The food industry is on a high as Indians continue to have a feast. Fuelled by what can be termed as a perfect ingredient for any industry - large disposable incomes - the food sector has been witnessing a marked change in consumption patterns, especially in terms of food.
| Economic Survey 2006-07 says: |
The increasing trend in gross domestic savings as a proportion of GDP observed since 2001-02 has continued with the savings ratio rising from 26.4 per cent in 2002-03 to 29.7 per cent in 2003-04, 31.1 per cent in 2004-05 and 32.4 per cent in 2005-06.
As the savings rate has gone up, private final consumption expenditure (PFCE), at current prices as a proportion of GDP, has shown a declining trend particularly from 2001-02. PFCE as a proportion of GDP declined from 63.1 per cent in 2002-03 to 62.1 per cent in 2003-04, 60.0 per cent in 2004-05, and further to 58.7 per cent in 2005-06. This decline has also been accompanied by substantial changes in the consumption basket in terms of the shares of different commodity groups. In PFCE, the share of food, beverages and tobacco came down from 43.3 per cent in 2002-03 to 39.4 per cent in 2005-06. The other major item of importance, namely, transport and communication, as a proportion of PFCE, rose from 15.8 per cent in 2002-03 to 19.1 per cent in 2004-05. |
Change in consumption patterns
Increasing incomes are always accompanied by a change in the food basket, says an ICRA report, which analyses food expenditure patterns over the last three decades in India. The report observes that the proportionate expenditure on cereals, pulses, edible oil, sugar, salt and spices declines as households climb the expenditure classes in urban India while the opposite happens in the case of milk and milk products, meat, egg and fish, fruits and beverages.
For instance, the proportionate expenditure on staples (cereals, grams, pulses) declined from 45 per cent to 44 per cent in rural India while the figure settled at 32 per cent of the total expenditure on food in urban India.
A large part of this shift in consumption is driven by the processed food market, which accounts for 32 per cent of the total food market. It accounts for US$ 29.4 billion, in a total estimated market of US$ 91.66 billion. The food processing industry is one of the largest industries in India -- it is ranked fifth in terms of production, consumption, export and expected growth.
The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and generate employment of 9 million person-days.
Policy Initiatives
The Government has formulated and implemented several schemes to provide financial assistance for setting up and modernising of food processing units, creation of infrastructure, support for research and development and human resource development in addition to other promotional measures to encourage the growth of the processed food sector.
- The Centre has permitted under the Income Tax Act a deduction of 100 per cent of profit for five years and 25 per cent of profit in the next five years in case of new agro processing industries set up to package and preserve fruits and vegetables.
- Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16 per cent to 8 per cent.
- Most of the processed food items have been exempted from the purview of licensing under the Industries (Development and regulation) Act, 1951, except items reserved for small-scale sector and alcoholic beverages.
- Food processing industries were included in the list of priority sector for bank lending in 1999.
- Automatic approval for foreign equity up to 100 per cent is available for most of the processed food items except alcohol, beer and those reserved for small-scale sector subject to certain conditions.
- The Union Commerce Ministry has approved a brand promotion campaign for value-added “Made in India” cashew being launched in the West Asian market by March end. The campaign, mooted by Cashew Export Promotion Council of India (CEPCI), involves a financial assistance of US$ 344,787 by the Ministry.
Foreign Direct Investment
Foreign direct investment (FDI) in the country's food sector is poised to hit the US$ 3-billion mark. In the last one year alone, FDI approvals in food processing have doubled. The cumulative FDI inflow in food processing reached US$ 2,804 million in March '06. In '05-06, the sector received approvals worth US$ 41 million. This figure is almost double the US$ 22 million approved in '04-05.
The US-based private equity fund, New Vernon Private Equity Limited (NVPEL), has decided to invest Rs 45 crore in Kochi-based masala major, Eastern Condiments, the flagship company of Eastern Group.
America's largest chocolate and confectionery-maker Hershey is acquiring 51 per cent stake in Godrej Beverages & Foods for US$ 54 million.
Ready-to-eat food
The popularity of ready-to-eat packs and the bottomlines of eateries have a story to tell. Eating out no longer marks a special occasion. Not only does the traditional eat-at-home type prefer to eat out, he is very demanding too. He wants value for his money in terms of quality and variety. No wonder, multi-cuisine restaurants are mushrooming even in small towns. Italian, Mexican, Lebanese, Japanese, Cajun – the list is growing.
Corroborating this trend, Euromonitor International, a market research company, says the amount of money Indians spend on meals outside the home has more than doubled in the past decade, to about US$ 5 billion a year and is expected to double again in about half that time.
The industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP growth rate of 6-8 per cent, during the tenth five-year plan period. Value addition of food products is expected to increase from the current 8 per cent to 35 per cent by the end of 2025. Fruit and vegetable processing, which is currently around 2 per cent of total production will increase to 10 per cent by 2010 and to 25 per cent by 2025.
The popularity of food and agro products is not surprising when the sector is now offering a growth of more than 150 per cent in sales. With such promise in the sector, a number of foreign companies have joined the fray. While US brands such as McDonald's, Pizza Hut and Kentucky Fried Chicken have become household names, more are on their way.
The new wave in the food industry is not only about foreign companies arriving here attracted by the prospective size of the market. It is also about the migration of the Made in India tag on food products travelling abroad. Indian food brands and fast moving consumer goods (FMCGs) are now increasingly finding prime shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR Foods' ready-to-eat food stuff, ITC's Kitchen of India and Satnam Overseas' Basmati rice.
Food Parks
Hannover Technology Fair (HTF) is widely recognized as the world's largest and most important technology event. The fair focuses on Process Automation, Factory Automation, Industrial Building Automation, Energy, Pipeline Technology, Subcontracting, Digital Factory, Industrial Facility Management & Services, Micro Technology, and Research & Technology.
India is the 'Partner Country' for the Hannover Technology Fair 2006 to be held from 24 - 28 April 2006. It is after a gap of 21 years that India will be Partner Country for Hannover Fair again.
India has taken 11,500 sqm of space, the largest ever by a Partner Country. In comparison, Russia, the partner country in 2005 had taken close to 6000 sqm of space. While 150 companies had participated from Russia last year, the Indian participation is more than double of that and stands at 310 companies.
India, as Partner Country has taken a 360 degrees approach to its participation and is based on six pillars:
1. Exhibition - India Pavilion & Beyond
- Over 300 Indian companies and other organisations, large as well as SMEs, and 5 state governments are participating at the fair representing various sectors including Automotive, Energy, Engineering Services, Research & Development, Subcontracting, Digital Processes, Micro Technology and Science & Technology (Satellite Technology, Innovations). In addition to this, over 50 Indian companies will be present outside Hall 6 (India Pavilion) spread across different halls.
2. Business Seminars and Conferences
- India will organize a business event on each day of the fair. The Prime Minister of India and the Chancellor of Germany are likely to inaugurate the Indo-German Business Summit being jointly organized by IBEF, APA and the Hannover Messe on 24th April 2006.
- Leading industry associations and chambers of commerce from India along with their counterparts in Germany will organise business seminars during the fair. These include the "Doing Business in India" seminar by FICCI, IGCC and KPMG; Seminar on Auto Components by EEPC, ACMA and BME; the Indo-German Technology Partnership Forum by CII and INTEC; Seminar on Industrial Sub-contracting in India by EEPC, VDMA and BME. Indian states of Gujarat, Orissa, Karnataka and West Bengal will organise seminars on investment opportunities in their respective states during the course of the 5-day fair. All the seminars will be held in a specially created auditorium in Hall 6, the India Pavilion.
3. CEO Delegations
- High-profile business delegations lead by Presidents of CII, FICCI and EEPC will participate at the fair. In all over 70 CEOs will visit the Hannover Fair as part of business delegations.
4. High-profile Government Participation
- The Prime Minister of India is likely to inaugurate the fair on 24th April 2006 along with the Chancellor of Germany.
- Furthermore, the Federal Minister of Commerce & Industry has confirmed his participation along with Chief Ministers of various States of India.
- Senior government officials will also be part of the government delegation to Hannover Fair.
5. Mass-media Campaign
- Print and Outdoor advertising campaign in Germany
- Visits by Indian journalists to the fair facilitated by IBEF
- Facilitation of visits by German journalists to India to enhance pre-event India coverage in German media
- Coordination with international media during the fair.
6. Culture, cuisine, gifts, fashion and music
- Aditi Mangaldas & Troupe to perform at the Opening Ceremony along with the "Drums of India" troupe and musician Raghav Sachchar.
- Indian decor and hostesses at the Opening ceremony and evening reception. Gifts to all delegates at the evening reception.
- Chefs from Taj Group to prepare Indian cuisine for the Evening reception
- 2 Fashion Shows during the fair
- Indian Navy Marching band to perform during the fair.
Activity Report
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In a bid to boost the food sector, the Government is working on agrizones and the concept of mega food parks. Twenty such mega parks will come up across the country in various cities to attract Foreign Direct Investment (FDI) in the food processing sector.
The Government has released a total assistance of US$ 23 million to implement the Food Parks Scheme. It has so far approved 50 food parks for assistance across the country. The Centre also plans US$ 22 billion subsidy for mega food processing parks.