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Food Processing in India Requires $30 Billion Investment

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Food Processing in India Requires $30 Billion Investment

July 09
11:18 2010

India will need approximately over $30b worth of investment to completely restructure its processing-food industry to substantially lift up the share of its processed food trade, which currently stands at 2.2% in the case of fruit and vegetables, 26% for fisheries, 6% in poultry, 20% in buffalo meat and 35% milk by 2015, according to a study on ‘Emerging Opportunities and Strategic Thrust Areas for Food Processing’.

The study brought out by The Associated Chambers of Commerce and Industry (ASSOCHAM), also suggests that with projected investment, exports of processed foods could increase by over 70% in next 5 years to touch the targeted level of over $25b from the current level of approximately $15b. However, in spite of vast natural resources, import growth of food products in India is also expected to be strong over the forecast period to reach $13b.

The ASSOCHAM, has projected that $30b worth of investment can revolutionise the Indian food processing sector and take processing of food and vegetables to levels close to 10% by 2015. Fisheries has the potential to reach 40%, poultry close to 15%, while buffalo meat could reach over 40% with milk approaching 60%. Processing levels of fruit and vegetables in the USA, Philippines and China are currently 65%, 78% and 23% respectively.

Fisheries and poultry processing levels in the developed world range between 60-70% and between 60-75% for milk, reveals the ASSOCHAM study.

According to ASSOCHAM president, Dr Swati Piramal, India’s low level of processing is expected to change significantly in future fuelled by sustained economic growth and steady urbanisation.

Growth Drivers

Key growth drivers of the food processing sector in India will include the faster pace of urbanisation, the rise in disposable incomes and changing lifestyle and aspirations, which will lead to significant changes in the food habits of Indians. The key trends for the growth of processed food will include increasing spends on health and nutritional foods, the growth in nuclear families and working women and functional foods.

Consumers are now more focused on health. Any packaged food that has sugar, salt, oil, preservatives etc beyond a healthy level are becoming a unacceptable. Companies already are targeting this segment with numerous product launches. Secondly, increasing nuclear families, students and single employees staying alone on work/education and the increasing number of women employees are leading to a rise in consumption of processed, ready-to-eat, canned and frozen foods.

The number of upper and middle class Indians consuming packaged food is expected to rise to 200m in 2012 from the current level of 30m. Giants like ITC, MTR, Amul etc are quick to capitalise on this trend. Thirdly, changing lifestyle and increasing spend for snacks-on-the-go is responsible for a $3b and growing snack market.

Functional foods, fresh or processed foods that claim to provide health benefits apart from serving the basic function of nutrition, are on a fast-growth path in India.

Organised retail comprises less than 5% of the total retail market in India, but is growing at over 20%. Food retailing, which constitutes 14% of the organised retailing sector is also expected to benefit from the growth of organised retail and the demand for processed foods is expected to rise. With the increasing trend of major retailers towards private labels, the demand from the retail market for processed foods is also expected to increase significantly.

Change in demographics is the most important demand booster for processed food in India. The proportion of the productive age group (15-59 years) is nearly 80% in India. This age group’s propensity and ability to spend on quality processed food is higher. Higher incomes, as more Indians join the middle class and upper class, will also impact positively on the demand for processed food.

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