A new Nestle investment in India will increase the company’s production capacity in one of the fastest growing emerging markets worldwide. The factory extension at Nestle’s existing site in Ponda, Goa – part of the company’s 7 billion Indian Rupee (Eur100 million) investment in the state over the past three years – will produce brand favourites such as Kit Kat and Munch. It will create employment for nearly 250 people.

“We have been in India for 100 years and have factories in eight locations across the country,” says Jean-Marc Duvoisin, global head of human resources at Nestle. “Our decision to invest in a new manufacturing facility in Ponda is a clear indication that we have confidence in the region and its environment.”

In recent years Nestle has invested heavily to increase capacity, set up new factories and modernise and expand existing ones in India. This includes a new manufacturing site in Nanjangud in Karnataka producing Maggi sauces, noodles, bouillons and seasoning, and a new factory in Tahliwal, Himachal Pradesh, which will manufacture Maggi noodles as well as chocolate and confectionery products.

Nestle India’s first manufacturing facility was set up in 1961 in Moga, Punjab, to help develop milk production in the region. The company has since developed the area around the Moga factory, setting up milk collection points and training farmers to improve productivity and quality.

The Coca-Cola Company and its bottling partners are to spend an additional $3 billion in India, increasing total invest in the country to $5 billion from 2012 to 2020. The investments will be in innovation, expansion of the distribution network, cold drink equipment placement and augmentation of manufacturing capacity.

The Coca-Cola system has already invested more than $2 billion in India since it re-entered the country in 1993. The Coca-Cola India system currently directly employs more than 25,000 people and is estimated to have created indirect employment for more than 150,000 people in related industries through its vast procurement, supply chain and distribution system.

“Achieving continued sustainable, responsible growth in India is core to achieving our 2020 Vision of doubling system revenues in this decade,” says Muhtar Kent, chairman and chief executive of The Coca-Cola Company.

Worldwide, The Coca-Cola Company and its bottling partners are investing more than $30 billion over the next five years to support anticipated growth. These investments range from new manufacturing facilities to new distribution systems to new marketing investments in emerging economies.

ConAgra Foods, one of North America’s leading food manufacturers, has become the majority owner of Indian food companyAgro Tech Foods, increasing its stake to more than 50% at a cost of $10 million. Agro Tech Foods is a public limited company that markets food and food ingredients to consumers and institutional customers in India. The company’s products include Sundrop branded edible oils, shelf stable pudding and peanut butter, Crystal branded sunflower oil, Healthy World branded dried green peas, and, based on a license from ConAgra Foods, ACT II branded popcorn.

Gary Rodkin, chief executive of ConAgra Foods, comments. “Expanding our international business is a key part of our strategic plan, and India represents an attractive growth market for ConAgra Foods. We will continue to work with Agro Tech’s management team to expand its business and our investment in this important region.”

The Coca-Cola Company and its bottling partners will invest $2 billion in India over the next five years, beginning in 2012, to further capture the opportunity in the country’s non-alcoholic ready-to-drink (NARTD) beverage market. India is a strategic growth country for The Coca-Cola Company, ranking among its top 10 markets in volume globally and as the largest market in the Eurasia and Africa Group.

Ahmet Bozer, Coca-Cola’s president, Eurasia and Africa Group, comments: “India is one of our most important growth markets as we work toward our 2020 Vision of doubling system revenues and servings this decade. The opportunity in the packaged beverage segment is immense, and our efforts in India are focused on being the beverage of choice all day, every day. If we continue to do the right things each day and at all times, it would not surprise me if India becomes one of the top five markets for the company globally by the end of this decade.”

NARTD beverages have enormous growth potential in India. The Coca-Cola Company and its bottling partners have robust plans to capture this opportunity with investments in innovation, consumer marketing and brand building, expansion of distribution and cold drink equipment placement as well as further development of manufacturing capacity to meet growing consumer demand.

The Coca-Cola system has already invested over $2 billion in India since it re-entered the country in 1993, and currently it directly employs more than 25,000 people. The Coca-Cola Company has registered volume growth in India for the past 21 quarters, 15 of which have seen double-digit growth. Two of the company’s core sparkling brands - Thums Up and Sprite - are the country’s top selling soft drink brands. Trademark Coca-Cola is one of our fastest growing sparkling brands and Maaza is India’s largest selling juice drink.

Worldwide, The Coca-Cola Company and its bottling partners are investing nearly $30 billion over the next five years to support anticipated growth across its system. These investments range from new manufacturing facilities to new distribution systems to new marketing investments in emerging economies. The Coca-Cola system currently employs more than 700,000 people worldwide, making it one of the world’s top five private employers.

Having recently opened a confectionery plant in India, Ferrero is now planning to build a new factory in Turkey. Earmarked for the production of Nutella and Kinder chilled products, the planned Turkish plant will cover an area of 146,000 sq m and will become Ferrero’s 19th manufacturing facility when it is completed in 2013. It will provide direct employment for over 200 people.

Ferrero’s new plant in India is located in Baramati, a rural area 100 kilometres from Pune in the Maharashtra region. Covering 28,000 sq m the plant will produce Kinder Joy eggs and Tic Tac mints using locally sourced raw materials and packaging materials, and will provide work for about 1,300 people (80% of them women).

Danone is entering the baby nutrition and medical nutrition markets in India. The French food and beverage group has agreed to acquire Wockhardt Group’s nutrition business and brands as well as its related industrial operations from Carol Info Service, located in Punjab, India, for Eur250 million.

The strong brand awareness of Wockhardt’s Dexolac, Farex and Nusobee baby nutrition products and their credibility with healthcare professionals will accelerate Danone’s entry into the country’s baby nutrition market. With over 25 million children born each year,Indiais the fastest-growing infant nutrition market in the world.

In addition, the nutritional supplement brand Protinex will give Danone a strong foundation for developing its medical nutrition business. The acquisition will provide Danone access to a distribution network with nationwide reach.

Danone is acquiring Wockhardt Group’s nutrition business for Eur250m to enter the baby nutrition and medical nutrition markets in India. Danone is purchasing Wockhardt’s nutrition business and brands as well as its related industrial operations from Carol Info Service, based inPunjab, India.

The strong brand awareness of Wockhardt’s Dexolac, Farex and Nusobee baby nutrition products and their credibility with healthcare professionals will accelerate Danone’s entry into the country’s baby nutrition market. With over 25 million children born each year, India is the fastest-growing infant nutrition market in the world.

In addition, the nutritional supplement brand Protinex will give Danone a strong foundation for developing its medical nutrition business. The acquisition will provide Danone access to a distribution network with nationwide reach.

Diageo has agreed to pay $16m to settle an investigation by the US Securities and Exchange Commission (SEC) into bribery allegations in South Korea, India and Thailand. The SEC claims that Diageo’s subsidiaries in India, South Korea and Thailand paid more than $2.7 million in bribes from 2003 to 2009 in order to gain sales and tax benefits. Diageo made about $11m in profits from these actions, according to the SEC.

“For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” explains Scott Friestad, associate director in the SEC’s enforcement division. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.”

Diageo has agreed to settle the Foreign Corrupt Practices Act (FCPA) lawsuit without admitting or denying wrongdoing.

Under the settlement Diageo will pay $13.4m to the SEC in disgorgement of profits and pre-judgment interest, plus a $3m penalty to the SEC. Diageo has also agreed to cease and desist from committing any further violations of the books and records and internal controls provisions of the FCPA.

Diageo says it takes the SEC’s findings seriously and regrets the matter. The global drinks group says that its systems and controls have been enhanced in an effort to prevent the future occurrence of such issues and to reinforce, everywhere the company operates, a culture of compliance and commitment to the principles embodied in Diageo’s Code of Business Conduct.

India-based Tata Chemicals has entered the UK food market with the £93m acquisition of British Salt, Britain’s leading manufacturer of pure dried vacuum salt products with 50% market share. Tata Chemicals is the market leader in packaged salts in India with more than half the total market consuming Tata brands.

The £93m acquisition has been made through Tata Chemicals’ subsidiary Brunner Mond, Britain’s largest soda ash producer and the second biggest in Europe. Headquartered in Northwich, UK, where it also has two manufacturing plants (see picture), Brunner Mond became part of Tata Chemicals in 2006.

British Salt owns brine wells in the UK with a residual life of 50 years. The acquisition provides an opportunity to secure long-term brine supplies for Brunner Mond operations. Apart from its core business of salt manufacturing and supplying, British Salt is also active in the gas storage business, which has the potential to generate additional cash flows.

“The acquisition is in line with the strategy of Tata Chemicals to deepen its presence in the food and farm sectors and will result in securitising raw material for Brunner Mond operations,” says R Mukundan, managing director of Tata Chemicals. “The combined entity will improve the overall financial position of our European operations.”

Supply shortages are forcing China and India to raise their imports of dairy products, according to the latest Rabobank Global Dairy Outlook report. “The demand from these two giants will impact dairy processors, dairy farmers and dairy prices for the coming years,” says Tim Hunt of Rabobank Food & Agribusiness Research. Rabobank has now changed its view on the role of China and India in the world dairy market to 2014.

Dairy imports to China surged in 2009 following the melamine crisis as Chinese consumers looked for safer imported milk powders. Tim Hunt remarks: “Contrary to expectations, imports have pushed higher still in 2010. Some Chinese consumers still prefer imported products, despite official assurances that domestic supplies are safe. And it’s now clear that Chinese milk production levels fell below official figures in 2008 and 2009.”

As domestic demand for dairy rises at 5 to 6% year, China is facing a protracted market deficit. “The factors underpinning the major shift in Chinese dairy imports may last longer than anticipated. Which is why Rabobank has shifted its projections. We expect the higher dairy imports to continue for three more years, not 12-18 months as we previously predicted,” he remarks.

India has traditionally met local dairy demand from local production, but is now facing challenges to its self sufficiency. Demand for dairy products has increased rapidly with the rises in population, income levels and urbanisation. Poor monsoon seasons, and steadily rising cattle feed costs caused a slowdown in milk production last year. Butter actually disappeared from retail shelves for a month in 2009, forcing processors to buy in fats from the world market. “With a population of over 1 billion people, a small market shortfall in Indian terms represents substantial volumes for the international dairy trade. India’s ‘topping up’ of butterfat last year sent it straight into the world’s top-10 butterfat importers,” Tim Hunt: points out.

The Global Dairy Outlook presents three scenarios for the Indian dairy industry in the coming years. Tim Hunt explains: “Rabobank forecasts assume that India will be able to maintain self sufficiency in dairy in general. But it is likely to call on the world market for fats in poor seasons. And when India comes calling, the rest of the world will certainly feel its presence.”

McCormick & Company, a global leader in spices, seasonings, specialty foods and flavours, has expanded its interests in India and the Middle East with the acquisition of a 26% minority stake in Eastern Condiments for $36m. Based in Kerala, India, Eastern is a leading brand of spices, seasonings and other related food products in India and the Middle East which has grown rapidly since its inception in 1989. The business has operated profitably in each of the last ten years and achieved annual sales of $67m in the year ended March 2010 with the average annual growth rate exceeding 25% for the past three years.

The deal marks the US-based group’s second joint venture in India, having entered the market in 1994.

Tata Global Beverages of India, which owns the UK-based Tetley Tea business, is planning to move into food via acquisitions. The beverages group is reported to be considering raising funds for acquisitions by selling a stake to private equity investors, and has already approached Blackstone and Advent International.

Following the recent integration of its five beverage businesses, Tata Global Beverages is aiming to build a strong global Tata brand as it continues its transformation from being a tea and coffee commodity business to become a world leader in ‘good for you’ beverages. About 70% of the group’s sales are generated outside of India.

Nestle is investing SFr50m (Eur38m) to establish its first R&D Centre in India. The facility will be built in Manesar, close to Nestle India’s headquarters in Gurgaon, and will be operational in 2012.

The investment will help to further strengthen Nestle’s R&D capabilities in emerging markets. Nestle has a strategic focus and leadership in emerging markets where the company expects sales to reach 45% of the group’s total by 2020.

The new centre will focus on popularly positioned products (PPPs), especially for India but also worldwide. PPPs meet the specific needs of consumers with lower income levels by offering them high-quality, nutritionally enhanced products at affordable prices.

Nestle has had a presence in India since 1912 and today operates seven factories located across the country. Nestle India has benefited from Nestle’s global R&D network, with innovative PPPs such as Maggi noodles, Masala ae magic spice seasoning and Chotu Munch chocolate confectionery.

Emerging markets such as China, India, Indonesia, Latin America and Russia are expected to deliver at least 20% of Heinz’s total sales by 2013, more than double their contribution of just five years ago, according to William Johnson, chief executive of the US-based global food group.

“Emerging markets are key to unlocking future growth because their economies are growing at a significantly higher rate than developed markets; the middle-class in emerging markets will eventually outnumber the combined populations of the US and Europe; and per capita consumption of packaged foods in emerging markets has significant upside,” he explains.

Record Sales and Profit

Heinz achieved record sales of $10.5b, up almost 5%, and record gross profit of $3.8b in its 2010 financial year, despite having to navigate “the most difficult economic environment in decades.” William Johnson adds: “Our record sales were driven by solid results in our Top 15 brands and most importantly, by accelerating double-digit growth in emerging markets, our most powerful growth engine.”

With emerging markets generating organic sales growth of almost 22% in the first quarter of the 2011 fiscal year, Heinz is on track to deliver its financial targets for the full year, even though the consumer and economic environment remains challenging.

Indeed, William Johnson says the global economy is in the worst state he has seen during his 35 years in the consumer goods industry. “The near-term economic outlook for the US and Europe remains pretty dreary, marked by high unemployment and low consumer confidence.” He adds “Many consumers have gone into what I like to term as economic hibernation, eating at home more often, eating out less, reducing spending and worrying more about the future.”

Heinz is not spending much time looking for M & A opportunities in the US and Western Europe but instead is focusing almost entirely on the emerging regions of the world.

Heinz expects to deliver another year of strong results on a constant currency basis, with sales growth of 3 to 4%, operating income growth of 7 to 10%, and earnings per share growth of 7 to 10%. Heinz also projects operating free cash flow of more than $1b for the second consecutive year.

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.