalore 560 091 AB Mauri Innovations, Formerly Florale (India) Ltd., 12, 5th A Block, 1st Cross, Koramangala, Banglore 560 095 Feroze Foods and Flavours, 403-404, Central Tin Industrial Estate, Ag Pawer Lane, Byculla, Mumbai 400027 Foods and Inns Ltd., Dulwich 3rd Floor, 224, Tardeo Road, Mumbai 400007 Nijjer Agro Foods Ltd., Village Mexarban Pira, Dist Amritsar Mercurius Ine., 75/42, Punjabi Bagh, New Delhi 110026 Field Fresh Pvt. Ltd., Golf View Corporate Towers, Western Inernational Univ. Building, Sector 42, Gurgaon 122001 Keventer Agro Ltd. Savour India Private Limited, BA-43A, Janakpuri, New Delhi JA DLI International Fact. H.O. 219, RG complex-11, Plot No. 5, sector 14, Rohini, Delhi110085 Agro Tech. Foods limited mgh, Ist Floor, Greater kailash -11 (Market) new Delhi Mahant Agro foods Pvt Ltd.,, Plot No. 106-111Food park, HS110c, Saha, Ambala Haryana The Ballabgarh, Coop. Milk Producers Union Ltd., Milk Plant, Ballabgarh India Sea foods (Regd.) Kannamaly. P.O. Cochin-8 Kerala Eastern Group of Companies Adimali, Kerala Synthite Group of Companies Ajay Vihar, M.G. Road, Cochin Jain Food Product, B-11-C-182, Malviya Industrial Area, Jaipur Shree Nath Food Products, 5-21-A-1, Malviya Industrial Area, Jaipur Satyam Food Specialities Private Ltd., SB-93, JIN Marg, Bapu Nagar, Jaipur Lotus Dairy Products Pvt. Ltd., Om Shree Tower, 3rd floor, Sahakar Marg, Jaipur Anu Milk Products Ltd., A-4, Shastri Nagar, Jaipur-302 016 Pink City Industries, G-752, Road NO. 9F2, Vishvakarma Industrial Area, Jaipur Page No. 77
Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. Shree Edibles Pvt. Ltd., G-26, Sitapura Industrial Area, Jaipur-32 Radha Soami Food Products Pvt. Ltd., H-273, Industrial Area, Tonk Road, Jaipur 22 Jaipur Gousamvardaan Samiti, G-251(D), Mansarover, Jaipur Paliwal Tulsyan Foods Pvt. Ltd., G-1-552, Sitapura Industrial Area, Jaipur 302022 Preeti jee-cream & Foods, G-1/563, Etapina & Area, Jaipur S.R. Thorat Milk, Products Pvt. Ltd., Rajapur Road, Sangamner Hindustan Coca Cola Berger Pvt Ltd., Thane Narams Food Products, Om-Shakti, Banpongri, Village Wadhvani, Ashok Nagar, Kandivli (East), Mumbai Hatsan AgroProducts Ltd.,, 5A, Vijaya raghava Road,Chennai Kwality Milk Foods Ltd., 87/3, ArcotRaod, Vadapalani, Chennai-600026 Ambi Foods, No.1388, Ambica Appartments,19th Corn Road, MKS Nager, Chennai 39 Capricorn Food Products India Ltd., New Avadi Road, Chennai 600010 Anmol Biscuits Ltd., 229, AJC Bose Road, Cresent Tower, Kolkata Ruchi Bakers Pvt. Ltd., G.T. Road, Near TPVR. (Kultore) Nadukkars Agro. Processing Co. Ltd., Aooly, PO Nadukkare Maratupuza 686677 East India Co-operative Agro. Farming & marketing Society Ltd., Amar Apartment, Netajee Pally, Siliguri 734006 Square Minerals water pvt Ltd.,321, Industrieal Area, Plan IX Mohali Punjab Punjab Agro Industries Corpn. Ltd. Pritco foods P. Ltd., B-30, Ind. Area. Phase III. Mohali, Punjab ShriRam Group of Industries, 96A. DIC. Ind. Area,Baddi KBN Food Projects P. Ltd., Jupdi Kalan, Baddi, H.P. Ajanta Food products Hiramati Ind. Corpn., 198 IA BADDI, Jolan G.C. Beverages P. Ltd., 63, HPSIDC BADDI, Jolan Hindustan Quality Walls Food Himland Agro Foods, 153 HPSIDC IA BADDI Special Spices Industries, 33 Ind. Area Baddi Shriram International, 168, HPSIDC BADDI Prakasn Agro. Foods, 170 HPSIDC, Baddi, HP Kandhari Beverages, 177, Ph -I Katta, Baddi, HP Dabur India Ltd., 109 HPSIDE, Industrial Area, Baddi, H.P. Himalayan Vegefruits Ltd., 12-A, Sec-3, Panwand, HP Ruchi Food Products, 24, Industrial Area, Baddi, HP The Patiala Dist. Co-Op. Milk Productions' Union Ltd., Verka Milk Plant, Sirhiova Road, Patiala, Punjab Snowman Frozen Foods Ltd., C-14, Okla Industrial Area, Okhla Phase 1, New Delhi Ajanta Food Product , B-104/2, Naraina Industrial Area, Phase-I, New Delhi
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Annexure- 4 Methodology Adopted for Partial and Total Factor Productivity Estimations
Productivity can be measured in terms of both partial and total factor productivity methods. Most commonly used partial productivity measures are Labour Productivity and Capital Productivity estimations. The partial productivities are measured as a ratio of Gross Value Added per worker or per unit of capital invested. The partial productivity methodology is based on the premise ceteris paribus that only two factor inputs used in the production process such as labour and capital. Details regarding the data construction and estimation procedures are given as below. A. Labour Productivity Labour input is considered as the total number of persons engaged in the production process. The data has been compiled from Annual Survey of Industries summary results for factory sector data base for various years. The Gross Value Added data has been first deflated by the whole sale price index for the leather(Broad Category). The formula for calculating the labour productivity can be given as follows: Labour Productivity (LP) = ((Gross Value Added/Price Index) X 100) No. of Persons Engaged
Labour Productivity Growth Once the labour productivity has been calculated, we can estimate annual labour productivity growth using the growth rate estimation formula : Labour Productivity = Growth
Labour Productivity t Labour productivity t-1 100 Labour Productivity t-1
Labour Productivity Growth Index: To understand the trends in Labour Productivity Growth, we can construct year to year growth rates as an index of Labour Productivity Growth Rate. Initial value of the series is considered equal to 100 and the subsequent years Labour Productivity Growth Rates are added to it cumulatively. This will provide us an index of Labour Productivity Growth for the textile and garment sector for the years starting from 1995-96 to 2005-06.
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B. Capital Productivity Since capital investment is given as the book value in the ASI data, we have to estimate the capital stock in operation for every year. The Capital stock estimation follows the procedure given below. Capital Stock Estimation To calculate capital stock we have used Perpetual Inventory Method. Capital stock has been estimated from the book value of Gross Fixed Capital compiled from the ASI Database. Fixed capital data from ASI for the textiles and garments sector taken for the years 19952006. The book value of fixed capital at 1995-96 is multiplied by Gross net ratio of capital for getting initial year capital stock. Incremental capital during the year 1996-97 at constant prices (deflated with the machinery and machine tools prices at 1993-94 prices) is added to the initial year capital stock of 199596 for getting the capital stock for 1996-97at constant prices. Incremental capital = ((Fixed capital 1996-97 - Fixed capital 1995-96) To calculate the capital productivity we have divided Gross Value Added at constant prices by the estimated fixed capital. The formula used to calculate the capital productivity is as follows: Capital Productivity=
Gross Value Added at constant prices Capital stock at constant prices
] ]
Capital Productivity Growth Capital Productivity Growth = Capital Productivity t - Capital Productivity t-1 Capital Productivity t-1
Capital Productivity Growth Index As in the case of Labour Productivity Growth Index, Capital Productivity Growth Index is also constructed on a scale 100. Gross Value Added Growth Rate =
GVAt GVA t-1 GVA t-1
x 100
Capital Productivity Growth Index:
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Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector To make the index of Capital Productivity Growth Rate, first of all assume the initial value of series equal to 100 then add subsequent terms of the Capital Productivity Growth Rate cumulatively. This will give us the index value of Capital Productivity Growth Rate. C. Total-Factor Productivity Growth (TFPG) Total Factor productivity Growth has been estimated using the Divisia index method. Here, it is considered that Total Factor Productivity Growth is the result of technical progress. Technical progress or TFPG is estimated as a residue of the difference between output growth rates and input growth rates. . . TFP = GVA [WL x Labour Productivity Growth + WK x Capital Productivity Growth] Where WL + WK = 1 and WL = Wage Share in Total Cost WK= Capital Share in Total Cost Total-Factor Productivity Growth Index As in the case of Labour and capital productivity , Total Factor Productivity Growth Index can also be constructed with the base 100 for the initial year and adding the subsequent growth rates cumulatively to it.
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CONTENT Particulars

15 15 15-16 17-18 18-20

21 21 21 21 21 22 22 22 22-24 24 25 25-26 27-28 28-29 30-36

4.4 4.5 4.6 4.7 4.8 4.9

37-38 38-39 39 40-41 41-43 44-45

60-64 65 66 67-76 77-78 79-81

Annexure- 1 Annexure- 2 Annexure- 3 Annexure- 4

Productivity & Competitiveness of Indian Manufacturing-Food Processing Sector

National Productivity Council, New Delhi

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

CHAPTER II COMPETITIVENESS OF PROCESSED FOOD SECTOR

National Productivity Council, New Delhi

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Growth of Exports in Value (%) p.a 24 13 20 8 32 6 7 13 9 10 73

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

Growth of Exports in Value (%) p.a 12 23 17 17 13 2 19 5 12 11 21

National Productivity Council, New Delhi

National Productivity Council, New Delhi

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

CHAPTER III PRODUCTIVITY GROWTH IN FOOD PROCESSING SECTOR

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Source: Estimated from ASI, CSO (various years)

National Productivity Council, New Delhi

Source: Estimated from ASI Summary Result of Factory Sector

Source: Estimated from ASI Summary Result of Factory Sector

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

Indias Competitors in the Export Market

Meat and Edible Meat Offal (HS Code:02)

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

Meat, Fish and Seafood Preparations nes (HS Code: 16)

National Productivity Council, New Delhi

National Productivity Council, New Delhi

1. Fruits and Vegetable Processing

National Productivity Council, New Delhi

. Fruits and Vegetable Processing

Fruit juices /pulp / concentrates

Parle Agro Pvt. Keventer Agro Foods & Inns

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

3. Dairy Sector Infant Milk Foods

National Productivity Council, New Delhi

National Productivity Council, New Delhi

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing - Food Processing Sector

Box 2: Scheme for Infrastructure Development

Integrated Cold Chain Facilities

Value Added Centre

National Productivity Council, New Delhi

Total Quality Management

Research and Development in Processed Food Sector Total