Deloitte Report FoodandAgroProcessing

8/8/2019 Deloitte Report FoodandAgroProcessing

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Enhancing frm level competitivenessIndian ood and agro processing industry

Strategies and road map development

August 2009

Sponsored by:

National ManufacturingCompetitiveness Council

(NMCC)Government of India


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Content

Foreword

Background

Objectives and approach

Setting the context Overview of global food processing industry Characteristics of the industry in developed markets Indian food processing industry Characteristics of the Indian Food Processing Industry

Tracing the evolution o Food processing industry in Thailand and India

Analysis o Indian Food Processing Industry Factor conditions Firm Structure and Rivalry Demand Conditions

Support Industries Government Support

Key Conclusions and Recommendations

Annexure: Results of the Primary Survey (Global Manufacturing Benchmarking Survey) Trends for the Future


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5/104Title o publication Focus area of publication5Title o publication Focus area of publication5

NMCC have undertaken anumber o studies towardsenhancing the competitiveness o manu acturing sector and identi ythe current strengths andconstraints o keysectors, andrecommend National levelindustry/sector specifc policyinitiatives


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Background

The National Manufacturing Competitiveness Council(NMCC) has been set up by the Government to providea continuing forum for policy dialogue to energizeand sustain the growth of manufacturing industries inIndia. In this context, the NMCC have undertaken anumber of studies towards enhancing the competitive-ness of manufacturing sector including identi cation ofmanufacturing sectors which have potential for globalcompetitiveness; current strengths and constraintsof identi ed sectors, and recommend National levelindustry/sector speci c policy initiatives as may berequired for augmenting the growth of manufacturingsector.

Deloitte Touche Tohmatsu India Pvt. Ltd. (Deloitte)have been engaged by NMCC to submit a report forenhancing the Firm Level Competitiveness (Strategiesand Road Map Development) for Food and AgroProcessing sector

This document in the subsequent sections details theDeloitte report on Firm level competitiveness (Strategiesand Road map development) for the Food and AgroProcessing sector in India


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Objectives and approach

The objectives of the Deloitte engagement were

Understand the competitiveness of rms across theirsupply chain

From the results for organizations in eachsector, identify the key areas for focus for theorganizations based on the critical trends andfactors driving success

From the above, provide the contours forstrategic initiatives and detail a roadmap forimplementation.

Approach Analyze the performance of organizations

based on data obtained through primary andsecondary research.

In addition to the primary/secondary researchof organizations, Deloitte conducted primaryresearch with key stakeholders and experts.The objective was to validate the inputs fromsecondary research and obtain a perspectiveon the critical success factors and drivers forcompetitiveness of the sector.

The results from the above were then beaggregated and analyzed to understand theGaps in their performance with reference tothe sector objectives de ned by NMCC.

Recommendations based on the Gapsidenti ed focusing on the key areas forconsideration in each sector and a road map toachieve the sectoral objectives.



Competitiveness o ood and agro

processing sector


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Global Food and Agro Processing Sector

The market size of global food, beverage and tobacco products was estimated to be US $ 4,140.3 billion in2005.

The size of the global market is around $ 3660 bn in 2005 (not considering tobacco industry which constitutesabout 11%) and estimated to grow to $ 4320 bn in 2010 with CAGR around 3.35%*

Food products63.6%Tobacco

11.4%

Beverages25.0%

Global Food and Beverage Sector Category wise contribution

Global Food and Beverage Industry

0

500

1000

1500

2000

2500

3000

3500

40004500

5000

2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E

Year

( i n m n U S D )

% g r o w t h

Market Size Growth rate



Food products are classi ed into primary and value added products based on the value addition.

Primary processed products- Include cleaning, grading, sorting and packaging. The products manufactured generally act as inputs for value

added products.

Value added products:- Manufacturing these products involves use of processing techniques like blending, high temperature heating &

boiling, chilling, etc. where the use of technology is signi cant

Primary Processed Products Value Added Products

Milk UHT Milk, Milk Powder, etc .IcecreamLivestock

Proces sed Aquatic Food (Depending on processing leve l)Fisheries

Beverages , Ready toEat/Cook/Drink Products ,

Bakery Products , Proces sedDryfruitsAgriculture Tea and Coffee

Fruits and Vegetables

Milled Grains, Spice s

Sugar Confectionery

Edible Oil (Depending on proce ssing level)

Eggs, Meat Egg Powde r, Packaged Meatand Preparations


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Global market for the processed foods follows theeconomic power of the countries.Developed economiesshow more inclination towards processed foods dueto higher income levels. Rapid urbanization and risingincome levels in the developing economies create thedemand for processing foods. Low income levels andpoor economic growth of the least developed countriescreate the demand for basic staples and carbohydrates

39.0%

Asia-Pacic31.1%

USA 20.9%

Rest of the World9.0%

Europe

Consumption Share - Geographic Distribution

Evolution of Global Food Demand

Surviving

Africa (Sub Saharan)

North America, Japan, WesternEurope, Australia

Eastern Europe

India, China, Latin America

Mass Market Convenience,SnackingQuality,Hygiene

HighTechnology

Carbohydrate

Staples

Dairy, meat,

egg, sugar

Snacks, Prepared

meals

Convenience

foods

Diet, f unctional,

organic foods

The market can be classi ed in to four major segments depending on the level of processing and the maturity of themarket Countries like USA, Japan and Australia demand highly organic and functional foods whose preparation involves

high technology

Quality and hygiene factors are the drivers in the Eastern European countries Developing countries like India, China and Latin America focus primarily on snacks, prepared meals andprocessed meat.

Carbohydrates still constitute the major food in the least developed markets. Most of the least developedcountries are net importers of food



Developed markets are characterized by highdemand or the processed oods

The food processing industry in the USA is consid-ered as a reference for the developed market.

There is a very high level of consumption of theprocessed foods. Nearly 70% of them are highlyvalue added. More than 80% of the food productssold in the USA is packaged and have some brandassociation.

Increasing trend is observed in Hygienic, Betterfor you, Organic and Nutraceutical* products

Although the penetration of the processed foods isvery high, the growth rate observed for processedfoods is not signi cant but only about 2.4%.

Dairy13%

US Food Trends

Cooking Aids10%

Snacks 6%

Bakery Products4%

Beverages11% Frozen Foods

10%

Farm Produce

13%

Fresh Meat,Poultry & Fish18%

Others 15%

10-15 15-20 20-30 30-40 40-50 50-70 > 70

U.S. spending on food away from home andon other food increases the most with income

Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey (2004-05)for four person household

Monthly household spending, US$

0

100200

300

400

500

600

700

800

900

Annual household income, U.S. $1,000

Food away from home

Other food

Meats

Fruits and vegetables

Cereals

Dairy


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Innovation and new product launches are thekey priorities or the companies in the oodprocessing industry in the developed countries.

Since the growth rate of the market is less companiesneed to focus on developing new products and acquirenew customers. They spend about 4~13% of theirrevenues in advertising so as to create brand awareness

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

15000

2001 2002 2003 2004 2005

Company Name Advertising Spend (2007) % of revenues

Coca Cola 2.8 bn $ 9.7

Unilever 5.3 bn Euro 13.1

Kraf t 1.6 bn $ 4.1

PepsiCo 1.9 bn $ 4.8

Number of new product launches in US food industry

N e w

P r o

d u c t

l a u n c h e s

( N o s )

0 20 40 60 80 100

None of these

Strategic Acquisitions

Price Increases

New Markets

Volume increase / Incrementalgrowth

New Product offerings

New customers in the existingmarkets

Question: How are you most likely to grow sales in the next year?

Sources: Deloitte Research, Grant Thornton report on Foodcompanies in USA 2007. Table contains the advertisingspend of few of the top 25 food companies in the world.Unilevers Advertising spend includes all its businesses



High levels o concentration in the supply chaincharacterizes the ood processing sector in thedeveloped markets

Consolidation o Farms:In USA, the number of farms decreased from 5.65 mnin 1950 to 2.17 mn in 2000. During the same period,the average size of the farm rose from 213 acres to 434acres. The large size of the farms helped in mechanizedagriculture and uniform quality of crops

Seed Companies:The four concentration ratio in seed companies is morethan 70% (i.e. the top 4 companies control 70% of themarket) with one player Monsanto having more than30% share of the market.

Large Primary Processors: The four concentration ratio of the our milling

companies is 63% (as of 2004) (i.e. the top 4companies control 63% of the our milling in USA.

The companies are Cargill, Archer Daniels Midland,ConAgra and Cereal Food Processors ).

Similarly, the top 3 rms control 71% of Soybeancrushing in USA ( Archer Daniels Midland, Bunge,Cargill ). Similar is the situation in beef packingindustry where 83% of the market is controlled byTyson Foods, Cargill, Swift & Co and National BeefPacking Co.

Smith eld Foods, Tyson Foods, Swift & Co, andHormel Foods control nearly 64% of the porkprocessing market

Retailers:The top 5 companies in the food retailing have 46% ofthe US market. ( Wal-Mart, Kroger, Albertsons, Safewayand AholdUSA )

Sources: Agribusiness Consolidation: Squeezing out familyfarmers and consumers

Structure o the industry: The market isconsolidated rom arm to the table. Few largefrms controlling the market resulting inintense competition.


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In developing countries like India, the share othe processed oods is low compared to that inthe developed markets. Non-processed oodsaccount or nearly 50% o the share. High valueadded products account or only 18% o the totalshare in India.

The total size of the Indian food industry is aroundUS$220 bn in 2005.

Of that, primary processed food is around $70 bnand the value added segment is about $40 bn.

The remaining share is accounted by non-proc-essed food (commodity based).

Annual growth rate of the industry is around9~12%.

Employs around 2 mn people (as of 2005)

Commodity Fisheries Beverages ConvenienceFood

Sugar

Food Grains

Spices

Dairy Meat &Poultry

Alcohol

AeratedDrinks

Ready toEat/Cook

Bakery andConfectionery

Fishprocessing

Others

Milk

Milk Products

PackagedWater

Tea andCoffee

Others

Edible Oils

Classication of Indian Food and AgroProcessing Industry

Non-

Processedcommodity $ 110 bn

Indian Food Industry $ 220 bn

Processed food$ 110 bn

Primary Processed$ 70 bn

Value Added$ 40 bn

Agro & Food Processing Sector

Processed Fruit& VegetableProducts

The low levels o processing are drivenprimarily by the oodhabits o thepopulation. Fresh

ruits and vegetablesare pre erredcompared toprocessed ruits and

vegetables



Wastage levels in India

Processing levels in India

Currently, the processing levels in India are very low andrange from 2.2% in fruits and vegetables to around35% in milk production. Across all segments, the level isaround 7% compared to 30% in a developing countrylike Thailand.

Given the level o wastage and the processing levels,studying the ood processing industry o a country with asimilar geographical pattern and economic condition o India and, understanding the growth pattern o theindustry would provide us with inputs on the initiativesplanned and implemented, critical success actors andthere ore some key learnings.

2005 Deloitte. All rights reserved25Jun 08

Processing Level A Global Comparison

Source: APEDA

Developed Nations Developing Nations

P r o c e s s

i n g

L e v e

l ( % )

80

70

80

30

7

Source: Rabobank, CII, Anecdotal evidences

CommodityPresent level of production Post-harvest losses

Quantity(mn ton)

Average Price(Rs/Ton)

Value (Rs .Crores) %

Quantity(mn ton) Value (Rs. Crores)

Durables (cereals, pulses andoil seeds)

230 10000 230000 10 23 23000

Semi-perishables (potato,onion, sweet potato etc) 40 3000 12000 15 6 1800

Perishables (fruits, milk, fish,eggs etc) 210 15000 315000 20 42 63000

Total 480 11604 557000 14.8 71 87800

ProductsLevel of Processing

Organised Unorganised Total

Fruits and Vegetables 1.40% 0.80% 2.20%

Milk and Milk Products 13% 22% 35%Meat and Poultry

Buffalo meat 21% 21%

Poultry 6% 6%

Marine Products 8% 8%


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Innovation and new product launches are thekey priorities or the companies in the oodprocessing industry in the developed countries.However, given the nascent stage o the oodprocessing industry in India, spend on R&D hasbeen signi cantly low even or large companiesin the organised sector

For example, the R&D spend of some of Indiasprominent companies in the industry are asfollows: Dabur - Rs. 1.24 Crores (USD 0.25 Mn) or

0.06% of the gross turnover

Britannia Industries Limited - Rs. 3.47 Crores(0.70 Mn) or 0.133% of the gross turnover

Global organizations however spend signi cantlyon R&D Nestle - CHF 1.97 bn or 1.80% of the gross

turnover Unilever - Euro 927 mn or 2.29 % of the gross

turnover

Hence, both on an absolute basis as well as on apercentage basis, Indian companies have been spendinglower on R&D compared to their global peers.



Tracing the evolution o Food processingindustry in Thailand and India

Why compare Thailand and India? Thailandand India are similar in di erent parametersin terms o ragmented land holdings, beingpredominantly agricultural based economies,etc. While Thailand was initially ocusing only onrice, has later diversi ed into processing o ruits,shrimps, etc. (overall processing level is 30%),whereas India while producing di erent varietieso crops, is not able to increase the levels oprocessing o the produce beyond 2-3%

In the early 80s, the share of processed food exports asa percentage of total agricultural exports was around65% for both the countries. However, Thailand hassince increased the value added share to over 90%whereas Indias processed food exports is around 70%of the total agricultural exports.

Among developing countries, Thailand has been arelatively early entrant to the processed food exports.Following rapid growth of export for over three decades,

it is now the second largest exporter of processed foodamong developing countries (after Brazil)India, though possessing vast agricultural resources , isnot able to capture the export market. The global shareremains stagnant at around 1.1%

The share of processed food exports in total agriculturalexports in Thailand has more than tripled since the early1970s to a level of over 90% currently. Thailand is theleading frozen shrimp exporter accounting for over25% of total world exports. Exports of frozen poultryand canned food (both fruit and vegetables) have also

expanded rapidly over the past two decades. By thelate 1990s the processed food sub-sector accounted for13% of total domestic manufacturing and 4% of GDPIn India, food-processing industries accounted for 18%of domestic manufacturing and over 2% of GDP. WhileIndia has a long history of exporting processed foods,these exports have shown an increase only from the late1980s, re ecting the impact of controlled trade regimeover the four decades prior to the 80s. In 1997/98, thetotal value of exports was over US$ 3 billion (40% oftotal agricultural exports), up from US$ 0.5 billion (10%of total agricultural exports) in 1980.

Netherlands,7.91

France, 7.72

Germany, 6.49

Brazil, 4.5

India, 1.17

Belgium, 4.35

United Statesof America,10.57

Thailand, 1.97

Others, 55.24

Export Share in the World

Source: International Food Safety Regulation and ProcessedFood Exports from Developing Countries - 2002


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While Thailand increased its share in the world agro trade rom 1.52% in 1980 to 1.97% in 2004,Indias share rose marginally rom 1.09% to 1.17%. Thailand exported $11 bn o agro products in2004 compared to $4.6 bn o India (including primary processed)

Value of processed food exports (in mn USD) (IncludingPrimary Processing) % share in the world ( Agri exports)

COUNTRIES 1979-1981

1989-1991

1999-2001

2003 2004 1979-1981

1989-1991

1999-2001

2003 2004

Malta 21.8 29.1 48.0 95.1 71.9 0.01 0.01 0.01 0.02 0.01Bolivia 56.3 80.3 355.5 448.5 554.9 0.04 0.05 0.10 0.09 0.10

Italy 3918.0 7863.4 12425.3 16526.9 20267.1 2.58 3.38 3.80 3.94 4.04

Tunisia 134.3 228.8 400.6 340.1 830.8 0.09 0.10 0.12 0.09 0.16

Singapore 1118.3 2051.0 2138.5 2250.2 2714.3 0.67 0.84 0.67 0.49 0.50

United Kingdom 5430.8 8953.5 12791.7 14106.7 18028.9 3.44 3.89 3.68 3.28 3.51

Thailand 2700.7 4943.9 6298.7 8893.6 11040.3 1.52 1.80 1.76 1.96 1.97

Republic of Korea 467.8 719.8 1112.0 1585.8 1835.6 0.26 0.35 0.39 0.36 0.35

Jamaica 101.6 149.9 213.6 230.4 217.1 0.06 0.07 0.07 0.06 0.04

Germany 7703.7 14079.4 18003.2 25210.1 30045.0 4.70 6.29 5.75 6.27 6.49

Greece 920.1 1616.8 1916.2 2214.9 2254.8 0.58 0.80 0.64 0.57 0.52

India 1675.1 2045.9 3310.9 3945.0 4607.8 1.09 0.89 1.19 1.24 1.17

Democratic Rep of Congo 143.3 62.2 16.2 14.8 24.5 0.09 0.04 0.01 0.00 0.01

Kenya 476.8 359.7 558.7 663.5 627.1 0.30 0.21 0.25 0.25 0.21

Peru 259.5 258.7 429.6 472.4 593.1 0.15 0.10 0.16 0.16 0.19

Yemen 21.0 24.2 17.5 53.8 50.4 0.01 0.02 0.02 0.02 0.02

New Caledonia 1.5 0.0 1.4 0.9 1.3 0.00 0.00 0.00 0.00 0.00

Tonga 5.4 0.6 0.7 0.5 1.0 0.00 0.00 0.00 0.00 0.00

Countries with processed food exports in the range 65% to 80% of the total agricultural exports in 1979-81 areanalyzed.

Source: FAO data, Deloitte Research



Evolution o Thailands Food Processing Sector

1980s till nowPre-1958 1958 1970s

Agriculture based economy:37% of GDP from agriculture.

Rice being the major crop: Areaunder rice cultivation increased from8mn rai in 1907 to 26mn rai in 1952 .

Rice constituted about 46% of theexports in 1958

Rice export was one of the majorearnings for the government nearly10% of the earnings through rice-premium tax

Food processing technology availablewithin Thailand was limited, and foodpreservation included only drying,pickling and sugar glazing

Focus on commercial crops: Crops likekenaf, cassava, maize and sugarcane wereexported. Rice exports continue to declinein the overall exports, 14.2% in 1976 and9.2% in 1986 respectively

Export Oriented Agro-processingindustry: Initial stages of productionof broilers, canned sh and shrimps forexports

Initial Incentives byGovernment: Government offeredInvestment Promotion Privileges to

investors in the food processing industry.This encouraged the transfer of tech-nologies ( The technology to processsweetened condensed milk, canned fruitsand vegetable and vegetable oil were thenacquired from Taiwan and Japan)

Sources: The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies of development and restructuring in Thailands Agri-foodsector Jasper Adam Goss 2002, Capitalist development in Postwar Thailand: Commercial Bankers, Industrial Elite and Agribusiness Groups Akira Suehiro, Evolution obiotechnology innovation system in Thailand Pun-Arj Chairatana

Governments Focus: First priority for Agroprocessing sector in the sixth plan (1986-90) and inthe subsequent plans. Banks also supported agri-companies by providing loans

Evolution o Contract arming: Thai companiesin association with foreign rms started contractfarming which improved quality and attributedfor a surge in the export of frozen and chilledcommodities (Shrimp /poultry/ sh products)

Later vertical integration happened especially inthe poultry sector. In 1984, 17 of the 28 majorcompanies in Thailand were in Agro processing

sector.

Biotechnology Focus: Focus on the research inbio-technology in the areas of:1. Rice2. Industrial and Foods3. Shrimp4. Usage of natural resources for agriculture

Food processing industry in nascent stage Growth of food processing industry

Thailand - Early beginner


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Key Conclusions rom the evolution o AgroProcessing Industry in Thailand

Shi t in ocus rom rice to other products: Till 1960, the focus of Thailand was on rice. Rice

exports constitutes about 46% of the total exportsin 1958. Rice premium tax was the major source ofrevenue for the government at nearly 1015% ofthe total state revenues during 1960s.

Post 1960, other crops like cassava, kenaf, maizeand sugarcane were grown primarily for exportsand the area under rice cultivation reducedgradually.

Technology collaboration with oreign frms: Companies in the shrimp production, poultry and

meat processing sector bene ted from technologytransfers from foreign companies.

Access to export markets: Foreign companies provided the market for the

exports from Thailand. Most of the companieswere from Japan and USA. Due to these, broilerexports grew annually at 66% from 1975 to 1985.Canned sh exported to USA had a growth rate of63% annually in the same period.

Government support: Identi ed as a export oriented sector and provided

various incentives and tax holidays to attractinvestment

Provided assistance in developing the shrimpproduction ( in the form of various projects todevelop pumping stations for the farms andexpansion of the farms)



Evolution o Indias Agriculture and Food Processing Sector

1991 to dateBefore 1960s 1960- 1990

Policies were not directed towardsAgriculture: More focus on Industry sector( esp. capital goods) though 48% of IndiasGDP was from agriculture in 1950-51. Theneed to create a self-reliant and diversi edindustry sector motivated planners to adopt aimport substitution strategy

But, in the early 1960s, the GDP growth wasonly 3.9% against the expected 5%. Butpopulation growth was 2.3% against theexpected 1.4%. As a result food security ofIndia worsened as India imported cerealsworth 28% of its export earnings

Focus on Agriculture: Main objectives wereself-suf ciency in food grains, reasonableprices for the farmers and affordable pricesfor the consumers (especially the poor)

Green Revolution: Introduction of high-yielding variety of rice and wheat, Provisionof irrigation facilities and fertilizers andMinimum Support Prices for the cropsCreation of buffer stock for food andstrengthening of the Public DistributionSystemGreen revolution was successful in bringingthe imports to 1.9% of the total exportearnings

Land Ceiling Act -1972: To provide landsto the landless farmers. Ceiling on the landholding by the farmers

Restriction on exports: Agricultural goodswere restricted from being exported. Also,the prevailing exchange rates did notfavour exports

Food Processing Industry in nascent stage Growth of Food Processing industry

Key Conclusions rom the evolution o AgroProcessing Industry in India

Food Crisis and Green Revolution: Food crisis in India during 1960s forced the

government to adopt Green revolution whichhelped in self-suf ciency in food.

Focus on improving the poorer sections o thesociety: To improve the livelihood of the poorer sections of

the society, land ceiling act was enforced during1972.

The primary aim is to provide land to landless

farmers. It also limits the area of land held by afarmer ( limited to 17 ha varies in different states)

Focus on Food processing industry a ter 1991: After the economic reforms, government focused

on improving the food processing industry in India. Allowance of 100% FDI in food processing

industry, export promotion incentives and otherschemes to attract investments.

However, investment in this sector has been verylow in India. The government has identi ed food

and agro processing industry as one of the sunrisesectors that has high potential for domesticdemand and export markets

Economic Reforms: Agricultural sectorwas ignored. Industry- rst approach,focusing on removal of industriallicensing, removal of import licensingfrom all manufactured and capital goods,tariff reductions and relaxation of rulesfor foreign investmentHowever, post- 2000, governmentfocused on the food processing industry100% FDI is allowed automatically infood processing sectorNo industrial license required to startthe industry except for a few items likealcohol, beer etcExport Promotion: Food parks and export

zones were promoted which providesbene ts like duty free imports, pro tsfrom export sales are exempt fromcorporate taxes etc


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Analysis o indian ood processingindustry

Porters Diamond Framework has been employed to compare the competitivenesso the ood and agro processing industries in Thailand and India

Government

Factor Conditions Demand Conditions

Firm Structure &Rivalry

Support Industries

A vailability of naturalresources f or cultivation

A ssociations and Institutions

A ccess to Foreign markets L ocal demand

S tructure of theindustry / Verticalintegration

D irect access with thefarmers

F oreign DirectInvestment / Technologyavailability

E conomic reforms I ncentives for rms A ttracting foreign

investments



Factor conditionsavailability o natural

resources


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While India and Thailand are major producers o agricultural commodities, Thailand has a signi cantshare in the exports o the agricultural produce than India. Thailand is the largest exporter o shrimps,rice, cassava and rubber

Thailand : Producer & Exporter

Agriculture in Thailand is about 10% of the GDP

with noticeable level of mechanization 27.6% of the land is arable with 7% underpermanent cropping and 5 million ha of irrigatedland

More than 80% of the raw materials used by thecountrys food industry are locally sourced at lowprices

Thailand is the worlds number one producer ofnatural rubber, rice, canned and frozen seafood,canned tuna, canned pineapples, and cassava Thailand ranks rst in rice production and

exports, sharing 4.6% of total production and36% of total export of the world.

World leader in rubber by constituting 35% ofworlds total production and 45% of worldstotal export.

Thailand is the top exporter of cassava with82.5% share of the total cassava export

The processed food sector is one of the mostadvanced sectors in Thailand. It accounts for about15% of Thailands manufacturing output

India : Producer

India has the 2nd largest arable land (161 million

hectares) in the world Largest irrigated land (55 million hectares) in theworld

Largest producer of wheat (72 million tones),accounting for nearly 15% of global wheatproduction

Largest producer of pulses (15 million tones),accounting for nearly 21% of global pulseproduction

Largest producer of milk (96 million tons),accounting for nearly 17% of global milkproduction

Largest producer and exporter of spices 2nd largest producer of tea, accounting for nearly

28% of the global tea production 2nd largest producer of rice (92 million tons),

accounting for nearly 22% of global Riceproduction

2nd largest producer of sugarcane (296 milliontons), accounting for nearly 21% of the globalsugarcane production

Sources: Indian Food Processing Industry Way2 wealth 2008Status of Agricultural Engineering Education in Thailand Asian Institute of Technology, Thailand - 2007



Fragmented land holding in both the countries owing to the land holding policies which aimed atproviding land to the landless armers to improve the poorer sections o the society

Thailand India

Category of holdings 1995-96

No of Holdings(thousands)

Average Size of holdings (ha)

Marginal ( less than 1 ha) 71179 0.4

Small ( 1 to 2 ha) 21643 1.42Semi-medium ( 2 to 4 ha) 14261 2.73

Medium (4 to 10 ha) 7092 5.84

Large ( 10 ha and above) 1404 17.21

Total 115580 1.41

Distr ibut ion of land holding -1999 No of households

Without land 454819

Less than 0.8 ha 565799

0.8 to 1.6 ha 658060

Over 1.6 ha 3908141

Total 5586819

The World bank aided the Thailand Government inthe distribution of the land to poor farmers

Thailands Of ce of Agricultural Economicsestimated in 1995 that the income of the popula-tion working in agriculture is about 15 times lowerthan the income of the population outside theagricultural sector.

Average household income in 1999 was 12,729Baht (or US$318) per month whereas the averageincome for farming households was no higher than1,000 Baht (or US$24) per month.

Access to land is fundamental to the livelihoods ofpoor communities in rural areas. Land continues toserve as a means of providing subsistence needs aswell as of income generation. Holding land enablesfamily labour to be put to productive use, andprovides a safety net for family members who workin temporary or insecure employment elsewhere.

This was particularly evident in Thailand duringthe economic collapse in 1997 when the suddenthreefold rise in urban unemployment wasmitigated by the absorption of labour in the ruralareas.

The ceiling on land holdings was amended on1971 to:

meet the land needs of the landless farmers reduce the inequalities in land ownership so that

it may lead to development of co-operative ruraleconomy and,

enlarge self-employment in owned land as distin-guished from subletting and tenant cultivation.

As per the new guidelines, 17 states amended theceiling legislations. The range of ceiling varied fromstate to state. For instance, in Andhra Pradesh,the level of ceiling for dry land ranged from 14.16hectares to 21.85 hectares. Karnataka had the limitof 21.85 hectares for dry land, while Punjab had20.50 hectares and West Bengal 7.00 hectares. Forirrigated lands with two crops, the limit was lowerAndhra Pradesh 4.05 to 7.28 hectares, M.P,Maharashtra 7.28 hectares, Punjab 7 hectares,West Bengal 5.0 hectares

Sources: Thailands Land Titling Programme: Securing land for the poor? Rebeca Leonard and Kingkorn Narintarakul NaAyutthayaAgriculture census division, Ministry of Agriculture, India. http://www.indiaagronet.com/indiaagronet/AGRI_LAW/agri_laws.htm


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Productivity in India is comparatively low primarily due to cultivating techniques, levels omechanization and quality o seeds. Level o mechanization and technology involvement in Thailand isrelatively higher compared to India (explained in the subsequent slides)

India The yield per hectare is very low compared to the world levels.

Thailand has higher productivity in most of the categories compared to India

Importance Thailand India

Factor Conditions

Sources: FAO, Rabobank report

Cereals Coarse grains Pulses Fruits Vegetables Sugarcane

World 3,078 2,980 793 9,563 16,845 65,293

China 4,848 4,399 1,507 8,214 19,158 69,556

India 2,356 1,179 552 11,811 12,898 62,859

Pakistan 2,302 1,008 465 8,590 13,425 47,934

Brazil 3,364 3,568 802 14,232 18,758 72,289

Philippines 2,813 1,802 723 11,650 8,481 67,104

Thailand 2,584 3,702 900 9,210 8,878 66,400

United kingdom 7,030 5,906 3,638 11,794 21,770

United states of America 6,033 7,843 1,803 22,934 27,099 77,515

Differential in productivity:India and world average

23% 60% 30% 24% 23% 4%



Demand conditions, frmstructure and rivalry


30/10430

While Thailands industry primarily constitutesSMEs, Indias ood processing industry ischaracterized by the signi cant presence o theunorganized sector. This there ore is a constraint

or the implementation o technologies andpractices which are ollowed by only a ewcompanies

Thailand: Thai food processing industry is predomi-nantly SMEs (50 ~100 employees and investmentof up to 3 mn $)

98% of all industries in Thailand are SMEs andnearly 42% of the SMEs engage in food processing

However in products like Dairy, Shrimp etc., largecorporates and the cooperatives have a majorshare (1997)

Government promoted the cooperative movementin the dairy industry by solidifying contracts andsubsidies to the farmers and also regulated prices.

The number of cooperatives increased from 28

with 7785 members in 1988 to 106 with 19969members in 1997 in the dairy sector

A few companies in Thailand pioneered verticalintegration in the poultry sector. CharoenPokphand (CP) group in the late 1960s integratedthe entire poultry chain from producing feedstock,selling feedstock to the farmers, contract farmingof poultry and marketing the poultry

Condensed Milk Marke t Share

Thai Dairy Industry 58%

Foremost 20%

Nestle 10%

UHT Milk Market Share

Foremost 50%

Nongpho 25%

Thai Dairy Industry 20%

India: The industry is mainly unorganized with75% of the processing units in the unorganizedcategory. The organized category though small, isgrowing fast.

Many of the companies are small scale / mediumsized and hence investment in technology,sanitary/Phyto-sanitary measures are unlikely.

Unorganized players are not registered and theyare household/cottage industries having local

presence SSI constitutes around 33% of the total number of

companies and are companies with investment lessthan Rs. 1 Cr in xed assets

Existence of cooperatives in Dairy sector is similarto Thailand due to which the processing level ofmilk is higher(35%) compared to other products(average 7%)

Structure of Indian Food Processing Industry

Unorganised,42%

Organised,25%

Small Scale, 33%

Sources: The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies ofdevelopment and restructuring in Thailands Agri-food sector Jasper Adam Goss 2002, Indian Food Processing Industry Way2wealth - 2008



Though contract arming was promoted in Thailand only in the 90s, a number o companies in poultryand shrimp production had started contract arming during 1970s. Later, agricultural produce was alsodone under contract arming. However, in India, contract arming is still in nascent stage with only a

ew companies practicing them

Thailand: Contract farming was given priority bythe government from the sixth plan and it emergedas a major method of production in the country ina lot of agricultural produce

Contract Farming in Thailand started more thanthree decades ago, in poultry, sugarcane, tobacco,pineapple, and vegetables.

In poultry, the system of contracting was put inplace by the Charoen Pokphand (CP) group in theearly 1970s. It also introduced wage and priceguarantee contracts for growers in 1976. The CPgroup also tried contract faming in shrimp produc-tion through independent growers and coopera-tives in the mid-1980s, with support from theBank of Agriculture and Agricultural Cooperatives(BAAC). However, since farmers were opposed tothe xed price contracts, the cooperatives werediscontinued. Thus, CP no longer practices contractfarming system in shrimp and procures from openauction markets and from its own farms

By the early 1990s, contract farming was in placein the following crops/commodities in Thailand:poultry, dairying, palm oil, pineapple, tobacco,sugarcane, kenaf, asparagus, maize, maize seed,castor oil, eucalyptus, baby corn, cashew nuts,sun ower, barley, sea shrimp, cotton, tomato,tomato seed, rubber, gherkins, peas, string

beans, silkworms, swine, bamboo shoots, ginger,mushroom and fragrant rice.

By the late 1990s, almost 100 per cent of commer-cial production of poultry in the country, especiallythat meant for frozen chicken exports, was undersome form of contract. Later, it expanded tovegetable seeds and crops like tomato

India: The Agricultural Produce MarketingCommittee (APMC) Act required that farm producebe sold only at designated government marketsthrough registered intermediaries.

Under the Act, the private sector / processingindustry was not allowed to buy directly fromfarmers. The farmers were also restricted fromentering into direct contract with any buyerbecause the produce was required to bechanneled through regulated markets.

These restrictions acted as a disincentive tofarmers, trade and industries. The priority,therefore, was to amend the restrictive APMC Act.The central government drafted a model APMCAct (since agriculture falls under the jurisdiction ofstate governments) in 2002, which allowed privateplayers to set up markets not regulated by themarket committee.

Under the new Act, it was not required to bringagricultural produce covered under contractfarming to the APMC market / private market;it may be sold directly from farmers elds tocontract farming sponsors.

Several state governments have already initiatedlegal amendments to the APMC Act, allowingfarmers to sell their produce in open markets, andthis has given a boost to contract farming.

There are a few successful cases of contractfarming in India like Pepsi in Punjab, AppachiCotton Companys integrated cotton cultivation,Ugar Sugars barley cultivation, etc

Source: Indias agrarian crisis and smallholder producers participation in new farm supply chain initiatives: A case study ofcontract farming, Vijay Paul Sharma June 2007Contract Farming Ventures in India: A Few Successful CasesThailand Data : http://www.allbusiness.com/ nance/534767-1.html


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Many states in India have amended the APMC act to acilitate the d irect linkages with the armer.However only ew companies have tapped the potential. More direct linkages and contract arming areexpected in the uture

India Due to the presence of large number of intermediaries there is an escalation of cost as well as deterioration of

quality. The farmer typically gets only 35% of the value where the majority of the price escalations happen in the hands

of the intermediaries

Supplychain

Farmer Village comm.agent

Districtcomm. agent

Wholesaler Sub-wholesaler Retailer Consumer

Margin-% shareof nalprice

35% 15% 10% 10% 10% 20%

Issues Non-transparent pricing Limited nancial

capabilities

Primitive cleaningsorting & gradingfacilities

Wastage rampant Lack of quality & hygiene consciousness Lop-sided pricing

Opportunistic pro teering

High prices Limited choices



Indias domestic market has a signi cant potential or processed oods which is expected to growmore with increasing urbanization, upward movement o salary levels and changing li estyles

Thailand: Thailands domestic market for processedfoods is estimated to be around $20bn. Domesticdemand for processed food goods is showingconsiderable growth; between 2001 and 2006

sales of ready-to-eat processed meals in Thailandgrew 54%, reaching $33 million.

As lifestyles continue to change, the demandfor convenient and ready-to-eat processed foodproducts is increasing. Additionally, Thailandssizeable tourism industry, which attracts over 10million tourists per annum, is expected to drivefurther growth for the countrys food processingindustry.

Exports: Thailand exports around $ 11bn ofprocessed foods and it is the second largest exporteramong the developing nations. The encourage-

ment of agro-industry since the 1970s has led to thedevelopment of key exports other than rice, suchas rubber, sugar cane, and broiler chickens, makingit the most important industry in terms of contribu-

tion to GDP. Shrimp farming and processing wasadded in the 1980s, and consequently frozen shrimpexports to Japan and the USA grew rapidly making itone of the largest player in the exports


Demand conditions and

firm structure

India : The market size for the processed foods isexpected to increase from US $110 billion currentlyto US $330 billion by 2014-15 assuming a growthof 10%.

The share of the value added products in processedfoods is expected to double from US $40 billioncurrently to US $88 billion during the same period,growing at the rate of 15%.

Rising Income levels: Indian domestic market is oneof the most attractive consumer markets in theworld with the increase in income levels across thepopulation segments. Food and grocery comprisethe largest share (nearly 45%) of the spending piefollowed by personal care items, thus offering a lotof scope for the food-processing industry

Changing Lifestyles: Increase in the population ofworking women and increase in nuclear doubleincome families in urban areas are some of theother factors that are in uencing the lifestyles. Asa result, there has been an increase in demand forprocessed, ready-to-cook and ready-to-eat food.According to Euromonitor, money spend by Indianson meals outside the home has more than doubledin the past decade to about US $5 billion a year,and is expected to further double in the next 5years.

Exports: India exports around $ 5bn of processedfoods in 2007. The major fruits exported aremangoes, grapes, citrus fruits pomegranates,lychees, dried nuts etc. China has opened itsmarket for Indian mango, grapes and bitter gourd.Efforts are on to secure market access for the fruitsin Japan, USA and Australia. The long awaitedaccess to the Japanese market for Indian mangoeswas achieved in June 2006. The rst consignmentof mangoes left the Indian shores for USA recently.However, majority of Indian exports are to thedeveloping nations.

Sources: Thai Market Overview Department of PrimaryIndustries VictoriaIndian Food Processing Industry Sector Coverage

Way2wealth 2008, APEDA Website, Science TechEntrepreneur October 2007


34/10434



Foreign investment in ood processing industry in India is very low compared to Thailand. Foreigncompanies brought in technology and access to export markets or the Thailand companies.

Thailand: Thailand has attracted signi cant invest-ments in the food processing industry by Japaneseand US rms which gave access to the exportmarkets

The growing demand for processed foods in Japanforced companies to look for new sources. SinceThailands food habits are similar to Japans manyJapanese companies entered Thailand as early as1960s

Thailand served as a base for USAs operationsduring Vietnam War in the 60s, and a lot ofcompanies entered JVs with Thailand companies toserve processed foods to US army in the region

In 1962, the Japanese company SogoshoshaMitsubishi had taken a stake of 49% in ThaiPineapple canning industry cooperation with localpartner Phiphattanakit

Similarly, Charoen Pokphand (CP) group enteredinto partnership with Arbor Acres Farm Inc. of USfor producing parent stock for chicken breeding;Mitsubishi corporation for breeding large sized(black tiger) shrimp; and the Dekalb Agresearch Coof USA for developing a hybrid variety of maize

These multinational companies assisted Thaicompanies in production technology, anddeveloped new markets for the companies.Japanese companies provided modern technologyin slaughtering the chickens to the companies inThailand and sold the product in Japan

Country of Investment USD mn

Mauritius 229.3

USA 83.8

Switzerland 74.9

Germany 40

Netherlands 28.2

Total 456.2

Sources: Capitalist development in Postwar Thailand:Commercial Bankers, Industrial Elite and AgribusinessGroups Akira Suehiro,The waning of National Developmentalism and the PoliticalEconomy of Agri-business in Siam: Case studies of devel-opment and restructuring in Thailands Agri-food sector Jasper Adam Goss 2002,FDI data FICCI

India: Foreign investment in Indias food processingindustry is very low compared to Thailands foodprocessing industry.

India attracted just US$456 mn of FDI from 2000to 2006

Some of the successful ventures from EU countriesare Perfetti, Cadbury, Godrej-Pillsbury and ManjiniComaco


36/10436

Food Sa ety and HACCP Practices: Level o implementation o SPS standards and HACCP proceduresare high in Thailand compared to India. Adherence o these standards are critical or exporting todeveloped economies like EU and USA. This is the reason or Thailands higher exports to EU and USA,whereas Indias major exports going to developing nations

The SPS (Sanitary and Phytosanitory) standards has been used as a powerful tool to impede international tradeand protect domestic producers through unjusti ed differential requirements in different markets, unnecessarycostly or time consuming tests, or duplicative conformity assessment procedures

USA: Although exports of shrimps to the US are not subject to tariffs, they must comply with the HACCP of theUS.

Japan: In case of Japan, exporters are subject to a pre-certi cation system, Food Sanitation Law, andStandardization and Labeling Law of Japanese Agricultural Standards.

European Union: Exports of shrimps to EU are subject to HACCP, European Commission Rules, Green Dot, andISO 9000.

Thailand: To implement the SPS and HACCPrequirements, a code of conduct was drafted in1999 in Thailand by 5 organizations: Departmentof Fisheries, Thai Marine Shrimp FarmersAssociation, Thai- Frozen Foods Association, ThaiFood Processor's Association, and Aqua-cultureBusiness Club.

In a survey of the Thai seafood processing industry,94 % of the 120 companies obtained at least onequality standard certi cation - either ISO9000(30%), HACCP (69%) - or both (28%)

About 77 percent of the rms obtained thestandard within the rst three years. This isevidence of the increasing awareness amongseafood processing companies about the needto comply with SPS standards. Large rms havegreater incentive to obtain the certi cation becauseof the lower cost of compliance per unit of output.

There are instances where the farmers and traderspooled in huge amount of money for testing thequality of the food

India: Indian exports are predominantly to thedeveloping markets. The primary reason for thisis the inability of the suppliers to meet the SPSstandards.

For example, the rejections of Indian shipments byUS has increased from 860 during May 1999-April2000 to 997 during December 2001-November2002

Most of the producers and exporters being thesmall and medium enterprises (SMEs) in nature failto incorporate such standards in their productionprocess due to their limited nancial capacity andexpertise thus ending up losing export order.

Very few companies have implemented thesestandards. The cost of implementing thesestandards is approximately $10,000, which smallcompanies may not be able to afford.

Lack of technology / quality standards: e.g. While

Indian mangoes fetch premium prices in USA,they needs to be irradiated for exports. India hasonly 1 irradiation center which hinders the growthpotential of the export of the mangoes*.

Sources: SPS and Thailand's Exports of Processed Food, Bhanupong Nidhiprabha, An Appropriate Manufacturing strategy forthe Thai Food Processing Industry Pongpattanasili, Food Safety in a Globalizing World: Opportunities and Challenges forIndia, Environmental Standards in Food Processing Industry: Impact on South Asian Exports 2006* - Anecdotal evidences



The structure o the industry has had an impact at the rm level. Indian companies have very lowlevels o collaboration with the customers in key areas like production planning and transportationplanning which in turn has an e ect on their operational e ciency o inventory turns and on-timedelivery.

% with medium to high collaboration

.%10.%20.%30.%40.%50.%60.%70.%80.%90.%

100.%

11.5

2

2.53

3.54

4.55

P r o d u

c t i o n p

l a n n i n

g

I n v e n t

o r y r e p

l e n i s h

m e n t

T r a n s p

o r t a t i o

n p l a n

n i n g

C o s t r

e d u c t i o

n

Q u a l i t

y i m p r o

v e m e n t

P r o m o

t i o n p

l a n n i n

g

D e m a

n d p l a

n n i n g

S t r a t e

g i c p l a

n n i n g

P r o d u

c t i o n p

l a n n i n

g

I n v e n t

o r y r e p

l e n i s h

m e n t

T r a n s p

o r t a t i o

n p l a n

n i n g

C o s t r

e d u c t i o

n

Q u a l i t

y i m p r o

v e m e n t

P r o m o

t i o n p

l a n n i n

g

D e m a

n d p l a

n n i n g

S t r a t e

g i c p l a

n n i n g

Global average European RegionHigh Performing companiesIndian Food Processing Industry

Source: Primary Survey conducted by Deloitte

% o f c o m p a n i e s

As discussed in the earlier page, Indian companies score low on the on-time delivery. The on-timedelivery o the global and high per orming companies are in more than 98% whereas the on-timedelivery o Indian companies are in the range o 95~97%

Percentage of shipments that mee t customer request date (for the different peer groups).

Global On Time Delivery

.%

10.%

20.%

30.%

40.%

50.%

60.%

< 93.5 % 93.5 - 95%95 - 96.6% 96.6-98.1% > 98.1%

Regional On Time Delivery

.%

10.%

20.%

30.%

40.%

50.%

60.%

70.%

80.%

90.%

100.%

< 93.5 % 93.5-95% 95-96.6 % 96.6-98.1 % >98.1 %

High Per orming On Time Delivery

.%

10.%

20.%

30.%

40.%

50.%

60.%

70.%

80.%

90.%

100.%

< 93.5% 93.5-95% 95-96.6 % 96.6-98.1 % >98.1%

Global a verage European RegionHigh Performing companiesIndian F ood Processing Industry




Source: Primary Survey conducted b y Deloi tte


38/10438

Collaboration with the suppliers is also low compared to the global and high per orming companies.

% with medium to high collaboration

.%10.%20.%30.%40.%50.%60.%70.%80.%

90.%100.%

11.5

2

2.53

3.54

4.55

P r o d u

c t i o n p

l a n n i n

g

I n v e n t

o r y r e p

l e n i s h

m e n t

T r a n s p

o r t a t i o

n p l a n

n i n g

C o s t r

e d u c t i o

n

Q u a l i t

y i m p r o

v e m e n t

P r o m o

t i o n p

l a n n i n

g

D e m a

n d p l a

n n i n g

S t r a t e

g i c p l a

n n i n g

P r o d u

c t i o n p

l a n n i n

g

I n v e n t

o r y r e p

l e n i s h

m e n t

T r a n s p

o r t a t i o

n p l a n

n i n g

C o s t r

e d u c t i o

n

Q u a l i t

y i m p r o

v e m e n t

P r o m o

t i o n p

l a n n i n

g

D e m a

n d p l a

n n i n g

S t r a t e

g i c p l a

n n i n g

Global average European Region

High Performing companiesHigh Performing companies from an emerging nationIndian Food Processing Industry

Source: Primary Survey conducted by Deloitte


Supplier delivery rates in India are signi cantly low at about 75% which could primarily be due to thelow levels o supplier collaboration

Number of ontime deliveries/total number of deliveries (in %)

Supplier on-time delivery %

< 68 % 68-75.9% 75.9-83.9 % 83.9-91.8 % > 91.8%.%

10.%

20.%

30.%

40.%

50.%

60.%

70.%

80.%

90.%

100.%

.%

10.%

20.%

30.%

40.%

50.%

60.%

70.%

80.%

90.%

100.%

Global a verage European RegionHigh Performing companiesIndian F ood Processing Industry





.%

10.%

20.%

30.%

40.%

50.%

60.%

70.%

80.%

90.%

100.%

Global Supplier Delivery % Regional On Time Delivery % High Performing On Time Delivery %

< 68 % 68-75.9% 75.9-83.9 % 83.9-91.8 % > 91.8% < 68 % 68-75.9% 75.9-83.9 % 83.9-91.8 % > 91.8%

High Performing companies from an emerging nation



The low levels o customer and supplier collaboration results in the organizations being orced to stockhigh levels o nished goods and raw materials impacting inventory turns and there ore pro tability

(Annual cost of goods sold) / (average total on hand inventory)

Inventory turns

.% .%

10.%

20.%

30.%

40.%

50.%

60.%

70.%80.%

90.%

100.%

Global a verage European RegionHigh Performing companiesIndian F ood Process ing Industry





.%

10.%

20.%

30.%

40.%

50.%

60.%

10.%

20.%

30.%

40.%

50.%

60.%

Global turns Regional turns High Performing turns

High Performing companies from an emerging nation

< 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2 < 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2 < 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2

Due to the ragmented nature o the ood processing industry in India and there are only a ew largecompanies, the product range o ered by the companies are limited compared to their global peers.

Also, lack o vertical integration limits the expansion capabilities and scale economy

The product range of Indian companies is relatively less compared to the multina-tional companies. Global companies like Kraft Foods operate in various segmentswhereas Indian companies like Britannia still have a single/few product lines

Large companies which are vertically integrated increase ef ciency and reducecosts. This also provides them the power to control the market

GlobalCompanies

Semi-finished IndustrialProducts Baker y B ever ages Dai ry / Ice Cr eams M eat / Fi sh Pr epar ed Fo od s / Sn acks Ed ibl e Oi l Sug ar and Co nfecti on ar y

Nestle X XXX XXX XX XX XX

Cargill XXX XX

Kraft foods XX XX XXX X XXX X XX

ADM XXX

Unilever X XX X XX XXX XXX X

Indian Companies Semi-finished IndustrialProducts Bakery Beverages Dairy / Ice Creams Meat / Fish Prepared Foods / Snacks Edible Oil Sugar and C onf ectionary

GCMMF XXX X

Nestle X XXX XXX XX XX

Hindustan Unilever XX XXX X X X

Britannia XXX X

Tata Tea XXX

Data of some of the top 25 global and Indian food processing companiesX low presence in the category XXX high presence in the categorySource: Rabobank, Anecdotal evidences


40/10440

Impact o Firm Structure: Example o US Poultry and Meat Industries

Meat / poultry processing industries were located nearthe production centers due to the lack of transportationfacilities.

Government also prevented the major processingcompanies from engaging in retail sales or use of theirdistribution channels for purposes other than distrib-

uting their own meat and dairy products.

However, post world war II, reductions in transporta-tion costs resulted in large processing rms far from theproduction facilities.

Per capita consumption of meat decreased in 1980swhich meant that sales volume growth could occur ifonly one rm acquired the shares of other rms (Meatand poultry consumption changed very little over1972-92, rising incrementally from about 168 poundsper person in 1972 to about 175 pounds in 1992 on aretail boneless-equivalent basis)

For rms competing in markets for semi-processedgoods, such as meat packers and processors, this meantthat plants had to compete on selling prices, puttingpressure on their own wage and operating costs.

This encouraged rms to employ larger plants withmore sophisticated equipment designed to handle muchgreater throughput, but requiring continuous produc-tion. In the process, highly competitive meatpacking andprocessing industries emerged.

1920s 1980s 1980 till now

Consolidation o the industry leading to largerfrms which controlled the value chain and

ocus on operational e fciency

Sources: Structural Changes in the Meat, Poultry, Dairy and Grain Processing industries Micheal Ollinger, Sang.U.Nguyen, Donald Blayney, Bill Chambers and Ken Nelsen US Department of Agriculture - 2005

Ownership Number ocompanies

Share(%)

Number oemployees

Share(%)

Value o shipments(US$ billion)

Share (%)

Corporations 15,135 68.9 1,309,912 89.3 378.94 89.9

Sole proprietorships 4,705 21.4 26, 499 1.8 3.59 0.9

Partnerships 1,436 6.5 39, 145 2.7 9.98 2.4

Other non-corporate forms 682 3.1 91,400 6.2 29.23 6.9

All establishments 21,958 100.0 1,466,956 100.0 421.74 100.0

1972 1977 1982 1987 1992 1997

Meat packing 26 21 29 39 50 57Poultry processing 17 17 22 29 34 40

US ood industry statistics by company structure, 1997

Source: US bureau of the census, 1997 Census of manufacturers



Supporting industries


42/10442

Institutions in Thailand provided all the necessary support or the industry and helped in making it oneo the largest exporter o the processed oods

Sources: Evolution of Agro-biotechnology innovation system in Thailand Pun-Arj ChairatanaISI Emerging Markets -Thailand Industry Research 4Q 2007 report

Organization Roles

Universities like Kasetsart, Majoe Higher education in the areas of agriculture research and related science

Agriculture is one of the top 10 fields of research in Thailand

Agriculture Research DevelopmentAgency (ARDA)

Providing funds in the areas of Agricultural research

Laboratory Center for Food andAgricultural Products Co., Ltd (LCFA)

Directly under the Ministry of Agriculture and Cooperatives

Centralized laboratory facilities service and export reference lab service

Issues Health Certificate under various bodies like Department ofLivestock Development, Fisheries and Agriculture- One Stop Service

Information support for agricultural and food product exporter

National Science and TechnologyDevelopment Agency / National Centerfor Genetic Engineering

Funding more than 200 research projects related to plant, animal andhuman biotechnology

Thai Frozen Food Association Exports Problem Solving Committee ( to solve the quality problems facedduring exports)

Data and Information Committee ( to provide news and information aboutfishery products)

North America Shrimp Exporters Group ( to negotiate shipping costs withthe liners. The group members enjoy cheaper freight rates)



There are numerous institutes providing support or the ood and agro processing industry. Instituteslike CFTRI provides technical support whereas APEDA , MPEDA etc promotes export o the products

Organization Roles

Central FoodTechnologyResearch Institute

(CFTRI)

Research and Development in the areas of food science and technology The focus is on developing low-cost technology , utilization of indigenous raw materials, bio-

friendly technology and food safety and nutrition Linkages with organizations like FAO, UNICEF, World bank etc Also provides process engineering and plant design for the entrepreneurs Provides more t han 300 test ing services to facilitate export requirements Has more than 200 faculty in various research areas and provides training in the areas of food

technology, biochemistry , microbiology etc

National DairyResearch Institute

Research in the areas of Dairy Production, Processing, Management and Human ResourceDevelopment

To develop Dairy Farming Syst ems for different agro-climatic conditions and demonstratemodels for transfer of technology

Indian Council of

AgriculturalResearch

ICAR is the apex body for coordinating, guiding and managing research and education in

agriculture including horticulture, fisheries and animal sciences in the entire country To provide, undertake and promote consultancy services in the f ields of educat ion, research,

training and dissemination of information in agriculture, animal husbandry, fisheries, homescience and allied sciences.

Agricultural andProcessed FoodProducts ExportsDevelopmentAuthority (APEDA)

To promote export of agricultural products Data on international trade of agriculture and processed foods; Importers and Exporters list;

Financial assistance schemes; Food regulation in various countries and provides the list of recognized labs

Marine ProductsExportsDevelopment

Authority (MPEDA)

To promote the export of marine products, specifying standards, processing, marketing andtraining

National Institute of nutrition

Conducts research on improving the nutrition level of t he people especially children andwomen

Providing Nutritive value of Indian foods,: Energy requirements of various demographicprofiles

Sources: Websites of the organizations, Anecdotal references


44/10444

Though there are numerous institutions providing support or the ood processing industry, thereis very little evidence o coordination between them which results in the lack o synergy or thepromotion o the industry

Operating under various ministries result in lack of coordination: CFTRI is part of Council of Scienti c and Industrial Research (CSIR) under the Ministry of Science and Technology, National Dairy Research Institute (NDRI) is a deemed university governed by Indian Council of Agricultural

Research (ICAR) which falls under the ambit of Ministry of Agriculture National Institute of Nutrition (NIN) is governed by Indian Council of Medical Research (ICMR) which is under

the Ministry of Health. Limited interaction with leading global institutes in terms of exchange of faculty / research personnel or

students: Interaction with global institutes is important, keeping in view the nascency of the Indian food industry. Global institutes work closely with industry compared to Indian institutes, leading to a higher degree of under-

standing of the latest trends in demand for foods and beverages. This allows for greater interaction betweenstudents, research personnel and industry, and leads to a more application-oriented approach.

Extent of commercialization of indigenously developed products: There is limited synergy between academics / teaching and research, leading to lack of adequate industry

interface and also lack of high quality personnel. The low interaction with industry leads to limited focus onapplied research. This in turn leads to low commercialization of indigenously developed technologies.

Multinational companies typically have an in-house global network of R&D professionals but are willing toexplore working with Indian institutions for developing India-speci c products and processes. This provides anopportunity for the institutions.

Today, these companies utilize the research institutes primarily for routine testing such as basic product compo-sition, trace metal analysis, pesticide and antibiotic residue testing etc. In most cases these tests are undertakento validate internal research, thus highlighting the restricted usage of these facilities.


Supporting industries /

Institutions

Sources: Rabobank , Websites of the organizations, Anecdotal references



Few Examples o the best practices in the linkages o the institutes with the Industry: Consultingservices, technical assistance to the industries and student study tours are some o the best practicesthat are ollowed by institutes in other countries

Organization Areas of focus

InstituteTecnologicoy de

Estudios SuperioresMonterrey- CampusQuertaro (ITESM-CQ)

Recruits international experts which helps facilitate international research projects.

It also participates in research by exploring various aspects of dairy science, from food safetyissues to cross- country comparison of dairy industries through linkages with Babcock Institute forInternational Dairy Research and Development, University of Wisconsin Madison, USA

Includes student study tours and internships, as well as planned training programs for dairycooperatives in Mexico

Center for AdvancedFood Technology(CAFT), University ofRutgers, USA

Has a technology extension program, serving as an incubator, wherein direct technical assistanceis provided to SMEs in the areas of developmental manufacturing, quality assurance, leasing ofspace/equipment/personnel and training courses


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Government support



The Thai government had played a major role in supporting the ood processing industry by providingvarious incentives or the companies. Government o India has also declared ood processing industryas a sunrise sector due to its potential or growth

Thailand government played a major role in developingthe food processing industry in the country

Food processing sector is treated as a export

oriented industry Encouraged high vale added product from local

raw materials aimed at export market Development of quality control for food products

to ensure safety in both domestic and internationalmarkets

Government provided support exclusively for shrimpexports. During the sixth plan(1986-91) it providedmore than $ 84 mn to encourage the shrimp culture

The seventh plan (1992-96) promoted the contract

farming with emphasis on export promotion

Creation of zones 1, 2 and 3 ( Bangkok zone 1;and regions closer to it are zone 2 and farther fromit are zone 3).

Based on the zones incentives were providedranging from tax holidays for 8 years and 50%for the next 5 years, duty free technology andraw material imports, exemptions from export,income and sales tax and tax credits for exportperformance.

Double Deduction on Taxable Income of Water,Electricity, and Transport Costs for 10 Years fromDate of First Sale, 100% Import Duty Exemptionon Machinery

Foreign Companies can own Land for Residentialand Business Purposes

The Indian government is providing various incen-tives to promote the food processing industry inthe country after liberalization (1991- 1992)

A few of the measures are:

FDI up to 100% is permitted under the automaticroute in the food infrastructure (food park, coldchain/warehousing)

Automatic approval to FDI up to 100% equityin Food Processing Industry excluding alcoholicbeverages and a few reserved items

No industrial license is required for almost all ofthe food & agro processing industries except forsome items like: beer, potable alcohol & wines,cane sugar, hydrogenated animal fats & oils etc.and items reserved for exclusive manufacture in thesmall-scale sector.

Up to a maximum of 24% foreign equity is allowedin SSI sector Income tax rebate allowed (100% of pro ts for ve

years and 25% of pro ts for the next ve years)for setting up of new agro-processing industries toprocess and package fruits & vegetables

Fruits & vegetables, and dairy machineries arecompletely exempt from excise duty. Central exciseduty on preparation of meat, poultry and sh,pectin and yeast is also completely exempt.

Customs duty on refrigerated goods transportvehicles has been reduced form 20% to 10%.

Excise Duty of 16% on dairy machinery has beenfully waived and excise duty on meat, poultry and

sh products has been reduced from 16% to 8%.

Sources: An appropriate manufacturing strategy model for the Thailands food processing Industry 2004The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies of developmentand restructuring in Thailands Agri-food sector Jasper Adam Goss 2002,Ministry of Food Processing Industry - India, Indias Processed Food Industry Way2wealth - 2008


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Schemes o ered by the ministry o ood processing industries:

Schemes Description

Income Tax Relief Tax deduction for 100% of profit for five year and 25% of profits for the next five years incase of new agroprocessing industries set up to process, preserve and package fruits andvegetables.

Excise Tax Relief Exemption limit of excise duty for Small Scale Industry (SSI) raised from Rs.1 crore to Rs.1.5crores

Excise duty on reefer vans (refrigerated motor vehicles) reduced from 16% to 8% and on dairymachinery has been fully exempt for promotion of dairy processing industries

Excise duty on condensed milk, ice cream, preparations of meat, fish and poultry, pectins,pasta and yeast , soya bari (food supplements) and ready to eat packaged foods, on vanaspatifully exempt.

Excise duty on ready- to - eat packaged foods and instant food mixes like dosa and idli mixesreduced from 16 percent to 8 percent.

Customs Duty Relief Custom duty reduced from 7.5% to 5% on food processing machinery, 20% to 10% onrefrigerated vans, 65% to 50% on sunflower oil (crude), 75% to 60% on sunflower oil (refined)

Customs duty on packaging machines reduced from 15 percent to 5 percent.

Scheme for InfrastructureDevelopment

Food Parks, Packaging Centres, Modernizing Abattoirs, Integrated Cold Chain facilities,Irradiation facilities, Value added centers at an estimated budget of Rs. 2613 Cr

Scheme for Technology Up-gradation/Establishment/ Modernization of Food ProcessingIndustries at an outlay of Rs. 600 Cr

Scheme for QualityAssurance, Codexstandards and R&D

Food safety and quality assurance mechanisms, Strengthening Codex cell, Continuous R&D,Setting up/up gradation of quality control laboratories, Promotional activities such asparticipation in exhibition/ fairs/supporting seminars/workshops/ studies and surveys, Genericadvertisement, Preparation of short films and publicity material for different events at anexpense of Rs. 250 Cr

Scheme for Human

Resource Development

Setting up of Food Processing Training Centres (FPTCTC), Imparting training to update skills,

Entrepreneurship Development Programme (EDP), Facilitating Universities/Institutions forrunning degree/diploma courses at an expense of Rs. 65 Cr

Scheme for strengtheningof institutions

Rs. 325 Cr is allotted for strengthening of institutions, setting up Wine Board and Meat andPoultry Processing Board

Sources: Website of Ministry of Food Processing Industries



Action plans o department o animal husbandry, dairying and fsheries

Sources: Department of Animal Husbandry, Dairying and Fisheries

Department Project Description

AnimalHusbandry

National Project forCattle and BuffaloBreeding

To arrange Artif icial Insemination service to the cattle farmers in order to developquality cattle

Two phases: Allocation of Rs 402 Cr in the phase 1

Assistance to fodderblock making units

25% of the investment needed will be provided

During 2007- 08 (up to 31.12.07) an amount of Rs 21.25 lakhs was released

Grassland development(including reserves)

To improve degraded grasslands and rehabilitation of saline, acidic and heavy soilsthrough vegetation cover

A 10 hectare land would be provided and up to a maximum of Rs 10 lakhs fordevelopment

Fodder seed Production& DistributionProgramme

To produce high yielding varieties of fodder.

75% of the procurement price is provided for the purchase of fodder seeds fromthe farmers

The state government furnishes a firm commitment for purchase of fodder seedsfrom farmers

Biotechnology Research

Projects

Research projects in the areas of feed and fodder can be undertaken in

collaboration with research institutes / agricultural universities etc.100% central grant is provided by the government

However, during 2007- 08 no funds were released since there were no suitableprojects

Poultry Development Assistance to state poultry / duck farms with a maximum of Rs. 85 lakhs for eachfarm

During 2007-08, Rs. 14.15 Cr was released and 201 farms were benefitted

Livestock Insurance 100 selected districts across the country were covered with an approved outlay ofRs. 120 Cr

This scheme will also popularize rearing of quality breed of animals


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Department Project Description

DairyDevelopment

Intensive DairyDevelopment Program

Dinput evelopment of milch cattle, increasing milk production by providingtechnical services

84 projects have been approved in 206 districts with Rs. 480 Cr covering around 15lakh farmers

Rs. 30 Cr has been allocated for strengthening infrastructure for quality and clean

milk productionDairy / Poultry VentureCapital Fund

Assistance is provided in areas of milk processing at the village level, quality up-gradation and technology

Rs. 25 Cr has been allotted for the same

Strengthening ofCooperatives

NDDB allocated Rs. 1000 Cr for strengthening of the cooperatives in the areas ofimproving infrastructure, productivity enhancement, quality assurance and creationof national information network

Fisheries Development of InlandFisheries andAquaculture

During 2006- 07, additional area of 22,984 ha was brought under fish culture and37,923 personnel were trained in the improved production practices

A sum of Rs. 20 Cr was released during 2006- 07

Development of MarineFisheries, Infrastructureand Post HarvestOperations

Subsidies for motorization of traditional crafts, assisting the small scale mechanizedsector by subsidizing the excise duty on fuel

Setting up infrastructure for safe landing, berthing and post harvest operations etc.

Welfare Programs forFisherman

Welfare of Fisherman: Development of model fishermen vil lages, Group AccidentInsurance for Active Fisherman and schemes to provide financial assistance duringlean fishing season

Fisheries Training and Extension: To provide training to the fishery personnel inupgrading the skills

Other Schemes Strengthening of database and information networking

Assistance to Fisheries Institutes

In addition, various schemes are proposed to the government in the areas of increasing entrepreneurship in poultry farming,developing small ruminants, piggery, schemes for utilizing fallen animals and carcasses, establishments of rural slaughterhouses,salvaging and rearing of male buffalo calves etc

Most of the schemes offered by the ministries are aiming to promote entrepreneurship, building economies of scale etc. however,the effective implementation of these schemes needs to be ensured by the ministries.

Sources: Department of Animal Husbandry, Dairying and Fisheries



Indian government has taken a number o steps to promote the exports o the processed oods

Export Promotion:

Food-processing industry is one of the thrust areasidenti ed for exports. Free Trade Zones (FTZ) andExport Processing Zones (EPZ) had been set up withall infrastructures. Also, setting up of 100% ExportOriented Units (EOU) is encouraged in other areas.They may import free of duty all types of goods,including capital goods.

Capital goods, including spares up to 20% of theCIF value of the capital goods may be importedat a concessional rate of customs duty subject tocertain export obligations under the EPCG scheme.Export linked duty free imports are also allowed.

Units in EPZ/FTZ and 100% EOUs can retain 50%of foreign exchange receipts in foreign currencyaccounts.

50% of the production of EPZ/FTZ and 100% EOU

units is saleable in domestic tariff area.


Government support

India: Late Start in

Government re orms

Source: Ministry of Food Processing Industry, Indias Processed Food Industry Way2wealth - 2008

All pro ts from export sales are completely freefrom corporate taxes. Pro ts from such exports arealso exempt from MAT.

Setting up of 60 agricultural zones for end-to-enddevelopment for export of speci c product fromsame geographies

53 food parks approved to enable small andmedium food and beverage units to set up and touse capital intensive common facilities such as coldstorage, warehouse, quality control labs, ef uenttreatment plant, etc.


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Key conclusions andrecommendations



Availability of naturalresources

One of the topagricultural producers inthe world

However, the processinglevels are low

High level of wastage

Government

Related andsupportingindustries

Demandconditions

Factorconditions

Firm strategy,structure

and rivalry

Indian Food Process ing Industry

Industry ishighlyfragmented

Very low FDIin foodprocessingsector in India

Rapid urbanization

Rising per capitaincome

More than 10%growth predicted

Presence of variousinstitutions

However, nosignificant evidenceof coordinationamong thesupporting bodies

Tax holiday fornew foodprocessing units

Liberalized overallpolicy regime

Factors Impacting Indian Food and A gro Processing Industry


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Key conclusions

Thailands factor conditions are better thanIndias especially in the areas of Yield per hectare.Contract farming and direct linkages with farmershave provided signi cant advantages to Thailand.Contract farming is still in the nascent stages inIndia. Though many states have amended theAPMC act, there are only a few successful cases ofintegration with the farmers

Foreign companies played a major role in theexports of processed food in Thailand. In India,FDI in food processing sector is very low andIndian industry is predominantly domestic marketoriented. However the government is providingsupport for the industry to cater to the domesticand international demand

Parameters Importance Thailand India

Factor Conditions Availabil ity of Raw Mater ials

Demand Conditions and Firm Structure /Rivalry

Structure of the Industry / VerticalIntegration

Access to Foreign Market

Local Market Demand

Direct linkages with Farmers

Supporting Industries Institutional Support

Government Support Tax Policies / Incentives



The following recommendations would help the Ministry of Food Processing Industry to achieve its ambitious targetsfor the year 2010 and 2015

Targets for processing levels ( % of total production)

Category 2004 2010 2015

Fruits and Vegetables 1 4 8Marine Products 11 15 20Meat 21 28 35

Poultry 6 10 15

Improve competitiveness of the rms in the sectorthrough cluster based initiatives Promoting a cluster based approach among thecompanies.

Promote Direct linkages with farmers: Government should promote contract farming and

should facilitate direct linkages of companies withthe farmers.

Private-Public Partnership in establishing primaryprocessing centers near the production zones

Wastage levels in India are high due to the inef-ciencies in transportation, storage etc. Primary

processing centers near the harvesting sites willreduce the wastage levels. It would also facilitateeasy storage

Cooperative approach in the fruits and vegetableprocessing

Facilitate the formation of co-operatives in fruitsand vegetables which would reduce the wastagelevels of the produce and increases the economiesof scale

Primary processing by the cooperatives should beallowed for preservation of fruits and vegetables

Purchases from co-operatives can be linked toincentives

Measures to increase the processed foods exportsfrom India

Promotion

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