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Agro-Industry: Growing On The Shelf

A whopping Rs 68,000 crore in investments is expected to flow into food processing from companies both in India and across the world, such as the Saraf Group, Yes Bank and Amazon

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I have a perfect example for the people who doubt the potential of the Indian food processing industry (FPI). We export ‘French Fries’ from India, this tells the story of strength in this sector,” says Vikas Mittal, Managing Director India and Subcontinent, McCain Foods. McCain Foods is a Canada-based multinational that markets frozen foods in 160 countries and has manufacturing bases in 50 countries — India among them.

Every third French Fry consumed in the world, the company brags, is a “McCain fry” and some of them, are processed in India. McCain Foods set up a wholly-owned subsidiary in India in 1998. Hemant Malik, CEO of ITC’s Food Division, believes that trade in elementary agricultural commodities like potatoes alone could swell to Rs 70,000 crore. “We have already announced around Rs 10,000 crore of investments in the coming years,” says Malik, adding “As a matter of fact, we are brand leaders in a few segments and can soon become brand leaders in a few other segments like noodles and biscuits.”

Mittal and Malik echo an optimism that is driving a horde of investors to the food processing sector. A whopping Rs 68,000 crore in investments from both international and home-grown companies is expected to flow into food processing. The prospective investors include both  emerging corporate giants and reigning Goliaths such as the Saraf Group, Yes Bank, Amazon and Britannia.

The optimism in the strength of the farm produce market seems to have been buttressed by the policy stance divulged in the Union Budget for the 2018-19 fiscal. The vast vote bank that ekes out a livelihood from agriculture did get a token 10 per cent hike in Budgetary allocation, but along with it, Union Finance Minister Arun Jaitley offered them an enabling environment that could add tremendous value to farm produce. The policy framework that should offer the farmer assured and profitable returns for his produce, came in the form of a market for agricultural produce and incentives for an already booming food processing industry.

In his Budget speech, Jaitley said, “Food Processing sector is growing at an average rate of eight per cent per annum. Prime Minister Krishi Sampada Yojana is our flagship programme for boosting investment in food processing. Allocation of Ministry of Food Processing is being doubled from Rs 715 crore in RE 2017-18 to Rs 1,400 crore in BE 2018-19.” The government, he said, would promote the establishment of specialised agro-processing financial institutions too.

The potato that has lured fries and chips processing units to India incidentally, got a Budgetary allocation of  Rs 500 crore, along with onions and tomatoes. The kitty is intended to help promote Farmer-Producer Organisations, agri-logistics, processing facilities and professional management. The mission has been named Operation Greens and is expected to emulate Operation Flood in taking kitchen greens, like dairy products, to superstore shelves. So McCain’s French Fries, Pepsico’s ‘Lays’ potato chips or ketchup brands from ITC will not be the only packaged foods growing out of the verdant greens of rural India.

The food processing sector is already among the burgeoning segments of Corporate India, in terms of production, growth, consumption and exports and accounts for a 14 per cent slice of India’s gross domestic product (GDP). The industry encompasses processing units for fruits and vegetables, spices, meat and poultry, milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc.

“Food is so essential to human habit that an industry laid on the foundations of food, cannot be impacted by the ups and downs of routine trade,” says Suresh Prabhu, Union Minister for Industry and Commerce. A BCG Centre for Consumer Insights (CCI) survey revealed that “food comes in as the most high frequency item in more than 50 consumer items” classified by their survey. India, unsurprisingly, is expected to emerge as the third largest consumer market in the world by 2025.
Gujarat Cooperative Milk Marketing Federation (GCMMF) Managing Director R. S. Sodhi says, “Companies tap into potential markets, and the Indian market is full of potential in every economic bracket, starting from urban upper and middle classes, to rural lower middle classes.” The GCMMF, which owns the Amul brand of milk and dairy products, has entered the ready-to-eat food business with the ‘Happy Treat’ brand and plans to invest Rs 2,500 crore in mega expansion plans over the next three years.

Amway India has invested Rs 1,000 crore in the niche market of nutraceuticals. Amway India’s Chief Marketing Officer, Sundip Shah, says a changing lifestyle and growing personal income have been creating a market for its “premium products” in India. Cargill has pumped in Rs 1,500 crore into the Indian market. “We are also trying to enter in the market where we can use bi-products of edible oil as mechanical oil,” says Siraj A. Chaudhary, Chairman, Cargill India.
 
Since liberalisation in August 1991, the Union government has approved proposals and industrial licences for joint ventures, collaborations and 100 per cent export-oriented units (EOUs) in the food and agro-processing industry. The sector has been able to attract foreign investment to the tune of Rs 10,000 crore. According to the India Brand Equity Foundation, the food retail market is expected to be $482 billion-strong (Rs 31.22 lakh crore at Rs 64.79 to a dollar) in terms of turnover by 2020 and attract $33 billion (Rs 2.13 lakh crore) in investment and be able to create nine million jobs.

The industry has grown in tandem with increasing agricultural production, which was a record 275 million tonne foodgrain and 300 million tonne for fruits and vegetables in the 2016-17 financial year. Investors in food processing therefore, stare at a near virgin territory, notwithstanding the rapid investments that have been made in the sector over the last five years. As Cargill chief Siraj Chaudhary points out succinctly, “India has a huge domestic potential. It is a real big market.”


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