Market Assessment of Food and Food Processing Industry in IndiaFinal Review

4 March 2014

Tecnova’s Presentation for Italian Trade Agency

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Table of ContentsTable of Contents

India Macro-economic Overview Food Habits in India Processed Food Industry in India

Processed Food Distribution Formats in India Processed Food Industry Overview Competition Analysis Developments in Processed Food Industry Regulatory and Custom Duties Analysis Presence of Italy in Indian Food Industry

Food Processing Machinery Industry Overview Major Target Industries for Machinery Manufacturers Customer Concentration Cold Storage Overview Packaging Machinery Overview

Conclusion and Recommendation

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India Macro-economic Overview

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The Indian DimensionThe Indian Dimension

Location Southern Asia, bordering Arabian sea and Bay of Bengal, between Burma & Pakistan

Area

Total: 3.3 Mn. Sq.Km (7th largest in the world) Land area: 2.97 Mn. Sq. KmLand boundary: 14,000 kmCoastline: 7,000 km

Climate South: Tropical monsoon North: Temperate

Terrain

South: Upland Plain (Deccan plateau)West: Dessert regionNorth: Himalayan mountain rangeRolling plain along the Ganges river

Natural resources

Iron ore, manganese, mica, bauxite, rare earth elements, titanium ore, chromite, natural gas, diamonds, petroleum, etc

Land use Arable: 48.8%; Other: 48.37%Capital New DelhiState and territories 28 States and 7 Union Territories

Official languages Hindi and English

North

West East

South

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Indian Geographical ClassificationIndian Geographical Classification

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1.2 Bn Population

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Majority of packaged food consumption will be concentrated in

the metros, cities and towns

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The Story so Far…The Story so Far…

Source: Census 2011

* Proportion of dependent population (0-14, Above 65 age group) to working population (15-64 age group)

Technological/Infrastructure Advancement

Mobile penetration 61.4% (752M)

International Airports 17

Internet penetration ~15% (~200M)

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Indian DemographicsIndian Demographics

* As per Census 2011 (latest census available)

Source: MOSPI

65% of the population falls in the working age group of 15-65 years

leading to rise in disposable income

Population classification by age group

With 1.2B population, India is the second most populous country making it a huge

market for processed food companies

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Metros of IndiaMetros of India

ChennaiBangalore

Hyderabad

Kolkatta

Delhi

Mumbai

Ahmedabad

Pune

~7% of India’s population lives in metros; a high potential segment for processed foods

Metro Population (Mn, 2011)

Literacy Ratio (2011)

Mumbai 23.5 82.0%

Delhi 16.8 76.2%

Kolkata 4.4 81.3%

Chennai 4.6 82.3%

Bangalore 9.6 79.4%

Hyderabad 4.0 72.5%

Ahmedabad 7.2 77.0%

Pune 9.4 77.3%

Total (8 Metros) 79.5 78.5%

Source: NCEAR & Census

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Major Cities in IndiaMajor Cities in India

City Population (Mn, 2011)

Literacy Ratio (2011)

Metros (8) 79.5 78.5%Surat 6.1 76.5%Kanpur 6.4 71.1%Jaipur 6.7 66.0%Lucknow 4.6 70.3%Nagpur 4.7 80.3%Bhopal 2.4 72.1%Coimbatore 3.5 77.1%Faridabad 1.8 72.1%Amritsar 2.5 68.9%Ludhiana 3.5 73.9%Chandigarh 1.1 76.8%Jalandhar 2.2 74.3%

All 20 Cities 125 76.2%

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Chandigarh

LucknowJaipur

AmritsarJalandhar

Ludhiana

Surat

Bhopal

Kanpur

Nagpur

Coimbatore

Faridabad

Tier I cities will drive the demand for Ready-To-Eat (RTE) and processed foods as there is a steady increase in

number of working women in these citiesSource: NCEAR & Census

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Income group classificationIncome group classificationAspirers and Middle Class groups are expected to riseAspirers and Middle Class groups are expected to rise

25 million (2%)

164 million (13%)

431 million (34%)

647 million (51%)

Population (% of total population) Annual Income

Above US$60,000 per annum

4 Mn Households

Between US$12,000–US$60,000 per annum

28 Mn Households

Between US$5,400–US$12,000 per annum

75 Mn Households

Less than US$ 5,400 per annum

114 Mn Households

• Source: NCAER (National Council for Applied Economic Research); Average household size in India: 4.8

• NCAER reports income levels at 2001-02 prices; to bring these to current prices (2010-11) income levels, a conversion factor of 2.7 has been taken to adjust the nominal per-capita income growth.

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With majority of consumption lying with the Middle Class and

Aspirers, these two groups are expected to play a

critical role in the development of processed food

industry in India

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Rate of InflationRate of Inflation

WPI: Wholesale Price Index; CPI: Consumer Price Index

Source: Central Statistical Organisation (CSO)

While WPI has been largely volatile, CPI has been increasing consistently indicating that consumption in India is increasing

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ADB – Asian Development Bank BRICS ASEAN Commonwealth of Nations FAO – Food and Agriculture Organisation G-15, 20, 24, 77 ICC – International Chamber of Commerce IMF – International Monetary Fund IMO – International Maritime Organisation ISO – International Organisation for

Standardisation ITUC – International Trade Union Confederation

SAARC – South Asian Association for Regional Cooperation

UN – United Nations (and those that come under UN)

WFTU – World Federation of Trade Unions WTO – World Trade Organisation

India is a member of more than 65 international organizations. The predominant ones are listed below.

For complete list, refer to the attached excel

India has been a founding member of a number of international organizations, and hence exerts significant influence on policy making

International Agreements Joined by IndiaInternational Agreements Joined by India

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International Agreements

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South Asian Countries (SAFTA) Bangladesh

Bhutan

Maldives

Nepal

Pakistan

Sri Lanka

Afghanistan

Japan

South Korea (India-Korea CEPA)

ASEAN (AIFTA) Brunei Darussalam

Cambodia

Indonesia

The Lao PDR

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

India currently has Free Trade Agreements India currently has Free Trade Agreements (FTAs) with…(FTAs) with…

FTAs are beneficial for companies with manufacturing facilities established in partner countries (above) making them entitled in import duties reduction

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The much talked about bi-lateral trade agreement between India and EU is still pending due to few last mile hurdles

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Food Habits in India

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Food Habits in Each Region Vary with Food Habits in Each Region Vary with Climate, Topography, Culture & HeritageClimate, Topography, Culture & Heritage

India is a culturally rich & diverse nation having varied

lifestyles, religions, art, culture, attire & food.

Weather & topography vary widely with region:

North: Closest to the Himalayan range, hilly regions

with extreme weather conditions; high fertility area

with high wheat production

West: Arid areas of Rajasthan and Gujarat – which

are dry and hot through most of the year. In some

coastal areas of Maharashtra, fish is the staple diet

South: Temperate climatic condition all through the

year; high rice production & consumption area

East: Hilly regions with varying weather conditions;

East is the poorest regions of the country

North

West East

South

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Indians take food very passionately

Mealtimes are considered as occasions and time for families to get together and spend quality time.

Fresh cooking is essential in most Indian homes, with limited preference for stocked food

Most meals comprise of several dishes ranging from staples like rice and breads, to meat or vegetables,

rounded off with a dessert

A typical Indian meal includes…Appetizers/ Starters Salad, Soup, etc.

Main Course

Curry & Dry Dish Vegetarian – Lentils, Cooked Vegetables (Potato,

Cauliflower, Okra, mixed vegetables, etc.) Non-vegetarian – Egg, Chicken, Mutton, Fish, etc.

Side items Yoghurt/ Raita Papad (thin & crispy bread made of lentils/ wheat Chutney (Herb-based thick sauce accompanying breads)

Indian Breads Roti/ Chapati, Parantha, Puri, Naan

Rice Biryani, Pulao, Jeera rice, Plain rice

Dessert Milk-based desserts like Kheer, Gulab Jamun, Halwa, etc.

Diversity of Food in IndiaDiversity of Food in India

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North Region – Madhya Pradesh, Uttar Pradesh, Haryana,

Punjab, Himachal Pradesh, and Jammu and Kashmir

Wheat-breads are the staple diet which accompany all meals

Largely meat-based diet characterized by tandoori-style

cooking methods

Fair amount of cooking is done using deep frying in oil

High consumption of milk and milk-based products

High consumption of fresh fruits such as apples, cherries,

plums and strawberries which are unique to this region due

to its cooler climate.

Increasing number of households are shifting toward replacing

traditionally made food items such as curd and cottage cheese

with packaged items (packaged curd or cottage cheese)

Punjabi Food

Food served with milk-based beverage (Lassi)

Regional Food Habits – North Regional Food Habits – North

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Southern India – Andhra Pradesh, Karnataka, Goa, Tamil Nadu, and

Kerala

Primarily vegetarian population barring coastal areas where fish is

a staple diet

Rice is abundant & appears in almost every dish during a meal &

are eaten in multiple forms

Tamarind and coconut form the base for most preparations, with

most curries based in coconut gravy

Hot spicy foods are cooked, with chettinad cuisine being one of

the most fiery

Food is often eaten on banana leaves

Major shift is seen in people moving towards ready-to-use packaged

food items for idlis and dosas, rather than going through the relatively

longer process of preparing the batter in-house

Food served on a banana leaf

Idli, Dosa

Regional Food Habits – SouthRegional Food Habits – South

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Western India – Rajasthan, Gujarat, and Maharashtra

High demand of dairy products, including yoghurt,

buttermilk, cow's milk, and goat's milk

Rice is the staple food grain

Goan cuisine is dominated by rice, coconut, fish and

seafood

Gujarati cuisine is largely vegetarian, with a hint of sugar

or jaggery in every preparation

Peanuts and coconut are widely used

Other popular cereals include gram flour, bajra and corn

Goan Fish curry

Gujarati Thali

Regional Food Habits – WestRegional Food Habits – West

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Eastern India - Orissa, Bihar, West Bengal, Assam,

Meghalaya, Tripura, Mizoram, Manipur Nagaland, and

Arunachal Pradesh

Relatively more simplistic and less elaborate food

Characterized by a variety of different types of rice

Predominantly fish eating population in coastal areas

Common practice to eat steamed food, e.g.: momos

Curries include lot of poppy, mustard and cumin seeds,

cumin seeds

World famous for sweets

Sandesh

Rasagolla

Momos

Regional Food Habits – EastRegional Food Habits – East

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Changing Trends in Consumer Preferences Changing Trends in Consumer Preferences for Foodfor Food

Growing middle class population and household incomes are driving people to spend more

on food

Increasing cases of lifestyle diseases have resulted in shift towards healthier food options

such as fruit juices, pro-biotics, cereals and oats

Shift in consumption preferences & increasing demand is driving the food companies to

introduce innovative products such as digestive biscuits, fortified dairy products, etc.

Increased demand for processed & packaged products with high shelf-life

Willingness to pay a premium for value-added products such as cheese, butter, flavoured milk

Overall change in palate and preference for newer varieties of food due to western influence

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Key Markets and Product Preferences (1/2)

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West Being the key port region, majority of players have a

presence in this region

Market is led by Modern retail channels and HORECA segment, also has a significant grey channel

Product Preference Biggest market for candies and confectionary

Key market for fruit based flavours, especially strawberry and orange

North Second most important market

Market led by wholesalers, but large volume of sales through grey channel; large number of Modern Trade food & grocery outlets

Product Preferences Wheat based products

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Key Markets and Product Preferences (2/2)

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South Highest penetration of Modern Trade, having high sales

per outlet

High levels of consumer awareness

Product Preferences Biggest market for chocolates and bakery products

Highest incidence of diabetic population in India leading to consumer awareness about healthy breakfast choices

Fastest emerging market for RTE/RTC foods

East Lowest sales volume by channels

High presence and consumption of mass/regional products

Product Preferences Preference for non-oily and less spicy food products

Beef and pork products are heavily consumed

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Processed Food Distribution Formats

in India

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Distribution Formats for Food Products in Distribution Formats for Food Products in IndiaIndia

Traditional FormatModern Format

Super Marts

Hyper Marts

Convenience Stores

Food Gourmet Stores

Petro- Convenience Stores

Cash and Carry

Neighborhood general store

Bakery Shops

Institutions

Railways and Airlines

Hotels, Restaurants and Catering (HORECA)

Canteen Store Department

Others (Schools, Colleges, Offices and Hospitals)

Retail Formats

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Modern Trade Formats in IndiaModern Trade Formats in India (1/2)(1/2)

Hypermarts Large retail store offering wide

range of products and brands

Average size between 4,000 –

10,000 sq. mtr.

E.g. Big Bazaar, Spencer Hyper

etc.

Supermarts Smaller version of a Hyper

marts with a average size of

300 to 1,000 sq. mtr.

Mainly offers food items like

groceries along with non food

items

E.g. – Food Bazaar, Reliance

Fresh etc.

Convenience Stores Small store (average size of

100-150 sq. mtr.)

Mostly stock essential items

such as groceries, food items

and daily need items

E.g. – Big Apple, LM 365

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Modern Trade Formats in IndiaModern Trade Formats in India (2/2)(2/2)

Food Gourmet Stores Store size of ~300-1,500 sq.mtr. Targeting SEC A population with

assortment of fresh food and

grocery High focus on imported food

products E.g.: Lemarche, Nature Basket,

Modern Bazaar

Cash and Carry

Wholesale store with a size b/w

5,000 to 10,000 sq. mtr with focus

on staples and food items

Sell to Distributors / Dealers (B-2-B

transactions only)

Recently, many international players

entered in Indian market e.g.

Carrefour, Walmart, Booker, Metro

Petro Convenience Stores Stores located at petrol

pumps

Generally having an

assortment of impulses

purchase & utilities

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Traditional Trade Formats in IndiaTraditional Trade Formats in India

Neighborhood/General Stores

Traditional small shops located in residential areas

Stocks daily groceries and sundries

Bakery/Sweet Shops

Gaining popularity in the ready-to-eat food segment

which tops-up as consumption points for Juices,

Candies, Flavored Milk & other milk-related products,

etc.

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Key Institutional Segments in IndiaKey Institutional Segments in India

Railways and Airlines Work on contract based arrangements

Contracts are based on volume & price negotiations/tenders

CSD Canteens CSD (Canteen Stores Department), run by the Ministry of Defense catering to the Armed forces

Assortment of food and non food products at subsidized rates and differentiated packaging

Work on Tender based arrangements

Hotels Indian Hotel and Restaurant industry is growing @ 20-25% due to increase in foreign tourists and

business-related travel

Multiple consumption points (Breakfast Buffet, Restaurant, Gym, Bar, Mini-bar)

Others (Schools, College, Offices & Hospitals) Products such as yoghurt, juices etc.. are gaining popularity on back of its health proposition

Companies are tying up with institutions such as Schools, Hospitals, Offices etc. to club their products along with meals

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Processed Food Industry Overview

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Varied agro climatic zones

2nd largest arable land (161 M ha) in the world

Largest irrigated land (55 M ha) in the world

Largest producer of Wheat, Pulses & Milk

Largest producer and exporter of Spices

Second largest producer of Tea, Rice, Fruits &

Vegetables

Second largest producer of Sugarcane

Largest exporter of the world's best rice (Basmati)

Third largest producer of Coarse grains and

Edible Oilseeds

India Food Production – Key FactsIndia Food Production – Key Facts

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Food Industry – Market SizeFood Industry – Market Size

Source: FICCI, Tecnova analysis

Indian food industry was estimated at

US$241 billion in 2010-11

Growing at a CAGR of 5.1% (2003-11)

Higher disposable income resulting in

greater spending and consumption is

driving the growth of food industry in

India

Expected to reach US$300 billion by 2015

Food processing industry represents ~43%

of the total food industry; expected to grow

to 50% by 2015

CAGR: 5.1%

Spending on food constitutes the largest share of consumer wallet; as the overall economy grows, spend on food is expected to grow

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The Indian Food and Food Processing

industry (FPI) primarily comprises of the

following segments

Fruits & Vegetables (F&V)

Dairy

Meat, Poultry and Marine

Grains and Seeds

Packaged Foods (including

Beverages)

Relative Share of Various Food Segments in Food Processing (2011)

Source: MOFPI

Industry SegmentationIndustry Segmentation

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Food Processing Industry – Market SizeFood Processing Industry – Market Size

Source: MOFPI, Tecnova analysis

The size of the processed food sector in India was

approximately US$105 billion in 2011

Includes both the organized and unorganized

sector where organized forms 50-55% of the

overall market

Sector is growing by 13-15%, but is expected to

grow by ~25% in the coming years to reach size of

US$530-550 billion by 2020

Within the food processing sector, segments like

meat, and packaged foods are expected to witness

high growth rates

Historically, food processing industry has

contributed around 1.5% to Indian GDP

Unorganized50-55%

Organized45-50%

Processed Food Industry organization

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Processing Levels for Key Segments in the Processing Levels for Key Segments in the FPIFPI

Source: Ministry of Food Processing Industry

India’s food processing levels are significantly low compared to other developing nations such as Brazil, Malaysia and China

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Processing Stages for Various ProductsProcessing Stages for Various Products

Primary processing

Secondary processing

Tertiary processing

Fruits & Vegetables

Milk

Meat & Poultry

Marine products

Grain and seeds

Beverages

Cleaning, sorting and cutting

Grading and refrigerating

Sorting and refrigerating

Chilling and freezing

Seeding and grading

Sorting, bleaching and grading

Slices, pulps and paste

Cottage cheese, cream, simmered &

dried milk

Cut, fried, frozen and chilled

Cut, fried, frozen and chilled

Flour, malt and milling

Leaf, dust and powder

Ketchups, jam, juices and pickles

Processed milk, spreadable fats,

yoghurt

Ready-to-eat meals

Ready-to-eat meals

Biscuits, noodles, flakes, cakes,

savoryTea bags, flavored coffee, soft drinks,

alcoholic beverages

Source: Ministry of Food Processing Industry

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Export from FPI sectorExport from FPI sector

In 2012-13, total exports from FPI sectors reached US$36 billion, growing at a CAGR of 21.9%

since 2008-09

Source: Ministry of Commerce, DIPP

The major markets for Indian processed food are Europe, the Middle East, Japan, Singapore, Thailand, Malaysia and Korea

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India – Total Food ImportsIndia – Total Food Imports

Source: DGFT

Total Food Imports from Italy

Italian food imports are growing at a similar rate

as that of total food imports by India Top 5 imports account for more than 73% of total

food imports from Italy

India – Total Food Imports

Top 5 Food Imports from Italy, 2012-13

16.5%

16.3%

Values in $ M

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India – Total Food ExportsIndia – Total Food Exports

Source: DGFT

Total Food Exports from Italy

Food exports to Italy are growing at a relatively slower

rate as compared to India’s total food exports Top 3 exports account for more than 81% of total food

exports to Italy

India – Total Food Exports

Top 5 Food Exports to Italy, 2012-13

12.1%

7.8%

Values in $ M

*Mollusc and Crustacean

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Food Processing Demand DriversFood Processing Demand Drivers

Food Processing

Demand Drivers

Growing nuclear families and working

women

Rising demand for functional food (oatmeal, etc)

Increasing modern trade formats and private label

penetration

Increasing urbanization – lifestyle

and aspirations

Changing demographics – Rise

in disposable incomes

Increasing spending on food products

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SWOT analysis of Food and Food SWOT analysis of Food and Food Processing Industry in IndiaProcessing Industry in India

Huge domestic consumption market

Large production base of raw material

Breadth in crop base offering scope for varied processing activities

Inadequate infrastructure facilities

High upfront capital investments

Lack of adequate quality control & testing protocols

Large number of intermediaries resulting in inefficient supply chain and increase in prices

Seasonal variability of crops

Low packaging aesthetics

Strengths

Weaknesses

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Government incentives (priority sector, tax relief, R&D support, etc)

Increasing western influence on Indian palate (cheese, pasta, sauces, cereals, aerated drinks, juices,

yoghurt, etc) which is driving the demand for processed foods

Increase in nuclear families and working women who prefer ready-to-use food items

Traditional preference for freshly cooked food especially in rural areas

Affordability (e.g., processed fruits are significantly higher than fresh fruits)

High supply chain costs

Opportunities

Threats

SWOT analysis of Food and Food SWOT analysis of Food and Food Processing Industry in IndiaProcessing Industry in India

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Distribution System in Food Processing Distribution System in Food Processing IndustryIndustry

Carrying and Forwarding Agent/ Super stockiest

Company’s Warehouse or Importer-Distributor

Modern tradeDistributors

Modern Trade Chains/ Stores

Distributors Institutions Sales Agents

Retailers

3 - 5%

8 - 15%

25 - 35%

Rate contract

Rate contract

CSD contractor

CSD canteen

Institutions/Foods services

* The figures mentioned are trade margins of channel partners. These are taken as an approximate value and vary depending on company, distributor and industries

Inte

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Competition Analysis

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Competition in Dairy ProcessingCompetition in Dairy Processing

Dairy market is largely dominated by regional cooperatives in Gujarat, Karnataka, Maharashtra, Tamil

Nadu, Rajasthan and Punjab; Amul (Gujarat Cooperative) has ~26% pan-India market share in liquid

milk; Nandini (Karnataka Cooperative) has significant presence in South India

Amul captures nearly 85% of the butter market and ~70% of the cheese market, while other players

such as Nestle manage rest of the market; Unilever has strong presence in ice cream segment

Company name (Brand) Country India presence Major productsGujrat Cooperative Milk Marketing Federation (Amul) India Pan-India Milk, cheese, butter and other value-

added productsKarnataka Milk Federation (Nandini) India South India Milk, ghee, whitener, butter, milk power,

and ice cream

National Dairy Development Board (Mother Dairy) India Pan-India Milk, cheese, butter, ice cream,

buttermilk, pro-biotic products

Nestle (Milkmaid, Everyday) Switzerland Pan-India Pro-biotics, Raita, condensed milk, milk powder, ghee, infant nutrition

HUL (Kwality Wall’s) Anglo-Dutch Pan-India Frozen dessertsDanone (Danone) France Metros Yoghurt, value added products

Value-added products such as cheese, yoghurt, pro-biotic drinks, flavored milk, and infant nutrition products are the key growth segments for international companies

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Competition in Fruits & Vegetables Competition in Fruits & Vegetables ProcessingProcessing

Processed forms of fruits & vegetables in India include jams, juices, pickles, chutney, and fruit

concentrates

While the fresh fruits & vegetables market in highly unorganized with local farmers, wholesalers,

and intermediaries selling directly to customers, the processed F&V market is somewhat

organized with presence of national and international players

Company name (Brand) Country India presence Major products

HUL (Kissan) Anglo-Dutch Pan-India Jams, ketchup, sauces, spreads, fruit juices

Mother Dairy (Safal) India Pan-India Frozen F&V (peas, carrots, etc) Priya Foods (Priya) India Pan-India Pickles, chutney, fruit pulp

Cremica (Mrs. Bectors) India Pan-India Sauces, condiments, spreads, dips, syrups

Namdhari Fresh India South-India Packaged fruits and vegetables, exotic vegetables

Adani Agri Fresh India Pan-India Fresh and processed fruitsHeinz USA Pan-India Ketchup

With the potential to become one of the largest producers of F&V, coupled with abysmally low levels of processing, India offers huge potential for international companies

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Competition in Meat, Poultry and Marine Competition in Meat, Poultry and Marine ProcessingProcessing

Highly fragmented industry with only a handful of large players

Uttar Pradesh, Andhra Pradesh, Maharashtra, Delhi are the key areas of processed meat and

poultry production

Within this industry, poultry is the fastest growing segment owing to strong domestic consumption

Company name Country India presence Major products

Allanasons India Pan-IndiaFrozen buffalo meat, marine products, canned corned beef, tropical fruits and vegetables, etc

Hind Agro India Pan-India Frozen boneless buffalo meat, offals and processed buffalo meat

Venky’s India Pan-India Ready-to-cook and Ready-to fry products

Godrej Agrovet India Pan-India Poultry

Al Kabeer UAE Pan-India Beef and poultry, ready-to-fry products

Suguna Foods India South India Broiler chicken, value added eggs

As European and western cuisines expand in India, demand for processed meat products such as sausages, hams, steaks and fillets has been increasing consistently

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Competition in Grains & Seeds processingCompetition in Grains & Seeds processing

Grain processing includes milling of rice, wheat and pulses; seed processing include extraction of

oil for edible and industrial purposes

A highly fragmented industry with thousands of rice hullers, flour and pulse mills, and ghanis and

oil refineries operating in every part of the country; competition in the organized segment is

intense

Though primary processing is the most important activity in this segment, secondary and tertiary

processing is limited to few large playersCompany name (Brand) Country India presence Major productsHUL (Annapurna) Anglo-Dutch Pan-India Wheat flour

Kellogg’s (Kellogg’s) USA Pan-India Oats, bran wheat flakes, corn flakes, RTE breakfast cereals, Muesli

ITC (Aashirvaad) India Pan-India Wheat flour, multi-grain flour

ConAgra Foods (Sundrop) USA Pan-India Sunflower oil, corn products

Cargill (Nature Fresh) USA Pan-India Edible oils, flour,

REI Agro (Raindrop) India Pan-India Rice (Basmati)

As one of the world’s largest agricultural base, India offers huge potential for international companies in grain and seeds processing; however, domestic competition is intense

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Competition in Consumer Foods Competition in Consumer Foods ProcessingProcessing

Company name (Brand) Country India presence Major productsHUL (Kissan) Anglo-Dutch Pan-India Soups, bakery, RTC

Nestle (Maggie, Nescafe) Switzerland Pan-India Pasta, RTC, cooking aids (masalas), coffee and tea, chocolate powder,

Parle Agro (Parle) India Pan-India Biscuits, beveragesPerfetti Van Melle Italy Pan-India Confectionery Britannia Industries (Britannia) India Pan-India Biscuits, bakery and dairyMondelez International (Cadbury) USA Pan-India ChocolatePepsiCo (Pepsi, Frito-Lay) USA Pan-India Snack food, beveragesCoca-Cola USA Pan-India Beverages

ITC (Sunfeast) India Pan-India Biscuits, noodles, snack food, confectionery, RTE

RTE and RTC segments have large untapped potential; with modern trade formats growing at a rapid pace, RTE offers huge scope for investment

Consumer foods is a highly competitive industry in India with presence of large national and

international companies

Britannia, Parle and ITC capture ~90% share of biscuit industry, while Perfetti has over 70%

market share in confectionery market; Nestle, with its Maggie brand, is a market leader in noodles

segment, while Coca Cola and Pepsi has over 90% market share in aerated beverages segment

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Key Players – Profiles Key Players – Profiles

Company name Employees Turnover –(INR Crores) Y-o-y growth CAGR (2008-12) Operating

Margin

Britannia Industries 2,000 6,254

Year end: Mar’13 12.6% 15.9% 6.7%

HUL 16,000# 28,167Year end: Mar’13 18.8% 7.1% 14.5%

REI Agro NA 9,462Year end: Mar’13 48.1% 63.2% (2 year) 15.7%

Nestle 5,500 8,457Year end: Dec’12 11.9% 17.8% 21.6%

ITC 25,000# 8,352*Year end: Mar’13 37.9% 12.1% --

Vadilal Industries 600 340

Year end: Mar’13 16.0% 20.9% 10.6%

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#employee data for entire company; *only for food division

Source: Company Annual Reports

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Developments in Processed Food

Industry

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Infrastructure Development in FPI Infrastructure Development in FPI (1/3)(1/3)

Vision-2015 plan of MoFPI aims to double the

size of food processing industry to US$ 200B,

increase processing of perishables to 20%,

increase value addition to 35% (from 20%), and

enhance India’s share in global food trade to 3%

(from 1.5%)

Scheme for Infrastructure Development,

implemented by MoFPI, during 11th Five Year

plan (2007-12) include—

Mega food parks

Cold chain, value addition and

preservation infrastructure

Setting up / modernization of abattoirs

Source: MOFPI Annual Report 2011-12

Mega food parksCold chains

Modernization of abattoirs

Funds allocated for infrastructure development in FPI

Funding in 12th Five Year plan (2012-17), $M

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53

Infrastructure Development in FPI Infrastructure Development in FPI (2/3)(2/3)

Mega Food Parks (MFPs)

It aims to bring together farmers, processors, and retailers to link

agricultural produce to the market place and to ensure maximum

value addition, minimum wastage, increase farmers’ income and

create employment in rural sector

These parks will have state-of-the-art processing facilities and

well-established supply chain

Under the scheme, a total of 30 MFPs will be established in a

phased manner (10 parks in phase I, 5 in phase II, and 15 in

phase III)*

* Refer to Appendix for list

Source: MOFPI Annual Report 2011-12

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54

Infrastructure Development in FPI Infrastructure Development in FPI (3/3)(3/3)

Cold chain, value addition, and preservation infrastructure

The infrastructure scheme will provide financial assistance in setting up integrated and complete cold

chain facilities, preservation infrastructure facilities, value addition facilities, and irradiation facilities

Financial assistance of up to 75% of the total project cost is provided by the government

Total of 49 projects have been planned across the country, of which 10 are in progress

These projects are expected to add 232,628 MT of cold chain to the existing infrastructure

Setting up / modernization of abattoirs

Lack of basic infrastructure facilities such as water, electricity, and carcass handling mechanism

result in tremendous wastage and contamination / deterioration of meat

The FPI infrastructure scheme plans to set up 10 new abattoirs and modernize several existing

facilities in the coming years

An amount of US$6.8 million have been disbursed to set up the 10 new facilities

So far, 2 abattoirs have been completed at Dimapur, Nagaland and Ahmednagar, MaharastraSource: MOFPI Annual Report 2011-12

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Government Incentives for FPI Sector (1/2)Government Incentives for FPI Sector (1/2)

Source: MOFPI Annual Report 2011-12

Incentive Description

Tax relief

100% tax exemption for first 5 years followed by 25% tax exemption for the next 5 years for food & vegetables processing businesses

Preferred tax exemption for companies operating in perishable food items such as milk, meat and poultry

Investment-linked tax incentive to businesses setting up and operating cold chains or warehouse facilities

Full excise duty exemption for goods that are used in installation of cold storage facilities

Excise duty waived on fruits & vegetables processing from 2000 – 01 Income tax holiday for fruits & vegetables processing from 2004 – 05 Customs duty reduced on freezer van from 20% to 10% from 2005 – 06 Central sales tax reduced from 4% to 3%

Relaxed FDI norms 100% FDI under automatic route, except for items reserved for micro, small

and medium enterprises

Easy funding Assigned food processing industry as priority sector for easy securing of

bank funding

The Ministry of Food Processing has taken several initiatives to promote the growth of the industry

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Government Incentives for FPI Sector (2/2)Government Incentives for FPI Sector (2/2)

Source: MOFPI Annual Report 2011-12

Incentive Description

Focus on infrastructure

Strong focus in infrastructure development (as discussed in earlier slides), particularly on setting up Mega Food Parks, Agri Export Zones (AEZ), cold chains, warehouses and modernization of abattoirs

Push for R&D

Weighted deduction on expenditure incurred on in-house R&D has been increased from 150% to 200%

Weighted deduction on payments made to R&D laboratories increased from 125% to 175%

Private sector friendly 100 per cent export-oriented units are allowed to sell up to 50% of their

produce in the domestic market Export earnings are exempted from corporate taxes

Apart from these, the state governments have also taken initiatives such as lowering of VAT rates to promote the industry in respective states

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57

Regulatory and Custom Duties

Analysis

57

58

Foreign Direct Investment PolicyForeign Direct Investment Policy

FDI is permissible for all the processed food products under 100% automatic route, except for

items reserved for micro, small and medium enterprises where FDI is permissible under automatic

route up to 24%

FDI under automatic route is approved at Reserve Bank of India (RBI) level and does not require

approval of Foreign Investment Promotion Board (FIPB)

Source: Ministry of Commerce

During April 2000-13, the total

FDI in the food processing

industry reached US$1.8 billion,

which was under 2% of total FDI

inflows

FDI in food processing industry (cumulative)

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59

Import Regulations Related to Food Import Regulations Related to Food ProductsProducts (1/2)(1/2)

59

Due to free trade agreements with ASEAN countries, products imported from these countries attract

substantially lower (or zero) basic duty. For example, basic duty for HS code 0204 10 00 (meat of

sheep or goats) under normal circumstances is 30%, however, if it is manufactured and imported via

ASEAN route, the basic duty reduces to 0%

Excise duties are reduced significantly (completely exempted in some cases) on all such products

that cannot be produced in India (such as olive oil)

Import of beef and derived products in any form are prohibited

All consignments of edible oils and processed food products imported in bulk shall carry a

declaration from the concerned exporter on the shipping documents that the consignment does

not contain beef in any form; all consignments imported in consumer packs shall carry a

declaration on the label of the package that the product is free from beef in any form

Import of all such edible/food products (which are governed by Prevention of Food Adulteration Act)

shall be subject to condition that, at the time of importation, the products have a valid shelf life of not

less than 60% of its original shelf life

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Import Regulations Related to Food Import Regulations Related to Food ProductsProducts (2/2)(2/2)

60

Import of meat and meat products of all kinds (fresh, chilled, frozen, etc) shall be subject o sanitary

import permit to be issued by Department of Animal Husbandry and Dairying

Import of alcoholic beverages shall be subject to compliance of various mandatory requirements as

stipulated by various state governments

Import of meat and poultry products will be subject to the compliance of conditions regarding

manufacture, slaughter, packaging, labeling and quality conditions as laid down in Meat Food

Products Order, 1973

Import of all such edible/food products including tea shall be subject to conditions laid down in the

Prevention of Food Adulteration Act, 1954

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Food Safety and Standards Authority of Food Safety and Standards Authority of India (FSSAI) India (FSSAI)

The Food Safety and Standards Authority of India (FSSAI) has been established under Food

Safety and Standards Act, 2006 (FSS Act) which consolidates various acts & orders that have

hitherto handled food related issues in various Ministries and Departments

It is responsible for

Laying down science based standards for articles of food

Regulating the manufacture, storage, distribution, sale and import of food to ensure

availability of safe and wholesome food for human consumption

Introduction of the FSS Act repealed a number of individual regulatory acts such as Edible Oils

Packaging Order and Milk and Milk Products Order

The Act aims to establish a single reference point for all matters relating to food safety and

standards

FSSAI also collects and collates data regarding food consumption, incidence and prevalence of

biological risk, contaminants in food, residues of various, contaminants in foods products,

identification of emerging risks and introduction of rapid alert system

Source: FSSAI

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Impact of Changes in Labelling LawsImpact of Changes in Labelling Laws

Over 200 MT of imported gourmet chocolates from around the world, including brands such as

Godiva, Guylian, Lindt and Mars, are stuck at various Indian ports due to non-compliance with

new Indian labelling laws

Several other food categories such as French artisinal cheese, American crisps, Thai condiments,

and Italian pasta sauces have also been held up for non-compliance

FSSAI is especially wary of labelling violations on chocolate products as tests reveal that many of

them contain very high level of vegetable fat, which is not permissible under the Indian law

Small-scale importers who primarily depend on a single food category have been badly affected

with many of them already closing the business

Indian packaging and labelling regulations have been in place since 2011 and ample grace period

was given to importers to align themselves with new regulations

Since November 2013, FSSAI has stopped allowing imported products that do not comply with the

new laws

Source: Secondary Search and Interaction with FSSAI

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Labelling RequirementsLabelling Requirements

Source: Primary research

A Currently required points in Primary Labelling (Non Rectifiable)

1 Generic Name of Product

2 Net Weight in Grams

3 Ingredients

4 Nutritional Information

5 Best Before Date

6 Country of Origin

7 Production Date

8Traceable Batch No. (this cannot be same as best before date. It must be stated on the pack separately

9 Manufacturer’s Name, address and contact details

10 Additive caution declaration

B Rectifiable Defects (on sticker)

1 Indian Importing Company Name and Contact Details

2 Veg/Non-Veg Symbol

3 Maximum Retail Price (MRP)

4FSSAI Logo and Importer License No. - This is only till June '14 after which it has to be on primary packaging label

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64

Packaging RequirementsPackaging Requirements

64

65

Duties Applicable on Imported Products Duties Applicable on Imported Products

Duty Description

Basic Customs Duty Is the duty levied on imported goods at prescribed standard rates

Countervailing Duty (CVD)

As the name suggests, CVD is equivalent to Central excise duty levied on a like article manufactured in India; some of the packaged consumer goods are charged this duty based on their MRP (Maximum Retail price)

Education and Additional CESS

Education CESS of 2%+1% is charged on the total customs duty (except special CVD)

Special CVD/ ACD

The 4% special CVD or additional customs duty (ACD) is applicable to all imports (except for few exemptions), this duty is not included in the accessible value for levy of educational CESS on imported goods. Also, manufacturers can take credit for payment of excise duty on their finished products.

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IMPORTS     LOCAL SOURCING  CIF Value   1.00 CIF Value   1.00Basic Customs Duty 30% 0.30 Basic Customs Duty 0% 0.00Sub-Total for Calculating CVD   1.30 Sub-Total for Calculating CVD   1.00CVD (with 30% abetment) 12% 0.35 CVD (with 30% abetment) 12% 0.27Sub-total for calculating Edu. Cess on Customs   0.65 Sub-total for calculating Edu. Cess

on Customs   0.27

Education Cess on Customs 3% 0.02 Education Cess on Customs 3% 0.01Sub-total for ACD   1.67 Sub-total for ACD   1.27ACD 4% 0.07 ACD 4% 0.05Landed Cost   1.74 Landed Cost   1.33Indian Importer Margin 30%  Indian Importer Margin 30% Price to Distributor/ Wholesaler   2.48 Price to Distributor/ Wholesaler   1.89Distributor Margin 10%  Distributor Margin 10% Price to Retailer   2.76 Price to Retailer   2.10Retailer Margin 25%  Retailer Margin 25% MRP before VAT   3.67 MRP before VAT   2.80VAT (Value Added Tax) 13.1%  VAT (Value Added Tax) 13.1% MRP (Maximum Retail Price)   4.16 MRP (Maximum Retail Price)   3.17

HS Codes: 1806 (Chocolate and other food preparations containing cocoa) Benefit of doing local sourcing

Custom Duty and Price Build-upCustom Duty and Price Build-up (1/3)(1/3)

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IMPORTS     LOCAL SOURCING  CIF Value   1.00 CIF Value   1.00Basic Customs Duty 30% 0.30 Basic Customs Duty 0% 0.00Sub-Total for Calculating CVD   1.30 Sub-Total for Calculating CVD   1.00CVD 0% 0 CVD 0% 0.0Sub-total for calculating Edu. Cess on Customs   0.30 Sub-total for calculating Edu. Cess

on Customs   0.0

Education Cess on Customs 3% 0.01 Education Cess on Customs 3% 0.00Sub-total for ACD   1.31 Sub-total for ACD   1.00ACD 4% 0.05 ACD 4% 0.04Landed Cost   1.36 Landed Cost   1.04Indian Importer Margin 30%  Indian Importer Margin 30% Price to Distributor/ Wholesaler   1.94 Price to Distributor/ Wholesaler   1.49Distributor Margin 10%  Distributor Margin 10% Price to Retailer   2.14 Price to Retailer   1.63Retailer Margin 25%  Retailer Margin 25% MRP before VAT   2.85 MRP before VAT   2.18VAT (Value Added Tax) 13.125%  VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price)   3.23 MRP (Maximum Retail Price)   2.47

HS Codes: 19059030 (Extruded or expanded products, savory or salted)Benefit of doing local sourcing

Custom Duty and Price Build-upCustom Duty and Price Build-up (2/3)(2/3)

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IMPORTS     LOCAL SOURCING  CIF Value   1.00 CIF Value   1.00Basic Customs Duty 30% 0.30 Basic Customs Duty 0% 0.00Sub-Total for Calculating CVD   1.30 Sub-Total for Calculating CVD   1.00CVD 0% 0 CVD 0% 0.0Sub-total for calculating Edu. Cess on Customs   0.30 Sub-total for calculating Edu. Cess

on Customs   0.0

Education Cess on Customs 3% 0.01 Education Cess on Customs 3% 0.00Sub-total for ACD   1.31 Sub-total for ACD   1.00ACD 4% 0.05 ACD 4% 0.04Landed Cost   1.36 Landed Cost   1.04Indian Importer Margin 30%  Indian Importer Margin 30% Price to Distributor/ Wholesaler   1.94 Price to Distributor/ Wholesaler   1.49Distributor Margin 10%  Distributor Margin 10% Price to Retailer   2.14 Price to Retailer   1.63Retailer Margin 25%  Retailer Margin 25% MRP before VAT   2.85 MRP before VAT   2.18VAT (Value Added Tax) 13.125%  VAT (Value Added Tax) 13.125% MRP (Maximum Retail Price)   3.23 MRP (Maximum Retail Price)   2.47

Benefit of doing local sourcing

HS Codes: 0204 (Meat of sheep or goats, fresh, chilled or frozen)

Custom Duty and Price Build-upCustom Duty and Price Build-up (3/3)(3/3)

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HS CodeBasic

Customs Duty (BCD)

Countervailing Duty (CVD)

Education and Additional CESS

Special CVD / Additional Customs

Duty (ACD)Total

02.03, 04, 08 (Meat) 30% 0% 3% 4% 36.136%

02.03.11, 12, 19 30% 0% 3% 0% 30.9%

03.02, 04* (Fresh fish) 30% 0% 3% 0% 30.9%

03.05* (Dry fish) 30% 0% 3% 4% 36.136%

03.06 (Crustaceans) 30% 0% 3% 4% 36.136%

03.06.21,22,23,29 30% 0% 3% 0% 30.9%07.02, 04, 05, 06, 07, 08, 09* (Vegetables) 30% 0% 3% 0% 30.9%

07.10, 11, 12 30% 0% 3% 4% 36.136%

09.01 (Coffee) 100% 0% 0% 4% 108%

09.01.12, 21, 22, 90 100% 0% 3% 4% 111.12%

09.02* (Tea) 100% Re. 1/kg -- 4% --

* All sub-codes under this code have same duty structure

With local sourcing, companies stand to eliminate the basic customs duty (BCD) which may go up to 100% in some cases

Import Duties for Food Sector (indicative list)Import Duties for Food Sector (indicative list)

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Benefit of Local SourcingBenefit of Local Sourcing

HS Code Product Imported price

Total duties if imported

Locally manufactured price

Total duties if manufactured locally

1905 3100(Sweet biscuits)

McVities Digestive Light (400g)

INR 186Basic customs: 30%CVD: 6%ACD: 4%Edu. Cess: 3%

INR 155Basic customs: 0%CVD: 6%ACD: 4%Edu. Cess: 3%Hobnobs

(300g) INR 109 INR 75

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Presence of Italy in Indian Food

Industry

71

72

Italian Presence in IndiaItalian Presence in India

1 Represents total FDI (not only in food sector)

Source: Primary research

72

FDI Equity Inflows from Italy1

(from Apr 2000 to Nov 2013) With US$ 1.24B, Italy is the 14th largest

investor in India

Among the European countries, Italy is

the 6th largest investor

From representative offices to fully owned

subsidiaries, Italian companies are

present through all modes of operation

Select Italian companies operating in

India include Benetton, Comua, Fiat,

Luxottica, Denso, Galvi Engineering,

Lombardini, Mainetti, New Holland

Tractor, Pirelli, and Piaggio Vehicles

Italian cuisine and Italian fashion has

seen tremendous growth in India in the

recent years

Italy’s presence in Indian food industry can be predominantly felt in chocolate & confectionery,

olive oil, wine and pasta industries

73

Italian Companies in Indian Food IndustryItalian Companies in Indian Food Industry

73

Olive Oil Pasta Wine Chocolate and Confectionery

Other Food Products

74

Italian Companies in Indian Food IndustryItalian Companies in Indian Food Industry

Company name India presence Market presence

Perfetti van Melle

Subsidiary - Perfetti Van Melle India Pvt. Ltd. (PVMI)

Manufacturer, distributor and marketer of sugar confectionery products With more than 15 brands, Pefetti has close to 25% market share in

organized confectionery business making it the market leader Key brands include Center Fresh (chewing gum), Alpenliebe (sugar

candy), Chlormint and Happydent (mouth freshener) 2012 sales totaled US$260 M* Manufacturing units in Gurgaon and Chennai Has a network of 4,000+ distributors across 1,500 towns and extended

network of 10,000+ sub-stockists covering 7,000+ towns PVMI, in 2011, became the first PVM group company to diversify into

snacks business with ‘Stop Not’ brand

Lavazza Acquisition of Barista chain

Entered India in 2007 by acquiring the second largest espresso bars in India

Has more than 180 bars; its Frest&Honest Café company is a key player in the HORECA# segment

2009 revenues totaled US$33 M* Opened a new plant in Andhra Pradesh in 2011

* 1 USD = 61.5 INR; #Hotels, Restaurants, and Catering

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Italian Companies in Indian Food IndustryItalian Companies in Indian Food Industry

Company name India presence Market presence

Ferrero SpA Subsidiary – Ferrero India

Entered India in 2010 With ~6% market share, Ferrero India is the 3rd largest player in

India’s chocolate industry; however Ferrero enjoys 60% share in premium chocolates segment

2012 sales totaled US$55 M*; 31% y-o-y growth Key brands include Nutella (chocolate spread), Ferrero Rocher

(chocolates), Kinder (children chocolate toys) and Tic Tac (mouth freshener)

Manufacturing unit in Maharastra

* 1 USD = 61.5 INR

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Italian Companies in Indian Food Industry: Italian Companies in Indian Food Industry: Olive OilOlive Oil

Italy is the second largest supplier of olive oil to India; 40% of olive oil imported in India comes

from Italy

Second largest olive oil brand in India, Leonardo Olive Oil owned by an Indian company Dalmia

Continental, is manufactured by Nicola Pantaleo in the Puglia province of Italy

All olive oil brands in India are present through Importer-Distributor model

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Italy 40%

Rest of World10%

Spain50%

Total Olive Oil Market (Volume) 2012-13 : 11,916 MT

* Indicative list

Source: DGFT, Primary research

Leading Brand* Indian PartnerLeonardo Dalmia Continental Pvt. Ltd.

Bertolli Unilever (till 2013); currently Consumer Marketing

Colavita Manisha International Pvt. Ltd.

Olitalia Olive Tree Trading

Dolce Vita Chenab Impex Pvt. Ltd.

Basso Suresh Kumar & Impex

Sasso Rai & Sons

Cirio United Distributors Inc.

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Italian Companies in Indian Food Industry: Italian Companies in Indian Food Industry: WineWine

Italy is the third largest supplier of wine to India; ~10% of wine imported in India comes from

Italy

Wine industry in India is growing at 25-30% per year with current consumption reaching 1.2 million

cases, of which ~15% is imported; by 2017, this is estimated to reach 10 million cases of which

imported wines will account for 20%

Currently more than 2 million people in India consume wine and are primarily located in Mumbai,

Delhi, Bangalore, and Goa

77

Source: DGFT; * Indicative list

Leading Brand* Indian Partner

Fratelli Wines Indo-Italian JV (Secci brothers, Sekhri brothers, and Mohite-Patil brothers)

GAJA Brindco Ltd.

Garofoli Sonarys Co Brands Pvt. Ltd.

San Simone Wines Hema Connoisseur Collections

Allegrini Brindco Ltd.

Cesari Wines Hema Connoisseur Collections

Casa Girelli Global Tax Free Traders Inc.

Antinori Sonarys Co Brands Pvt. Ltd.

Fratelli Wines, a INR 40 crores JV

between three families from Italy and

India, has seen tremendous growth

since its inception in 2010; the winery

in Solapur district has production

capacity of 600,000 liters and is

equipped with 58 multi-capacity tanks

all imported from Italy

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Italian Companies in Indian Food Industry: Italian Companies in Indian Food Industry: PastaPasta

After Indian and Chinese, Italian cuisine is the

most popular cuisine in India

Italy is the largest supplier of pasta to India;

42% of pasta imported comes from Italy

The share of Italy in pasta imports has

increased from 16% in 2008-09 to 42% in

2012-13

Despite growth of Indian pasta brands (such

as Bambino), with ~5,200 tons, imported

brands (particularly from Italy) still have a large

demand

Dalmia Continental’s Leornado pasta is

imported from Italy

Ready-to-cook pasta variants are seeing

tremendous growth in the Indian market

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Source: DGFT

Pasta imports from Italy

16% 42%

% share of Italy in total pasta imports

The growth and popularity of pasta has given rise to a parallel market for pasta

sauces in India

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Entry into India: Importer-Distributor ModelEntry into India: Importer-Distributor Model

Majority of the Italian processed food companies have entered India through the Importer-Distributor

model

Depending on the complexity of the product and the presence of distributors, Italian companies may

choose a single pan-India distributor, or go for multiple regional distributors

Some key Importer-Distributors include Chenab Impex, Olive Tree Trading, R R Oomerbhoy, Tree

of Life, Fortune Gourmet Foods, etc

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Manufacturing company in Italy

Importer-Distributor

Forwarding agents

Sub-distributors

CSD contractors

End customers (retailers, food

services, modern trade stores, etc)

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Entry into India: Greenfield Setup Entry into India: Greenfield Setup

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Formation of India Entity

Company incorporation (Pvt Ltd / LLP)

Basic Regulatory Approvals

IEC / PAN / TAN / VAT / CST (required without manufacturing)

Location and Site

Analyzing specific locations & sitesSecuring land in select industrial zone

Business Plan

Budgetary analysis of plantCapex, P&L, BS, Break even perspective

Vendor Selection

Shortlist vendors for complete packageEPC requirements (HVAC, Electrical)Equipment – local sourcing

Regulatory: Manufacturing

Over 25 approvals required to construct & operate the factoryEnvironmental clearances

Recruitment

Evaluation of candidatesRecruit start of positions at plant levelRecruit management & C-level positions

Project Management

Coordinate with all vendorsMonitor timely completionLiaison with all government & private agencies

Perfetti successfully set up its green field project in India in 1994 and has

since then grown to become a market leader

in confectionery segment

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Food Processing Machinery

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82

Food Processing Machinery – Market SizeFood Processing Machinery – Market Size

1 USD = 61.5 INR

Source: Primary research

INR55,000 crores (~US$ 9B) is the total market size of food processing machinery in India

Other food processing machinery market

Dairy processing machinery market

More than 40% (US$3.5B) of the machinery in food processing industry is imported

Agro processing machinery market

Domestic70%

Imported30%

Domestic50-60%

Imported40-50%

Domestic50-60%

Imported40-50%

100% = 40,000 crores (US$6.5B)

100% = 4,000-5,000 crores (US$813M)

100% = 10,000 crores (US$1.6B)

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Market Dynamics and TrendsMarket Dynamics and Trends

Source: Primary research

Food processing machinery market has been growing at 15% over the past 5-8 years

Growth rate expected to increase to 15-20% in the coming years on back of food processing

industry which is expected to grow at 30%

With hundreds of players operating in India, machinery manufacturing is a highly fragmented

industry

Food processing industry in general is moving towards modernization in India; players are

looking towards automation, energy efficient, and water saving equipment Existing players are replacing old machinery with hi-tech imported machinery, while new

entrants are already buying latest technology equipment

Alfa Laval is the market leader in the equipment industry; other players include L&T, Heat and

Control, American Extrusions, GEA, and Goma

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Food Machinery Imports and ExportsFood Machinery Imports and Exports

Source: DGFT

84

Of the US$ 4.7B machinery imported from Italy,

food processing related machinery accounted

for only US$ 377M (8%) Food machinery imports witnessed a spike in

2011-12 due to significant increase in import of

industrial ovens and pumps for handling liquid

Imports from Italy

Less than 1% of total machinery exported to

Italy in 2012-13 was related to food processing;

however, they have been consistently

increasing over the past 4 years Filtering and purifying machinery contribute to

the majority of exports to Italy

Exports to Italy

85

Food Processing TrianglesFood Processing Triangles

Source: Primary research

Delhi

GurgaonNoida

Ahmedabad

PuneMumbai

Hyderabad

ChennaiBangalore

Food processing industry is largely

concentrated in three regions—

usually referred to as the three

triangles

Other concentrations depend on the

type of food processed

Snack food – North and West of

India

Dairy – Rajasthan/Gujarat/UP

Meat – UP/Hyderabad/Maharastra

F&V – West Bengal/Kerala/

Bihar/Jharkhand

Grapes – Pune/Nashik

Apple – Jammu/Shimla

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Machinery Distribution SystemMachinery Distribution System

Source: Primary research

Equipment manufacturing company

Direct Purchase Model

Purchasing company

Buyer company and supplier company

establish a direct contact between each other

Exhibitions and expositions are the prominent channels for showcasing state-of-the-art products and technologies; millions of dollars of contracts are signed during these events

Equipment manufacturing company

Agent / Distributor Model

Purchasing company

Importer-Distributor /

Agent

Machinery is imported in the name of the buying

company; agents organize meetings, test

equipment, and negotiate on behalf of buyers

5-10% margin

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Distributor Name Location Segment Contact Information

Kanchan Metals Kolkata Snack Food raghav@snackfoodmachines.com

+91 983 174 4709

Standard Machinery

Marketing Co.

Bangalore All segments +91 80 2549 5844, +91 80 2549 5845

smc@stanmac.net

Menon Technical Services Bangalore F&V and Snack

Food

+91 80 4113 3783; +91 80 4127 8554

mtsinfo@vsnl.net

ACE Technologies Mumbai Food and Beverages +91 22 2870 0281; +91 22 2870 4108

info@acetechnologiesgroup.com

Heat & Control India (sales

office)

Chennai Snack Food +91 44 4210 3950/51; +91 44 2621

2943/44

Repute Engineers Pvt. Ltd. Pune Dairy +91 20 27481687; +91 94220 20943

info@reputeindia.net

Distributors / Agents exert significant bargaining power over manufacturing companies as they place bulk orders from multiple clients

Source: Primary research

Select Importer-Distributor / AgentsSelect Importer-Distributor / Agents

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Recent Investments by PlayersRecent Investments by Players

Source: Primary research

(US$16.3M)

Invested in its mega food park; 50-60 crores worth machinery bought from Alfa Laval

Invests ~100 crores every year in biscuit machinery

Invested in snack machinery in Greater Noida

Invested 25 crores in ice cream machinery and 20 crores in frozen foods machinery

Replaced all its local-made machinery with imported machinery from Germany, Japan and US

Invested in beverages and snack machinery

Expanding businesses and growing revenues are enabling large and medium-sized players to invest heavily in machinery

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International Companies in Machinery International Companies in Machinery Industry in IndiaIndustry in India

Leading Companies Country Segment

Alfa Laval Sweden All segments

GEA Farm Technologies Germany Dairy

Buhler Switzerland Agro processing

Heat & Control USA Snack food

Fen Italy Snack food

SPX USA Dairy

American Extrusion USA Snack food

AC Horn USA Coated snacks

Isolteck Cusinato Srl Italy Pasta, snack pellets

Florigo International Netherlands Snack food

Alfa Laval is by far the largest company providing comprehensive range of machinery equipment across processing segments; it is the largest player currently offering turnkey

solutions to processing playersSource: Primary research

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90

Key Machinery Supplier CountriesKey Machinery Supplier Countries

Huge demand exists for international companies who can offer turnkey equipment and technological solutions to Indian processors

Dairy Snack Food

F&V

Meat

Source: Primary research

Chinese equipment is used in

every segment because of its

cost advantage; replicas of

high-end models are available

from China at a fraction of cost

Beverages

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91

Source: Primary research

Major Target Industries for Machinery Major Target Industries for Machinery Manufacturing PlayersManufacturing Players

Meat Processing

Packaged Foods

Ice Cream (Dairy)

With 25% growth rate, meat

processing is the fastest growing

segment for equipment manufacturers

Snack food, biscuits and RTE

processing machinery is witnessing

strong growth

Ice cream segment in the dairy

processing industry is witnessing a

robust growth of 15-20% year-on-year

Major Target

Industries

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92

Source: Primary research, APEDA

Snapshot of Meat Processing IndustrySnapshot of Meat Processing Industry

Meat processing (including poultry and marine) is the fastest growing segment with 25% growth

rate, of which buffalo meat processing is the biggest segment; India exported 1.8 million tons or US$

3.2B worth beef in 2012-13, up from US$ 1.9B in 2011-12

Unlike the restrictions on cow slaughter, buffalo slaughter does not have any restrictions; however,

domestic consumption of buffalo meat is very less in India and majority of it is exported

Meat processing machinery market is estimated to be around 300-400 crores and is growing at a

much faster rate of 30-40% Imported machinery use is currently less; however, it is growing at a very strong pace

~25% of the machinery in meat segment and ~35% of machinery in poultry segment is

currently imported in India

Upgradation and replacement demand is pushing the growth of imported machinery

Investment in buffalo meat processing industry is required to tap the export market, while investment

in poultry industry is required to address the domestic demand and exports

In 2012-13, India exported 796 MT of processed meat in the form of sausages, canned meat,

meat extracts and preserved poultry meat

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48 abattoirs-cum-meat processing plants

in India

Primarily concentrated in Delhi/NCR

region, UP, Maharashtra, and AP

Hyderabad is home to several small-to-

medium scale meat processors

Largest meat processing players include

Allanasons, Al Hind, and Al Kabeer

Leading poultry processing players

include Godrej Agrovet, Suguna, and

Venky’sAllanasonsAl HindAl KabeerGodrej AgrovetSugunaVenky’s

Several medium sized players who aspire to join the league of Allanasons and Al-Hind

are replacing their existing less efficient equipment with high quality imported

machinery

Meat Processing – Customer Concentration

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Source: Primary research, Company websites

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Source: Primary research, News articles

Expansion Plans in Meat Processing Expansion Plans in Meat Processing IndustryIndustry

Suguna Foods, one of the largest players in poultry processing, has huge plans for expansion

To become a 10,000 crores company by 2017; planning to invest Rs 150 crores annually

To expand its Suguna Daily Fresh retail outlets, which offers fresh and RTC poultry products,

to 500 from the current 150 by 2016

To set up a RTE processing plant in North India by 2015; plant will have slaughtering and

processing facilities

To set up 2,000 QSRs (which will compete with McDonalds and KFC) in the next 5 years

Allana Group, one the largest players in meat processing, has been consistently investing in world

class integrated food processing infrastructure

To invest US$20M in setting up a meat processing plant in Ethiopia which will be operational

by September 2014; 75 MT of processed meat products will be exported daily from this plant

Godrej Agrovet’s subsidiary Godrej Tyson Foods, which recently upgraded its chicken processing

plants in Karnataka and Maharashtra, plans to expand its RTC poultry products to 60 cities (from its

current 50 cities) by end of 2014

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95

Source: Primary research

Snapshot of Ice Cream IndustrySnapshot of Ice Cream Industry

Ice cream market in India is estimated to be around 3,500

crores, and is growing at a rate of 15-20% year-on-year

By 2015-16, the market is expected to double to 7,500-

8,000 crores

Highly seasonal industry with almost all the sales (retail)

happening in the summer period (April-August); institutional

sales provide cushion during lean periods

Presence of 7,000-10,000 players

Small unorganized players go off market during the

lean periods

Indian consumers are actively storing ice creams at home

which is leading to higher consumption

Ice creams as desserts during marriages and innovative

products (such as Ice cream Sandwich) are boosting sales

Ice cream Industry in India, 2012-13

Unorganized45% Organized

55%

100% = 3,500 crores (US$570M)

Per capita ice cream consumption is only

300ml (2011-12) which is expected to

double by 2015-16

Retail, 65%

HoReCa, 35%

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96

Source: Primary research

Ice Cream Industry – Key PlayersIce Cream Industry – Key Players

~80% of ice cream market is captured

by top 5-7 players

Regional players have strong presence

in respective regions

Leading players market share

Baskin-Robbins is the biggest foreign player in India

Top 5 brands have pan-India presence

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97

Source: Primary research

Ice Cream Machinery IndustryIce Cream Machinery Industry

Ice cream machinery is primarily imported from China; high end equipment comes from Germany and

Netherlands; 60% of machinery is purchased directly from the equipment manufactures, 40% through

brokers/distributors

Backed by healthy growth, all major players are expanding aggressively

Hatsun Agro acquired Jyothi Dairy as part of expansion plans; Amul is adding 5,000 outlets every

year to its existing 80,000+ outlets; Unilever’s premium brand Magnum is doing exceptional

business in India

Domestic machinery players include VCS India, Goma Engineering, Sriram tools, etc

Refrigeration market is growing at strong pace; in 2012-13, 3 lakh refrigeration units were sold in India

(in the organized segment only)

Vadilal and Mother Dairy are investing in frozen food category (which is growing at 25% rate); Vadilal

bought machinery from Italy recently

Italian companies will face tough competition from China in ice cream equipment market as Chinese machinery is relatively inexpensive

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Ice cream/Frozen Dessert

manufacturing units are primarily

located in the west and north of

India

Largest 4 players have 17

manufacturing units

Regional players have one or two

manufacturing units in respective

regions/statesAmulMother DairyCream BellVadilal

Ice Cream Machinery – Customer Ice Cream Machinery – Customer Concentration Concentration

Replacement demand is very high as players are going for more efficient and

power saving machinery

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Source: Primary research, Company websites

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1 Snack food include all chips and extruded snacks

Source: Primary research

Snapshot of Packaged Food IndustrySnapshot of Packaged Food Industry

Snack food1, biscuits and RTE machinery segments within

the packaged food industry are growing at a strong pace

With 20% y-o-y growth rate, snack food processing industry

is one of the fastest growing segments

Potato processing (potato powder and potato by-

products) and corn processing are witnessing huge

demand within snack processing

~25-30% of the machinery is imported from USA, Japan,

Netherlands, etc

Key machinery imported include conveying systems and

ovens

Heat and Control and American Extrusions are the key

suppliers of snack food machinery in India; Italian company

Fen s.r.l, is also a key player with seven plants in India

Packaged Food (excl. Beverages) Machinery Market in India

100% = ~1,000 crores (US$160M)

RTE, 500 croresBiscuit,

300 crores

Snack Food, 200 crores

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100

Illustration does not include contract manufacturing facilities

Source: Primary research, Company websites

Key customers in the packaged food

industry are primarily concentrated in the

northern and western parts of the

country as well as along the eastern

coast line

PepsiCo

ParleBritanniaITCPriya FoodsHaldiram’s

Backed by strong growth, mid-sized players in the snack food and RTE segments are emerging as front runners in acquiring high-end imported machinery

Demand for high efficiency conveyer systems is driving the packaged food machinery segment

Packaged Food – Customer Concentration

MTRBalaji Wafer

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Nestle

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Source: Primary research, News articles

Expansion Plans in Packaged Food IndustryExpansion Plans in Packaged Food Industry

By 2020, PepsiCo to invest 33,000 crores (US$ 5.5B) in India

It intends to make Andhra Pradesh a national hub for sourcing mango pulp for its soft drinks

ITC to set up a 50 crores noodle manufacturing plant in Kolkata in partnership with Keventer Group

Balaji Wafers, the market leader in snack food in Western India, plans to enter North and South of

India by setting up two manufacturing plants with an investment of 200 crores by 2015

Coca Cola to invest US$ 5B by 2020 across its beverages and bottling lines

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102

Source: Primary research

Cold Storage – An OverviewCold Storage – An Overview

Cold storage infrastructure in India is highly inadequate for the country’s requirements

About 40,000 crores worth of food (F&V, dairy, meat, grains etc) is wasted primarily due to lack

of cold storage

India currently has about 30 million MT of cold storage capacity which is only half of what is

actually required

75% of the cold storage network is concentrated in 5 states of Gujarat, Uttar Pradesh, West

Bengal, Punjab and Himachal Pradesh

Majority of this cold storage network supports only potato storage; there is not adequate

infrastructure for other vegetables

Though cold storage and refrigeration requirements are required across all food processing

segments, they are required most in meat processing, diary processing and F&V processing

segments Danfoss and Alfa Laval are leading players in cold storage, and Voltas, Carrier, Blue Star and Rinac

are prominent in the refrigeration segment

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103

Source: Primary research

Cold Storage – OpportunitiesCold Storage – Opportunities

There is a huge scope for development and investment in this sector

Frozen foods segment is growing at 20-25% year-on-year

Dairy segment is growing at around 10-15% year-on-year

Replacement demand is very high as a number of companies are using old equipments which

consume high amounts of power; smart power saving cold storage equipments’ market is seeing an

uptrend

International companies aren’t keen on building the cold storage network per se, but are focusing

primarily on selling and marketing refrigeration equipment

Government is trying to help players who are interested in investments by providing subsidies and

tax incentives

103

In addition to an immediate need for development of a strong cold storage network, there is a huge demand for specific products in the value chain, such as compressors, insulation

products, and heat exchangers; in the short term, Italian companies can take advantage of this market

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1 USD = 61.5 INR

Source: Primary research

INR20,000 crores (~US$ 3.3B) is the total market

size of food packaging machinery in India

Industry is growing at a rate of 8-10% per annum,

and with strong growth in processed food industry,

the growth of packaging industry is also expected to

accelerate

Replacement demand is driving the packaging

industry as large number of companies are going for

more efficient machinery

With growth in the packaging machinery, packaging

materials such as oil tins and beverage cans are

also growing at healthy pace

Food packaging machinery market

Domestic70%

Imported30%

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Among various segments within the processed food industry, packaged goods segment contributes the most to the growth of packaging machinery industry

Packaging Industry in India

105

1 USD = 61.5 INR

Source: Primary research

Weighers and Drives form the two largest product

categories, accounting for more than 40% of the

packaging industry

Nearly 100% of the weighers and a significant

portion of drives are imported

Filling Lines is one of the fastest growing product

categories in Indian packaging industry as large

consumer foods companies are opting for high-

speed filling equipment

Food packaging machinery – Key Product Categories

105

A significant portion of packaging machinery is imported from Italy; pouch making machines in the snack food industry come largely from Italy

Packaging Industry – Key Product Packaging Industry – Key Product CategoriesCategories

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Source: Primary research

Majority of the machinery that is imported comes from Germany, Italy, Japan, China, and USA

Bosch and Uflex are the two dominant players in India

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Leading Companies Country Segment

Bosch Germany All segments

Uflex India Packaging films and other machinery

Toshiba Japan Drives

Omron Japan Drives

Krones Germany Filling lines

Shimadzu Japan Weighers

Schneider USA Case Packing

Propack Italy Safety packaging

Ishida Japan Weighers

OMAG Italy Bag sealing machines

Altech Italy Labelling

Packaging Industry – Key PlayersPackaging Industry – Key Players

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Conclusions and Recommendations

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108

1 Under Industries (Development and Regulation) Act, 1951

Conclusion and Recommendations – Food Conclusion and Recommendations – Food ProcessingProcessing

India is one of the largest food producers in the world and offers vast opportunities to food

processing companies; the sector has been growing at ~15% CAGR and is expected grow at a

much faster rate of 25% in the coming years. Its priority sector status and significant support from

the government (setting up mega food parks, etc) makes it a very attractive sector for investment.

Apart from catering to domestic demand, Italian companies can make India an exporting hub for its

competitive advantage in production and exports (Nestle has been successful in doing so)

As most of the segments within food processing sector are exempted from the provisions of

industrial licensing1 making it easier for Italian companies to set up operation in India; moreover,

with 100% allowance in FDI in food processing sector (except in beer and alcoholic drinks, and

items reserved for small scale sector, like vinegar, bread and bakery), Italian companies may enter

the Indian market through any mode of operation (joint venture, partnership, acquisition,

representative office, etc)

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109

Conclusion and Recommendations – Food Conclusion and Recommendations – Food ProcessingProcessing

As food industry in India evolves, food norms are changing rapidly and are becoming more

stringent than before, especially in terms of labeling and packaging requirements; Italian

companies planning to set up operations in India should thoroughly understand the implications of

these changes before deciding on the entry strategy

Competition within the food processing sector is intense with few large players in each segment

competing for organized market share, however, companies with robust and innovative product

offerings, customized to suit Indian palate, have good potential to become leading players in the

Indian market

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Conclusion and Recommendations – Conclusion and Recommendations – Machinery Machinery

Italian machinery has significant presence in the fruits & vegetables processing segment, and

beverages segment; however, meat processing, packaged foods (snack food, biscuits and RTE),

and ice cream industry offer high growth potential for machinery manufacturers

There is substantial demand for companies offering turnkey solutions; currently except Alfa Laval,

hardly any other company is offering such high-end solutions; Italian equipment manufacturing

companies can enter India with a focus on providing end-to-end solutions to food processing

companies

Solutions for small and medium companies: small and medium players currently have very

limited options when it comes to cost effective solutions; Italian machinery manufacturers may

expand their presence by acquiring equipment manufacturers who provide solutions to small scale

companies

In 2011, Heat and Control acquired Indore-based Flavorite Technologies, a company that

provides equipment and solutions to the local food processing industry. Since then, market

share of Heat and Controls have increased significantly, and a large portion of its India

revenues come from Flavorite 110

111

Thank You

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112

Appendix

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113

113

List of Importer-Distributors

Specified HS Codes Duties

Marketing Events Listing

List of Importers and Distributors

Specified HS Codes Duties

Marketing Event Listing

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List of Mega Food Parks Implemented in List of Mega Food Parks Implemented in Phase I and IIPhase I and II

Name State Location Investment ($M)Patanjali Food & Herbal Park Uttarakhand Haridwar 17.4Srini Food Park Andhra Pradesh Chittoor 23.2North East Mega Food Park Assam Nalbari 13.9Jharkand Mega Food Park Jharkaand Ranchi 20.9Tamil Nadu Mega Food Park Tamil Nadu Dharmapuri 24.5Jangipur Bengal Food Park West Bengal Jangipur 20.4Integrated Food Park Karnataka Tumkur 26.5International Mega Food Park Punjab Ferozpur 28.2Keventer Food Park Infra Bihar Bhagalpur 28.2Sikaria Infra Projects Tripura Agartala 15.6Anil Mega Food Park Gujrat Vadodara 32.9Shaktiman Mega Food Park Uttar Pradesh Sultanpur 31.0Paithan Mega Food Park Maharastra Aurangabad 22.2MITS Mega Food Park Orissa Rayagada 21.4Madhya Pradesh MFP Madhya Pradesh Khargon 29.7

Source: MOFPI Annual Report 2011-12

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